Graham Mowat Head of Budgeting Support & Indebtedness 31 st July 2013

1. Graham Mowat Head of Budgeting Support & Indebtedness 31st July 2013 Supporting claimants with budgeting and debt problems: the challenges and lessons learnedThe DWP role and priorities for action

2. Contents • Welfare Reform • Universal Credit • Financial Products, Budgeting Support (Money Advice) & Alternative Payment Arrangements • Learning from DPDP & the LA Led Pilots • Local Support Services Framework • Social Justice – definitions and priorities • Problem Indebtedness as an SJ priority • Legal High Cost Credit • Alternatives - Credit Unions • Illegal Money Lending

3. Overview (1) The Reform Story • The Welfare Reform Act introduces the most fundamental reforms to the social security system for 60 years. It aims for a simpler, fairer benefits system and to ensure work pays. • Money needs to be targeted more effectively; we have to ensure that support continues to be available to those who need it most. Employment must be an aspiration for everyone who is able to work. • Our services need to change to reflect the diversity and complexity of the issues that many people in society face today, requiring more joined-up working across government and beyond. “A system that was originally designed to support the poorest in society is now trapping them in the very condition it was supposed to alleviate”Iain Duncan-Smith, Secretary of State for Work and Pensions

4. Overview (2) The Reform Story • We are introducing greater fairness to the welfare and pensions systems by making work pay and reinvigorating incentives to save for retirement, whilst protecting the most vulnerable – disabled people and pensioners. • The nation’s finances also need to be put on a more sustainable footing – while this means making difficult decisions on tax and spending, we believe it is possible to do this and help people lift themselves out of poverty, and stay out of poverty, through work and saving backed by the right support and encouragement. • Our Reforms will: - ensure people are always better off in work than on benefits - provide unconditional support for disabled people that need it - prepare the long term unemployed for the world of work - ensure people receive a fairer pension and are encouraged to save for retirement - support separating families.

5. Welfare Reform and Universal Credit that tackles welfare dependency, poverty and worklessness by making work pay A policy that replaces a complex system of working-age (in/out work benefits and credits) with the Universal Credit and a single set of rules A benefit that together with our employment support programmes, helps people into work A gateway largely self service; internet-age and digital - whilst continuing face-to-face support for those who need it A platform An ambition transforming lives and society through work

6. Context - Claimant Preparation REQUIREMENT FOR A PERSONAL BUDGETING STRATEGY IS DRIVEN BY THESE CHANGES We want to help people to be able to manage their own finances successfully, whether they are in or out of work Housing costs direct to tenant Single payment to household Monthly Payment

7. Universal Credit Personal Budgeting Support – Overview

8. Alternative Payment Arrangements • For a minority of claimants, alternative payment arrangements may be required; these might include • paying the rent directly to the landlord, from the outset • making more frequent than monthly payments • splitting the payment within the household • We will also have the option to make rent payments direct to the landlord if a claimant reaches a certain level of rent arrears. • Tier 1 and Tier 2 factors indicating potential support needs will be used • Information from a third party i.e. the claimants’ representative, their caseworker and / or their landlord can be used to inform a decision. • The decision about whether an alternative payment arrangement is suitable will be made by a UC adviser.

9. Alternative Payment Arrangements – consideration factors Tier One factors – Highly likely / probable need for alternative payment arrangements • Drug / alcohol and / or other addiction problems e.g. gambling • Learning difficulties including problems with literacy and/or numeracy • Severe / multiple debt problems • In Temporary and / or Supported accommodation • Homeless • Domestic violence / abuse • Mental Health Condition • Currently in rent arrears / threat of eviction / repossession • Claimant is young either a 16/17 year old and / or a Care leaver • Families with multiple and complex needs

10. Alternative Payment Arrangements – consideration factors • Tier Two factors - Less likely / possible need for alternative payment arrangements • No bank account • Third party deductions in place (e.g. for fines, utility arrears etc) • Claimant is a Refugees / asylum seeker • History of rent arrears • Previously homeless and / or in supported accommodation • Other disability (e.g. physical disability, sensory impairment etc) • Claimant has just left prison • Claimant has just left hospital • Recently bereaved • Language skills (e.g. English not spoken as the ‘first language’). • Ex Service personnel • NEETs - Not in Education, Employment or Training

11. Money advice • Money advice will include: • Online budgeting tools for claimants who can help themselves - such as those offered by Money Advice Service and Citizens Advice. • Advice services offered by external organisations for those who need more support with, for example, getting a bank account or doing a monthly budget plan. • Advice will be delivered through online, telephone and face-to-face channels by expert providers at a national and local level through the Local Support Services framwork. • A personal planner is available on gov.uk to help claimants understand and prepare for financial changes arising from the introduction of Universal Credit. It asks claimants a set of questions about their readiness for claiming Universal Credit and, depending on the answers given, sets out an individual action plan.

