Community, Diaspora and Immigration

UK- The new draconian housing benefit bill sparks criticism

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Private landlords may be hurt as much as poor tenants by the government’s reforms to housing benefit

Of all the welfare cuts announced by the coalition government, those curbing housing benefit have so far excited the most controversy. Opponents have conjured up a nightmarish vision of a mass exodus from cities as claimants are driven out of dearer areas. The cuts were described as “potentially devastating” by Labour in a parliamentary debate. The rhetoric overlooks the fact that private landlords as much as housing-benefit tenants may be the losers, since they will face pressure to lower their rents. And it obscures the bigger question: whether the government can really get a grip on the spiralling expense of this welfare payment.

The cost of housing benefit has risen steeply of late. Spending stayed steady in real terms for the best part of a decade from the mid-1990s. But since 2004 it has risen by over 60% in cash terms and 40% after inflation. The government is intending to make annual savings of £2.25 billion in four years’ time; it will also implement a reform planned but deferred by Labour which will save another £550m a year in 2014-15. That would hold the cost of the benefit roughly constant in cash over the next four years and lower it by close to 10% in real terms by 2014.

The surge in costs has been driven by a rise in working-age claimants, up from 61% to 67% of the total since 2004. The government is directing its reforms at this group, and in particular at the private rented sector, which now makes up 40% of the total bill, up from 25% six years ago. Local councils used to pay housing benefit direct to private landlords, but most claimants renting privately now get a local housing allowance (LHA) equivalent to median rents in their area. When that reform was introduced in 2008 they were allowed to keep up to £15 a week if they secured a rent below the LHA, in the hope that this would drive down rents. That hasn’t happened and the excess payments will be scrapped from next April (as envisaged by Labour).

This clampdown has caused little fuss, but two other coalition reforms that will together save a bit less have ignited a rumpus. Rowan Williams, the Archbishop of Canterbury, added his voice to the worriers on November 7th, expressing his concern that they could lead to “social zoning”. From April 2011, the total housing benefit families get will be subject to caps depending on the size of the home, with a maximum of £400 a week for a four-bedroom house. The change will eventually save £65m a year. A bigger saving, of £425m by 2014-15, will begin next October by restricting the LHA to the cheapest 30% of rents in an area rather than the median.

The row has been most heated in London, where rents are much higher than the rest of the country. Official figures show that of the 21,000 households affected by the cap nationally, 17,000 are in the capital. London Councils, which lobbies for the city’s local authorities, reckons 82,000 families may be at risk of losing their homes. Of these, 15,000 would be hit by the cap and the remaining 67,000 would be affected by the lower LHA.

The cap will almost certainly force some families to move out of central London, because the average loss for those affected in the capital will be £81 a week: a lot for those on low incomes. But their plight is unlikely to arouse public sympathy, since many are living in homes and areas unaffordable to most taxpayers—an objection recognised by Labour itself in office.

But will this really spur a mass flight from London? That turns on whether landlords evict tenants no longer able to pay as much or lower their rents. Some landlords are claiming they won’t bring them down; but they would say that, wouldn’t they? Ministers point out that the government can use its market power to push rents down, because housing-benefit tenants make up 40% of the privately rented sector.

Putting on the squeeze
Can it? The record over the past decade has been discouraging: rents paid by housing-benefit tenants have risen faster than the market as a whole. The introduction of the LHA made things worse; between late 2008 and early 2010 private rents fell by 5% because of the recession, while those paid for with housing benefits rose by 3%. For ministers, however, this only goes to show how costs have got out of hand and the broad scope for using the government’s position to squeeze landlords.

But even if the claims of social cleansing turn out to be scaremongering, any savings will be cancelled if the number of claimants goes on rising. Along with rising costs in the private rented sector, the other main reason for the jump in spending is the recession. Between 2007-08, before the downturn, and 2010-11, the total number receiving housing benefit has risen by 18%.

The prospects for making savings in housing benefit are thus tied into the outlook for the economy and unemployment. They are also linked to wider welfare reform—the subject of an announcement made as The Promota went to press—because the more people that can start to pay their way, the less reliant they will be on the state for help with housing costs.

 

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