When the government introduced the bedroom tax a year ago, it justified the policy on the basis that it would encourage families to downsize to more “appropriately sized” accommodation. Critics responded by warning of the lack of one bedroom houses available. In England, for instance, there are 180,000 social tenants “under-occupying” two bedroom houses but just 85,000 one bedroom properties available. Unable to move, poor and vulnerable tenants would simply be hit by yet another welfare cut (housing benefit is reduced by 14 per cent for those deemed to have one “spare room” and by 25 per cent for those with two or more).
New research out today from the BBC vindicates these warnings. In the first year of the policy, just six per cent of social housing tenants affected have moved house, while 28 per cent have fallen into rent arrears for the first time. But while failing to achieve the behavioural change they wanted, ministers claim that the measure is saving £1m a day. As Prof Rebecca Tunstall, director of the centre for housing policy at the University of York, notes: “There were two major aims to this policy – one was to encourage people to move, and the other was to save money for the government in housing benefit payments. But those two aims are mutually exclusive. The government has achieved one to a greater extent and the other to a lesser extent.”
While the policy is also costing money, by increasing homelessness and pushing some tenants into the private sector, where rents are higher (inflating the housing benefit bill), it seems likely that there is a net saving. For Labour, which has pledged to abolish the measure if it comes to power, this is a headache. It was the likelihood that the change would cost money (up to £465m) to introduce that meant some shadow cabinet ministers, such as Ed Balls (who is focused on ensuring fiscal discipline), were sceptical of the commitment. In the end, while noting that the bedroom tax could end up costing more than it saves (and it still may), Labour promised to fund its abolition by reversing the £150m tax cut for hedge funds announced in the 2013 Budget, abolishing George Osborne’s “shares for rights” scheme, which businesses have been using to avoid capital gains tax (shares sold at a profit are exempt) and which the OBR has forecast could cost up to £1bn, and preventing construction firms avoiding tax by falsely listing workers as self-employed.
But as coalition ministers have repeatedly pointed out this week, Osborne’s new cap on welfare spending, which includes the bedroom tax, means that Labour will have to decide which benefits it would cut in order to remain within the £119bn limit. At present, the only welfare cut planned by Labour is the removal of Winter Fuel Payments from the wealthiest 5 per cent of pensioners, a change that would raise just £100m a year. While the party rightly argues that the measures it plans to increase housebuilding and to expand use of the living wage will reduce the benefits bill (by increasing tax revenue and reducing welfare payments) these savings will not be achieved immediately. Until Labour can say how it would scrap the bedroom tax without breaching the welfare cap, it faces exactly the kind of “black hole” that Balls is desperate to avoid.