2 Housing Benefit costs
20. The Department told us that the costs of Housing
Benefit have almost doubled over the last decade, rising from
£11 billion in 1999-2000 to £20 billion in 2009-10 and
are forecast to reach £25 billion by 2015-16.[12]
Figure 1 shows the cost of Housing Benefit, broken down by tenure,
from1998 to 2010. It demonstrates that overall expenditure has
risen by almost 50% in real terms and that the cost of Housing
Benefit in the private rented sector more than doubled in that
period.
Figure 1: Housing Benefit Expenditure 1998-2010 
We examine the reasons for the rises in costs in
detail in the sub-section below.
The Government's objectives for
reform
21. The rises are an understandable cause for concern
at a time when the Government is making substantial and widespread
reductions in public spending in order to contain the levels of
government budget deficits. The Department states that it "needed
to act quickly to take steps to curb increases in expenditure,
particularly given the wider need to tackle the budget deficit".[13]
The Government has explained that it does not want to be a passive
observer paying out blank cheques to private landlords, but rather
to allow taxpayers on low earnings to have a voice in the debate
about the proper level of housing benefit.[14]
22. The proposed Housing Benefit reforms have also
been shaped by a policy focus on how benefit claimants compare
to low-income working households in terms of access to affordable
accommodation. That focus particularly relates to the proposals
to cap the levels of Local Housing Allowances (LHA) available
to claimants securing accommodation in the private rented sector
(PRS). The Department states that "Local Housing Allowance
measures will provide a more sustainable Housing Benefit scheme
by ensuring that people on benefit are not living in accommodation
that would be out of the reach of most people in work, creating
a fairer system for low-income working families and for the taxpayer".[15]
The Government asserts that low-paid earners typically
choose a rent around the 30th percentile. Steve Webb MP, the
Minister for Pensions said:
If someone takes a low-paid job, they do not
have an unlimited choice about where to live. They cannot live
in as big a house as they would like. They are constrained in
where they live. Why should our constituents who take a low-paid
job with all the associated uncertainties and have to restrict
their housing choice be in a worse position than those [...] who
are, for example, unemployed? [16]
The Minister also said that:
Some of the figures that have been quoted for
losers assume that nothing changes and that people will go on
living exactly where they are living and making the same choices,
but the whole point of the reform is to have an influence on the
housing market, and to try to do something about escalating rents.[17]
23. The Department also argued that the measures
will improve incentives for customers to enter work. It suggested
that:
Providing some customers, mainly in London, with
the ability to live in very high cost rented properties makes
it extremely unlikely they would ever move completely off Housing
Benefit because of the very high income levels required. Moving
to more affordable accommodation could therefore encourage households
to take up employment and move completely off benefit.[18]
24. We agree with the Government's objective of
managing the costs of Housing Benefit. We also agree that support
for low-income families towards housing costs should represent
value for money for the taxpayer. We hope that the Government
will be able to influence the rent levels of properties in the
private rental sector available to Housing Benefit tenants. Further
detailed research should be undertaken on this issue as the policy
is implemented
Possible reasons for rises in
Housing Benefit costs
25. Brighton & Hove City Council said that it
welcomed the changes to Housing Benefits and "the savings
they should deliver".[19]
The Mayor of London agreed that "a thorough overhaul is necessary
to bring down the escalating benefits bill, to remove the perverse
disincentives to work and to tackle the current excesses that
undermine public confidence in the scheme".[20]
26. The Building and Social Housing Foundation argued
that "it is incorrect to portray Housing Benefit as a system
that is 'out of control'. In fact, as a proportion of the overall
benefits bill it is striking that Housing Benefit has remained
remarkably constant at around 14% of total expenditure for many
years".[21] This
point is illustrated by Figure 2. The proportion of total welfare
payments made up by Housing Benefit expenditure largely reflects
the large share that housing costs represent in average household
budgets. In 2007-08, for example, net housing costs represented
21% of disposable incomes for all households.[22]
Figure 2: Help with Housing Costs as a percentage
of total benefits expenditure (including tax credits) 1994-2010
Source: DWP and HMRC
statistics
27. The Chartered Institute of Housing (CIH) also
emphasised the need to consider the causes of the rise in HB costs.
It argued that:
This should be a starting point in looking at
Housing Benefit reform, not an after-thought. Housing costs for
all households, whether renting or owning, have increased as we
have failed to supply enough housing to meet the changing needs
of our population and economy.[23]
Shelter acknowledged that "the very recent sharp
increase in the cost of Housing Benefit in the PRS [private rented
sector] is a cause for concern". It believed, however, that:
It has been caused by a combination of increasing
numbers of claimants, due to the recession and Government policy
to make greater use of the PRS; and, rapidly rising private rents.
[...] Housing more claimants in social rented housing, would
be more cost-effective in the long run but requires significant
up-front public investment. [...] A further trend underlying the
nominal increases in the overall cost of HB has been the huge
shift of claimants from Local Authority owned housing to Registered
Social Landlords, where rents and the proportion of tenants claiming
are slightly higher, over the past decade.[24]
28. Part of the increase in costs has also been attributed
by the Government to rent levels for claimants in the private
rented sector increasing more rapidly than average market rents
in the overall private sector. In oral evidence, the Minister
quoted pre-LHA figures for 2000-2007 which showed an overall increase
in the private rented market of around 15% in real terms; while
rents paid by LHA claimants went up by 25%.[25]
However, the greater rise in Housing Benefit rents over
the period to 2007 reflects a number of factors. The overall rental
market rise figures quoted relate exclusively to assured tenancies
set at market rents. The Housing Benefit rents also include those
fixed by rent officers for regulated tenancies at below market
levels, and the proportion of claimants with regulated tenancies
with lower rents declined from 14% in 2000 to just 7% in 2007.
