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

Written evidence submitted by Kirklees Council

Executive summary

This memorandum will address the areas of focus identified by the committee namely

· Incentives to work and access to low paid work

· Levels of rent, including regional variations

·  Shortfalls in rent

·  Levels of evictions and the impact on homelessness services

·  Landlord confidence

·  Community cohesion

·  Disabled people, carers and specialist housing

·  Older people, large families and overcrowding

This authority is very concerned about the impact of all of the changes to Housing Benefit announced in the June budget. It is very clear that the changes are intended to bring about a reduction in Housing Benefit expenditure not by reducing dependence upon it but by simply reducing it’s monetary value.

Reducing the value of housing benefit awards will increase homelessness and it is our suggestion that in the majority of cases the cost to the exchequer will be many times greater than the money saved.

Housing is a fundamental need, the provision of housing should not be linked to an individuals work status. Introducing reductions in housing benefit after a period of economic inactivity will not work as an incentive to work.

Housing benefit is the means by which those on a low income meet their rental liabilities. Without the money to pay the rent (be it because of LHA restrictions or perceived work incentives) rent arrears will increase. Landlords have already raised concerns that the removal of tenant choice in LHA has increased rent arrears. It is clear that there are a significant number of tenants that are reluctant or don’t pay their rent even when given the means to do so. If the value of the award is reduced, for whatever reason, it is likely that we will simply see an extension of that behaviour. This authority is very concerned about the level of rent arrears that we are likely to see in all rental sectors.

The rise in the number of private sector dwellings occupied by housing benefit recipients simply reflects the shortage of social housing available to meet current housing need. Any changes to housing benefit that affect the confidence of landlords to continue providing accommodation and in particular to those in receipt of benefit, will have a devastating effect. Many authorities now rely upon the private sector in order to meet their duties to the homeless. Increasing numbers of homeless households with a potentially reducing capacity to meet the need is a recipe for disaster.

1.0 Incentives to work and access to low paid work

1.1 The changes announced so far do nothing to incentivise work. It is often forgotten in the current debate around housing benefit that a significant number of housing benefit claimants are already working either full or part time.

1.2 If it is accepted (and we believe it is) that there is something wrong with the current system because of the way in which HB is withdrawn at the point someone starts work, then it is difficult to see how the changes announced do anything to help address that problem. Reducing HB for those in receipt of LHA and those with Non Dependants, when we know that taking up work brings little in terms of financial reward, does nothing to incentivise work.

1.3 Having confidence that your tenancy is secure and that you can afford to pay your rent has long been cited as a major factor when people take up work. Changes to housing benefit that rock that foundation are unlikely to have a positive effect.

1.4 "Housing Benefit awards will be reduced to 90% of the initial award after 12 months for claimants receiving Jobseeker’s Allowance. This will be introduced in April 2013"

This is the only change that is obviously linked to work. It is difficult to see how this might operate as an incentive to work, it is clearly a punishment for not finding work soon enough. In this borough that 10% would equate to somewhere between £7 and £14 per week and from what we have seen of the proposals would be indiscriminate. Those with or without children will be affected, although it is obvious that the biggest burden will be shouldered by those whose HB is the highest (those with children). 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.

2.0 Levels of rent, including regional variations

2.1 It is difficult to know how the market will react to the reductions in Housing benefit brought about by reductions in LHA. We know from the figures provided by the Valuation Office Agency that indications are that the reductions shown in Table 1 will be seen in Kirklees.

Table 1

If Landlords are prepared to accept reductions to those levels then they will be shouldering around £4.5m of the cuts in this borough alone. Conversely if rents do not reduce and cheaper alternative accommodation is not available then we will see claimants having to find an additional £4.5m to support rents from their other income. In any event £4.5m will be lost to the local economy.

2.2 We have looked at the impact on the region comparing the reductions in LHA rates in Kirklees with the other West Yorkshire authorities.

