The continuing saga of Housing Benefit “reform”: unaware or just don’t care?

The reform of Housing Benefit for private rented sector tenants made it back into the newspapers today. The Observer ran a story on the inside pages under the headline Ministers ‘bury’ report on cuts to housing benefit. The report they are referring to is the Impact Assessment (IA) entitled Housing Benefit: Changes to the Local Housing Allowance Arrangements. At one level, it is good that this document has emerged, given that earlier there were suggestions that evidence of impact was not going to be released until very late in the policymaking process (as I discussed here). I am not sure that the charges of “burying” the document really stand up to scrutiny. Impact Assessments are not the sort of documents that are generally published to great fanfare. Although I am sure that in this case Ministers would be very happy if the IA attracted even less attention than usual.

I happened to have been reading the IA on Friday and it struck me as a fascinating document, but not entirely for the reasons that Douglas Alexander identifies in the press today. It tells us something about the quality of thought that lies behind the proposals.

The IA summarises the justification for the policy in relatively bold terms (page 1):

… under the Local Housing Allowance arrangements … introduced in April 2008, the average Housing Benefit award is over £9 per week more than for customers on previous schemes. Some Local Housing Allowance rates are excessively high … High rates of Housing Benefit create disincentives to work and are not sustainable. The overall cost of Housing Benefit must be controlled and reduced …

The 2011 changes to the Local Housing Allowance arrangements will both significantly reduce the levels of rent met by Housing Benefit in expensive areas and apply downward pressure on expenditure more generally. … These changes will mean that people on benefit cannot choose to live in properties that would be out of reach of most people in work and will result in a fairer and more sustainable Housing Benefit scheme. They will also begin to address disincentives to work in the current system created by high rates of benefit.

This does not, perhaps, in itself represent news.

On p3 the IA rather causally suggests that as well as saving benefit expenditure it will deliver “other key non-monetised benefits” in the form of “increased employment and the productive potential of the economy”. The format of the IA does not require the DWP to explain how they think that is going to happen as a consequence of the proposed changes. It would have been interesting to hear what the line of thinking was.

My aim here is not to go through the whole document in detail, but it is worth noting some key points:

  • The cap on the LHA rates, which has preoccupied much of the media and will have significant implications for those in high cost areas, is something of a distraction. It will only account for £25mill of the £420mill the government was expecting to save in 2011/12.
  • The real savings come from switching the way the LHA is calculated from being based on the 50th percentile to being based on the 30th percentile (£115mill) and the removal of the £15 excess, which allows tenants who secure a property below the prevailing LHA level in their area to receive more benefit than needed to cover the rent (£280mill).
  • Removal of the excess is important at the level of principle because it undermines the whole point of an ex ante housing allowance like the LHA. Compared with conventional Housing Benefit, the LHA was supposed to provide high powered incentives for tenants not to take on a property at too high a rent (because they would have to pay any rent above the LHA rate out of their own pocket) and they had an incentive to find a property below the LHA rates because then they would receive the excess into their pocket. The system as it will operate, if these changes are implemented, becomes a bit of a hybrid.
  • The removal of the excess and the move to calculation on the 30th Percentile mean that almost all tenants will lose money as a result of the changes, although losing the excess does not impair a household’s ability to cover their current rent.
  • It is striking quite how much more those in London will on average lose in LHA than those elsewhere in the country (-£23/week, compared to -£9/week in the South East, which is the next largest loss). Housing analysts always talk of the London housing market as being “different” from everywhere else, and this is an area in which this emerges clearly.
  • It is estimated that those in the largest (4 bed and 5 bed+) houses, although relatively small in number, will be hit particularly hard (-28/week and -£74/week respectively). The Government is removing the additional allowance for 5 bed properties. This has particular significance because households in such properties are likely to be families with several children, which we know are most likely to be where poverty is concentrated.

The main things that struck me in reading the document is that, while not comprehensive, it is a pretty good analysis of the likely negative impacts of this policy. Not only does it consider financial impacts upon tenants, but also impacts upon local authority Housing Benefit departments; local authority Housing departments; Education; Health and social services; Disabled people; the justice system; rural areas; families, child poverty and wellbeing; working households; landlords; and the voluntary sector.

There are gaps – there is no consideration, for example, of the impact on transportation systems if lots of households have to relocate to cheaper areas and commute back to their place of work – and sometimes the analysis is rather superficial or does not follow its own arguments through to their logical conclusion. But overall it does a decent job of laying out many of the negative consequences that could flow from this policy.

The IA does not deny that the policy will lead to mobility out of high cost areas. In fact, for the changes to deliver the savings sought such mobility is going to be essential. The document makes reference to transition periods and protections designed precisely to allow households to make such adjustments. Much of the analysis of impact upon education systems or social care is premised upon significant mobility in response to the LHA changes. But at the same time the IA argues that because “it is not possible to assess behavioural effects the Department has not been able to provide estimates of the number of households that may move” (p10, para 26). So basically they are saying they have no idea what the impact is going to be.

