Finance Committee

Meeting date: Wednesday, June 20, 2012

Official Report 496KB pdf

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Welfare Reform Act 2012

Good morning and welcome to the 19th meeting of the Finance Committee in 2012. I ask everyone present to turn off their mobile phones and BlackBerrys and switch their e-tablets to airplane mode.

Agenda item 1 is to take evidence on the financial implications of the Welfare Reform Act 2012. I therefore welcome to the meeting Mr David McColgan, from the Scottish Council for Voluntary Organisations; Dr Margaret Somerville, from NHS Highland; and Dr Mary Taylor, from the Scottish Federation of Housing Associations. We will proceed directly to questions. I will ask each of you a question in turn, but the other witnesses can chip in if they wish, and then I will open it up to committee members.

The first question is for Dr Taylor. Before I ask it, though, I have to say that you gave us an excellent, comprehensive written submission that probably answers a lot of the questions that committee members would want to ask. I met someone from a housing association on Monday who said that, in the 1980s, before direct payments were introduced, the collection of rent was particularly difficult and the level of rent arrears was above 15 per cent in some housing associations. They are now about a tenth of that level because of direct payments, which clearly had an impact, as you pointed out in the SFHA submission.

You state in paragraph 1.8 of your submission:

“We anticipate that the combined consequence of the direct and indirect impacts will reduce household income in our sector by around £221m in total over the period from now to 2016-17.”

How are you able to be so precise in that calculation? What does that figure represent in relation to the income of housing associations in Scotland over that period?

In paragraph 5.3, you refer to the impact on your

“sector’s ability to repay loans”.

What does that mean for the viability of housing associations?

You are asking how we can be so precise and how that figures relates to other—

The question is what share of your income that figure is likely to be and what impact it will have on the viability of housing associations in Scotland.

I would encourage you not to think of that figure as precise, as it is our best estimate. I should also say thank you for the invitation and the opportunity to give evidence.

Not at all.

I asked about the precision of the figure because £221 million seems fairly precise. If the figure was £250 million, I might assume that you had made a guesstimate. However, £221 million seems a fairly precise figure, and that is why I raised that point.

If it helps to think of it as £220 million, then please think of it as that, because it is a best estimate that was prepared by consultants who did some research for us for a report that is still forthcoming—unfortunately, it is not available at this stage. It looks at the impact of the changes in eligibility for benefits of the population of households in the housing association sector and extrapolates from some detailed work, particularly landlords’ estimates of the impact on their tenants. We do not have that information for the whole sector. Indeed, some landlords do not have it for themselves, but they are working on getting it.

We therefore estimated the impact that changes in non-dependent deductions, the deduction for underoccupancy—the bedroom tax, as it is unpopularly known—and various other changes will have on tenants’ income in terms of housing benefit, council tax benefit and wider reforms. The fourth factor, which is probably the most significant of the lot, is that benefits will be uprated by the consumer prices index rather than by the retail prices index, which creates a kind of wedge and contributes to about half of the total amount of the loss.

Our estimate is that the £221 million is the value of the savings that the United Kingdom Government will make from the incomes of tenants in our sector, and it is therefore the loss to our tenants.

I was trying to find out exactly what that figure means as a share of your income. Clearly, £220 million is 22 per cent of £1 billion and it is 2.2 per cent of £10 billion. I am trying to look at the impact of the figure in overall financial terms on the sector to 2016-17.

Your submission also talks about viability. Is there a potential danger that the viability of housing associations will be threatened?

As you will be aware from the evidence that you have taken, and as you will hear more about today, there are a lot of uncertainties and unknowns, and that is one of them. At this stage, I do not have an idea of the relative impact, although I might get an idea from the forthcoming report.

We are aware that tenants will lose a significant chunk of income, which will put them under a great deal of pressure. We will still endeavour to collect the rent. Landlords are working hard to establish who will lose what within their tenant population and what impact that is likely to have on those households. Landlords will support households to do whatever they can to ensure that the rent is paid continuously. We do not want to end up in the situation that we had back in the 1980s, to which you referred, when collection was difficult and expensive and arrears were high. High rent collection costs or high arrears would undermine the viability of any landlord, social or private. Therefore, we are doing everything to minimise the impact on viability, but that is a concern.

Mr McColgan, your submission states:

“Carers Centres are seeing an increase in demand for support and advice”.

In particular, you say that Pollok carers centre

“has seen in the region of 83% increase in enquiries around welfare benefits alone and a 250% increase in referrals for support during the last quarter”.

The Pollok area is dear to my heart, and my mother is a councillor there. What impact will there be in the next year on the voluntary sector’s ability to deliver advice, and what do you hope the Scottish Government can do to mitigate that?

Your submission goes on to talk about the potential impact on preventative spend, which you say is possibly being used to plug gaps because of the reduction in finance that is in part a result of the welfare reform legislation. Will you comment on that, too?

The third sector is playing a huge role in supporting individuals who have been affected by welfare reform. That plays directly into what the third sector does best, which is supporting people at community level. The Pollok carers centre is just one example of that. The individual who gave me the information on the centre informed me that she has 360 hours of time off in lieu, so she has done 10 weeks of free work to try to deal with the demand.

The third sector has experience of working to support people who are affected by welfare reform. Our big concern is about the level of support that will be needed for grass-roots volunteers who have to understand the reforms and then help people who come to them. People who present at carers centres looking for advice are often in a state of worry and have probably got their information from the press and not sources of solid information. The sector is keen for the Scottish Government and Parliament to take a key leadership role in supporting everyone across Scotland, whether in local government or the third sector, to support grass-roots volunteers and others who work at the coalface to understand what the welfare reforms mean for individuals and to be able to help those people.

A prime example is the expectation that 80 per cent of people who apply for universal credit will do so online. That will create a massive demand. We are talking about people who potentially do not have access to computers and who might have literacy issues and therefore cannot go through the process. Third sector organisations will have to support such individuals. Local libraries will potentially have to provide access for such people. A lot of training and support will be required locally and nationally to support organisations to help people who are in that situation.

