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

Written evidence submitted by Shelter

I. Summary

· Shelter welcomes the committee’s decision to hold an inquiry into the changes in housing benefit (HB) announced in the June 2010 budget. HB is a major priority for Shelter both in our campaigning work and in our front-line services. Shelter’s services provide practical advice, support and innovative services to over 170,000 people a year, helping people with housing, debt and welfare issues through face-to-face, online and telephone services. In the 12 months to the end of June 2010, more than 3,200 people contacted Shelter services in England for help with problems with HB.

· At Shelter we draw on our experience in front-line advice and support services in the development of our policy and research expertise. Over the past year Shelter has undertaken and commissioned extensive research into Local Housing Allowance (LHA) and most of the evidence set out here has been based on those studies, particularly a forthcoming report on the impact of the budget announcements on LHA claimants, commissioned by Shelter from the Cambridge Centre for Housing and Planning Research (CCHPR).1 Our submission also draws on Shelter’s 2009 study of the implementation of LHA, For Whose Benefit.2

· Of the changes to HB that were announced in the budget, Shelter’s two greatest concerns are the change in the way that LHA will be calculated, from using the median to using the 30th percentile, and the up-rating of LHA by the Consumer Price Index (CPI).

· The brutality of these reforms cannot be underestimated. The result will be a dramatic decline in housing affordability for claimants, driving many households into serious financial difficulty and forcing many thousands of children deeper into poverty. The CCHPR research reveals that 269,000 households may be put into serious financial difficulty by the cuts and 54,000 children will be pushed below the minimum income guarantee for benefits.3

· There is no evidence that the reforms will do anything to reduce worklessness among benefits claimants, as they do nothing to tackle the barriers that claimants face when they try to go into work. Nor can it be assumed that the reforms will lead to drops in rent; it is more likely that tenants will face significant shortfalls once their benefit gets cut. As a result we may see landlords exiting the market, levels of overcrowding will rise, and local authorities will be put under enormous strain by the increase in the number of people seeking homelessness assistance. Furthermore, the effects of the changes will get worse over time as LHA rates are gradually reduced in real terms. Claimants will be increasingly forced into concentrated areas of deprivation, away from jobs and opportunities.

· The budget announcements fail to address the major underlying problems of a) the critical shortage of affordable housing, and b) the flaws in the private rented sector (PRS). The increase in the cost of HB over recent years is mainly due to rising numbers of people being housed in the PRS, where rents are almost double those in social housing. If we are to reduce the HB bill in the long term, we must build more affordable housing.

· Shelter recognises the pressure to make cuts and clear the deficit , but we believe these reforms will only generate greater financial and social costs in the future. In the light of new evidence of the impact these cuts will have on vulnerable people and families, w e are calling on government to urgently rethink its proposals and present more positive solutions to the housing crisis. The government should also give far greater attention and funds to transitional arrangements that could mitigate the impact of any changes that are made.

II. Evidence

Incentives to work and access to low-paid work

1. The reforms are likely to reduce the number of HB claimants in work. The changes do nothing to tackle the existing employment barriers for out-of-work claimants and they will create new problems for claimants who want to get into work. The government justifies the reforms on the basis of fairness, saying that the changes will put benefits claimants on a more equal footing with working families as well as get more claimants into work. It is crucial to understand that HB is actually available to low-income working people as well as those who are out of work, and that only around 12% of all HB claimants are unemployed . 4 I t does not make sense to reform the whole system so as to change the behaviour of a minority of claimants.

2. U nemployed claimants have to overcome significant barriers if they wish to go into work:

- S harp benefit withdrawal rates , which mean that they will not necessarily be better off in work. F or every extra pound earned, 65 pence of HB is taken away, and i n some cases people can face an effective marginal tax rate of over 90% .

- E xtra costs associated with work su ch as travel, clothes and child care.

- A system that is highly sensitive to changes in circumstances, so that any fluctuation in income can affect a person’s entitlement and lead to delays in payment during reassessment, which can deter claimants from taking up temporary jobs or roles with fluctuating hours.

- Within LHA, problems with the way Broad Rental Market Areas (BRMAs) are drawn mean many claimants are forced to live a long way from the urban hubs where most of the jobs are located.

3. New research commissioned by Shelter from the Cambridge Centre for Housing and Planning Research shows that the reforms are not targeted in a way that is likely to lead to a significant increase in the number of LHA claimants in work. The opportunities for affected households to increase their incomes via employment will be limited, not least because the areas with the most employment opportunities (London and the South East) have the lowest proportion (13%) of unemployed LHA claimants. If we take into account low demand for labour5 and high withdrawal rates (see above), it is unlikely that many of the unemployed claimants who will be affected will be able to secure a viable job that either leaves them any better off or negates the impact of the cuts.

