Welfare Reform Bill

Memorandum submitted by Shelter (WR 26)

SUMMARY

1. Shelter welcomes the opportunity to give evidence to the committee. As an organisation we provide practical advice and support on housing, debt and welfare issues, and more than a million people a year come to us for help via our website, helplines and national network of advice centres. This submission specifically focus es on clauses 11, 68 and 93 , which relate to housing benefit, as well as some additional clauses we believe should be added to the bill . Housing benefit is a crucial element of the housing safety net and a major priority for Shelter both in our campaigning work and in terms of our front-line services.

2. Shelter supports the principles of the new Universal Credit, particularly in relation to attempts to improve work disincentives and simplify the system. The employment barriers for claimants and the excessive complexity of the housing benefit system are common issues for our clients and we are pleased that the bill represents a serious and concerted attempt to address these problems.

3. However, we are concerned about the lack of detail in the bill and the fact that it will enable the Secretary of State to make fundamental changes to the benefits system via secondary legislation, without full parliamentary scrutiny. This concern particularly relates to clause 68, which breaks the link between the level of support provided for housing costs and the real cost of housing, and gives the government greater powers to use regulations to change the way that housing benefit is calculated in the future. We have commented below on some of the specific measures that will be enabled, but we have not necessarily exhausted the possibilities that may be created by the clause. Any significant future changes to housing benefit should be subject to thorough parliamentary scrutiny and this should remain the case under Universal Credit. Furthermore, social landlords need to be given sufficient certainty about the future of housing benefit in their sector so that they can factor this into their business planning.

4. We also believe that it is vital that housing benefit in both the private and social rented sectors retains the link to real housing costs. Clauses 11 and 68 allow the government to link local housing allowance (LHA) and (subsequently) the housing component of the Universal Credit to the Consumer Prices Index (CPI) rather than to the cost of rents. Shelter’s new research shows that this could cause significant affordability problems for many claimants across the country (see annex).

5. The household benefit cap introduced in clause 93 will force many families to move away from their area should they be made redundant and need a temporary safety net , penalising those who live in expensive areas of the country . It will also create particular difficult ies for households that have no choice but to live in expensive temporary accommodation or supported housing in high cost areas , where the cap may mean that claimants cannot claim a sufficient amount of housing benefit to cover their housing costs . Removing h ousing benefit from the calculation of the cap would be the only way of ensuring that people in the South East are not disproportionately impacted by these changes and that homeless and vulnerable claimants are not thrown into deeper poverty or left without a roof over their heads.

6. In principle , Shelter supports the objective of reducing under-occupancy where this can free up homes for overcrowded families . However, the proposed measures which are enabled by clause 68 will be poorly targ eted and therefore ineffective. We would like the government to consider other options based on providing incentives and targeted support, rather th an creating sweeping powers for the purpose of undertaking potentially ineffective measures .

7. Shelter would also like new clauses to be added to the bill to tackle some of the underlying problems with LHA, by improving the way LHA is calculated so that it better r eflects local market conditions and by offering a choice to tenants about whether the LHA is paid directly to their landlord, to encourage landlords to stay in the market and maintain a healthy supply of private rented sector housing.

EVIDENCE

Retaining a link between housing benefit and housing costs (clause 11 and clause 68)

8. Clause 68 of the bill breaks the link between the level of support provided for housing costs and the real cost of housing, and allows the Secretary of State, via secondary legislation, to change the way that LHA is calculated. Currently LHA rates are calculated each month based on the value of rents in each locality, known as Broad Rental Market Areas (BRMAs). However, the government has indicated that in future LHA will be up-rated according to the CPI, both for LHA and under the Universal Credit for private tenants as they migrate onto the new system (as enabled by clause 11).

9. It is important to understand that unlike other benefits housing benefit is not shifting from Retail Prices Index (RPI) to CPI, but will shift from being linked to rents to being linked to inflation. Although the cost of rent is included in the CPI, it accounts for only 5.4% of the ‘basket of goods’ used to measure inflation. Historically, this means that the CPI has not increased at the same rate as average rents. Between 1997/98 and 2007/08, average rents increased by 70%, while over the same period CPI increased by only 20%.

10. New research by Shelter and the Chartered Institute of Housing (CIH) shows that linking LHA with CPI will, over time, severely exacerbate shortfalls between LHA rates and the rents people have to pay. On a conservative estimate, the reform would mean that 60% of local authority areas would be unaffordable for LHA claimants by 2030. The neighbourhoods that would become unaffordable the most quickly would be those that tend to have the most job opportunities. This means that claimants would be concentrated in areas with fewer employment prospects. Please see the annex for further details.

11. We believe that once the Universal Credit is introduced the housing benefit element for tenants in the private rented sector should be calculated according to local rents under reformed BRMAs (see below) and then up-rated according to changes in rent levels, rather than by CPI. For claimants in the social rented sector (including those in the new affordable rent tenure paying up to 80% of market rents) the rate of Universal Credit they receive should correspond with their actual rent liability, as is currently the case under housing benefit in the social rented sector, and be up-rated according to actual rent increases.

