So George Osborne will come down ‘like a ton of bricks’ on people who avoid stamp duty by buying homes through offshore companies. What took so long?
The chancellor confirmed in TV interviews over the weekend that the loophole beloved of celebrities, rock stars and the global super-rich will be closed in the Budget on Wednesday.
The loophole relies on the difference between the rate of stamp duty on property purchases paid by companies (0.5 per cent if they are registered in the UK, nothing if they are a trust or company registered offshore) and individuals (4 per cent on homes above £500,000, 5 per cent above £1 million).
Reports in the weekend paper speculate that avoidance could now be worth more up to £1 billion. According to the Mail on Sunday, 95,000 homes are owned offshore by people like Mick Jagger, Bob Geldof, Ringo Star and steel tycoon Lakshmi Mittal. The Sunday Times found that rich home owners have registered £200 billion of property in 122 different locations over the last 12 years and that more than 23,000 homes are owned by companies registered in the Isle of Man alone. For every home worth £1 million in offshore ownership, the taxpayer is losing out on £20,000 worth of stamp duty.
However, the details of Osborne’s clampdown remain to be seen. Will it just be on offshore companies or on UK companies too? Will it only apply to future sales or will there be full retrospective action? Anything other than that hardly qualifies as acting ‘extremely aggressively’ and ‘coming down like a ton of bricks’ but if it was easy to trace what has happened to UK property owned by companies in the British Virgin Islands and Guernsey and the number of times ownership has been transferred (or laundered) it would sort of defeat the object of offshore tax havens.
Either way, it seems ridiculously overdue. As long ago as 2007, contenders for the Labour leadership were calling for the loophole to be closed and it seems highly unlikely that Treasury and HMRC officials were not aware of it long before that. An explosion of evasion/avoidance was inevitable when the new 5 per cent rate for homes worth over £1 million was introduced in 2010 but by last year it was spreading further down the income scale via a new breed of specialist tax company. That ton of bricks has taken an incredibly long time to fall.
However, the issues involved with overseas and offshore ownership of UK homes are about more than just stamp duty avoidance. Take a look at any of the estate agent surveys of ‘prime’ central London property (mainly Kensington and Westminster but beginning to spread beyond that) over the last few years and you will find a market dominated by overseas buyers. The think-tank IPPR argues that London properties have become a sort of global reserve currency for the wealthy elite. The amount of foreign capital flowing into prime London property rose 71 per cent to £5.2 billion in 2011 – a sum the IPPR estimates is a quarter of all the money spent in the 14 inner London boroughs.
Without wanting to overstate it, this has an effect on the entire London market as billionaires price out millionaires, millionaires price out the merely rich and the process feeds all the way down the income scale to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants. Some time ago London house prices stopped being set according to what people working in London could afford and became a global investment market. This trend was exacerbated by the financial crisis, with the fall in the value of the pound making London much more affordable to overseas buyers and financial and political volatility around the world making London increasingly attractive as a safe (and tax-free) haven. And there are no statistics on overseas investment in non-prime London property.
An upcoming report from the IPPR on the London housing market groups the overseas investors into three categories: European and American buyers looking for homes to live or invest in; buyers from outside the OECD (led by Russians) looking for properties worth over £2 million as a hedge against potential problems at home; and yield-based investors from the Far East looking for new-build property they can rent out and sell at a profit later.
Aside from using offshore companies to evade stamp duty, the report says the overseas buyers benefit from a tax and regulatory regime is highly favourable compared with other countries. The Czech Republic, Switzerland and Denmark, for example, all have strict controls on foreign nationals buying residential property where we have none. A report by Taxand, a tax advisor on international real estate investment, looked at tax on residential sales and rents in 29 different countries. The UK had the lowest tax on sale of flats, the second lowest on residential sales (behind Malaysia) and the second lowest on residential rents (behind Cyprus).
The stamp duty clampdown will go some way to helping with that but it is not the only tax advantage to overseas buyers. For example, in contrast to the USA, Australia, Canada, Cyprus, Hungary, Iceland, Ireland and Spain, the UK charges overseas owners and property-owning vehicles no capital gains tax.
The IPPR wants any revenue raised from increasing tax on overseas owners to be ring-fenced for housing in the areas worst affected and is also calling for a new additional holding tax on overseas buyers of property worth over £2 million. If investors pay 1 to 2 per cent fees on stock market funds, why not make them pay the same on their residential investments? It sounds a bit like a mansion tax but one targeted on the overseas buyers who are treating London homes as an investment market and helping to drive prices and rents out of reach of everyone else.
Earlier this month, Italians took over from Russians as the leading buyers of prime London property. The motivation for the splurge seems to be desire to get their money out of the country in the wake of the Euro crisis but it may come to an end as a result of austerity measures being introduced by the Italian government. These involve not just the reintroduction of a tax on first homes but a new, higher tax on second homes within Italy and overseas. Ironically, Italian owners of UK property will be paying a mansion tax (set at 0.81 per cent a year on the value of second homes abroad) but to the Italian government, not ours.
It’s way past time that the UK government tackled the issue of the tax treatment of overseas buyers of UK homes. However, this is only one small step. The suspicion must be that it is also a headline-grabbing measure designed to distract attention from the fact that George Osborne is not going to introduce a mansion tax on Wednesday and is going to cut the 50p rate of income tax.
I’m never quite sure about those ‘buy one, get one free’ offers in the supermarket. So can I really believe in ‘buy one, build one free’?
My local Shapps & Cameron hyperstore is offering me a ‘rebooted’ right to buy. Is it like it sounds - a desperate attempt of a 21st century marketeer to rebrand a tired old product from the 1980s as something exciting and new - or is there something in it?
Before I go loading up my car with pies I’ll never eat and bananas that will go off before I munch my way through them, in this case I already know there are some big catches. The ‘terms and conditions may apply’ in small print below this particular offer includes the fact that this is more ‘buy one, build a bit of one free’ provided I put up free land and borrow a lot more. If I want it to be affordable rather than ‘affordable’ I’ll have to do even more. And it could play havoc with my sums on self-financing.
But, hey, beggars can’t be choosers and these supermarket promotions look like running out soon. I’ve cashed in my clubcard points from last year’s ‘affordable’ range and there are few signs of any other special offers from Shapps & Cameron. Certainly till 2015 and probably beyond. Isn’t BOBOF better than nothing?
So far, reactions have been mixed. The CIH supports anything that will boost investment but said there were ‘both pluses and minuses’ in the announcement. The LGA wanted areas to be able to determine their own discounts, criticised the centralised way the system was being implemented and warned that ‘some areas in need of affordable homes may actually be left with fewer’. The NHF also warned that receipts in low-value areas may not be enough for replacements.
I’ve been looking at more of the small print after noting the rather curious way that Shapps answered a question in parliament on Monday. His former Labour shadow Alison Seabeck asked him to clarify. ‘He spoke today of replacement on a one for one basis. Does that mean he does not mean like-for-like replacement in the same area?’
Any supermarket customer service person would have been proud of the evasive and non-committal answer from Shapps. ‘Where local authorities can provide the new homes in the same area, we will certainly look to keep the money locally and build in the area,’ he said.
Back to that small print. It was always clear from the original consultation published on December 22 that BOBOF will only apply to homes sold ‘above current predicted levels’. And the Inside Housing feature by Gavriel Hollander in January revealed the depth of the scepticism on the ground.
It’s clear the changes go beyond just tweaking the government’s preferred option of the existing discount rate with a £50,000 cap to the existing discount rate with a £75,000 cap. That’s important in itself of course and on the face of it makes one for one replacement even harder.
The official explanation in the new impact assessment (IA2) is that: ‘It was considered to best meet the policy objectives, in particular the potential to increase take-up of right to buy whilst at the same time ensuring that receipts would be sufficient to enable one of one replacement with affordable rent properties. The £75,000 cash cap also limits the potential for large windfall gains that an “uncapped policy” would lack. The 30-year net present value under this approach is positive and the policy option results in significant economic benefits.’
However, there is an interesting change to the way that this option is evaluated. IA1 said that the implied average net sale receipt after paying local authority debt would be £55,500. It went on: ‘This would be sufficient for one for one replacement without the need for conversions beyond the current Spending Review period, but we estimate that there could be a small funding gap within the current Spending Review period under this policy option.’
IA2 also predicts an average net sale receipt of £55,500 but goes on: ‘Under our central assumptions we estimate that this would be sufficient for one for one replacement without the need for conversions within and beyond the current Spending Review period.’ I’ve asked the DCLG why the ‘small funding gap’ has disappeared and am waiting to hear back.
The sums have also changed on the assumed costs. The net present value of the £75k option after 30 years has reduced from £21,100 to £19,800 per home while after 60 years it has reduced from £100 to -£700. The explanation for this appears to lie in two changed assumptions about housing benefit.
First, like virtually everyone apart from Joe Halewood, the DCLG had missed the freeze in local housing allowance rates announced by the DWP for 2012/13 in IA1. IA2 corrects this by reducing the LHA rent inflation assumption from 3.7 per cent to 2.0 per cent for this year. That will presumably reduce the housing benefit saving from people on LHA moving in to the replacement homes.
Second, IA1 had assumed that many of those exercising the right to buy would be on partial housing benefit and estimated this would be the equivalent of 15 per cent of them on full housing benefit. Following discussions with the DWP that has been changed to 10 per cent. This reduces the housing benefit saving that comes from these tenants becoming RTB owners.
On the central assumption, IA1 estimated that the housing benefit impact per unit would be +£3,000 over the three-year spending review period and +£600 on 30-year net present value but -£12,300 on 60-year net present value. IA2 revises those figures significantly so that there is a positive impact of +£2,100 per unit over the spending review but a negative impact of -£3,100 over 30 years and -£16,100 over 60.
Another significant change, presumably after lobbying from the NHF about public-private status, is that there is explicit statement in IA2 that ‘housing associations are independent organisations and we cannot therefore mandate the use of any receipts from right to buy sales that they retain, including for one for one replacement’. The government expects that receipts will be recycled in practice but a proposal in IA1 to ‘incentivise’ developing associations to do so through the affordable housing programme seem to have been dropped.
