The Federation has welcomed Government plans to invest up to £145m in bank accounts for low-income tenants transferring to Universal Credit – but said the subsidy should not be limited to one year.
20 September 2012
Ministers are calling for a range of suppliers to explore the feasibility of new financial products to help benefit claimants budget and manage their money.
They want the products to protect against ‘mis-spending’ and ensure that essential bills and payments are met and that payments can be ring-fenced.
The Department for Work and Pensions is expecting interest from a range of financial providers, including high street banks, mobile phone operators and pre pay card providers, and has announced it is willing to invest between £80m and £145m.
The announcement follows calls by the Federation for the Government to provide extra support for social housing tenants who may struggle to pay their rent when they receive their support for housing costs directly.
In a summary of its proposals, posted on a procurement website, the DWP estimates that ‘up to 2.5 million Universal Credit claimants’ will need additional support to manage their money during the transitional period. It says it wants to enable claimants to access financial products that offer budgeting support by ‘subsidising the cost of these products for an interim period of one year per claimant as they transition onto Universal Credit’. It adds: ‘At the end of the initial subsidised period DWP will withdraw the subsidy. The claimant will then choose whether they wish to continue using the account, with either themselves or a third party meeting the ongoing monthly cost’.
Federation chief executive David Orr welcomed the investment but warned that limiting the subsidy to one year could be problematic for some tenants. He said: ‘We welcome Lord Freud's recognition that benefit claimants may need help managing their money when Universal Credit is introduced, and we hope his challenge to financial providers to design the product will create an account that will help people avoid falling into arrears and debt.
‘The Government’s commitment to cover the cost of running these bank accounts for the first year under Universal Credit is a welcome step. But what will happen in 12 months and who will pick up the tab when this funding stops? While this support is much better than nothing, it fails to provide the long-term stability for the thousands of residents who need an affordable bank account they can rely on as they get to grips with the new systems.’
A report by financial exclusion experts Toynbee Hall, commissioned by the National Housing Federation, found that many social housing residents don’t have a bank account, or only have a Post Office account, which doesn’t allow outward payments. It also found that due dates for rent and benefit payments rarely coincide, making it even harder for residents to pay their rent on time.