Written evidence submitted by Birmingham
City Council
1. SUMMARY
1.1 This paper sets out Birmingham City Council's
evidence to the Work and Pensions Select Committee in relation
to Housing Benefit reforms contained in the Chancellor's June
budget.
1.2 While we appreciate the context in which
the proposals are placed, we consider it appropriate and welcome
the opportunity to set out our view on the potential impact in
Birmingham. The evidence details our first analysis of the potential
impact and estimates a loss of benefit totalling just over £18
million in the City solely from those measures for implementation
in 2011.
1.3 Apart from describing the potential impact
on the income of individual customers, some of whom will be affected
by a combination of measures, the submission draws attention to
other potential concerns, notably:
- Wider implications of substantial reductions
in benefit income within the City on the local economy.
- Almost inevitable increase in homelessness applications
and pressure on the housing strategic functions of local authorities.
- Increased administration costs for the City Council
both in terms of administration of benefits, collection of rent
and council tax and dealing with increased customer enquiries.
- Commentary in relation to each of the questions
posed by the Select Committee.
2. IMPACT IN
BIRMINGHAM
2.1 Birmingham is by some distance the largest
Housing Benefit administrator in the country. Currently approximately
150,000 households in the City rely on Housing Benefit and/or
Council Tax Benefit to assist them in paying rent or council tax
charges. The caseload has increased by 14% since April 2008 reflecting
difficulties in the local economic situation.
2.2 Individuals
2.2.1 Our initial assessment based on current
caseload is shown in the following table and suggests the full
long term effect of the changes in the City could reduce Housing
Benefit payment by a little over £18 million each year.
2.2.2 Just over 40,000 claims would be reduced
by one or more of the individual measures. Clearly some households
will be subject to multiple changes, notably larger households
in the private rented sector.
2.2.3 Our current assessment shows that the 40,000
changes will affect 24,800 individual households by a potential
average reduction of some £48 per week but in a small number
of cases by a reduction of over £100 per week against current
levels.
2.2.4 Changes will inevitably lead to some households
losing their entitlement to any benefit. The non dependant charge
changes alone in Birmingham would mean that just under 1,000 claimants
would become disentitled to benefit.
2.2.5 Our estimate of the potential impact of
each measure is shown below:
| Budget Proposal |
Number of
Claimants | Ave weekly reduction per claimant
| Estimated reduction in HB payments
2011-12
| Estimated final estimated reduction in HB
|
| Removal of LHA excess payments above rent level
| 7,249 | £10.20 | £3.85 million
| £3.85 million |
| Restricting LHA rates to four bedroom level
| 447 | £23.01 | £534,844
| £534,844 |
| Reducing LHA rates from median in range of rents to 30th point
| 21,217 | £8.65 | £4.78 million
| £9.54 million |
| Increasing non dependant charges | 11,657
| £6.99 | £1.41 million
| £4.24 million |
| Totals | 40,570
| £8.61 | £10.58 million
| £18.17 million |
2.2.6 Detailed analysis in terms of other changes for 2013
onward has not yet taken place. Indeed changes to Housing Benefit
entitlement for social sector tenants is difficult to assess as
information regarding accommodation size is not routinely collected
by local authorities which retain their own housing stock, as
it is not currently necessary to determine claims. Housing Benefit
savings attributed to this change would therefore need to be carefully
validated.
2.2.7 In Birmingham however, we currently have 10,500 Housing
Benefit claimants who according to records have been in receipt
of JSA for more than 12 months. A 10% reduction in Housing Benefit
will clearly have a further impact for this group of people. A
simple calculation based on an average entitlement of £100
per week would equate to a further £5.5 million reduction
in Housing Benefit payments in the City.
2.3 Economy
2.3.1 Birmingham City Council has a good record of supporting
benefit take up activities in the City; to improve the financial
position of individual residents; to reduce child and general
poverty levels; but also in recognition that increased benefit
income for poorer people helps boost the local economy and makes
a contribution to job retention.
2.3.2 The local multiplier effect is reasonably well documented
and, in relation to benefit income, it suggests, dependant on
spending patterns that every additional £1 raised will be
re-circulated in the local economy by between 1.5 and 2.5 times.