I have completely forgotten the second part of your question. Could you repeat it?

Basically, I asked about your concerns about the impact on the preventative spend agenda as a result of the money being used to plug gaps.

The third sector was delighted by the Scottish Parliament and Government’s commitment to preventative spend and to see the approach being rolled out.

Our concern is that, as budgets dwindle at a local level—there is a predicted 3 per cent decrease in local government budgets in the coming years—the preventative spend agenda is used as an avenue to support people who are suffering from the impacts of welfare reform. That could involve a spectrum of issues, including supporting young people who are impacted by welfare reform. As I said in my submission, someone likened the current situation to a perfect storm. We have never before experienced what is going to happen in Scotland in terms of all of the elements that are coming together at once. Our concern is that the preventative spend agenda that has been laid down by the Parliament and the Government is somewhat hijacked by the response to welfare reform. With that in mind, however—this might sound oxymoronic—we are quite keen for welfare to be seen as a preventative agenda as well. For example, if we can keep people in employment and increase employment in Scotland, fewer people in Scotland will have to be dependent on the welfare state. We are keen that any response to welfare reform be considered as prevention and acted on in that way.

You have talked about carers centres, and there are issues for citizens advice bureaux. How prepared will the third sector be for this legislation? If there is going to be a quantum leap in the number of people seeking advice, does the third sector have an appropriate number of adequately trained volunteers? Are you concerned that there might not be enough? Are you looking for mitigation from the Scottish Government and local authorities to help you to prepare?

That is a good question. The sector is committed to training staff and volunteers. The organisations will be thinking deeply about what welfare reform means to them and to the individuals they support. However, we are operating in an environment in which budgets are dwindling. As I said, local authorities are predicting a 3 per cent decline in their budgets. Quite often, organisations deliver services on behalf of local authorities or in partnership with local authorities. That 3 per cent decline at a local government level is exponentially increased when it comes to third sector budgets. Many local authorities are passing on a decrease in funding to third sector organisations that is greater than 3 per cent.

Welfare reform is coming. Demand for the services that the third sector delivers are already increasing, yet budgets are tightening and staff numbers are coming under pressure. We would be keen for there to be further support for the third sector. One of the good things that the third sector does is innovation—it often manages to do more with less. However, that is by no means a call to cut our budgets.

If we are to tackle the impacts of welfare reform, we have to work in partnership and find ways of enabling the third sector to work alongside local government and national Government instead of being seen as something that will pick up services that have been dropped at the other end.

Obviously, if you do not have the income, you will not be able to do that.

Dr Somerville, your submission says:

“Everyday requirements cost 10% – 20% more in rural than urban areas.”

That is an important point. Some of the areas that NHS Highland covers are extremely sparsely populated. Many of us have rural or partially rural constituencies, and I am sure that members will consider that point further.

I liked the content of your paper, but I wanted to ask about the issue of quantifiability. You say:

“An extensive review of the literature carried out by NHS Highland demonstrates that Illnesses in adults and children requiring inpatient care are likely to increase as a consequence of the health impacts of the Welfare Reform Act. ”

The paragraph goes on to make quite clear where the impacts will be. The last paragraph says:

“We are concerned that the Welfare Reform Act represents a significant but unquantifiable area of financial risk for NHS Highland.”

I realise that it is difficult for you to put a precise figure on the impact, but if the Government and local authorities are to prepare effectively and respond, they must have a steer on what you are anticipating. What work has NHS Highland done to try to quantify the impact, even if you are using fairly wide parameters?

10:15

I take the point. We could have pointed to documents that say how much the obesity epidemic, cardiovascular disease, cancers, mental health issues and so on cost the health service. For example, antidepressant prescribing for a year costs us well over £1 million. In trying to assess the impact on costs of an increase in mental health problems, which we might expect, we have to factor in not only the potential increase in antidepressant prescribing and other treatment costs but the impact on general services, such as primary care services.

We do not normally put figures on the cost of individual conditions per general practitioner consultation, for example. We could give you alarming figures about the cost of individual conditions, but we know that, if we added up all the figures, they would come to much more than the health service budget, because of the overlap and duplication between various conditions that are treated by generic healthcare workers.

There are a lot of other pressures that will affect how things develop. It was interesting to hear from the two previous speakers. A difficulty for us in anticipating the impact is that we do not know what people will choose to do if their income reduces. We know that people might have to choose between buying food and heating their houses. Different choices will have different impacts on health services. If people buy cheaper food, it is likely to be less healthy, which might fuel our obesity epidemic. If they preserve their diet but heat their homes less, there might be an impact on the conditions that we see in children and adults that are the result of living in cold and damp housing—that is an issue in remote and rural areas. We cannot quantify such impacts.

We have talked in previous submissions about the difficulty of knowing which way people will go. We do not know how the impact on health-risk behaviours will play out. People might carry on smoking, perhaps at the expense of other aspects of their daily living requirements, so we might have difficulty reducing smoking. It might seem paradoxical, but someone who is dealing with stress might turn to smoking, alcohol or drug abuse at the expense of paying the rent. That is why we have held back from giving you an idea of the financial impact, which will depend on how people choose to behave and on what happens in other sectors.

Much of what you talked about in your paper and just now is not about the immediate impact. There will be impacts in the short, medium and long term. An impact on cancer rates is not likely to have an effect on your budget next year or the year after, but there might be an impact 10 or 20 years from now—I am following the logic of the conclusion of your literature review.

I want to get a feel for the impact in the short to medium term, simply because there might be ways to address a sudden increase in health board expenditure, if budgets allow. It is difficult for Governments to respond effectively to health boards’ calls for more money when impacts are not quantified.

From the public health point of view, there will be a major impact on inequalities. We have a lot of initiatives to try to reduce inequalities. The health service is doing its best to contain costs across the board, and our drive on the preventive spend agenda is very much about keeping people out of hospital and in their own homes.

