Public Accounts - Minutes of EvidenceHC 814

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Oral Evidence

Taken before the Committee of Public Accounts

on Monday 17 December 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Guto Bebb

Jackie Doyle-Price

Chris Heaton-Harris

Meg Hillier

Mr Stewart Jackson

Austin Mitchell

Nick Smith

Ian Swales

Justin Tomlinson


Amyas Morse, Comptroller and Auditor General, National Audit Office, Gabrielle Cohen, Assistant Auditor General, NAO, Max Tse, Director, NAO, David Clarke, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.


Managing the impact of Housing Benefit reform (HC 681)

Examination of Witnesses

Witnesses: Professor John Hills, London School of Economics, and Mike Donaldson, Group Director, Strategy and Operations, L&Q, gave evidence.

Q1 Chair: Welcome, and thanks to both of you. I think you have both been here before for these early sessions. Have you, Mike?

Mike Donaldson: No.

Q2 Chair: You haven’t. We will try to keep this to about half an hour. The idea is to hear from you guys-you are much more engaged on the front line than we are-about the key issues you think we ought to interrogate when we come to the full hearing later. I should say that we are doing two hearings today: we are going to do a hearing on this issue, followed immediately by a hearing on the Work programme statistics.

John, you have been here before. Reading the Report, the thing that hits me is the lack of understanding about the potential impact of these changes in the housing benefit rules. Based on all your experience, where do you think we ought to focus our minds today?

Professor Hills: There are two different sides to this. One is that the reforms are part of a landscape of quite dramatic change that is happening to the benefits system and other aspects of people’s lives, which will be hitting-we are thinking about tenants in particular this afternoon-from a large variety of different directions at once. One issue is the extent to which people are keeping track, or are able to keep track, of the combined effect of all those changes. We are not just talking about the effects of the rent caps on housing benefit for private tenants, or the so-called bedroom tax for social tenants; we are talking about those things happening in a context where council tax benefit is being reformed, with cuts being made that, from what one can see from the early evidence of what councils are consulting on, will hit some working-age, low-income households really quite hard. There are also the reforms to the social fund, and the proposals that were made in the autumn statement for the long-run cash level of benefits to rise by only 1%, whatever the rate of inflation is, for the three years after next year.

All of that is happening at once, and it means that, when one is trying to interpret what the range of losses means for different kinds of tenant households, and thinking about the simple loss in terms of the percentage of rent that will no longer be covered by housing benefit if people stay put, one should maybe also be thinking about what income people will be left with after they have paid their rent-if they do stay put-to pay for everything else and about how that is changing. Making some of these changes in the context where the only thing that was happening was that somebody was being asked to contribute an extra £10 a week might be one thing, but if that £10 a week is seen in the context of an income of only £150 or £120 a week for all the rest of a household’s needs, and if it comes on top of all those other changes, it may be the thing that pushes people over the edge, into hardship or into having to move. It is the cumulative effects that people need to be thinking about.

The second side is probably the knock-on effects, which go beyond things that are just pure housing. If people stay put and get into increasing hardship, the obvious housing point is that there are possibly increasing rent arrears, and there are also issues about debt. But if people do move, other public authorities are going to be affected. I chaired the national equality panel a couple of years ago, and one piece of evidence I was struck by was from the Department for Education, as it is now called. Looking at children’s performance at the age of 16, and at what the predictors of that were from what you knew about where those children had been earlier in their childhoods, the most important factors were whether the child was a boy or a girl; whether their first language was not English and, therefore, whether there was quite a lot of catch-up; and how they had performed at the age of 11. But the next most important factor was whether the household had moved recently-whether it was having to move. If households are having to take children out of school, that is going to have probable effects on the receiving schools and on the education of the children, and wider effects of that kind. Similarly, with other public services, such as GPs’ surgeries, there will be an issue about continuity of care. There will be an issue about what will happen when people who have been relying on child care from relatives locally have to move some distance away.

One can look at this as a narrow housing problem or a narrow social security problem-even that brings in Communities and Local Government, and Work and Pensions-but I suspect some of the possible migration effects that one would expect to see, given the changes, may be much wider.

Q3 Chair: Thank you. Mike, you kindly did a note. Do you want to talk through the main points, just to emphasise them?

Mike Donaldson: Our particular concern is that the estimates around savings, which were highlighted in the Report, do not really touch on what is happening in the real world. We are concerned that because there is housing scarcity and more people are finding accommodation in the private-rented sector-the private-rented sector in London is as large as the social housing sector and has risen dramatically in the past 10 years-the rents are going up dramatically, too.

Q4 Chair: Is there availability in the private-rented sector?

Mike Donaldson: There is supply.

Q5 Chair: Where? All I can say is that I represent an outer London borough where everyone said that people would want to move to. Some are moving there-I have had my first Kensington and Chelsea tenants in my surgery-and the private-rented sector is just chock-a-block, so they are displacing goodness knows how many other people.

Mike Donaldson: And Savills keeps saying that there is not enough supply for investors.

Q6 Chair: So I am not sure where the supply is.

