Impact of the changes to Housing Benefit announced in the June 2010 Budget

Written evidence submitted by The Riverside Group

1. Introduction

1.1 We watched with interest the measures announced by the Chancellor during the emergency Budget and recognise the need for reducing the deficit in these challenging economic times. However we have some concerns about the severity of the proposed housing benefit cuts and the impact they could have on our tenants.

2. Summary of response

2.1 In response for the call for evidence we would like to make the following points:

· There are several complex barriers to work that can prevent tenants from leaving benefits and entering employment. The proposed changes do little to address these barriers and will act mainly as a punitive measure for the long-term unemployed.

· Our tenants, many of whom are already living on extremely low incomes through jobseeker’s allowance (JSA) or disability benefit, will face significant drops in income and may experience hardship as a result of the benefit restrictions.

· Our modelling shows that as a result of the planned 10% restriction on housing benefit, our tenants on JSA (including those likely to move onto JSA from other benefits as part of reforms) could stand to lose an annual total of £1.5m in housing benefit

· The proposed restrictions for those under-occupying homes could result in a total annual loss of housing benefit of £927,000 to £3.32m, depending on the way in which the government applies restrictions

· The changes for JSA claimants could put around 4,000 of our tenants at risk of rent arrears, and consequently eviction and homelessness – placing further strain on public resources

· The potential loss of income through housing benefit could impact on our business model, limit the amount of community investment we can carry out, and is equivalent to 68 new homes for affordable rent or 45 new homes for low-cost home ownership.

2.2 We conclude that it is not appropriate for the government to attempt to achieve a non-housing outcome by using restrictions on housing benefit. This benefit is designed to meet housing need and it should continue to meet that core purpose only. We have concerns that the measures will be regressive, punitive and will impact on the wellbeing of our tenants as well as restrict our ability to invest in communities and build much-needed new housing.

3. Incentives to work and access to low-paid work

3.1 Riverside owns and manages housing in some of the most challenging neighbourhoods in the country – over half of our housing is located in the nation’s 10% most deprived areas . We actively seek to improve the work chances and financial inclusion of tenants. Through our first-hand experience and a research project carried out with the Policy Studies Institute1, we know that worklessness is a complex issue and that our tenants face significant barriers to work, whether the incentive is there or not. These barriers include ill health, caring responsibilities, lack of work chances in local labour markets, and challenges in accessing affordable childcare.

3.2 We feel the changes proposed in the Budget do nothing to address these barriers and will act mainly as a punitive measure rather than increasing chances to work, particularly in the areas of entrenched unemployment and other deep-rooted social issues in which we mainly operate. Any restrictions on benefits would need to be counterbalanced with adequate local initiatives that address the deeper social issues that create barriers to work.

4. Shortfalls in rent – Changes to housing benefit for JSA claimants

4.1 We know that 68% of our households have a net income of less than £199 per week, and that 25% live on less than £99 per week. Further restriction on their income is likely to cause significant hardship to a group that is already in the lowest income band. We have carried out some modelling exercises in an attempt to quantify the amount of income our tenants stand to lose due to the proposed changes to housing benefit for those on JSA for 12 months or more.

4.2 Our average weekly rent stands at £74.28, meaning that the average single tenant on JSA for over 12 months would stand to lose £7.43 of their housing benefit due to the 10% restriction. If they were to make up the shortfall with their JSA, this would mean a loss of weekly income of 11% - a significant amount for someone who is already living on around £65 each week to cover food, energy, clothing and so on.

4.4 15% of our working-age households are unemployed and actively seeking work, so are likely to be on JSA. In addition to this are tenants who are sick or disabled, or those who stay at home to look after family – people who may be moved onto JSA from other benefits as part of the reforms. Combined, these groups make up 57% of our households. Of these, around a quarter have been out of work for 12 months or longer.

4.5 A conservative estimate of the total annual loss of benefit for this group is £986,091. This was calculated on the assumption that half of the households on some form of disability benefit, or who stay at home to look after family, would move onto JSA as part of welfare reforms – this could in reality be higher or lower. However, the worst-case scenario shows that total loss of benefit could climb to around £1.5m – if all tenants on JSA for over 12 months, including those previously on other benefits, were subject to the 10% restriction.

4.6 We are concerned about the ‘broad brush’ approach taken by the proposed reforms, which leave no scope for differentiating between JSA claimants who have genuinely been trying to enter work but have been unable to, and those who have no intention of going back to work. We feel it would be unfair to penalise those who are unable to find work due to the economic situation, or more general barriers to work, through restricting a vital source of income.

4.7 We feel 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.

5. Shortfalls in rent – changes for those under-occupying social homes

5.1 While we recognise the need to tackle under-occupation in social housing, we note with concern the proposals to restrict housing benefit for people living in homes that are larger than their family size. The lack of detail announced for this measure makes it difficult to model accurately. However we have done some rough calculations that give a general idea of the potential impact of these changes.