13. Suitable Financial Products • 75% of people are paid earnings monthly in arrears. Monthly payment of benefit will prepare households for the reality of budgeting on a monthly income, will ease the transition into work • The majority of Universal Credit claimants will continue to be paid through mainstream current or basic accounts as they are today. • Up to 1.3 million potential UC claimants currently do not use a transactional bank account to manage their benefit payments. Most of these individuals currently use a Post Office Card account (POCa) which does not offer transactional facilities. • We are looking at ways to make accounts with budgeting functionality, such as ‘jam jar’ accounts, more widely available. We are consulting with financial providers across the private, social and third sectors and considering the best ways to make these types of products more available. • Having access to a transactional account will enable claimants to make electronic payments out of the account – such as Direct Debits or standing orders – for bills such as rent, gas and electricity.

14. Why are people ‘unbanked’? • cash is simple and trustworthy • Many people on lower incomes prefer to use cash as it helps them to feel more in control of their money. • legacy benefit payments haven’t necessitated a bank account • If you receive fortnightly payments and your rent is paid direct to your landlord you might not feel the • need for bank account. Most employers require you to have a bank account details but for some people • who are further from the labour market this isn’t an immediate problem. • some people don’t like direct debits • Many people choose not to use direct debits as they prefer to have control over their payments. • They are often concerned that benefits payments might be late causing them to incur penalty charges on • failed direct debits. • you might be concerned about penalty charges • Penalty charges can have a disproportionately punitive affect on those with lower incomes. Individuals who do incur charges tend to be charged multiple times, averaging 5.6 times p.a. • you might have a dormant account elsewhere • 70% of POCa users have an account elsewhere. Some people choose not to have benefits paid into • their account due to outstanding debts (such as an overdraft). • you might not have the right ID • Some banks ask for photographic ID to open an account which many people do not have. • some banks don’t market their basic accounts • Basic bank accounts (without overdrafts or credit) are not always advertised in branch.

15. Payments: What are the options? POCa • We can make UC payments into a POCa. • POCa is not transactional so you can’t set up standing orders or direct debits – you can only withdraw cash. • POCa contract ends in 2015 (with an option to extend for 2 years. • For most claimants POCa will not be a suitable method of payment. Current Accounts • Most claimants will be continue to be paid into a bank or building society account. • It will remain as the best option for the majority of UC claimants as it provides access to a wide range of financial services including budgeting tools and SMS balance alerts. Basic Bank Accounts • Basic bank accounts limit the risks of penalty charges and overdraft fees. • All banks have signed a voluntary agreement with the government to offer basic accounts. • Basic bank accounts are not profitable so some banks do not advertise them accounts or restrict eligibility. • Basic accounts do not fully protect from penalty charges or debt. • We are working with HMT to improve basic bank account services. Credit Unions • Credit unions are local mutual finance organisations. • DWP have invested £38m into the expansion and modernisation of services • some credit unions already offer a “current account” • a small number of unions provide “jam-jar” facilities • We are working with CUEP to make sure more credit unions can support UC claimants.

16. Simple Payment • Simple payment has replaced girocheque payments. • We issued our final giro last week! • Funds are issued onto a reusable card which can be taken to any PayPoint outlet to exchange for cash. • Simple payment is designed to support out most vulnerable claimants who can’t use any other method of payment. • You must withdraw the entire amount on the card and you can’t set up automated payments so it won’t be suitable for most UC claimants. E-money Services • New e-money organisations are offering alternative banking products. • These include prepaid cards and mobile phone ‘e-wallets’. • New payment services such as Pingit are changing the market. • Some of these products already offer full transactional banking services. Budgeting Accounts • Can provide additional support through ‘jam jar’ type functionalities. • There are already some of these accounts on the market but they can be expensive. • Some credit unions are starting to offer low cost versions. • We are interested undertaking some trails to consider whether DWP should invest in these services to help our more vulnerable claimants.