David McColgan mentioned the impact on carers, which is a particular issue for us in remote and rural areas. The interconnectedness of the various issues that you have heard about is significant. For example, will the housing benefit changes impact on carers’ ability to care for people in their own homes and in their own localities? If that is the case, it might lead to a rise in emergency admissions among elderly people, because we cannot put into place the anticipatory care plans that we have been working very hard to implement in NHS Highland to help to keep people at home. That is another downstream consequence of the issues in the voluntary sector and in housing that may impact on us.

Although we are looking to contain the cost, our agenda is to support people at home in their communities. For us, tackling inequalities to build community resilience is fundamental to helping to keep people healthy. I agree that it is not only about the immediate consequences in the next few years. We are looking 10 or 20 years ahead, when the health service already faces a demographic time bomb in looking after our elderly population. If we cannot keep young and middle-aged people healthy now, we will be even less able to deal with the consequences of the dramatic increases in the very elderly population in another 10 or 20 years’ time.

Thank you. Committee colleagues will now ask questions.

Dr Somerville touched on one of the subjects that I was going to raise. As the convener rightly pointed out, a number of us have a rural constituency or region to look after. I will pick up on a couple of points in Dr Somerville’s submission that relate to the fact that there are lower incomes in rural areas. We know that carers are particularly vulnerable in terms of having low incomes in any case. Many members of the committee have expressed the view that the provision for carers is inadequate as things stand.

I want to explore the negative impact that is caused by a reduction in the quality of care provided to individuals who have health problems and the financial impact that such a change can have on health providers. Could you compare the hypothetical cost that is involved if someone is able to stay in their family home, with the support of loved ones, with the cost of having to put someone into a more institutionalised setting because the quality of care available to them in the outside world has been diminished by some of the changes that are taking place? Is a much higher cost incurred to the public purse in the latter case?

Yes, it is. I have alluded to the fact that we know that, for all sorts of reasons, emergency hospital admissions by the elderly are not governed only by the clinical severity of the condition that they present with but are usually determined by their social circumstances.

We can put in a lot of support at home to deal with an exacerbation of an existing long-term condition. For example, a worsening of a respiratory condition can be treated at home if we know that there is someone who can provide care for the person at home. The sums involved are huge but it is difficult to quantify the amount of money that is saved by the health service because an informal carer, who either lives at home or lives close by, is able to look after someone through an acute episode of illness that might otherwise result in us, in conjunction with social care, having to put in a specific package of care to support them at home through the provision of either assistance with the activities of daily life—in the short or long term—or specific healthcare. The presence of a carer leads to a variation in the professional support that someone would want at home.

A worsening of a long-term condition might also result in a hospital admission. We know that once an elderly person is in hospital there is a tendency, despite our best efforts to limit the treatment to what is needed for that particular acute condition, for all sorts of other things happen, so admissions get prolonged because of other conditions that arise. When we come to discharge people home, our concern is about who will be there. People might have to stay in hospital for longer so that they are fitter when they come out, or we might need to put in place a short-term or long-term support package to help people at home. Alternatively, we might decide that someone cannot go back to their own home, which means looking at institutional care.

Given the point that David McColgan made in the SCVO’s submission about the impact on preventative spending and given what you have just said, would it be unfair of me to characterise the changes as a false economy? Welfare is a huge part of public spending, but we are talking about cutting relatively small amounts that are paid to individuals, which could have huge consequences for public sector costs down the line.

That is absolutely right. Treating the consequences is always more expensive than putting in place preventative spend upstream.

I will turn to housing issues, on which I will draw in Dr Taylor—I know that Dr Somerville has commented on such issues. I am thinking predominantly about rural communities, because they face a different dimension. We know that, when people in rural communities look for a house, some already face the choice of having to move 10, 20 or 30 miles away from where they grew up or have lived and where their support network is to find an available property—people are forced down a particular route.

According to what Dr Taylor and Dr Somerville have said, that situation might worsen, and further complexities that relate to underoccupancy and the amount of housing benefit that is available might make people’s choice even starker. What impact would that have on the social fabric of rural communities? I appreciate that you cannot at this stage quantify the impact, but could such a situation have a discernible impact on mental health and other negative social outcomes for the individuals involved?

Third sector providers and our members face a case load of increased concern and anxiety about what the welfare reforms mean in general, which is evidence of the increasing concern to which you refer. That is no less present in rural areas than it is in urban areas—it is a problem everywhere.

Distances in rural areas compound the problem. We had an interesting and perplexing example of someone in the Highland area who felt that she could not continue to live in the family home, which had two spare bedrooms, because of the impact of the cuts—they were potential cuts at that time—on her living circumstances. She looked in the Inverness area for alternative accommodation and found that she could access private accommodation, but at a higher cost to the public purse, because private rents were higher than social rents for larger properties. No smaller properties in rural areas were available to that individual.

In general, the social sector has not built a huge amount of smaller properties, because the emphasis has always been on creating homes that are flexible for the life of a family. Properties are not just houses or shelter—they are homes for a lifetime. The idea is not just to have one bedroom now, because a person might have an elderly relative staying with them in two years’ time, or a teenage child might return home after losing a job somewhere else. We can imagine all the possibilities.

People in Scotland are not being required to leave properties—that is a feature of housing policy in England, where people are being incentivised or encouraged to move. People in Scotland might want to move because they feel that they cannot afford to stay in their house as a result of the financial penalties that are being imposed, but moving is not a requirement. Making that distinction is important.

People might not be required to move but, in effect, many people have Hobson’s choice.

The choice is very difficult. I wonder whether anything precludes a body such as NHS Highland from helping with living expenses, if that keeps somebody in a home and allows them to continue to care for somebody. That might just need to stick to the wall for now, but the question is interesting. If we took the preventative spend agenda seriously, and if a small amount of money—perhaps £20 a week—helped someone to stay in a home and care for someone, we can think of the preventative value that that would have. We have not really explored that; I know that raising such issues is a high risk in this kind of arena.

