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

Written evidence submitted by Crisis

Executive summary

· We have a dedicated employment team which successfully supports vulnerable people into employment. Crisis is therefore very concerned that the proposed changes to Housing Benefit will seriously undermine this work by affecting people’s ability to find and sustain accommodation in the private rented sector, leading to an increase in hardship and homelessness and by putting additional barriers in the way of people’s progress to work.

· According to the DWP’s own Impact Assessment, which covers only some of the first wave of cuts (the cap on all property sizes, restriction of bedroom entitlement to 4 bedrooms, removal of the excess payment and moving to the 30th percentile) nearly a million households across the country will lose an average of over £600/year. This is a huge amount for people on low incomes particularly given that 48% of LHA claimants already face a shortfall between their benefit and the rent of an average of £23/week. Although London will face the most significant cuts to benefit levels, it is important to note that these cuts are a nationwide issue affecting claimants across the country.

· The effects highlighted in the Impact Assessment however, are just the tip of the iceberg. We are very disappointed that the Government has made only a limited assessment of the impact of the changes rather than looking at the total package and what the impact will be in other areas, particularly in housing policy.

· We believe that the combination of the proposed changes will put a severe strain on some of the poorest and most vulnerable households across the country, increase hardship and homelessness, have significant implications for community cohesion, increase rather than remove barriers to work, adversely affect charities, local authorities and social and private landlords.

· What’s more they are unlikely to generate the cost savings envisaged as costs accrue in other areas including through homelessness, temporary accommodation, hostel places, personal debt, education, health, social services and criminal justice. We are also very concerned that the cuts to Local Housing Allowance will seriously reduce the future use of the PRS to house homeless and vulnerable households.

· We appreciate that in the current economic climate spending, including that on Housing Benefit, must be scrutinised more and targeted better. We have long called for reform of HB to better support housing stability and to remove the barriers to work. We also recognise the political imperative to address the issue of a few exceptional cases of very high benefit claims but believe there are already existing powers to tackle this issue and it is important to acknowledge that it is not these handful of cases which are behind the increase in the HB Bill. If the Government is serious about reducing the bill it needs to understand and address the underlying reasons for the rise, namely the sharp increase in rents, driven by a desperate shortage of housing and deliberate Government policy. We are concerned that in trying to reduce spend on HB, the Government is actually undermining the fundamental objective of HB which is to help people on low incomes meet their housing costs.

· Crisis therefore strongly believes the Government should reconsider these cuts. As well as considering alternatives for reform of Housing Benefit, we believe at the very least there needs to be serious consideration given to how to mitigate the worst impacts of these changes and how best to communicate with claimants.

Incentives to work and access to low paid work

Housing Benefit is currently a major barrier to people moving into work and is overdue for reform. However, we are very concerned that, as the DWP’s own equality impact assessment highlights, even the first tranche of cuts to LHA could worsen this situation and that "there could be negative impacts for Housing Benefit customers who are working if they have to move to an area where they need to extend their commute to their place of work"1. We believe that there will be a similar impact on claimants currently out of work who may have to move away from training and employment opportunities, putting further barriers in the way of their journey to work.

Furthermore, given that the cuts to LHA will take effect on the anniversary of a household’s claim, there is a clear disincentive for a household to change their circumstances by taking up work or increasing their hours before this point. If a claimant was to take up work during this period, not only would they see their benefit reduced sharply as their income increases, but this would be compounded by a reduction in the amount of Housing Benefit to which they were entitled. This would amount to a significant reduction in their entitlement and a clear disincentive to work. Crisis knows only too well that the longer someone is out of touch with the labour market, the harder their journey back to work and we are concerned that the cuts to LHA will act as a disincentive to people taking up work before the anniversary of their claim.

The 10% cut to HB for anyone who has been on JSA for a year risks punishing all claimants, regardless of their situation or the progress and effort they are making to find employment. This seems against the very principles of fairness particularly at a time when unemployment looks set to rise and when in some areas it is likely to be especially difficult to find work particularly for those who face disadvantage in the labour market, such as people in poor health or with a disability. There is a fundamental injustice in a measure which punishes people regardless of the efforts they may be making to improve their situation and find work.

