Finance Committee

Meeting date: Wednesday, June 13, 2012

Official Report 478KB pdf

---

Welfare Reform Act 2012

Item 3 is to take evidence on the financial implications of the Welfare Reform Act 2012. I welcome our witnesses: Morag Johnston from Glasgow City Council; Alan Sinclair from the City of Edinburgh Council; Derek Yule from Highland Council; and Michael McClements and Jonathan Sharma from the Convention of Scottish Local Authorities. Given that there are five of you and that we have the relevant papers in front of us, I do not propose to allow opening statements. We will go straight to questions.

The witnesses represent four organisations, so I think that the fairest thing to do is for me to ask a representative from each organisation one question. Then I will open out the discussion to my colleagues, who can ask whomever they wish whatever they wish.

My first question is for Ms Johnston, who represents Glasgow City Council. In paragraph 8 of your written submission, which is headed “Direct Financial Implications for Wider Council Services”, you state:

“The obvious areas are increased demands for money advice and welfare rights services that are funded by the council.”

Will Glasgow City Council consider realigning some of its budgets to give additional support to, for example, citizens advice bureaux?

Just as background, members may be aware that we awarded a three-year contract for the provision of advice and information services in Glasgow from April this year. The contract includes a number of CABx and other advice services in the Glasgow area. In the contract is a recognition that the welfare reforms that are due to come in will have an impact. We expect to work with the organisations involved in the contract to see what additional requirements there will be from potential increased demand. As the relationship with those organisations is contractual, the work is not grant funded, so the council must build in any additional money that might be required.

Thank you.

Mr Sinclair, the City of Edinburgh Council’s written submission states:

“Taking all the measures together there are likely to be adverse effects on Housing and Homelessness; levels of debt; Council Tax Collection; demand for advice; pressures on Health & Social Care and Children & Families.”

That is a pretty bleak prospect. Can you tell us a bit more about the financial impact that the welfare reform proposals will have on Edinburgh?

We still do not have some of the detail of the proposals, but the changes to housing benefit and council tax benefit are likely to mean that there will be major cuts in services in areas such as temporary accommodation and homelessness, which are pretty much covered under the current rules. It is up to every council to do what it can in that regard. The City of Edinburgh Council has put together a working group of people from various departments to consider how best we can deal with matters. For example, because the homelessness service is quite a labour-intensive service its costs are fairly high, but those are currently covered in full by housing benefit. That is not likely to be the case under the 2012 act. We need to think about how we can offer a much more streamlined service. Do we continue to accept people as homeless as we do now, or do we have to change the definition so that the council might not have a duty to house intentionally homeless people?

The implications are wide ranging and the prospect is pretty bleak. I am normally quite a positive person, but it is difficult to be positive about the changes that will come. Some changes have already happened, but the situation will become much more difficult as we move forward. The Government’s plan is to take £18 billion out of social security by 2014-15, which is a lot of money.

I know that the dust has not completely settled, but can you quantify what the impact will be on Edinburgh?

One of the changes coming in for council housing is that some people will be classed as being overaccommodated, which means that they have one, two or more bedrooms more than their household requires. We have done some initial analysis in Edinburgh on that and we believe that it could adversely affect 4,000 tenants, whose housing benefit could be cut by between 14 and 25 per cent. Within a year, that could total a £2.5 million loss of benefit. We are talking about trying to recover relatively small amounts of rent from people who have been used to getting all their rent covered by housing benefit, and the collection costs will fall on the council. The £2.5 million total does not include what will happen in housing associations, which will be equally affected by the change.

Thank you.

Mr Yule, I found your written submission fascinating—although all the submissions are good. You refer in your submission to breaking

“the direct link between the value of benefits paid and grant received to compensate.”

You go on to say that every £1

“of benefit paid by councils is a direct cost to that council. It therefore provides a disincentive for councils to promote additional benefits take-up ... There is therefore the potential for councils to accept lower levels of tax collected, and higher levels of bad debts, rather than promote further benefits take-up, as this may actually save the council more in financial terms.”

In effect, you are saying that you get a set grant but you do not want to encourage too many people to access the benefits to which the grant refers, because otherwise the council will potentially end up in a seriously adverse financial position. Can you say a bit more on that?

Yes. The role of councils at the moment in this area is to act as agents for the Department for Work and Pensions and to focus very much on promoting benefits, be it housing benefit or council tax benefit. It is probably one of the services that is most closely monitored, internally and externally, but the focus is very much on how well councils are performing on maximising benefit take-up.