For the most part the reductions are very similar with the exception of Leeds in relation to 4 and 5 bed property , where the reduction for 5 bed property is more than twice that of any of the other West Yorkshire authorities. Kirklees and Wakefield both see significant reductions in the 5 bed category.

It is our fear that the reductions in some of the other Broad Rental Market Areas are of sufficient magnitude to incentivise people to move borough in the sorts of volumes that we have not seen before. Clearly the numbers here are relatively small compared to the predicted impact on London Boroughs, but there is a significant prospect of substantial movement across the region.

3.0 Shortfalls in rent and levels of evictions and the impact on homelessness services

3.1 Shortfalls in rent will result from most of the proposals. Those shortfalls will be very difficult if not impossible for claimants to meet. Arrears of rent will have devastating consequences for all landlords including the Local Authority and it is a significant prospect that those debts will never be recovered. The financial impact on all landlords will inevitably mean that they will need to increase rents in an attempt to insure against losses and in some cases they will cease to operate .

3.2 Arrears of rent will inevitably result in an increased number of evictions and consequential homelessness. It is generally accepted that the cost of rehousing someone that is homeless amounts to around £25,000, a significant cost. Whatever the actual cost of rehousing or dealing with the other consequences of homelessness it is almost always the case that the costs far outweigh the level of rent arrears.

3.3 Around 7500 households receive LHA based HB in Kirklees and around 1000 households have received HB based on JSA for 12 months or more. Whilst there is some duplication in that households might appear in both groups, those figures demonstrate the sort of additional demand that might be experienced by our homelessness service. Whether they require homelessness services or not they will probably need some level of support over and above that which they currently receive. On average these households will be experiencing shortfalls of between £10 and £20 per week.

4.0 Landlord Confidence

4.1 The authority has no particular evidence of the impact on Landlord confidence but it would be wrong to consider landlords as one group. Landlords tend to fall into certain groups and their confidence and capacity to absorb some of the changes may well be dictated by the group into which they fall.

4.2 Some landlords have been operating for a number of years, have a significant portfolio, and for the most part do not have large encumbrances secured on it. Those landlords may be able to offer reduced rents, but the majority will not. Many landlords do not have a large number of properties, they may have buy to let mortgages that mean they simply cannot afford to reduce their rents. If Landlords lose confidence then they are less likely to offer their properties for rent or may simply withdraw from the benefit sector.

4.3 We have already seen landlords stating that they will pull out of the sector if direct payment in LHA cases is not reversed. Interestingly if direct payment is reinstated it will be even more obvious to those landlords that their tenants entitlement does not meet their liabilities and might well reduce confidence still further.

5.0 Community Cohesion

5.1 The individual circumstances of these families is likely to be very varied with some households being made up of several generations. It is not unusual for families that require this level of accommodation to be made up of the claimant, their dependants and older family members (non dependants). Any break up of those families because alternative property of an adequate size and rent is not available will inevitably mean that the number of households now needing to claim Housing Benefit will increase.

5.2 Of the 86 families currently receiving the 5 bed rate , 43 of them have 79 non dependants (adults over 18). It is reasonable to expect that some if not all of those families will find that the best solution for them is that those non dependants leave to find their own accommodation, possibly to receive HB in their own right. If that were to happen then we might expect to pay at least £56 for each of them but possibly £75 depending upon age. At £75 per week those 79 new householders would cost the exchequer £308,100 per year, £57,668 more than would have been the case if we had maintained the status quo.

5.3 Non dependant deduction rates are due to be uprated based on the increase in prices. If, as is suggested, this increase reverses the freeze in rates since 2001-2 the consequences will be far reaching. It is conceivable that in this borough the highest deduction will exceed the LHA rate for one bedroom shared accommodation . This situation will mean that there is a financial incentive for non dependants to secure there own accommodation. Whether they can do so in their own communities will be dictated by supply and demand and inevitably some will be forced to look elsewhere. The scale of upheaval will be unprecedented.

