1 Introduction
1. The Government put forward proposals for wide-ranging
and radical reforms to the Housing Benefit system in the June
2010 Budget. The proposals are intended to slow the sharp rise
in the costs of Housing Benefit, and in particular to reduce the
amount paid to households securing accommodation in the private
rented sector, and thereby to influence the private rental market.
The impact of the changes was clearly going to be significant
and we therefore decided to conduct an inquiry into the changes
immediately after the Committee was established. In particular,
we asked for evidence on the implications of the announced changes
for:
- Incentives to work and access
to low paid work
- Levels of rent, including regional variations
- Shortfalls in rent
- Levels of evictions and the impact on homelessness
services
- Landlord confidence
- Community cohesion
- Disabled people, carers and specialist housing
- Older people, large families and overcrowding
2. We invited witnesses to submit written evidence
by 6 September and received 79 submissions from a wide range of
individuals and organisations. We took oral evidence from the
Local Government Association, London Councils, Shelter, the Chartered
Institute for Housing, the Cambridge Centre for Housing and Planning
Research, the British Property Federation and the Residential
Landlords Association; and from Lord Freud, the Minister for Welfare
Reform and DWP officials. We also visited a Citizens Advice Bureau
in Balham to discuss the impact of the changes with clients and
held an informal briefing at the Royal Institution for Chartered
Surveyors. We are grateful to everyone who contributed to our
inquiry.
3. We would also like to thank Professor Steve Wilcox[1]
from the Centre for Housing Policy, University of York, for assisting
us as Specialist Adviser during the inquiry. We very much appreciate
the contribution he made to our work.
Structure of the report
4. In this introduction, we set out the background
to Housing Benefit and the Local Housing Allowance scheme, which
is the Housing Benefit paid to tenants renting in the private
rented sector (PRS). This section also outlines the reform proposals,
and summarises the Government's initial assessment of the impact
of those proposals. Chapter 2 examines the causes behind the rising
costs of Housing Benefit in the PRS in recent years, which have
in part prompted the Government's reform proposals, and explores
the other objectives of the reforms. In Chapter 3, we look at
the potential for shortfalls between Housing Benefit and rents
in the PRS, and how this may vary in different areas. In Chapter
4 we then look in greater detail at how these measures may impact
on different household types. We highlight which groups are likely
to be the most affected and examine the steps which the Government
should take to protect them. In Chapters 5 and 6 we examine the
extent to which transitional arrangements and Discretionary Housing
Payments could help to ease the transition. In Chapter 7 we explore
some of the behavioural responses the Government is expecting:
from tenants in terms of moving to cheaper accommodation; and
from landlords in terms of their willingness to lower rents. Finally,
in Chapter 8 we explore how Housing Benefit claimants compare
to low-income working families in terms of rent paid in the private
rented sector, and whether the measures are appropriately designed
to incentivise claimants to move off benefits entirely and into
work.
Housing Benefit and Local Housing
Allowance
5. Housing Benefit is an income-related benefit providing
support for rental housing costs for tenants on low incomes (both
in and out of work). It is a scheme covering England, Scotland
and Wales, with almost all benefit costs met by central government.
Together with Council Tax Benefit, it is administered by 380 local
authorities. If these provisions are mirrored in Northern Ireland,
our colleagues on the Northern Ireland Affairs Committee may wish
to investigate the implications there.
6. As at May 2010, there were 4.75 million family
units in receipt of Housing Benefit. Of these 1.46 million (31%)
were tenants in private rented sector accommodation and 3.29 million
(69% ) were living in the social rented sector. Overall, Housing
Benefit expenditure amounted to around £17 billion in 2008/09.[2]
7. Local Housing Allowance (LHA) is the type of Housing
Benefit available to claimants securing accommodation in the private
rented sector. It was introduced in nine "Pathfinder"
areas from November 2003 and was extended to a further nine areas
from April 2005. The experience of the Pathfinder areas led the
Government to legislate for the national roll-out of the LHA from
7 April 2008. It is means-tested and can be claimed by people
in work as well as those who are disabled, retired, carers or
unemployed.