However, there are all sorts of issues not covered in the impact assessment. All of the comparisons are with an alternative of keeping the sold-off home in the social rented sector. Little wonder the comparison looks favourable, when the alternative does not include any residual long-term value for the home. And are the BOBOF homes really additional when all the free land would probably have been used for new homes anyway?
Strangest of all, in what is meant to be an impact assessment, there is no attempt to estimate the number of people who will buy (which may depend not just on individual tenants but perhaps their families too). Or when they will do it – there is no time limit so some people who can buy may prefer to wait until after the recession. Or how long the likely purchasers have been tenants – and therefore how much discount they will get. Or where they will do it, because the sums will stack up very differently between high and low value areas and between authorities with headroom to borrow under self-financing and those with little scope to borrow.
Perhaps, in fairness, the vague answer from Shapps on Monday reflects some of those uncertainties. Some authorities may be able to build a replacement home in the same area but others will not and wouldn’t it be better for housing as a whole if their receipts are recycled elsewhere?
Back in the Shapps & Cameron store, the managers are hoping that the £75,000 headline offer and BOBOF will be enough to tempt the punters. But they don’t really know because nobody really knows.
Only one thing really seems certain. Love it or hate it, Right to Buy 2 looks like being the only special offer around for some time to come.
If NewBuy really is to be about supporting buyers and new homes rather than just subsidising housebuilders here are 10 questions that need answers.
The launch of the scheme this morning got off to a somewhat shaky start, with many reports claiming (wrongly) that it is for first-time buyers and others (rightly) pointing out the advantages for builders.
The basic details are that the scheme has been designed by the Home Builders Federation and Council of Mortgage Lenders (CML). It will be available for an estimated 100,000 mortgages on any new build property in England up to £500,000 constructed by a builder who is in the scheme. Shared ownership and shared equity are excluded and so are second home owners and buy-to-let investors.
NewBuy will underwrite 95 per cent mortgages, with housebuilders putting up 3.5 per cent of the sale price into an indemnity fund and the government providing an additional 5.5 per cent guarantee. Any loss will come first from the buyer’s deposit, then the housebuilder’s fund and only then from the government guarantee.
So far, so good. If the scheme really does result in 100,000 homes that would not otherwise have been built then it will help support jobs and growth and bridge some of the huge gap between current output and demand from new households. Despite the first-time buyer spin put on it by David Cameron and Grant Shapps, some of the biggest beneficiaries could be frustrated second steppers, people who bought their first home at the top of the market, may now need a bigger home for a growing family and do not have enough equity for a deposit. The website for the scheme already has 28,000 people interested.
But now for the questions:
First, and most obviously, why is the government intervening in what is meant to be a free market? Isn’t it better to let house prices fall to an affordable level rather than prop them up artificially? In the name of the (housing) market, the scheme seems to offend basic principles of free-market economics.
Second, will the 100,000 homes really be additional? There seems to be no guarantee of that and no undertakings from the companies involved. As I blogged last week, the business strategies of the major housebuilders are based on increasing their margins rather than their output. They also seem free to choose which homes they include and set their prices knowing they have desperate buyers. Even if the homes are additional, what’s to stop them manipulating the prices? If the homes are not additional supply, the effect of the increased demand surely has to be to boost house prices and those margins even more.
Third, why is a new-build guarantee needed when lenders are increasingly making 90-95% mortgages available for secondhand homes? I asked on twitter earlier whether this was because they are worried new build prices will fall by more in a downturn. The CML responded that ‘new build value can be less easy to benchmark for lending purposes’ and the disparity is ‘a consequence of constrained/cautious market’. It remains to be seen how attractive the rates on offer will really be.
Fourth, won’t this discriminate against existing owners of secondhand homes? Imagine you are someone trying to sell a secondhand home when just down the road a housebuilder launches NewBuy. Will you have to cut your asking price because of a scheme paid for by your taxes?
Fifth, why such a high limit? A 95 per cent mortgage on a £500,000 house would be worth £475,000. What is the justification for the taxpayer underwriting the mortgage of someone earning £150,000?
Sixth, why is it being launched now? At the moment only seven housebuilders – Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey – and three lenders – Barclays, Nationwide and NatWest – are taking part. They will be joined in the next few months by two more banks (Santander and Halfax) are set to join. It may make sense because of the Spring selling season or for Budget- or local election-related reasons but it seems somewhat premature.
Seventh, where are the small builders and potential new entrants to the market? Although the DCLG says that ‘other leading names, including smaller housebuilders, are expected to follow their lead in the coming weeks and months’ the big players that dominate the market are in there first. If the government has subsidy available, why not concentrate it on companies you know will build additional homes?
Eighth, why is there apparently no role at all for social landlords? The scheme does not cover shared ownership but there are plenty of housing associations out there who might be interested in mortgage guarantees on homes they build for outright sale.
Ninth, where is the impact assessment? If the government is guaranteeing 5.5 per cent of 100,000 mortgages worth an average of, say, £200,000 then £1.1 billion of taxpayer’s money is potentially at risk. Yet the DCLG has published no impact assessment yet and (amazingly) its press office cannot say whether there is one.
Tenth, how will the guarantee be accounted for under public borrowing rules? If it is extra borrowing, what about the deficit reduction programme? If not, why is there flexibility in the rules for NewBuy but not for local government? What else could be done with more flexibility?
And that’s just for starters.
Can cutting red tape for housebuilders deliver the new homes and growth the government needs? Here’s why I’m sceptical.
Clive Betts summed up the problem neatly when Grant Shapps appeared before the Communities and Local Government committee at the end of January. With household formation running at 250,000 a year, social sector output around 40,000 to 50,000 a year and the private sector never building more than 150,000 in recent times, the committee chair asked who would build the rest?
The answer from Shapps was that the housing strategy listed 100 different ways to fill the gap. Reform of planning, 100,000 right to buy sales to generate the money for 100,000 homes, 100,000 homes on public sector land and the mortgage indemnity scheme were just four of them. When pressed he added ‘not piling costs on developers’ to the list. ‘That was completely counter-productive and led to the lowest house building since the 1920s. If you keep saying to developers, “Oh, and by the way, whilst you are building these homes, we also expect you to deliver X, Y, Z in addition,” then unsurprisingly you get to the point where it is just unsustainable for them to build the homes. I have been trying to loosen the load on developers in order for them to get the homes built, and there is a commitment in the last Budget to make sure that we are not loading on new bureaucracy and red tape. Indeed, we are cutting it by 2015.’
Nobody could accuse him of failing to back his words with actions. Even before the housing strategy was published, the government was introducing changes likely to boost the value of housebuilders’ land holdings by hundreds of millions of pounds. Design and sustainability standards, a weaker definition of zero carbon and reform of section 106 were all targetted from 2010. Labour’s HomeBuy Direct gave way to the coalition’s FirstBuy and record low interest rates continued to put a floor under house prices.
The housing strategy extended the subsidy still further. There was not just the £400m Get Britain Building Fund and NewBuy, as mentioned by Shapps, and confirmation of the other deregulation, but a new consultation on proposals to allow developers to require local authorities to reconsider section 106 agreements agreed in more prosperous market conditions prior to April 2010. To give some idea of the scale of that last subsidy, research for the DCLG estimates that section 106 deals worth £9 billion were agreed in 2006/07 and 2007/08.
Put all that together and you have what amounts to a corporate welfare package worth several billion pounds. That’s something that would require intense scrutiny even if housebuilders were delivering on their side of the bargain by building more homes. It isn’t getting any and they aren’t delivering. But far from changing course the government is preparing to hand over even more goodies through the red tape challenge. In the short term, the effect of all this will be to boost margins for the major firms. In the longer term, although it may make some sites more viable to develop, it will also increase the value of that land – and increase land prices in general.
As I argued last week, all of the major housebuilders are concentrating on increasing their margins through tight control of costs and careful management of their land and what and where they build. The strategy is working with increased profits and, in the case of Persimmon, a nine-year programme to return £1.9 billion to shareholders. The one thing they are not doing is building a lot more homes (a few more but nowhere near enough to meet the aspirations of the government).
Given how close they came to disaster in the wake of the credit crunch, that is a perfectly understandable strategy. And it’s clear from recent statements that they are not planning to change it any time soon. Persimmon, for example, currently has a land bank of 63,300 plots. ‘Whilst this currently represents over six and a half years forward land supply, our longer term objective remains to return to a five year supply,’ said chief executive Mike Farley in its results last week. ‘We expect to achieve this through both the expansion of our output as the market allows and the selective replacement of the plots we legally complete each year.’ The clear implication is that it will only expand its output from 9,360 homes in 2011 to a maximum of 12-13,000.
Taylor Wimpey made the same point even more explicitly in a presentation at the Bank of America Merrill Lynch building conference in October. The company said that it ‘won’t return to the volume-driven mentality of the last cycle’ although this ‘does not mean that we will not grow volumes from current level’. Growth would come naturally from new sites and an uplift in sales rates as the market recovers but the company sees ‘c 14,000 plots as a soft cap on volume, even in strong markets’. To put those figures in perspective, Taylor Wimpey was building 21-22,000 homes a year in 2007 and 2009 while Persimmon was building 16-17,000.
Of all the schemes and subsidies introduced by the government, NewBuy looks like the most promising scheme at first glance. Available on new-build homes worth up to £500,000, it will allow lenders to offer 95 per cent mortgages to up to 100,000 buyers with builders (3.5 per cent) and the taxpayer (5.5 per cent) underwriting some of the risks. In theory, that should help not just first-time buyers but also ‘second steppers’, people trapped in their first home with insufficient equity to move, and get the whole market moving. The obvious objection is that it could just give builders the chance to raise their prices but the scheme seems to be facing more fundamental problems ahead of its launch next Monday. The Financial Times reported yesterday that the scheme is being rushed through ahead of the Budget despite concerns from lenders, regulatory hurdles and IT problems. It also revealed a row over the price that banks will charge, with housebuilders arguing that the premium being charged by lenders could make the whole scheme unattractive. There are also worries from smaller builders that the rush to get the scheme in place has put them at a disadvantage to the major firms.
If NewBuy is running into problems like that, there have to be worries about the government’s approach in general – and about its reliance on major housebuilders in particular. There are some exceptions to the rule (for example, Galliford Try, the 11th biggest housebuilder by turnover, increased its output by 59 per cent last year) but most of the major firms are concentrating on a strategy of building their margins and rebuilding their balance sheets rather than building new homes. That is perfectly logical and perfectly understandable but it does not offer much encouragement for the government’s housing strategy.