4. The cuts to LHA may even enhance the barriers that already exist for unemployed claimants. The majority of LHA claimants are already struggling to stay afloat, with 76% living below the 60% median poverty line, and most of them will have a reduction in the amount of benefit they receive. This will force claimants to move to lower-rent areas, meaning that many of them will have to travel further to get to work, leading to higher travel and childcare costs.

5. The proposal to restrict the receipt of full HB for unemployed claimants to 12 months and then reduce it thereafter also does nothing to address the legitimate barriers faced by unemployed HB claimants, and it unfairly penalises people who are unable to find work.

6. In a recent speech, the Secretary of State for Work and Pensions made it clear that the primary challenge in the benefits system is to tackle worklessness by making work pay for benefits claimants. There are far better ways to improve work incentives than cutting HB:

- Address the HB taper and reduce the steep withdrawal rate for households going into work, as the Secretary of State proposed to do in the recent 21st Century Welfare consultation paper. (In a survey, Shelter asked claimants whether a continuation of the out-of-work rate LHA rate for three months after employment starts would help them consider going into work, and 58% agreed that it would.6)

- Extend the current HB run-on or extended payment scheme, and introduce fixed period awards for in-work HB claimants. 7

- Review BRMAs to ensure that they are drawn in a way that better reflects local economies and maximises employment opportunities. Shelter has been calling for this for some time, and the need to do so now is even more pressing.

Levels of rent

7. It cannot be assumed that the cuts to LHA will lead to a fall in rent levels. The way landlords respond to the reforms will depend largely on their local private rented sector market, as well as on their own financial circumstances. Landlords operating in areas with high proportions of LHA claimants are more likely to drop their rent than those operating in markets with a wider choice of potential tenants. If offered the choice, many landlords will shift to the non-LHA market, and Shelter’s new evidence indicates that no more than half of landlords will cut rent levels in response to the reforms. The impact of this will be that LHA claimants will be forced to move to the lower rent areas, i.e. those places where there are already large numbers of claimants. LHA claimants will be increasingly concentrated in smaller areas, exacerbating spatial inequality across the country.

Shortfalls in rent

8. Virtually all LHA claimants – just over a million households - will see a reduction in their benefit. Many households that are currently around and just below the poverty line will be pushed into severe poverty as a result of changes to the calculation of LHA. The research Shelter commissioned from CCHPR estimates that 269,000 households will be put into serious financial difficulty8 by the cuts, including 147,000 families with children (a total of 258,000 children). The research also reveals that 84,000 households will be pushed below the minimum income guarantee for benefits, including 27,000 with children (a total of 54,000 children), leaving them with less than £100 per week to spend on utilities, clothing, food and other essentials.

9. Even before the cuts, many claimant households are struggling to find accommodation within their budget. The government’s own figures show that nearly half of LHA claimants already face shortfalls – averaging almost £100 a month - between their LHA and their rent.9 Shelter’s research last year found that 95% of claimants are already struggling to manage their finances to some degree.10

10. Shelter is concerned about the transition process for claimants who will be affected by both the cut to the 30th percentile and the cap on the maximum LHA payable for each property size, particularly as the two reforms are to be introduced on a staggered basis. The caps will be introduced in April 2011, in response to which claimants may move house and enter into a new tenancy commitment, only to be hit a second time by the cut to the 30th percentile after October 2011. Therefore, we recommend that the introduction of the cap is pushed back to October 2011 so that the two reforms can be implemented together with less scope for confusion.

11. The decision to up-rate LHA in line with the CPI is potentially disastrous and will, over time, severely exacerbate shortfalls. This applies both to the overall rates of LHA and to the rate at which the new maximum caps for each property size are set. Although rental costs are included in the CPI they account for only a small proportion of the ‘basket of goods’ used to measure price changes, 11 meaning that t he CPI has historically failed to increase at the same rate as average rents . Between 1997/98 and 2007/08, average rents increased by 70%, but over the same period CPI increased by only 20%.12 The linking of LHA with CPI will mean large parts of the country will become no-go areas for people on LHA, especially those areas that provide the greatest employment opportunities for existing benefits claimants.