In the submission, I highlight the fact that, from April next year, that direct link to councils’ welfare benefit role effectively disappears from the funding point of view. Instead of receiving grant money that is based on the value of benefits that the council pays out, the council will receive a sum of money from the Scottish Government to administer a scheme that will replace council tax benefit. That will be a direct cost on the council.

At the moment, as a finance director, I am concerned very much with the promotion of benefits, because that helps collection levels in terms of housing rent and council tax. Across Scotland, about 60 per cent of housing rent is paid through the benefits system. When that link is broken, councils will have conflicting roles. I suppose that I am coming at the issue very much from a finance point of view, and I believe that the change in roles will place an additional cost pressure on councils, as the financial risk will rest with the council whereas, at present, it rests with the DWP.

On direct payments, the COSLA submission says that councils

“expect that rental income will be significantly diminished and arrears and collection costs will increase as individuals may not then prioritise payment of rent”

and that

“COSLA estimates this loss to potentially amount to £50m per annum.”

The figure of £50 million is quite a round one. Is that a guesstimate, or has work been done to assess it?

On revenue and benefits functions, the submission says:

“it is our belief that the costs associated with the changes to Benefit delivery, including staff, systems, contractual and transition costs, should be fully met by government.”

Which Government do you mean?

The figure of £50 million is a rough estimate. We do not have the information to tell us what the impact will be of the transition of the housing element from housing benefit to universal credit. Equally, we do not know at this stage what sort of behaviour patterns will be involved.

As Alan Sinclair said, we are talking about people who never really had to pay rent before, so we estimated the figure based on the collection rate for water charges. People who are on benefits get a 25 per cent discount on their water bill, but have to pay the rest. There is a much lower collection rate for that than there is for council tax as a whole. We gave ourselves an extremely rough estimate of approximately £900 million for the amount of rental income that is collected and, using that collection rate, came up with a figure of roughly 10 per cent, although we narrowed it down conservatively. The sum of £50 million is a conservative estimate of the loss of income. Clearly, steps must be taken to mitigate that. We hope to open up that conversation as we go along.

What was the second question?

You said that the costs should be fully met by Government, but you did not specify whether you meant the UK Government or the Scottish Government.

On the changes that are being brought about by the introduction of the universal credit, we would say that, in situations in which councils are having to bring about changes in their systems or provide additional advice and support to enable the UK Government’s policy to be put into place, we think that it is right that the UK Government should meet a good part of the associated cost. That is our focus.

11:45

We are having a discussion with the Scottish Government on a number of fronts about the impact of the welfare reform changes, and that discussion will continue. The committee will be aware that we have come to an agreement about how we will deal with the replacement for council tax benefit for 2013-14. That involved both the Scottish Government and local government putting forward sums of money. It is clear that we will have to have discussions with the Scottish Government, but at present the focus is on what influence we, together with the Scottish Government, can have on the DWP as we explain to it what our costs are and how they should be met.

Do you have anything to add, Mr McClements?

Just to clarify the position, I add that councils are funded to provide an integrated council tax benefit and housing benefit service. One issue that will arise is that, because housing benefit will be incorporated in universal credit, councils will no longer be responsible for it; in time, the DWP will have a view that some of the subsidy that is paid should fall off.

One issue for councils is that not all the work will go away when the change happens. Most claims—about 80 per cent—are interview claims, and consequently that work will still exist for councils. A crucial issue for local government is how much will be provided in administrative subsidy when the UK Government provides resources to the Scottish Government for a council tax benefit replacement scheme. Local government costs will not simply halve because councils are no longer responsible for housing benefit. That is an example of the issues that are of concern to councils.

Yes. There are also concerns about the impact of the change to housing benefit on registered social landlords.

I am sure that my colleagues will wish to explore many of the issues with you in depth. I open up the meeting for questions from my colleagues. Paul Wheelhouse will start, followed by Mark McDonald.

I have two questions. The first is about council tax benefit. As I said to the earlier witnesses, we had a private session last week with the Joseph Rowntree Foundation. The data that it presented to us showed that there is a massive shortfall in the number of people in the bottom two or three deciles of income distribution who apply for council tax benefit. Ironically, the number of people who apply improves as we go up through the deciles; as income increases, people have a lower entitlement to council tax benefit, but they are better at claiming it.

Do you have any views on the implications of what is happening in welfare reform? Is there anything that we need to take into account to ensure that, before the date of the change, people are claiming the appropriate amount of council tax benefit? It seems that there is a low take-up relative to the number of people whom we know should be entitled to it.