In a report that did not get enough attention when it was published between Christmas and New Year, the IPPR think-tank concluded that reform of the housebuilding industry is urgently required if we are to avoid the lost decade that followed the two previous downturns in 1974 and 1990. ‘We cannot afford a repeat. And yet, if we duck reform at this critical juncture, that is exactly where we are heading, only, this time, worse,’ it said. ‘But the government’s new Housing Strategy does not demand the reform that is needed. Instead, it offers the major housebuilders public land, money and guarantees without articulating a serious quid pro quo. The result, as things stand, is likely, as in the past, to be subsidised stagnation. If we want a can-do supply-side response, government must demand more bang for the taxpayer’s buck.’
The report called for measures to stop developers ‘playing the land market and the planning system’ rather than building homes, with strict conditions applied to public sector land release including rapid build-out and lower profit margins. A fifth of the land should be earmarked for self-build and all of it should go to joint venture partnerships that would share the uplift in value between the government, communities and developers. Financially unviable builders should be allowed to go bust and their land banks redistributed. Community land auctions and modern garden cities should be on the agenda. And land should be de-risked by splitting the development process into land trading and housebuilding – in much the same way as the banks are being made to split their investment and retail operations.
The government has flirted with some of those options, such as community land auctions, and the Treasury is said to be studying a report by Policy Exchange calling for new garden cities. However, its strategy looks dangerously over-reliant on the handful of major firms that dominate the market. Deregulation and the housing strategy are giving the big housebuilders practically everything they want without being committed to anything in return: why are there no building targets to match the lending targets imposed on (and largely ignored by) the big banks? If billions of pounds worth of subsidy is available, why not use it to encourage new players to enter the market? If red tape needs to be cut, take a look at the barriers to entry? If cheap public land is available, use it to attract new players rather than hand it over to the big firms, who will simply use it instead of their existing land?
The government is throwing billions of pounds worth of corporate subsidy at major firms that will not deliver the numbers needed for its growth strategy to work. If it has to subsidise anyone, it should be looking at smaller builders, housing associations and new entrants to the market.
And so, having ‘done this to death’, the bedroom tax and the Welfare Reform Bill have passed their final parliamentary hurdle.
The quote came from welfare reform minister Lord Freud as peers debated a final attempt to amend the under-occupation penalty. It may have been accurate in terms of the parliamentary procedure but it will have a hollow ring for landlords and tenants as they spend the next 13 months agonising about how a measure that will cost 670,000 people £14 per week will be implemented.
Freud was responding to an amendment by Lord Best seeking an independent review of the impact of the measure on poverty, homelessness, under-occupancy, local authority resources and rent arrears six months after the tax is implemented.
Lord Best had begun with an (unnecessary) apology ‘to those who hoped that this House would save the day but will now be deeply disappointed’. The Commons had rejected his two previous amendments and even the apparent concession of £30 million in discretionary housing payments for disabled people and foster carers was funded by increasing the bedroom tax on everyone else. So now he changed tack with the call for a research.
Lord Freud pledged an evaluation that would involve key stakeholders in developing evaluation research that would include the wider social impacts, the implementation strategy and draft guidance. But he said the key issue was that not about making people move but making social as well as private tenants make informed choices about ‘where they live and what they can afford’. People could choose to stay and meet the shortfall with options including employment, increasing their working hours, asking others in the household or extended family to contribute or taking in a lodger although he did not add his statement two weeks ago that ‘the designation of property size is another area where there may be flexibility’. The minister concluded: ‘We have now done this to death and I close by asking the noble Lord to withdraw his amendment.’
Lord Best did so but he still had time for one last telling speech on the issue. He had received an email from a woman with a partially disabled husband who was also a full-time carer for her mother living nearby. She faced a charge of an extra £25 per week. ‘She has looked into the possibility of moving elsewhere and she can move some miles away. However, she is not going to be able to get back to see her mother twice or three times a day. She cannot afford that £25 a week and is going to have to do something. These are the kinds of social network issues that are raised by this measure.’
He went on: ‘I hope that the minister does not get the blame when the housing benefit bill does not fall.’
And so now it’s over to landlords and tenants to decide how the bedroom tax will work on the ground when it is implemented from April 2013.
As MPs and peers have argued, this is a Treasury-dictated measure that is all about cutting the housing benefit bill. If it were about fairness (to private sector tenants who already get charged for under-occupancy) there would be exemptions for people who cannot be offered alternative accommodation and transitional arrangements for existing tenants. Instead, we are left with a crude and arbitrary tax that threatens to drive tenants into the arms of doorstep lenders and landlords reluctantly into the courts.
The implications for disabled people, for people who were allocated a larger home as part of their landlord’s policy, for single parents and for all the other people affected (as Lord Freud complacently put it: ‘on this measure, of the 3.3 million tenants living in the social rented sector and receiving housing benefit, only about one in five is expected to be affected by this change’) have only been worked out on the back of an envelope so far. Other impending changes such as cuts in council tax benefit will complicate things even further.
And that’s before we get to the rest of the Welfare Reform Bill and especially the sections on disability. A report out today from the parliamentary joint committee on human rights concludes that ‘the range of reforms proposed to housing benefit, disability living allowance, the independent living find, and changes to eligibility criteria risk interacting in a particularly harmful way for disabled people’. And it warns that the cumulative impact risks the UK being in breach of the United Nations Convention on the Rights of People with Disabilities giving disabled people a human right to independent living. .
That’s just one example of how a consideration of the implications of the bedroom tax and the rest of the Bill are about as far from being ‘done to death’ as it is possible to get.
Britain’s housebuilders are starting to do very nicely thankyou. If only the same could be said for housebuilding.
A succession of leading firms have revealed healthy results in the last two weeks featuring increased profits and margins, reduced debts and in one case a £1.9 billion dividend for shareholders.
The strategy in all cases is pretty much the same: increase margins through tight control of costs, building on land bought at cheaper prices since the downturn and building more houses than flats and more in the south than the north. The one thing they are not doing is increasing production. As Taylor Wimpey sums it up in its results today: ‘Our priorities remain value creation and margin improvement ahead of volume growth.’ Here’s a brief selection of the highlights from the results of five of the top 10 firms:
Taylor Wimpey: Profit before tax and exceptional items £89.9m in 2011 (2010: £27.9m loss). Achieved double-digit operating margin ahead of 2012 target with 10.1 per cent in H2 2011. Resumed paying dividend. Completions up 2 per cent to 10,180 of which 8,075 were private and 2,048 affordable.
Barratt: Interim pre-tax profit for six months to 31 December £21.6m in (2010: £4.6m loss). Operating margins up from 5.0 per cent to 6.4 per cent. No dividend. Now operating from 400 sites with capacity to go to 460 active outlets ‘as a maximum – but this will only happen if market demand supports it’. Completed 5,117 homes jn first half (4,796) of which 1,089 were social housing and 545 supported by FirstBuy or HomeBuy Direct. Looking to take advantage of ‘build now, pay later’ initiative.
Persimmon: Underlying pre-tax profits up 55 per cent to £148.1 million for 2011. Operating margins up from 8.2 per cent to 10 per cent. Dividend up 33 per cent and programme to return £1.9 billion to shareholders over next nine years. 9,360 completions in 2011 (2010: 9,384).
Redrow: Interim pre-tax profit for six months to 31 December 2011 up 80 per cent at £15.3m. Operating margin up from 5.6 per cent to 7.5 per cent. Completions down 11 per cent at 1,168 following sale of Scottish business. No dividend.
Bovis Homes: Pre-tax profit for 2011 up 74 per cent to £32.1 million. Operating margin up from 7.2 per cent to 10.0 per cent. Completions up 8 per cent to 2,045 homes, of which 21 per cent were social housing. ‘With a clear focus on controlling the capital employed of the Group through rigorous management of the landbank and tight control of work in progress, the Group expects to deliver a strong improvement in returns in 2012 and beyond.’
Between them the top 10 housebuilders dominate the market. The top three (Taylor Wimpey, Barratt, and Persimmon) accounted for at least a quarter of completions in 2007 and about the same now. The top 10 account for around 40 per cent.
Last year saw just 109,000 completions in England. The top 10 are concentrating on building their margins rather than homes. That is a perfectly understandable business strategy given how close they came to annihilation when they expanded output up to 2007. However, it makes the prospects of matching the rate of new household formation (240,000 a year) look bleak for the foreseeable future.
The government is hoping that November’s housing strategy in general and its new mortgage indemnity scheme in particular will help to bridge the gap. I’ll be looking at the chances of success in another blog soon.
So here is the predictable pong to the Lords’ ping: the bedroom tax amendment rejected in the House of Commons.
The vote by 316-263 is hardly a surprise given the coalition’s majority in the Commons and the payroll vote. Even Sarah Teather voted with the government this time although there were at least nine Lib Dem rebels that I could count plus two Conservatives.
Work and pensions minister Chris Grayling dismissed the Lords amendments on straight financial grounds – ‘we simply do not have a blank cheque that will cover the costs of the amendments’.
He also rejected claims that the change could end up costing more money if many of the 670,000 social tenants affected decide to move to smaller, but more expensive, private lets on the grounds that the homes would then go to people in temporary accommodation.
But if any peers were listening in and marking the debate on points to report back next week there can be little doubt which side won.
Simon Hughes, the Lib Dem who never ceases to remind us that his constituency has the greatest proportion of social housing tenants in England, questioned why the government was refusing to exempt the categories of people who were being exempted from the benefit cap. Reassurances from Grayling that the government would continue a dialogue seemed enough to convince him to fail to vote either way rather than rebel.
Stephen Timms for Labour outlined the effect on terminally ill tenants who would not be helped by discretionary funds designed to help foster carers and disabled tenants with adapted homes. And he attacked the claim that the cut was somehow a work incentive: ‘Let us call a spade a spade. This is a spiteful cut in people’s income.’
Conservative rebel Andrew Percy – who must surely deserve some kind of housing award - said that yet again he could not support the measure. ‘When we talk about people’s homes we need to remember that they are exactly that – people’s homes, not just a public asset that we need to release.’
