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Welfare reforms increase cost of administering benefit payments

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The cost of administering benefit payments has increased for more than half of councils according to a study on the impact of welfare reforms, prompting concerns about the effect proposals to cut welfare spending by a further £12bn will have on local authority finances.

A survey of 44 local authorities and 31 housing associations for Grant Thornton’s report on the impact of welfare reform on local government and the social housing sector, found that between 2012-13 and 2013-14, 47% of councils had seen the cost of administering housing benefit increase by £50,000 a year or more. A further 6% had seen the cost increase but by less.

The report said respondents attributed the increase in costs to the need for additional staff to process an increasing number of complex claims and deal with queries. The costs were also associated with correcting a “large increase” in benefit overpayments made as a result of “complex” entitlement rule changes, such as the spare room subsidy and benefit cap calculations, as well as cases of benefit sanctions or delays to applications.

The cost of council tax administration had also risen for 39% of councils. Within that figure, 18% reported an increase in costs in excess of £50,000 a year. While the report said there had been a fall of less than 1% in council tax collection rates overall in 2013-14 compared with 2012-13, 88% of councils reported a “significantly higher” number of council tax debtors over that period.

The report said if the trend of “reductions in the collection rate and increases in the levels of arrears…continues unmanaged, it will start to affect the overall level of funding derived from council tax”.

Almost two thirds (63%) of councils with housing stock reported a rise in average rent arrears since 2012-13. The report said councils attributed that to the impact of welfare reforms and added: “Discussions with several authorities and housing associations highlighted the spare room subsidy as one of the main drivers.”

LGC reported in February how families in London and the south-east were at greater risk of homelessness due to plans to cut £40m from a £165m fund used to help residents struggling to pay their rent as a result of housing benefit reforms.

Grant Thornton’s survey said 95% of local authorities surveyed thought recipients of discretionary housing payments (DHP) were either “wholly or partly dependent” on them to avoid homelessness.

The report said: “Any proposed reduction in DHP funding from central government is therefore likely to result in increased rent arrears and homelessness in the next two years, unless it is compensated by other means.”

While 59% of councils had not yet reported an increase in homelessness, of the 41% which had “they wholly or partly attributed” it to housing benefit reforms, the report said.

The Conservatives’ manifesto said savings of “£12bn from welfare” would be found in this parliament. Grant Thornton’s report warned: “There is a real danger that reduced funding for welfare specifically, and for local government in general, will undermine the capacity of local authorities and housing associations to pursue some of the more efficient methods of delivering welfare that they have developed, such as early intervention strategies.”

Of the local authorities surveyed, 79% had implemented or developed “enhanced partnership arrangements” with agencies such as Jobcentre Plus to implement and administer welfare reforms with a view to making efficiencies and savings.

However, only 42% of local authorities track poverty levels to measure the impact of welfare reform, while only a third (32%) of councils have a dedicated senior managers leading on welfare reform as part of their wider role.

A Department for Work & Pensions spokesman said: “With universal credit we are creating a system that makes sure work always pays and will save taxpayers £700m a year in lower running costs compared to the current system. We are helping local authorities with the costs of administering welfare reforms, but as the report recognises universal credit will reduce administrative costs.”

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