Reform of housing benefit subsidies should be approached with caution

Posted: 03/09/09

Unglamorous. Little loved. A workhorse of the benefit system. Housing Benefit gets little attention, even with a price tag of £18 billion 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 HB 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.