He was speaking from personal experience as a councillor trying to tackle under-occupancy on an estate in Hull. ‘It was incredibly complicated and difficult to deal with. It is a fallacy to think that we will suddenly be able to move all these people out into more suitable accommodation.’
Labour’s Frank Field, a supporter of other aspects of welfare reform, called this one ‘shameful’.
‘Anyone who has sat through debates on the Bill will know that the Government’s body language is totally different to that in respect of other measures. They have been forced to take this measure by the Treasury. It goes against all that the Bill tries to achieve, which is to work with the grain of human nature. This proposal, which has been forced on the Department for Work and Pensions, works against that grain.’
He demolished the government’s arguments one by one. ‘This is not a welfare reform measure. It will be a recruiting sergeant to the money lenders and will be looked on as an eviction measure.’
And Lib Dem rebel David Ward quoted the stats from the largest landlord in his Bradford constituency: with 3,800 under-occupied households it would take three years with no re-lets or new lets to re-house them all.
If parliamentary debates were scored on points like boxing matches, Grayling would have been stopped to save him further punishment. But unfortunately they are won on government majorities, the payroll vote and pressure on rebels.
And so, with thanks to those coalition MPs who did rebel, the ping-pong ball is sent back with interest to the Lords.
The end game on the bedroom tax is going to be about more than just whether the House of Commons continues the parliamentary ping-pong.
The Lords smashed the ball back over the net last night. They voted 236-226 for an amendment moved by crossbench peer Lord Best that will exempt groups including disabled people, war widows and foster carers from the under-occupation penalty where there is no suitable alternative accommodation available.
Reflecting the fact that the government had claimed financial privilege in the Lords, that was a much smaller majority than the 258-190 vote before Christmas for an amendment that would have exempted everyone with no more than one spare bedroom if there is no suitable alternative. Only six Lib Dem peers rebelled against the government this time around but that was enough.
Three cheers for that. The DWP says it will lob the ball back over to the Lords when the Commons returns next week although campaigners are still hopeful it will offer more concessions rather than risk going through the same thing again.
However, regardless of what happens, 670,000 tenants still face an average cut of £14 a week or £728 a year from April 2013 and social landlords still face a series of uncomfortable dilemmas over arrears and evictions.
Moving the amendment, Lord Best said he was hoping to ‘salvage something’ but ‘I deeply regret abandoning hundreds of thousands of households who, even if the amendment is approved, will still be caught by the penalty charge from 1 April next year’.
And even a government concession had a sting in the tail: ‘I confess to having been thankful for this small mercy—until I learnt that the £30 million for these discretionary housing payments is to be paid for not by the Treasury accepting any reduction in the gains achieved through the bedroom tax but by increasing the tax for the other tenants by another £50 per annum from the previous £13 per week to the new £14 per week.’
Backing him up, Baroness Hollis said the penalty had ‘fundamental dishonesty’ at its core because it said that people must downsize while the government acknowledged that the ‘smaller flats and houses to which people should move do not exist’.
And as chair of Broadland Housing Association she outlined the dilemmas facing landlords. ‘Either I evict a family with a disabled child into temporary accommodation or bed and breakfast—how I can do this to them?—or they stay put and arrears mount. I have already trebled the amount in my accounts for increased arrears… that money is not available to pay the debt charges of new building which alone will solve the problems of getting our stock right in the longer term.’
There was an interesting intervention from former Conservative social security minister Lord (Tony) Newton, who warned that ‘the government are playing a very dangerous political game, without quite knowing that will hit them when this comes into force’ and recalled a previous Treasury-inspired cut to housing benefit in the 1980s that Margaret Thatcher had to order to be reversed within a month once the impact became clear. He still voted with the government later but it was not exactly a vote of confidence.
It was a measure of the position welfare minister Lord Freud found himself in, stuck between losing the argument in the Lords and Treasury insistence on the cut, that he told Lord Best he had over-estimated the cost of his own amendment (it was up to £100 million not £150 million) and that he left no stone unturned in trying to find a non-financial way out.
The idea of taking in a lodger – first raised in a throwaway line by Steve Webb in the Commons – now seems to be a major part of the government’s toolkit. Any tenant who did take in a lodger see the first £20 a week in income disregarded from their own housing benefit, he said, and ‘we will expect social landlords to take a pretty liberal line on this’.
As Lord Best pointed out, it would not be appropriate for the disabled and vulnerable tenants covered in his amendment to take in a lodger. At the very least, any tenant will need some good benefits advice first.
However, Lord Freud had another idea too. ‘One aspect that has not been explored in our debates is the response from social landlords,’ he said. ‘The rent they receive reflects the size of their property. If there were, for example, a very small room such as a box room that the landlord called a bedroom, they might reconsider, if they have not done so already, whether to count that room when deciding on the number of bedrooms that should be written into the tenancy, as well as on the rent associated with it. The designation of property size is another area where there may be flexibility. We are exploring this with social landlords as part of our implementation work.’
Leaving aside the question of how many social rented homes really have a box room bedroom, is he really suggesting a way out for landlords and a way to evade his own bedroom tax?
A mass downsizing by landlords seems unlikely given the potential effect on rental incomes, property valuations and loan agreements, but is there scope for some creative thinking? If a three-bed flat is hard to let now, it could become even harder to let under the bedroom tax, so why not call it a two-bed in the tenancy? Is the bedroom with a computer in it proof of under-occupation or an office that is proof the tenant is doing what the government wants and preparing to launch a business from home? Is that smaller room used by your disabled tenant really a spare bedroom or a wheelchair storage area?
• There was no such excitement on the bedroom cap, where a Labour amendment was easily defeated, but there were a few more concessions. In addition to the original exemptions, the government had already pledged a nine-month grace period for anyone who has been in work for the previous 12 months, plus more discretionary payments plus an evaluation of the impact after a year. In the Commons it added an exemption for households with someone who get the support component of ESA who is not in receipt of DLA.
Last night Freud confirmed that the grace period will apply to couples where just one of them meets the criteria and added that he saw no reason why it should not apply to people whose hours are reduced as well as those who lose their jobs.
The Bank of England seems set to announce another round of quantitative easing on Thursday. Is that good news or bad news for housing - and is it time to consider an alternative?
QE is presented as the Bank’s only option for stimulating the economy given that it has already cut interest rates to a record low of 0.5 per cent. To simplify massively, it creates liquidity by creating money to buy assets like government bonds. The institutions holding the bonds then have new money in their accounts, which they use to buy other bonds and shares. The net effect is to reduce long-term interest rates and stimulate the economy.
The scheme boosts asset prices and increases inflation but that is seen to be a price worth paying for getting the economy out of the hole it fell into after the collapse of Lehman Brothers. The Bank released £200 billion of QE in 2009 and 2010 and another £75 billion in October. Following figures last week showing a big fall in the money supply it is set to do more on Thursday.
But what about the effect on housing? QE is generally credited with putting a floor under house prices, which is good news if you already own a home but very bad news if you are struggling to get on to the housing ladder and paying a high rent. House prices, remember, are already propped up by ultra low interest rates that have reduced mortgage payments by thousands of pounds for anyone who can raise a deposit.
The problems don’t stop there. According to the Bank’s own analysis QE has increased the rate of inflation by between 0.75 and 1.5 percentage points. That has led to direct increases in rents for social tenants because they are linked to a formula of RPI inflation plus 0.5 per cent. If QE had never happened, landlords around the country would not need to be imposing such large rent increases at a time when their tenants are already suffering from falling incomes.
So what’s the alternative? It’s one I’ve mentioned before that is slowly gaining some traction. What if quantitative easing could be used to invest in new homes rather than buy financial assets?
Instead of government bonds, the Bank could buy bonds in a public interest company with a remit to build homes for future sale to the private or social sectors. A public interest company would be at arm’s length from the government and therefore not caught by restrictions on public borrowing. remit not to hold
A £50 billion scheme could potentially finance 500,000 homes, create 20,000 jobs and generate £10 billion for the Treasury in taxes generated and benefits saved without taking account of the knock-on effects for the wider economy. Rents on the homes could pay any interest in the short term and in the longer term the sales proceeds could go back to the Bank.
The scheme could be tied into some of the innovations in housing finance being developed by social landlords. It could generate the type and scale of stock that institutional investors say they need before they take the plunge into the private rented sector and be a way for the government to de-risk private rented investment without using public money. It’s surely also a good way of using the precious resource of public land.
The obvious objections seem to be more ones of mind-set than substance. A backdoor scheme for increased borrowing? Not if all the money was repaid on the sale of the properties and it generated a healthy return for the taxpayer in the meantime. Wrongful use of a scheme intended purely for financial instruments? It may be difficult for the Bank to move outside its financial comfort zone but it would still be buying financial instruments and this would give the Bank a more varied range of assets to sell when the time comes to unwind QE.
Above all, perhaps, there seems no chance of the government achieving its ambition of using housing as a key part of its growth strategy without an extra weapon like this at its disposal. Brian Green argues on his Brickonomics blog that the scheme could be just the ‘big bazooka’ that Grant Shapps needs to stand a chance of meeting the target against which he said he wanted to be judged: building more homes than Labour. He also has more detail about how a public interest company might work and roles for the Bank, Treasury and HCA.
Without something like QE for housing, we seem stuck with housing completions at half the level needed to meet demand (even in 2016 Savills is predicting just 125,000). With it, and with the right approach to land assembly and managing the construction programme, we stand a chance of building the homes and delivering the growth we need.
The scheme has just won the backing of one of the leading trade bodies in the construction industry. The Construction Products Association, which represents the firms that make the materials and products that go into new homes, says it will be writing to the Chancellor to point out the advantages. Time for housing organisations to do the same?
The details would need to be worked up by people with more financial expertise than me. It’s possible that there is a fundamental flaw that I have missed. But doesn’t a QE that builds homes and creates jobs sound a hell of a lot better than a QE that boosts house prices and raises rents?
Yesterday’s events in the House of Commons have left me looking for some good news among the bad.
As if the reversal of the Lords amendments on the benefit cap and the bedroom tax were not enough to depress all those who have campaigned against them, the government has now claimed financial privilege to kill off any further debate on the Welfare Reform Bill.
On the housing clauses, David Orr has condemned the ‘economically suspect and socially divisive’ policy. On the wider Bill, campaigner Sue Marsh has angrily accused the government of lying and betrayal.