There are currently over 200,000 claimants who would be affected by this move2, a figure which is likely to increase as more claimants are moved from inactive benefits onto JSA. Whilst we understand that Government’s intention in introducing this measure is that it is a work incentive, we do not believe that the purpose of housing benefit should be to encourage people into work. The housing benefit system is already complicated enough without it trying to achieve further policy aims such as an increase in households in work.

This measure is likely to particularly impact upon those furthest from the labour market, who may be making every possible effort to move towards work. It is unlikely to be an effective work incentive but instead will greatly affect people’s housing stability and could in fact undermine their efforts to find employment. Nearly half (47%) of participants in the Transitional Spaces Project for example (a Treasury funded project that supported homeless people and ex-offenders into work and private rented housing) had been on JSA for more than 12 months when joining the programme. It is unlikely this programme would have had the success rates it did in helping people into work if participants’ benefit were cut at just the point when they were trying to move into work and they were at risk of losing their accommodation.

Instead, we would like to see the introduction of proposals which were being considered by the previous Government and those which were proposed by the Centre for Social Justice to help remove barriers to work. These included the introduction of fixed payment awards for those in work, extended benefit run on when a claimant moves into work and bringing down Marginal Deduction Rates so that work always pays.

Levels of rent, including regional variations

The cost of Housing Benefit (HB) is expected to rise to £20 billion this year3 with Local Housing Allowance (LHA) costing £2.6 billion in 2009-104. However, despite recent headline-grabbing figures, the average HB award in the private sector is just £109.25 per week and for social tenants £72.605. Furthermore according to Government figures, 48% of people on LHA already face shortfalls between their benefit and their rent, with the average shortfall being £23/week6. We recognise that there is an issue with a small number of very high rents but these exceptional cases should not form the basis of policy and instead rent officers should be encouraged to use the existing powers they have to deal with them.

It is important to understand the reason for the rise in the housing benefit bill which is largely as a result of steep increases in rents in both the social and private sectors. In the social sector this is as a result of deliberate Government policy and in the private due to economic factors and the severe shortage of housing. Between 97/98 and 07/08 the average private sector rent rose by 63% from £79/week to £129/week.7 For many years now, capital spending on new social and other house building has been reduced and policy has instead focused on subsidising the individual household – therefore it is no accident the Bill has risen as Housing Benefit has long been taking the strain of rent increases.

More recently, the economic downturn and an increase in unemployment has also led to a rise in the housing benefit bill. During the economic downturn, as is to be expected, more people have needed the support of housing benefit with the number of claimants rising from 4m to 4.7m. According to the BSHF the rise in working age claimants accounts for nearly 70 per cent of the increase in the Housing Benefit bill in the economic downturn.

Housing benefit should act as a safety net to ensure that people’s residual income is protected, that they do not face hardship and that they can access suitable housing. Crisis therefore believes that it is right that in a time of rising unemployment, as more people need the support HB provides, the Bill responds by rising. Far from it being a sign of the system not working, we believe it in fact demonstrates a well functioning system which offers support to those who need it when they need it.

There are currently significant regional and local variations in rent levels which are largely determined by economic factors and the local housing market. If Local Housing Allowance rates are uprated, as proposed, by the Consumer Price Index (CPI), rather than in relation to local rents, as rents generally rise faster than CPI, over time LHA rates will be eroded. Additionally, the link between housing benefit and rent will be broken and, as rents vary widely and rise at different levels in different parts of the country, benefit levels will cease to reflect local rent levels.

This will mean that in many areas housing benefit will no longer meet people’s housing costs. We are deeply concerned at the impact these changes may have on people’s ability to find and sustain accommodation in the PRS in the medium to long term. What’s more such a move is likely to be very difficult to reverse as evidenced from the more than 30 years it has been since the link between the state pension and earnings was broken.

Shortfalls in rent

Housing Benefit is vital in supporting people with their housing costs and in ensuring people’s housing stability. We are very concerned that these cuts will have serious consequences for some of the most vulnerable people in society who are the least able to afford them. Nationally Government’s own impact assessment shows that 936,960 households (100% of LHA claimants)8 will lose out as a result of the first tranch of cuts alone (the removal of the £15 excess, the caps and the move to 30th percentile). These cuts will see the average 1 bedroom claimant lose £11/week and the average London claimant lose £22/week9 on top of existing shortfalls.