12. The link between rent and housing benefit is fundamental in terms of ensuring that, regardless of changes in the cost of rent, low-income households can afford a home within easy reach of their current support networks and employment links and are not forced to make frequent moves to procure ever scarcer housing. To undermine this principle would mark a substantial retrograde step in the provision of state support for housing, and would significantly increase levels of poverty and the risk of homelessness.

13. We would like clause 11 to be amended to ensure that under the Universal Credit the housing element payable to private tenants is set and up-rated on a monthly basis according to local rents and that the housing element paid to tenants in the social rented sector maintains the link with rent liabilities. Support for Mortgage Interest (SMI) should also be linked to actual mortgage interest liability once it is incorporated into the Universal Credit.

14. We would like clause 68 to be removed from the bill altogether on the grounds that it moves too many powers into the scope of secondary legislation where there is less opportunity for scrutiny. However, at the very least we might be prepared to accept a link between LHA and CPI if there were a sunset clause attached the legislation so that the measure expires at the end of this spending review period. Ministers have indicated that this is the government’s intention so we see no reason for this not to be incorporated into the legislation. [1]

Household benefit cap (clause 93)

15. Clause 93 of the bill introduces a new cap on the maximum amount of benefits households can claim, targeted at households in which the adults are out of work but also affecting some households in part-time work. This has been set at approximately £500 per week (£26k per annum) for couples and lone parents, and £350 per week for singles. The government’s impact assessment suggests 50,000 households will be affected by this measure.

16. The cap will not just affect large families: in many areas of London families with just two children will effectively face a cut amounting to a third of their current housing benefit entitlement. Shelter’s research shows that in a third of BRMAs, a family with three children will face a notional loss of entitlement to LHA, and these are heavily concentrated in London and the South East. A typical three bedroom, three-child household living in the private rented sector claiming the maximum employment support, council tax benefit, child tax credit and child benefit they were entitled to, totalling £338, would be left with just £162 a week to cover their housing costs. This is below projected LHA levels, at the reduced 30th percentile, in more than a third of local authorities nationally.

17. These changes do not just affect long term workless households. With so many people losing their jobs in the current economic climate, the changes will mean that any household where parents lose their jobs will move into poverty very quickly, with many likely to be forced to move away from the areas that have the most job opportunities. The cap will apply to families that do not claim Working Tax Credits, so it will not just affect non-working households but also working households that for any reason are unable to qualify for Working Tax Credits (for example because they work part time).

18. The measure is also likely to create significant problems for homeless households who need to access or exit temporary accommodation, where their only options of accommodation are places that are so expensive that under the cap they would be left with little or no residual income. From the impact assessment it also appears likely that some single people with complex needs in supported housing will also be affected by the cap. This aspect of the policy has been poorly thought through and, combined with government plans to forcibly re-house homeless families in the insecure private rather than social sector, will force the most vulnerable families to choose between staying in their community or having an adequate roof over their head. We are not confident that the Department of Work and Pensions (DWP) and the Department for Communities and Local Government (CLG) have been fully coordinated with each other in assessing the full implications of this reform.

19. The cap is a crude measure which will have a disproportionate impact in areas where housing costs are highest. It fails to recognise the significant variation in living costs in different areas of the country. Unless housing benefit is excluded, the cap is likely to cause significant disruption and hardship for a wide range of families. Therefore Shelter would like clause 93 to be amended to take housing benefit out of the calculation of the household benefits cap.

Social rented sector under-occupancy measures (clause 68)

20. Clause 68 of the bill will allow the government to reduce the amount of housing benefit for which working age tenants in the social rented sector are eligible, by applying the LHA bedroom calculator to the social sector. This will affect about 32% of all housing benefit claimants living in the social rented sector, the majority of whom are not under-occupying according to the conventional definition used by CLG and local authorities. At the very least DWP and CLG should use the same definition of under-occupation. [2]

21. Given the extent of overcrowding and the shortage of homes in the social rented sector, it is vital that genuine under-occupancy be sensitively tackled and that the best use be made of existing stock, but Shelter believes this should be achieved by introducing new incentives and targeted measures. This will not be the effect of the cut, which is disproportionate and poorly targeted. The areas where under-occupancy is most prolific tend to have a low supply of smaller properties, so it will be very difficult to re-house tenants. Furthermore the areas where overcrowding is most prevalent will have the fewest properties freed up by this measure. Overall, Shelter estimates that two-thirds of people under-occupying in the social sector will be entirely unaffected by this measure. Moreover, given that options for mobility in the social rented sector are limited, it would be wrong to penalise households for living in homes out of which they have little option of moving without sacrificing their social home altogether.

22. The cut is also excessive: the government’s impact assessment shows that nearly four-fifths of those affected only have one bedroom spare (according to government occupancy measures). This bedroom might not necessarily even be empty. For example, in a household with a nine year old son and eight year old daughter the two children might each have their own bedroom, in which case the family would be classed as under-occupying (because the children would be expected to share a room) and denied adequate housing benefit. Also, a family might be labelled as under-occupying even if they have been placed in the property by their local authority according to local allocations policies.