So what are my two bits of good news? I don’t mean the usual mix of discretionary housing payments and reviews that were a feature of last year’s housing benefit cuts and seem to have been enough to buy off enough Lib Dem opposition yesterday.
On the cap, the good news is the nine-month grace period for anyone who loses their job. That is three months more than the period sought by Lord Best in an amendment that he withdrew in the Lords last week and it should help limit the number of families who risk losing first their job and then their home.
Work and pensions minister Chris Grayling explained yesterday: ‘We will not penalise those who are in work and doing the right thing. We will put in place a nine-month grace period for those who have been in work for the previous 12 months and lose their job through no fault of their own. We have always intended to make this measure, and I am happy to make that clear to the House today.’
Questions remain. It’s easy to see how the grace period will apply to people in continuous full-time work but what happens to people who can’t get enough hours to be exempt from the cap (16? 23?) and do people who’ve lost one job and then found another still get the grace period? However, nine months is still better than six and considerably better than nothing.
My second piece of good news is on the bedroom tax, though admittedly this is scraping the barrel a bit. Despite the defeat, it’s worth noting that there were not just 14 Lib Dem MPs who rebelled against the coalition but two Conservatives as well.
It’s maybe no coincidence that both of them have strong connections with social housing. Gordon Henderson, MP for Sittingbourne and Sheppey, grew up on a council estate, while Andrew Percy, MP for Brigg and Goole, was previously a councillor representing the estate where his father grew up and his grandmother still lived.
This is not the first time that Andrew Percy has rebelled on a housing issue. During the third reading debate on the Localism Bill last year, he voted against the government on scrapping security of tenure on the grounds that we were talking about ‘homes’ and ‘not merely a facility that belongs to the council’.
He made a similar point yesterday: ‘I am sure that the ministers understand this, but I plead with them to take account of the fact that houses are not only public assets; they are also people’s homes, and people have an attachment to them. This is not a simple matter to resolve, even though we should encourage an end to under-occupancy.’
In the scheme of things it’s a very small compensation that the housing message has got through to at least some government MPs and that not all of them (to quote work and pensions minister Maria Miller) regard claimants and tenants as ‘these people’. But it’s still good to see.
Today is the 21st anniversary of perhaps the most significant statement in the recent history of housing.
On 30 January 1991 the then housing minister Sir George Young was asked in parliament what the government was going to do about unaffordable rents. ‘Housing benefit will underpin market rents - we have made that absolutely clear,’ he said. ‘If people cannot afford to pay that market rent, housing benefit will take the strain.’
Housing benefit has indeed taken the strain ever since - of deregulation and soaring rents in the private rented sector and private finance and stock transfer in the social sector. In the process the annual bill has risen from £6bn to £22bn and it has come to underpin not just rents but the entire delivery of affordable housing too.
But for how much longer? Today, 21 years to the day since Sir George made that statement, a group of housing associations is warning that welfare reform by the DWP could make the housing plans of the DCLG unworkable.
The Consortium of Associations in the South East (CASE) represents nine different landlords providing affordable homes. Their report examines the unintended consequences of three different elements of the Welfare Reform Bill: the under-occupation penalty, direct payment of housing benefit to tenants and the household benefit cap. All three sound superficially sensible until you examine the detail and the implications.
Most of the arguments will be familiar to anyone reading this but in a week that sees the government pledge to reverse House of Lords defeats on under-occupation and the cap when the Bill returns to the Commons it’s worth a re-cap.
On the under-occupation penalty, there may be good reasons why a bedroom is not ‘spare’ and why a landlord has deliberately chosen to reduce child density on a particular estate.
But it’s the sheer numbers of people affected - 670,000 households - that are maybe of the greatest concern.
CASE members say it will simply be unworkable unless introduction is phased from April 2013. There are not enough one-bedroom properties for under-occupying tenants to move to and they would have to spend the next two years on the crazy strategy of building nothing but one-bed flats to make it work. The turnover rate of tenancies is half what would be required to meet the deadline and arrears are bound to increase.
On direct payments, the associations warn of significantly higher arrears and administrative costs.
They say that once the household benefit cap is in place all four-bedroom properties in the South East built for Affordable Rent will become unaffordable. And they are already reviewing whether to continue building three-bed homes that already threaten the cap and will exceed it if the cap does not rise with inflation. Financial considerations driven by the cap will override any local strategic tenancy policies.
However, the implications of the three measures go well beyond that and will directly impact on associations’ ability to finance and build new homes. They conclude that direct payments and the under-occupation penalty will result will cut new build capacity by 12 per cent and that this could get even worse if lenders react to perceived extra risk by increasing the cost of borrowing. Capacity would fall by 11 per cent for a 0.2 per cent increase in borrowing costs and 28 per cent for a 0.2 per cent drop.
‘As CLG embarks on a programme to increase housing supply, its sister department - DWP - is preparing to implement a policy that is certain to do the opposite,’ they say.
On under-occupation, the associations want the government to stick with the Lords amendment tenants with only one ‘spare’ bedroom and to phase in the cut for everyone else. On the cap, they want a relaxation for larger properties and a commitment to index it for inflation. On direct payments, they say that none of the concessions announced so far will work and that the plan should just be scrapped.
Hopefully the government is listening to at least some of that and CLG ministers have been making the same arguments to their DWP colleagues that Eric Pickles made in his leaked letter last year.
Or has the idea first proposed by Sir George Young 21 years ago today now itself collapsed under the strain?
If history repeats itself, first as tragedy and then as farce, then the politicians seem intent on doing both at the same time with the benefit cap.
This weekend work and pensions secretary Iain Duncan Smith and his Labour shadow Liam Byrne compete with each other to demonstrate either complete ignorance of their brief or a cynical disregard for the facts. Or both.
Byrne kicked off on Saturday by accusing the Conservatives of ‘playing politics’ with the benefits cap. In piece for the Conservative-supporting Daily Telegraph – no hint of playing politics there - he set out Labour’s case for agreeing to the need for a cap in principle but adapting the system with a series of regional caps that could take account of differing housing costs.
He argued: ‘Most of the benefits paid under the cap are for housing. But these are far higher in places like London than in other areas. While all that £500 a week might get you in central London is a one-bedroom apartment, in Rotherham, Yorkshire it would get you a six-bedroom house. How can a “one-size-fits-all” cap be fair to working people in both London and Rotherham?’
All very reasonable, you might think. Except that housing benefit rates are already not just regionalised but localised in broad rental market areas and as anyone who reads Inside Housing knows only too well there are bedroom-size caps on what anyone can receive. The maximum for a one-bedroom flat anywhere in the country is not £500 a week but £250 a week.
So Byrne was talking nonsense (and not for the first time) about a cap that is being imposed on top of a housing benefit system that has already been reformed. But he is not the only one.
On Sunday, Iain Duncan Smith appeared on the Andrew Marr Show and said that the government will look to reverse all its defeats in the Lords when the Welfare Reform Bill comes back to the Commons. You can watch from about 45 minutes in on iPlayer but you may want to move any heavy objects out of throwing range of your computer first.
Pressed by Marr about the cap and the Labour plan, IDS said: ‘The overall level is critical because we’ve got some people living in London in some cases in flats that are costing over £100,000 a year in rent. I know that’s at the extreme but that’s the kind of nonsense we got into under the last government. So it’s important we settle the London issue.’
That line about people on £100,000 a year has been trotted out again and again. The amount paid to the landlords of five families in London has been a devastatingly effective weapon in the debate on welfare reform.
Except of course that the bedroom caps that IDS himself introduced mean that the maximum that anyone can now receive in housing benefit is £400 a week or £20,800 a year.
In fairness, Byrne did a rather better job of explaining Labour’s position on Murnaghan on Sky on Sunday and IDS did signal that there would be concessions when the Bill returns to the Commons this week. ‘I’ve always been clear from when I made the speech at third reading that we will be looking at transitional measures and where there are people falling out of work we will be looking at grace periods,’ he said.
However, with even some Labour MPs arguing that the cap should be set lower than £26,000, the debate continues to take place in ignorance or disregard of the facts. Little wonder that there is overwhelming public support for the apparently fair proposition that nobody should receive more on benefit than the average amount earned by someone in work. Even as the Lords were voting to exclude child benefit from the cap last week, Lib Dem peer Lord Kirkwood was virtually alone in declaring that he opposed the cap in principle because it distorts the whole basis of the benefit system.
As I’ve argued before, the apparently simple logic for ‘fairness’ that has built a seemingly unstoppable momentum behind the cap is deeply flawed. For starters, that ‘hard-working family’ earning £26,000 a year may well also be receiving thousands of pounds in housing benefit, child benefit, working tax credit and tax credit.
If you still disagree, you might want to read this brilliant blog by Declan Gaffney first about the ‘bait-and-switch’ tactics employed by ministers: the seemingly pragmatic principle that is based on a rigged comparison. Or take a look at this blog by Alex Marsh on the way that ministers have framed the narrative behind the cap by creating division and sowing dischord.
Gaffney argues that ‘the only truly honest proponents of the benefit cap are those who are too ignorant or too far out of the loop to be party to the backroom consensus: the only truly honest critics are those who refuse to say they support it in principle’.
That backroom consensus sees that the political impetus behind the cap is so strong that it is better to accept false arguments in a pragmatic bid to prevent some of the most arbitrary impacts of the cap. ‘But there are costs attached to this strategy, in terms of the quality of political debate and more generally in the endorsement it gives to a big untruth about the social security system and those who are relying on it. On balance, I think the latter considerations should win out. A little dishonesty only helps if you’ve already decided to go along with the big lie.’
Marsh notes the way the argument has been framed by setting claimants against ‘hard working families’ while ignoring the fact that poverty is dynamic and people’s circumstances change. ‘Yesterday they were the “hard working families” that politicians are so concerned about and so in favour of. Then their luck changed. They haven’t suddenly become benefit-scrounging pondlife overnight. Yet the government proposes to penalise many of them further for their misfortune by rendering them unable to afford to stay in their homes.’
The consequences of all this will be felt not just by claimants and hard-working families and not just in the welfare system. More later on the impact of welfare reform on housing and a report out today from the CASE group of housing associations.
Who has most to celebrate from last night’s defeat for the government on welfare reform?