I am happy to give an initial response to that. You have homed in on one of the concerns that I tried to highlight in our written submission. In a sense, for the reason that you gave, there will be a direct cost to councils in the future. That takes us from the welfare support agenda to the real financial cost. There is going to be a dilemma for councils in future.

As my colleagues have said, councils have an important role in educating people who are currently in receipt of benefit, never mind potential claimants, to ensure that they are fully aware of the changes. I am thinking of housing rent as much as council tax. We need to look at the issue closely to ensure that such people continue to pay their rent. We also need to ensure that the resource is in place to support those people once the changes come into play, particularly in the early months. That is a real challenge.

A number of us have mentioned our relationships with money advice services and citizens advice bureaux. We are seeing an increasing volume of applicants coming through those arenas who are looking for help in managing debt, and we have to recognise that the number of such people is likely to increase significantly in the future.

In the transition phase, we are likely to see a substantial increase in people who are in arrears with rent or council tax. That situation has its own negative social outcomes, which we may have to pick up as a Parliament.

Absolutely. The challenge for us is to try to prevent that from happening in the transition phase. It will be a big change for people. They will probably receive more cash in their hand, particularly if the proposal for universal credit and housing rent to be paid monthly goes ahead. Practices vary across Scotland, but I think that the majority of people get weekly payments.

People will have more cash in their hand than they may have been used to, and we must ensure that they remember to pay their rent. We need to put a lot of resources into that area to ensure that that cultural change happens.

I direct my second point to Morag Johnston of Glasgow City Council. I was particularly interested in the reference in paragraph 6 of your submission to the social fund successor arrangements. You state that there is already

“a pro-active drive by the DWP to dampen current social fund payments.”

I am aware of that issue, particularly in relation to funeral costs.

Eilidh Whiteford, a colleague in the Westminster Parliament, recently received an answer to a parliamentary question that indicated that there has been a downward trend in the amount that is being paid by the DWP through the social fund to meet funeral costs. Obviously, such costs are rising, which puts people into greater difficulty.

Do you have any particular view on that? I am not expecting anything specific at this stage, because we do not really know what the arrangements will be, but how concerned are you about how things have panned out with regard to that concerted effort to reduce payments, if that is what is happening? Do you have any recommendations for how we take that issue forward?

My comment was based on statistical information that we received from the DWP, particularly around crisis loans for living expenses. Not all the current elements of the social fund will come to the devolved Administration and then to local authorities, just the two discretionary elements, one of which is crisis loans for living expenses.

The current working arrangements appear to suggest that grants rather than loans will be paid out. The statistics show that, over the past few years, the DWP has started to reduce those payments. My understanding is that it works very much to a set budget each year, and will manage those payments within that budget.

As you have heard from my colleagues, our approach to benefits has previously been that if someone meets the criteria, the benefit is paid. We do not necessarily think about changing criteria in order to dampen demand.

With regard to the social fund, a set amount will be allocated to Scotland that will then be distributed among local authorities. It will be another ring-fenced budget within which we will need to manage resources.

The DWP’s approach seems to be that once the budget is used up, people cannot qualify. That is not necessarily an approach that we are used to in local authorities. It will be difficult for us to try to manage that demand with the welfare reform changes that are coming. Obviously, we expect that demand will increase, and that more people will find themselves in crisis situations. They will need assistance, and that is one of the funds to which they will look.

So, under the current DWP arrangements, we have already moved to some degree from a demand-led model—as you outlined—to a supply-led model. The nature of things such as funeral costs means that one cannot predict when they will arise. I am particularly aware of constituents who have been caught out by the tragic loss of a young person in their family—they had not anticipated that the person would die so young and had therefore not saved for that.

With a supply-led approach, we could have a situation in which someone dies towards the end of the financial year, and there is no money for their funeral costs. Is that a real risk?

My understanding is that funeral payments will stay with the Department for Work and Pensions social fund arrangements. However, the point is still well made that such payments should not depend on the point in the month or financial year at which issues arise. We need to think about how local authorities budget and how the money is distributed from the Scottish Government.

So we have to be wary about front-loading the expenditure through the funds in the first half of the year, because crises that affect families could, by their nature, happen at any time.

Yes. One of the key things that directors of finance will need to do is to consider the trends of budgeting to try to ensure that we spread the money throughout the year, taking into account past seasonal trends. That means that it is important that we get the historical information from the Department for Work and Pensions to allow us to take an informed view when we set our budgets.

That is helpful—thank you.

