Chancellor George Osborne’s move to slash £4 billion from the soaring housing benefit bill was no surprise to the social housing sector. But welfare reforms, which could see thousands of tenants forced to leave their communities to find cheaper housing, have caused a collective intake of breath. Chloë Stothart investigates
‘We were expecting it bad and we weren’t disappointed.’
This comment on the emergency Budget from one housing association chief executive sums up the views of most in the sector about the new coalition government’s first Budget published last Tuesday.
Everyone knew swingeing cuts to the public sector were on the horizon and that at some point housing benefit, which has grown from
£11 billion in 1998/09 to an expected £21 billion in 2010/11, would be in the firing line.
They were right: chancellor George Osborne’s plan to cut £61 billion from public spending included measures to slash the housing benefit bill by £4.225 billion between 2011/12 and 2014/15 and push more benefit claimants into work.
Less widely expected was the method by which the cuts were made. So what do landlords and tenants make of the changes and what impact are they likely to have?
The most controversial plan was to cut housing benefit by 10 per cent to people who have been on jobseekers allowance for more than a year from April 2013. The measure, which is expected to save £210 million between 2013/14 and 2014/15, will hit around 700,000 people in the social and private rented sectors.
There is major concern that these tenants will fall into rent arrears. In turn, social landlords fear this could plunge their own budgets into disarray. At Bradford-based housing association InCommunities, 70 per cent of the organisation’s 22,000 tenants receive housing benefit and approximately 30 per cent - roughly 6,600 tenants - have been on housing benefit and jobseeker’s allowance for more than 12 months.
‘We could have tenants in arrears and that affects our business plan,’ says chief executive Geraldine Howley. ‘Going forward it will limit what we can do in terms of development and asset management.’
The organisation already runs projects to help unemployed tenants into work and will continue with this in the light of the benefit reforms.
Caroline Davey, deputy director of policy and research at homelessness charity Shelter, states that jobseekers allowance payments can already be stopped for those deemed to be making insufficient efforts to find work. While the housing benefit system does put people off looking for work, says Ms Davey, the proposals do not tackle any of the causes, such as steep drops in payments leaving some people no better off in work.
‘They have gone for penalising claimants without reforming the broad problems of the system and have done so in a recession with rising unemployment, costs, and a child benefit freeze,’ she says.
Plans to save £980 million by reducing housing benefit to those in social housing deemed to be in a home larger than they need from April 2013 also caused concern.
Most landlords feel there is a need to encourage people to move if they under-occupy, but measures which force them to leave the communities in which they have put down roots are unacceptable. Shelter said tenants should be able to continue to live within a reasonable geographical radius of their old home. Ronnie Harris, deputy chief executive of Coast & Country in Cleveland, pointed out that many families rely on older relatives to provide childcare while they work.
Tenants were even more worried by the plan. Cora Carter, chair of Tenants’ and Residents’ Organisations of England, said: ‘In some parts of the country there are no homes for residents to move to, we are deeply worried but are waiting to see what the full impact will be.’
Other housing benefit reforms proposed in the Budget will only directly affect tenants in the private rented sector, but local authorities and some social landlords will still feel the shockwaves.
Plans to set local housing allowance rates using the bottom 30 per cent of rents in an area will mean almost every claimant sees their benefit cut, says Ms Davey. At present almost half of households on LHA have a shortfall of £100 a month on average. She fears that tenants whose benefit is far lower than their rent will eventually fall into arrears and be evicted by their landlord. They would be classed as intentionally homeless by their local authority because they have arrears, making them a low priority for help.
Andy Winter, chief executive of Brighton Housing Trust, which finds private lets for homeless people, has calculated that the current local housing allowance rate of £149.59 a week for a one-bedroom flat will fall by around £28.50 when benefit is linked to the lowest 30 per cent of rents and cut by 10 per cent for those on jobseekers allowance for more than a year. Tenants will have to scrape together this shortfall from the £64.50 they receive in jobseekers allowance which covers their living costs. He fears that the housing crises of the 1980s and early 1990s recessions will repeat themselves as councils and social landlords specialising in private lets struggle to find enough cheap properties to house homeless families. ‘In the early 90s we were turning people away; we could not find them somewhere to live,’ he recalls.
The cap on local housing allowance, which restricts it to between £280 and £400 a week depending on house size from April 2011, is likely to hit the most expensive towns and cities in London and the south, says Ms Davey.
A spokesperson for the Deparment for Work and Pensions said: ‘Many areas of London will still be accessible to people claiming housing benefit, although clearly it was essential that we acted quickly to cut the extremely high levels of benefit seen in some areas.’ She added that the discretionary housing payments budget had been tripled allowing councils to provide extra payments for those most in need.
These changes are not taking place in isolation: public funding for house building is declining, unemployment is rising, and a 2.5 per cent rise in VAT is likely to increase the price of fuel bills, goods and services.
Overall the impact of the Budget will be felt most by the poorest, according to tax think tank the Institute for Fiscal Studies. But James Browne, senior research economist at IFS, says the regressive impact of the Budget was softened by measures Labour announced before leaving office, such as the 50p tax rate, which targeted the wealthy. ‘Overall the effect is progressive, just not as a result of measures announced in the Budget,’ he explains.
But those words are scant comfort for tenants on housing benefit who find themselves bearing the brunt of the government’s ‘austerity Budget’.
Mr Osborne’s directions
total amount to be cut from public spending between 2010/12
amount to be cut from the housing benefit bill by 2014/15
amount expected to be saved by reducing housing benefit to social housing tenants living in larger homes than they need from April 2013
amount expected to be saved by cutting housing benefit by 10 per cent to those on jobseeker’s allowance for more than a year from April 2013
£280 to £400
weekly cap on local housing allowance depending on house size from April 2011