What are the chances of the coalition compromising over cuts in housing benefit?
On the face of it, slim. Cuts are the government’s top priority. Lower cuts in welfare will have to be made up elsewhere and, as ministers keep reminding us, housing benefit costs more than the police and universities put together. And the coalition seems determined to make the moral case for improving work incentives and being fairer to people in work by reducing the rent that can be claimed while on benefit.
But scratch the surface a little and the worries about the effects of the cuts in general and the impact on London in particular are spreading well beyond the usual suspects. In the past week two of the most senior coalition politicians not in government have expressed their concern.
Boris Johnson, the Conservative mayor of London, teamed up with the Labour chair of London Councils to call for special treatment for the capital including special transitional arrangements.
And Simon Hughes, deputy leader of the Liberal Democrats, urged the government to slow down the reforms and warned of the danger of a cross-party rebellion. ‘I want the government to think very carefully about how they implement some of the benefits changes,’ he told the Evening Standard. ‘I’m very conscious of the effect of housing benefit changes in London and the South-East.’
Will warnings from such senior figures combined with campaigning across the housing sector be enough to convince the Department for Work and Pensions (DWP)?
One obvious compromise that would mitigate the effects of the cuts would be to apply the proposed local housing allowance caps to new claims only. That’s was one measure proposed byLondon Councils in a briefing last week although it would mean savings would come through more slowly than the DWP wants and it also only addresses one of the cuts in one part of the country.
London Councils also floats the option of spreading the pain more evenly around the country by regional capping and redirecting all of the proposed increase in discretionary housing payments to the capital.
That would mitigate some of the problems but only at the cost of creating many more around the rest of the country. There are no easy options if the coalition really is determined to save £1.8bn.
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Readers' comments (13)
Joe Halewood | 22/07/2010 12:50 pm
16 per cent of HB claims are in Greater London - Yes that means 84 per cent are outside the lauded metroplolis upon which every housing let alone HB decision is based. Party politics aside as all are guilty.
But woe betide anything that adversely affects it to hell with the rest of the country and to hell for the good of the country, London is a priori.
Yet if "the coalition seems determined to make the moral case for improving work incentives and being fairer to people in work by reducing the rent that can be claimed while on benefit..." simply peg all HB levels to social housing ones.
Apart from the initial and immediate £2.4bn saving (largely going to pay for increased homeless cases) this would take awy the whole argument that "I cant afford to work as I couldnt pay my rent"
The whole basis of these cuts is misdirected. It is the private landlords who are setting and receiving monstrous HB levels so why are tenants being penalised for it with caps? Stop the PSL grav train and more savings will flow from this than the proposed knee jerk tinkering.
Increased tax take from many more able to afford to work, job creation stimulus for the economy especially in the capital as well. There are many more sound economic reasons why the PSL gravy train should cease and brig the HB bill under control once and for all
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Sidney Webb | 22/07/2010 1:49 pm
Joe - absolutely right, cap rents and benefits are lowered automatically, but without the disasterous social effect of doing it the other way around.
Yes there are some private sector landlords who give a damn about people, but lets face facts, business is about business not people. If PSLs can milk to public purse then they will, and always have.
Take this case from Hammersmith and Fulham:
Rizwan Ahmed rented out 796 Fulham Road. When officers inspected they found occupant’s possessions splattered in plaster, a bathroom without heating and hot water, dangerous electrics and no floor coverings. The council banned Ahmed from renting out the property – Ahmed challenged the decision but that challenge was dismissed and a Residential Property Tribunal has ordered that Ahmed must pay the council £37,407.47 – which amounts to the 12 months of housing benefit payments made by the council. A council spokesman said: “Ahmed’s tenants live in putrid conditions and I am thrilled that the Residential Property Tribunal has told him to repay this £37,000.
The huge amount of benefit paid whilst the Council attempted to gain basic human rights for the tenant and the tenant suffered 'putrid' conditions is disgraceful. Landlords such as this would not even be in the market if it was not for the massive amounts of public money that they can grab for nothing. Capping rents with keep the rogues away, whilst allowing genuine landlords to still make a modest but sustainable income.