The COSLA submission talks about the potential for rent arrears arising from the introduction of direct payments. COSLA estimates the potential loss through rent arrears to be £50 million per annum. Is that figure simply for rent arrears?

As Jonathan Sharma explained, that figure was based on our assumption about the rent that will not be gathered when people receive their benefit directly on a monthly basis. That is obviously a big worry for councils and registered social landlords, so they will be considering the potential impact. They will need to look at their existing systems of arrears controls and they will probably need to invest much more in those systems to try to ensure that the level of arrears is minimised. Therefore, that might not be the figure at the end of the day, but that is the potential risk.

Do you have figures for the current level of rent arrears nationally, to give a comparison between the situation now and the situation post change?

I am not sure of the exact figure. Obviously, the amount will vary from landlord to landlord. Most landlords will have arrears of about 3 to 4 per cent, rather than up at the 10 per cent level. That is the range.

My next question is on the underoccupancy measures, so council colleagues can feel free to leap in. It strikes me that we are in danger of self-perpetuation of a problem. Most local authorities do not allow people to transfer if they have arrears. People might get into significant arrears because their housing benefit is removed as a result of the underoccupancy rule. If someone then applies for a transfer to a smaller property, the authority might, through the application of its policies, perpetuate the problem by not giving them the transfer, even though the only reason why they are in arrears is that they are in an underoccupied property.

That problem is not of the councils’ making. The measure is supposedly intended to address issues about underoccupancy of properties and demand for housing. Our sense has always been that the measure has been introduced largely to address what is primarily an English problem and, in fact, more of a London problem. The potential impact on Scottish housing policies is significant. Councils and social landlords will have to review some of their existing policies, because of the possible impact. At present, efforts will be made to identify who will be affected, but there are limitations to the assistance that can be offered. Neither councils nor social landlords want to make the situation worse because their existing policies have adverse effects that were not anticipated when those policies were put in place. A review of policies and systems is a big part of what everyone in the housing sector will have to do in the next year.

12:00

I am not suggesting that it is a problem that the councils have created; I am merely pointing out that—as you rightly identify—policies other than simply the collections policy will need to be considered because there will be a knock-on effect.

What assessment are you aware of councils making of their current situation regarding underoccupancy and the flexibility within their own housing systems? Some local authorities are offering a downsizing incentive to deal with underoccupancy and to free up family-sized housing. What work are local authorities doing to deal with the problem in advance of the underoccupancy issue becoming live?

We must first identify how many people we are talking about. New legislation is going to be introduced—in the first week in July, we think—that will allow data sharing between local authority revenues and benefits teams, RSLs and people working on our own council stock. Many of the tenancies were allocated 10 years ago and the council or the RSL does not know how many people are staying in the house. The first thing that we need to do is to start sharing data so that we can identify the problem. We cannot do that just now, but the legislation is changing to allow that.

It may be that people have not declared a son or daughter in the house because their benefit would have been reduced but, when they find out that their benefit might be cut, they suddenly declare that son or daughter. The problem may not be as large as we think. In Edinburgh, we have estimated that 4,000 people will be affected, but that is before we are able to share data. The fundamental problem for local authorities is that we do not have the one-bedroom stock for people to move into.

That is probably the biggest problem. We know that there is a shortage of housing full stop in the social rented sector and, as Alan Sinclair says, there seems to be a particular shortage of smaller, one-bedroom properties. Although councils can look at the degree of underoccupancy that we have at the moment, the issue is our capacity to do anything about it. The housing stock is not available to effect the degree of movement that is perhaps needed.

One of the things that concerns me in the evidence from the City of Edinburgh Council is the assumption by the DWP that 80 per cent of customers will be able to apply for the universal credit online and that local authorities will somehow cater for the other 20 per cent, but without access to the universal credit system and possibly without any funding to assist them to do so. Is it realistic to assume that 80 per cent of people who apply for the universal credit will be able to do it online? People may not have access to facilities, may have literacy issues or may not be confident about using computer systems. It is an extraordinary assumption that 80 per cent of people will be able to apply for their benefits via their mobile phone or their computer at home.

I think that that is an aspiration. The DWP does not expect that, on day 1 of the universal credit, 80 per cent of people will apply online, but it is doing what it can to encourage that. Over the years, local authorities have encouraged people to apply online for housing benefit and council tax benefit, with varying degrees of success. A lot depends on people’s access to the internet and their skills. That is a real difficulty. The DWP has a team that is doing what it can to encourage people to apply online. In reality, that is not how people will apply in the early days, and the contact centres may take the brunt of the calls. Face-to-face access will be through Jobcentre Plus, but it does not have a large number of local offices for customers to contact.

