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Motion made, and Question put forthwith, pursuant to Standing Order No. 145 (Liaison Committee),

Question agreed to.

1 Jul 1998 : Column 495

Housing Costs (Welfare Benefits)

Motion made, and Question proposed, That this House do now adjourn.--[Mr. Pope.]

12.9 am

Mr. David Kidney (Stafford): I am pleased to start this short debate on housing costs and the reform of welfare benefits. The Government's review of housing benefit has been on-going for some time, and I want tonight to tease out of the Minister some suggestion of the review's likely conclusions.

My starting point is the Treasury Select Committee's report into this year's Budget. It said:

That was said in the context of the new working families tax credit, which makes a significant contribution to the Budget's redistributive nature. It is a far superior benefit to the existing family credit, as it gives a greater allowance--£2.50 more than currently--for children under 11, it generously helps with child care costs and credit begins to be withdrawn at £90 rather than £79. Moreover, the rate of withdrawal of the credit for every extra £1 of net income--the so-called taper--is at 55p, rather than 70p, in the pound.

Those on housing benefit still have an overlap, whereby they face an effective rate of tax of 89 per cent. If they also receive council tax benefit, the rate is as high as 95.3 per cent. Some 260,000 families still face marginal rates of tax of more than 70 per cent., and more than 1 million families face a marginal rate of more than 60 per cent.

I welcome the Government's response--published today--to the Select Committee report. It said:

It has taken the Labour Government to end marginal rates of tax of more than 100 per cent., which were shameful and endured for far too long.

I recognise that the review of housing benefit, the new working families tax credit and the comprehensive spending review will have to interact to reach a whole and satisfactory outcome. I am hopeful that, when the results of the comprehensive spending review are announced, housing will be a major beneficiary, and that there will be a welcome boost to investment in the building of more social housing and the renovation of housing of all tenures.

This debate on housing benefit reform is timely, as it falls in the shadow of the announcement of the review's results. Moreover, two significant reports have been issued this week: first, Steve Wilcox's report for the National Housing Federation, whose title is, I believe, "Unfinished Business"; and secondly, Peter Kemp's report for the Joseph Rowntree Foundation, which is called "Housing Benefit: Time for Reform".

I believe that the key objectives in housing benefit reform should be: first, to reinforce the Government's message that work pays; secondly, to support the excellent new working families tax credit; and thirdly, to avoid

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unrealistic demands on public spending. On the first objective, 50,000 families will be floated off housing benefit altogether through the very generous working families tax credit, which will remove them from the pernicious poverty trap--indeed, 70,000 people will also be floated off council tax benefit. Working families tax credit will help low-paid owner-occupiers as well as tenants. However, for tenants, the overlap of housing benefit still means that families are caught by high marginal tax rates--the generosity of the working families tax credit means that it will catch more people higher up the income scale. It could be said that the poverty trap becomes slightly less deep but much wider.

Working families tax credit is an exciting new support for working families, but if changes are not made to housing benefit, the two systems will continue to overlap, with high marginal tax rates well up the income scale. That confusing overlap and the high marginal rates will distort the Government's message that work pays. A harmonised system offers opportunities to deliver that message clearly, and could create savings in administration costs and reduce the scope for fraud.

Housing benefit already costs this country £12 billion a year; within a budget of that size there is scope for radical reform without extra expenditure. Helping people back to work means fewer benefit claimants and greater income tax and national insurance receipts. Helping people in work to earn higher wages means lower benefit payments and, again, greater income tax and national insurance receipts. It would be a tremendous additional benefit if a new scheme could bring help across housing tenures and end the system of poor council tenants paying what is now a total of £1.3 billion a year to help the poorest tenants with their rents.

The previous Government's shift in support from bricks and mortar to personal benefit payments went too far: so far that cuts had to be made. The local reference rent was introduced, restricting the amount of rent that was eligible for housing benefit support, as were the single room rent for under-25s, and a tight means test that hit pensioners with modest savings.

The local reference rent has already caused a 12 per cent. reduction in the number of housing benefit claimants: 130,000 people and their families with private sector tenancies no longer claim. Without reform, there is a danger that more and more people will be let down, with social exclusion increasing instead of decreasing.

There is scope for action to stem the steep rise in rents that has gone alongside the increase in the use of housing benefit to take the strain. Social housing grant rates for housing associations could be used, there could be better support for local authorities, and we could rein in the private sector consumption of public money, especially in the area of fraudulent claims.

Since 1990, the grant to housing associations for new build has reduced from 75 per cent. to 54 per cent. Rents have, of course, risen in consequence. Three quarters of all new housing association lettings of two-bedroom properties in England are at rents of more than £50 a week, and 45 per cent. are at more than £60. Seven out of every eight lettings of three-bedroom houses are at rents of more than £50 a week, and 70 per cent. at more than £60.

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The Minister for Local Government and Housing wrote to the Housing Corporation in August 1997:

The Government will have to contribute to such a commendable strategy through their decisions on social housing grant rate. If they hold it at the present 54 per cent., it could benefit tenants by £5 a week. They should especially bear in mind the argument about interest rates, which have risen over the past year, whereas they argued that the last reduction in housing association grant was partly because the rates had fallen.

An answer to a parliamentary question earlier this Session showed that the net cost of a 10 per cent. reduction in council rents was estimated at £100 million a year. That is surely a modest cost for a rent restraint that would bear directly on family concerns about moving from benefit to work. There might also be a case for trying over time to achieve a more coherent structure for council and housing association rents.

As for private lettings, I accept that there is no prospect of direct rent controls in the future, but the Government are spending a good deal of public money on buying private rented accommodation for families. Surely there ought to be some scope for using that buying power to secure localised standards in such areas as health and safety, safeguards against fraud and, perhaps, rent levels that housing benefit will support.

There are currently some good examples of public-private partnerships in housing, partly owing to the good work done by the Empty Homes Agency in prompting councils and private landlords to work together. Stafford borough council, for instance, now has very good arrangements for co-operation with all housing stakeholders. That council, along with the university accommodation office and private landlords, has a scheme for agreed standards on safety, energy efficiency and inspections of properties. For tenants who cannot afford to pay deposits, there is a rent assistance scheme, as well as fast-tracking of housing benefit applications.

Important decisions are about to be made about housing benefit. I hope that we can remove the messy overlap of scheme tapers that currently produces the worst-case poverty trap. There is a strong case for combining policies on rent restraint and benefit harmonisation. I believe that any changes should ensure that the system of support with housing costs helps those in need, eliminates fraud as far as possible, makes work pay, and supports the Government's new working families tax credit.

I hope that I have contributed to an important debate about housing costs and welfare benefit in the future.

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