Housing costs in Universal Credit

Universal Credit (UC) is replacing six ‘legacy’ benefits and tax credits, including Housing Benefit for working-aged households. This paper explains the key changes to housing support under the new benefit, considers evidence of their impact to date, and the Government response.

The Welfare Reform Act 2012 and associated regulations provide for the replacement of several benefits, including Housing Benefit, with a single monthly payment of Universal Credit (UC).

Detailed provisions setting out how housing costs are calculated under UC are set out in The Universal Credit Regulations 2013, SI 2013/376.

What does not change?

The calculation of entitlement to assistance with rent payments in Universal Credit is similar to the Housing Benefit system it replaces.

In short, a ‘housing costs element’ for social sector tenants is based upon their actual housing costs minus any under-occupancy deduction where the tenants live in housing that is deemed to be too large for their needs. For private sector tenants, the element is the lower of actual rent or the Local Housing Allowance (LHA), a maximum based on local rental prices.

Many of the highest profile changes to housing support since 2010 have applied to both Universal Credit and Housing Benefit. For example, changes to the maximum support available in the private rental sector and the under-occupation deduction factor into the calculation of both.

This paper focusses on the significant differences between the two systems.

What does change?

Universal Credit takes responsibility for administering housing support away from local authorities and places it with the Department for Work and Pensions (DWP). Claims are made online to the DWP, instead of by sending a form to the local authority.

The default position is that UC is paid direct to claimants as a single monthly sum – so claimants are responsible for ensuring that the housing cost element is paid to the landlord to cover the rent due. This involves a behavioural change for most tenants of social landlords. Alternative Payment Arrangements and budgeting assistance may be available in certain circumstances where claimants struggle to adapt. In addition, the minimum wait before first Universal Credit payment is 5 weeks from the point the person’s claim begins, generally longer than the wait for Housing Benefit.

Beyond these major differences in administration and design, which have been the subject of significant public debate, there are also a series of smaller rule changes affecting claimants in particular.

Debate and government responses

Universal Credit is already the main way in which working age households access support with housing costs through the benefits system. In February 2021, there were 2.91 million households getting a housing cost element in their Universal Credit, considerably more than the 1.77 million working-age Housing Benefit recipients. As a result, much of the debate around Universal Credit includes the changes made to the ways both forms of housing support have been calculated since 2010. These, and the debate around them, are covered in detain in our in our August 2021 briefing paper on The rent safety net: changes since 2010.

However, since Universal Credit rollout began in 2013, there have been significant concerns about how differences in the design and administration of Universal Credit compared to legacy benefits have impacted claimants. In particular, campaigning groups, MPs and select committees have pointed to evidence of hardship and rent arrears associated the wait for a first payment and other changes to the way benefits are paid.

The Government has responded to these concerns with a series of measures designed to support claimants during the wait for a first payment. For example, payment timeline was improved, claimants were provided with greater support to make claims, and more financial support was made available in the form of repayable advances and ‘run-ons’ of legacy benefits.

The use of ‘Alternative Payment Arrangements’ (APAs) allowing payments to be made direct to landlords and more frequently than monthly, has also increased in recent years. Devolved administrations have gone further. In Scotland, claimants can choose to have their housing costs element paid to their landlord. In Northern Ireland this is the default.

The impact of these design changes, and the government responses to concerns, are covered in detail in our July 2021 briefing paper on Universal Credit: Ten years of changes to benefit claims and payments.

Despite the Government response, stakeholders in the housing sector, and parliamentarians, remain concerned about the impact of Universal Credit, and continue to argue for changes to benefit design, as well as how the housing costs element is calculated.