Yet more cuts

As Crisis launches a campaign against ‘unworkable and irresponsible’ cuts in housing benefit for the under-25s, there is another scary reminder today of the bleak prospects for the next spending review.

Fiscal Fallout, a report from the Social Market Foundation and Royal Society of the Arts, concludes that the flat-lining economy will make the structural deficit significantly higher than forecast in the Budget in March.

Things were already bad enough then, with £26 billion of cuts from annual spending pencilled in for the three years after 2014/15 and the detail left until the next spending review. But the report warns that lower than forecast growth and higher borrowing means the government will need to make another £22 billion of cuts on top of that to get its public spending plans back on truck to meet its deficit reduction target.

The current government plan is to leave taxes unchanged and cut welfare payments by £10.5 billion a year, which is where the proposal that Crisis is campaigning against comes from. According to estimates by the Institute for Fiscal Studies, Cutting housing benefit for the under 25s would save £2.3 billion a year while a two-year freeze in working age benefits, another proposal with major implications for housing, would save £4.5 billion. Cuts to pensioner benefits and child benefit could make up the rest of the total. If pensioner benefits were protected, as they have been so far, then the impact elsewhere would be much higher.

And that is not the end of it. Departmental expenditure would still have to fall by £37 billion between 2014/15 and 2017/18 – a fall of 11 per cent a year in real terms. For the Department for Communities and Local Government that translates as cuts of either £2.8 billion. If health, education and international aid continue to be protected, the real terms cut would be 23 per cent and £5.9 billion at the DCLG. With figures like this, the 2010 spending review begins to look generous and the chances of further grant for new homes begin to look even more slender.  

Ahead of the autumn statement on December 5, the Crisis campaign includes a parliamentary briefing that reveals just how ‘arbitrary, unworkable and irresponsible’ a housing benefit cut for the under-25s would be. As I’ve blogged before (here and here), the effects would be felt by people with no parents to go back to, by victims of abuse, by people who are working but can’t afford their rent and by people who have children themselves. The briefing groups all the stats together on the 383,440 people under 25 currently claiming housing benefit.

With other policies like the bedroom tax meaning that downsizing parents will have even less room for their grown-up children, the result would be an explosion of youth homelessness and rough sleeping. As the briefing argues: ‘If this cut is brought in then there will be significant knock on costs which would potentially outweigh any savings. Homelessness is expensive to the taxpayer and society and this proposal would also risk frustrating claimants’ attempts to secure training and employment undermining their potential to contribute to the economy.’

In public statements, the DWP insists that it any cut for the under-25s would only apply to new claimants. Iain Duncan Smith repeated this at work and pensions questions last week:

‘As I said previously, we are looking at all this. Anyway, entitlement would never be removed from those who are already on housing benefit. The review is about flow and about re-establishing fairness in a system which many think has become unfair and does not help those who are not eligible for such benefits. I accept that there would be people who would be ineligible. That is the point of examining the system and figuring out how the policy would go, but like all policy reports, it is worth looking at. It deals with an element of unfairness and the thing about the benefits system is that if it is unfair, people who should support it will not support it, such as taxpayers.’

Whether you believe the assurances and that rather convoluted answer or not, it still raises a big question about what else would have to be cut given that the bulk of the £2.3 billion would still be going to existing claimants. That implies that virtually everything about the welfare budget in general and the housing benefit budget in particular will be up for grabs and nothing is safe.

Fiscal Fallout concludes that neither the cuts in annual managed expenditure nor more cuts in departmental expenditure limits ‘are sustainable fiscal solutions’ and calls for ‘a frank discussion about the way we make policy, how we deliver it, and what we measure and value in public services’.

I don’t have space to go into the details here, and the report is more about principles than specifics, but the gist appears to be to build on the Total Place approach to local budgeting, with decision making devolved from Whitehall so that growth can be driven by several cities not just London. Cities and counties would get more control over spending and maybe the chance to keep some of the savings in return for efficiencies gained from integrated working and preventative spending. ‘Future demand will swamp the health, social care and housing sectors without better integration across organisations and sectors,’ warns the report.

All of which could be an opportunity for housing to argue the case for the wider benefits of investment in a way that is not possible as things stand, perhaps along the lines of the ‘progressive localism’ proposed by the IPPR in the summer. However, the report concludes that this is all a debate for the future and that the 2013 spending review is more likely to on conventional departmental lines.

Which means that the battle over housing benefit for the under-25s could be just the start of much, much worse to come.