House of Commons - Changes to Housing Benefit announced in the June 2010 Budget

Changes to Housing Benefit announced in the June 2010 Budget - Work and Pensions Committee Contents

8 Addressing barriers to work in the Housing Benefit system

Comparison between Low-Income Working Households and Housing Benefit recipients in the private rental sector

181. The Department states that the Local Housing Allowance measures announced in the June 2010 Budget, 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".

182. The Minister told us that "low-income households rent at about 90% of what the Housing Benefit recipients are renting at. So they are renting at a lower level. [...] the facts are that low-income people who are not taking Housing Benefit are having to live in cheaper housing".[246] He was referring to DWP research into housing choices and rental commitments made by low-income working households (LIWH) in the private rented sector, which found that "most LIWH pay a rent which is, on average, less than the LHA rate set for the property they occupy although, other than in the case of large properties, the amount paid is in the main 90% or more of that rate".[247] The authors of the study stress that:

248

The study concluded that "overall the typical levels of rent (the median and modal level) are quite similar for those receiving and not receiving HB; those not receiving HB were more likely to be paying higher rents, but also more likely to be paying a relatively low rent. Levels of rent were somewhat more widely spread for non-recipients of HB".[249]

183. Sam Lister of the Chartered Institute for Housing said "it is nonsense to say that people have an unequal playing field in terms of what access they have to accommodation, because Housing Benefit is an in-work benefit as well, so you should be able to access it".[250] The Residential Landlords Association argued that "there is something of a contradiction in terms in the Government's case because the Government's proposals bear down equally on the low paid in work and those who are wholly dependent on welfare benefits".[251]

184. The DWP study found that "while HB recipients, by definition, receive assistance towards some or all of their rent through HB, the great majority of LIWH (99%) meet their rent without such assistance". However, it also emphasised that "it would be a mistake to see 'HB claimants' and 'low income working families' as totally distinct categories". It states that "the same household could one day be a LIWH and the next a claimant. Further, where HB is claimed as an in-work benefit, households are essentially both low income working households and claimants at the same time".[252] Findings also indicated that the HB recipient group is somewhat older than non-recipients—about 23% of LIWH were aged under 25 compared with 10% of those in the private rental sector receiving HB. HB recipients were much more likely than LIWH to have dependent children. In particular, lone parents emerge as being much more frequent among households receiving HB—32% in the LHA Evaluation and only 5% in the LIWH survey. Conversely, only 6% of claimants in the LHA Evaluation were couples with no dependent children, compared with 31% of LIWH in the survey. Further differences include the finding that 91% of HB claimants are White (White British and Other White) compared to 72% of LIWH. Strikingly, 47% of HB claimants had no formal educational qualifications at all, compared with less than 10% of LIWH.[253]

185. The findings suggest that there is no strong incentive for LIWH to claim HB. It also found that lack of awareness of the HB system was not preventing applications from those families who perceived themselves to have problems paying the rent. However, previous bad experience of the HB system might deter a few from applying again.[254]

186. Roger Harding from Shelter said that "by the DWP's own estimates, there are potentially up to 590,000 working households who could claim LHA but do not, suggesting therefore that it is not currently an unequal playing field in favour of claimants, otherwise there would be a large number of people who would be claiming".[255] The Scottish Federation of Housing Associations stated that:

256

187. One of the Government's stated objectives of the Housing Benefit reforms is to create a level-playing field between households in receipt of Housing Benefits and low-income working households (LIWH). We note that about 10% of LHA recipients are LIWH and that 50% of working people entitled to claim Housing Benefit are not claiming it. We believe that the Government should also recognise that households in receipt of Housing Benefit are also more likely to be older and lone parents households. Evidence also suggests that overall the "typical" levels of rent are quite similar for those receiving and not receiving Housing Benefit.

