How Osborne disguised the truth about the rising housing benefit bill

Excessive rents and substandard wages are to blame for soaring housing benefit payments, not workshy 'scroungers'.

Rarely has there been a better example of a politician attacking the symptom, rather than the cause, than in the case of George Osborne and housing benefit. Addressing Morrisons workers earlier today, Osborne sought to terrify his audience with tales of families receiving "£100,000 a year" (just five did). It was such cases, he said, that prompted the government to cap housing benefit payments at £400 a week.

We can’t have a system that penalises you for going out to work and wanting to get on. So we’ve put a stop to those staggering payments and put a cap on housing benefit.

We’ve made sure that you can’t get more than £400 of Housing Benefit a week in this country. That’s still a pretty generous amount.

And yet when we did the pressure groups and welfare lobby attacked it as not enough.

They still say that people should get more than £400 a week housing benefit.

They don’t seem to realise that the money to pay these benefits comes from people who work hard, who pay their taxes, and many of whom can’t afford £400 a week in rent.

On one point the Chancellor is right: the housing benefit bill is too high. But what he chose not to tell his audience is that benefit payments have only soared because rents have. The bloated housing benefit bill (which will reach £23.8bn this year, more than a tenth of the welfare budget) is the result of a conscious choice by successive governments to subsidise private landlords, rather than invest in affordable social housing.

The cost of privately renting a home has increased by 37 per cent in the past five years and is set to rise by a further 35 per cent over the next six years. As a result, the number of working people forced to rely on welfare to pay their rent has increased by 417,830 (86 per cent) in the last three years, a figure that is rising at a rate of nearly 10,000 a month. Ninety three per cent of new claims are made by households containing at least one employed adult. By 2015, a total of 1.2 million working people people will only be able to stay in their homes through state subsidy. It is excessive rents and substandard wages that are to blame for the inflated housing benefit budget, not workshy 'scroungers'. Even with the government's cuts, the bill is forecast to rise from £23.8bn this year to £25.9bn in 2017-18. 

But had Osborne chosen to tell his audience this, rather than launching another lazy assault on the welfare system, he might have been forced to explain why the government isn't building more homes. With 390,000 new families formed in 2012 but only 111,250 new homes built, rents have continued to soar as demand has outstripped supply. And as the OBR, among others, has noted, Osborne's new "Help To Buy" scheme is only likely to further drive up prices. But the government's response to the housing crisis too often remains to change the subject. In this case, by displacing public anger onto those who least deserve it: the poor and the vulnerable. 

Members of the public in north London walk past a poster informing of changes to the benefits and tax system that have come into force. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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How austere will Philip Hammond be?

The Chancellor must choose between softening or abandoning George Osborne's approach in his Autumn Statement. 

After becoming Chancellor, Philip Hammond was swift to confirm that George Osborne's budget surplus target would be abandoned. The move was hailed by some as the beginning of a new era of fiscal policy - but it was more modest than it appeared. Rather than a statement of principle, the abandonment of the 2019-20 target was merely an acceptance of reality. In the absence of additional spending cuts or tax rises, it would inevitably be missed (as Osborne himself recognised following the EU referendum). The decision did not represent, as some suggested, "the end of austerity".

Ahead of his first Autumn Statement on 23 November, the defining choice facing Hammond is whether to make a more radical break. As a new Resolution Foundation report notes, the Chancellor could either delay the surplus target (the conservative option) or embrace an alternative goal. Were he to seek a current budget suplus, rather than an overall one (as Labour pledged at the last general election), Hammond would avoid the need for further austerity and give himself up to £17bn of headroom. This would allow him to borrow for investment and to provide support for the "just managing" families (as Theresa May calls them) who will be squeezed by the continuing benefits freeze.

Alternatively, should Hammond merely delay Osborne's surplus target by a year (to 2020-21), he would be forced to impose an additional £9bn of tax rises or spending cuts. Were he to reject any further fiscal tightening, a surplus would not be achieved until 2023-24 - too late to be politically relevant. 

The most logical option, as the Resolution Foundation concludes, is for Hammond to target a current surplus. But since entering office, both he and May have emphasised their continuing commitment to fiscal conservatism ("He talks about austerity – I call it living within our means," the latter told Jeremy Corbyn at her first PMQs). For Hammond to abandon the goal of the UK's first budget surplus since 2001-02 would be a defining moment. 

George Eaton is political editor of the New Statesman.