10:30

Another dimension of rural economies is that many people depend on self-employment. In some cases, that is income substitution because, given the state of the economy, people have come out of full-time employment and have had to become self-employed. They perhaps earn modest incomes, might rely on housing benefit to make ends meet and could be in a property that has a spare bedroom. I am painting a picture that might be entirely hypothetical, but if there are individuals in that situation, they may use that room as their business space. They will face a difficult decision as to whether they can justify keeping a larger property. Does that situation present any problems, particularly for tenants in the social rented sector?

It will do. The draft universal credit regulations were published last Friday, after we had put together our submission for this meeting. The draft regulations raise a definition of a bedroom. That was explored during the legislative process in the House of Commons and the House of Lords, but the draft regulations are based on Department for Communities and Local Government and Department for Work and Pensions negotiations about what constitutes a bedroom, who is eligible to occupy how many bedrooms and so on. Offices for people who are self-employed do not count as bedrooms. However, the regulations are draft and comments are invited on them. The question of when a bedroom is not a bedroom is one that we will explore carefully in the next few weeks during the window of opportunity to comment on the regulations.

I have another point about the extra cost burdens. My understanding is imperfect on this, but there is an agreement between London and Edinburgh about the impact of extra costs for the Scottish budget arising from welfare reform and other aspects of UK legislation. If there are knock-on consequences of the kind that Margaret Somerville outlined, we need to monitor those carefully. That might be relevant to discussion later on. We need to know what we are spending at the moment, on what, and what impact that has. That must be tracked carefully. If we do not capture that information, we will not be in a position to prove a case about extra cost burdens.

Dr Somerville, you state in your written submission:

“We acknowledge the Department of Work and Pensions’ (DWP) calculation that Universal Credit is likely to result in either no change or a slight increase in income for the majority of claimants, but DWP has confirmed to us that the baseline for this calculation assumes that prior benefit reductions within the Act will already have taken place.”

That latter point is important. Can you expand on the scale of prior benefit reductions, or the drop in the baseline, if you like? Can you quantify that?

Sorry, we are looking at—

It is just towards the end of the third paragraph of your submission.

Yes. I am sorry, but I cannot call to mind what that immediate reduction is likely to be. Our view was that income would stay about the same after universal credit reapportioned it. I think that I am right in saying that the current overall reduction as a result of what has happened already is probably in the order of 10 per cent, but I will have to get back to you on that.

That is helpful. We are aware that there is a 10 per cent change in the council tax benefit when it comes over to Scotland. I wonder whether any of the witnesses have an idea of the scale of the overall sum.

The top-line figure that is bandied about is that welfare reforms will result in a £2 billion reduction for the Scottish economy, so there will be £2 billion less coming to people in Scotland. That is obviously divided as a 10 per cent reduction here and a 20 per cent reduction there. However, £2 billion is the figure for the total reduction for Scotland that is often raised and which was given in previous evidence sessions.

That ties in with Dr Taylor’s figure of £220 million.

Yes.

That would be about right, because we house approximately 11 per cent of the population.

That is obviously where the £220 million figure came from.

Mr Wheelhouse touched on the idea of underoccupancy. Dr Taylor said that the rules and regulations were not all set in place and were still being investigated. I wanted to ask about how fixed all that is.

There was some indication of flexibility around situations in which an extra room was required for a disabled person or a child who needed to store equipment in it. Is there a suggestion that, if someone had to move 50 miles to get an appropriately sized house, the DWP would accept that that was not possible? What about situations in which nothing is available? I think that the Glasgow Housing Association is going to start building one-bedroom houses, but they will not be available soon, and constituents are already asking me about the issue.

I think that the DWP will set the rules. At the moment, they are draft regulations, and there is a provision for people who require a carer to have an extra room. People are welcome to comment on the regulations and raise concerns—Mr Mason can make comments through us, or the committee can make comments independently.

The regulations will define the rules according to which the claimants will be assessed. However, as David McColgan has mentioned, the whole application process is being handled online and I foresee there being no discretion in these situations. That is one of the key differences between local administration based on local knowledge, which creates a situation in which representations can be made, and a highly bureaucratic online system. I would not like to bring “Little Britain” into this, but you can imagine what the catchphrase might be.

Theoretically, the DWP’s plan seems to be that, every time a family’s size changes, someone will have to move house. If a couple splits up or a teenage child who is living with one parent goes to live with the other parent, people will have to move house, which is extremely stressful, apart from anything else.

As I said earlier, they would not have to move, but there would be financial penalties on them if they did not.

For a lot of people, that would mean that they had to move, because they do not have the money.

Yes, in practical terms.

The SFHA paper made a point about local expertise. Paragraph 6.3 says that

“direct payment of Housing Benefit direct to social landlords is very administratively efficient”,

and goes on to say:

“We would wish to discuss with the Scottish Government the potential for local administration of Universal Credit”.

Is that something that the Scottish Government has any power over, or is that purely a matter for the DWP?

The Scottish Government has no power over that matter. The proposals involve the DWP making assessments of online claims from all applicants across Great Britain and possibly Northern Ireland. There will be no local administration. The other day, we clarified that there will be telephone hotlines, but it is unclear where they will be based, what degree of local knowledge people will have, whether there will be freephone numbers or how advocates might represent people who are not able to make their own case.

In the informal discussions that we have had with the DWP, it is becoming much clearer to me that the migration from the predecessor agencies and benefits system into a single online system represents quite a challenge for the DWP. One of the biggest challenges for it is the area around council tax benefit and housing tax benefit, which are administered by local authorities. The DWP sets the rules, but everything is administered locally.

Last week, we heard a suggestion that all that the current housing benefit or council tax officer could do would be to phone up the DWP on behalf of the resident.

Yes. The comment that you quoted was made in the spirit of posing a question about whether we have turned all the stones—I would hate to leave any stones unturned. What came through to me from the evidence that was given to you last week was the consistency between the arguments that you heard then and the argument that we have been making, which is that local administration by councils is hugely valuable and, if there is any possibility of retaining that in any shape or form, we would want to encourage exploration of that. That is all that we are saying. It is not obvious to us how that would happen, but it is worth asking the questions, bearing it in mind that this will be one of the most challenging areas for the DWP, which proposes to introduce the system with effect from next year. As I keep saying, there are many uncertainties and unknowns.

Despite the fact that a lot of this is happening next April.

Indeed. The implication is that our sector cannot advise its tenants about exactly what the arrangements will be and it cannot put in place plans to mitigate the effects because there are so many uncertainties.

I presume that the third sector cannot give specific advice at this stage, either.

That is absolutely right. The issue is not just about carers associations or citizens advice bureaux; a large number of advocacy groups are trying to give advice to the individuals who approach them. All that we can say at present is that things are not certain. Until the universal credit regulations are published and we understand what they mean for individuals, we cannot give hard advice. That is one of the main challenges. The changes are coming soon, so there is a bit of frustration that, at present, we just cannot help people to prepare for them.

The issue of housing association reserves keeps coming up and is mentioned in paragraph 5.9 of the SFHA submission. Do housing associations simply have a vague pot that they call a reserve, or is the money for an exact or defined need in future?

Most of the reserves are designated reserves, which means that they have been set aside for future maintenance of stock or renewal and improvement of stock. The basis on which the calculations have been done since about 1974—although it was adjusted in the late 1980s—has allowed a rent to be set that allows for the on-going maintenance and management of houses; for bank interest to be paid; and for a fund to be set aside to smooth out the peaks and troughs of demand in asset management and the long-term maintenance of stock, so that the asset has a long life, which is exactly as it should be. The reason why housing associations own many properties is that either the public or private sector failed to take that approach. It would be a travesty and would waste the legacy of housing associations to raid those designated reserves and to use money that has been designated for asset management for other purposes.

So there are no great free reserves in housing associations.

There will be small amounts of free reserves, which will vary hugely from one association to the next. However, in general, the vast amount of the existing reserves are designated reserves.

I, too, am interested in the suggestion in the SFHA submission that we might be able to disaggregate the housing benefit component and make payments to landlords. However, I cannot quite understand how that would work. If the payment is to the individual, I cannot understand how the Scottish Government might be able to arrange for a portion to be disaggregated.

As I said, that is a possibility. We had not considered that possibility previously, but it is worth exploring as we move closer to the date when the changes are introduced, although it might lead nowhere.

I just wondered whether you have a suggestion that we could make to the cabinet secretary at the evidence session next week as to how the mechanics might work. It sounds like a good idea to me, but I do not understand how, as the payment is to be made to the individual, the Scottish Government could remove part of it and pay it to somebody else.

The idea might require further discussion. As I said, the suggestion is posed as much as a question as anything else, and in the spirit of exploring all the possibilities to minimise the damage. As things stand, you are right that the payment will be made to the individual. I emphasise that, as far as we are aware, when an applicant for universal credit gets the gross amount for which they are eligible, they will get a breakdown of how the payment has been arrived at but, if there is any adjustment because of a cap or earnings, they will see only the net amount, so those people will not have any idea of what the payment is for.

Am I right that, for recipients of pensionable age, a payment will still be made to the landlord?

Yes; that arrangement will stand.

There is a mechanism that allows that to happen.

There is an existing mechanism that works. Our suggestion is born of an emphasis on the efficiency of the existing arrangements. Ninety-six per cent of tenants currently choose to have their rent support paid directly to their landlord without going through their personal financial arrangements. We think that that is a responsible choice. The system is very efficient, and it ensures that rent support gets to the landlord. The new system will change that and we are trying to ensure that we have not missed anything. That is the spirit.

10:45

There is the possibility of looking at whether the arrangements for people of pensionable age could be applied in some way in Scotland.

Indeed.

In last week’s evidence session, I was quite concerned to hear that the DWP is making the assumption that 80 per cent of people will be able to apply for their benefits online and that there is no statutory duty on local authorities, or anybody else, as far as I understand, to provide advice and assistance to the 20 per cent of people who it is assumed cannot apply online. It seems pretty unrealistic to me that 80 per cent of people have access to the internet. In many parts of the country far fewer people than that have access to the internet, either because there is not the infrastructure for it or because they do not have the confidence to access it. It seems pretty unrealistic that the advice sector and the voluntary sector will be able to help. From what I have seen in my constituency, there is already a great deal of pressure on citizens advice bureaux and welfare rights organisations from people asking for advice.

I think that somebody who gave evidence last week said that 80 per cent of people will not apply online on day one. That figure is the aspiration, but we must consider people’s access to a computer and their ability to use the internet and fill out a form. No one has seen what the form will look like, how complicated it will be or what questions will be asked. There are issues to do with rural communities’ access to broadband—people may still use dial-up services. Some people may never have used a computer or the internet before. Expecting an individual whose experience of the internet is very limited to walk into a public library or somewhere else and say, “I need help to do this” will be hugely stressful for that individual.

Obviously, the third sector sees that it could help out in the area, but we do not have things already set up, and that is not easy to do. There are dwindling budgets and there is more pressure on staff in considering other areas of welfare reform and other issues. There is a real concern about how to help individuals to access benefits in the first place, never mind what they will lose through welfare reform.

I know that a number of organisations are speaking to local authorities about how they can support individuals. They are taking the initiative off their own bat and are getting on with it. I suppose that the third sector is really good at that, but for it to be absolutely effective in Scotland, we need a third sector, local government and national Government initiative to support individuals. Obviously, the digital participation agenda is on the rise, and it will certainly feed into people’s ability to apply for benefits, but there is real concern about what things will look like and mean on day one. I would not be surprised if citizens advice bureaux across the country were inundated with people coming in to ask for advice. That is a real concern.