But this is just the tip of the iceberg. The second wave of cuts will have a similar and potentially even worse impact. With nearly half of claimants already facing a shortfall between their benefit and the rent of an average of £23/week, these cuts will leave many people facing hardship and making choices between paying bills, putting food on the table, falling into debt, getting into rent arrears, moving to a cheaper property or area (if they are able to secure alternative accommodation) or in the worst instances facing homelessness.

We are very concerned that, particularly at a time of growing youth unemployment, increasing Non dependent deductions (NDDs) will force more young people out of the family home. There is widespread agreement that NDDs are unfair as they are imposed at the same rate regardless of the rent due. Non payment by the non dependant is common, meaning that they are a frequent cause of rent arrears as well as family tension and pressure to move out of the family home.

It is perverse to adopt a measure which will punish young, unemployed people and cause family break up and homelessness. What’s more, it is doubtful whether the level of savings envisaged will actually be generated and this measure could in fact end up costing more as non-dependents move out of the family home and make HB claims in their own right. This also poses issues around new household formation and the pressure this will place on an already overstretched housing system.

Young people also face other significant disadvantages in the housing benefit system. Under 25 year olds who are only entitled to the lower shared room rate (SRR) are already more likely to face shortfalls between their benefit and the rent than older claimants. DWP commissioned research found that 87% of all SRR claimants faced a shortfall, averaging £35.14 per week.10 Younger claimants also face greater challenges in making up these shortfalls because of the lower rate of their personal allowance. In many parts of the country, SRR property is not available at all and one bedroom properties are completely unaffordable, meaning young people are left facing homelessness.

Given that the SRR is rightly excluded from the caps, we would urge the Government to think again about further reducing the already very low level of Housing Benefit to which under 25 year olds are entitled. We strongly believe that the SRR should not be reduced to the 30th percentile.

Levels of eviction and the impact on homelessness services

It is likely that significant numbers of households will find themselves needing to move homes, with some households facing eviction and homelessness. Not only will this have a real impact on individuals but it will also place a strain on councils who will need to re-house a significant number of households within a short timeframe and will have real cost implications for local authorities and CLG.

As well as the cuts being likely to lead to an increase in homelessness, they will also reduce the ability of local authorities and other agencies to prevent and resolve homelessness. As the cuts bite and the PRS becomes less and less affordable to those on Housing Benefit and landlords choose to switch to a more stable and lucrative section of the rental market or exit it altogether, the ability of voluntary organisations and local authorities to continue to house people will be dramatically reduced. This will mean a reduction in the valuable resource that private renting currently offers to local and central government wishing to house homeless and vulnerable households, not least given the severe shortage of social rented housing.

In 2009, of the 75,520 households helped to find alternative accommodation by local authorities’ homelessness prevention work, half were offered PRS accommodation11.

Undermining the ability of the PRS to house vulnerable people will have a huge and detrimental impact on existing and future efforts to tackle and prevent homelessness and rough sleeping across England - particularly for single people who are not a priority for social housing and for whom the PRS has often been the only housing option open to them. This is likely to mean an increase in the use of costly temporary accommodation (reversing much of the progress that has been made in recent years), a silting up of hostel places (again a costly form of accommodation) and even greater pressure on social housing waiting lists. In many instances the cuts will simply shift costs from one part of the housing benefit bill, Local Housing Allowance, to another, temporary accommodation or supported housing but at a higher cost to the taxpayer and with significant harm and disruption to the individuals involved.

With an increase in households facing homelessness and presenting at local authorities’ housing options teams, Crisis is concerned that single homeless people are likely to fall even further to the bottom of the pile with considerable implications for levels of rough sleeping. Not only is rough sleeping hugely damaging for the individual (as evidenced by the average life expectancy of a rough sleeper being just 42) but it is also costly to society. Housing benefit cuts are also likely to have a serious impact on progress towards the target of ending rough sleeping by 2012 to which Boris Johnson is committed and the Government is supportive.