The obvious answer is families with children who, thanks to the bishops, Labour peers and a significant rebellion by Lib Dem peers in the Lords last night, will see their child benefit exempted from the £26,000 household benefit cap.
But anyone watching David Cameron’s PM Direct appearance in front of workers at ASDA on BBC News yesterday (watch from 4.35 in if you missed it) might come to a very different conclusion.
‘Are you happy that your taxes are going towards families where no-one is working and they’re earning more than £26,000 in benefits?’ Cameron asked them. ‘Is that fair? No. I don’t think it’s fair either and that’s why it’s right to have a welfare cap.’
Cameron was clearly loving the chance to talk to ‘hard-working families who do the right thing and pay their taxes’. He was comfortable in the knowledge that the cap has 76 per cent support in opinion polls and must also be loving the fact that his Lib Dem coalition partners are split down the middle and the Labour opposition are squirming with discomfort.
As Gary Gibbon put it on Channel 4 News, the defeat is more likely to have ministers ‘popping the champagne corks’ at another chance to demonstrate they are on the side of ‘fairness’ and ‘hard-working taxpayers’ than bemoaning a defeat that they look certain to reverse in the House of Commons.
I’m guessing that a majority of you reading this here, possibly more than 76 per cent, can see the problems with all of this. Not just the dozen that I blogged about yesterday but the very obvious one raised by David Cameron’s appearance.
Because the truth is that as a hard-working taxpayer myself I rather resent the fact that ASDA does not pay many (most?) of its staff enough to live on without receiving tax credits and housing benefit from the state.
The profits, dividends and top salaries of managers at its parent company Walmart are effectively subsidised out of my (and your) pockets. Meanwhile, should any of the 5,000 people who get the new jobs announced yesterday have their hours cut to less than 16 hours a week, they will be caught by the benefit cap.
By far the fairest way to deal with the cap would have been to exclude housing costs altogether. Housing benefit is already capped, after all. As Joe Halewood points out on his blog 75 per cent of the 170,000 new claimants since the election are in work. And that’s before you get to arguments about rent levels.
That’s not going to happen now. Instead we are left with a cap on income that is set at the level of the average take-home earnings of someone in work. That sounds simple but fair. But it does not reflect the extra income someone in work will get on top of that from tax credits, housing benefit and child benefit (an average of another £6,000 or so). And it does not cover everyone: there are exemptions from the cap for people on disability living allowance (DLA), war widows and widowers and people working more than 16 hours a week. Both the level and the scope of the cap are, in other words, subjective choices by the government not objective expressions of fairness.
Arguments like those were being put in the Lords yesterday but they have fallen on deaf ears among the electorate as a whole. The cap, which began life in a conference speech by George Osborne and was reportedly opposed even by Duncan Smith at first, has been a devastatingly effective political weapon that has enabled the government to portray itself as on the side of ‘fairness’ and completely wrong-footed the opposition.
That was summed up for me by the way that Duncan Smith was able to quote the support of a vicar yesterday. ‘Interestingly, I have just had an e-mail from a vicar, who wondered why the bishops fail to recognise that he is paid only £22,000 a year. He wonders why they are getting excited about £26,000 being a poverty-level figure.’ The vicar was, of course, conveniently ignoring the fact that his housing is paid for by his employer.
Attention now switches to the transitional arrangements for the cap and here at least there were enough signs of movement for Lord Best to withdraw his amendments on a 26-week grace period and an exemption for temporary accommodation costs pending further announcements from the minister.
As peers prepare for the key debate on the household benefit cap the policy is still begging as many questions as answers.
Ministers appear to have won the battle for public opinion over the principle of having a cap with 76 per cent of voters backing the idea in an opinion poll over the weekend.
However, the battle will be over the details. Labour has said it will not vote against the cap itself but will try to amend the Bill so that extra costs do not fall on council tax payers. Several Lib Dem peers including former party leader Lord Ashdown have said they cannot support the cap as proposed. And Lord Best will be prominent among crossbenchers pressing for changes.
Extra fuel for the fire came in a revised impact assessment published by the Department for Work and Pensions (DWP) this morning. This admitted that 75,000 families will be affected – 25,000 more than in the first version published last year. They will lose an average of £83 a week each - £10 less than before. And the government will save more than previously estimated (£330m in 2014/15 rather than £275m).
Other new details are that more than 1,000 families will be affected in each of 17 London boroughs plus Birmingham and that 5,000 families receiving carer’s allowance will be affected.
However, in many other ways, the key doubts about the policy remain the same. Here are my top 12. The first nine are updated versions of questions raised in committee stage debates in the Commons by either Lib Dem or Labour MPs that I blogged about last year. The other three come from previous comments on my blog and subsequent developments. I stand ready to be corrected but I’ve not seen answers to any of these points yet.
- It may not save much money overall. The new estimate is for cost savings of £330m in 2014/15 but Lib Dem MP Jenny Willott claimed last year that the DCLG estimates that it will increase homelessness by 20,000 people, costing £300m in emergency housing. This was subsequently confirmed in the leaked Pickles letter.
- It may not increase work incentives. Labour’s Karen Buck and Lib Dem Ian Swales both argued that it will incentivise people to move from high-cost housing areas to lower-cost ones where there are fewer jobs.
- It contradicts the aims of the Universal Credit to make it easier into work or work more or less hours without suffering a big drop in income. ‘It creates cliff edges and makes a temporary period of unemployment a catastrophe,’ said Buck last year.
- Even if it does incentivise work, many of the families affected are people the state does not expect to work or who are too sick to work.
- It could penalise people in work who lose hours and cease to qualify for working tax credit and their exemption from the cap.
- It will encourage couples to split up. In the very opposite of a family-friendly policy, a couple’s income will be capped at £500 a week but if they split up into two single households they will each get a maximum of £500 a week if there are children or £350 a week if there are no children.
- It will penalise families with children. Willott said it would hit hard-working families who suddenly lost their job and could not pay their rent. Even two-child families in London face losing a third of their housing benefit. It will push more children into poverty just as the universal credit promises to lift them out of it. The new impact assessment says 90,000 families with 200,000 children will be affected
- It will have a damaging impact on social tenants and landlords. In the committee stage debates MP said that 70% of the 50,000 families affected will be in social housing (or 35,000). The new impact assessment puts this at 40 per cent of 75,000 (or 30,000). The inevitable rent arrears will threaten homelessness for tenants and damage the finances of landlords.
- It contradicts other housing policies like affordable rent - housing associations building homes at up to 80% market rents will find their existing client group will be unable to afford them. There is already anecdotal evidence of associations eliminating larger homes from their schemes.
- It threatens to undermine the economics of refuges and other forms of temporary accommodation. Women fleeing domestic violence will not have their rent paid in full and the consequences of refuges closing or becoming too expensive do not bear thinking about.
- It raises exactly the same issues as the cut to child benefit for higher rate taxpayers that is reportedly the subject of a rethink in government: cliff edges where people risk losing out above a threshold and incentives to split up and form two separate households.
- The ‘fairness’ argument for the cap being set at £26,000 as the take-home pay of the average working household sounds simple – and it seems to be convincing the voters. But it doesn’t include the in-work benefits that those average working households will also receive. And it doesn’t reflect the real world of how high housing costs can turn that into living on 62p a day – as Tim Leunig explains only too well.
Ministers do not seem in much of a mood for compromise if Iain Duncan Smith’s interview on Today this morning was anything to go by (the work and pensions secretary managing to redefine homelessness as ‘about children sharing rooms’.)
However, there were also possible hints of transitional help and it will be interesting to hear more this afternoon when peers debate the key amendments seeking to exclude child benefit from the cap and introduce a 26-week grace period.
Peers showed in the second reading debate last September that they are looking for much more from the government. Let’s hope they get at least some of it.
As we gear up for more battles over the Welfare Reform Bill in the House of Lords, it’s worth remembering it’s not the only controversial Bill currently before their lordships that will have a big effect on housing.
Among a range of measures designed to cut costs, the Legal Aid Bill will limit legal aid in housing cases to cases involving homelessness or imminent loss of home and serious disrepair that poses a serious risk to life and remove most benefits work from the scope of the scheme. (Any lawyers out there feel free to correct this summary).
So far the housing aspects have not received as much attention as they should, which is perhaps not surprising when you consider the potential impact of restrictions of legal aid in family cases on victims of domestic violence and a rebellion by Conservative peers including Lord Tebbit against cuts in legal aid in cases of medical negligence.
On Wednesday the implications became much clearer (to me anyway) when the Lords debated the housing aspects at the committee stage. The ministerial villain may be different (former Labour and SDP MP Lord McNally) but the rest of the cast is similar to the one that will feature in the report stage debate on the Welfare Reform Bill on Monday.
Opponents of the Bill successfully teased out the way that its tightly drawn definitions of who will be entitled to legal aid under the new system risk excluding large numbers of people with serious housing problems without necessarily saving anything like the amount the government claims.
One big problem, said Lib Dem peer Lord Shipley, is that means that ‘although the government have said that the loss of the home will continue to be prioritised for legal aid funding, the Bill will in fact prevent advisors from resolving benefits problems that lead to eviction proceedings’.
Despite clear evidence that early intervention to resolve benefits issues can stop evictions, he went on:
‘The danger is that the exclusion of benefits work from legal aid will tie the hands of advisers who are trying to prevent homelessness and will lead to many more unresolved cases filling the county courts. The courts will have more adjourned hearings and will ultimately have to make more possession orders because there is no one to resolve the benefits issue. This could result in higher costs to the taxpayer as a consequence.’
A second problem is the drafting of the Bill to ensure that squatters cannot get legal aid to fight the loss of their home also means that anyone legally defined as a ‘trespasser’ cannot get help either. That could potentially affect all sub-tenants, tenants of landlords who are in default on their mortgages and joint tenants whose relationship breaks down.
Next out of the blocks was crossbencher Lord (Richard) Best, the hero of the successful Lords rebellion against the bedroom tax before Christmas. The private rented sector has no regulator or ombudsman, he pointed out, which put tenants in a completely different position to customers of utilities or the banks. ‘If tenants are in dispute with their landlords, the only way of obtaining redress may well be to go to court,’ he said.
