“Housing cuts will increase benefit bills”


3:20 pm - October 29th 2010

by Don Paskini    


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Yesterday the government’s plans to cut child benefit unravelled. Today the National Housing Federation made a devastating attack on their housing cuts.

Housing experts in the National Housing Federation has warned that the government’s housing cuts will actually increase welfare spending and reduce incentives to work. It says increasing rents by up to 80% of the market rate to pay for new homes will mean more tenants having to rely on housing benefit to pay them, which will increase the overall benefits bill.

The plans will also trap thousands of tenants in welfare dependency because they will simply not be able to earn enough money to pay for their homes without the support of housing benefit. While most tenants who are being charged the new intermediate rates will have their rents part- or fully-paid for through housing benefit, the sums charged will be so high that if they do get a job much of their earnings will be eaten up through rent repayments. This is because every pound that claimants earn will be largely cancelled out by the amount of housing benefit being withdrawn. As a result, the new intermediate rents will act as a powerful disincentive to work.

Federation chief executive David Orr said: ‘The real answer to current concerns over housing benefit, and the intensifying housing crisis, is to allow housing associations to continue building social homes at scale. However, under this model no new real social homes will be built over the course of this Parliament beyond those already in the pipeline.’

Rather than take action to solve the housing crisis, the government’s cuts will just make it worse – reducing work incentives and increasing the benefits bill.

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About the author
Don Paskini is deputy-editor of LC. He also blogs at donpaskini. He is on twitter as @donpaskini
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Reader comments


“It says increasing rents by up to 80% of the market rate to pay for new homes will mean more tenants having to rely on housing benefit to pay them, which will increase the overall benefits bill.”

It’s “up to” not “by up to”.

Yes, you’re right, this is a problem and so are the incentives that people will face.

However, it’s not quite true to say that the overall bill will rise. It will actually fall.

You’ve got to remember opportunity costs.

Just for the sake of argument, let’s say that social rents are currently 50% of market rents (it’s close enough). That means that we’re leaving on the table 50% of the rent that could be charged. This is a subsidy.

I don’t know how large this subsidy is, I’ve been trying to find out. My back of the fag packet is £40 billion a year but I know that that is a very dodgy calculation indeed.

Now, if we increase social rents (and I would argue that they should go up to 100% of market rents) then you’re right, some or all of that increase will simply turn up in higher housing benefit.

But I would argue that this is a good thing for two reasons:

1) We do actually want to be able to see, not have hidden from us, the true level of subsidy. If it is that £40 billion (and I repeat, if you’ve got a better number please do let me have it) plus the £20 billion HB bill, then total subsidy is £60 billion. 10% of all government spending, 5% of the entire economy (ish).

Having that subsidy out there in the open will concentrate minds as to whether this is really a sensible thing to be doing. There are other ways of reducing the cost of housing (LVT, liberate planning permission, etc) and having that huge number staring us in the face, rather than hidden away, might make us more willing to attack the underlying structural problem rather than just paper it over with subsidy.

For example, for £60 billion we could raise the income tax personal allowance by £15k. Get it back to what is was decades ago, that only those on or above median incomes pay income tax at all. Maybe you think that a worthy goal, maybe you don’t. Maybe you think the Green Belt is worth that, maybe you don’t. But having HB, something we can see, rather than below market rents, which we can’t, makes that trade off more visible.

2) We have an absolutely insane system of subsidy for social housing. If, at some point in your life, you need help with affording housing (and nothing wrong with that, I’m all in favour of there being a welfare safety net), you then get that subsidy for the rest of your life. It’s as if you once needed the dole so we’ll pay it to you for life. You once needed sick pay but have recovered: still, we’ll send you that sick pay forever.

Entirely nuts.

Moving the subsidy from lower than market rents to market rents supported by HB when necessary means that only those who actually need the subsidy get it. For example, both Lee Jasper (when earning £100,000 a year from Ken) and Baroness Uddin (when owning a flat in Maidstone, plus a nice villa in Bangladesh) had council/social housing. Indeed, the Baroness made speeches about how many people there were waiting for social housing while bed blocking one unit herself.

This is insane, subsidising housing for people in the top 1%, 0.5%, of the income distribution.

The move to market rents plus HB where necessary will catch these cases and thus reduce the total subsidy bill: it’ll increase the line item for HB, sure, but once we accept that below market rents are also a subsidy (and, yes, they are, really) then it will reduce the total subsidy.

Yes, I’m sure there’s all sorts of things you might dislike about parts of these coming changes.

But the basic idea, that you make subsidies explicit, is sound. It adds to clarity, reduces the total bill and increases the pressure to do something about the structural problems.

All extremely good ideas.

Also raising the NMW will decrease the amount taxpayers subsidize workers (currently around £20 mil per annum) Or alternatively, it will illustrate how much capitalism requres subsidizing to ‘make the market work’. by indicating real unemployment levels.


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  3. Don Paskini

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  9. Where's The Benefit?

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  10. Where's the Benefit?

    From @libcon: Housing benefit: the facts http://bit.ly/dgOcOW & “Housing cuts will increase benefit bills” http://bit.ly/996aDg





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