Housing associations have backed a call from MPs to delay the direct payment of housing benefit to social tenants under Universal Credit.

The call came from the Work and Pensions Select Committee whose inquiry into Universal Credit recommended that, during the initial phases of the programme, claimants who currently have their housing costs paid to their landlord should have the option to continue with this arrangement.

Universal Credit will replace six benefits and tax credits – including housing benefit – from October 2013 and will be paid directly to individuals monthly in arrears. Pilots to test the end-to-end system are due to begin in north-west England next April.

The MPs warned that while the new system will be effective for the majority of claimants it has concerns for some of the more vulnerable benefit claimants.

The committee said time needs to be allowed for a proper evaluation of the Government’s demonstration projects – currently half way through – which are testing the direct payment of housing benefit to a sample of tenants.

The report said: “We believe that time needs to be allowed for a proper evaluation of the pilots which the Government is running on direct payments to tenants, followed by a phased implementation of direct payments, after appropriate safety net arrangements for vulnerable people have been developed and tested.

“We therefore recommend that, during the initial phases of Universal Credit implementation from April 2013, claimants who currently have their housing costs paid to their landlord should have the option to continue with this arrangement. It is also important for the Government to move quickly to publish a clear definition of “vulnerable” groups within Universal Credit for whom it will not be appropriate to include housing costs in their benefit payment. It also needs to establish a robust process for proactively identifying claimants who are struggling to manage their housing costs so that they can be properly assisted before they fall into arrears and face eviction.”

While it welcomed the Government's decision to exclude supported exempt
accommodation from Universal Credit, it said the Department for Work and Pensions (DWP) must urgently finalise and publish the details of the revised arrangements so that providers have the certainty to plan ahead.

"DWP must also clarify how the administration of supported exempt accommodation rental charges will operate within the Universal Credit system, and in particular, whether or not housing costs will be paid direct to landlords," the report said.

The National Housing Federation said the DWP must listen to MPs and delay the plans and give residents the choice to continue to have housing benefit paid direct to their landlords.

Chief executive David Orr said:  “Our research shows that one million social housing residents risk falling into debt if all their benefits are paid to them directly in a single monthly payment and will need extra support to manage their budgets when Universal Credit is phased-in next year. A delay would give time for a full evaluation of the Government’s trials before the system is rolled-out nationally, and enable safety nets to be arranged for the most vulnerable."

The six demonstration projects, made up of councils and housing associations, have seen mixed results since they were launched in June. The Government released survey results in October which showed that 54% of tenants in the trials “said they were confident receiving their housing benefit payment directly to their own bank account”. However, that was before the projects started.

Landlords in the trials have revealed a range of challenges. GreenSquare Group said that while 50% of its sample had adapted to direct payments, there were rent collection issues with the remaining 50% and said that it had taken five people to court over unpaid rent.

The chief executive of one of the other housing associations involved in the demonstrations – Kevin Dodd of Wakefield and District Housing - said he hoped the results will change policy at a national level and that tenants will retain the choice to have housing benefit paid to their landlord.

A DWP spokesperson said: "We are working now with councils and housing associations to ensure that the right protection and exemptions are in place for both social tenants and social landlords ahead of Universal Credit.

"Direct payments are an important part of Universal Credit to make it easier for people to move into work, but we’ve been clear from the outset that we will take steps to ensure vulnerable people don't miss out."

Meanwhile, the Chartered Institute of Housing (CIH) estimates that 400,000 working families will have less income with Universal Credit in 2015 than they did in 2010, demonstrating that the Government's aim for households to be better off in work that out of work under Universal Credit is not the case for all families.

The 400,000 families who could be hardest hit, warns the CIH, include some of the lowest earning in the UK - households that earn £247 or under per week will all see a fall in real income in 2015 and lone parents with one, two or three children will always be worse off if Universal Credit continues in its current format.　

Grainia Long, CIH chief executive, said: "This is a critical time - 400,000 of the lowest earning working households in the UK could see a real drop in income under Universal Credit. Changes to address this need to be made now. The principles underpinning Universal Credit are the right ones, but as our report sets out, it is imperative that the detailed design of Universal Credit ensures that low income working families are not disadvantaged."