17. Budgeting Accounts What are these ‘jam jars’ all about???? Wages UC • Budgeting accounts could help some people manage their money more effectively. • Budgeting Accounts on the market currently cost between £12 and £19 pcm • Some credit unions are offering cheaper alternatives • Some landlords are working with credit unions and meeting the costs of these accounts to protect their rent payments. Basic Account bills rent savings spending Direct debits to utilities Standing order to landlord ATM/debit card

18. Direct Payment Demonstration Projects • Six local authorities and housing associations nationwide with a total of around 12,000 working age claimants (representative cross section) • Projects started in June 2012 and will now run until December 2013 (6 month extension) • Applying a mix of approaches with a mix of tenants to provide valuable learning about what interventions best help tenants who go into arrears – e.g. different trigger levels, support strategies and a range of payment methods. Edinburgh Wakefield Shropshire Oxford Torfaen Southwark

19. Projects are being externally evaluated by Centre for Regional, Economic and Social Research (CRESR), from Sheffield Hallam University Latest findings from the project have shown that from 6,168 tenants placed onto direct payment: Rent collection rates stood at 94% overall (current sector rate 95–96%) Across the areas rent collection rates varied from 91% to 97% 1,258 tenants have been switched back to payments to their landlords as a result of reaching the arrears trigger point or due to early intervention This compares to findings over first 4 months showing rent collection rates at 92% overall with 6,220 tenants on direct payment (http://www.dwp.gov.uk/docs/direct-payment-demo-figures-may-2013.pdf ) Key finding: A large number of switchbacks have been due to partial payment of rent or persistent underpayment rather then full non-payment of rent What have we learnt to date on DPDP…from the data

20. DPDP has already been instrumental in changing our thinking regarding the: possible level of alternative payment arrangements required: design of the arrears trigger; the need for funded budgeting support and; most effective ways of delivering this We will continue to capture learning to inform this area of the UC design during the extension period We are also putting together “landlord best practice”. This will include identifying the issues landlords should consider in preparing themselves for the introduction for UC Have established a link to Local Support Services Framework and will continue to develop this to best inform future design Direct Payments has also identified a number of wider issues for UC such as data sharing, communications How has Project learning influenced UC design?

21. To test and quantify the impact of the wider Welfare Reform on arrears, Budgeting Support and cultural behaviours To test the optimal time and effectiveness of early interventions in the prevention of arrears build up and switchback activity Develop best practice guidance for Landlords relating to the organisational and process changes in readiness for UC To test and improve the ‘managed payment’ alternative payment process including analysis of volumes and cost Test various types of Budgeting Support and Financial Products to understand which best help claimants manage their money and pay their rent Utilise the Project Team’s position as Direct Payment subject matter experts to share/ raise design and process learning with key stakeholders Aims and Objectives of project extension

22. Background and context for the LSS • Follows Ministerial request to ensure that claimants with complex needs will not be prevented from accessing and using welfare services (as per the legislation). • Based on extensive research into claimant needs and services required to meet those needs, including day visits to over 120 LAs and extensive engagement with the Housing and Voluntary sectors. • Written by a task force which includes LA Association reps from England, Scotland and Wales, and co-signed by Sir Merrick Cockell • Published on the 11th February on DWPs website – Google “UC local support services framework”

23. Who do we think may require LSS services? • Claimants with mental health issues • Claimants with learning difficulties • People with literacy/numeracy difficulties • People with addiction problems (drugs/alcohol/gambling) • Homeless people • People with English language limitations • Prison leavers • Entitled 16/17 year olds • Non EEA citizens – including refugees • People with physical and/or sensory disabilities • Domestic Violence victims • People with Financial Inclusion or severe debt issues • Care leavers • Multi Agency Public Protections Agreement (MAPPA) restricted claimants • Geographically isolated people • Those under the supervision of the Troubled Families Initiative

24. What services will be provided – Existing • Intermediary support • Home visits • Evidence verification (by LAs and RSLs as well as DWP) • Processing exceptions to normal payment rules (e.g. LHA payments to landlords) • Support around housing choices (and homelessness prevention) • Urgent support for resolving an issue with a claim (e.g. DWP AJCS service)

25. What services will be provided – New • Triage and Orientation • Online Access • Financial Inclusion and Budgeting/debt advice

26. How services will be provided:The Delivery Partnerships Approach Under the Delivery Partnerships Approach existing local planning forums, usually LA led, will be developed into Local Delivery Groups for UC local claimant support services. These must include DWP and Local Authority representatives but should also include other service providers. They should have the flexibility to plan support services and engage different suppliers according to local circumstances.

