Good morning

This briefing highlights the potential conflict between the removal of the 2-Child limit, the operation of the Benefits Cap, and Managed Payments to Landlords (MPTL), commonly referred to as Direct Payments. The conflict is set to intensify from April 2026 and is likely to cause landlords, especially in the PRS, rental loss.

The Regulatory Conflict: 

  • The Intent of Regulation 58(1) – is the legal basis for the UC Housing Costs (Direct Payment) scheme:
  • The DWP Policy Contradiction:
    • SRS landlords have, until recently, been able to automatically guarantee Direct Payments using the UC portal facility. However, a recent test case involving one of Guinness’s tenants chucked a spanner in the works, which caused delays in the processing and associated rent arrears.
    • Current DWP guidance states that if the overall Benefit Cap is applicable and significantly reduces the claimant’s personal elements, the claimant can request the “housing costs” be paid to them instead.
    • DWP in certain districts often insists on the removal of the MPTL from the landlord, regardless of whether Tier 1 vulnerability factors (such as major rent arrears) exist.
    • In practice, this means the DWP prioritises giving the resulting “capped” award—including the Housing Costs Element—directly to the tenant, despite them having a proven history of arrears and misuse of these funds. The sums in question could amount to more than £1000 pcm in some high-rent areas.

The Impact of the April 2026 Policy Shift

From April 2026, the removal of the two-child limit will significantly increase the number of households affected by this scenario.

  • Increase in “Capped” Families:
    • Removing the child limit increases a family’s “potential” entitlement by roughly £3500 per year for each additional child.
    • However, because the Benefit Cap remains in place, at 2023 levels, many families, especially in high rental areas or those with three or more children, will hit the cap threshold almost immediately.
  • The “HCE Trap”:
    • As more families become capped, DWP’s default position will increasingly be to cancel MPTLs to ensure the tenant has “cash in hand” for living expenses and the cessation of Direct Payments to the landlord.
    • Landlords, particularly in the private, voluntary and charitable sectors, will see Housing Cost Elements—meant for rent—diverted to tenants who are unlikely to use them to reduce or extinguish the rental liability, leading to a surge in rent arrears which will prove difficult to recover, even with a court order.

Actionable Steps for Landlords

  • Challenge on “Part-Payment” Grounds:
    • The regulation 58 (1) explicitly allows for “part” payment to a third party which includes landlords. But DWP, so far, has been unwilling to make part payment to the landlord.
    • When writing to the DWP, explicitly cite Regulation 58(1) and request that they exercise their discretion to pay at least a portion of the housing element directly, rather than DWP’s “all or nothing” approach currently being applied in some areas.
    • Regrettably, unlike Housing Benefit, landlords don’t have any appeal rights, so must rely on complaints and referral to the Independent Case Examiner (ICE) and PHSO.
  • Evidence Vulnerability:
    • Ensure all evidence of misuse of funds is documented with DWP (at Practice Manager or Service Leader level) or via the Apply for Direct Payment service to keep a paper trail of DWP’s awareness of the risk to the tenancy.
    • When pursuing legal action it’s also important to draw the Courts attention to this malpractice, which flies in the face of Regulation 58’s objectives, and is likely to facilitate much greater incidence of public funds being misused, something the Secretary of State for Work & Pensions is charged with protecting.

If you require advice on this or any other UC or HB topic, please email bill@ucadvice.co.uk or phone 07733 080 389.

Regards

Bill Irvine

UC Advice & Advocacy Ltd

Telephone 07733 080 389