Access to employment

188. DWP has stated that it is:

257

189. The London Borough of Camden emphasised that:

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The North West Landlords Association pointed out that distance to work is not just a London issue: "Transport home for the low-paid who work unsocial hours in the provinces is patchy at best, an example being the difficulties experienced by hotel staff in central Manchester. Here we have no Tube system and the buses are de-regulated".[259]

190. Our predecessors expressed concern that Broad Rental Market Areas (BRMAs) were set by access to facilities rather than by access to transport or work. It strongly recommended that "the Department includes access to low paid work as an underlying criterion for setting BRMAs. This would help the scheme to meet the Government's overall objective of helping people out of benefit dependency and into work".

191. The Minister told us that:

260

However, Citizens Advice argued that Office for National Statistics Labour Market Statistics for the London area suggest that there is a relationship between rent levels and rates of unemployment:

261

192. The study by the CCHPR looked into the probabilities of "this assumption, that reduced benefits rates will stimulate legitimate employment amongst those not presently working [...] and serve as an incentive (or rather, a threat) to work and away from an habituated dependency on welfare". It concluded that "these measures are likely to have nil net effect on economic activity among current claimants".[262] The study showed that fewer than a quarter of those affected were currently unemployed; most were already employed, or retired or sick. It also stated that the prospects of finding work would be greatest in regions and cities with strong demand for labour relative to supply: broadly, London, the South and East. However, in these regions, similar to the point made by CAB, those people affected by the cuts were more likely to be already in work or retired. The study highlighted that in the North and Midlands, rates of unemployment and inactivity reflected long-term structural weaknesses of regional economies more than individual unwillingness to take up paid work.[263]

193. Kirklees Council emphasised that:

264

The TUC suggested that a "substantive evidence base has documented the financial disincentives to work that steep withdrawal rates for Housing Benefit can have".[265] Danny Hardie, a welfare benefits adviser for the Peabody Trust, explained that:

266

The Royal National Institute of Blind People believed that:

267

The TUC referred to recent work undertaken by the Centre for Social Justice which concluded that: "the swift withdrawal of benefits, offsetting earnings from work, creates a deeply regressive system that punishes low earners who are trying to earn more". It argued that "changes therefore have potential to discourage unemployed people from moving into work, as their effective in-work incomes will be lower".[268]

194. Citizens Advice welcomed "the recognition by DWP Ministers that a key disincentive to work is the rate at which HB is withdrawn as income rises. As the White Paper 21st Century Welfare outlines, tackling levels of marginal deduction rates is central to improving work incentives".[269] The Equality and Human Rights Commission suggested the following measures to ensure that work pays:

reducing complexity in the benefits system so that people are able to see clearly the financial benefits of entering work
changes to withdrawal rates,
ensuring that benefits aid the transition into work
raising awareness that people can claim Housing Benefit when in work, as this will help people to see the incentives of being in employment. The DWP consultation on Housing Benefit from 2009 estimated that around half of working people entitled to Housing Benefit still do not claim it.[270]

CAB also argued that the proposals under consideration by the previous Government to introduce fixed period awards for people in work, would be "a very positive step in reducing the hassle factor for people in low paid work trying to manage their HB claim if their income is continually fluctuating". It stated that "Bureaux regularly report clients in low paid work falling into rent arrears or facing recovery of overpayments because their HB has not kept pace with changes in their income".

195. The North West Landlords Association confirmed that:

271

The National Federation of Arm's Length Management Organisations (ALMOs) pointed to:

272

196. We asked the Minister if he would consider extending periods of Housing Benefit payments as people moved into work. He responded that:

The energy and effort that is required to get the Universal Credit in is much better spent in a root and branch transformation of the system as a whole, which will solve the problem, than in tinkering with little bits of it for an interim period of a year or two in practice.