Mike Donaldson: There is supply. There is turnover, and that is where the supply comes from-people moving. Churn creates supply, but increasing volume of supply is very limited, yes. As a result, prices go up, because there is limited supply. In the past few years, we have seen rents going up significantly in the private sector in London because there is not mortgage availability. In the social housing sector, rents are also going up, because there is a scarcity of public grant. The affordable rent programme is based on the assumption that rents can go up to 80% of the market rent. Traditionally, it has been about 45% or 50%. The affordable rent programme, which began last year, will see rents double in London and in many areas. They will certainly go up significantly in the central London prime areas. That means that the housing benefit bill will go up significantly, too. We estimate that the housing benefit bill will, as a result of this, go up by £4.5 million or £5 million, simply because we are now charging higher rents. When you multiply that across the country and add in the private-rented figures as well, we cannot understand how the figures that the DWP produced about the savings can be achieved. Rents are only going in one direction-obviously I am talking about London. Our concern is that there will be more cuts over and above the figures that we have seen so far to achieve the level of savings that the Department has targeted, and they will not be part of any impact assessment or any approach in terms of trying to understand what is going on. It will have to happen rather late on in the programme because the cuts need to be made. They will not be worked through in a systematic review of the process.

Q7 Meg Hillier: Can I ask what L&Q has done-L&Q is a large landlord in my constituency of Hackney South and Shoreditch-to identify the families that will be affected by the bedroom tax?

Mike Donaldson: We get information from local authorities about the people affected by this measure, because it is a rather complex computation that they have to do. As of today, three months before the changes take place, we have information on about 68% of our residents. Local authorities are struggling to make those-

Q8 Meg Hillier: Other than knocking on everyone’s doors, you are reliant on their data.

Mike Donaldson: We know of some people, because they have already told us that they need to move to smaller accommodation.

Q9 Meg Hillier: How many of your tenants-I do not know whether you can give a percentage-are aware that the changes are coming?

Mike Donaldson: Very few.

Meg Hillier: Can you give a rough percentage?

Mike Donaldson: Of the people affected, which is about 3,500, I would imagine about 2,800. I am not really cognisant of the fact-

Q10 Meg Hillier: That is 3,500. Can you remind us what your total housing stock is?

Mike Donaldson: Rented stock is 52,000.

Meg Hillier: So, quite a chunk. I know that in my constituency, another housing association has 250 families identified, and that is just in Hackney.

Q11 Chair: Why have you not informed them?

Mike Donaldson: We have informed them. As we found from the pilot project being done in Southwark, 12% of the residents in that project, which has been undertaken by the DWP, have not engaged in the project at all. The local authority and the housing association do not know what the situation of those people is.

Q12 Meg Hillier: That brings me on to what the impact is likely to be. You are here representing L&Q and, I guess, the sector. Let us say there is a 14% cut in benefit for someone with two boys of 15 and 12 who would qualify for the third bedroom when the 15-year-old gets to 16. Have you had any engagement with people about how they will fill that gap and the impact on your rental income as a result?

Mike Donaldson: We have contacted all the people affected. We have written to them and phoned them to offer to match them with people who want larger accommodation, because, of course, we have lots of people in London who are overcrowded. But in fact, there are not enough overcrowded people who need that accommodation, and there are simply not enough one-beds and two-beds to move people to. We are encouraged to build family housing in London. The Mayor wants us to do that, so that is what we have been doing. As a result, there simply is not enough supply to go around. We estimate that there are about 1,000 people who we simply will not be able to help to move.

Q13 Meg Hillier: So what is the impact going to be on your rental income? Are you AA rated? I do not know what your rating is for borrowing.

Mike Donaldson: We are AAA rated. We effectively made allowance in our accounts and projections for our rent arrears to double.

Q14 Meg Hillier: Double? So what is the rate now, and what is it going to be?

Mike Donaldson: It is 3.5% at the moment, and we expect it to go over 7%. We do not plan to allow that to happen, but in terms of our accounts and our bad debt provision that is what we are providing for. We have told our lenders that.

In terms of individuals, the difficulty we face is that our general approach is to say that if someone is not meeting their current rent arrears, we will try to get them to a position where they can pay their current rent and then pay a very small amount off their historical debt. We prefer for them to stay in the home, rather than to evict them because they have rent arrears. In future, with the bedroom tax, they will not have enough money every week to pay the ongoing rent, so they will just carry on building up arrears. We have created a hardship fund, but that obviously will not be there every week for everybody. We are trying to get people to move to smaller accommodation through mutual exchange. We will try to do that through our own voids, but the reality is that we do think there will be a group of people who will fall through the cracks.

Q15 Meg Hillier: What about people with a child aged between 12 and 15? If you have six months before your 15-year-old turns 16, when you will qualify for the extra bedroom, is the hardship fund designed to bridge that gap, or will you be going to the housing discretionary fund? How will they work together?

Mike Donaldson: I suppose the first port of call would be the discretionary fund, but that is going to have a lot of people queuing up, including council tax benefit recipients.