Problem number three is therefore that disreputable landlords will see that any threats of legal action from their tenants were empty threats unless the case concerned the imminent loss of their home. He went on:
‘Informing bad landlords that, however awful their behaviour, they will not be taken to court is like telling Somali pirates that they will never be held to account if they board ships and demand fantastic ransoms. It seems bound to lead to an escalation of criminality.’
Problem number four was the sheer complexity of housing cases, meaning that there is no way tenants can cope without professional advice. ‘Take this away and not only will landlords be able to break the law with impunity but tenants who are ignorant of their entitlements or who are victims of incompetence at the hands of bureaucrats will never see justice.’
Lord Best concluded: ‘With benefits advice being taken out of scope and the likely closure of many citizens advice bureaux as a result, housing is badly affected by the Bill. This surely is one area of our national life where legal aid is essential. Its withdrawal will not only cause misery but will cost central and local government money in picking up the pieces.’
Problem number five was summed up by Labour peer Lord Howarth of Newport. While there would still be legal aid to fight illegal eviction, few tenants would want to go back to the same landlord. ‘Under the Government’s proposals, the worst landlords will be able to get away with the worst behaviour and their victims will not be protected and will not be able to obtain compensation.’
Problem number six is that all of this may not save much money. Peers raised again and again to the way that changes to save money on the Ministry of Justice’s budget will just shunt extra costs around Whitehall. An independent report by King’s College estimates that the government will save less than half of the £240m claimed from cuts in legal aid in family law, social welfare and clinical negligence cases. A report by Citizens Advice estimates that every £1 spent on advice on housing advice saves the government £2.34.
Needless to say, these arguments were rejected by Lord McNally for the government and opposition amendments were either withdrawn or not moved. However, exactly as with the Welfare Reform Bill, you sense that their lordships are not going to let this go without a fight further down the line.
Within the next month official figures will confirm that there are now more private rented than social rented homes in England. This will be hailed as a triumph for the market.
In strictly numerical terms it is. When private renting was deregulated with the introduction of assured shorthold tenancies in 1988 there were 1.8m homes in the sector.
By March 2010 (the most recent figure currently available) there were 3.9m and, with each of the last four years seeing growth of over 200,000, the March 2011 total will almost certainly be over 4m.
In contrast, the social sector shrank from 4.7m in 1988 to 4.3m in 2000 to 4.0m in March 2011. And home ownership has fallen for each of the last four years.
Whether you attribute all this to lack of investment in social housing, high house prices, restricted mortgage lending or the creation of buy to let (in 1996), the transformation is little short of remarkable. And it reverses the seemingly irreversible trend from private renting to social renting seen in the 1960s (in 1961 there were 3.2m social rented homes and 4.7m private rented, by 1971 there were 4.6m social and 3.2m private).
But the real question - and this is my third key question for 2012 - is what happens next. The government’s answer so far is nothing. Nothing should be allowed to interfere with such a market success story.
One of its first acts when it came to power was to reject the modest proposals for regulation put forward by the Rugg Review as ‘red tape’. As Grant Shapps put it at the time:
‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords.’
In November the housing strategy said that:
‘The Government is committed to supporting growth and innovation by avoiding unnecessary regulatory burdens on landlords. But we are also looking at measures to deal with rogue landlords and encouraging local authorities to make full use of the robust powers they already have to tackle dangerous and poorly maintained homes.’
Yet there are growing calls from reform - and not just from the quarters you might expect.
Over Christmas The Economist, normally an advocate of deregulation in everything, argued that:
‘When demand outstrips supply against a background of profound housing need, tough action is required.’
Visiting a family living in a rented garage in Newham, it dismissed the usual arguments against regulation (free markets work better, self-regulation works better, tenants are as bad as landlords) and concluded:
‘Seen from inside the Hamids’ mouldy garage, these arguments are not persuasive.’
In London as a whole, regulation of private renting has emerged as a key issue in the mayoral election campaign. Ken Livingstone has pledged to ‘campaign for’ a form of rent control. Boris Johnson has attacked that idea but he is also pledging a single badge of accreditation for all landlords, letting agents and management agents.
Meanwhile the Lib Dem half of the coalition does not seem as satisfied with things as they are as the Conservative half. Richard Kemp, co-chair of the Lib Dem housing policy group, says that:
‘The key new area that I want the Party to tackle is the whole area of private landlords. Some have complained that this will drive a wedge between us and the free market, no holds barred section of the coalition. If that is the case bring it on!’
He goes on:
‘I believe that no-one should be allowed to let a property unless that property has been inspected and that inspection is regularly updated. I believe that to be a landlord individuals or companies must either be registered or have to let solely through registered lettings agencies.
‘Some will say that this is a restriction on fair trade. I believe that it is a restriction of unfair trade. Out of desperation hundreds of thousands of people are living in squalid conditions which are funded by the tax payer through housing benefit. Some of the key supporters of such registration are good landlords who have to compete on price with modern day Rachmans and who get tarred with the brush of “racketeer”.’
So regulation of the private rented sector is an issue that is not going to go away. Getting the system right, and avoiding an over-prescriptive one that would kill off the growing signs of interest in the sector from institutional investors, will not be easy and cannot happen in isolation of wider reform of the housing system.
However, good landlords and letting agents have nothing to fear from sensitive regulation and know that it will work their their advantage by driving out competitors who cut corners to undercut them.
Because the truth is that the explosive growth of private renting over the last decade is evidence not of market success but of market failure: the failure of a rental market in which millions of tenants can only afford their rent thanks to billions of pounds a year in housing benefit; the failure of housing and mortgage markets that have priced hundreds of thousands of younger people out of owner-occupation; the failure of the current system to protect tenants from rogue landlords and agents; and the failure of six- and 12-month tenancies to be remotely adequate for the 1m families with children (an increase of 77 per cent in the last two years) now living in private rented accommodation.
The deregulated system invented 24 years ago has run its course. Much like the 20-somethings stuck living at home with their parents because of the state of the housing and rental markets must be getting sick of being told, it’s time it grew up and took some responsibility.
Two men with double barrelled names admit their guilt. One gets ridicule and a caution and says sorry to his family. The other?
The other gets 11 months and knows that by the time he gets out his family may have been evicted. No prizes for guessing that the first man is Antony Worrall Thompson and that the second is Daniel Sartain-Clarke.
Earlier this week, the 60-year-old celebrity chef admitted to shoplifting from Tescos on five separate occasions over Christmas. He accepted a police caution and promised to seek treatment after sneaking out blocks or cheese, onions and bottles of wine without paying.
Cue viral jokes on the internet plus lots of tweets and blogs highlighting the contrastingly harsh treatment of looters in last summer’s riots (the man who got six months for stealing £3.50 worth of water, for example) and even a Daily Mail web debate about whether the middle classes get off lightly.
Yesterday 18-year-old Daniel Sartain-Clarke was sentenced to 11 months in a young offender’s institute for his part in last year’s looting. He pleaded guilty to a charge of burglary at his local Curry’s.
The Daily Mail suggests somewhat confusingly that he both broke into the store and was discovered by police in the stockroom two hours after it was broken into by others. The BBC and others report the comments of the judge following evidence about his background that: ‘You are a committed Christian and an aid worker. I have reams of references attesting to you. You are a helper and a doer. This is as out of character as it’s possible to imagine.’
The contrast between the two cases would be debatable even if it was just confined to the criminal justice system and the difference between theft and burglary - but it’s what will happen next that really distinguishes them.
Worrall Thompson told the Express yesterday that he is back in his rented High Wycombe home crying himself to sleep. ‘I feel very guilty and want to know why I’ve done this,’ he said. ‘This has all been so humiliating but it’s a punishment I have to take on the chin. My wife, Jay, has been fantastic. She picked me up from the police station and we stayed up late into the night talking and trying to work out why I did it.’ His children knew and had been very supportive.
Sartain-Clarke has been at a bail hostel 100 miles away from home for the last few months. And as he begins his sentence, his mother Maite de la Calva and eight-year-old sister are facing eviction from their rented Wandsworth council home.
As Inside Housing reports, the council appears determined to press ahead with the next stage of the eviction process after issuing a notice seeking possession in August. ‘His actions that night were a clear and unequivocal breach of our tenancy conditions and as a result we will now be moving on to the next stage of the legal process.’ said a spokesman.
The family are being represented by the human rights group Liberty, which accuses the council of ‘shameless self-promotion’. As lawyer Emma Norton put it in October: ‘Ms de la Calva has committed no crime and if she lived in a mortgaged house she would not face such bullying. Whether in a mansion or a flat everyone should be equal before the law.’
However, Liberty also notes: ‘It is one of the standard terms of a Wandsworth tenancy agreement that the tenant, lodgers, friends, relatives, visitors and any other person living at the property refrain from doing anything which interferes with the “convenience” of other people living in Wandsworth. The Housing Act 1985 also suggests a basis for eviction where the tenant or a person living in or visiting her household has been convicted of an indictable offence.’
The Financial Times report of the illegal subletting consultation this morning says the government has admitted that no council has yet taken up its call to evict rioters and that Wandsworth is the only one that has pursued someone publicly. It also quotes Wandsworth as saying it will give the mother a chance to ‘tell her side of the story’ before a final decision is taken.
Hopefully those are signs of a climbdown to come. If not, it will be up to the courts to decide whether the arguments made for an eviction (nuisance in the neighbourhood, setting an example, or just a breach of the tenancy conditions) can justify what will be both a double punishment and a collective punishment. And that will leave the rest of us wondering whether collective punishment can ever teach the sense of individual responsibility we were told was so lacking in the wake of the riots.
The second of my blogs on five key housing issues for 2012 looks at the debate about the Beveridge report taking place in seeming ignorance of what it actually said.
The 70th anniversary is not till December but politicians are already claiming it as justification for their welfare reforms. Shadow work and pensions secretary Liam Byrne was first out of the traps for Labour with a briefing to the Mail on Sunday which reported that that Labour leader Ed Miliband intends to get tough on ‘scroungers’ and that Byrne thinks Beveridge would ‘turn in his grave’ at the thought of billions in benefits going to ‘lifelong spongers’.
The piece quoted a source close to Byrne as saying: ‘When Beveridge wrote his report, the main idea was that you only got paid by the state if you paid in first. He would never have agreed with anyone choosing to spend a lifetime on benefits. Idleness was one of his “giant evils”. The benefits system has expanded in a way that Beveridge would never have foreseen, such as the new evil of benefits dependency. He would be turning in his grave if he knew we spend £20 billion a year on housing benefits.’