8. LHA is administered by local authorities, to whom
a tenant must apply for support. The LHA is a flat rate allowance
for different sizes of properties within a Broad Rental Market
Area (BRMA). Prior to the introduction of the LHA, these areas
were known as "localities". The Rent Service is responsible
for determining BRMAs. When determining BRMAs the rent officer
takes account of the distance of travel, by public and private
transport, to and from facilities and services of the same type
and similar standard.
9. Central to the system are "LHA rates"
which are the maximum amount of benefit that will be paid in different
BRMAs. These rates are published, so that those seeking rented
accommodation know in advance what they will be able to afford
based on where they live and what size of dwelling they are entitled
to. These LHA rates are currently the median (or 50th percentile)
of a sample of rents in a local area. The rents data are gathered
by the Valuation Office Agency (VOA), who also publicise the current
rates for each size of dwelling in each area.
10. The actual benefit amount in a given case is
worked out from detailed information that applicants provide about
their rent, the property, whom they live with, and their own income
and savings and that of others in the household. The number of
bedrooms for which a household is entitled to claim benefit is
based on the number and age of its members (size criteria). One
bedroom is allowed for each of the following:
- a couple
- a person who is not a child (age 16 and over)
- two children of the same sex
- two children who are under 10
- any other child
11. The previous Government amended the Housing Benefit
regulations to cap the highest possible level of LHA at the 5-bedroom
rate from 6 April 2009. It argued that the move followed concerns
raised by rent officers in England, Scotland and Wales who reported
difficulties in determining LHA rates for larger properties. It
stated that where larger properties are available, they tend to
be at the luxury end of the market.[3]
12. LHA is paid to the tenant. It can only be paid
to landlords in circumstances where:
- There are at least eight weeks
rent arrears (compulsory);
- Deductions are being made from other benefits
and are being paid to the landlords to pay rent arrears (compulsory);
- The authority considers the claimant "is
likely to have difficulty managing his/her financial affairs"
(often referred to as "vulnerable" claimants);
- The authority "considers it improbable that
the claimant will pay their rent";
- Landlord payment has been made previously under
either of the two compulsory grounds (1st or 2nd bullet point)
(so for example, payment to the landlord can continue even where
the arrears have reduced to below 8 weeks or have been cleared);
- For up to eight weeks where the authority suspects
that the 3rd or 4th point above applies and it is considering
making payments on those grounds;
- If the tenant leaves with arrears of rent owing.[4]
The June 2010 changes
13. The programme of Housing Benefit reform measures
announced in the June Budget will come into force between 2011
and 2013. The proposed reforms that relate exclusively to the
private rented sector were as follows:
- Restricting the maximum benefit
entitlement to the 4-bedroom rate, from April 2011;
- Capping maximum LHA weekly rates at £250
(for a shared room and 1 bedroom property), £290 (for a 2
bedroom property), £340 (3 bedrooms) and £400 (4 bedrooms),
from April 2011.
- Setting LHA rates based on the 30th percentile
of private sector rents (rather than the median or 50th percentile)
from October 2011.
- Removing the provision for claimants to retain
a maximum of up to £15 per week, in cases where their contractual
rent is below the LHA rate, from April 2011 (as announced by the
previous Government).
- From April 2013 LHA rates will be uprated based
on the Consumer Price Index, rather than on the basis of local
rents.
In recognition of the potential transitional costs
that will arise for some households as a result of all these changes
the Government has also made provision for increased expenditure
on Discretionary Housing Payments, of £10 million in 2011-12
and £40 million a year thereafter.
14. In addition, a number of measures have been proposed
that will impact on social sector tenants, and claimants in all
rented tenures. They are as follows:
- Provision for an additional
bedroom allowance for a carer where there is an established need
for overnight care, from April 2011.
- The rates of non-dependant deductions will be
increased in three annual steps from April 2011, so that they
reach levels reflecting increases in rents and council tax since
2001. [5]
- Size criteria will be applied to working age
claimants in the social rented sector, from April 2013.