I think that customers will gravitate towards local authorities because that is who they have dealt with over the years but, because we will not have access to the universal credit system, we will be limited in what help and advice we will be able to give. We could perhaps help a person to process a claim for universal credit online, but that is quite labour intensive and there would be days when there would be queues of people out in the street. If we have to do that, local authorities will expect funding for it.

Am I right in assuming that the people who would be able to do that are those who used to deal with council tax and housing benefit, and that their funding is likely to be reduced because they are no longer dealing with housing benefit? Their problems are going to be compounded.

They are indeed.

COSLA and local authorities in Scotland have been engaging directly with the DWP alongside the Scottish Government. There has been concern about the impact on vulnerable people who will not have access to a PC so it is not viable to assume that they will be able to claim benefits in that way.

Local authorities anticipate that they, along with advice centres—many of which they fund—will see a lot of displaced demand as a new system comes in. We have been engaging with the DWP and making the point that we think that local authorities are in a position to provide support, but the services are under pressure and the DWP needs to resource that activity effectively. We are exploring that further. The DWP is working with us on piloting some activity during the next year that we hope will highlight what local authorities have to offer and indicate the levels of support that will be needed.

My experience is that there is already pressure on the advice services with the changes that have come in so far. One of the advice centres in my constituency has had to shut its doors to the public because it can no longer deal with the number of people who are coming in and the other work that it is expected to do. It is quite concerning to hear the view that things are going to get a lot worse as the scheme is rolled out.

I am also worried about the lack of clarity around passported benefits and the sort of information that local authorities will require in order to ascertain entitlement: they might not have the core data that will enable them to do that, and I can see no consequence other than people who were previously entitled losing out. If you do not have the information, you do not get the funding, and there will be no incentive to ensure that people get their benefits. That ties in with what Mr Yule said earlier.

I agree with the concerns expressed in Elaine Murray’s previous question and that one. As Michael McClements said, we are trying to negotiate what we think is the proper role for a local authority. My particular concern is that we are now in June, the changes will come in in about nine months, and we still do not have clarity around the exact role of local authorities.

To answer Ms Murray’s previous question about the 80 per cent, the DWP is looking at the situation across the whole UK, and the level of coverage in Scotland is quite different. The rurality of the Highlands is a particular concern for us. I think that I am right in saying that there are no Jobcentre Plus offices north of Inverness, and the broadband connections do not exist that allow people to access online facilities in rural areas of Scotland. There is therefore a disparity in provision and in what different areas of Scotland can do at the moment. We urgently need clarity so that we can fulfil our proper role by supporting the people who need it.

I have a couple of questions, convener. An issue was raised in Glasgow City Council’s submission, which stated:

“Equally important is ensuring that data held by DWP/HMRC can be fully shared with Scottish local authorities.”

Where are we with that? Mr Sinclair referred to there being some legislation in July, but is it being negotiated?

My understanding is that that is the subject of on-going discussions. At the beginning of the process there was a suggestion that legislative changes would be required, and I am not clear whether those have all been fully implemented. In our discussions with the Department for Work and Pensions, it has recognised the requirement for local authorities to have the data. Those discussions are on-going.

Our current difficulty is that we do not know what information will be finally available. When processing housing benefit and council tax benefit, local authorities are used to having wide access, through a system that is controlled by the DWP, to allow us to process benefits and run take-up campaigns. Our difficulty is that we do not know whether that system will be available.

Our other risk concerns how universal credit will be calculated. We are starting to get information about that, and it will be quite different. Passported benefits—which were mentioned previously—are currently based on automatic entitlement for those who are already in receipt of certain benefits. Universal benefit will be quite a different type of benefit; it will be made up of lots of different components, possibly with certain reductions for various things, so a different way of understanding entitlement will be required. Lots of people will get universal credit, ranging from very small to very large amounts. Being on universal credit will no longer be an automatic eligibility criterion for other passported benefits. We need to discuss that.

To go back to the original question, the discussions on data sharing are on-going. All officers involved in the specific groups in the DWP are discussing that with officers from the Scottish Government, and we need to make sure that that progresses.

A UK data-sharing working group is being established by the DWP. It has not yet met, and it has been looking for representation. We want Scottish representation at critical stakeholder level within that group, which we expect to take forward work that covers the whole area of data sharing, including the passported benefits side. We will need to see what develops. It is the type of mechanism that will take forward many matters.