On Tuesday, Byrne wrote a piece for The Guardian that makes the same point from a different angle. ‘Beveridge’s system was built on the idea of full employment,’ he said. ‘For him, “idleness” was an evil every bit as insidious as disease or squalor. So he would have been horrified at the long-term unemployment breaking out all over Britain, with over a million young people without work, and appalled at the spiralling cost of benefits. He would scarcely have believed housing benefit alone is costing the UK over £20 billion a year. That is simply too high.’
Byrne did not mention the words ‘scroungers’ or ‘spongers’ and attacked government plans to scrap disability benefits that people have paid in for. ‘But beyond this, “something for something” means reward for those who are desperately trying to do the right thing, saving for the future and trying to build a stable, secure home. Right now, these families are offered too little reward and incentive – in social housing and long-term savings – for the kind of behaviour that is the bedrock of a decent society.’
On its front page, The Guardian reported that he was arguing that ‘the ballooning of the system has provided support that is unearned, and mislaid the original ideal of providing help to those that contribute’ and that the three key flaws in the current welfare state are ‘the spiralling housing benefit budget, benefits for long-term unemployment, and the lack of proper incentives to reward responsible long-term savers’.
All of this has not surprisingly provoked a strong reaction on the Left - one that Byrne might actually welcome as reinforcing his message to the mainstream. For a flavour of the reaction in the blogosphere, go here, here and here and for more comment in The Guardian go here.
My own reaction - especially when it came to the point about housing benefit - was that Beveridge said nothing of the sort and it sent me back to the history books to check.
To give him his due, Byrne does point out that Beveridge detested the term ‘welfare state’ (he preferred ‘social security state’) but his interpretation seems otherwise wide of the mark.
Here’s what Beveridge actually said about rents: ‘The attempt to fix rates of insurance benefit and pension on a scientific basis with regard to subsistence needs has brought to notice a serious difficulty in doing so in the conditions of modern Britain. This is the problem of rent. In this as in other respects, the framing of a satisfactory scheme of social security depends on the solution of other problems of economic and social organisation.’
The ‘problem of rent’ was the way that there were so many variations between regions that it was impossible to design a flat-rate benefit to accommodate them all.
Beveridge published his report in the context of private sector rent control and subsidised council housing. By ‘the solution of other problems of economic and social organisation’ he meant not just full employment - which he assumed as one of the conditions for the success of his report alongside a national health service and family allowances - but a post-war programme of council house building too.
He was a Liberal but not a wet one (he favoured training camps for ‘malingerers’). He took a narrow brief about making a survey of ‘existing national schemes of social insurance schemes of social insurance and allied services, including workmen’s compensation, and to make recommendations’ and turned it into a radical plan for slaying the five giants of want, disease, ignorance, squalor and idleness.
In the process, incidentally, and helped by the fact that it was published in December 1942 within weeks of the victory at El Alamein that marked the turning point of the war, it sold 630,000 copies and 92 per cent of the population were aware of his recommendations.
So Beveridge would indeed be turning in his grave if he knew we were spending £20 billion a year on housing benefits - but not on the grounds that this was reinforcing ‘idleness’ and scrounging but that it was demonstrating crass stupidity and waste by successive governments of both parties and ignorance by those attempting to claim his mantle.
The reasons why the bill is £20 billion are that housing benefit has been made to take the strain of inadequate social housing investment and rising social and private rents over the last 35 years, because the claimant count has risen over the last three because of the recession and because millions of people are on pensions and wages too low to be able to afford to pay their rent without assistance.
Far from reinforcing idleness, housing benefit is actually essential to helping people into work. Cuts to it will increase want rather than reduce idleness.
There were problems with the Beveridge plan and the way it was implemented and lots more strains that emerged as the structure of society changed in subsequent decades but pretending that you can deal with ‘the problem of rent’ by wishing it away or blaming it on fecklessness was not one of them.
I’m kicking off my blog with five key questions for 2012. There is only one place to begin.
Two days into the new year and already it’s clear that 2011 was merely a dress rehearsal for the changes to come.
Last year was dominated by battles over a welter of legislation and cuts that will dramatically transform the prospects of anyone living in or looking for rented housing. 2012 sees those changes start to take effect across the country.
Chartered Institute of Housing research reported in The Guardian today concentrating on just two of the changes makes the point only too clearly.
The CIH estimates that bedroom caps (starting yesterday for existing claimants) and 30th percentile (from April) restrictions will make 800,000 private rented homes unaffordable for anyone on the local housing allowance.
As this map shows, the effects will be greatest in inner London. In Westminster 20,700 homes will disappear, leaving 8,700 families on LHA chasing just 3,200 homes.
But the effects ripple out to supposedly more affordable Outer London, with 5,500 homes disappearing in Croydon and 16,900 families chasing 9,600 homes and 5,400 going in Newham to leave 14,400 families after 7,800 homes.
And this is not just an issue for London or even the South East. In Birmingham, 34,500 families will be left chasing 23,300 homes, in Liverpool 21,000 families will be after 12,000 homes and in Glasgow 14,800 will be competing for 13,600 homes.
In total 1.3m private tenants around the country are facing a choice between cutting spending on other essentials, going into rent arrears or moving to a cheaper home or a cheaper area. Or perhaps between staying where the work is and making up the rent shortfall or moving to where there are fewer jobs and having the rent paid in full.
That in turn will have a knock-on effect on cheaper areas that the CIH warns are at risk of becoming benefit ghettoes. Interim chief executive Grainia Long warns that the whole of the South East has only a few low-cost places like Margate and Hastings that could face increased social problems and a breakdown in community cohesion.
The Department for Work and Pensions counters that ‘early indications are that people are not moving out of cities in their droves to cheaper rural areas’ and that ‘for the vast majority of areas except the most expensive parts of inner and central London, at least 30 per cent of all private rented properties will be affordable’.
However, note the careful choice of words employed there - I’m not sure anyone has ever suggested people would move in droves to rural areas, more that they would be uprooted to cheaper urban ones.
And this study reflects only two of the cuts that start to bite this year. From yesterday, the age threshold for the shared accommodation rate was extended from 25 to 35. The DWP estimates that 62,500 people will lose an average of £41 per week as a result. As Crisis points out, that will almost double the number of people on the shared rate and force tens of thousands of people in self-contained homes to look for shared accommodation that will be in short supply in most areas and simply not available in some.
Exactly how all this will pan out remains to be seen. Some tenants and landlords will adapt and find ways to cope. Perhaps much of the problem will be hidden in overcrowded homes and yet more rented sheds and garages. But it’s hard to believe that these cuts will not add to an already growing problem of homelessness and lead to escalating pressure on public services in areas that become benefit ghettoes.
And all this will be happening at the same time as last year’s cuts in housing investment reduce the supply of affordable homes, unemployment is rising, household incomes are falling and changes in the Localism Bill allow local authorities to discharge their homelessness duty into a private rented sector with thousands more tenants than there are homes.
So 2012 will be the year of reckoning - with more cuts to come in 2013.
Should we now write off any prospect of a solution to the new homes crisis for the rest of this parliament?
Despite a ‘warm welcome’ from planning minister Greg Clark, today’s report on the National Planning Policy Framework (NPPF) by an all-party committee of MPs calls for a rethink of several fundamental principles.
In particular, the Communities and Local Government committee wants the government to remove the default ‘yes’ to development from the document and to launch a second consultation on a rewritten version.
The default ‘yes’ would only have applied in cases where there was no local plan and it was therefore the key to tackling anti-development or feet-dragging local authorities. The second consultation is something that ministers have repeatedly denied was a possibility.
The committee does also say that ‘it is it is reasonable and practical for the NPPF to have as an overarching principle a presumption in favour of sustainable development’ but only if it is clear that sustainability is to be judged on environmental and social grounds as well as economic ones.
Put that alongside calls for the reinstatement of ‘brownfield first’ and ‘town centres first’ policies, and little wonder that the National Trust and Daily Telegraph are hailing the report as a vindication of their campaign against the NPPF while Labour’s Hilary Benn seems unable to resist climbing on the bandwagon.
Little wonder too that developers and housebuilders are calling on ministers to ‘stand firm’. They can probably live with ‘brownfield first’ but argue that the default ‘yes’ is essential when more than half of local authorities still have no local plan seven years after being legally obliged to produce one. And they will worry that a second consultation will open the door to a more fundamental rewrite and further delay.
Clark’s rose-tinted response to such a critical report makes no sense until you consider the possibility that this is him preparing the ground for u-turn or three. For example, he will ‘carefully consider’ the committee’s new definition of ‘sustainable development’.
The prospect of watering down the NPPF and delaying its implementation will do little to tackle the continuing shortage of new homes. The Home Builders Federation published figures today showing another 10 per cent fall in approvals, meaning that the planning permissions coming through the system are half what is required to meet demand.
So all in all we are left with a mess. The planning system will only ever deliver enough homes through a combination of carrots and sticks. The main carrot (the new homes bonus) seems too small to be effective and the main stick (the default ‘yes’) is now being call into question.
But could the committee be rescuing us from an even bigger mess? The MPs consider that going ahead with the document as drafted would be fraught with problems.
They argue: ‘The Government has set great store by the brevity and simplicity of the NPPF, but in its current form the draft NPPF does not necessarily achieve clarity by virtue of its brevity. There are many examples of inconsistent drafting which need addressing. The significant gaps in planning policy and guidance could lead to a huge expansion in the size of local plans as local authorities attempt to plug the gap.
‘There is a danger that, far from speeding up the planning process, in the short term the NPPF will slow it down by introducing ambiguity where previously there was detailed guidance—”planning by appeal” could be the outcome.’
They also argue the NPPF should keep the current definition of affordable housing (a cost low enough for households to afford in the context of local incomes and local house prices) rather than define it as housing where eligibility is determined with regard to local incomes and house prices.
These are crucial points and would be welcome improvements to the final document. Getting the NPPF right does not amount to the vindication claimed by the Telegraph.
However, the problem is that the government’s approach to planning in general and its speedy scrapping of the old Labour system in particular only ever made sense it it could get a new system in place quickly. That now looks less likely - and so does the prospect of more new homes any time soon.