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

Written evidence submitted by Homeless Link

EXECUTIVE SUMMARY

We recognise the necessity of housing benefit reform, including initiatives to promote savings, and eliminate inefficiency, error and fraud from the system. We support moves to improve how housing benefit, other benefits and tax support the journey into work and prevent homelessness, as called for in our 2010 manifesto.

Homeless Link (2010) Ending Homelessness Together: 10 steps, 10 years, 1 ambition. Available at http://www.homeless.org.uk/ten-key-challenges

· the wellbeing of people who are homeless, or at risk of homelessness

· the sustainability of homelessness organisations, which in turn will undermine the support offered to homeless people and other vulnerable groups

It is also highly doubtful that the changes will lead to governmental savings in the medium- or long-term. The evidence available suggests that the changes will lead to greater levels of debt and homelessness, with impacts on emergency accommodation, health services, benefit uptake and economic activity creating greater strain on government spending. While other coalition initiatives to improve availability of, and access into work might alleviate this effect

BBC News (2010) ‘Nick Clegg slams 'partial' IFS report on Budget’, 25th August. Available at: http://www.bbc.co.uk/news/business-11086137

Amongst other recommendations, we propose that:

· there should be provisions for most vulnerable people, including homeless people, to be exempt from some of the proposed housing benefit changes.

· supported accommodation providers should also be made exempt from the proposed 10% cuts in housing benefit after one year on JSA and to be protected from the impact of loss of income due to benefit changes or reductions. Given the vital role providers of supported accommodation play in alleviating homelessness and saving spending overall

The CapGemini cost-benefit evaluation found that investing £1.6 billion annually in housing related support generates net savings of £3.4 billion to public spending, by avoiding more costly acute services. See Capgemini for Communities and Local Government (2008) Research into the financial benefits of the Supporting People programme. Available at: http://www.communities.gov.uk/documents/housing/pdf/spprogramme.pdf

· there needs to be a commitment and comprehensive strategy from the coalition to look at long-term solutions to housing issues beyond housing benefit reform.

EVIDENCE

We outline our evidence below on the key changes to housing benefit. Our response will focus on three of the eight issues identified for this inquiry, though has relevance for other areas:

· incentives to work and access to low paid work

· levels of evictions and the impact on homelessness services

· community cohesion

We will outline the impact of some of changes announced, but will not cover all the specific impacts. We will also outline issues surrounding additional costs to government services arising as an unintended consequence of these changes, and offer recommendations for the Select Committee’s consideration. Examples from our member agencies are included in text boxes.

1. Incentives to work and access to low paid work

The key relevant change to housing benefit in terms of work incentives is the proposal (requiring primary legislation) to reduce the housing benefit award to 90% after 12 months for claimants of Jobseekers’’ Allowance (JSA). The implications of this change for homeless people and people at risk of homelessness are outlined below.

1.1. Lack of incentives to work

People who are homeless want to work; 77% of homeless people say they are ready to work now and 97% want to work in the future.

Off the streets and into work (OSW) (2005) No Home, no Job: Moving on from transitional spaces. Currently unavailable online, contact Crisis for copy ( www.crisis.org.uk ).

Given these conditions, cutting housing benefit after a year on JSA is likely to penalise many individuals without work or a home of their own, rather than encourage faster move into work. People who have poor health or disabilities who have been moved onto Jobseekers’ Allowance often take longer to find work.

British and Social Housing Foundation (2010) Housing Benefit and the Emergency Budget of June 2010, p.13. Available at: http://www.bshf.org/news-events/news-detail.cfm?lang=00&theNewsItemID=9245E777-15C5-F4C0-99C4D6A6E0898191

1.2 Employment opportunities

Homeless Link’s additional concern is that the job market will be substantially worse by the time this cut comes into effect. The coalition’s deficit reduction measures may contribute to an increase in unemployment to nearly three million in late 2012, remaining near to that level until 2015

Chartered Institute of Personnel and Development (2010) Deficit reduction measures will raise UK unemployment close to 3 million by 2012 , press release, 10 th June 2010. Available at:

http://www.cipd.co.uk/pressoffice/_articles/jobsforecastrelease100610.htm?issrchres=1

1.3 Improving support for disabled claimants

Whilst much of our analysis is critical, we welcome the changes to housing benefit which will entitle claimants with a disability and a non-resident carer to funding for an extra bedroom. We feel that this will help support potentially vulnerable people more effectively, as well as in some cases be part of a transition into work, alternative accommodation and off housing benefit altogether.