At the same time the IA embeds some rather questionable arguments about factors militating against mobility, such as “Some with smaller shortfalls [in LHA] may be able to renegotiate their rent with their landlord and other may have resources such as savings that they can fall back on”. The first component of this argument – renegotiation – I have discussed previously (see here). It depends crucially on the state of the market and the options available to landlords. If there are alternatives to letting to HB-dependant tenants then a more likely outcome is the landlord exiting the HB sector of the market. The latter part of the argument – drawing on other resources – is either ignorant of how HB works or represents only a temporary solution. If a household has significant savings, for example, the chances are they won’t be receiving HB in the first place. That would be sort of characteristic of a means-tested benefit.

I think there are two further points that are worth drawing out.

First, the document refers to the Welsh Assembly Government a couple of times. The Welsh are sounding a note of caution and arguing that this policy change is making it harder to achieve broader objectives:

46.          The Welsh Assembly Government produces statistics on young people not in education, employment or training (NEET). A critical factor contributing to a young person becoming NEET was associated with the family’s circumstances and if families moved frequently, as a result of their tenancy agreement coming to an end. Changes to housing policy could increase the frequency of moves and as such lead to disruption in education leading to NEET issues.

67.       The Welsh Assembly Government is concerned that the changes to the Local Housing Allowance Arrangements will impact on the most vulnerable in society – and cause significant financial hardship. In particular, the changes have the potential to have an adverse effect on children living in low income families, as parents reprioritise their household expenditure. The Welsh Assembly Government has recently issued a new Child Poverty Strategy and Delivery Plan for Wales (for consultation). This new Strategy is underpinned by the 13 Broad Aims of the Children and Families (Wales) Measure 2010 – which provides the statutory framework for tackling child poverty in Wales. One of the Broad Aims of the 2010 Measure is “to ensure that all children grow up in decent housing”. The changes to Local Housing Allowance arrangements will significantly impact on its ability to deliver this aim.

In the IA the Government is expected to respond to each of the risks identified with a discussion of the actions being taken to mitigate the risk. This is the area in which the IA is most striking. In many cases the mitigation offered is woefully inadequate or non-existent.

The DWP also tries to have it both ways. In some passages it argues that the changes to the LHA shouldn’t be judged in isolation because other changes underway are intending to increase incentives to work and open up opportunities. Perhaps fair enough. But at the same time when considering mitigation the IA asserts that local authorities have certain types of services available – in social work, for example – that will allow them to cope with greater mobility, without recognising that such services are being put under severe pressure by the broader context of public spending cut backs. Similarly, in its DWP guise the Government is looking to reduce rents in the Housing Benefit subsector of the private rented sector, while in its CLG guise it is proposing to allow local authorities to use private rented sector tenancies to discharge homelessness duties. Moving more homeless households into the private sector is going to increase demand for private rented accommodation and put upward pressure on rents, with obvious consequences for the Housing Benefit bill. Either we need to be approaching these issues holistically or we don’t.

In respect of the first point made by WAG above, which one might have thought should lead to the conclusion that increased mobility was something that should be approached with caution, there is no explicit response. In respect of the second point made by WAG we are provided with: a non sequitur; a point about the purpose of the reform which, through influencing rent levels and housing choices, is expected to mitigate the impact (ie. people will move to/choose cheaper properties); the point that there aren’t all that many people receiving HB who live in houses over 5 bedrooms, and anyway the generosity of the benefit system means that there is space for them to squash up a bit without becoming statutorily overcrowded; and a point about the limited transitional funding to help them move. So, all in all, the DWP declines to meet the concern raised by WAG head on.

This is a pattern repeated throughout the document. The IA does a good job of identifying plenty of serious downsides to the policy. But the DWP’s own response to those risks is either to ignore them or offer something entirely inadequate by way of mitigation.

It would be hard, from reading this document, to conclude that IDS and the DWP are unaware of the potential for extremely negative consequences following from this policy. So that only leaves two possibilities. They genuinely believe that while there may be pain involved here in the short term it will deliver a better future, through mechanisms that are rather vaguely specified. Or they just don’t care.

If we take things in the round, as the Government is always encouraging us to do, then I know which my money is on.

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3 replies »

  1. Good article.

    “Removal of the excess is important at the level of principle because it undermines the whole point of an ex ante housing allowance like the LHA. Compared with conventional Housing Benefit, the LHA was supposed to provide high powered incentives for tenants not to take on a property at too high a rent (because they would have to pay any rent above the LHA rate out of their own pocket) and they had an incentive to find a property below the LHA rates because then they would receive the excess into their pocket. The system as it will operate, if these changes are implemented, becomes a bit of a hybrid.”

    In my experience no-one ever got paid the excess though. I never once came across a landlord charging less than the LHA rate.

  2. @Inks2010 – Thanks for your comment.

    I agree that the practice could depart quite a long way from the principle. It partly depends on the state of the private rented market locally whether it was likely that the tenant could ever agree a rent below the LHA – and most importantly the balance of power between landlord and tenant. If the landlord could make a “take it or leave it” offer, and the tenant needs to get somewhere to live, then the tenant is likely to forgo the haggling and the theoretical £15 excess to secure somewhere. One of the problems with the LHA was that the understanding of the private rented sector that underpinned it wasn’t all that sophisticated.