The changes are likely to mean increased costs in other areas too such as health, social services, criminal justice and so on. Landlords and the court service will also face additional costs associated with rent arrears and eviction proceedings. Individuals needing to move will have to find a deposit, cover removal costs and so on, which will be particularly difficult for people on low incomes.

Community cohesion and pressure on services

Many claimants will struggle to find accommodation they can afford and certain areas, including much of London, are likely to become a no go area for claimants, particularly larger families, with significant implications for mixed communities and community cohesion. Only 7% of properties will be affordable in Central London12.

Moving vulnerable people far from city centres may decrease LHA spending in the short term, but at the risk of removing them from education, training and work opportunities, voluntary and public services and social support networks. If the cuts to housing benefit lead to movements of people on the scale that is being predicted then not only will communities be displaced, but public services as well as housing stock in cheaper areas will be placed under greatly increased strain with an increased demand for school places, social services, health services and so on.

This will in turn have significant implications for community cohesion not least due to the likely pressure on public services in such localities. It will also mean considerable additional costs across a range of areas.

Impact on social landlords and social housing

The cut to HB for those who have been on JSA for more than a year is likely to mean that unemployed tenants struggle to meet their rent liability. This will put severe strain on private, local authority and other social landlords. The only alternative to claimants facing increased shortfalls when their housing benefit is cut would be for those housing providers, particularly social landlords and hostels to absorb the reduction themselves, with the likely consequence that they would have to cut other services – often those very services which help tenants prepare for moving into work. One hostel provider for example has estimated that nearly a quarter of its 1500 residents have been claiming JSA for more than 12 months and that either itself or its clients would therefore need to find an extra £287,000 per year. The provider believes that this is likely to be met by cuts in their voluntary funded employment programmes which will mean clients are even less likely to be able to move into work.

Given the huge demand for social housing, measures to help address under occupancy are to be welcomed. However, we are concerned that limiting working age HB entitlement to reflect household size will effectively force people out of their home without them being offered a suitable alternative. We also do not believe that Housing Benefit should be trying to achieve the policy aim of tackling under occupancy which we believed is better addressed by other means.

We are also concerned that this reduction in HB is not dependent on the tenant being offered another suitable property. It is not yet clear whether social landlords will prioritise under occupying tenants in allocations policy and if they do what the impact will be on others in housing need. Moreover, housing pressures mean that there may simply not be alternative accommodation options available for these tenants. There are concerns that this will effectively end security of tenure by making it impossible for the tenant to sustain their tenancy.

Again, rent arrears are likely to rise, causing difficulties not only for the household but also the social landlord. The size of the anticipated saving suggests that this measure is expected to affect large numbers of households.

Discretionary Housing Pot

Whilst we welcome an increase in the Discretionary Housing Pot, £40m/year is a fairly insignificant amount set against the scale of the cuts. Modelling by the Chartered Institute of Housing shows that the pot would only support around 60,000 households in England, 1.5% of the total caseload.

Case study

This case study illustrates the likely impact of the cuts on an individual already facing

shortfalls between their benefit and the rent who is likely to face homelessness when the changes come into force. This will be costly not only for the individual involved but also the local authority.

One of Crisis’ clients, James Cummings, is a 50-year-old, who lives in a one-bedroom flat in Ilford, has already seen LHA in the borough cut from £155 to £149 a week and struggles to make up the £18 difference for his £167-a-week rent.
Mr Cummings, who was homeless before being given a flat by Redbridge council, is now extremely concerned that he may be forced to move.

He said: "Any change in a downward direction in terms of allowances is going to hit me hard. I get £64 a week in jobseeker's allowance, and have to make up the difference in rent out of that. If things change any more, I may move out of London, for cheaper rent and living costs. At the moment I'm stuck, as I am unable to save because I have no spare cash, and so can't get a deposit, which means no landlord would take me on. Before, the council paid as I was homeless, but now I have a property, so they would not pay again, and if I made myself voluntarily homeless they wouldn't have a duty to look after me, so I could not even move anywhere cheaper.

"Currently I have 11 months to go, but the landlord may put the rent up because of the Olympics or something and I'd be stuck. I would have to pay what I could until I was evicted….I'm right on the borderline at the moment. It is terrible. At the moment I have to find £18, but next year, who knows? I don't have a clue, and I know I'll be at my wits' end when it gets closer to the time."

