Lord David Freud is behind the biggest shake-up of the welfare system since World War Two. Here, in his first in-depth interview, he reveals the motives behind his radical reforms to Carl Brown
‘I thought it was very odd that welfare was not talked about or worried about in public, so I just thought it was a jolly interesting thing to look at,’ says Lord David Freud in his spacious office at the Department for Work and Pensions.
The welfare reform minister is describing how he first came to advise John Hutton, then secretary of state for work and pensions, in 2006. The former city banker and financial journalist admits he was a ‘total outsider’ brought in by the Labour government to shake up a welfare system that had not changed for decades.
Fast forward a few years and Lord Freud is spearheading perhaps the most radical shake-up of the welfare system the country has ever seen. His plans for a single, universal credit from October 2013 and various benefit caps may be ‘jolly interesting’ but they will affect the lives of hundreds of thousands of people.
Nowadays welfare makes headlines on a daily basis, and Lord Freud is no longer an outsider, but does he understand the full impact of the changes he is implementing?
Inside Housing, which called for fairer welfare reform with its What’s the Benefit? campaign, joins the minister in his office on comfortable sofas flanked by, not one, but two press officers.
We kick off with perhaps the most controversial measure, the under-occupation penalty for social housing tenants. The policy, better known as the ‘bedroom tax’, will see tenants with a spare room docked an average of £14 per week out of their housing benefit from April 2013.
Lord Freud insists the social housing sector is already getting to grips with the policy, which will affect an estimated 670,000 people, according to the DWP. He says ‘a lot of people’ are already looking at taking in lodgers and says this is attractive because the first £20 of income from a lodger will be disregarded when calculating benefits. He expects tenants to move, take measures to boost their income, or apply for £30 million of discretionary housing payments available for foster families and disabled people living in adapted properties.
Lord Freud is adamant that the government will not define what a bedroom is for the purposes of the policy. ‘It is up to landlords to determine that and they are perfectly capable of doing that,’ he says, speaking slowly and deliberately. This has led to concerns that landlords could reclassify large numbers of properties to allow tenants to avoid the tax - a move which will reduce rental income. Some fear this could breach existing lending agreements and lead to legal challenges from tenants over what constitutes a bedroom.
Lord Freud says: ‘My own expectation is there will be a bit of it [reclassification] but it won’t be a widespread, wholesale move because it has income impacts.’
On the point about legal challenges, Lord Freud, pauses, choosing his words carefully. ‘I’m clearly not expecting that outcome and I’m expecting landlords to act appropriately and smartly,’ he says.
He will also not be drawn on the potential implications of last week’s Court of Appeal ruling which found housing benefit rules discriminate against disabled people. The press officer intervenes twice to say the government is still considering the judgement, when the minister is pressed on whether the bedroom tax policy might have to change.
One of the biggest criticisms about the tax is that the £500 million annual saving the DWP hopes to make is based on an assumption of ‘limited tenant mobility’, or in other words, tenants staying put. Yet, one of the stated aims of the policy is to encourage people to move. How does the minister square this?
Lord Freud says that even if people move out to more expensive accommodation it frees up property, creating more savings for the state from a smaller number of people than you might expect.
‘We are not expecting more than a proportion to move. At the moment there is very little mobility, there should be more. I think the current figure is 5 per cent a year, and that compares to the local housing allowance [private] sector of 40 per cent, that is a huge gap. ‘You have to ask are people trapped in particular areas?’ he adds, demonstrating his belief the reforms will genuinely promote freedom and independence from the state.
Arguably the most radical of the raft of welfare policies is the plan to replace a host of benefits with one monthly universal credit payment direct to tenants, who will be expected to log on to the internet to manage their claims. This is part of the government’s plan to tackle ‘financial and digital exclusion’, says Lord Freud.
‘I’m particularly keen to make sure we take advantage of getting rid of the poverty premium and allow people to handle decent sums of money
to make proper decisions rather than scrapping around for bits and pieces of cash on almost a daily basis,’ he explains.
Social landlords have major concerns about this - not least the threat to their incomes posed by rising rent arrears as tenants struggle to handle monthly sums of cash. Year-long pilot projects beginning this summer in England, Scotland and Wales will look at which categories of people should be excluded from direct payment and what happens when arrears mount up.
Lord Freud clearly understands the threat to landlords’ incomes, or ‘financeability’ as he terms it. But he is suspicious of social landlords too. ‘I don’t want to see a system which is so loose that landlords encourage tenants to go into arrears to go on to the state system,’ he states.
He is equally pragmatic on the subject of the mammoth IT system being built by the DWP, which will use real-time tax information to calculate people’s entitlement. Under this system, housing officers will be encouraged to push people to use the IT system.
So does Lord Freud believe councils have the resources to cope with helping people on to the system? He maintains the simplification of benefits will free staff up to provide face-to-face services and insists there will be ‘considerable resources’ for councils as a result.
Landlords have not been shy in their criticism of the reforms. Steve Howlett, chief executive of 20,000-home housing association Peabody, echoes many in the sector’s views, saying: ‘We are concerned about the severity of these reforms and particularly the impact on tenants in central London.’ He adds, however, that he believes Lord Freud understands the sector’s concerns.
Thoughout the interview, Lord Freud maintains that positive social change and cost savings are not mutually exclusive. He may be an outsider, arguably parachuted into the government for his ability to understand technical details rather than for any significant experience of welfare or housing. But there is a human face behind the technician’s mask - one that sincerely believes the policies he is delivering amount to a step towards ending a benefits dependency culture.
‘You cannot take part in the social life of 21st century Britain if you are excluded financially and digitally.’
Becoming a government advisor:
‘I was a total outsider, albeit one who used to handling really complicated situations.’
The benefits dependency culture:
‘The poverty trap, the dependency trap; all of that had not been gripped between 1979 and 2006, shockingly.’