The other problem is to do with people making mistakes online. If a person makes a mistake in conversation with somebody, that person can say, “That figure can’t be right” and assist so that things are done correctly, but somebody could end up losing a lot of benefit if they make a mistake online. All sorts of issues could arise for them simply as a result of having typed something wrongly.

A number of housing associations currently have welfare rights advisers who assist tenants with income maximisation and ensuring that claims are correct and are put in on time. Some of that work is funded from rental income and some is funded from what used to be known as the wider role fund, but is now the people and communities fund. Associations will already be working to ensure that they have front-of-house online systems for tenants to be able to apply in future. That kind of support service will continue to work, but we made the point in paragraph 6.2 of our submission that the Scottish Government could help with some of the costs to ensure that there are opportunities for digital inclusion, broadband in people’s homes and better broadband in rural areas.

My first question is for Dr Taylor. In your submission, you refer a number of times to the Scottish demonstration project, in which SFHA has taken a keen interest. Can you update us on where that project is and when we are likely to learn lessons from it? What are the timescales?

It starts next month. There are six demonstration projects across Great Britain. The one in Scotland is in Edinburgh. It involves only housing association tenants and only those who will be of working age throughout the project—in other words, those who are under 59. They have all been communicated with already and are being advised by the housing association.

There are three research projects running with the involvement of Ipsos MORI, Sheffield Hallam University and the University of Oxford, all of which are monitoring and quantifying the impacts of the changes on households, in particular. They are conducting in-depth, qualitative interviews with people about the impact on the way in which they manage budgets and so on. The detailed research might not be available until the end of August next year. The full system is due for implementation two months later.

Thank you. In paragraph 1.3 of your submission, you say:

“Restricting the present system of payment of the housing support element direct to social landlords makes the collection of rent more costly, less efficient and more precarious.”

Do you have a sense of how much more it will cost to collect rent and how much less efficient and more precarious the new system will be? Has the SFHA done work to quantify what the risk might be for various housing associations?

That is work in progress. We know that if tenants on low incomes do not have a bank account or are not involved with an organisation such as a credit union, there will be no mechanism for them to get the payment and pass it on to us. We need to look at alternative mechanisms. Post office accounts might work, but there are problems with them. PayPal might work, but it is very costly. Credit unions do not have technical facilities for doing some of what is involved.

One reason why the new system will be more costly is that it individualises the process. One reason why the present system is efficient is that it involves batch processing. Because it operates electronically, it is possible to go back and check that everything that should have happened did happen and iron out any discrepancies. From a systems perspective, it is extremely efficient.

Any difficulty that is experienced in the rent collection process has a knock-on effect for rent arrears. I think that that deals with the points about cost, efficiency and precariousness.

I have a couple of questions for Dr Somerville about effects of the Welfare Reform Act 2012. In your submission, you suggested that health-risk behaviours such as smoking “may increase”, but that alcohol use

“may decrease due to lower spending capacity”.

Will you explain why welfare reform might affect smoking and alcohol use differently?

That encapsulates some of the uncertainties that have been discussed. There is good research that shows that people on low incomes will preserve smoking at the expense of other activities. That is assumed to be a response to stress. Only when the sources of that stress—which might include housing insecurity and other concerns—are tackled do those people feel able to give up smoking. I am not sure that we are necessarily talking about people taking up smoking, although that might happen; it is much more likely that people will find it much more difficult to give up smoking and might smoke more, which, given that they are on a limited income, will impact on food and other items.

The same mechanisms might come into play in relation to alcohol use. Mary Taylor went into detail about whether people who—paradoxically—will have more disposable income, because they will be paid benefits directly, will choose to spend more on alcohol or illegal drugs.

You said in your written submission:

“alcohol use ... may decrease due to lower spending capacity”.

I was coming on to that. We know that alcohol consumption is closely linked to affordability and price, so an effect of a decrease in disposable income is that alcohol consumption will go down. The introduction of a minimum unit price, which we welcome, is based on the connection between price and consumption, which is well documented nationally and internationally.

In that context, the glass is half full—sorry—in that we might see a beneficial impact. However, we cannot have certainty about that, because the impact will depend on a mix of factors that will emerge, such as people having more income at their disposal. If alcohol is more expensive, the effect of an increase in disposable income might be mitigated. Predicting the effect on health-risk behaviours is complex.

You said in your submission that an impact of the Welfare Reform Act 2012 could be an increase in

“unprotected sex in adolescent girls”.

Will you explain the connection?

We know that teenage pregnancies are closely linked to socioeconomic status. The problem is very much confined to the most deprived sections of the population. If there is an increase in the number of people in the lowest socioeconomic group, there might well be additional teenage pregnancies.

That will perpetuate the cycle of deprivation, because we know that babies who are born to teenage parents absolutely have a worse start in life. They are likely to be of lower birth weight and their mothers are less likely to breastfeed and to be able to care adequately for them. We need to support early years development, which gives people a good start in life and ensures their good health in later life, and supporting teenage parents is particularly difficult, because an enormous amount of support is needed.

We are considering the possibility of adverse impacts in that regard. Maybe we were not right to talk about an increase in unprotected sex; it is about girls choosing to keep their babies, which means that there are more teenage pregnancies and young parents.

I found the connection strange. Has a study demonstrated such a connection, or does the national health service just have a hunch about it?

There is supporting work, although I think that the evidence is circumstantial. If you want more detail, I can send you references of papers that consider the complex interplay between socioeconomic circumstances and teenage pregnancy and what happens to babies who are born to teenage parents. It is difficult to say that one causes the other, but there is a strong association. As with other health-risk behaviours, it is tricky to predict impacts.

I was going to talk about underoccupancy, but most of the issues have been covered. It is clear from the evidence that we received last week and this that an approach to problems in London will have a detrimental impact in places that are far from London, particularly our more remote communities.