Summary and Recommendations

Crisis has long argued that Housing Benefit needs reforming to reduce its complexity, so that work always pays and to better support housing stability. We recognise that there is also an issue with a small number of very high rents, particularly in parts of London but we believe that rather than introducing cuts across the board, rent officers should be encouraged to use the powers that are already available to them.

Crisis is very concerned that the changes to Housing Benefit proposed in the Budget will cause hardship for some of the most vulnerable in society, will store up problems for the future and end up costing more as social problems such as homelessness result. Crisis therefore recommends the following:

1. Alternatives

· The Government should reconsider these damaging cuts so that the most vulnerable are protected and that cuts are not made in such a way that they store up social problems down the line.

· In order to bring down the Housing Benefit bill, Government must address the historic undersupply of housing and take measures to increase new housing supply of all types but particularly social housing.

· Rent officers should be encouraged to use their existing powers to tackle the few exceptional cases of very high benefit claims. Local authorities should also work closely with claimants and landlords to assess the quality of properties and the amount of rent that is therefore appropriate.

· Housing Benefit should be reformed to simplify the system and remove barriers to work. We would like to see the introduction of fixed payment awards for those in work, extended benefit run on when a claimant moves into work and measures to bring down Marginal Deduction Rates so that work always pays.

2. Transitional measures

Whilst we strongly oppose them, if the cuts are to go ahead we believe that there are measures which could help to minimise the impact and smooth the transition for those households affected.

· In those areas where the cuts to benefit levels are the greatest, we would like to see transitional measures put in place so that only new claimants are affected. As well as being beneficial for the individuals involved, reducing the number of households who need to move would lessen the burden on local authorities.

· Serious consideration should be given as to how best to protect vulnerable claimants, particularly existing ones who have been deemed unable to manage their own finances under the safeguarding criteria or those who are receiving support from a support worker or PRS Access scheme. We would like to see such claimants being exempt from the changes to Housing Benefit.

· We believe that as the vast majority of Shared Room Rate claimants already face significant shortfalls between their benefit and the rent, SRR should be exempt from the move to the 30th percentile.

· If Non Dependent Deductions are to be uprated, this must be done in a clear and transparent way by an agreed measure. At the very least, NDDs should be reformed so that they are proportional to the level of rent due.

· Given the very tight timescale involved and the fact that claimants affected by the caps will be affected again by the move to the 30th percentile later in the year, we would like to see the introduction of the caps moved back to October 2011.

· Caps should be uprated in line with rent inflation otherwise over time the limits will become significantly lower in real terms.

· Broad Rental Market Areas should be reviewed to ensure that 30% of the properties in each local authority area are available to claimants.

· Additional support and resources should be made available to assist claimants, especially those with vulnerabilities. Additionally there needs to be a significant increase in funding for homelessness prevention work. DHP should be proportionally allocated to those authorities worst affected.

· We would like to see the reintroduction of choice over who Housing Benefit is paid to, which would help to mitigate some of the impacts of these cuts, by for example incentivising landlords to continue to rent to tenants in receipt of LHA. The ending of direct payments to landlords has been opposed by many tenants, landlords, and voluntary sector organisations and when in opposition the Conservatives committed to reinstating choice.

· There should be clarification on the guidance around intentional homelessness for individuals facing rent arrears and eviction as a result of the cuts.

3. Communication measures

· There must be clear and timely communication to the individuals affected about the change to their benefit entitlement. Particular attention should be paid to vulnerable claimants, especially those whose benefit goes direct to the landlord. Vulnerable claimants’ support workers should be made aware of the changes to their entitlement and appropriate advice and assistance provided.

· The Government’s lack of data and limited analysis of the impact of the changes is particularly disappointing. We believe that in the future the Government must be open and transparent about the impact of the cuts and must undertake careful monitoring and reviewing. We would like to see, for example, a change to the P1E Statutory homelessness form so that it records households whose homelessness is as a result of a reduction to their housing benefit entitlement. Any increase in rough sleeping or wider homelessness should also be monitored to see if it as a result of these changes.

3 September 2010

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