2. Levels of evictions and the impact on homelessness services

2.1 Cuts in income and evictions

Housing Benefit is designed to help people on low incomes pay for rented accommodation whether in or out of work. However, it is clear that it does not perform this function well at points. While there have been a number of recent reports highlighting that some unemployed housing benefit claimants are able to live in properties beyond the reach of most people with employment

Hastings, C. et al (2010) ‘Somali asylum seeker family given £2m house…after complaining 5-bed London home was ‘"in poor area"’, Daily Mail newspaper, 10th July 2010. Available at: http://www.dailymail.co.uk/news/article-1293730/Somali-asylum-seeker-family-given-2m-house--complaining-5-bed-London-home-poor-area.html

· Almost half of local housing allowance claimants already have shortfalls of almost £100 a month.

Shelter (2010) London households could be pushed over the edge by cuts to housing benefit, press release, 5th July 2010. Available at: http://media.shelter.org.uk/Press-releases/London-households-could-be-pushed-over-the-edge-by-cuts-to-housing-benefit-310.aspx

· If the additional £40 million for discretionary housing payment proposed was spent solely on making up shortfall in rents, this would only support 4% of claimants facing the drop in LHA from the 50th to the 30th percentile for one year.

Hansard (2010) 13 July 2010: Column 218WH. Available at: http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm100713/halltext/100713h0002.htm

Taking another example, the 10% cut to HB following claimants receiving JSA for one year is likely to have a serious affect on individuals’ income. The National Housing Federation (NatFed) warns that these plans will lead to real terms cuts of up to 50% in disposable income for a significant proportion of the nation’s 4.7 million Housing Benefit claimants.

National Housing Federation (July 2010) Housing benefit cuts put 200,000 at risk of homelessness, campaign group warns

http://www.housing.org.uk/default.aspx?tabid=212&mid=828&ctl=Details&ArticleID=3046

As a result, the housing benefit changes due to come into effect are likely to lead to:

· a significant increase in evictions and homelessness

· increased financial pressure on accommodation services, likely to mean that many will fold

· increased service uptake of other homelessness services

These cuts are also likely to impact on particularly vulnerable groups, such as LGBT individuals at risk of homelessness:

These cuts will worsen the ability of people on low incomes to pay for both public and private rented accommodation. Because of a lack of availability and eligibility in the case of social housing, there has been increasing use of the private rented sector (PRS). However, people on housing benefit trying to find accommodation in the PRS face a lack of affordability

Landlords tend to set their rent at the maximum rate at which the Housing Benefit is capped, as outlined in Homeless Link (2010) Housing Benefit Reform – supporting people into work consultation response, p.7. Available at: http://homeless.org.uk/closed-consultations#Housing_Benefit_Reform_February_2010

A likely result will be that many homeless people remain stuck in more costly supported accommodation for longer than they need to be and prevent access to this support for those most in need. In addition, this is "likely to lead to increasing rent arrears and tensions between landlords and tenants, probably with the long term effect of further reducing the supply of properties that landlords are willing to rent to housing benefit claimants."

British and Social Housing Foundation (2010) Housing Benefit and the Emergency Budget of June 2010, p.16. Available at: http://www.bshf.org/news-events/news-detail.cfm?lang=00&theNewsItemID=9245E777-15C5-F4C0-99C4D6A6E0898191

In particular, the index linking of LHA to the Consumer Price Index (CPI), rather than on the basis of local rents, is likely to produce the most significant impact of all the changes outlined by the Emergency Budget. As rents generally rise faster than the CPI index, over time the value of LHA rates will be eroded. Over the previous 10 years, "rent inflation has risen 2.57 percentage points above the CPI level."