12. The fundamental, and radical, nature of this reform is to completely decouple HB from housing costs. Unlike other benefits, HB in the PRS is dependent upon local housing markets which are subject to geographical variations in rent. Having access to a benefit that is linked to housing costs has been an important safety net ensuring that most claimants can access a roof over their heads in the area that they live. It is essential that safeguards are put in place to ensure that the reform does not eventually prevent many claimants from being able to afford anywhere to live at all.

Evictions and impact on homelessness services

13. As a result of the changes, an estimated 134,000 households may be forced to move out of their existing homes, including 72,000 families with children (a total of 129,000 children).13 When families are forced to move, this will mean children being uprooted from schools in the middle of term and torn away from their friends and communities, with irreversible impacts on their education and social development. The DWP’s impact assessment left unanswered questions about how the reforms will affect local services, including homelessness prevention teams. However, there is no doubt that the changes will put a considerable burden on already stretched local authority resources. For example, under the current system is already takes an average of 23 days for local authorities to process HB claims, and this is likely to get much worse once the changes have been implemented.14

14. Many of the claimants who face serious difficulties will seek advice from local authorities on their options. The CCHPR research shows that it would cost around £5 m per year to provide legal aid to 22% of the households who are likely to experience serious unresolved difficulties as a result of the reforms. 15 Much greater costs will be incurred where local authorities are obliged to provide temporary accommodation to priority need households presenting as homeless as a result of losing their home due to the HB reforms. It would cost £120 m to provide long term accommodation to 26 % of the priority need households who will have unresolved serious difficulties as a result of the HB reforms . 16 Households that lose their home due to the reforms but are deemed by their local authority to be intentionally homeless may be left with no support at all.

15. Local authorities often lease private rented sector properties to use as temporary accommodation, paying for them with an HB subsidy which is set according to the LHA rate for the previous 12 months. To ensure that this type of accommodation remains a viable option for lo cal authorities it is vital that private sector leasing is exempt from the cuts .

16. Areas where few residents are affected may face an influx of claimants from other local authorities, especially if they are adjacent to badly affected areas. For example, London Councils has predicted that the introduction of the caps will push more people to live in outer London, as inner London will become almost entirely unaffordable for LHA claimants.17 This will place a strain on resources in those areas, such as schools, doctors, advice and homelessness services.

17. The increase in Discretionary Housing Payment (DHP) will not be adequate to help all households affected by the reforms. Analysis by the Chartered Institute of Housing (CIH) shows that in England DHP would support around 60,000 households claiming LHA who face the maximum loss from the 30th percentile change for one year (leaving nothing for DHP claimants in social housing). This is equivalent to just 1.5% of the entire caseload.18 Local authorities can also share the allocation with council tax benefit claimants, which will further deplete the pot. Managing a greater number of applications and the distribution of the increased DHP funding will also create extra work for local authorities, for which they will need to be properly resourced.

18. Shelter recommends that transitional protections be put in place to minimise the short term impact of these reforms on claimants and local services, including:

· B est practice guidance for local authorities on drafting standard communication s t o go out to households affected; d elivering a personalised approach for vulnerable households ; and giving sufficient advance notice to households that will be affected.

· Additional resources for local authorities to help them cope with the increases in claimant s requiring assistance, to cover: rent deposits/moving costs for households who have to move as a result of shortfalls; increased advice provision; and resources to proactively identify households most at risk

· Clarification of intentionality guidance to local authorities to ensure that those who fall into rent arrears as a result of LHA shortfalls and subsequently present to the local authority are not classed as intentionally homeless .

19. The government should als o monitor the effects of the reforms on the PRS market over time, by looking at the impact on rents, landlord letting policies and geographic concentrations of tenants . Local authorities could also add a new category of ‘had to leave home due to LHA cuts’ when they register people as homeless.

Landlord confidence

20. A 2009 survey by Shelter revealed that 60% of claimants found it difficult to find a landlord who was willing to rent to an LHA claimant at current rates,19 and the budget reforms will deter even more landlords from participating in this market. In August, Shelter commissioned a poll of landlords to assess responses to the HB budget announcements. Nearly half of all landlords who now let to LHA tenants said that they intended to scale back the lettings they make to LHA tenants in the future.

21. One way to encourage landlords to stay in the LHA market would be to reform the direct payments system by giving tenants the choice over whether the LHA gets paid to the tenant or direct to the landlord. Landlords have been very unhappy with the system of presumed payment to tenants, so changing this would offer an incentive for them to stay in the market. Shelter’s recent poll revealed that 32% of landlords who would not currently let to LHA claimants would consider doing so if LHA was not automatically paid to tenants.