5.2 Our figures show that we currently have 8,862 working-age households under-occupying by 1 bedroom or more. We have 2,280 under-occupying by 2 bedrooms or more. This level of under-occupation is mainly due to the type of housing stock and its geographical spread, rather than tenants wilfully under-occupying.

5.3 Using broad assumptions, we estimate that the total annual loss of benefit for these tenants could range from £927,000 to £3. 32 m – depending on what restrictions the government decides to impose.

5.4 Restricting a tenant s housing benefit for under-occupying will likely force them to look for smaller accommodation. One significant problem with this is that in many areas, we have a lack of suitable homes to move them to. This is a particular problem on estates that have been transferred from local authorities. Through our many stock transfers we have inherited mostly family homes , and our stock is replaced at a rate of around 1% per year. This means the amount of smaller stock available is extre mely limited, and may force claimants to look to the unregulated private rented sector. This could expose them to the risk of poor quality accommodation and high er rents – and potentially generate higher Local Housing Allowance payments .

5.5 A fur th er issue of concern is that a large proportion of our stock is made up of low-rent, small Victorian terraced housing. Tenants living in this type of housing may be classed as under-occupying if they have a spare room, when in reality they have very little space. This begs the question of whether b asing occupation levels o n bedroom numbers alone is fair.

5.6 Any proposals to restrict the amount of housing benefit social tenants can claim due to under -occupation should therefore take into account the size of the property in square metres, its rent level, and the availability of alternatives.

6. Levels of evictions and the impact on homelessness services

6.1 The likelihood of rent arrears building up due to restrictions on housing benefit means that a high number of our tenants will be put at risk of eviction and eventual homelessness. We are deeply concerned about the prospect of imposing benefit restrictions on a group that is already on a low income and may not have experience of paying their own rent directly, meaning they are more likely to build up arrears.

6.2 Based on our earlier calculations around JSA claimants and those who may be moved onto JSA, a conservative estimate for those at potential risk of eviction would be around 2,400 households. However, the ‘worst case scenario’ that we modelled could see over 4,000 households at risk of falling into arrears and being evicted. This does not include tenants who could be placed at risk due to the under-occupation measures, so the actual number could in fact be higher.

6.3 This of course would place further pressure on local authorities and homelessness services, all of which will create a cost to society. Ultimately, imposing restrictions on housing benefit in this way is a false economy that could result in higher costs to the taxpayer in the long-term.

7. Landlord confidence

7.1 Housing associations have built up a business model that is successful in delivering affordable homes and quality services for tenants, using a combination of grant and private funding. However, there is potential for these changes, if implemented, to place that model at risk and restrict our ability to deliver on our objectives.

7.2 In particular, lenders may take a different view of the risk profile of housing associations in circumstances where income is threatened in this way. This could potentially lead to higher margins being charged, which would have implications for our ability to provide new affordable housing.

7.3 Riverside prides itself on being a leader in community investment activities such as improving the financial inclusion of our tenants, creating cleaner and greener spaces, and helping our tenants into work. In 2009-10 we spent around £2.3m on community investment. Faced with threats to our income of over £4m due to housing benefit restrictions, we are concerned about how the housing benefit changes will impact on our ability to carry out these ‘housing plus’ activities effectively – resulting in a negative impact on our communities, which are already among some of the most challenging in the country.

7.4 A similar situation arises for our development activities. Currently, our net costs after grant stand at around £70,000 for an affordable home to rent and £105,000 for a shared ownership home. Taking £4.8m as an estimated loss of income under the ‘worst case scenario’, this is equivalent to 68 new homes for affordable rent or 45 new homes for shared ownership each year.

8. Conclusions

8.1 We recognise the need to tackle worklessness and the welfare bill but feel that the measures announced in the emergency Budget regarding housing benefit are not the appropriate way for government to go about this. Housing benefit is designed as a means of assistance from the state to meet housing need, and as a point of principle we feel the benefit should not be used to achieve non-housing outcomes.

8.2 The government has stated its intention to protect the poor and vulnerable in a progressive society. However, we feel implementing these changes will in fact be regressive and could cause hardship for low-income households.

8.3 We are deeply concerned about the impact that the changes will have on the financial wellbeing of tenants and also on our funding model. There is a real risk that restricting income in this manner will not improve the situation of tenants but conversely result in raising homelessness and higher costs to the taxpayer. The threat to our business model will also impact on our ability to improve communities and deliver the new affordable housing that the country greatly needs.

3 September 2010

[1] Policy Studies Institute and Riverside (2010): Understanding worklessness and financial exclusion in social housing – research summary.