Posted by: Jules Birch09/10/2012
Amid all the rhetoric about those £10 billion cuts in welfare, what’s not being said could ultimately turn out to be more significant.
We’ve become so accustomed to welfare cuts that it’s easy to assume that another £10 billion is just more of the same. It isn’t and it is not at all clear where the savings will come from.
The cut would apply after the current spending review period ends in 2014/15 and, according to George Osborne yesterday, in the first full year of the next parliament, which I assume means 2016/17.
However, to put the £10 billion in context, we are talking about a cut on the same scale as was imposed in the June 2010 emergency budget and over what will be a shorter time period. The June 2010 cuts totalled £11 billion by 2014/15 and the spending review that followed in September added a further £7 billion.
Housing’s share of the June Budget savings was £1.8 billion by 2014/15, with the £490 million bedroom tax, £425 million reduction of the local housing allowance to the 30th percentile and £390 million uprating by CPI rather than RPI the three biggest elements in that. The spending review cut another £485 million from housing benefit (the single room rent and total benefit cap) and also cut council tax benefit by £490 million. Many of those cuts do not even take effect until April 2013 and we already talking about more.
In his speech to the Conservative conference yesterday, Osborne singled out three areas for attention and stressed that it was not just about saving money:
‘Iain Duncan Smith and I are committed to finding these savings while delivering the most radical reform of our welfare system for generations with a Universal Credit so work always pays. Because it’s not just about the money - it comes back to fairness and enterprise.
‘For how can we justify the incomes of those out of work rising faster than the incomes of those in work?
‘How can we justify giving flats to young people who have never worked, when working people twice their age are still living with their parents because they can’t afford their first home?
How can we justify a system where people in work have to consider the full financial costs of having another child, whilst those who are out of work don’t?’
On the Andrew Marr show yesterday, David Cameron was more specific (see my other blog for more). His comments about going ‘further’ on welfare reform went back to his speech in June that trailed the idea of removing housing benefit from the under 25s. To put this in context, the estimate at the time was that this would save £2 billion a year, which is almost as much as all the other housing benefit cuts so far put together.
IDS had previously resisted the £10 billion cuts but (in a joint article in the Daily Mail yesterday with Osborne) now agrees it is possible. That leaves the Liberal Democrats as the main political obstacle. Even though Osborne rejected the mansion tax that Nick Clegg said at the Lib Dem conference two weeks ago would be the price of his support, things seem to be moving towards a fudged compromise.
There is no shortage of warnings about the impact and the practicalities of the cuts. As I argued on my other blog on Sunday, the idea that you can simply make the under-25s live with their mum and dad bears no relation to reality. For the Joseph Rowntree Foundation, Helen Barnard highlights that too plus evidence that many people are trapped in poverty despite finding work, with an estimated six million underemployed who want to work more but can’t. For Shelter, Kate Webb argues that over half of the under 25s on housing benefit have children and that living with their parents is ‘not an option for those whose parents have died, divorced or downsized, been abusive towards them or simply don’t have the room’. For the TUC, Richard Exell highlights the amount of housing benefit that goes to people in work and what happened the last time a Conservative government cut benefits for young people in the 1980s. Blogger Joe Halewood argues that jobless families with large families will already be hit by the overall benefit cap – what he calls the fundamental flaw in universal credit.
Given all that, I was looking out for any specifics in the speech by Iain Duncan Smith to the conference yesterday. There was plenty of rhetoric about strivers and ‘families trying to do the right thing’. There were plenty of attacks on Labour for opposing previous reforms. There was plenty of boasting about the impact of the reforms so far and the benefits of the universal credit. But IDS said absolutely nothing about which benefits would be cut and where the savings would come from.
That silence is highly significant, I think. Part of this debate is obviously political, with the Conservatives positioning themselves for the next election and trotting out the familiar exaggerations about the culture of dependency and families who have never worked while ignoring unemployment, underemployment and (as David Cameron did again on the Today programme this morning) the fact that housing benefit is also paid to people in work. However, the numbers are real and will be in spending plans by the next election.
The key point is that it is not clear to anyone where the £10 billion will come from. Analysis by the Institute for Fiscal Studies suggests that freezing all working age benefits and tax credits would save £2 billion a year but probably substantially less than that if the chancellor limits it to out of work benefits. However, would this apply to housing benefit? Increases in the local housing allowance are already restricted to CPI rather than RPI inflation until 2014/15. Extending that would save around £400 million a year and may seem like an obvious source of savings. However, the price would be that over time the gap between benefit levels and actual rents would grow wider and wider and that it will become harder and harder to find landlords willing to rent to tenants on benefit.
The IFS confirms that scrapping housing benefit for the under-25s would save £2 billion but questions how the government could distinguish between ‘those who can and cannot reasonably be expected to live with their parents’ and therefore how much it will be possible to save in practice. Saving £1 billion on benefits to large families would mean cutting £3,000 a year from each of 330,000 out of work families with at least three children. Is that really feasible?
Little wonder then that IDS cannot be specific and that the IFS says that ‘it is clear…that there is more we have yet to hear about if the government is to cut the welfare budget by an additional £10 billion per year’.
Given all that, and with ministers from David Cameron down singling out the housing benefit budget for attention, housing organisations can take absolutely nothing for granted about the way housing benefit will operate in future. If these cuts can be on the agenda, so is anything else you care to think of.
Or maybe there is now a window of opportunity to argue for an alternative. The housing benefit bill is over £20 billion because of high unemployment, low pay and rents that continue to rise ahead of inflation. Why not reform the private rented sector, shift the balance back to bricks and mortar subsidies and, as a united front of housing organisations is arguing in Birmingham this week, build some homes for Britain?
From Inside edge
Housing commentator Jules Birch puts the latest news in context