I have a brief follow-up to Mr Yule’s point about the disincentive for councils to promote additional take-up of benefits, which has already been touched on. I presume that, as things stand, everybody wants 100 per cent of council tax to be collected. However, the cost of collecting it can sometimes outweigh the additional tax that is collected, above a certain level—whether that is 92, 95 or 98 per cent. I presume that there is an optimum level that has the biggest net benefit. Have you done—or are you going to do—any modelling on where you think things might end up? You pointed out the potential concern. Can you do any modelling to work out the optimum lower level of tax collection? I know that that is not a straightforward question.

I understand the question. We have not done specific modelling; it would be very difficult to do. Part of the point that I was trying to make is that there are probably two elements: we need to separate benefits from collection of council tax. There are two major financial risks. One concerns collection levels. Gavin Brown is right—there is an optimum level. Most councils’ collection levels are holding up reasonably well, at the moment, with percentage rates in the mid to upper 90s. From a financial modelling point of view, we will need to look at what the impact of a reduction in that figure would be. That will be a budgeted impact.

The other big financial risk is the value of payments that will be made in a council tax discount system. Again, we will need to make assumptions about risks that will be associated with that. As highlighted in our written submission, that is probably one of the areas of biggest risk. In many respects, it is an area that cannot be controlled. Once you establish a scheme and establish entitlement, you are committed to that scheme.

One of the big issues is that matters that are outwith our control could impact on that, particularly if the financial risk is held at council level. At the moment, it is held at UK level. The best example of what could happen is the closure of the Johnnie Walker plant in Kilmarnock a couple of years ago. If something similar were to happen in any council area, that would have a huge impact on the finances of that council.

12:15

I have a question about practical issues. There will be a changeover period, which I presume means that you will have to run two systems. Will there be staff and information technology implications and other complications?

Yes. Universal credit starts in October 2013, but it will not be fully in place until October 2017. There will be three major migrations of data to do with housing benefit and various other state benefits across to the new system. In addition, we have the local council tax support scheme to operate. There will be multiple schemes to administer.

Are the councils relaxed about that? [Laughter.]

No—councils are not at all relaxed.

Is it an unknown, or are you clear about what the challenge is?

I think that we know what the challenge is. Local authorities have a history of being able to manage and deliver benefits, systems and so on; our track record on that is pretty good. We know what we face, but it will not be an easy task and how hard it is will depend on how much data on universal credit we can get from the DWP. A person’s universal credit will be made up of various elements, one of which will be the housing element. When we come to determine whether that person is entitled to local council tax support, we cannot take into account the housing element of universal credit and, as I understand it, the DWP will not be able to give us a breakdown of the constituent parts of universal credit. That is a real difficulty. Local authorities have been saying to the DWP that they need that breakdown so that they can award the correct level of council tax support to people. If we take into account the housing element of someone’s universal credit, we will reduce their potential entitlement to local council tax support.

Are you saying that the DWP will not give the breakdown to you or that it will not give it to anyone? If a mistake is made in someone’s universal credit, how will they be able to challenge it?

As I understand it, the DWP is saying that its IT systems will not be able to provide us with a breakdown. As Morag Johnston mentioned, people have various levels of means-tested benefits, so there are various qualifying levels of entitlement to universal credit. If someone is not entitled to the maximum amount of universal credit, a calculation will be done. As I understand it, the DWP will not be able to—it is not that it does not want to—say what proportion of the universal credit is for housing costs.

Now that we have more clarity on the local council tax support scheme, we need to work through the system changes that will be required to allow it to operate. Because it is expected that, at least in 2013-14, what is in place will be very similar to the current system, at the moment we are working on the basis that the staff are already trained and that it should be possible to change the system easily.

The one area in which there is a lot more uncertainty relates to the social fund requirements that will come to local authorities. At present, there is no IT system for that in the local authority arena. The DWP has its own system. We are only now at the stage of talking to our software suppliers to see what they can supply. On top of that, there are all the usual issues associated with the introduction of any new administrative process, such as staff training and who will administer it. We are talking about a system that is coming in in April 2013.

From Glasgow City Council’s perspective, that is probably the area of the welfare reform changes that gives us most concern, because it is probably the area that we are, from an administrative perspective, least prepared for. However, we are working actively to address the issue. We are talking to the software suppliers and we are engaging with the design and implementation group that is chaired jointly by COSLA and the Scottish Government. As has been said, local authorities have a track record of getting such things done, but the timescale is challenging.

