Written evidence submitted by The Mayor
of London
INTRODUCTION
The Mayor very much welcomes the government's aim
to reform Housing Benefit. He agrees 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. He believes that
a wholesale review of the entire regime is long overdue.
However, as he stated in his joint letter with Jules
Pipe, Chair of London Councils, to Iain Duncan Smith and in his
subsequent meeting with Lord Freud, he is concerned about the
potential unintended consequences for London of the specific measures
relating to Local Housing Allowance (LHA) announced in the 2010
Budget.
These unintended consequences could include:
- Increased levels of rent arrears and evictions,
potentially leading to higher levels of homelessness and ultimately
more, not less, cost to the public purse.
- Increased numbers of households placed in temporary
accommodation, including a reversion to the use of bed and breakfast
accommodation for families and large numbers housed some distance
from their original home (potentially outside the capital altogether).
We estimate that the number of acceptances could increase by around
50% in the first year of the changes (2011-12), resulting in an
annual temporary accommodation cost of around £78 million.
- Increased levels of overcrowding, as households
try and manage the reduction in their Housing Benefit —
with associated social and economic costs, including adverse impacts
on the health and education of children in such households.
- A reduction in the valuable resource that private
renting currently offers to boroughs for housing their homeless
and vulnerable households, as the sector becomes unaffordable
to those on Housing Benefit and landlords choose to switch to
a more stable and lucrative section of the rental market —
or sell rather than rent.
- As these changes are likely to bite particularly
hard in inner London, this is also highly likely to increase the
risk of a large number of low income households — many of
whom are currently doing essential low paid manual jobs in inner
London — moving to less expensive areas on the fringes of
the city. For many households, the potential consequences of this
are losing jobs to which they will not be able to commute (because
of time and cost considerations), having to change their children's
schools and being cut off from their local social networks that
are essential to successful communities. The end result could
be further polarisation between high and low income households
in inner London and growing pressure on housing, jobs, and services
in outer London.
The historic shortage of affordable homes in London
means that the capital is more reliant than the rest of the country
on the private rented sector to house people on low incomes. Indeed,
the sector has become a vital safety net for London boroughs in
reducing homelessness and the use of temporary accommodation,
tackling overcrowding and providing move-on options for vulnerable
households, all of which are Mayoral priorities. In 2008-09, for
example, the London boroughs used the private rented sector to
discharge their homelessness duty for around 1,500 households
leaving temporary accommodation, and used the sector for about
1,400 cases of homelessness prevention[86].
While the Mayor fully agrees with the rationale for
the changes to LHA, he believes that any new housing benefit-related
measures should ideally be introduced as an integral part of the
forthcoming new welfare to work system. If this cannot be the
case, then he believes that transitional arrangements are needed
to ameliorate some of the potential negative impacts of the LHA
changes on London, for the period until the new system is introduced.
This submission gives details of the arrangements that he believes
should be put in place, and outlines some evidence to support
his proposals.
PROPOSALS FOR
TRANSITIONAL ARRANGEMENTS
1. Given the disproportionate effect of the changes
on London, we propose that 95% of the additional government funding
for Discretionary Housing Payments (DHP) is ringfenced for London.
We believe that it could be distributed to the boroughs according
to a formula that takes into account the likely increase in homelessness
acceptances as a result of the changes. We also believe that any
framework for prioritising households for DHP should reflect the
need for
- ensuring that children can continue to attend
their current school;
- ensuring that working families can continue to
live close to their work; and
- ensuring that anyone receiving or providing support
within the local area can continue to do so.
2. We propose that families with children currently
living in 2+ bed homes affected by the caps in the boroughs that
include the central London BRMA, plus those in four and five bed
homes in Brent, Hackney and Wandsworth, should be exempted from
the change (ie the caps should not apply to them). We estimate
that this will amount to around 3,600 households. The rationale
for this proposal is as follows:
- these are the households with the largest shortfalls
and with the fewest options for relocating in the locality (due
to lack of supply within the LHA limits);
- these are the households most likely to present
as homeless, be accepted and go into temporary accommodation —
at substantial cost to the public purse; and
- by exempting these households, DHP can be used
more effectively and will go further, keeping a much larger number
of existing households in their current homes.
3. In the areas that we propose should be exempted
from the caps, we believe that there should be a reintroduction
of the role whereby Housing Benefit officers have the discretion
to refuse to pay LHA for exceptionally high rents. This would
address the small number of existing cases where there are serious
and unacceptable excesses.