Community cohesion

22. It is likely that the reforms will lead to a significant movement of LHA claimants from higher to lower rent areas. These areas are likely to be relatively deprived and lacking in job or training opportunities, transport links, and good schools. With a smaller proportion of housing in each BRMA being affordable on LHA, claimants will be concentrated into much smaller areas, creating fewer mixed communities and greater socio-economic homogeneity within areas.

Disabled people, carers, specialist housing

23. The new provision in HB for an extra room for carers of disabled people will mean that many disabled households will be better off. However, according to the government’s impact assessment some families with disabled members will actually be worse off after the changes, once the impact of the caps and 30th percentile are taken into account (most notably in Central London, Inner North London and Cambridge).20

Older people, large families and overcrowding

24. Families on LHA who will not be able to find cheaper homes of the same size will be forced to move into smaller living spaces, increasing already severe levels of overcrowding. Currently, one million children are living in overcrowded conditions across the country, and the reforms are likely to make this situation worse. Overcrowding is not just a problem that affects large families: the majority of overcrowded households only have one, two or three children. Likewise, the HB reforms will not just affect large households, but also much smaller families living in two, three and four bedroom homes.

25. I t is important not to exaggerate the phenomenon of exceptionally high rents being paid to large households in central London : th e number of hous eholds claiming the maximum rate available ( i.e. for a 5 bedroom property in central London) represent s only 0.01% of the entire LHA caseload.

26. Restricting families to smaller households will not necessarily result in savings to the public purse. For example, in the Southern Greater Manchester BRMA a household comprising of two couples (parents and grandparents), three children between 10 and 15, and one child over 16 would be eligible for £182.96 per week at the 5-bedroom rate. If the household split up and three separate claims were made21 (at the 30th percentile rate) the claim would cost an extra £5,566.60 per year.22 Also, many larger households include members of the extended family who are relied upon for caring responsibilities (e.g. for elderly, sick or disabled relatives).

27. The CCHPR research revealed that around 20,000 households containing over-60s will be put into serious difficulty by the reforms. It will be much more difficult for older claimants to increase their income in response to the cuts, and moving house is likely to be particularly physically and mentally disruptive for them, especially if they have been renting the same property for a long time.

8 September 2010

[1] Fenton, A . (2010) How will changes to Local Housing Allowance affect low-income tenants in private rented housing? Centre for Housing and Planning Research, Department of Land Economy, University of Cambridge .

[2] Frost, A., Corker, S., Reynolds, L., Albanese , F. (2009) For whose benefit? A study monitoring the implementation of local housing allowance. Shelter

[3] Defined as the lowest income level guaranteed by current welfare arrangements.

[4] From the CLG Su rvey of English Housing 2007/08. NB: When the term HB is used this refers to all claimants in the social rented sector and private rented sector, including LHA claimants. According to the government’s impact assessment, the proportion of LHA claimants on job-seekers’ allowance is 21%.

[5] 5 The average recent long-term projections of independent forecasters published by the Treasury in May predict negligible falls in claimant unemployment before 2013; the Office of Budget Responsibility's forecasts do not see unemployment rates returning to pre-recession levels until 2015.

[6] Shelter For whose benefit?

[7] Both of these options were proposed in DWP (2009) Supporting people into work: the next stage of Housing Benefit reform

[8] Defined as those households who will be left with the lowest residual incomes following the cuts and will be very likely to be forced to move out of their current homes unless they experience either an increase in their income or a reduction in their rent.

[9] Parliamentary question 5 March 2010: cm100305/text/100305w0002.htm#10030529000282

[10] Shelter For whose benefit?

[11] In 2010 ‘actual rentals’ were given a weight equivalent to 5.7% of the total basket of goods used to measure changes in CPI.


[12] CLG Survey of English Housing 2007/08

[13] Calculated by taking half of the number of households who will be in serious difficulties .


[15] 30 ,000 households at £167 per case.

[16] Based on 35,000 families staying in temporary accommodation for an average period of 38 weeks .

[17] London Councils, Housing benefit cap for London must be revised or nearly 15,000 families could lose their homes , press release 16 July 2010

[18] Chartered Institute of housing (CIH), Briefing Paper on the impact of changes to Housing Benefit and Local Housing Allowance in the budget , July 2010

[19] Shelter , For whose benefit

[20] , p16-17

[21] For i) grandparents; ii) parents and 3 children between 10 and 15; iii) child over 16

[22] V aluation O ffice A gency, June 2010