Never let a serious crisis to to waste: The Implications of cuts to housing benefits in Britain

Chris HamnettKing’s College London

Structure of Talk

• In this short talk I want to do three things. • Outline and discuss the rationale for the cuts• Discuss the nature of the cuts, particularly those

to HB.• Look at implications of the cuts for housing• I argue that the financial crisis has given the

government the opportunity to do what it has long wanted to do:radically restructure welfare to reduce welfare dependency and stress WtW

Welfare cuts: choice or opportunity

• ‘We have chosen to cut the waste and reform the welfare system that our country can no longer afford’, George Osborne, introducing the CSR in Parliament (October, 2010)

• ‘You should ‘never let a serious crisis go to waste……….it's an opportunity to do things you couldn't do before’. Rahm Emmanuel, President Obama’s Chief of Staff

Changes in Welfare policy

• Since its election in May 2010 the new coalition government has announced radical changes to the structure of welfare benefits in Britain. The changes have taken the form of cuts in both eligibility and the level of benefit with the dual objective of reducing the cost of benefit expenditure and of reducing levels of welfare dependency while forcing welfare recipients back into work wherever possible.

The major cuts

• These include a reduction in the level of housing benefits, and the introduction of caps on benefits for those private rented tenants in receipt of Local Housing Allowances limits on council tax benefits, withdrawing child benefit from households with a higher-rate income-tax payer, time-limiting employment and support allowance for those deemed capable of work, and capping total household benefits payments at the level of median after-tax income for working households

• The UK Coalition government’s proposals for welfare reform, announced between June and November 2010, represent perhaps the most radicalreshaping of the British welfare system since its introduction post-1945

Financial savings or radical goals

• The nominal justification for the cuts has been the reduction of the government’s financial deficit, but they have also enabled government to undertake more far-reaching cuts to welfare benefits.

In this respect, the government have paid heed to Rahm Emmanuel, President Obama’s chief of staff who declared in 2008 that ‘you should ‘never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before’.

• The cuts have included limiting child benefit, both restricting eligibility to and time-limiting incapacity benefit payments, and cuts to level of housing benefit along with introduction of caps on total amounts payable.

The Rationale for the Cuts

• ‘Successive governments have ignored the need for fundamental welfare reform, not because they didn’t think that reform was needed but because they thought it too difficult to achieve. Instead of grasping the nettle, they watched as economic growth bypassed the worst off and welfare dependency took root in communities up and down the country, breeding hopelessness and intergenerational poverty’. DWP, 2010. Ian DS

Universal credit:welfare that works wp

• IDS: ‘The welfare bill has become unsustainably expensive, but the price of this failure has been paid by the poorest and the most vulnerable themselves. Today, five million people are on out-of-work benefits in the UK, and 1.4 million of them have been receiving out-of-work benefits for nine out of the last ten years. Not only that, but we now have one of the highest rates of workless households in Europe, with 1.9 million children living in homes where no-one has a job’

Welfare that Works?

‘ [T]oo much of our current system is geared toward maintaining people on benefits rather than helping them to flourish in work; we need reform that tackles the underlying problem of welfare dependency. That is why we are embarking on the most far-reaching programme of change that the welfare system has witnessed in generations. (IDS in DWP, 2010a)

Welfare to Work

• The key goal of the reforms is both to make the system less complex to ‘make work pay’ and, conversely, to make benefit dependency less attractive. As Nick Clegg, the deputy Prime Minister, stated at the launch, the government’s new policy will be ‘driven by a single, overriding principle: the purpose of welfare is to help people into work. . . As the saying goes, a hand up, not a hand out’

The housing benefit system

The current housing benefit scheme in Britain was introduced in 1988, following the Social Security Act 1986. Its objective was to subsidise the cost of rental accommodation for tenants in the social and private-rented housing sectors. It is a means tested benefit, which is administered by local authorities and paid to eligible tenants. Entitlement is calculated by comparing current household needs and resources to their rent payments.

The growing cost of the system

• The cost of HB scheme has risen dramatically since its introduction from £2.5bn in 2001/2 to £4.6bn in 1999/00 to £20bn in 2009-10.

• The total number of HB recipients in June 2010 was 4.8 million, with an average weekly rental subsidy of £84 and just under 10% of all adults in Britain aged 16+ were in receipt HB.

The structure of recipients

• Low income tenants (with an income of less than £16,000 pa) in the social-rented and the private-rented sectors are eligible for HB, and nationally some 69% of recipients are in the social-rented housing sector and 31% in the private-rented sector.

• Average weekly HB payment is higher in de-regulated private tenancies (£113) than it is in the local authority (£67) or other social housing (£77)

• Private rent tenants account for just 31% of all recipients but receive 40% of total expenditure.

The geography of HB spending

• The distribution of HB is unlike that of most other government welfare benefits in that it is disproportionately concentrated in London and the South East of England. This is not because there are a larger percentage of low-income welfare beneficiaries in London than in other regions but is due to high housing costs in these regions. The regional geography of HB spending is dominated by London.

