Don’t mention the benefits freeze

Originally posted on March 8 on my blog for Inside Housing.

For once this was a Budget that was more significant for what it did not say about housing than for what it did.

In one sense the lack of announcements was nothing new. Chancellor Philip Hammond had already announced that this would be his last Spring Budget and that the main event will be in the Autumn.

The extra money for social care was inevitable if inadequate and it will have an impact on housing organisations.

Housing itself got a single mention in Hammond’s speech in the section on the next generation. ‘Will they be able to get on the housing ladder?’ was the rhetorical question that did not get any answer. (Nope, not unless they’ve got rich parents, since you ask.)

For once (unless I’ve missed something) the background Budget documents revealed little more than an intriguing consultation on a redesign of Rent a Room Relief, the tax relief that homeowners can claim when they let out a room.

The aim is ‘to ensure it is better targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings’. Presumably the plan is to stop people avoiding tax on AirBnb earnings?

The Office for Budget Responsibility (OBR) Economic and Fiscal Outlook has some background on the profile of housing association spending spending and borrowing, which was less than it expected last year but is being brought forward at the end of the spending review period.

But what really caught my attention were some graphs on the scale of the continuing squeeze on benefits. This reflects the decisions that Hammond did not take to ease the effects of the four-year freeze on most working-age benefits announced by George Osborne in 2015.

There were plenty of warnings ahead of the Budget about the dire impact of the freeze. The more inflation rises the harsher the impact will be.

Here’s the OBR view on the real-terms change in spending per person within the welfare cap up to 2021/22. Note that we less than halfway in to the freeze:

And here are the changes in welfare spending broken down into the different benefits:

Note that all of the reduction in housing benefit as a percentage of GDP is down to the average award rather than the caseload.

The freeze on awards will translate directly into rising shortfalls between housing benefit and rents to be met out of other benefits that are also being severely squeezed. The OBR also notes that universal credit will be ‘less generous than the benefits and tax credits that it replaces’.

Jenny Pennington sets out what this means in detail on Shelter’s policy blog. Even if you think you know what the cumulative impact of all the cuts since 2010 might look like, the figures are shocking.

For young people, the monthly shortfall between the rent for shared accommodation and the local housing allowance rate already runs to several hundred pounds in London. And even in much cheaper towns in the North West it is well over £100.

For families, LHA no longer covers the cost of the rent on a two-bed home in four out of five areas in England. Monthly shortfalls range from £107 in York to £217 in Bristol to £531 in Cambridge.

All this is before three more years of the benefit freeze, before the end of automatic entitlement to housing support for 18-21 year olds and before the impact of the LHA cap on social housing. Cuts to other benefits including Employment Support Allowance and universal credit are also due next month.

As Jenny argues, if the system is already unworkable the result will be an inevitable increase in homelessness at a time when the government is supposedly committed to reducing it.

If he wanted to, Hammond could use burgeoning tax receipts from housing to help plug the gap. The OBR expects the tax take from stamp duty to rise from £11.6bn in 2016/17 to £13.1bn this year and £17bn by 2021/22,

Sooner or later, you would think, the chancellor will have to break with decisions taken by his predecessor. For now he seems happy to go along with George Osborne’s squeeze and hope that nobody notices.

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