IH have produced a string of items looking for alternatives but have yet to acknowledge the sense behind rent capping - why is this Editor?
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Anonymous | 22/07/2010 2:22 pm
Joe, please could you explain to me the difference in the currently proposed caps and pegging HB payments to social rent levels?
I may be missing something but if you peg HB to social levels this will effectively be the same sanction but with even lower caps.
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Joe Halewood | 22/07/2010 2:24 pm
Just to clear up what may be infered from my postings on HB to PSLs. Yes im aware of some case of outrageous property standards from PSLs yet many many more have properties of higher standard than some social lets.
My point is purely over LHA / HB levels in payment and i see no logical or economic reason why a 3 bed PSL property anywher in the country should receive 60% or so more than a 3-bed social property in that area. Whether that is Lands End or John O'Groats.
PSLs have far less regulation red tape (asb teams etc, etc) and cost than social lets and hence why they receive any more than a social let makes no sense.
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Sidney Webb | 22/07/2010 2:44 pm
Joe and anon, there is a clearer difference.
Capping benefits does not cause a lowering of rent. The tenant either makes up the difference of is evicted.
Capping rents directly lowers the benefit required to fund the rent. The landlord needs to decide if they continue trading at a lower profit or not.
Rent capping worked very well previously, albeit with a much smaller and less short-term profit focussed private sector.
Capping rents to social rent levels would actually be equal to a lower benfit cap than the government is proposing. The difference being that rent capping is fairer with lower social impact upon the poorest tenants.
Joe, that said, your logic is spot on, especially where the customer can not chose the lower social rent when only the higher private rent is available.
Whilst PSLs will not welcome the end of the gravy train, they must reflect on having had a very good ride from the public purse. Indeed those who have had the full 30-years worth of HB are probably in the same position as Guiness, Toynbee, Peabody, etc were when they used their immense wealth to establish housing for the poor as part of historical philanthropy. This comment is not simply harking back to other days but with a clear distinction to those who currently feel the right to bleed whatever they can out of society to those who having done well gave something considerable back.
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Anonymous | 22/07/2010 3:47 pm
I agree with a lot of what you say PSR. My concern would be the effect that capping rents would have on the housing market.
A cap on rents would make buy to lets an unattractive investment and therefore push house prices down. Fair enough if a few wealthy landlords have to sell up at a loss when they can no longer achieve the yields that their business plans require. Doesn't bother me at all.
What would bother me is the number of owner occupiers who could fall into negative equity, the number of employees in the housebuilding industry who would lose their jobs as it will no longer be a viable industry and the resulting increase in homelessness.
I believe that too many people have too much at stake. (I mean normal people who go out to work, not wealthy land owners!)
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Joe Halewood | 22/07/2010 4:41 pm
Anon - Im not talking about capping benefits, im suggesting we pay HB at the same level to all landlords. Currently we pay far more to PSL landlords than to social landlords for the same properties.
The latest national figures available (March 2010) show the average HB paid for a council house is £67.44 pw , yet £109.25 to a PSL. This is a 62% premium that has no economic justification except private profit from the public purse.
Multiply the £41.81 'premium' by the 1.4m PSL HB claimants and we see this is £2.4bn each and every year. This is where the real gravy train is and not the 14,303 isolated properties that excedd the cap.
It is this unjustifiable premium that has seen HB bill rise dramatically. And its getting worse by the day. The last 12 months saw 690,000 extra HB claimants of which 620,000 were in PSL properties.
Two key points. Get rid of PSL gravy train and in doing so the barriers to so called dependency are removed.
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Joe Halewood | 22/07/2010 5:22 pm
Just to bring this back to the original article. Will the Tories and Lib Dems (Sorry just had an image of David Owen and David Steel in Spitting Image - Yes David! Of course David!) of course this policy wont change despite being pilloried from all sides as shallow and ineffective.