The other issue that I want to return to is rent not being passed on when people get the cash. I think that Mr Sinclair said earlier that he is normally an optimist, but I am a huge pessimist about that. I think that there will be a huge problem. The figure of £50 million has been mentioned, but who knows what the figure will be? I am wondering about the practicalities. How quickly will we be able to find out whether there is a problem, go back to the DWP and challenge the whole thing? Are we talking about the end of April or May or June next year? When will we know whether things are working?

The City of Edinburgh Council is involved in a demonstration pilot project for paying housing benefit directly to tenants. We are doing that project in conjunction with one of the housing associations in Edinburgh, and it will start in August and run until next June. Currently, 90-odd per cent of benefit is paid directly to the housing association, but that will change from August. The change will not happen all at once, but over a period of time. The customer will be paid directly, and they will have to make arrangements to pay their rent.

A lot of support will be needed for people. We must find out whether they have a bank account that money can be paid into, whether they will be able to set up a direct debit and so on. As I said, we are working closely with the housing association and with the DWP. The demonstration pilot is one of six in the United Kingdom, and it is the only one in Scotland.

If someone misses paying their first month’s rent, say, there will be a switchback arrangement. Initially, we will say, “This person hasn’t paid their rent, so we’ll have to revert to direct payment of housing benefit.” An arrangement will then have to be made with the customer so that they start to pay off the rent arrears. If they start to pay off those arrears, there will be a switchback so that the money is paid directly to them in the hope that they have learned. Many people might need support with budgeting and managing their money. That already happens in private sector cases with the local housing allowance, but it is obvious that there is a much greater level of vulnerability in the social rented sector than in the private rented sector.

There are pretty vulnerable people in the private sector. Landlords have come to me with exactly that problem. Are you saying that a month should be the maximum period for somebody to be in arrears, at least to start with?

There are six demonstration projects. The switchback arrangement in Edinburgh will kick in after four weeks, but in some of the other projects, the period will be eight or 12 weeks. An analysis will be done to try to inform the DWP about the best way of dealing with matters. We do not know whether the period will be four, eight or 12 weeks with universal credit. For instance, for the local housing allowance for private sector tenants, the legislation says that, once they have eight weeks of rent arrears or more, the landlord can ask for the housing benefit to be paid directly to them rather than to the tenant.

I would like to pick up on a point about private landlords that John Mason mentioned. Perhaps only one of the witnesses need answer the question, if that is possible. Do you foresee there being a problem with landlords simply pulling out of work with DWP clients? Do you foresee landlords completely abandoning that sector and putting more pressure on the local authority or housing association rented supply?

The local housing allowance has been running in Edinburgh since 2004, because the council was a pathfinder authority. It was rolled out nationally in 2008. I do not see universal credit fundamentally changing matters, because customers have been used to paying their rent, although there are people who do not pay it for various reasons. The local housing allowance started in Edinburgh in February 2004, and our big concern was that, come Christmas that year, we would suddenly be inundated with requests from landlords who would say, “This tenant hasn’t paid me the rent, presumably because they have bought Christmas presents.” However, that simply did not happen. Sometimes there is a danger of thinking that all benefit claimants will take the money and run, but there is absolutely no evidence that that happened with the local housing allowance, and I do not see the situation changing with universal credit in the private rented sector.

So we might need to get the message out to landlords in the private rented sector that, in your experience, that has not happened, in order that they do not jump away from providing accommodation to supported tenants.

Because the amount of housing benefit might be reduced as a result of how it is calculated, one of the Government’s suggestions with regard to universal credit was that, if a landlord, particularly a private landlord, threatens to bring a tenancy to an end, the landlord, rather than the customer, could be paid directly. We put that point to the private landlord forum in Edinburgh, which we meet every six months, and it was open to the idea. However, although the new system has not started, we have not yet had any requests for that to happen.

That completes the questions from members, but I have a couple of questions to finish off. The first, which is for the COSLA representatives—although other witnesses can answer if they wish—is about the indirect financial consequences for social work. The COSLA submission talks about the disability living allowance being replaced by personal independence payments and states:

“Since the UK Government is already seeking to reduce the overall cost by 20% the impact of new assessment criteria is expected to particularly affect those with lower levels of disability and is likely to increase demand for social work support.”

It goes on to state that, even though there will be

“Reductions in income as a result of changes”,

which will

“impact upon eligibility for council charging for services”,

individuals will still require social care services support. What impact will the legislation have on social work delivery and what will be the cost to local authorities?