National Housing Federation (2010) Briefing: Housing Benefit and Local Housing Allowance reforms, p.5. Available at: http://www.housing.org.uk/Uploads/File/Policy%20briefings/Neighbourhoods/HB-reform%20-%20nspo2010br17.pdf

2.2 Impact on accommodation providers

Homeless Link are clear that any cuts in Housing Benefit will have an immediate impact on accommodation and related support providers. Many registered providers, including many homeless services, receive over 60% of their income from housing benefit. With these changes, the removal of Supporting People funding ring-fencing (as well as potential further cuts)

See Rameesh, R. (2010) ‘ Treasury plans will cut off 400,000 of society’s most vulnerable’, Guardian newspaper, 20th August 2010. Available at: http://www.guardian.co.uk/society/2010/aug/20/housing-vulnerable-people

Aside from accommodation services, the increase in homeless people may also mean greater pressure on advice and support services. This may entail an increase in ‘fire-fighting’ by these services with a larger group of homeless individuals, with less accommodation options available.

3. Community cohesion

3.1 Creating deprived communities

Homeless Link anticipates that the housing benefit changes are likely to alter communities, both by movement between, and within, local authority areas. Many people will be forced to move to lower rent areas, with "an impact on the areas that they move to, potentially putting a strain on those local authorities (including on homelessness budgets)."

British and Social Housing Foundation (2010) Housing Benefit and the Emergency Budget of June 2010, p.10. Available at: http://www.bshf.org/news-events/news-detail.cfm?lang=00&theNewsItemID=9245E777-15C5-F4C0-99C4D6A6E0898191

These changes are also likely to dramatically alter the character and make-up of communities within local authorities areas. For example, Camden Council predicts that the south of the borough will no longer be a viable place for housing benefit claimants to live, forcing many out of neighbourhoods and long-standing communities.

Brown, C. (2010) ‘Benefit reform to split London borough’, Inside Housing. Available at: http://www.insidehousing.co.uk/news/housing-management/benefit-reform-to-split-london-borough/6511308.article

4. Additional costs to government and public services

Vitally, Homeless Link is doubtful that changes to housing benefit will save money for public services and the government in the long run. The changes are likely to cost considerably more than they save. This undermines one of the core aims of the Emergency Budget, and the further austerity measures to be unveiled in October’s Comprehensive Spending Review.

Let us take the example of the cuts to housing benefit following claimants receiving JSA for over a year. The June 2010 Budget forecast that this measure will save £100 million in 2013/14, rising to £110m by 2014/15, relative to maintaining the current system.

HM Treasury (2010) Budget 2010 complete document, p.40. Available at: http://www.hm-treasury.gov.uk/junebudget_documents.htm

We present a very basic analysis with two separate sets of statistics:

· the National Housing Federation estimates that 202,000 people are at risk of being made homeless purely as a result of the benefit cut of 10%.

National Housing Federation (2010, Housing benefit cuts put 200,000 at risk of homelessness, campaign group warns, press release, 5th July 2010. Available at: http://www.housing.org.uk/default.aspx?tabid=212&mid=828&ctl=Details&ArticleID=3046

· research by the New Economics Foundation (nef) indicated an annual cost to the state of £26,000 for each single homeless person.

New Economics Foundation (2009) Work it out – barriers to employment for homeless people, p. 47. Available at: http://www.bitc.org.uk/resources/publications/homelessness.html. Comparable estimates for the cost to the state of single homeless people have also been provided by MEAM (http://www.meam.org.uk/wp-content/uploads/2009/09/MEAM-report.pdf) and the New Policy Institute (http://www.crisis.org.uk/data/files/publications/HowManyHowMuch_full.pdf).

If we accept these figures, this would suggest that 202,000 more (single) homeless people would entail a £3.4 billion cost to the state annually. This would be a net £3.3bn cost to the state rather than a saving, as a result of this specific change in 2013/14. Moreover, the total saving of all housing benefit reforms is outlined as £1.76bn in 2014/15, and a total of £4.2 bn over 2010-11 to 2014-15.