Paul Howarth of DWP added that it "was a very interesting idea and did command a lot of support, but I do not think there are any plans to introduce that now."[273]

197. We agree with the Government's objective of trying to address barriers to work in the benefit system. The evidence is very strong that the greatest barrier to employment is the complexity, confusion and limited net gains for claimants arising from a combination of taper rates and earnings disregards for benefits. We therefore welcome the principles behind the Universal Credit as set out in the recent White Paper. We intend to pursue issues arising from the proposals and look forward to seeing more details, including on how housing costs will be dealt with under the new scheme. However, we are concerned that the proposed reforms to Housing Benefit may contradict some of the objectives of Universal Credit. We recommend that the Government allow Housing Benefit to "run on", as people move off benefit and into work, a measure which previously commended support from both sides of the House.

10% Housing Benefit cut for recipients on Jobseeker's Allowance

198. The Government announced in the June 2010 Budget that Housing Benefit for jobseekers would be time-limited: awards would be reduced to 90% after 12 months (or 52 weeks) for claimants of Jobseeker's Allowance.[274] DWP told us that this had two objectives:

To help change the behaviour of Jobseeker's Allowance customers who are perhaps selective about the sort of work they take, or the action they take to make themselves job ready, because they have their rent met in full through Housing Benefit if not working.
By increasing the gap between in-work income and out-of-work income benefits and earnings, this measure will make work more attractive compared to benefits— i.e. help address the unemployment trap.

It added that "while most Jobseeker's Allowance customers remain on benefit for much less than 12 months, this change would make it clear that people who are expected to work cannot continue to receive maximum help from the benefit system to pay their housing costs indefinitely".[275] The Minister confirmed that, once the change has been implemented, the reduction in Housing Benefit would take effect immediately for those who had been claiming JSA for 12 months.[276]

THE CLAIMANT PERSPECTIVE

199. Most witnesses argued that the proposal to cut HB by 10% after a year on Jobseeker's Allowance (JSA) would disproportionately affect those who are disadvantaged in the labour market. New client groups will be brought into JSA and therefore potentially affected by this change. From October 2011, lone parents with children aged 5 and over will move from Income Support to JSA, and from February 2011 onwards Incapacity Benefit claimants will be migrated to the new Employment and Support Allowance, or JSA, or will become ineligible for benefits.

200. The TUC provided an analysis of the estimated impact of the 10% reduction in Housing Benefit on JSA claimants. It shows that as many as 35% of claimants affected may be lone parents with children aged 5-6, and that at least 13% will be disabled people who had previously spent several years claiming incapacity benefits.

Migration from Incapacity Benefit to Employment and Support Allowance

201. A number of people claiming Incapacity Benefit will move to JSA as a result of the migration to Employment and Support Allowance (ESA). Disability organisations and CAB expressed significant concerns about the number of claimants in poor health who are passing the Work Capability Assessment (WCA) for ESA and therefore being found fit for work. The Government has recently published a report of the independent review of the WCA by Professor Malcolm Harrington CBE, which sets out a series of substantial recommendations for reform, which the Government has accepted. Also, a panel has been formed, including representatives of disability rights organisations to ensure complaints are properly considered.[277]

202. Witnesses pointed to some of the issues which had previously arisen as a result of the migration to ESA. Mencap stated that the changes and problems with the medical assessment meant that more people with a learning disability (as well as other disabilities) would be moved from Incapacity Benefit to Jobseeker's Allowance.[278] Affinity Sutton highlighted that ESA is the most commonly appealed benefit accounting for 8,000 tribunals per month. This is twice the number of the next most appealed benefit, Disability Living Allowance, which has seven times more claimants. 40% of ESA decisions are reversed at the tribunal stage.[279] The Papworth Trust believe that the WCA is a flawed assessment and argued that "until the failings of that assessment are corrected, we do not believe other parts of the benefits system should be linked to its outcome."[280]

203. The Disability Benefits Consortium suggested that "the stringency of the new Work Capability Assessment means that many more disabled people, some of whom will face significant barriers to employment, will be receiving JSA. The reality for some of these people will be that it will take much longer than 12 months to find a job".[281] The Muscular Dystrophy Campaign, amongst others, said that people with a disability often face "insurmountable barriers to obtaining employment due to a lack of physical access to the workplace, jobs which require greater mobility than a disabled person may have, and discrimination on the part of employers".[282]