2.3.3 It is inevitable that the reverse will also apply. On
this basis we estimate that the 2011 changes alone could mean
a potential loss to the local economy of around £45 million
per year.
2.4 Impact on administration
2.4.1 As a Local Authority subject to our own substantial
pressures we have a duty to be concerned over potential further
costs to Birmingham arising from these proposals. The reduction
in the housing benefit budget achieved will in our view be at
least partly offset by increased costs on Local Authorities.
2.4.2 While some of the changes appear straightforward, they
are not always so in practice, particularly as many of them will
increase pressure on local authorities in terms of rent and revenue
collection. For example, the full effect of non dependant changes
could increase collectable rent in the City by an estimated £1.25
million and changes to JSA claims by a similar amount. Changes
to maximum benefit for social sector tenants will add to this.
Whether or not this is an appropriate policy decision is subject
to opinion but it will certainly involve the City in processes
and actions to collect rent in cases where previously this was
not necessary.
2.4.3 We consider the changes will inevitably also lead to
increased pressure and costs associated with homelessness and
broader housing strategic objectives in the City. We believe we
will see an increase in those previously living as dependants
reporting as homeless rather than lose household income, as well
as an increase in both the private and social sectors arising
from increased arrears. Homeless and housing application investigations
require experienced and skilled staff to ensure we are meeting
our legal requirements and can be a costly process. Increased
incidences will naturally increase these costs.
2.4.4 Within Benefit administration further complexities will
arise. While we support as much transitional protection as possible
for individuals this will certainly lead to increased administration
both in terms of recalculating awards as changes are phased in
and increased customer enquiries when benefit are reduced. We
will almost certainly conduct some form of publicity campaign
to inform customers of the changes either directly with customers
and/or through our established forums but again the cost will
fall on the City.
2.4.5 Changes for social sector tenants (as noted earlier)
will require us to collect and record additional information notably
around family and accommodation size. Potential added complications
could arise depending on the detail of the change; for example
if the rule only applies to working age customers, we will presumably
have to recalculate benefit at significant birthdays.
2.4.6 Reducing benefit entitlement to strictly correlate with
the size of the family has some management and resource repercussions
for our own stock. It may lead to tenants being unwilling to inform
us of changes in their circumstances in-case their benefit is
cut. If applied inflexibly it will prevent us using our stock
most effectively to house families and will lead to increased
administration as families naturally expand or contract.
2.4.7 In common with other Councils, Birmingham has a significant
vested interest in releasing larger accommodation no longer needed
by tenants and invests time and effort to ensure that its limited
stock is appropriately used. This takes into account the availability
of suitable alternative accommodation and the needs of the individual
tenant who, after all are often long term customers who have made
their home in that community. This appears to us a much more preferable
strategic based approach than simply reducing benefit entitlement.
Check with Housing?
2.4.8 JSA changes may present similar complexities. This sort
of change presents a considerable administrative burden unless
we can automate it and this will represent additional costs from
software suppliers. The more complicated the rules, the greater
the costs will be particularly if (as currently understood) short
breaks in claims will not reverse the reduction. Other potential
implications of this change are considered below.
3. INCENTIVES TO
WORK AND
ACCESS TO
LOW PAID
WORK
3.1 In our view the budget measures are largely about savings
in Housing Benefit and are not directly linked to work incentives.
These matters are better addressed in the recent 20th Century
Welfare consultation paper more recently published.
3.2 However, the penalties on long term unemployed people
can only possibly be an incentive where meaningful work alternatives
appropriate to the skills base are available. Otherwise, it will
merely increase poverty in that sector of the population leading
to greater debt, possible loss of home and/or switching payments
from other essential expenditure to rent.
3.3 Depending on the linking rules, the measure may additionally
provide a disincentive to try or take on short term or temporary
work if at the completion the 10% reduction is simply reinstated.
3.4 There are of course many barriers to work for different
groups of people and for the longer term unemployed, these are
likely to be greater both in terms of access and transition. The
consultation paper on 21st Century Welfare readily acknowledges
that the view that work does not pay is for many people a reality
in the current benefit system. Unless these other factors are
addressed a cut in Housing Benefit alone is unlikely to provide
the necessary incentive.