HM Treasury (2010) Budget 2010 complete document, p.40. Available at: http://www.hm-treasury.gov.uk/junebudget_documents.htm

We must stress that this analysis makes a number of assumptions, and must not be considered as a comprehensive economic appraisal of the costs. However, allowing for these assumptions, this presents a very serious potential economic and social impact of just one of the changes to housing benefit. Again, t hese changes are likely to cost far more than they save. T he caps to housing benefit, the index linking of this benefit to the CPI, and other changes would also be likely to increase pressure on health services, debt services, and reduce the ability of many individuals to find work. They are likely to compound the losses to such a degree that public spending increases, rather than decreases, as a result of the changes. We do not ignore or reject the need to improve housing benefit, to increase work incentives, or ensure that benefits are consummate with need, but the changes as proposed are likely to do serious lasting damage to public welfare and economic growth.

5. Recommendations

We feel that the majority of the housing benefit changes require a fundamental rethink, as it is clear that these changes will affect a huge range of vulnerable groups, not just those who are at risk of homelessness. Homeless Link calls for:

5.1 Setting LHA rates at a percentile in each area that reflects the proportion of tenants receiving the benefit. As outlined by BSHR, this is likely to ensure significant savings in public expenditure while avoiding "the most intolerable pressures on local housing markets." (BSHR, p.10)

5.2 Consideration of exemptions for most vulnerable people, including homeless people and particularly those with multiple needs, from the proposed Housing Benefit changes.

We understand that the DWP is already considering a list of exemptions to some of these changes. We appreciate that exemptions add to the complexity of the administration of housing benefit, but in light of our evidence above, and barring a fundamental alteration to the changes proposed, we feel that exemptions would be vital to avoid serious additional harm to these vulnerable groups. However, looking longer term, we would suggest there is scope for examining how any savings from DWP expenditure might be used to improve benefit withdrawal and entitlement to ‘in-work’ benefits, as discussed by the ‘21 st Century Welfare’ consultation.

See http://www.dwp.gov.uk/consultations/2010/21st-century-welfare/

5.3 Consideration of exemptions for supported accommodation providers from the proposed 10% cuts in housing benefit after one year on JSA. Given the vital role providers of supported accommodation play in alleviating homelessness and saving spending overall

See Capgemini for Communities and Local Government (2008) Research into the financial benefits of the Supporting People programme. Available at: http://www.communities.gov.uk/documents/housing/pdf/spprogramme.pdf

5.4 Ongoing monitoring of the discretionary housing payment to ensure any serious rent shortfalls across populations are identified and acted upon swiftly by local government.

British and Social Housing Foundation (2010) Housing Benefit and the Emergency Budget of June 2010, p.17. Available at: http://www.bshf.org/news-events/news-detail.cfm?lang=00&theNewsItemID=9245E777-15C5-F4C0-99C4D6A6E0898191

5.5. Ensuring that all claimants are informed of impending changes by letter or email. It is vital to give due notice to people who may be affected so they can begin the process of adjustment or housing move now.

ibid., p.12.

5.6 A commitment and comprehensive strategy from the coalition government to look at long-term solutions to housing issues, including expansion of social housing and the increased renovation and use of empty homes. For example, the British Property Federation has outlined that renovating some of the 762,000 empty properties in England could address the pressures on social housing while costing only 10 per cent of the equivalent cost of building new houses.

British Property Federation (2010) ‘Britain’s ‘shameful waste’ as 1 million homes lie empty’, 4th August. Available at: http://www.bpf.org.uk/en/newsroom/press_release/PR5310_Britains_shameful_waste_as_1_million_homes_lie_empty.php

While it is difficult to assess the economic impact of these recommendations, undermining the negative impacts of the changes to housing benefit on levels of homelessness, health needs, and reduced economic activity are likely to have positive effects on the government’s spending. We would welcome the opportunity to work with the Committee and government to cost out the impact of these proposals in more depth.

We would also welcome the opportunity to offer oral evidence to the Committee.

3 September 2010