To do the right thing and actually look at what these proposals mean, and the bloody obvious that has been left out, would mean the Tories bitig the PSL hands that feed them
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Sidney Webb | 22/07/2010 5:58 pm
Anon - point taken but negative equity is only a concern if you need to sell. We need to re-adjust in this country in that a home is for living in not just another comodity. Yes it will always be an investment, but the return can not be for short-term profit.
The rapid escalating then crashing housing market has done far more harm than the few percentage point asjustment to house prices that fixing rent values would have. The greater affordability, sustainability and stability are gains that would vastly outweigh any negative.
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Starlord | 25/07/2010 5:27 am
Once upon a time there was the ‘Fair Rents Officer’ who would assess the PSL rent and reduce it accordingly if needs be. And the tenant did not have to make up the difference from wages or benefits! Then along came Margaret Thatcher, and the rest is history!
Love, Light & Laughter
Starlord
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Chris | 25/07/2010 2:01 pm
Starlord - now you have given the game away in that private sector rents used to be capped, what an earth will the uber-tories crow on about next.
Capping Rents will be fairer and more effective than the current government proposals, yet IH remains silent in its proffessional's opinion pieces and as part of the benefits campaign - WHY?
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Jules Birch | 26/07/2010 8:56 am
Coming back on this discussion a bit late but do you mean control of all private sector rents or just those for tenants on LHA?
If it's control of all rents, that would cut the benefit bill in the short term but surely at the cost of massive dis-investment in the private rented sector and potentially a huge housing market crash in the medium to long term. Falling house prices are not necessarily a bad thing but if the stock of private rented housing shrinks at the same time as social housing investment is being cut where does that leave anyone on benefit? Plus rent control is total anathema to the Conservatives.
If just LHA rents, that would also cut the bill in the short term but what would happen next? Whenever any reform gets suggested there are always warnings of landlords exiting the LHA market and it never quite seems to happen but I guess it would depend on what part of the country they were in and what type of property they were renting out. If the differential between private and social rents is not that great maybe they'll stick in there but in areas and properties where the differential is large they will surely pull out of the market won't they? So the net result would be LHA claimants even more corralled into cheaper areas and the worst properties than they will be under the current proposals?
Capping rents sounds like a much better idea than capping LHA payments but it would have consequences too - or am I missing something?
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Chris | 26/07/2010 10:45 am
Jules - private landlords can charge whatever they please, but must not expect the tax-payer to under-right their business plans. The restriction is therefore on tenancies requiring LHA support, although bringing reasonable rent levels throughout would not be a bad thing.
Also, such a reduction would have a long term not short terms effect on benefits paid as rents would remain lower.
If this means landlords want out of the market, why would this mean a crash? Personally, I can see that a number of landlords will modify their behaviour to make a sustainable profit in place of the mega-bucks they currently rake in, probably after shedding some of thier less productive stock. Adding this to those who will bail out altogether, the release of housing for sale will be welcommed by first-time buyers currently blocked from buying, and ironically trapped in the private rent sector.
This will produce a knock on effect of lowering overall demand whilst the building of new homes kicks in (always assuming that redressing the housing shortage pops up on someones priority list.) The prime positive of enabling people to exit private rent into ownership is that this will reintroduce the lost mobility within the housing market, as well as produce the recognised economic benefits in assocaited sectors.
I think there needs to be a better understanding of those within the private rented sector. Where it used to be transients, looking for short term tenure, it is now those who have lost choice. Paying mortgage level equivalent rents for a property simply because mortgages are not available or the housing at that rate has all been converted into private rented stock, is not a subject of choice. Offering the option of affordable rent would find obvious popularity, but the stock is not there. Offering the option of buying a property is therefore the next preference. Capping private sector rents, should such lead to landlords liquidating their assets, will be the quickest way to make low cost ownership properties available to those trapped in the rented sector.
Or am I missing something and the majority of people paying through the nose to live in squalid private lets actually prefer the situation that they are in.
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