housing bill

11 August 2018

The government has made great play over recent years of its plans to reduce the benefits bill. A key target in this campaign has been housing benefit (HB) which attracted George Osborne’s ire by rising from less than £15bn in 2006/7 to £20bn by the time he became chancellor in 2010. People trying to defend welfare spending are in short supply these days, and I’m not naïve enough to think that there are no abuses of the system. But when it comes to the housing benefit bill it helps to understand why the bill has risen in the first place. I say this because the supported housing sector have been subject to various reviews since 2015, at least one of which was entered into with the explicit aim of reducing the amount that organisations like YMCA can claim for providing a home to the most vulnerable in our society. Now, however, the government have been forced to row back – for the second time – from their plans to cut HB for supported housing. Perhaps if they’d done their homework first, they could have been spared the embarrassment.

HB pays people’s rent when they can’t afford to pay it themselves. If you’re unemployed you might get all your rent paid, but if you’re in low-paid employment you can still get some help too. You might only get a few pounds a week, but for people who don’t earn much this can be the difference between keeping a roof over your head and becoming homeless.

The first thing to say therefore, is that at least some of the increase in HB expenditure between 2006 and 2010 can be accounted for by the fact that in the middle of that period there was an economic crash that resulted in a huge increase in unemployment. In addition, and to try and restrict that increase, a number of workers agreed to take pay cuts or to move to reduced hours. So the bill for HB went up, not because the system wasn’t working, but because it was. It did exactly what it was supposed to do – kept a roof over people’s heads when they lost their jobs, or their incomes reduced. In recent years increases in HB expenditure have tapered off as unemployment has fallen and the bill is even predicted to fall in future (although hold on to see whether Brexit impacts on that prediction).

The other, equally obvious, point is that the cost of the HB system is directly linked to the cost of renting a property – that, after all, is what it pays for. So, in a market where the number of people who rent from private landlords has doubled in the last decade, and private sector rents have been increasing, it shouldn’t come as any surprise that the cost of subsidising this system has gone up. Despite this, it is not private sector rents, but housing association rents which the government has chosen to cut – by 1% every year between 2015 and 2020.

But the supported housing sector has also been affected by another change which may have been less obvious to the general public. Yes, the housing benefit bill for supported housing has increased substantially since 2010, but there is a perfectly rational explanation for this (and it’s not benefit claimants or landlords gaming the system): Supporting People – the funding regime that paid for the support element of supported housing prior to 2009 – has been gradually withdrawn since then, leaving housing benefit to pick up the funding shortfall. Landlords have not been stuffing their pockets with gold at the taxpayer’s expense; they have simply responded to cuts in one funding pot, by drawing on a different one in order to keep a roof over peoples’ heads. The government seemed to regard this as somehow ‘cheating’ – as though their attempts to be tough on public sector spending have been circumvented by conniving landlords. Whilst it is true that some private landlords may to abuse the housing benefit system for financial gain, in the case of supported housing fully 96% of provision is operated by councils, housing associations and charities i.e. by organisations where no individual is able to benefit financially from any surpluses generated. We were not misusing the HB system in order to profit – we were using it to protect some of the poorest and most vulnerable members of our society. Shame on us, apparently.

Belatedly, the government finally seems to have woken up to this possibility. What is important now is that they wake up to the corollary to this. Unlike councils, housing associations and charities, private landlords are able to benefit personally from any surpluses they generate. So the problem was never the housing benefit system per se; it has been the fact the government has insisted on treating private sector landlords as just another provider, and ignored the fact that they have a positive incentive, and therefore temptation, to not just drive down costs (as we are all constantly reminded they are very good at doing), but also to maximise income. The government is promising a ‘robust oversight regime’ to crack down on abuses of the HB system in the supported housing sector. That’s fine, but there needs to be a realistic appraisal of where the risk of abuses really lies. And its not with the 96%.