23. We would like clause 68 to be removed from the bill altogether on the grounds that it puts too many powers into the scope of secondary legislation where there is less opportunity for scrutiny. However, we are prepared to support measures to tackle under-occupancy if they are proportionate and well-targeted.

Reforms to Broad Rental Market Areas

24. BRMAs are the geographic areas that are currently used for calculating levels of LHA. If they continue to form the basis for calculating the housing element of the Universal Credit for claimants in the private rented sector, they need to be redrawn to ensure that claimants can access at least 30% of the private rented sector market in their area.

25. Ever since the introduction of LHA there have been problems with the way BRMAs are set, which in some areas has led to LHA claimants being unable to afford the expected market share of properties in their community. In particular, the use of overly large BRMAs pushes households away from good transport links and areas with access to employment and childcare. This problem will become more pronounced when LHA levels are reduced from the 50th percentile to the 30th.

26. Shelter would like to see a clause added to the bill committing the government to a review of BRMA boundaries. We believe that under most circumstances BRMAs should be aligned with local authority boundaries. [3] This would be a more recognisable ‘neighbourhood’ for claimants to find properties in and would also assist local authorities in meeting their homelessness duties and prevention strategies.

Claimant choice over direct payments

27. LHA claimants who are categorised as vulnerable are entitled to opt for their benefit to be paid direct to their landlord, while other claimants are obliged to handle the payments themselves, whether or not this is the preferred option for them and their landlord.

28. Shelter has long called for the option to be available to all LHA claimants to have their benefit paid directly to their landlord. Since direct payments to landlords were abolished, tenants and landlord associations alike have consistently campaigned for their reinstatement. Many claimants have experienced cash flow problems when delays in other benefits or unexpected costs, including banking penalties, have forced them to use rent money to meet other essential needs. For landlords, the risk of arrears is inevitably higher when the money goes to claimants and there is evidence that this has deterred many landlords from operating within the housing benefit market.

29. The government has recently agreed to give local authorities greater discretion to allow direct payments where landlords are bringing rents down. This reform is a step in the right direction but does not go far enough. Greater choice over direct payments would encourage landlords to stay in the rental market under circumstances in which they might not otherwise once they start to feel the impact of the forthcoming cuts to local housing allowance. A clause should be added to the bill to give claimants a choice over direct payments and for this choice to be retained under the Universal Credit.

ANNEX: The impact of linking LHA to CPI inflation

The following evidence is taken from the report ‘The impact of Welfare Reform Bill measures on affordability for low income private renting families’, a piece of research undertaken jointly by Shelter and CIH and published in March 2011, as well as the report ‘Housing benefit reform and the spatial segregation of low income households in London’ published by Cambridge University in November 2010. Full copies of both reports are available at www.shelter.org.uk/policylibrary .

The Shelter/CIH research considered how long it would take, once the CPI link is in place, for areas to become ‘very unaffordable’ – i.e. with fewer than 10% of private rented homes being affordable at the maximum rate of LHA. It found that linking LHA to CPI will, over time, greatly extend the shortfall between LHA rates and the rents people have to pay. If rents on two-bedroom homes were to inflate at a 15% lower rate than recent historic trends, then:

· More than a third (34%) of local authorities in England, excluding London, would be very unaffordable by 2023.

· 40% of local authorities would be very unaffordable by 2025.

· 60% of local authorities would be very unaffordable by 2030.

Worryingly, the regions that will most quickly become unaffordable are those where there are the highest rates of employment and the areas that will remain affordable for LHA claimants are those with the fewest jobs (e.g. North East). This means that LHA claimants are likely to have to move away from the areas where they are most likely to have the opportunity to either find work or to improve their income and move off benefits.

Neighbourhood level analysis was also carried out on five case study areas: Brighton, Derbyshire, Manchester, Teesside and South Devon. The detailed analysis revealed large variances in affordability between local neighbourhoods within BRMAs, both currently and in the medium and longer terms. This demonstrates that there needs to be an urgent review of BRMA boundaries to ensure that tenants who need help with their rent can afford 30% of homes in their neighbourhood, as is supposed to be the case.

The research undertaken by Cambridge University looked at the projected affordability of London neighbourhoods as a result of the combined impact of the changes to LHA announced in the June 2010 budget, including the CPI link. This revealed that the changes to be introduced in 2011 will immediately reduce the proportion of London neighbourhoods affordable to LHA claimants from 75% to 51%, and that this falls further to 36% by 2016 as a result of the measures' longer-term effects.

March 2011


[1] “ CPI is not for ever. We have said that CPI on the LHA rates will be introduced in 2013, and will be reviewed at the end of the comprehensive spending review period in 2014-15. At that point, we will look at the impact ” – Steve Webb MP, DWP Minister, Westminster Hall debate, 10 th March 2011 .

[2] CLG and local authorities normally define under-occupation as having two or more bedrooms more than are required. The LHA bedroom calculator does not allow for any spare bedrooms.

[3] A lthough a ligning with local authority boundaries might not be appropriate where local authorities are exceptionally large .