4. We propose that LHA should, across London,
be paid direct to those landlords whose tenants currently receive
LHA above the new limits, provided that these landlords agree
to reduce their rents to within the new limits. We also believe
that it is worth considering
- linking LHA direct for landlords of the existing
LHA claimants who we propose should be exempted from the caps
(see 2 above) where they reduce rents to the 30th percentile level
in October 2011, to see the extent to which this might incentivise
reductions in rent;
- introducing LHA direct in April 2011 for landlords
of existing LHA claimants who will be affected by the 30th
percentile change from October 2011, if those landlords agree
to reduce the rent at that point to the lower level;
- paying rent direct to landlords currently charging
within the limits at the point when cases come up for annual review;
and
- paying rent direct to landlords for new LHA claimants,
if they charge within the LHA limits, to incentivise current landlords
to continue to rent in the HB market and to attract new landlords
to that market.
EVIDENCE
London will be hit harder by the cuts than any
other region
Taking the package of cuts (the caps, the change
from the median to the 30th percentile and the loss
of the £15 excess), London LHA claimants will lose an average
of £22 per week—compared with £12 in the South
East and £10 or less elsewhere. London is the only region
of the country where households (over 20,000—12% of claimants)
will have weekly losses of more than £30. Almost a quarter
of London claimants will lose £20 per week or more, compared
with two per cent in two regions, one per cent in two regions
and none in the rest. Overall, all of capital's LHA claimants
will face losses as a result of the changes.
The move from the median to the 30th percentile
in setting LHA rates has a much more serious effect in London
than the rest of the country. London will have average weekly
losses of £17 for each claimant losing out as a result of
this change. This compares with £9 or less in all other regions.
Over a fifth of LHA claimants in London, compared with virtually
none in the rest of the country, will face weekly losses of £20
or more. Overall, over 113,300 Londoners will be affected by this
change.
But it is the caps that will have the most significantly
different impact on London to elsewhere, as only four other regions
will be affected by the caps (and only 1% of claimants in each
of these). More than one in ten claimants in London (around 17,400
households) will lose out as a result of the caps, with an estimated
average level of losses of £81 per week.
London's families will face the highest shortfalls
The average levels of shortfall are substantially
higher for family sized homes than for smaller accommodation.
We estimate that there will be over 6,000 London families living
in 3+ bed homes affected by the caps and facing average weekly
losses of well over £100. The 30th percentile change will
see an average weekly shortfall of £37 and £60 for those
living in four or five bedroom homes respectively.
ESTIMATED AVERAGE WEEKLY LOSSES BY BEDSIZE
IN LONDON
| Caps | 30th percentile
|
| £ | £
|
| Shared | n/a | 9
|
| 1 bed | 83 | 13
|
| 2 beds | 61 | 18
|
| 3 beds | 126 | 24
|
| 4 beds | 156 | 37
|
| 5 beds | 137 | 60
|
| All | 81 | 17
|
Figures derived from DWP data
The above shortfalls are averages (DWP did not make information
on the distribution of the shortfalls by bedsize available).
There will, of course, be some households with far smaller shortfalls,
who may be able to negotiate a reduction in their rent with their
landlords. However, there will also be households facing shortfalls
at levels above which landlords are willing to negotiate, including
above these very high averages, who will have no option but to
move out of their home.
Given the very much larger shortfalls in London and the larger
numbers of claimants, London and its households will inevitably
experience much greater upheaval than those in the rest of the
country. It should be noted that enforced mobility could disrupt
children's education and distance families from social and family
support networks. It also risks the disruption of formal support
for vulnerable households; transience across borough boundaries
was identified by the Victoria Climbie Inquiry as a major factor
in child safeguarding failures.
Families wishing to avoid a move to maintain work, schooling,
support or other local connections, may respond to rent shortfalls
in their current home by moving to a smaller home. Where overcrowding
results as a consequence there is a risk of adverse impacts on
social, health and educational impacts.
The additional Discretionary Housing Payment funding is likely
to be insufficient to meet need
The amount of additional DHP being made available is unlikely
to be sufficient to provide for the households experiencing the
very large shortfalls that will arise as a result of the caps,
let alone those facing hardship as a result of the 30th
percentile change.
We estimate that in 2011-12, the demand for DHP in London could
be in the region of £38 million (almost four times the additional
amount being made available in that year). This is based the assumption
that there could be demand from all those households in one bedroom
homes with a shortfall of at least £10 per week, all those
in two-three bedroom homes with a shortfall of at least £30
and all those in four-five homes with a shortfall of at least
£50 (on the basis that those with lower shortfalls may be
able to negotiate their rents down to the LHA level). The potential
level of demand from families alone (ie just those in two+ bed
homes) for DHP in the first year of the changes is likely to be
in the region of £29 million—nearly treble that available.
