Unglamorous. Little loved. A workhorse of the benefit system. Housing benefit gets little attention, even with a price tag of £18bn a year. Receive it – as 4.4 million people do – and you may find yourself locked into the kind of complexity that gives means-testing its bad name, since almost every change in earnings requires a recalculation of entitlement. Do without housing subsidy, and both poverty and homelessness would soar. Seek to change it, as the government are, and one wrong move could be calamitous (no less a man than Beveridge, architect of the post-war welfare settlement, put off reform of housing allowances as being too complicated!). Leave it unchanged, and the effectiveness of other welfare to work policies is undermined. Altogether, dry as dust as it may seem, housing benefit is a big issue to tackle, and needs to be approached only with extreme caution.
Not so many years ago, rent allowances and rent rebates shared the strain of meeting the housing costs of people on low incomes with other measures, like rent controls in the private sector, and ‘bricks and mortar’ housing subsidy for council housing. Of course, this was less targeted than entirely income related benefits, but by and large tenants were not so well off for that to matter. All changed with the Thatcher government in the 1980s. Council house rents began to rise, housing association rents were higher still and controls were lifted from the private sector. Housing benefit expenditure soared.
Did it matter how subsidy was paid, so long as those in need had a roof over their heads? Not inevitably. For some groups of recipients, it would not much difference. Pensioners on Income Support, for example, may not like having one more form to complete – thankfully now much simplified – but the result would be much the same whether their rent was kept down or paid through an allowance.
Yet the changes in public policy since the late 1970s have had an impact. Pensioners with savings or a modest private pension that lifted them above the threshold for a means tested benefit were hit hard by the big rent rises of the 80s and 90s. Yet worst affected of all have been working people whose rents are sufficiently high for them to need continuing help – especially those in private accommodation or placed as homeless in temporary accommodation by local authorities. Housing benefit is poorly understood as an in work benefit, traps many working people in a poverty trap, and all too often involves a nightmare of delayed calculations, arrears, and even repossession. The challenge for government is to simplify the system and improve work incentives without incurring massive additional spending.
The major change pioneered by Labour, however, came about with the introduction of the Local Housing Allowance, by which tenants were limited to an a housing benefit payment in the private sector which reflected the average for their area. As an incentive to shop around for cheaper rents, they were allowed to keep a share of any savings should their rent come in lower. Cost saving measures in the budget designed to remove this incentive have sparked controversy, as they should, given that such savings accrue by definition only to people on very low incomes.
The government must come up with a better analysis than they have to date as to who is affected, and by how much. It is not low-income tenants who should bear the brunt of cost savings brought about because of the irresponsible risk taking by the banks and finance institutions.
Yet we should not let this single important issue divert attention from deeper and wider ones. Housing subsidies help determine whether we have mixed communities, and where, they influence whether work incentives are effective or not, they can make the difference for a child between growing up in a decent home or a slum. Housing benefit has had far too little scrutiny and it deserves more – and this applies across the political spectrum, given that senior Conservative figures are discussing whether to abolish social housing rents altogether, making a bad situation very much worse.
I was delighted to read Karen Buck’s insightful article as this issue relates to Labour’s agenda for savings in the future and how policies for cuts will be presented to the electorate. There are some important points that Karen fails to mention, however. The first is that the cuts proposal is fatally flawed because it will not generate any savings in the total rent allowance bill to the taxpayer. This is because local housing allowances are based on median average rents. If the tenant cannot keep any benefit of the saving from shopping around then they will seek to rent at the same rent as the local housing allowance and landlords will push their rents up knowing that even if they gain there is nothing their tenants can lose. If the minimum rent paid becomes the same as local housing allowance then the median rent will rise over time because higher rents have to be included in the calculation. Where there has been a good number of tenants have shopping around there is evidence that they have pushed down median rents and the housing benefit bill for the taxpayer. If tenants were allowed to keep more, perhaps 80% of whatever the saving is then the Housing Benefit bill could be reduced further.
It is perverse for the government to suggest that it is unacceptable to leave poor people with £15 per week that they have shopped around to find but the government is suggesting that it is quite happy for those private landlords to receive the maximum local housing allowance even if the market value is only half of the housing allowance – this does amount in many cases to £100 per week. It is profits from rents at local housing allowance levels that have pushed up property prices very significantly at the bottom end of the market, keeping first time buyers out of the chance to buy a home. Landlords’ profits from renting to poor people today are higher than renting to average or higher income people but this is nothing new this has been the case since the time of Booth, the Victorian social campaigner. Pots and kettles come to mind.
I welcome the issue being highlighted in the media because I believe that it gives us the opportunity to develop a progressive policy on housing allowances. Karen is right to say that housing benefit reform should be approached with caution. However the flawed system we have today was introduced only in 1990, not by Beveridge. Until 1990 working people and pensioners with savings or private pensions were able to claim rent allowances that were generous by today’s standards and which allowed people to keep 50% of each additional pound they earned. By comparison, today’s system takes 97% of each additional pound earned from a familiy in receipt of tax credits. Is that tax rate too high or just right? No wonder that the 1990s was the first decade that saw worklessness develop in the UK.
The UK is unique in Europe in forcing people to claim two separate in work benefits for housing and household needs. If that’s not bad enough a change in the amount paid in tax credits will cause a change in housing benefit, sometimes resulting in overpayments. Only in the US are families forced to claim separately for household needs, housing, food stamps and medicare. The whole of the rest of Europe has in-work benefits that include a basic amount for housing. Housing benefit is a top-up to deal with high rents and it doesn’t need to be claimed by most people. Think of the savings that could come about from administration if we stopped forcing people to claim twice. We could also pay allowances monthly just as they do in most of the rest of Europe and this would mean that poor people could budget more easily for things such as children’s or monthly direct debits. Try paying your monthly bills if you only have that week’s income to play with.
Do we have the making of a new policy for the next election manifesto?
I notice with considerable dismay that the excellent comment from Emilia has had no response. I would have thought that members of the Labour Housing Group to which Karen Buck belongs, would have responded by now. But they seem to have no position except demanding more housing and more housing benefit .