Duncan Smith has created a ticking social time bomb - and we'll pick up the bill

Pushing the poorest people to borrow money to pay their rent, and far beyond their means, forces our social problems under the carpet.

Last week, in its annual assessment of major government projects, the Cabinet Office sounded a warning to the Department for Work and Pensions over its flagship policies: Universal Credit and the £500 cap on benefits. No wonder; evidence against the policy is mounting up.

In Ashton, Greater Manchester - the only area where the government’s fated Universal Credit welfare system has already been rolled out - personal debt is rising, leaving families in a precarious position as welfare reform kicks in.

New Charter Housing Trust, which manages social housing within the pilot area, reports a 29 per cent rise in the number of people contacting its financial support team in the last year. More worryingly, it also records a 19 per cent rise in the total amount of debt held by tenants contacting them for support. On average, tenants who ask for help come to them owing £8,400.

This is not housing debt; it is not rent arrears. It is consumer debt: credit cards; loans; pay day lending; ‘emergency cash’ provided by high street money shops.

Although the trend for rising debt began before the start of the welfare reform pilot, New Charter says it is on an upward curve.

Meanwhile there has been an explosion in the number of high cost ‘money shop’ lenders opening on our high streets.. Planning changes which came into force this week mean that high street premises can be turned over to payday lenders without a public consultation or a change in planning permissions. As the bad times roll, easy money has never been more widely available to the poorest and most vulnerable people in our society..

When the bedroom tax kicks in and benefits are capped, tenants struggling to make ends meet will prioritise food and rent over other costs, and at any lengths. Despite support from local food banks (Oxfam revealed this week that almost half a million people in the UK are now depending on handouts for survival - most of them working), sometimes the money just doesn’t go far enough.

Tenants who have never missed a rental payment in their life now risk building up arrears - with the threat of eviction from their home - or turning to the proliferation of under-regulated high street and online money to plug the gap. Many, out of pride and desperation, will take the latter route.

Pushing the poorest people to borrow money to pay their rent, and far beyond their means, forces our social problems under the carpet only for the bulge to rise up and burst forth - at great expense to the taxpayer - later.

And so to housing debt. At the end of last month law firm Winckworth Sherwood did a few quick calculations, estimating the rise in arrears after the roll out of welfare reform. It claims Universal Credit will lead to an average increase in arrears of £180 per tenant.

Rent arrears, and the associated threat of eviction, are complex problems for society. Housing associations can only afford to develop much-needed new homes by borrowing against their income streams, historically guaranteed by payment of housing benefit. Now their income is plummeting.

Some social landlords have decided to risk their own balance sheets to protect their residents, finding ways around the ‘bedroom tax’ by reclassifying bedrooms as box rooms or cupboards. Others have made a commitment not to evict over arrears caused by welfare reform.

But not every social housing provider can afford to do this, and private landlords will not be so understanding. Welfare reform will lead to arrears followed by eviction - costly legal procedures in themselves - and finally an exorbitant rescue package including emergency housing, crisis payments and the cost of supporting vulnerable children.

If you think this is a hyperbolic vision of the future, just look to Oxford, where the council’s emergency housing department is already so stretched that it is placing families in a local Travelodge until temporary accommodation can be found.

This is the paradox: tenants will either find a way to cover their rent, or they won’t. And either way we have a ticking social time bomb just waiting to go off, at vast cost to the public purse.

Work is underway to prevent this social meltdown. In Lewisham, the local housing organisation has set up a relationship with the credit union which means as soon as a tenant falls into arrears they are contacted and offered help by the union, before they have time to seek other more expensive financing. Yet these relationships are rare; it’s a postcode lottery.

The lifetime cost of welfare reform won’t be understood for decades, as children made homeless during their education fail to find stability and families now racking up huge personal debts plunge towards a lifetime of poverty and dependency. No doubt Iain Duncan Smith will be praying for a Labour victory by 2015 as the impact of his policies unravel our communities.

Work and Pensions Secretary Iain Duncan Smith arrives to attend the government's weekly cabinet meeting at Number 10 Downing Street. Photograph: Getty Images.

Hannah Fearn is contributing editor of the Guardian local government, housing and public leaders networks

Photo: Getty
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What Jeremy Corbyn gets right about the single market

Technically, you can be outside the EU but inside the single market. Philosophically, you're still in the EU. 

I’ve been trying to work out what bothers me about the response to Jeremy Corbyn’s interview on the Andrew Marr programme.

What bothers me about Corbyn’s interview is obvious: the use of the phrase “wholesale importation” to describe people coming from Eastern Europe to the United Kingdom makes them sound like boxes of sugar rather than people. Adding to that, by suggesting that this “importation” had “destroy[ed] conditions”, rather than laying the blame on Britain’s under-enforced and under-regulated labour market, his words were more appropriate to a politician who believes that immigrants are objects to be scapegoated, not people to be served. (Though perhaps that is appropriate for the leader of the Labour Party if recent history is any guide.)

But I’m bothered, too, by the reaction to another part of his interview, in which the Labour leader said that Britain must leave the single market as it leaves the European Union. The response to this, which is technically correct, has been to attack Corbyn as Liechtenstein, Switzerland, Norway and Iceland are members of the single market but not the European Union.

In my view, leaving the single market will make Britain poorer in the short and long term, will immediately render much of Labour’s 2017 manifesto moot and will, in the long run, be a far bigger victory for right-wing politics than any mere election. Corbyn’s view, that the benefits of freeing a British government from the rules of the single market will outweigh the costs, doesn’t seem very likely to me. So why do I feel so uneasy about the claim that you can be a member of the single market and not the European Union?

I think it’s because the difficult truth is that these countries are, de facto, in the European Union in any meaningful sense. By any estimation, the three pillars of Britain’s “Out” vote were, firstly, control over Britain’s borders, aka the end of the free movement of people, secondly, more money for the public realm aka £350m a week for the NHS, and thirdly control over Britain’s own laws. It’s hard to see how, if the United Kingdom continues to be subject to the free movement of people, continues to pay large sums towards the European Union, and continues to have its laws set elsewhere, we have “honoured the referendum result”.

None of which changes my view that leaving the single market would be a catastrophe for the United Kingdom. But retaining Britain’s single market membership starts with making the argument for single market membership, not hiding behind rhetorical tricks about whether or not single market membership was on the ballot last June, when it quite clearly was. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.