3.5 Increases for non dependants could also have a disincentive
effect where starting work will trigger additional pressures on
the household income, reducing the value of work both to the non
dependant and the householder.
3.6 As presently this will continue to largely affect people
in low paid work who retain entitlement to means tested benefits.
3.7 For Birmingham City Council as a landlord this proposal
has significant cost implications. If housing benefit was cut
by 10% for our tenants who have been unemployed for 12 months
it is likely that the majority of the tenants affected will fall
into arrears. However, the administrative cost of collecting a
separate payment for the extra 10% (approximately £6 per
week) is possibly more than the income generated. Based on this
many social landlords may make a business decision not to collect
this extra 10% and therefore it will not provide an incentive
for tenants to find work as they will experience no penalty because
of the change.
3.8 Having said that we are concerned that high rents can
have the effect of trapping people in poverty but we would point
out that restricting them unnaturally low can have other consequences
in terms of potentially creating "benefit ghettos" and
community cohesion. This of course only applies where rents are
unreasonably high and as noted below we do not believe this to
be the case in Birmingham.
3.9 Finally, although they represent a minority of customers
in the sector, there are nonetheless a group of claimants who
will be affected by these changes whose position will be affected
by a number of the measures and for whom incentives to work are
meaningless due to age or health.
4. LEVELS OF
RENT AND
REGIONAL VARIATIONS
4.1 Birmingham will not be affected by the overall cap on
LHA rates and believe that this is largely, if not exclusively
a London issue.
4.2 We do however, consider that the high rents in the Capital
have disproportionately influenced the level of changes in other
areas. When the previous Government limited LHA payments to the
five bed rate, we noted that only 21 families were affected in
Birmingham representing savings each year of only £60,000.
Yet for those families, the reductions in actual benefit were
significant and severe.
4.3 The proposal to restrict at the four bed rate clearly
affects more people—447 on current caseload who each stand
to lose an average of £23 per week.
4.4 The reduction from the median to the 30th point will have
a further effect but largely at the larger end of the market.
So while current figures suggest that the reduction, for example
for a one bed property will be just £6 per week, for people
in five bed or more properties the combined effect of both measures
would be £47 per week.
4.5 In our response to the previous Government's consultation
on LHA rate restrictions we commented that while it is true to
say that rents under LHA have risen in Birmingham compared to
the previous system, it is arguable that they now only better
reflect the true state of the market. Although there are clearly
people who benefit from an excess payment under the scheme, for
many others the effect has only been to reduce the level of their
previous rent restriction. We remain of this view with our current
LHA for example, in what is after all the second largest City
ranging from £103 for one bedroom up to £207 for five
or more. In terms of the market in Birmingham we do not believe
these amounts in any way excessive.
5. SHORTFALLS IN
RENT
5.1 Following the introduction of the LHA Housing Benefit
rates for private tenants increased and in its early days the
number of people with a small excess payment was initially high.
5.2 This has gradually reduced to a position where now the
largest majority of LHA claimants—approximately 40% already
have an LHA rate below their contractual rent. These shortfalls
will naturally be exacerbated by the changes.
5.3 We obviously welcome the increases in DHP allocation and
believe that this should be allocated fairly across the country.
In Birmingham we have used our allocation from Government primarily
in this sector to prop up payments where there is a shortfall,
albeit on a time limited basis, to prevent homelessness and give
customers with difficulties chance to access debt and money advice
services.
5.4 The potential additional allocation (if awarded on the
current formula) would result in approximately £300,000 in
year one followed by an extra £1.2 million in successive
years. Given that current budgets are over committed this will
be insufficient to offset the likely problems faced by customers
due to other changes.
6. HOMELESSNESS
6.1 As previously suggested we consider it inevitable that
there will be an increase in homelessness as a result of these
changes. Pressures will come at all levels, not just in the private
sector where even fewer people will be in a position to afford
their full rent from benefit payments, whether in or out of work.