Dr Taylor, you mentioned housing association reserves for maintenance and other costs. You said in your submission that you expect a significant increase in rent arrears. How will that impact on housing associations’ maintenance regimes? I suppose that maintenance requirements will vary, particularly where there has been stock transfer.

11:00

The failure to collect rent and arrears will impact on organisations’ cash flow, with three potential consequences. One, as you rightly identified, is the impact on maintenance programmes. There is routine maintenance and there is long-term planned maintenance, which is what designated reserves are there for. If there is no money to go into the reserves, no pot will be built up for the future, and the amounts for current maintenance could be compromised. Another key factor is that rent goes to pay for bank charges, which are governed by interest rates and associations’ exposure to debt. Stock transfer associations typically have high debts to start with, so that is a problem. The third aspect is that associations employ staff to manage properties and get access for new tenants, and to make sure that vulnerable tenants are supported, tenancies are sustained and houses are maintained. Those things are all part of the management of maintenance. Any interruption to cash flow can impact on any of those three major aspects.

We spoke to local authority colleagues last week. They spoke about the need for a new collection regime that would go back to the old system of going round the doors, which I presume would significantly increase the staffing requirement. At the moment, I imagine that you have a couple of administrators in the office who make sure that money comes in electronically, but housing associations may now have to employ people to go out and collect rents from tenants directly. Do you foresee that having to happen?

I started off my career as a rent wife in Aberdeen, going round the doors and doing that kind of thing. The amounts of money that people had, and the amounts of money that they gave in rent, were very different from the amounts that we are talking about now. The value of rent collection is quite high, so there would be serious issues about the personal security of anybody collecting rent door to door. For that reason, I am not hearing anybody in the sector talking about putting in place significant door-to-door collection systems. I am hearing about people talking to credit unions and trying to get banks to provide different products to people who are on very low incomes. There is also talk about things such as PayPal and Post Office accounts and finding different ways of collecting rent.

At the moment, the money goes directly to the housing association, rather than via individuals. Some people may not have access to the internet and may not be savvy about setting up payment schedules. How do we ensure that those people are able to pay their rent when they do not have those kinds of means available to them?

Digital inclusion should help, which is why we are calling for more support for that. The other thing would be for banks to make accounts available to people who are on low incomes. The experience that we often get from various sources is that banks are not interested in tenants, because of their low incomes. Also, tenants are fearful of taking out bank accounts because of the charges that are levied—that is not to do with internet dependency. There is a good distribution of banks, but if people do not have enough money for their outgoings, they will go into overdraft, at which point charges start to apply. People are fearful of that.

Thank you. You have identified an interesting point about the role that the banking sector has in smoothing some of the transitions.

Mr McColgan spoke about the pressures on the third sector. There is often a difficulty when the third sector brackets together a huge range of organisations. Some organisations have multimillion-pound turnovers and large amounts of money in reserve, and will not be as adversely affected as some of the smaller organisations, which have three or four members of staff and perhaps survive on a shoestring. Is the SCVO doing any work to differentiate which organisations or sectors are more likely to be at risk as a result of the changes?

That is a valid point. The third sector is quite like the banking sector in that 7 per cent of third sector organisations account for 95 per cent of the turnover of the sector. You gave the example of the charity with the multimillion-pound turnover. That is not the case in Scotland, where 93 per cent of sector organisations are small, community-led organisations, many of which are starting to dip into their reserves to deliver services. A lot of those organisations exist for a cause that they believe in; they do not exist for profit. In fact, they are more likely to dip into reserves to deliver services that they see as vital to communities.

On the issue of differentiating the sector, many of the organisations that are picking up the welfare issues are small, community-led organisations. We are talking about the social enterprise cafe whose purpose is to give money advice but whose cafe helps it to exist. Although we have the big charities working in the sector, it is the very small organisations that will be seriously harmed by welfare reform and will see demand increase.

Going back to earlier comments, I think that it is about local organisations and local communities helping local people. We are not talking about big organisations parachuting into areas that need help. I think that it is about the organisations that already exist to support individuals, often on very small budgets. They do not have the multimillion-pound bank accounts; they have a very small turnover. Those are the organisations that will really be harmed when they start to see an increase in demand for their services.

I was speaking to someone the other day who informed me that three or four food banks a week are opening in Scotland. Food banks are run not by big national organisations but by small communities coming together to support the most vulnerable within those communities. That is really what we are getting at in the third sector. Although there will of course be an impact on the big advocacy and advice organisations such as the citizens advice bureaux, we must look at how we can better use local expertise to support individuals.

Do you see a role for third sector organisations working much more closely together, for example in consortia—particularly at the micro level—where there is a common cause or overlaps? Might that help to mitigate some of the impacts that you describe?

Absolutely. That is a key point. The third sector has been very good at coming together and creating consortia. The biggest example of that is the community jobs Scotland initiative, which has more than 500 organisations delivering in the 32 local authority areas. That is what the sector is about—it is about innovation and coming together. In a time of crisis in demand, that sort of approach will be very popular. We would encourage the sector to come together to support that kind of approach.

I stated earlier that what is needed to tackle the effects of welfare reform is not the third sector, local government or national Government; it will be everyone in Scotland. We will be stronger if we work together to tackle this.

I have what might be a big question for Dr Somerville. Your paper has identified what we would refer to as known unknowns, in that we know that something is coming but we do not quite know what it will look like. What can be done to prevent or mitigate the outcomes that we have talked about, or is the issue essentially that these things will happen but we just do not know their severity?

I would absolutely agree with you that we have the known unknowns. To be honest, the steps within the health service are perhaps less important than the discussions that we are having elsewhere. The real mitigation comes upstream—it is about preventative spend, how we are supporting communities and how we are reducing inequalities. It is initiatives such as fairer Scotland and equally well that will support people in their communities and help them to manage their more limited finances. The social disruption to families that we are expecting will lead to an unquantifiable increase in pressure on primary care services.

