Households in rollout areas to receive housing benefit after new system found to be incompatible with councils’ obligations

Ministers are to bow to pressure to exclude homeless families from universal credit after it emerged that design flaws in the troubled new benefits system have triggered an explosion in rent arrears, costing council tax payers millions of pounds.

Local authorities in London say rent collection levels for homeless tenants placed in emergency accommodation have collapsed following the introduction of the universal credit digital service last year.

Croydon council says it faces an unpaid £2.5m rent bill this year as a result, and has warned ministers this scale of losses is unsustainable. It said the costs were leaving councils potentially unable to meet their statutory duties under homelessness law.

Councils have pointed out that universal credit rules force homeless families to be put up in short-term, bed and breakfast-style lodgings to wait six weeks to qualify for rent support, something they say is incompatible with laws that require councils to move those families on to more suitable accommodation within six weeks.

Large numbers of families placed in bed and breakfast accommodation in the boroughs of Croydon, Southwark and Sutton have run up arrears averaging £1,500 before being transferred by the authorities, leaving councils to foot a bill that under the old system would have been met by housing benefit.

Alison Butler, Croydon council’s deputy leader and cabinet member for homes, regeneration and planning, called on ministers to take urgent action: “Universal credit and the benefit cap have left hundreds of Croydon families in more debt and saddled the council with spiralling costs, so the government must fix this flawed policy before it goes nationwide.”



It is understood that ministers are preparing to issue new guidance under which homeless families in full universal credit rollout areas will receive financial support through housing benefit. This would represent a significant reversal for the new system, which was supposed to simplify and universalise the benefit system.

A Department for Work and Pensions spokesman said: “We are working with local authorities to ensure the small number of universal credit claimants living in emergency temporary accommodation are fully supported, including looking at new exemptions for those who are made homeless.”

Croydon has told MPs that universal credit policy and design is “simply not compatible with the effective discharge of those councils’, or indeed any council’s, responsibilities to homeless households”. It said housing benefit was “a system that has historically proven to better suit the vulnerability of this customer group”.

Before the rollout of full universal credit in each of the three boroughs, which were among the first in the UK to move to the full system, rent collection levels for tenants in emergency accommodation were over 90%. However, these fell rapidly following the move to the new system: to 59% in Croydon, 44% in Sutton and 51% in Southwark.



Universal credit customers are not able to claim housing support if their rental liability is less than six weeks. However, it is unlawful for councils to keep homeless families in emergency lodgings for longer than six weeks. Ministers periodically admonish or fine councils which breach the six-week rule. In the past this has included Croydon.

Concerns over homeless families follow wider fears over universal credit-triggered rent arrears more generally. A Guardian investigation last month found that in some areas as many as eight out of 10 of all tenants on universal credit had fallen into arrears or increased existing arrears since moving to the new system.

Three-quarters of homeless households in bed and breakfast-style accommodation are families with children. Nearly two-thirds are lone parents and it is not unusual that they are fleeing domestic violence or have a mental illness. Most are not in work or in a position to pay rent.

The bulk of the expected tens of thousands of homeless claimants affected each year are expected to be in London, where pressure on housing is highest. The latest quarterly official homeless figures released on Thursday revealed that the number of households in bed and breakfast accommodation in England has risen by 17% over the past year.

Universal credit was introduced by the former work and pensions secretary Iain Duncan Smith in 2013 as a way of ensuring claimants would be better off in work than on benefits. However, Treasury cuts to work allowances within universal credit have reduced the incentive for some claimants to get a job and will leave 1.2 million working families worse off.