ESTIMATED AMOUNT OF DHP REQUIRED
| Spend after 6 months
| Spend after 12 months |
| 1 Bed | £1,811,080 |
£8,673,668 |
| 2 Bed | £2,597,792 |
£10,484,149 |
| 3 Bed | £1,989,413 |
£8,151,463 |
| 4 Bed | £956,738 | £3,802,016
|
| 5 Bed | £1,710,160 |
£6,771,260 |
| Total | £9,065,183
| £37,882,556 |
Note: the above figures assume that households facing shortfalls
of £10 on one beds, £30 on two-three beds and £50
on four-five beds will be able to negotiate a lower rent, so these
have been excluded
Thousands of Londoners, including at least 20,000 children,
may need to leave their home because of the caps
Our modelling suggests that over 9,000 London households may have
to leave their current home as a result of the caps, but that
less than a third of these would be able to find an alternative
home in their local area. We estimate that most — around
6,800 — of those who would need to move are families (ie
households living in two+ bed homes), of which at least 4,600
would be unable to find anywhere else to live locally. Based on
conservative assumptions about occupancy levels, we estimate that
over 20,000 London children will have to leave their home, at
least 14,000 of whom will have to leave their local area[87].
These figures have been derived from DWP data on the levels of
shortfall and the likely supply of alternative similar sized accommodation
in the locality. It has been assumed that:
- the higher the average shortfall in the borough and for that
bedsize, the more likely it is that households will have to leave
their home; and
- the higher the proportion of caseload affected by the caps
in that borough and for that bedsize, the less likely it is that
households will be able to find another home locally.
ESTIMATED OUTCOME OF LONDON HOUSEHOLDS AFFECTED BY THE
CAPS
| | Number of households affected
| Number leaving the home | Number unable to find accommodation locally
|
| Shared/1 bed | 3,380 | 2,535
| 1,854 |
| 2 bed | 8,615 | 3,444
| 2,360 |
| 3 bed | 3,015 | 1,535
| 917 |
| 4/5 bed | 3,119 | 1,784
| 1,331 |
| Total | 18,130 | 9,298
| 6,462 |
As well as the boroughs which include the central London Broad
Rental Market Area (BRMA) (Camden, Hackney, Hammersmith and Fulham,
Islington, Kensington and Chelsea, Tower Hamlets and Westminster),
Brent, Hackney and Wandsworth will also see very large numbers
of families — particularly those in four and five bed homes
— having to move, and being unable to find accommodation
locally, due to the caps.
We propose that these households — ie all existing LHA claimants
living in two+ bed homes in the boroughs which include the central
London BRMA plus those in four and five bed homes in Brent, Hackney
and Wandsworth — should be exempted from the caps. This
is because
- these are the households with the highest shortfalls and with
the fewest options for relocating in the locality;
- these are the households most likely to present and be accepted
as homeless — at substantial cost to the public purse; and
- by exempting these households, DHP can be used more effectively
to keep a much larger number of existing LHA claimants in their
current homes — both preventing homelessness and reducing
the upheaval to schooling and employment that would be brought
about in many cases.
Homelessness and the use of temporary accommodation will increase
We estimate that in the first year of the changes (2011-12), homelessness
acceptances in the capital could increase by around 50 per cent,
at an estimated cost of around £78 million for the additional
5,000 households that could be placed in temporary accommodation.
Details of these estimates, broken down by borough, are set out
in Appendix 1. They are based following assumptions:
- the higher the average shortfall in the borough and for that
bedsize, the more likely it is that households will have to leave
their home;
- for households affected by the caps, the higher the proportion
of caseload affected in that borough and for that bedsize, the
less likely it is that households will be able to find another
home locally;
- for households affected by the 30th percentile,
the higher the average shortfall in the borough and for that bedsize,
the less likely it is that households will be able to find another
home locally; and
- that the boroughs in the central London BRMA will no longer
be able to use the private rented sector for homelessness prevention
or to discharge duty for households accepted as homeless.
The cost to the public purse of accepting a homelessness duty
is likely to far outweigh any savings in LHA that would be made
as a result of the caps for an individual household, given the
high cost of temporary accommodation and the associated health
and education costs of homelessness, the likely protracted length
of stay in that accommodation (running into many years for larger
families in particular) and the cost of providing social housing
(an estimated £125,000 in subsidy for an average three bedroomed
home) at the end of the period.