Upstream services can do a huge amount. If we organise the voluntary sector to support us and get community resilience, which is in essence what David McColgan has talked about, that will reduce the impact on health services. The effect is obviously difficult to quantify, but we are clear about the connections. I have talked about the trend in the health service of trying to do the upstream preventative work in primary and community care to avoid the downstream health consequences.

For example, an issue that we are concerned about is people having poorer diets because they choose to eat cheaper, less healthy food. We are already struggling to tackle the obesity epidemic. If we do not want to invest further in downstream services such as bariatric surgery, which is a huge pressure in the service at present that is likely to increase, we should ensure that we invest upstream. In that case, the issue is what we do to make healthy diets cheaper and how we support food banks and food co-operatives to deliver fresh fruit and vegetables in rural areas. We know that that is a major issue in rural areas, because fruit and vegetables cost more and are more difficult to keep because of their short shelf life. That support would be key to helping people have a much healthier diet and would prevent the downstream consequences. That is one example of how our public and voluntary sector partners could contribute to a reduction in health service costs.

I have not talked much about mental health issues, but we expect an early impact on mental health services and particularly on primary care services. Again, we need community resilience and support. Uncertainties and unknowns produce stress in people, which leads to depression and anxiety. That will have an impact on primary care and on our mental health services. If we can give people clear advice and ensure that they get everything to which they are entitled, that will reduce the impact on their mental health. We therefore support that work, as it reduces the impact on services while supporting the equalities work that we are already doing.

I have a couple of questions just to finish off. Dr Taylor, I have never heard the phrase “rent wife” before. I do not know whether it is an Aberdeen expression.

It is.

You talked about the impact on the rental stream. Obviously, housing associations are keen to keep up the levels of maintenance and investment in new properties. Is it therefore possible that some housing associations will consider raising rent levels more than they would otherwise do?

A recent survey of our members showed that associations are raising rents at an average of 4.7 per cent. Some of them have contractual obligations that require them to increase rents at inflation plus. Sometimes, the contractual obligation is to increase rents at RPI plus, which is why the wedge between that and uprating benefits based on the CPI is an important issue. The obligations are sometimes to do with covenants to banks to ensure that there is rent growth, that the rent is paid and that there is an income stream for the banks to get their return.

Sorry, but I have lost the thread.

I asked about the potential impact on rent levels. I am aware of the contractual obligations that you mention. Glasgow Housing Association provides an obvious example of that, but not all housing associations have such obligations. I wonder whether the issue is being considered. Are the banks putting pressure on associations to revisit the levels?

The banks are encouraging associations to revisit the levels, but that is for a different reason, which is so that they can lend at higher rates than at present. The banks lent a lot of money to the sector in 2007 before the credit crunch. The colloquial expression that the banks use is that they are lending below the waterline. If they have opportunities to reprice their lending books, they will take them. That would have a natural impact on rent levels. Associations are trying to ensure that they avoid repricing if possible, for reasons of self-preservation as much as anything else, and to keep rents at affordable levels. We pride ourselves on being able to keep rents affordable to people. Putting rents up unnecessarily at a time when wages are being cut and people are losing jobs, and when there is benefit reform that is impacting on households, is not the most sensible strategy. As I said earlier, that is work in progress.

11:15

There is always the question of whether you have to as opposed to whether you want to, which we are trying to explore.

Indeed, but there is the classic problem: if you are not getting your money in, does putting up the charge that you are making for something increase your income?

One reason why there was a deterioration in the number of tenants who were in council stock in Glasgow was that the rents were higher than the rates that people were offered for mortgages at the time. People got mortgages instead, and we ended up demolishing thousands of houses as a result of that and other reasons.

In paragraph 5.7 of your submission, you state:

“increasing insecurity of revenue streams will compel lenders to increase the cost of private finance.”

In paragraph 5.8, you go on to say:

“Not only will the availability and terms of private finance constrain the ability of the sector to sustain much needed new and genuinely affordable housing supply, but it will also impact on the funding of retrofit to existing stock.”

Can you say a wee bit more about what you see as the likely impact in that regard? You have already talked about the likely impact of welfare reform on financing.

Associations will typically be financed from rental income and from borrowing—the rental income pays for the borrowing. The borrowing could be used for new build or for retrofit to existing stock, which might involve insulation and energy efficiency measures. There will be reserves to help with that. Each association has its own pattern, because each has its own history and balance of historical factors. If reduced cash flow starts to interrupt the ability to pay for maintenance, there is a knock-on effect on the availability of reserves, the ability to borrow and therefore the availability of money to do any of the work that is required.

Will that increase the risk that the banks and other institutions may perceive? That in itself may encourage those institutions to seek higher interest rates, for example, for the repayment of money that they advance to housing associations. Is that likely?

Yes, and it is already having an effect. We are in the middle of surveying it at present, so I cannot give you chapter and verse, but we will be happy to share the results of the survey in due course if you are interested.

We are aware of the impact on anyone who is trying to access money to complement the greatly reduced subsidy levels for new housing, which were cut from approximately £70,000 per unit to £40,000 last year. That cut means that less than half of the total funding for any given house is coming from subsidies, so more than half has to come from private borrowing. If one combines that exposure to risk with the fact that the finance sector is facing its own pressures, that means that the cost of borrowing is much higher than it used to be, for much shorter periods of time. It is now unusual for people to get access to funding for more than five years, whereas 30-year funding used to be normal.

I met one of the housing associations on Monday; it was talking about a 45-year loan period as it is looking to develop with the private sector. I hope that others will be able to do likewise.

Bond finance offers different opportunities; it is becoming of much greater interest in the sector because of the period as well as the rate.

Ultimately, however, the Welfare Reform Act 2012 will have a negative impact on access to finance.

Yes.

I thank you all for your evidence today; we very much appreciate it.

11:19 Meeting suspended.

11:26 On resuming—