29. The Minister also cited more recent evidence
of Housing Benefit rents rising while wider market rents have
been falling:
[...] from November 2008, for the next 15 months,
the property index declined by 5% and our HB claimants' payments
went up 3%, which shows the disconnect there is between what is
happening in the marketplace and what we are paying.[…]
That is a very, very good example of what has been going wrong
in the marketplace as a result of us being pretty un-smart buyers
of private rented accommodation.[26]
However the source for these figures is a web-based
index of "asking" rather than "achieved" rents,
which was identified as the Find a Property private rental index.
The Secretary of State for Work and Pensions issued a Written
Ministerial Statement on 25 November correcting the source of
similar figures which he used in an Opposition Day debate on Housing
Benefit on 9 November.[27]
30. According to the Valuation Office Agency,
claimant rents moved in line with changes in the LHA rates in
the first three quarters of the period from November 2008. It
is only in the last two quarters that average rents for claimants
rose ahead of LHA rates. In a period of rapid market change, and
a sharp rise in the numbers of claimants in the sector, it is
important to ensure that the Department obtains value for money
in the Housing Benefit budget. We recommend that the Department
undertake further research into the reasons for the increased
rent levels and the methodologies used to measure them.
31. The Minister also presented evidence that rents
are increasingly clustering around LHA rates.[28]
The Department suggested that:
Some landlords may raise their rents to the rate
that they know will be met by benefit levels. Research undertaken
by the Department for the two year review of Local Housing Allowance
found that local authority Housing Benefit managers feel that
more landlords are raising their rents to Local Housing Allowance
levels. They believe landlords see this as the going rate in the
absence of other rent setting methods.[29]
This evidence was supported by the British Property
Federation:
The new Government inherited a local housing
allowance system that was always going to cost more in comparison
with what had gone before. It is true that rents in some areas
have adjusted towards the local housing allowance rates and in
markets where there are significant claimants this is seen as
'the going rate'.[30]
The National Housing Federation told us that:
Private sector landlords increased rents with
the introduction of Local Housing Allowance [...] the average
housing benefit award for Local Housing Allowance is over £9
per week more than for people still on the previous scheme [...]
The Local Authority Omnibus Survey [...] finds that Housing Benefit
managers say that some landlords are using the transparency of
the arrangements to raise rents to the Local Housing Allowance
level. [31]
Paddington CAB said that: "we understand the
need to place a cap on rents paid by the taxpayer, especially
in central London where the LHA is spiralling out of control."[32]
32. Table 1 below shows a degree of convergence of
claimants' contractual rents around the LHA rate.
Table 1 Distribution of claimants' contractual
rents relative to LHA rates
| Difference between rent and LHA
| Apr 2009
| Aug 2009
| Apr 2010
| Aug 2010
|
| + £15 to £20
| 26 | 29
| 30 | 31
|
| + £10 to £15
| 21 | 23
| 25 | 25
|
| + £5 to £10
| 14 | 16
| 17 | 17
|
| + £0 to £5 |
6 | 7
| 8 | 8
|
| Equal to LHA rate |
7 | 8
| 8 | 9
|
| - £0 to £5 |
7 | 8
| 7 | 8
|
| - £5 to £10
| 14 | 16
| 15 | 15
|
| - £10 to £15
| 21 | 23
| 23 | 23
|
| - £15 to £20
| 25 | 27
| 27 | 26
|
Source : DWP analysis of the Single Housing Benefit
Extract.
33. However, two points should be noted. The first
is that there is more "downward" convergence of rents
that are above the LHA rate, than there is "upward"
convergence of rents below the LHA rate. There is a 3% increase
in the proportion of above LHA rate rents that are no more than
£10 above the rate (from 14% to 17%). In contrast there is
only a 1% increase in the proportion of below LHA rate rents that
are within £10 of the rate (from 14% to 15%).
34. The second point is that downward convergence
of rents towards the LHA rate could be just as readily explained
in terms of tenants' choices in the light of the more transparent
information the LHA rate provided on the level of benefit available,
as it could in terms of any decisions of landlords to reduce rents
towards LHA levels. The rising costs of Housing Benefit can therefore
be partly explained in terms of economic conditions and Government
policies.
35. There is some evidence that the introduction
of the Local Housing Allowance has led to a convergence of rents
around the level of the LHA. This has involved both upward and
downward revisions and has varied between areas, but it is clearly
a factor in the rising costs of Housing Benefit.
12 Ev 59 Back
13
Ev 59 Back
14
HC Deb 13 July 2010, col 223WH Back
15
Ev 59 Back
16
HC Deb 13 July 2010, col 223WH Back
17
HC Deb 13 July 2010, col 223WH Back
18
Ev 62 Back
19
Ev w62 Back
20
Ev w135 Back
21
Ev w13 Back
22
Family Spending, Expenditure and Food Survey 2007-08, Office for
National Statistics Back
23
Ev 44 Back
24
Ev 112 Back
25
Q 103. The Minister provided the Committee with an analytical
supplement which gave the background to these figures. This is
available on the DWP website at http://research.dwp.gov.uk/asd/index.php?page=recent
Back
26
Q 131 Back
27
HC Deb, 25 November 2010, col 54WS. Back
28
Q 103 Back
29
Ev 62 Back
30
Ev 38 Back
31
Ev w216 Back
32
Ev w142 Back
| 
