The timing of advice and support for benefit claimants assessed as needing a special budgeting bank account to handle monthly payments under Universal Credit is crucial, according to a financial expert.
The Department for Work and Pensions (DWP) yesterday held a procurement day for national payment suppliers who have expressed interest in developing new budgeting accounts for vulnerable claimants, which would be offered when claimants sign on to Universal Credit.
The jam jar-style accounts – which would allow people to split their benefit into separate pots for spending, saving and automated bill payment – would be for vulnerable people e.g. those exposed to debt and who feel unable to manage monthly payments.
The theory being that when new claimants sign on to Universal Credit from October their circumstances are assessed and, if necessary, offered a special budgeting account. Those without bank accounts but who feel confident to manage monthly payments could be sign-posted to a basic bank account.
The DWP is seeking one or more suppliers to deliver the banking solution and is putting between £80m to £140m behind the plan. Those claimants assessed as qualifying for a budgeting account – which normally incurs a cost – will receive it free for the first 12 months.
The DWP estimates that around 3 million people will need some form of additional help to budget on a monthly basis when Universal Credit is launched. This may range from light support with setting up automated payments to more intensive support and targeting banking products.
Universal Credit will replace six income-based benefits including housing benefit, tax credits and jobseekers' allowance. Phased in between 2013-17, it will see claimants receive their monthly payment directly and in arrears.
Ian Makgill, managing director at research and advisory firm Ticon UK, was at the event yesterday. He said the DWP's plans for banking provision look to be “well mapped out”, however, he said the link between product and advice was crucial.
He said: “There are still a number of questions over the support element of the Universal Credit programme, one area that should concern RSLs is the timing of support interventions. It could be difficult to engage claimants and to get them set up automatic payments for their rent if the support needed to set up automatic payments isn't available at the point of issuing the budget account.
“If DWP wants to prevent arrears then they should require claimants to go through some sort of support process which helps claimants to set up automatic payments before they can open a budgeting account.
“DWP intends to also promote the use of simple bank accounts to claimants as part of the on-boarding process, whilst this is a laudable approach from the point of view of claimant independence, it probably doesn't suit the needs of RSLs as it will be much harder to make access to the account conditional on establishing the necessary automatic payments for rent.”
He said there is still some concern over timescales, with a supplier/s not appointed until April next year - six months before the go-live date.
He said: “DWP recognises that financial services firms can't afford to develop new products without some certainty that they're going to succeed, which is why they're offering the funding, but they've set out a demanding timescale of just six months between contract award and go-live. Providers may have to squeeze the bulk of their investment into that short window, and so it will be incredibly hard to meet those timescales if everything doesn't go to plan.”
A report released by the National Housing Federation (NHF) earlier this month called on the DWP to part subsidise budgeting accounts to help claimants come Universal Credit.
Around 2.2 million tenants living in the social rented sector currently have their rent paid direct to their landlord and will start to receive it directly from 2013 as part of the new Universal Credit.
The report revealed there were only four “accessible brands” offering budgeting accounts in the market as of last year: Royal Bank of Scotland, the Secure Trust Bank, Spectrum Payment Services and Think Banking Ltd.
However, a number of forward-thinking credit unions and payment specialists like Allpay have also expressed interest in developing budgeting accounts.
Mr Makgill said under Universal Credit, there was an opportunity for credit unions to come into housing associations.
He said: “DWP have made it clear that credit unions are to be closely integrated into the Universal Credit programme and have allocated £38m in funding to help credit unions improve their infrastructure and expand. There's a strong case for RSLs inviting credit unions to operate within their offices, this would improve the service levels and infrastructure of many credit unions and would also allow financial inclusion teams to provide support to tenants who are risking going into arrears.”