Action for now, solutions not yetPosted: May 26, 2022
The £15 billion energy cost support package announced by Rishi Sunak rightly benefits the poorest households most but it remains to be seen what it will do about the cost of living in general and the cost of housing in particular.
Under the package announced by the chancellor on Thursday, 8 million households on benefits will get a one-off payment of £650 paid in two lump sums in July and the Autumn. Add that to the £400 energy support payment (rather than a loan) that will go to everyone and the £150 payment already made (at least in theory) to those in Bands A-D for the council tax, and the Treasury says this amounts to £1,200 help towards the cost of living for the most vulnerable.
Background documents confirm the one-off payment will not count towards the benefit cap, unlike the £20 a week uplift to universal credit during the pandemic. That should avoid many more households seeing the help disappear as fast as it arrives.
Sunak had been under pressure to do more on benefits not just because of energy costs but also because of the large gap between the 3.1 per cent uprating of benefits in April (based on last September’s inflation rate) and the current 9 per cent rate of CPI inflation.
He said his one-off payment would be worth more than bringing forward next year’s uprating of benefits, as some had suggested.
And he also confirmed that the April 2023 uprating will be based on next September’s inflation rate, which could easily be more than 10 per cent, rather than retaining the option of declaring it to be unaffordable.
So far, so good, then and this is probably the package that the chancellor should have delivered in a Spring Statementthat looked inadequate at the time and has seemed even weeker with each passing week. This package looks to be both more generous and more redistributive than many people were expecting.
However, that also reflects the scale of the cost of living crisis. Add the £800 increase in the energy price cap expected in October to the £700 increase already seen in April and that is already more than the chancellor’s £1,200 for the most vulnerable and that is before you get to large increases in the price of food, fuel and other essentials.
And there was one major cost that was as absent from Sunak’s statement this week as it was from the one he made in March and the Queen’s Speech earlier this month. No prizes for guessing it must be housing.
For social tenants, this year’s rent rise was at least limited by being linked to last September’s inflation rate but the 4.1 per cent increase applied by most landlords in England still added to the cost of living squeeze.
The real problem could come next year when the CPI plus 1 per cent formula could mean rent increases of 11 per cent or more.
Social landlords face a looming question of whether they can really increase their rents by that much.
Those who decide they can’t will face a severe squeeze on their budgets and hard choices about what to cut – but will those who decide they must still have much of a claim to a social purpose?
Meanwhile the likely 10 per cent increase in benefits in April 2023 sounds like good news until you think about how it would interact with an unreformed benefit cap.
Unless the government also increases the cap by inflation (something it hasn’t done since it was introduced) or disapplies it as with this week’s announcement or ideally abolishes it, thousands more tenants will hit the limit and face growing shortfalls against their rent.
That can only heighten the dilemma about next year’s rent rise and long-term concerns about social landlord finances.
For people who are buying with a mortgage, the prospect of further increases in interest rates means that their monthly payments will rise once they fixed rates come to an end. This will become more and more of an issue as the months go by.
Private tenants will get no more help when their rents rise. The Office for National Statistics experimental private rents index is currently rising at 2.7 per cent, the fastest rate seen since 2016, while Rightmove’s index of asking rents was up 11 per cent in the last year.
In the Queen’s Speech briefing documents, the government claimed that it was ‘helping with the cost of housing’ by ‘maintaining the increase to Local Housing Allowance (LHA) in cash terms’ in a move ‘worth an extra £600 on average to 1.5 million households in 2020/21’.
However, Inside Housing readers will need no reminding that ‘in cash terms’ means a cut. Having restored LHA rates to the 30th percentile of local rents in April 2020, the government promptly froze them again in April 2021 and April 2022. This is almost guaranteed to produce a steady increase in rent arrears and homelessness.
One final point is the lack of any mention of action to tackle the high cost of energy bills at source. Now is surely the time to ramp up investment and the tax incentives for home energy efficiency but, just as in the Spring Statement and Queen’s Speech, it seems not yet.