27. Local Delivery Groups LA Partner DWP Partner DWP Partner LA Partner Local Authority DWP District/Partnership Managers Social Landlords Adult Education Welfare Rights Homelessness orgs DWP Partner DWP Partner LA Partner LA Partner Disability charities Community Reps Digital Charities Ex-offender Services Adult Social Care LA Services (e.g. libraries) The real purpose of the Partnerships approach is joined up “single claimant journey” for claimants with complex needs, from benefits dependency to independence and, where appropriate, work

28. Progressing the LSS Work: Governance LSS Taskforce (includes LA Reps.) LSS LA Reference Group LSS Operations Reference Group LSS Housing & VCS Reference Group LSS Finance sub-group (includes LAA and Individual LA reps) LSS Implementation sub-group (includes LAA reps) LA Fin & Comm Working Group Volumetrics Working Group Contingency Delivery Options Working Group

29. Implementing the LSS: DWP District Managers and LAs have been asked to… • Identify appropriate planning forums already in place within their respective local area, review membership and ensure both DWP and LA representation. • Ensure that these forums can fulfil the requirements of UC delivery groups, by making sure that they have the capability and requisite skills to plan and arrange delivery of local support services for UC claimants. They should address any gaps • Think about who will deliver which specific support services to claimants with a view to preparing a delivery partnership agreement (once more is known about funding).

30. UC Rollout and LSS • On the 10th July Lord Freud announced rollout to a further six sites • Hammersmith, Rugby, Inverness, Harrogate, Bath and Shotton • Some possibilities for the LSS from October include • Test some of the detailed instruments that will be required to finance the LSS and contract suppliers under the Partnerships Approach. • Test key LSS principles and deliverables, like new MI that may be required. • To continue to work with the Pilot LAs and other LAs who have chosen to implement the LSS approach ahead of wider rollout. • We are also continuing to pursue the implementation steps mentioned earlier • Promoting closer working between DWP and LAs across GB • Local mapping and gap analysis of services available to support UC claimants.

31. What is Social Justice? Social justice is about giving individuals and families facing multiple disadvantages the support and tools they need to turn their lives around

32. Social Justice Strategy: Principles A new set of principles that inform our approach: 1. A focus on prevention and early intervention 2. Where problems do arise, a focus on recovery as the primary aim 3. Promoting work as the most sustainable route out of poverty 4. Encouraging innovation in the commissioning, funding and delivery of services 5. Recognising the role of local Government, the voluntary and community sector and grassroots delivery in offering the most targeted support 6. Empowering people and communities to take a greater responsibility for the services they use 7. Ensuring that interventions provide a fair deal for the taxpayer

33. Challenges • Social Investment - unlocking private and philanthropic capital to help deliver better outcomes • Localism - tailoring local solutions to local needs • Early Intervention - shifting the debate from treating symptoms to tackling root causes • Supporting the VCS - enabling all organisations – both for-profit and not-for-profit – to play a role, irrespective of size

34. Financial Exclusion & Social Justice • Financial exclusion impacts social justice – people cannot access mainstream financial products e.g. bank accounts, credit, loans, online discounts • Poverty Premium – higher cost for goods and services e.g. utility bills • Barrier to work: • Distractions from health-related anxiety and harassment from creditors • Cannot afford travel for interviews/training • Poor credit record can effect some job opportunities e.g. retail, finance • Disincentive to work due to impact on debt repayment plans • Social and financial costs for communities – driver of poverty, ill health, increases crime

35. Over- indebtedness: What we know • Those on low incomes are at greatest risk of problem debt 1 • Over-indebtedness in low income households is most often a result of inadequate (e.g. due to insecure/low paid jobs, lack of savings) rather than excessive consumption 2 • Those whose incomes are persistently low or fluctuating – whether in or out of work – are likely to fall further into debt in order to meet day-to-day expenses: • by using sources of credit with higher charges • through lack access to mainstream credit • Triggers of over-indebtedness: life shocks, large unexpected expenditure shocks, onset of ill health2. Over-indebtedness can sometimes be associated with dynamics of family functioning: financial issues can be one of the sources of strain for couple relationships3. • There is a strong link between over-indebtedness and mental ill-health2 • Sustained work is likely to be key to avoiding problems with indebtedness • But there is also evidence that over-indebtedness can be a barrier to work4 • Evidence that problem debt can be as a result of relatively small debts spiralling • Source: • JRF (2012). Poverty: the role of institutions, behaviours and culture. • JRF (2010). Credit and debt in low-income families. • E.g. DfE (2010).Relationships Matter: Understanding the Needs of Adults (Particularly Parents) Regarding Relationship Support. RR 233. • Manchester City Council (2010). A study of financial inclusion and worklessness in Manchester: how to improve support for people with money problems to obtain and sustain employment.