5.4 Many large families rely upon the extended family for support. Whether the whole family moves area or whether the unit is broken up by the pressure of the reductions in HB, the communities in which they live will be adversely affected.

6.0 Disabled people, carers and specialist housing

6.1 The authority welcomes the move to allow an additional bedroom for non resident carers. It will be difficult for authorities to identify those currently in receipt of Housing Benefit that might have entitlement to an additional room but we will work with Government to identify as many recipients as possible.

7.0 Older People, large families and overcrowding

7.1 Older people are not unaffected by the proposed changes. Older people will be affected by all of the changes except: restricting HB to 90% of the award after 12 months JSA, and restricting HB in the social sector to reflect family size.

7.2 Older people are more likely to be affected by the increase in Non dependant deduction rates than any of the other changes. Liability to pay rent and council tax remains with the householder, it is conceivable that in many cases the deductions are being met by the householder themselves rather than the non dependant. Increases in deductions will place additional pressure on the householder to meet their liabilities.

7.3 Large families are particularly affected by the changes both in terms of LHA restrictions and Non Dependant deduction rates. It will be increasingly difficult for those families to stay together without enforced overcrowding.

7.4 Overcrowding is an inevitable consequence of the changes. It is highly unlikely that measures to restrict HB in social housing to a value appropriate to the size of the family, will do very much to mitigate overcrowding in the private sector.

7.5 No analysis has been undertaken as to the availability of 5 bedroom accommodation at or below the 30th percentile for 4 bed property. If insufficient 5 bedroom accommodation is available at the proposed rate all of those families will find themselves in overcrowded accommodation. The only solution for some of those families will be for the family unit to break up, therefore increasing the number of households needing to claim HB. This scenario will not be peculiar to 5 bed households and we anticipate that there will be increased pressure on the housing market for 1 bed accommodation.

7.6 In families where there is no prospect of non dependants finding their own accommodation (Claimants with large numbers of children), overcrowding will be inevitable. If 5 bedroom accommodation becomes unavailable to those that need it because of the reduction in HB then there will be increasing pressure on the 4 bed market that could mean less 4 bed accommodation is available at the 30th percentile than is necessary to meet demand.

7.7 This scenario will be echoed throughout the market regardless of property size and need, and will affect all households. The Government’s analysis suggests that only a small number of cases will be affected by overcrowding, this is naïve and ignores the fact that overcrowding in any one of the "bedroom rates" will mean that there is less accommodation available to meet the demands of families that need accommodation at that particular rate.

7.8 The Government suggests that "30 per cent of private rented sector accommodation will continue to be affordable to people who depend on Housing Benefit", the authority would question this statement.

7.9 The proposal to use the 30th percentile is said to be based on research that shows low income working households pay a rent which is usually 90 percent or more of the appropriate LHA rate. For the statement to have any effect it must assume that those "Low Income working" families do not also claim Housing Benefit, this is highly unlikely.

7.10 The LHA rates are set using market data from the PRS and exclude ALL households receiving HB, including those "low income working" families receiving HB. The market rents used in setting the current LHA rates only include those that are able to meet their rent from their own means. If the inference is that those most able to pay and negotiate their rent do so at a rate that is lower than those that are in receipt of HB, then properties with rents below the 30th percentile are already occupied by those that are more able. It is very difficult to see how those properties would also be available to those dependant upon some Housing Benefit.

7.11 If successful any attempt to move HB recipients to properties within the 30th percentile will mean that the properties used in calculating the LHA rate will change and hence the rate payable will change. The authority believes that this effect is well understood by Government but ignored in the impact assessment. The authority notes that it is Governments intention to change the method by which rates are reviewed such that the 30th percentile will cease to play a part from April 2013 when the intention is to uprate LHA rates using the Consumer Price Index.

7.12 Only time will tell whether adopting the 30th percentile will have had the desired effect on LHA rates before the rate of increase is completely divorced from the market itself.

3 September 2010