Lone parents

204. Gingerbread highlighted that Housing Benefit is an extremely important benefit for single parent families:

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205. The Government announced in the June 2010 Budget that from 2011 single parents whose youngest child is five or older will be required to seek work. This follows on from the change in October this year under which single parents whose youngest child is between seven and ten will be moved from Income Support to Jobseeker's Allowance and required to seek work. This change will affect around 120,000 single parents from October 2010 and an estimated further 100,000 in 2011. Gingerbread pointed out that 56% of single parents are already in work, and many more would like to be. However, Gingerbread believed that the right kind of jobs for many single parents—for example those available in school hours, on a job-share, or flexible in some other way—are not available for the vast majority of single parents who would like them. It argued that:

284

206. Kirklees Council pointed out that the deepest cuts would be borne by those whose HB was the highest—those with children. It argued that "this is not an incentive to work and for many will simply mean an increase in rent arrears and ultimately homelessness and in particular for those with families".[285] The Child Poverty Action Group believed that "this measure will adversely affect children living in poverty, drive further households containing children into poverty and additionally will hinder the government in meeting its child poverty targets".[286]

207. We asked the Minister if he would consider a more nuanced approach in order to recognise the substantial barriers that a small number of lone parents may face. He responded that "the risk is you can over nuance things. We want to send out a very clear message that work is what we expect people to go to and we are going to put a lot of resource into helping them get back into work".[287]

Older and Young People

208. Age UK referred to recently published Labour Market Statistics which showed that over two in five (43%) unemployed people aged 50 and over—a total of nearly 170,000 people—had been out of work for more than a year. This is the highest rate for any age group. Furthermore, a study in 2006—before the recession—showed that men out of work in their 50s have only a one in five chance of being in a job two years later. Age UK argued that the number of older unemployed people was likely to increase as a direct result of the migration from Incapacity Benefit to Employment and Support Allowance. Around one million people aged 50 or over receive Incapacity Benefit and some will be newly classified as unemployed and moved on to JSA. Many of these will have been receiving Incapacity Benefit for some time and will be a great distance from the labour market.[288] The changes are also likely to affect older women whose Statutory Retirement Age is set to rise to 66 by 2020.

209. Catch22 pointed out that the unemployment rate for young people is currently double that for the general population. It argued that:

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Prospects for employment and the Work Programme

210. The CIH argued that the proposed 10% reduction in HB for those on JSA for 12 months took no account of the difficulties that people face due to local economic conditions.[290] Alex Fenton from the CCHPR told us that:

291

Peabody was concerned that:

292

211. The Minister told us that, through its unified welfare-to-work scheme, the Work Programme, the Government was "putting a huge amount of resource into helping people back into the workplace and this is the counterpart of that. This is a very substantial message to tell people that the solution here is to get into the workplace".[293] The TUC noted that the Work Programme is likely to provide support to unemployed people after one year of claiming JSA, and therefore explicitly recognises that some people need additional support to move into jobs, aiming to support people with "complex and overlapping barriers to work, providing personalised help for people who find themselves out of work". It believed that it was therefore:

294

212. We put to the Minister the point that most people on JSA will not get support from the Work Programme until they have been on the benefit for 12 months, but at that point they will already face the cut in Housing Benefit. He responded that the Government is:

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213. Crisis, amongst others, argued that

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THE EFFECTIVENESS OF SANCTIONS

214. The TUC pointed out that a recent DWP review of the effectiveness of different types of active labour market policies found that blanket cuts in benefit levels do not increase employment outcomes, and warned that:

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The TUC also highlighted that the Social Security Advisory Committee had shown that there was little evidence that sanctions are an effective tool in changing behaviour. It also referred to recent DWP research on lone parents which concluded that: "the sanctions regime has had negligible effects upon labour market behaviour".[298] Citizens Advice agreed that "evidence is—at best—mixed as to whether sanctions are effective in encouraging people into work, and we can see no logic to making such a cut from a household's HB, especially in circumstances where the claimant has fully complied with requirements to actively seek work".[299]

215. The Equality and Human Rights Commission argued that "in applying sanctions, consideration could also be given to the discrimination that certain groups of people face in entering employment". It referred to a number of DWP research reports which found discrimination in recruitment of disabled and ethnic minority people. It believed that "this demonstrates that reducing Housing Benefit by 10% because people have been in receipt of Jobseeker's Allowance for 12 months could disproportionately impact on those who want to work, but are unable to access employment because of (multiple) external barriers".[300]

THE PROVIDER PERSPECTIVE

216. The North West Landlords Association argued that "arbitrary reductions in benefit rent levels will force landlords to preferentially house those in work".[301] The Residential Landlords Association believed that:

302

217. The Salvation Army and a number of other providers of hostels and supported accommodation stressed that claimants who have been receiving JSA for 12 months will be deterred from entering hostels, or may enter hostels only to be evicted shortly after, because they are unable to afford to meet the 10% shortfall in hostel charges. Others who enter the hostel after a shorter period of receiving JSA may be forced to drop out part way through a rehabilitation programme if they cannot afford to meet the 10% shortfall once they have been on JSA for 12 months. The Salvation Army argued that "this creates more rough sleepers and perpetuates the 'revolving door' of homelessness". It also highlighted that this would threaten the financial viability of hostels. A survey of current residents of the Salvation Army suggested that approximately 50% were in receipt of Jobseeker's Allowance. The other main benefits were Employment and Support Allowance and State Pension.

218. In the financial year 2009-10, the Salvation Army received approximately £22 million in income from residents' Housing Benefit. "If we were to lose 10% of this, the loss would be £2.2 million which is a significantly prohibitive sum to the organisation". It added that it has already withdrawn from providing three homeless hostels since April 2010, in London, Bolton, and Darlington, and other services are under threat of closure. It stressed that, as a consequence of the reform:

303

219. This experience is echoed by St Mungo's. According to its own estimates of the impact based on those clients who have currently been on JSA over 12 months there will be a shortfall between rent and Housing Benefit of £287,000 a year, equivalent to £820 per client per year. It states that "if, rather than covering the cost, we opted to evict those who couldn't pay we may well be evicting significant numbers of people on to the streets where other services would have to pick them up, significantly undermining an individual's ability to move on from homelessness and further using expensive services". St Mungo's 2010 survey found that 26% of its clients were on JSA and 24% had been on JSA for over 12 months. 26% had been out of work between five and ten years and 27% for over a decade. The survey also indicated the current support needs for clients on JSA: 23% have a significant medical condition; 51% have a mental health condition (diagnosed or suspected); 43% use alcohol problematically; 57% misuse prescribed drugs or use illicit drugs . Another survey showed that many clients lack basic skills such as being able to read and write. St Mungo's estimates that 35-40% of clients do not have literacy to the level of an 11 year old, severely impairing their chances of employment.[304]

220. Centrepoint stressed that they are "extremely concerned about the impact on young people living in supported accommodation, such as Centrepoint services, many of whom have complex support needs". The average rent in Centrepoint services is £111 per week. If Housing Benefit were cut by 10% young people would have to make up £11 of their rent from their £51.85 JSA. This represents over 20% of their weekly income. The average service charge is £10 per week, which would leave them with only £30.85 to meet all their remaining costs including food, clothing, toiletries and travel. Centrepoint's experience suggests that this is not enough, particularly for young people in its central London services.

221. Centrepoint argued that its clients are "already subject to sanctions under the existing JSA regime that ensure they are actively searching for work, making this additional cut unnecessary and unfair". It stressed that young people who have been at Centrepoint for over two years are more than twice as likely to be in work as those who have been there for a year to 18 months. "Cutting benefit after a year could therefore disadvantage young people at a very sensitive time when they are making progress towards work. Any resulting arrears could risk reversing the progress made".[305]

222. Like the Salvation Army and St Mungo's, Centrepoint stressed that these changes could also have a serious impact on its financial viability. Rents and service charges make up around a quarter of Centrepoint's total annual income (£4 million out of £16 million total income). If 30% of young people at Centrepoint (and therefore of its rental income) was subject to a 10% cut, Centrepoint could stand to lose almost £130,000 a year. It states that "at a time when Supporting People contracts from local authorities are being cut by around 25%, this puts further strain on our finances".

223. We are concerned about the potential impact of the 10% Housing Benefit cut on providers of hostels and supported accommodation. This measure is likely to have a negative impact on the financial viability of these providers, forcing them to close facilities or to evict clients on Jobseeker's Allowance. We urge the Department to work closely with other government departments, with local government and with these organisations to ensure that they remain able to provide a place for homeless people to live and support them into work.

The underlying purpose of Housing Benefit

224. The Riverside Group stated that "it is right that claimants who have no intention of going back to work should be encouraged to seek employment—however we feel that the JSA system, rather than Housing Benefit, would be the appropriate way to manage this". The Building and Social Housing Foundation agreed that:

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225. St Mungo's, amongst others, stressed that Housing Benefit is intended to ensure that people can afford to live in an acceptable standard of accommodation. It argued that "the proposed link to a person's out of work status therefore represents a departure from this fundamental concept".[307] The Chartered Institute of Housing also questioned "the shift towards making elements of Housing Benefit conditional, for example around behaviour in seeking work, given that the purpose of Housing Benefit is to support people with their housing costs.[308] The Building and Social Housing Foundation referred to the Council of Europe's guidelines on the effective use of housing allowances that state:

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St Mungo's also argued that

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226. The Law Centre (NI) stated that:

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The Scottish Federation of Housing Associations believed that:

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227. We note that the Government plans to cut Housing Benefit by 10% for those who have been claiming Jobseeker's Allowance (JSA) for 12 months. We recognise that Housing Benefit has an important role to play in the decision to take a job and that the reduction by 10% after a year of job search will increase the net gain to a job seeker, from this lower base, when they eventually find work. Taken together with our proposal to "run on" Housing Benefit, this may provide an improved incentive to work.

228. A number of concerns have, however, been expressed to us about other possible implications of this proposal:

It risks adding further complexity to the benefits system and thereby detracting from the Government's plans to simplify working-age benefits, by moving to a Universal Credit.
It is not clear how it fits with the Government's new welfare to work programme. Support from the Work Programme will only be available to many people once they have been claiming JSA for a year. They may therefore lose 10% of their Housing Benefit for being out of work before they have received the additional support they need to find a job which the Work Programme is intended to provide.
The number of people potentially affected by the 10% Housing Benefit reduction will be larger and more varied than the current Jobseeker's Allowance client group, and will include more vulnerable people. This arises from two changes: the migration of a number of current Incapacity Benefit and Employment and Support Allowance claimants to JSA; and moving lone parents from Income Support to JSA when their youngest child reaches the age of 5, with the accompanying requirement to seek work.
It does not take account of the variations in availability of employment across different regions of the country, nor of a claimant's particular suitability for the work available or of the greater barriers to work faced by some people, including disabled people, older people and lone parents.

229. We request that the Government provides us with information on how it plans to address these concerns, in its response to this Report. We would also be interested to hear about alternative measures it would be prepared to consider, which might offer a more nuanced approach, using targeted sanctions for those who refuse to engage in the process of finding employment, rather than a blanket approach for all JSA claimants.

246 Q 104 Back

247 Ev 59 Back

248 Low-income working households in the private rented sector, DWP Research Report, No 698, 2010, Summary Back

249 Ibid, p 15 Back

250 Q 36 Back

251 Ev 88 Back

252 Low-income working households in the private rented sector, DWP Research Report, No 698, 2010, Summary Back

253 Ibid, pp 27-32 Back

254 Ibid, p 76 Back

255 Q 36 Back

256 Ev w224 Back

257 Ev 62 Back