36. The “poverty premium” 100 minutes + 100 texts £10 pay monthly £28 pay as you go Average electricity per month (based on 3300kWh p/a) £64 monthly direct debit £104 top-up card Hotpoint washing machine £309 online £536 A high street “store” offering weekly payments (£3.44 p/w) The poverty premium means that people who don’t have a bank account or access to reasonably priced credit end up paying more for goods and services.

37. Financial Inclusion - tackling Over-indebtedness DWP is working in partnership with the Money Advice Service to provide people with appropriate budgeting and debt advice at key points in their lives when they may experience financial shocks. Shocks Becoming a carer Redundancy Relationship breakdown Bereavement Becoming disabled Having a baby Retirement Moving house Falling ill People who contact DWP to claim a benefit as a result of these life events will be given information about where to go to access help with money to adjust to their new circumstances and avoid or deal with debt.

38. Immediate priorities • Segmentation: we are working with Social Justice analysts to better understand how debt affects those facing multiple disadvantage. • Agreed cross-Government debt narrative: the cross-Government group on debt and financial inclusion is working on a debt narrative. • Media campaign: we are currently working with the Money Advice Service to ensure that any cross-Government media work we undertake aligns with their communications plans. • Joined-up messaging at local level: this involves looking at how local Government services (for example GPs) can signpost people to debt and money management advice. • Work to tackle the poverty premium: Social Justice analysts are developing a research proposal on understanding the poverty premium. • Undertaking work in the Social Justice team and Child Poverty Unit to raise awareness of the role debt plays in driving disadvantage and dis-incentivising work.

39. These principles underpin an approach to indebtedness which is structured around three pillars: Raising awareness Debt prevention Signposting to support The Government encourages households to be responsible for their financial decisions. It believes that in order to make these decisions consumers must have a choice of products and be afforded appropriate protections. People should also have access to support to help them make budgeting and money management decisions. Government believes savings can help households to build financial resilience and weather income shocks. However it also believes that people should be free to borrow and have the tools to make an informed decision about which credit products are right for them. When people find themselves in difficulty – for example being unable to service their debts – Government provides help, advice and support. Debt “narrative”

40. Indebtedness – control v level of debt (1)

41. Indebtedness – control v level of debt (2)Universal Credit implications

42. Legal High Cost Credit • Bristol University report for BIS • Cross Government action in train • OFT already progressing compliance issues • Useful recent debate in Lords • BIS-led summit with Payday lenders – 1st July • Archbishop of Canterbury’s mission • Reference of payday lending industry to the Competition Commission

43. Before 2006 – Limited involvement between DWP and CUs After 2006- Significant involvement and significant progress £113m of funding between 2006 and 2012 DWP contracted with over 150 CUs to deliver financial services including affordable credit 610k loans made worth over £275m, saved £245m in interest 40% borrowers also began to save 2012- Feasibility Study identified challenges and opportunities for the CU sector Alternatives to high cost credit - Credit Unions

44. DWP Credit Union Expansion Project • Following a tender exercise, a contract has been awarded to the Association of British Credit Unions Ltd (ABCUL) to deliver the expansion project. • The Feasibility Study also showed that at present even the best credit unions struggle to meet the operating costs of making small loans to people on lower incomes. • It suggests that an increase in the interest rate that credit unions charge from 2 per to 3 per cent would make a positive contribution towards credit unions achieving self sufficiency and reach a wider range of customers. • HMT consultation on the increase ran until March 2013. The Government are currently considering the responses.

45. DWP Credit Union Expansion Project - Objectives • Enable credit unions joining the Project to reduce costs and become financially sustainable by 2015 • Eliminate the need for further Government funding of credit unions after March 2015 • Increase access to financial services to 500,000 more people on lower incomes by March 2015 • Increase access to financial services to 1 million more people on low incomes by March 2019 • Save low income consumers £1 billion in loan interest payments by March 2019

46. Conclusions • Welfare Reform and greater financial inclusion bring risks as well as benefits • We cannot empower people without taking risks • We need to manage the risks well at macro (organisational) and a micro (claimants) levels and move at a pace that can be accommodated and sustained and we are endeavouring to do that • For this to succeed we need to work in partnership with a wide and diverse range of organisations • We are drawing together our work on UC and Indebtedness to maximise the synergy that exists • We have done a lot of engagement already but this is only the start of what will be a very challenging journey