Housing Costs in a Reformed Welfare System

The below article written by Dame Anne Begg MP appeared in this month’s edition of  24 Housing.

Because housing costs form a large part of any household’s budget they also figure large in the benefits system.  It is not surprising, therefore, that a government who wishes to make huge cuts to the cost of welfare has turned its attention to Housing Benefit to realise some of these savings.  Over the past 4 years there have been many changes to the amount paid to tenants to help with their housing costs, in both the social and private rented sectors.  Which is also why the current inquiry of the Commons Work and Pensions Committee entitled “Housing Costs in a Reformed Welfare System” is important.

The UK social security system is often criticised for being overly complex and contains various disincentives to work.  That is why both the last government and this have attempted reforms of the system aiming to “always make work pay”. The last Labour government’s solution was the introduction of Tax Credits while the Coalition government is staking its reputation on a wholesale reform of working age benefits by consolidating most of them into the Universal Credit.

However, once you factor in housing costs the tapers which are meant to smooth the transition from benefit to work don’t always work effectively, especially in areas with high housing costs.  That’s because in this country we calculate the level of housing benefit based on the actual cost of housing in different parts of the country, not a flat rate depending on the size of your household.

What identical families living in different parts of the UK can receive towards their Housing costs can vary by as much as £1000 per month depending on whether they are in a private rent, receiving Local Housing Allowance in Central London or rent a Council house in deprived area in the north of England. Therefore the work incentives, or lack of them, can vary hugely.

The government’s reforms have been a rather blunt instrument and are only beginning to make themselves felt.  The changes to LHA introduced in 2011 only applied to new private sector tenants  or once existing tenants tenancy agreement came up for review, so the impact wasn’t immediate.  As more tenants face a shortfall between what they receive in benefit and their rent, the larger their arrears grow.  This means fewer private landlords are willing to take tenants who are benefit claimants which, in turn puts pressure on the social rented sector where there is already a shortage of properties.

The shortfall between HB received and level of rent is being replicated in the social sector with the introduction of what has become known as the “bedroom tax”.  If the policy had worked perfectly, the government’s own impact assessment shows that there would have been no savings.  Those in homes deemed too large would simply move to smaller properties freeing up the larger houses for those overcrowded, who would then qualify for more HB.  But we don’t live in a perfect world.  Councils and Housing Associations have not been building 1 bed properties for years so the smaller houses don’t exist in sufficient numbers. At the moment few are moving house, preferring to subsidise their housing from their other benefits.  However, the crunch can’t be far off as this is not sustainable for most households in the long term.

There has been an enormous outcry against the “bedroom tax”, even amongst those who believe that the government is right to be cutting the benefit bill.  I think this is because it is seen as being unfair.  It is not floor size, or bed spaces which are the determining factors, but bedrooms regardless of how small they might be.  Many of the government’s own backbenchers believe that disabled people living in houses specifically adapted for them are exempt.  They aren’t. They have to apply for the temporary Discretionary Housing Payment (DHP) to make up the shortfall. A married couple who can’t share a room because one or both of them has a disability are not exempt either.  Nor are households where it is a family member who is the full time carer.

For these households, moving is not an option, nor is increasing their income by working. So the government will have to keep paying out DHP so it makes sense that such households should be exempt.

There are a number of cases where it might even be costing the government more.  Apart from in London, many of the people who have been caught by the Benefits Cap are in temporary accommodation, which by its very nature is more expensive.  Of course some of them are in temporary accommodation because they have been evicted from their cheaper accommodation because of rent arrears caused by the government’s reforms!  A one bed private rent is likely to cost more than a 2 bed Council house but a tenant will qualify for full benefit for the more expensive tenancy, but not for the cheaper one.

All this, and I haven’t even mentioned how things might change with the introduction of Universal Credit.  Lots, then, for my committee to get their teeth into.

Dame Anne Begg MP

Chair of Work and Pensions Select Committee

16th January 2014

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