6.2 While non dependant charges were frozen some years ago
they remain high in many claimants' minds, for example the charge
for someone working with a gross income of £306 per week
(£7.65 per hour for a 40 hour week) is £43.50. The maximum
charge of £47.75 is payable if gross income is more than
£382 per week or £9.55 for a 40 hour week. This is of
course just a contribution to rent exclusive of food, fuel and
other charges.
6.3 Non dependant charges are already a cause of rent arrears
and can lead to family problems including homelessness for both
the householder and the non dependant. Significant increases may
be expected over a short period if the intention is to restore
the levels to what they would have been had they been inflated
since 2001-02 and these will certainly exacerbate the current
issues.
6.4 A regular moderate increase in non dependant deductions
would lessen the impact of one large increase being implemented
at the same time. Should it eventually be deemed necessary to
implement increases to these charges, it may be worth considering
the option of introducing smaller increases over a longer period
of time in order to reduce the likely effects as described in
the previous paragraphs.
6.5 Further measures from 2013 will spread potential problems
to the social sector with size restricted payments and add pressures
to all sectors with restrictions on housing benefit for long term
unemployed and inflation against CPI.
6.6 The changes may also severally limit the Council options
in providing suitable housing options for those presenting as
homeless, as opportunities to place them in affordable accommodation
will be limited even further. The council already has a significant
number homeless people in temporary accommodation waiting to be
housed, some of whom are in Bed and Breakfast at a significant
cost to the City. This can only increase under these proposals
if affordable options to house them in the private sector decrease
even further.
7. LANDLORD CONFIDENCE
7.1 Birmingham City Council, as with other councils, works
hard to address the huge shortfall of affordable homes in the
city through working closely with private sector landlords. This
work helps take the pressure and expense off the council and the
waiting list for social housing. However, a reduction of housing
benefit may mean that the opportunities to house those on housing
benefit are reduced. A drop in housing benefit (and therefore
incomes for the landlord) or even the potential drop of housing
benefit if the tenants fails to find work may mean landlords (especially
in the buy to let markets) are unwilling to take the risk of housing
tenants whose rent is paid by housing benefit.
8. COMMUNITY COHESION
8.1 One of the original principles of the LHA and the way
in which levels were set was technically to open up to claimants
up to 50% of rented accommodation in an area on the basis that
people on benefit should be able to access reasonable but not
luxurious accommodation. Reducing this to 30% will necessarily
create smaller sectors affordable for private tenants.
8.2 While there is still some protection for people who could
previously afford their rent without benefit, this is strictly
short term and people who become unemployed will be even more
likely to have to move even where their accommodation is around
the average for the area.
8.3 This is likely to force people to migrate to areas with
the cheapest housing and pushing them into the bottom end of the
private rented sector. This could mean an end to the mixed communities,
creating clusters of poverty and inequality.
8.4 Research into regeneration of poor areas of Birmingham
demonstrate that clustering people of low incomes in cheap/sub
standard housing in particular areas of the city has the impact
on increasing cost on other service such as policing, waste management
etc.
9. DISABLED PEOPLE,
CARERS AND
SPECIALIST HOUSING
9.1 We strongly supported the allowance of an additional bedroom
for carers when it was previously proposed for consultation and
therefore very much welcome this change.
10. OLDER PEOPLE,
LARGER FAMILIES
AND OVERCROWDING
10.1 It is clear that restriction to the four bed rate will
affect larger families. However people in this position, are also
most likely to be affected by other changes, notably increased
non dependant charges.
10.2 Based on current LHA rates, restriction arising from
calculation at the median to the 30th point also disproportionately
affects the larger end of the market. While this particular change
will reduce the LHA for the shared rate in Birmingham from £60
per week to £57; for people entitled to a four bed rate the
reduction would be from £184 to £160 per week. As noted
earlier the combined effect for people currently entitled to the
five bed rate will be to reduce the LHA from £207 per week
to £160 per week.
10.3 The effects of these policies, we believe deserve close
scrutiny in particular from an equalities perspective. For Cities
such as Birmingham with a diverse community profile it seems clear
to us that they will disproportionately impact on people from
some minority ethnic communities who are more likely to be part
of larger households.
10.4 The changes will also disproportionately affect families
with children as the difference in comparable rates for larger
family properties will be greater than for single and couple sized
accommodation.
6 September 2010
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