How the coalition is turning the screw on housing benefit claimants

The latest round of welfare cuts will accelerate the rise in homelessness and leave low-income families struggling to find rented accomodation.

Child benefit, tax credits and disability allowance have all been at the heart of the political debate on welfare cuts. Housing benefit hasn’t. Yet people are already feeling the pain of the government’s changes and cuts. The Welfare Benefits Uprating Bill presents the opportunity for another turn of the screw on housing benefit, especially on the people who rent from private landlords.

Local housing allowance (LHA) is the housing benefit for those in private rented accommodation whose low incomes mean they rely on help with housing costs. It is an in-work and an out-of-work benefit paid to over 1.3m people. These are not the Chancellor’s "skivers" lying in all morning behind closed curtains. These are people in low-paid jobs, pensioners, disabled people, single parents, couples with kids and young people estranged from their parents. Almost one in five on housing benefit work, and only around one in eight are on Jobseeker's Allowance.

Housing benefit has always had a link to actual rents due to the huge differences in rates around the country. The government broke this link when it decided to uprate LHA only in line with CPI inflation. Under this new bill, the LHA in each area will only rise by either 1 per cent or the change in the level of the lowest third of rents, whichever is lower. But rents have historically risen faster than inflation, and certainly by more than 1 per cent, so many parts of London and many parts of other UK towns and cities will become no-go, no-live areas for those on the local housing allowance. People will be forced into debt, then out of their homes and out of their local areas.

Crisis, the homelessness charity, found in a recent report that fewer than 1 in 50 properties are now accessible to LHA recipients under 35-years-old because rents are already higher than housing benefit rates and landlords are unwilling to let to those who need it. Shelter have calculated that linking the LHA to CPI inflation will mean one third of the country will become unaffordable for low income families within a decade, and the 1 per cent cap will speed up this social exclusion. It will also accelerate the recent rise in homelessness. Rough sleeping was up 23 per cent last year, the number of people going to their council as homeless is up 22 per cent in the last two years and the end of a private tenancy is now the most common cause for those officially classed as homeless.

The real terms-cut imposed by the 1 per cent cap on local housing allowance from 2014 is just the latest in a long list. In April 2011, the government brought in caps on LHA for each property size, scrapped the rate for a five bedroom house and cut all increases from the median rise in local rents to the lower third. Last year, it froze all LHA rates and raised the age below which LHA support is only available for the costs of shared accommodation from 25 to 35. And this year it is bringing in the "bedroom tax" and capping any rise in LHA at CPI, or 2.2 per cent.

It is hurting but it’s not working. The housing benefit bill is up by £2bn since the general election and the total number of people relying on LHA has risen by 35 per cent. Debate in the Commons yesterday was guillotined by the government, so there was no debate or vote on exempting housing benefit from the 1 per cent cap or on a modest amendment I tabled to require the government to publish an annual report on the relationship between rates of LHA and actual rents, and if these become significantly out of step to reconsider the 1 per cent cap policy.

This is only what the welfare minister, Lord Freud, promised during the debate on CPI-linked uprating in the Welfare Reform Bill in December 2011. He said, “if it then becomes apparent that local allowance rates and rents are out of step, they can be reconsidered" and when pressed by Labour’s Lady Hollis he conceded, "on the basis that the noble Baroness is going to be incredibly helpful to me in all the consequent amendments in the Bill, I will change the word 'can' to 'will'".

It will be for Labour lords to pick up the case again next month. If parliament can’t stop the screw being turned ever-tighter on housing benefit claimants, the least it can do is ensure ministers face the facts about who is hurting most and how badly.

John Healey is the Labour MP for Wentworth and Dearne and the former housing minister

Rough sleeping rose by 23 per cent in 2012. Photograph: Getty Images.

John Healey is the Labour MP for Wentworth and Dearne and was formerly housing minister, local government minister and financial secretary to the Treasury

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR