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

Written evidence submitted by Zacchaeus Trust

With an explanation of the rise in cost housing benefit to £21 billion year by Professor Peter Ambrose Visiting Professor in Housing and Health at Brighton University.

HOUSING BENEFIT REGULATIONS—THE HB CAPS

1. We note that the SSAC have been invited to submit its views to the Secretary of State for Work and Pensions about The Housing Benefit Amendment regulations (2010); Amendments to the Rent Officers (Housing Benefit Functions Order). We are offering the same submission to the Work and Pensions Committee that we have sent to the SSAC.

2. From April 2011:

1. Local Housing Allowance levels will be restricted to the 4 bedroom rate;
2. A new upper limit will be introduced for each property size, with upper limits set at:
   1. £250 a week for a 1 bedroom property
   2. £290 a week for a 2 bedroom property
   3. £340 a week for a 3 bedroom property
   4. £400 a week for a 4 bedroom property or larger.
3. The £15 weekly excess provision currently payable within the Local Housing.

3. Allowance rules will be removed. (As announced by the previous administration). The size criteria will be adjusted to provide for an additional bedroom for a non-resident carer where a disabled customer has an established need for overnight care.

4. From October 2011: The Local Housing Allowance will be set at the 30th percentile of rents in each Broad Rental Market Area, rather than the median. The Committee is asked to consider the proposed amendments. An explanatory memorandum is attached at Annex A. In addition, we have appended a detailed impact analysis of these changes, including at local level, to the memorandum

INTRODUCTION

5. The Zacchaeus 2000 Trust (Z2K) works with the most vulnerable citizens when they have rent and council tax arrears, threats of eviction and the bailiffs, or are struggling with overpayments of tax credits and benefits. We only work "below the radar" while normally passing mortgage and credit card debts to other advisers. We employ three full time lawyers, an administrator and have 32 volunteers who act as McKenzie Friends helping vulnerable debtors to engage with the authorities delivering welfare and with the courts. At any one time we are handling about 70 cases, Which are referred to us by MPs, GPs in Tottenham, other NGOs and satisfied clients. The trust was founded in the early 90s and registered as a charity in 1997.

COMMENT

6. UK Governments' have failed to take into account the consequential costs to the tax payer in the hospitals, the schools and in the administration of justice and in the economy at large of poverty related mental and physical ill health, educational underachievement and crime. Unless both the unemployed and the working poor receive the minimum incomes needed for healthy living these costs will continue to increase for the tax payers regardless of the system which delivers welfare.

7. Limiting the housing benefit will increase debt, and consequent mental illness which is exacerbated when rent arrears, and other debts, are enforced against poverty incomes. It is particularly important to note the connection which has been made between debt and mental illness.

8. The Government Office for Science stated in its report "Mental Capital and Wellbeing; Making the Most of ourselves in the 21^st century" Pollard 2008,

"There is a strong case for Government to work with financial organisations and utility companies to break the cycle between debt and mental illness. Recent research has indicated that debt is a much stronger risk factor for mental disorder than low income. A range of possible interventions are suggested: beginning with better training for teenagers in managing finance; greater awareness of the link between mental health and debt by banks and financial institutions; and measures by utility companies to handle arrears better."

9. We submit that the combination of poverty level incomes and rent arrears strengthens the risk factor for mental disorder and worsens the cycle between debt and mental illness. Reducing such incomes with rent arrears due to the caps on housing benefit piles risks on risks. In our experience many claimants are already suffering the draconian enforcement of rent and council tax arrears by the local authorities and bailiffs and from consequent depression, in some cases to the point of breakdown. This enlarges our concerns about debt and mental illness in the UK of the Office for Science. They continued;

"Common mental disorders affect 16% of the population and are affected by a wide range of issues such as employment, housing, urbanisation, exposure to crime, and debt. When policies are developed in areas such as these, there is a clear case for taking more account of the implications for mental health, as is generally the case for physical health and safety."

RENT ENFORCED AGAINST POVERTY INCOMES

10. It is also necessary to look at the arithmetic. The unemployment benefit of a couple with two children is currently £235 a week after 100% Housing and Council Tax Benefits. It is that income which will have to carry the increase in rent if families are moved. It is already too low to provide healthy living under all available measures. Enforcing rent arrears against these poverty incomes as a result of the housing benefit cap will increase mental illness.

11. The relationship between unemployment benefits and the government's 2020 child poverty target was calculated by the House of Commons library last year.

Table 1

SHORTFALL FROM 2020 TARGET

Unemployment benefits at APRIL 2009 and 60% median income.
£ per week
ALL AHC Over 18 £ per week	AHC Threshold	Benefits from April 2009 Actual	Shortfall from target actual less threshold	Shortfall from target £ per annum	Benefits from April 2010
Childless couple	199	100.95	-98.05	-5,099	102.75
Single individual	116	64.30	-51.70	-2,688	65.45
Couple one child	239	174.36	-64.64	-3,361	177.72
Couple two children	323	230.47	-92.53	-4,812	235.29
Lone parent one child	155	137.71	-17.29	-899	140.42
Lone parent two children	239	193.82	-45.18	-2,349	197.99
Single adult 18-25	116	50.95	-65.05	-3,383	51.85

Source House of Commons Library and DWP.

12. Below we have selected items from the Joseph Rowntree Foundation minimum income standards (MIS) published in July at April 2010 prices which exclude rent, council tax, child care and social and cultural participation. The food budget is based in the science of nutrition, tested for consumer acceptability with several focus group and priced in a supermarket. All items in the budget are there because members of the public think they ought to be in a minimum income standard.

Table 2

INCOMES FROM WHICH RENT ARREARS WILL BE ENFORCED
WHEN HB IS CAPPED

JSA	235.29
Less MIS
Food	-107.13
Clothing	-29.58
Water	-5.70
Fuel	-20.09
Household goods	-18.96
Household services	-9.81
Personal goods and services	-29.20
Travel costs	-38.38
JSA Shortfall	-23.56

It should be noted that this family will not have a holiday, watch live football matches, go on school trips; the costs of any kind of social life are not included. Social participation is necessary to health and well being. £104 a week is allowed for in the JRF minimum income standards for social and cultural participation.

13. The family or individual will certainly be paying off debts. Sometimes the level of debts is so bad due to the complexities of welfare delivery that people are literally unable to buy food. Z2K has a small fund to provide them with temporary support beyond the scope of statutory welfare. Food prices are increasing while benefits are being cut. Unaffordable housing is already worsening poverty.

14. A socially meaningful definition of the word "affordable" is a prerequisite to responsible discussion of the issue. Currently the adjective "affordable" is used with no evidence base and simply to mean "below market prices and rents". A debate conducted on this premise is meaningless. A rigorous test of affordability was developed in 2008 by Professor Ambrose using an adaptation of the MIS methodology developed by JRF. This method operationalises the definition of affordable in the 2005 Z2K Memorandum to the Prime Minister on Unaffordable Housing.

15. In brief, this definition specifies that housing is affordable if it can be afforded once all other household expenditures required to live a safe, healthy and participative life have been met. For a specified household living in a specified area of east London this figure was calculated at £135 per week in 2008. This means that "social rented housing", whether LA or RSL, was locally affordable to this household but not any housing in the private rented or LCHO sectors. The affordable figure can be calculated for any household type and for any local area".

16. It should also be noted that the unemployment benefits for single women under 25 years old is £51.85 a week and £65.45 thereafter up to aged 60; it is slightly less per head when paid to couples. The Joseph Rowntree MIS food standard for single adults is £44.24 a week. It is therefore impossible for an unemployed woman to buy a healthy diet and other necessities before or during pregnancy; again this serious consequence of poverty is exacerbated by debt and rent arrears.

Table 3

INCOMES FROM WHICH RENT ARREARS WILL BE ENFORCED
WHEN HB IS CAPPED

Working aged adult.	£pw	£pw
Food	44.34
Clothing	7.73
Water	4.93
Fuel	9.78
Household Goods	10.35
Personal Goods and Services	8.95
Travel costs	19.78
Total	105.86
JSA under 25	-51.85	54.01
JSA 25 to 60	-65.45	40.41

In this case £42 is allowed for social and cultural participation which is all too obviously impossible for unemployed adults. This income also applies up to the age of 60 to single men and women, widows and widowers, whose children have left home. This group of people, when in expensive housing through no fault of their own, will be most unjustly affected by the housing benefit cap after their children have left home. The two following cases illustrates the existing debts, and their consequences for vulnerable adults, who will find it very difficult to hold down a job

CASE A

17. Local Government Ombudsman reports the case of Mr "Watson", a single, semi literate adult living alone in Southwark. Jobcentre Plus mistakenly cancelled his JSA so Southwark cancelled his housing and council tax benefits creating arrears in both accounts. On the 12 January 2001 CSL, Southwark's out sourced agent collecting council tax, sends Mr. Watson a summons for unpaid council tax of £235.10, plus costs, for a hearing on 9 February 2001. The summons contains the following threats, in bold type and highlighted. Thousands are dispatched daily:

"If a liability order is granted the council will be able to take one or more of the following actions:

Instruct bailiffs to take your goods to settle your debt - this can include your car.

You will be liable to pay the bailiffs costs which could substantially increase the debt. Instruct your employer to deduct payments from your salary or wages.

Deduct money straight from your jobseekers allowance or income support.

Make you bankrupt.

Make a charging order against your home. Have you committed to prison".

His sister-in-law calls on him. His body is hanging in his flat. The police found the summons with him, paper littered with rough calculations and a note:

"Dear …. I at to do this I am in so much in Detr good By for ever Love……"

Threats of eviction for rent arrears were not far off. JSA was £53.05 a week after rent and council tax. (Now £64.30). The Joseph Rowntree Foundation minimum income standard for healthy living, after rent an council tax, is £144 a week for a single adult.

CASE B

18. We work with ATD Fourth World who are close to the poorest people in London. They asked for our help with "Sarah" a 51 year old who is single, unemployed, semi literate and in debt to Lambeth Council. Her Doctor tells us

"she has learning difficulties and is illiterate and for many years has had chronic anxiety with episodes of panic. Were the Bailiffs to proceed with the seizure of her goods, the effect would be catastrophic for her and would seriously compromise her health".

She receives £53.05 a week income. She pays each week a £4.13 a week water rate, £2.50 rent arrears £36.42 to buy every thing but rent and council tax. Capita Business Services in Bromley collect council tax for the Council.. She owes £468 from a failed attempt at low paid work. The failure caused the debt. Equita Bailiffs in Northampton whose computers, blind to her ill health, illiteracy and poverty, threaten

"We have arranged for our bailiff to call at your home this weekend to seize your goods and transport them to the auction rooms for sale", and two days later "NOTICE PRIOR TO COMMITTAL TO PRISON PROCEEDINGS".

 We tell Lambeth Council who call off the bailiffs. The computer still runs. Another threat to sell the furniture storms its way from Northampton to Lambeth. To relieve her anxiety Zacchaeus promises to pay the £468 council tax arrears should the magistrates be minded to imprison her rather than write off the debt. We also promise to go to court with her. Lambeth backed off.

19. The housing benefit caps will result in rent being paid out of poverty income, both in and out of work, which cannot be reduced without further damaging the health and wellbeing of tenants and their children. Rent arrears and evictions, and the depression that goes with them, are inevitable.

20. Parents are left alone in a council house or RSL after children have left home. Some have been housed in expensive private rented accommodation at the market price because there was nothing cheaper and the local authority has a duty to house them when they had children. Secure tenure is necessary to promote educational progress and good behaviour in schools, local extended families are essential for mutual support. That will be broken by forcing parents and grandparents out of their homes. This will erupt as a scandal into national media when repossession notices are issued and bailiffs begin to implement evictions.

LARGE FAMILIES

21. Housing for large families is in even shorter supply than housing in general. Z2K serves a lone mother with eight children. The nine o them live in an overcrowded council house. The local authority will not move them or build on to the current three bed-roomed house. Their education and their health is suffering. The only accommodation available would be private at rents over £400 a week; rent which will exclude the family from approprtate housing Professor Peter Ambrose, an housing adviser to Z2K, has comments as follows.

"Home overcrowding is producing ever-increasing costs in terms of calls on the NHS, Social Services, the education and law and order systems and in human misery. Shelter data show that overcrowding has got significantly worse over the past five years and it continues to worsen as the shortage of genuinely affordable rented homes gets more acute. The 2009 London Citizens report "Housing our Future" by Ambrose and Farrell uncovered the extent of over-crowding among a sample of primary school children at four schools in Wandsworth and by means of surveys and other enquiries assessed the adverse effects on the children. These effects were judged by over 60% of the parents to be harming their children's educational and social progress in six different ways. Both teachers and parents also commented on some adverse behavioural outcomes. Under-investment in housing is producing some very regressive effects and adding seriously to a range of public sector costs."

DECADES OF FAILURE IN HOUSING AND LAND MANAGEMENT POLICY

Professor Peter Ambrose Visiting Professor in Housing and Health at Brighton University

22. We need to understand how this huge call on the HB budget (£21 billion per year) arose. It arose because of the failures in financial management over the period 1980-2005. The financial deregulations of the early 1980s allowed house purchase lending to spiral out of control thus driving house prices to unprecedented levels and with them rents — which by various mechanisms reflect house price movements.

23. A widow who has lived in her two-bedroom council flat in west London for 22 years has received a phone call from Kensington and Chelsea council warning her about her "under-occupancy". Her misdemeanour is that she has a spare bedroom so that her grandchildren can visit — like the vast majority of people in this country. Now she is understandably worried, fears for her future and cannot sleep.

24. Most owner-occupiers probably have at least one spare room for visiting friends and family; they would not take kindly to being warned as to their occupancy behaviour. This difference in value judgement reflects the popular fiction that somehow tenants in "social housing" (whether local authority or RSLs) are "subsidised", and therefore can reasonably be pushed around, whereas owner-occupiers have "stood on their own two feet", got themselves properly indebted and consequently live independently of public support.

25. This picture is 100% wrong on several counts. Since the 1920s purchasing owner-occupiers have been massively subsidised by exemption from capital gains tax, Schedule A Tax and, until very recently, by mortgage interest tax relief. In fact each owner-occupier was receiving about twice the state subsidy per household compared to households in the public rented sector throughout the period up to about 2000, when most current owner-occupiers were in the buying stage, Moreover, depending on when they enter and exit the market, purchasers stand to make capital gains that at times far exceed the income from their actual work. This route to wealth, at least on paper, is denied to those not in a position to buy - ie those in the poorest third of households. How much more regressive could the system be?

26. In recent years changes in public sector housing finance have meant that a reverse subsidy is at work. Much more than £1 billion has been abstracted annually from the council housing sector accounts as rent policy has shifted from the former "pooled historic cost" principle that delivered low rents with minimal subsidy to a formula that feeds local private house values into public rent levels. This is another effective way to penalise lower income households living in high housing value areas - and to subsidise the rest of society from the rents of the poorest third.

27. Had house prices risen with general inflation since 1980 the average house price now would be about £60,000, clearly much more in line with incomes. How do house prices rise much faster than other economic indicators (give or take the periodic downturns)? Loosening the regulation of lending in the 1980s resulted in money flooding into a housing market in short supply so forcing up prices. The lending institutions initiate periodic bouts of excessive and highly profitable lending from which, if it all goes wrong, they can be sure of massive public funding bail outs. These bail outs, the cost of the latest one was estimated at £750 billion, have inevitable impacts on every public spending programme that most helps the vulnerable. So home owners' increased paper wealth comes at the expense of increased stress, hardship and health risk among those who can never aspire to play the home ownership game. We see it all around us. Everywhere one looks there are regressive effects.

28. Irresponsible ending policies have forced up prices in the housing market in short supply, while linking council and RSL rents to the housing market forced up rents. This had led directly to the rising housing benefit bill for the tax payer and more difficulty in transferring into work for the benefit recipient.

29. Underlying much of the problem of low housing output, and a worsening shortage of genuinely affordable homes, is the chronic problem of the mismanagement of land policy in relation to development land. Periodic instability and sharp credit-led upward movements in house prices produce similar movements in the price of development land; its value is determined by expectations about sales revenue for houses built upon it by means of the "residual" calculation.

30. Under arrangements in place since the 1947 Town and Country Planning Act development land has thus been a speculative commodity. Its value has often been massively increased by publicly-funded infrastructure such as new motorways and mass transit lines, and by the granting of development consents, and very little of this "betterment" gain has been recouped in taxation for the public purse. Typically large financial institutions with long investment horizons, and/or major house builders, buy up land at agricultural values even before it is zoned for development. They then hold it to await the right time to develop, or perhaps trade in it before development takes place. This means that in some states of the development cycle house builders make more profit from land speculation than from producing housing and this helps to explain the lack of innovation and the outdated management practices of the UK house building industry (compared to, for example, those in Japan or Sweden).

31. The 1947 planning system has the inherent defect that it seeks to "plan" development by the largely negative mechanism of giving or withholding of planning consents. It has very little power to mobilise the resources of land and investment that actually need to be applied to produce new housing of a given mix in a given period. In the past some positive powers have been applied in the form of council house building programmes. But there has been minimal funding for such programmes for many years. A large-scale programme of publicly funded house building is now urgently needed.

32. The model of relying on planning gain agreements to provide "affordable" housing as a concomitant to private housing developments has two fatal flaws. In periods of market downturn and low confidence there is very little private building anyway and even if the intended "affordable" component is high it amounts to little in practice. 50% of very little is very little.

33. The other fatal defect is that there is no meaningful definition of the word "affordable". It was shown in 2008 that, using a variant of the Minimum Income Standard methodology, it is possible to determine what price or rent is truly affordable to households of any given type in any location. But this evidence base is not used and "affordable" is taken to mean anything less than market price or rent. This frequently leads to so-called "affordable" housing being available at prices and rents that only the rich locally can afford.

34. A comparative study in the late 1980s of housing provision in "growth regions" in France (The Toulouse area), Sweden (the E4 Corridor) and the UK (Berkshire) showed that the Swedish system of land management, which effectively precluded land speculation, performed better in terms of matching housing output to employment growth than was the case in Berkshire. In the E4 Corridor more housing was produced, at a greater range of rents and prices to meet all incomes and with minimal effect on development land values. The effects in Berkshire were totally different. The output was lower, about 88% of it was speculative for home ownership, thus narrowing choice, and both land and house prices escalated. In other words the housing infrastructure to support the growth of the local economy was much better managed in the Swedish than in the UK case.

35. There are a number of policy steps that could be taken to correct this long-term defect in the land supply system. At a small scale much more development could take place using some variant of the Community Land Trust (CLT) model which uses for housing development land that has been cheaply or freely provided from some source, is held freehold in some public or community ownership and upon which housing for rent and sale is built on a leasehold basis. The effect here is to remove the land from the private market in perpetuity and to ensure that rises in value, and future redevelopment rights, remain in public or community ownership.

36. Since it would take some time and serious state investment to develop the CLT model on a large scale some fiscal steps to preclude or reduce land speculation are possible. One would take the form of an annual tax levied at a very low rate (maybe 5% or less) on the value of land zoned for development but not yet built on. This would act as a strong disincentive to potential development land being held for speculative rather than development purposes.

CONCLUSION

37. Ironically a reduction in spend on housing benefit and other demand side subsidies to housing would make perfect sense as part of a long term programme to re-balance the supply/demand ratio of support to nearer the 80:20 it was in the early 1980s (the ratio is now the reverse). Demand side support works to bid up prices and rents and landlords' profits — supply side subsidy in the form of cheaper land or finance, or similar incentives, directly stimulates housing output and produces jobs in the construction sector. The increase in supply would gradually reduce demand pressures, dampen down prices and rents and reduce the call on housing benefit. But this transition must not be achieved at the cost of placing new burdens on the poor and vulnerable.

38. Capping the housing benefit before taking steps to reduce prices and rents in relation to incomes, and to stimulate the output of affordable housing, is the most recent of decades of governmental decisions which have failed to provide fair and affordable housing or to make the most cost-effective use of scarce public resources. This is in no way the fault of people who have been housed by local authorities in expensive rented accommodation. Their incomes and their health should not have to carry the burden of these policy errors by being forced to pay off rent arrears against poverty incomes, and their lives should not be disrupted by evictions which separate them from their families or uproot them from their communities. This social destruction contained in the budget is based on the false premise that tenants in 'social housing' (whether local authority or RSLs) are subsidised by the tax payer unfairly when it is the owner occupiers who have received the greatest share of housing subsidies.

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Prepared 22 December 2010