It is difficult to quantify that exactly. However, a number of aspects of the benefit changes will impact on people with disabilities. The move from DLA to PIP will be introduced in a similar timeframe, up to 2017. Everyone who now gets DLA will be reviewed, and people will normally be reviewed every three years. There will be two levels of PIP, rather than the three levels of DLA. The Government has already announced its intention to reduce expenditure by 20 per cent, so the broad assumption is that some people who currently receive a disability benefit will not receive it under the new regime. It is expected that some of those people will have lower levels of disability, but no one is clear about that because the assessment criteria and process are different and we have not yet had experience of them.

Along with that, we know that a significant proportion of the households who are affected by underoccupation measures and various other housing-related measures are families who include people with disabilities. Another issue is that the independent living fund was closed to new entrants about 18 months ago. We therefore anticipate that the pressures on social work and social care services will increase simply because individuals will have less capacity to manage their situations with the benefits and support that they receive from central Government. However, it is difficult to estimate the effect.

There will be people who, because they lose income that is provided through the benefits system, will no longer have to pay for social care services under the charging policy, but they might still require support. Given the increasing demand that local authorities are experiencing, we expect pressure on some of the services from people with disabilities simply because of that impact. It is hard to assess how big the impact will be.

I just wanted to know whether the impact on council budgets will be marginal or significant. I realise that you cannot give a specific cash sum.

Glasgow City Council estimates that, as a result of the impact of the 20 per cent reduction in the cost of DLA payments, and because of the charging policy, it could lose about £0.5 million in income that it currently receives from charging people who receive services. That alone is significant, but the other impact is about the amount of new demand that arises as a consequence of the pressure that families are under.

Mr Sinclair, we have talked a wee bit about the universal credit system. Your submission says:

“The face to face service will not, as I understand it, be a statutory duty.”

The submission also talks about the cost in terms of staff resources, and says:

“If the funding is insufficient then Local Authorities will need to decide if they can afford to do this or simply not provide any kind of face to face service.”

That is clearly an alarming prospect for many people across Scotland. Can you give us an indication of the thinking on that issue?

12:30

As I said earlier, people will naturally gravitate towards local authorities, as that is who they have dealt with in the past. However, many local authorities that I have talked to have specifically asked the DWP whether the service is a statutory requirement.

There is a desire for local authorities to provide the service, and we want to help the people whom we currently help, because the changes are significant. However, there is a difficulty around how much access we will have to the universal credit system and, therefore, how much added value there will be. It appears that all that a council officer in a public-facing role will be able to say to a customer who says to them, “I applied for universal credit six weeks ago and I haven’t heard anything,” is, “Hang on a minute, I’ll go and phone universal credit for you.” Speaking personally, you could not pay me enough to do that job. At the moment, if there is a problem, my staff and I have access to the housing benefit and council tax benefit systems and, if there is a pressing need, we can go ahead and process someone’s benefit quickly. However, that facility will no longer exist under universal credit.

In discussions with the DWP, the point is made repeatedly that local authorities want to have a significant role in the delivery of universal credit. It appears, however, that that will not necessarily happen.

Of course, local authorities’ budgets are under pressure, and the provision of the service could be very labour intensive.

If you are unable to do anything other than act as a go-between, one has to wonder what the value of that will be. Issues of rurality will also need to be considered. In Arran and Cumbrae, in my constituency, there is a local authority presence but no DWP presence.

What is COSLA’s view on the issue?

Council leaders have considered a number of papers on the matter. They have certainly taken the view that they anticipate that there will be significant demands on council services, and they have asked us to engage with the DWP to shape some of the delivery within Scotland and to seek to shape a role for local authorities to help vulnerable people to access their benefits.

We do not yet know precisely what local authorities will be asked to do in that regard, how they will be funded to do that and what level of funding they will receive. There is significant uncertainty. Along with the Scottish Government, we have sought to take a fairly proactive approach as we have asked questions and put our case. We have said, “This is what we think we’re in a position to do, but these services are under pressure. We cannot do this without support, and we need the DWP’s support.” We need to get into that level of detail, and I hope that we will be able to get more clarity over the coming months. It is difficult to make plans in the current situation.

Local authorities are likely to see a demand coming through their doors and they will want to be in a much more proactive position and to have plans set out for how they will work with the DWP. They will also want to be effectively resourced to do what has to be done.

I thank all our witnesses. This has been an interesting and illuminating session, if disconcerting in many ways.

I ask our witnesses to leave, as the rest of our meeting will be held in private.

12:34 Meeting continued in private until 12:56.