The turn of the screw

Originally posted on April 4 on Inside Edge 2, my blog for Inside Housing

You’d never guess it from the sound of the violins playing for Buy to Let but there were other significant changes to benefits and tax on housing this month.

As ‘investors’ rushed to beat the April 1 deadline for higher rates of stamp duty on second homes, the orchestra reached a crescendo after new affordability tests were proposed by the Bank of England.

All that noise meant much less was heard about their tenants facing up to the first year of an unprecedented four-year freeze in their local housing allowance and other benefits and tax credits.

After three years in which LHA increases were restricted to 1 per cent, housing benefit rates for private tenants will now stay the same until 2020. Whatever the problems faced by their landlords, that means tenants will inevitably see rising shortfalls between their benefit and their rent. Equally inevitably, you would think, evictions will rise.

This is just one part of a wider freeze in many benefits that means the screw will slowly turn on people of working age. This was exactly what Iain Duncan Smith complained about in his resignation letter last month. Whatever you think about the Great Social Reformer, in this at least he has a point – but he was happy to go along with all the cuts listed here.

As Steve Wilcox sums up ‘a decade of diminishing welfare’ in the new UK Housing Review (published before IDS quit):

‘These policies represent the deliberate choices and priorities of the coalition and Conservative governments to redistribute incomes away from low-income working-age households. Similar choices and priorities now also seem to inform the new government’s English housing policies.’

As many social landlords will testify, that’s because the two sets of policies interact with each other from top to bottom. That applies particularly to the 1 per cent a year rent reduction that applies to all social tenancies from this month for the next four years: a welfare reform measure that will impact on housing services and plans for new homes.

But there are two more general points here: the one made by IDS about fairness between people of working age and pensioners; and the balance between benefit cuts and tax.

The stamp duty increase does at least raise money from taxes rather than benefits but its long-term effects remain to be seen. Far from just hitting individual owners of second homes, the decision in the Spring Budget to scrap a planned exemption for homes owned by companies poses a major threat to the Build to Rent sector. Perhaps the intention was to stop evasion but it seems a clumsy way to deliver new homes.

Back with benefits, another change that starts quietly this month could eventually have a big impact on social landlords and tenants too – and it’s one that could potentially be felt by people of all ages.

Social tenants starting or renewing a tenancy from this month will have their housing benefit restricted the LHA rate from April 2018. The exact implications of this will depend to some extend on landlord allocation policies but again the screw will gradually be tightened.

While social rents are lower than the LHA rate in most of the country, that’s not the case everywhere: in Wales, for example, a survey by Community Housing Cymru found that rents on one in three social properties are currently over the applicable LHA rate. The biggest impact will be felt on single people under 35, who face having their benefit restricted to the single room rate. To give an idea of the impact of that, this is less than £56 a week in 16 out of 23 Broad Rental Market Areas in Wales.

And the longer-term question exercising everybody is of course what happens to supported and sheltered housing under the LHA cap. Following a storm of protest, implementation of both the LHA cap and the 1% rent reduction for new supported tenancies has been delayed until April 2017 to give ministers more time to analyse the result of research into the impact. ‘Specialised supported housing’ is also exempt from the rent reduction. However, figures in the Spring Budget revealed that the government expects to raise twice as much from the measure as it thought in November and even the year’s grace is not much help to landlords making decisions on new projects now. For more on supported housing, see this House of Commons Library briefing.

With all eyes on issues like the LHA cap, less attention has been paid to other changes that take effect from this month or within the next year that are scarily summarised in the UK Housing Review.

First up is the cut in the overall benefit cap. The reduction to £20,000 (£23,000 in London) will be phased in from this Autumn. This graph from the Review makes clear that couples with three or more children will not be able to get enough housing benefit to cover even a social sector rent anywhere in Britain:

cap 2016

The same will apply to smaller families for private and affordable rents in most places too. The implications for tenants are obvious but there are also huge challenges for landlords that they have only just begun to confront. The government will argue that there are exemptions for some disabled people and discretionary housing payments and that tenants can escape the cap by finding enough hours of paid work to qualify for working tax credit. But the arguments don’t look much more convincing than when IDS made them.

Speaking of tax credits, cuts in these were reversed after a Tory rebellion after the spending review – or were they? In reality, the cuts originally proposed for tax credits that have just been delayed until universal credit comes in.

From this month there are lower work allowances. From April 2017 the family element will be removed from new families and allowances will be limited to support for two children for new child births and claims. There will be transitional protection but the UK Housing Review gives an idea of the impact: it’s estimated that the two cuts will affect 640,000 and 1.2 million families, respectively; and lone parents with two children will be worse off than under the current system of tax credits and housing benefit, often by a substantial margin.

I said ‘until’ universal credit comes in but there now has to be an even bigger element of ‘if’ or ‘how’ about that since the resignation of IDS. According to The Sunday Times (in a story mainly about disability assessments), new work and pensions secretary Stephen Crabb held a crisis meeting with officials last Thursday and has ordered weekly updates on the programme.

Also from April 2017 housing support will be removed from all single people aged between 18 and 21 who are childless and out of work unless they are deemed to be ‘vulnerable’. The same people also face an even tougher conditionality regime.

Finally, it’s time to wish a very unhappy third birthday to the bedroom tax, something that would normally be worth a blog in its own right, except that I can’t improve on this one by Rob Gershon.

The legal battle over the controversial policy continues: as Joe Halewood reports, a ruling by the Upper Tribunal looks to have huge implications for tenants being taxed on rooms too small to be a bedroom; and Stephen Crabb has inherited a Supreme Court appeal after the Appeal Court found the policy to be discriminatory in January.

Just to really rub it in, two further measures from the Spring Budget are also on the way: from this Wednesday (April 6) Rent a Room tax relief will be increased from £4,250 to £7,500 a year for people who let out a room in their home; and from April 2017 short-term landlords letting a room through Airbnb and other websites will get a new £1,000 a year tax-free allowance.

What was that someone said about a spare room subsidy?

The UK Housing Review 2016 by Steve Wilcox, John Perry, Mark Stephens and Peter Williams is available from the CIH here.


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