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The % of total HB recipients and HB expenditure by region, 2009-10

% total recipients% total HB expenditure

The geography of HB spending by LA

• The distribution of total HB expenditure by local authority shows an even more dramatic skew towards London. Birmingham (£427 m) and Glasgow (£325m) had the two largest HB expenditures in Britain: not surprising given that they are the second and third largest cities after London.

• Significantly, however, the next 5 largest authorities in terms of total expenditure were inner London boroughs (Newham, Brent, Haringey, Westminister and Hackney, followed by Liverpool and Manchester).

• Out of the top 20 local authorities, 15 were in London as were 20 of the top 30 authorities with cities such as Edinburgh, with high levels of housing deprivation, ranking below many London boroughs.

Figure 1. total HB expenditure, 2009-10, top 30 LA's

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Rates of HB claimants per 1000 adults

• The importance of HB in London is also clearly shown by the distribution of HB claimant rates per 1000 adults.

• London boroughs take the top five places with Hackney, at 238 per 1000 taking first place, Glasgow 185 in 6th place, and Liverpool, 172 in 7th place. London boroughs take 7 of the top 10 places (figure 2). At the other end of the spectrum, there are a large number of rural local authorities, many in the prosperous South East, where the HB claimant rate is under 50 per 1000

Figure 2. HB Recipients, per 1000 people aged 16+, top 30 LA's

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Figure 3. Housing Benefit, Average Weekly Amount £'s by top 30 LA's, June 2010

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Average Weekly Amount

The dominance of London in HB

• Its clear from the graphs that in terms of share of total spending, rates of HB claimants, and average weekly amount of HB per recipient, that the HB system is disproportionately dominated by London. And it is in London that most if not all of the highest weekly amounts of HB per recipient have been found. London has dominated the media debate over abuses of the HB system.

The introduction of the LHA scheme

• In 2008 the Local Housing Allowance (LHA) scheme was introduced for new claimants living in the deregulated private sector. This is a flat-rate allowance for properties of different size in local rental markets calculated with reference to the prevailing median rent for properties in the relevant size band and area. But the operation of the system, which permits tenants to find housing and then claim HB to bridge the gap between the rental cost and their means, has led to very high levels of payment in some cases.

High HB claims in central London

• There has been increasing media criticism of the level of subsidies at the top end of the market, particularly in central London where some households in large private-rented houses have been in receipt of HB running into many tens of thousands of pounds per year. In a minority of well-documented cases, involving large families living in private housing in central London, the cost of HB reached £100,000 per family or £2,000 pw.

The issue of high HB payments

• The Daily Telegraph (2009) revealed on the basis of data obtained via the Freedom of Information Act, that 550 families in Britain were receiving payments of £30,000 pa or over. Westminster, Kensington and Camden councils were paying 141 claims worth more than £30,000 pa, with maximum claims of £1,950, £1,750 and £1,500 pw, that Newham was paying 43 claims for bed & breakfast accommodation of over £30,000, and one family in Brent and one in Ealing received £147,000 pa for 7 bedroom houses.

Labour’s attempt to cap HB payments

• Alistair Darling’s March 2010 Labour budget announced that HB was going to be capped at £1,100 a week for any claimant. The rationale was that the system was subsidising a minority of households to live in very expensive housing

* Yvette Cooper MP, the Labour minister for social security, said in March 2010, ‘ Housing Benefit is important to help families on low income pay their rent, but it isn’t fair for the taxpayer to fund a very small minority of people to live in expensive houses which hard-working families could never afford’.

The Coalition picks up the theme

• David Cameron has made similar comments. In Prime Minister’s Question Time on 27th October, 2010, he stated that: ‘Are we happy to go on paying housing benefit of £30,000, £40,000, £50,000? Our constituents are working hard to give benefits to other people to live in homes that they can only dream of? I do not think that is fair’. The issue of fairness has since been a major rationale for capping.

Measures to reduce HB spending

• The June 2010 budget set out measures to reduce HB expenditure from April 2011 by £1.765m by 2014/15. They included a reduction in the basis for setting LHA from the median rent to the 30th percentile of local market rents from October 2011, and the introduction of caps on LHA rates designed to deal with the issue of HB recipients living in expensive property. This issue has dominated.

The structure of the caps• The caps were specified as follows: £250 pw for a 1 bedroom

property, £290 pw for a 2 bedroom property, £340pw for a 3 bedroom property, amd £400 pw for properties with 4 or more bedrooms. The LHA rate for 5+ bedroom properties was abolished. In addition, it was proposed that LHA rates would be increased in line with consumer price index rather than retail price index. The proposed changes relate only to tenants living in private-rented accommodation. Also, tenants of working age in social-rented housing who occupy a larger home than their family size warrants will be subject to a restriction in HB to the standard regional rate, and all tenants will be subject to a restriction of HB to 90% of the full award after 12 months for claimants in receipt of Jobseekers Allowance (dropped)

Pushing Private tenants to the bottom

• The reduction in the basis for setting LHA from median rent to the 30th percentile, effectively implies a reduction of up to 40% in the level of housing benefit for private tenants, which will operate across the whole country and will restrict recipients to the bottom third of the rental market unless they can make up the difference (which is unlikely). Recent research at Cambridge for Shelter suggests that this will gradually make many areas unaffordable.