- Jobseeker's Allowance claimants will only receive
full Housing Benefit entitlements for a period of 12 months. Thereafter
their Housing Benefit entitlement will be reduced by 10%. This
will apply from April 2013.[6]
15. Since these changes were announced in the June
2010 Budget, the Government decided as part of the Spending Review
to extend the shared room rate (the rate of benefit paid to single
people who are aged under 25) to adults aged up to 35.[7]
The rate is calculated on the basis of average cost of a single
room in a shared house.
16. On 30 November 2010, the Government laid the
Housing Benefit (Amendment) Regulations 2010 and amendments to
the Rent Officers (Housing Benefit Functions) Order 1997 that
will bring the Budget measures into effect. At that point it announced
that the timetable for making the changes would be amended as
follows:
- All changes that will adjust
the way Local Housing Allowance rates are calculated will come
into force from April 2011 for new claims.
- Existing claimants will continue at their current
rate of benefit until their claim is reviewed by their local authority;
they will then have a further period of transitional protection
at their current Local Housing Allowance rate of up to nine months
if there has not been a relevant change of circumstances.
At the same time, the Government also announced a
further allocation to the Discretionary Housing Payment fund,
which local authorities draw on to assist people who face particularly
acute problems with housing costs. A further £50 million
will be provided over the Spending Review period to support the
implementation of the new measures.[8]
The Government's impact assessment
17. DWP's initial assessment of the impact of the
Housing Benefit reforms was set out in a paper issued in July.[9]
While this went into some detail, it was essentially limited to
an assessment of the "first round" impacts on existing
Housing Benefit recipients, and did not make any assessment of
the potential behavioural responses to the reforms, either by
landlords or tenants.
18. The initial assessment found that virtually all
private tenants claiming LHA would receive less benefit, with
an average loss per claimant of £12 per week. The losses
would be greater for tenants entitled to larger dwellings. Claimants
entitled to the 5-bedroom rate, which is to be abolished, will
lose on average £57 a week. Reflecting this, the impact assessment
shows that families with dependent children would lose on average
more—£14 per week—than those without. LHA is
claimed by those in work and retired people as well as those who
rely on state unemployment or disability benefits. The measures
will cut LHA to all those groups, with the largest number affected
being those on "other or no benefits"—many of
them low-income employees—followed by those on long-term
sickness benefits.[10]
19. In November, the Government published a second
impact assessment of the changes which recognises that there are
a number of risks as follows:
- an increase in the numbers
of households with rent arrears, evictions and households presenting
themselves as homeless;
- disruption to children's education and reduced
attainment;
- disruption to support services for people with
disabilities and other households with care and support needs;
- an increase in the number of households living
in overcrowded conditions; and
- a decrease in the number and quality of private
rented sector properties available to Housing Benefit tenants.
It added that "the overall economic impact of
the measures cannot be quantified with any degree of certainty
as it is not possible to predict the behavioural effects of tenants
or their landlords".[11]
1 Relevant interests of the specialist adviser were
made available to the Committee before the decision to appoint
him on 26 July 2010.The Committee formally noted that Professor
Wilcox declared an interest relevant to the Committee's work as
an unpaid member of the Department for Work and Pensions Housing
Benefit Strategy Committee. Back
2
Ev 59 Back
3
Work and Pensions Committee, Fifth Report of Session 2009-10,
Local Housing Allowance, HC 235, para 148 Back
4
Housing Benefit Regulations 2006, Regulations 95(1), 96(1)(c),(2)(b),(3A),(3B) Back
5
A non-dependant is a person who resides with the claimant, and
is not a partner or dependent child of the claimant and/or their
partner. Children of 18 years or over are, as a general rule,
treated as non-dependants. (Source: Regulation 3 of the Housing
Benefit Regulations 2006) Back
6
HM Treasury, Budget 2010, HC 61, June 2010, pp 33-34, 48 Back
7
HM Treasury, Spending Review 2010, October 2010, p 69 Back
8
HC Deb, 30 November 2010, Col 72WS Back
9
Department for Work and Pensions, Impacts of Housing Benefit proposals:
Changes to the Local Housing Allowance to be introduced in 2011-12,
July 2010 Back
10
DWP Impact assessment, Table B1, p16f Back
11
DWP, Impact Assessment, Housing Benefit: Changes to the Local
Housing Allowance Arrangements, 24 November 2010 Back
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