Since losing the leadership of the Conservative Party, Iain Duncan Smith has become a more interesting character. His Centre for Social Justice has produced genuinely thought-provoking work.
Mr Duncan Smith’s big thing is getting more people into work. We can debate whether that makes sense for some individuals - single mothers with children in school, for example - but pretty much everyone accepts that there are some people who would, in a holistic sense, be better
off in work.
Government policies to achieve this generally involve a carrot and stick approach. We already have in-work benefits, and tax credits that are more generous than the old family credit and family income supplement ever were. The deficit means that Mr Duncan Smith cannot increase the carrots by more than a token amount.
That leaves the stick - forcing people to look for work, and perhaps forcing them to take up work they would rather not do.
Not enough jobs
The Budget makes this real, with a 10 per cent cut in housing benefit for those out of work for a year or more.
This policy will not work, because there are too few jobs to get people into. The Centre for Cities’ latest report, Private sector cities, notes that even in 2006/08 - boom years in the economy - there were places with more than five claimants per vacancy. Add in a lot of people not in work but not meeting the definition of a claimant and the real figure would be much higher.
Since then, of course, the number looking for work has increased and the number of jobs has reduced. The figures are getting worse.
With big public sector cuts on the way, Mr Duncan Smith needs the private sector to provide the jobs. But there is a mismatch between areas with high unemployment and those in which private firms choose to locate. In the 10 years to 2008, less than 10 per cent of net private sector jobs were created in the north or the midlands. The north east and north west each created fewer than 50 net private sector jobs per week in the boom years. They will create even fewer in the years to come.
Despite a decade of hugely active regional policy, the private sector has overwhelmingly declined to move away from the south of England and it is unlikely to make a different decision in the next 10 years. Welfare to work will not work in this context.
The effect on housing
This matters to the social housing sector. Threatened by enough sticks, some people will get work. But it is likely to be short-term or to push someone else out of work. A new minicab driver pretty much displaces an existing minicab driver unless an area is short of minicabs. People will get hurt and those who are hurt end up on social housing waiting lists.
The government is right to tackle housing benefit. It is heading for £20 billion this year, after all. As well as cutting benefits to those out of work for more than a year - which could save a lot of money given the characteristics of housing benefit recipients and the state of the economy - the government has further plans.
First, local housing allowance: there will be an absolute limit to the amount that can be claimed each week - £280 a week for a one-bedroom property, for example. This will have a big effect in inner London but the effect elsewhere will be limited. I cannot afford to live in Chelsea, for example, and it is easy to make the case that I and other taxpayers should not be asked to subsidise others to live there. Chelsea then becomes an enclave of the wealthy, which has its problems, but the country might decide that the cost of ensuring a mix of incomes in Chelsea is just too high at the moment.
But the government is being ‘braver’, as Yes Minister’s Sir Humphrey used to say. It is limiting housing benefit to 30 per cent of local rents, rather than 50 per cent at present. This will save a lot of money but at a real cost - the creation of ghettos, particularly in areas in which there are large numbers of housing benefit recipients.
Housing benefit restrictions also weaken the position of the poor in the housing market, relative to the affluent. Housing benefit restrictions are good news for young couples and those wanting to buy second homes or a pied-a-terre in London, who can now buy the properties landlords were forced to put up for sale, since they could not cover the mortgage from renting them out. But it is bad news for those on low incomes, whose landlord would now rather sell their properties and who might, therefore, end up in more cramped accommodation, including informal arrangements such as ‘sofa surfing’.
In reality, the housing benefit bill is going up, not down. House prices are already rising and rents will soon follow. Mortgage availability is weak and will improve over the next two years. After all, a 90 per cent mortgage is not an unreasonable proposition in an expensive market. When the mortgage market returns to normal, house prices and market rents will rise further - and when they do, the housing benefit bill will increase, perhaps dramatically.
Fewer new homes
The government has compounded the problem by announcing that ‘garden grabbing’ is out, and that means that another source of land for housing has disappeared. In addition, density targets are no more, so each hectare for housing yields fewer homes. Since there are no plans to release more agricultural land in lieu, fewer houses will be built. Fewer houses built means higher prices, which in turn means higher rents and higher housing benefit bills.
There will be no increase in employment, fewer new homes, more people unable to afford to rent or buy a place of their own, more overcrowding for the poorest and bigger benefit bills for taxpayers. Is this social justice?
Tim Leunig is an academic in the department of economic history at the London School of Economics