Table 2. Local Housing Allowance levels by Broad Market Area and the impact of rebasing to 30th percentile

LHA June 2010

1 room 1 bed 2 bed 3 bed 4 bed 5 bed

Central London 141 350 480 700 1000 2000

Inner East L 102 235 300 350 430 550

Inner North L 103 245 330 425 575 700

Inner SE London 90 184 240 299 403 530

Inner SW London 115 231 300 380 550 775

Inner West London 108 240 304 395 525 812

1 room 1 bed 2 bed 3 bed 4 bed

137 310 415 600 800

91 210 265 315 400

77 215 290 370 478

82 173 207 265 345

103 210 276 334 460

94 220 277 334 450

Inner London becomes unaffordable

• Given the upper cap limit of £400 pw this will mean that almost all PR properties in central London and most larger properties in inner London will be unaffordable for HB recipients.

• In addition, it should be noted that the gov have proposed setting an overall limit on the level of welfare benefits per household of £500 pw including HB and other benefits, the rationale being to ensure that no-one on benefits is better off than a household on median income.

Squeezing poor out of central London

• Not surprisingly, the impact of the caps is far more specific to London than is the impact of the introduction of the 30th percentile LHA restriction which will affect private rented tenants across the country as a whole. In addition, the imposition of an overall cap on benefit payments set at post tax median earnings for working households, currently £500 per week, is likely to result in low income, benefit dependent households being displaced from more expensive areas.

Table 4: Availability of accommodation for HB claimants: DWP Impact assessment

Availability of accommodation:

Current average estimate of availability of PRS accommodation Post-reform average availability of PRS accommodationBroad Rental Market Area

Central London 52% 7%

Inner North & West London 51% 25%

Inner South West London 51% 29%

Outer North London 53% 30%

Inner East London 51% 31%

Outer South West London 51% 33%

Outer South London 55% 35%

Outer South East London 54% 37%

Outer North East London 56% 39%

The impact of HB changes on London

• London Councils (2010) briefing paper argued that the changes will mainly affect tenants in central London, and that ‘over time we would see the creation of a no-go area in central London for any low-income households wishing to rent a home in the private sector’.

• The Cambridge research for Shelter suggests that as rents rise, but LHA limits increase by less, more areas of Britain will be unaffordable

• Autumn 2010 saw comment. The Observer (2010) stated that: ‘London councils revealed they were preparing a mass exodus of low-income families from the capital because of coalition benefit cuts’. John Cruddas, Labour MP for Dagenham commentated that ‘It is an exercise in social and economic cleansing…It is tantamount to cleansing the poor out of rich areas. It is a brutal and shocking piece of social engineering’.

Boris rocks the boat

• Boris Johnston, the Conservative mayor of London caused a major political storm with his statement on BBC radio London that:

‘We will not accept a Kosovo-style social cleansing of London. On my watch you are not going to see thousands of families evicted from the place where they have put down roots. The last thing we want to have in our city is a situation such as Paris, where the less well-off are pushed out to the suburbs’.

Squeezing the poor out of London?

• Boris’s comments were, as usual, OTT, but the concerns he articulated have been picked up by many other observers. The issue is to what extent the poor will effectively be squeezed out of central and inner London and pushed into the surrounding lower cost areas where they are likely to increase pressures on lower cost accommodation perhaps leading to push out of London altogether.

• Mike Harris, Labour Councillor in Lewisham stated in a letter to the Financial Times (2010) that the important issue is not the caps, but the 30th percentile limit on LHA which will affect all private rented tenants:

• ‘It is very likely that those receiving housing benefits will move to the cheapest 30 per cent of properties once this benefit is withdrawn. The outcome will be increased demand for the least expensive properties, pushing up rents and pricing out those not eligible for housing benefit…These reforms will cause abject misery and seriously affect the living standards of the working poor and lower middle class in inner London’

A right to the city?

• There is a more fundamental issue of where the poor are financially permitted to live. Minette Marrin (2010) observed in the Sunday Times:

• ‘Clearly, needy and vulnerable people must get help with housing, but taxpayers cannot be expected to house them in the most expensive districts, like central London. Nobody has any universal human right to live in Westminster or Fulham or the leafiest parts of Bristol or Manchester’.

Conclusions: where now?

• There is, I think, little doubt that the current system of HB has led to some major problems in central London where a small number of recipients receive very high HB payments for large and expensive properties. Both Labour and the current government wanted to cap HB payments to stop this. But the government’s plans for an HB limit to 30% of median rents combined with the overall benefit cap of £500 pw go much further than this.

What will be the impact of HB cuts on rents and housing affordability?

• We are likely to see welfare benefit recipients squeezed into poorer accommodation across the country with consequent pressure on PR rents. The government argue that HB system has helped to push up rents and subsidise fat cat landlords who have simply raised rents on the assumption that LA’s and government HB would meet the bill. They believe that the new restrictions will in fact help reduce rents. This is questionable and more research on the impact of the HB cuts is needed. This is an urgent issue for the next few years for housing researchers across the country.