Paying LHA direct to landlords could incentivise them to lower
rents to the LHA levels
There is widespread support across both the business and voluntary
sectors for the reintroduction of direct payments to landlords
letting private sector properties to people on Housing Benefit.
There is evidence that since LHA was introduced, and direct payments
withdrawn in most cases, landlords have lost on average more than
£2,100 in unpaid rent. The British Property Federation has
argued that "instead of achieving the objective of 'empowering'
tenants to manage their finances, the policy is leading to an
increased level of evictions from landlords and is providing to
be wasteful of public money"[88].
In addition, research by Shelter has found that "Most claimants
with experience of payment of LHA to their landlord and to themselves
would prefer to have their LHA paid directly to the landlord.
Being able to choose how their LHA is paid would help claimants
stay in control of their finances. This supports findings from
previous studies that the move to a presumption of direct payments
to the claimant is causing problems for both claimants and landlords."
Shelter has also found that the withdrawal of payments direct
to landlords has contributed to more than a quarter of claimants
falling behind with their rent, leading to a growing number of
landlords refusing to let to LHA claimants.[89]
Anecdotal evidence also suggests that, as a result of this, landlords
are increasing their rents in order to mitigate the risk presented
by tenants falling into arrears.
6 September 2010
APPENDIX 1
POTENTIAL IMPACT OF THE LHA CHANGES ON HOMELESSNESS AND
THE USE OF
TEMPORARY ACCOMMODATION IN LONDON, 2011-12
| Annual estimated increase in acceptances/TA
| % increase in acceptances compared with 2009/10
| % increase in TA compared with 31.3.10
| Annual cost of additional TA |
| | |
| |
| Barking and Dagenham | 55 |
24 | 10 | £401,319
|
| Barnet | 132 | 57
| 6 | £1,245,643 |
| Bexley | 40 | 31
| 20 | £287,868 |
| Brent | 398 | 124
| 13 | £4,498,730 |
| Bromley | 44 | 11
| 9 | £357,986 |
| Camden | 330 | 337
| 49 | £16,620,467
|
| City of London | 1 | 13
| 8 | £22,780 |
| Croydon | 126 | 30
| 10 | £918,727 |
| Ealing | 142 | 40
| 10 | £1,526,709 |
| Enfield | 126 | 52
| 5 | £1,147,018 |
| Greenwich | 41 | 21
| 25 | £332,611 |
| Hackney | 264 | 41
| 19 | £4,434,374 |
| Hammersmith and Fulham | 118
| 76 | 14 | £4,454,582
|
| Haringey | 84 | 24
| 2 | £920,405 |
| Harrow | 74 | 147
| 13 | £719,226 |
| Havering | 34 | 27
| 6 | £215,655 |
| Hillingdon | 67 | 15
| 6 | £579,616 |
| Hounslow | 68 | 39
| 10 | £587,953 |
| Islington | 176 | 87
| 22 | £2,541,957 |
| Kensington and Chelsea | 455
| 178 | 46 | £7,720,132
|
| Kingston upon Thames | 50 |
36 | 9 | £411,620
|
| Lambeth | 86 | 14
| 5 | £722,711 |
| Lewisham | 150 | 24
| 12 | £1,165,216 |
| Merton | 45 | 47
| 59 | £357,604 |
| Newham | 60 | 62
| 2 | £610,219 |
| Redbridge | 114 | 45
| 5 | £1,067,563 |
| Richmond upon Thames | 32 |
23 | 14 | £233,586
|
| Southwark | 43 | 9
| 6 | £356,154 |
| Sutton | 35 | 24
| 16 | £250,931 |
| Tower Hamlets | 139 | 20
| 7 | £1,597,996 |
| Waltham Forest | 41 | 14
| 3 | £442,344 |
| Wandsworth | 219 | 52
| 52 | £2,801,746 |
| Westminster | 1,076 | 268
| 53 | £18,490,330
|
| Total | 4,865 |
51 | 12 | 78,041,777
|
Derived on the basis of 12 months of the caps and 6 months
of the 30th percentile change.
86
CLG, P1E statistics. Back
87
It is assumed that child occupancy levels would be as follows:
two bed=one child, three bed=three children, four bed=five children,
five bed=seven children Back
88
British Property Federation response to the DWP consultation -
Supporting People into Work: the next stage of Housing Benefit
reform, 2010. Back
89
Shelter, For whose benefit?, 2009. Back
|
