Benefit baseline

The ‘hard truths’ about welfare outlined by George Osborne beg far more questions than answers when it comes to housing.

In a speech yesterday the chancellor set out plans for £12 billion worth of cuts in welfare and £13 billion cuts in departmental budgets in 2016/17 and 2017/18 if the Conservatives win the next election.

And he singled out housing as the target of two specific cuts: housing benefit for the under-25s; and council housing for people earning more than £60,000 a year.

However, a quick look at the detail of those proposals raises real doubt about how much they would really save and what else might be on the Tory agenda.

The first idea has been raised repeatedly by David Cameron and rejected repeatedly by his Liberal Democrat coalition partners. As I’ve blogged before, it brings back memories what happened when another Conservative government cut benefits for young people in 1988.

The Conservative logic is that most young people have to live at home with their parents so it is unfair that some get housing benefit for a place of their own. However, the logic starts to unravel when you look at the detail.

First, more than half of the almost 400,0000 under-25s on housing benefit have children of their own. Should they live with their grandparents?

Second, many people may not have parents to live with, or there may be very good reasons why they left home. That’s why the 1988 changes led to an explosion in the numbers of young people sleeping rough. What would happen to people fleeing domestic violence, or homeless people, or people in supported accommodation or people leaving care?

For those reasons, it is very hard to see how the cut could be implemented without significant exemptions that would dramatically reduce estimated savings of £1.8 billion.

It was interesting that Osborne himself, when asked about the plan after his speech in Birmingham yesterday, talked about the under-21s: ‘Many people cannot afford when aged 19 or 20 to have their own flat – they have to live with their parents.’

Meanwhile, after David Cameron referred to the under-25s in his Conservative conference speech in 2012, the DWP told Inside Housing that it would only apply to future claimants not existing ones:

‘We’re looking at a range of options for future reforms to the welfare system – changing the eligibility criteria for housing benefit is one of these. Any changes would affect future claimants only and we would still ensure that vulnerable people remain protected.’

If the savings from the first measure start to evaporate, those from the second will be minuscule. The pay to stay plan for high-earning households has already been out to consultation and the government has responded to the results. At every stage, its estimate of high earners has dwindled: according to the latest one there are between 11,000 and 21,000 earning more than £60,000. Even that covers all social housing tenants, not just council tenants.

No figure for savings has ever been provided, just an unsourced estimate that ‘on average across England the economic subsidy provided by sub-market rents on social housing is worth an estimated £3,600 per annum’. Even taking this at face value, the maximum amount involved is 21,000 x £3,600 or £76 million a year. But this would not be a saving in housing benefit. It would presumably go to landlords and in theory could support new homes but there would be considerable costs administering the income checks for the system and considerable incentives for people to declare an income below the threshold.

And the ‘savings’ here are such that any remaining high earning households would face a choice between paying a higher rent or doing the right to buy with newly increased discounts by a government which is spending £100 million to publicise them.

So to get to anything like £12 billion the government must have other cuts in mind. Since the Conservatives have ruled out cuts for pensioners, housing benefit is the next biggest budget. The most likely options for people of working age might include yet more uprating at below the level of inflation to follow the 1 per cent for next year and the year after or a reduction in the current overall benefit cap of £26,000.

However, as Kate Webb blogs for Shelter, Osborne has already done the easy cuts and more could mean a complete withdrawal of the safety net for some groups:

‘He says there are no easy options; but does the lack of detail mean there are no realistic cuts left that won’t push the system to breaking point, or that the chancellor doesn’t think the public are ready to be fully confronted with the reality of a broken safety net?’

Little wonder that today’s papers are reporting a split between Osborne and an alarmed work and pensions secretary Iain Duncan Smith.

As for the £13 billion savings in the departmental budgets, it’s hard not to detect a grim message for public housing investment. David Montague of London and Quadrant blogs about the options, including better use of public land and government guarantees, here.

However, the main purpose of Osborne’s speech is political, to set a baseline for public spending and challenge the opposition parties to say whether they agree and, if not, what else they would cut or what taxes they would increase or how much they would borrow.

Nick Clegg has already rejected his ideas as a ‘monumental mistake’ and the Liberal Democrats seem set to go into the election with an alternative proposal on housing: a mansion tax to raise £2 billion.

Labour is refusing to fall into what it sees as an obvious political trap. However, in terms of housing, it must increase the temptation to look for alternative ways of saving money that would fit in with what it is already doing in terms of predistribution and intervention in the private market elsewhere.

An increase in the minimum wage, or introduction of the living wage, would be one way of cutting the housing benefit bill. And if ‘rent stabliisation’ for the private sector was already under discussion it must surely be on the agenda now.