Q16 Mr Jackson: I am slightly perturbed when you say that you are not cascading this information out to your tenants and that you think that they do not understand. Certainly my local housing association, Cross Keys Homes in Peterborough, has been doing surgeries, newspapers and meetings with tenants, and obviously people do know what is going on. If you are looking at 80% of your tenants not knowing, there is something going badly wrong and perhaps you need to revisit your communication strategy. Have I got it right from the paper you put forward that you are talking about only your particular area? Or are you saying that the phenomena that you make clear in this paper apply to the whole country? I am slightly concerned because it is quite a downbeat document, and my understanding is that the point of the affordable rent programme is that you can charge up to 80% and that local factors will be taken into account by registered providers in each locality. Obviously, the east midlands and the north-west will be completely different to Greater London. I would like you to address that.

The paper is also a bit negative because it does not take into account the fact that we all want to see new build and that the affordable rent programme will facilitate new affordable rent properties in the absence of a registered provider being a constituent participant of the affordable homes programme. That is another way of ring-fencing money to create new housing in areas of need. You seem to imply that it is a zero sum game-affordable rent is unaffordable for people, housing benefit will go up and it is all bad news-but, actually, it is another way to access important capital money, rather than just a block grant from the DCLG or other Government agencies, is it not?

Chair: That was three questions.

Mike Donaldson: First, on the information, all I am saying is that the feedback we are getting from residents is that, although we have contacted them-we have written to them, sent out newsletters and knocked on doors-a lot of people do not get the changes. The information from the DWP’s own pilots backs that up. It is not just an L&Q experience; it is more wide than that. There is simply so much of it, as John alluded to, and it is coming from different angles. I think people are confused. It is not a lack of effort on our part, or on any other landlord’s part.

On affordable rent, what we are saying is that affordable rent works because rents are going up. Rents going up will be a burden on the housing benefit bill. The housing benefit bill is not going to go down; it is going to go up. You are transferring it from a capital sum to a revenue sum, and because people are entitled to housing benefit, that revenue sum will be paid for from the housing benefit bill.

We are not downbeat about the affordable rent programme. We applauded it when it was introduced, and we think it is a good thing, but in the current context of benefit cuts, there is a consequence, which is that the bill is going to go up. If there is a cap on the overall amount that the Government want to achieve in terms of HB expenditure, our argument is that that will be exceeded, and there will be further cuts somewhere else.

Q17 Mr Jackson: But cumulatively, in terms of providing what we all want, which is better-quality social housing for people in need, it might be a catalyst for delivering that in straitened financial circumstances where we do not have the capital available from central Government.

Mike Donaldson: We are not saying it is a bad thing. All we are saying is that there is a consequence.

Q18 Mr Jackson: My final question: are you opposed in principle to the benefit cap that we are told will necessitate the movement of people into different boroughs, particularly in Greater London? Do you not have a collective view of it, as a registered provider?

Mike Donaldson: Our view is that while there is an argument for people being encouraged to go to work, and a lot of the people that we are talking about actually do. The benefit cap will affect people who work as well as people who do not. The idea that someone is sitting at home watching other people go to work sometimes is not true. People going out to work will be affected by the benefit cap. The consequences are that people will have to move out of central London areas, and not just central London areas. It will also affect Hackney. Hackney has high rents, and I do not think it has ever been regarded as central London.

Q19 Mr Jackson: But you can see the argument that there are people in Jackie Doyle-Price’s constituency earning less than £26,000 who get up very early morning and have to travel into the city on crowded trains. They are doing the right thing, and there is an issue about fairness and equity in Government expenditure. You can see that, surely.

Mike Donaldson: I sign off on the fairness argument completely, yes, across the board.

Q20 Chair: Do you want to add anything to that, John?

Professor Hills: The point that I would like to bring up in particular is about the knock-on effects of some of this that either are unintended or will just be taken on the chin. One example is that as rents rise within the social sector, whether or not they go all the way up to the maximum, the effect is to extend the poverty trap. Whether it is under the current housing benefit system or universal credit, the income range over which people are affected by benefit withdrawal-either some of the very sharpest rates in the current system or the general taper under universal credit-will affect people further and further into work and will mean that there is less of a net return from the extra £10, £50 or £100 a week they earn. That is an inevitable effect.

Q21 Chris Heaton-Harris: That is a function of geography rather than economics, is it not? It is where you work, the salary you earn and how much your expenditure is rather than the generic policy across the country. It is a London-centric factor.

Professor Hills: No, I think it is to some extent a matter of arithmetic. If you move from a system where you have deeper subsidies to keep rents down, which is not affected by means-testing, to a system where you are shifting your assistance for people on very low incomes to a means-tested system, that inevitably means that the withdrawal part-the point up to which housing benefit or its equivalent under universal credit extends-must go up the income scale. Therefore, more people must be affected by those marginal tax rates. That happens, whatever part of the country you are in, if rents rise.

Q22 Chris Heaton-Harris: Really? So it is going to happen in Daventry, where the average salary is beneath what the housing benefit cap will be?

Professor Hills: No, I think we are talking about what is happening with the shift to social sector rents rising.

Q23 Chris Heaton-Harris: In London.

Mr Jackson: In inner London actually.

Chair: Well, it is affecting me in outer London.

Q24 Stephen Barclay: A quick point about paragraph 12: the Report does not evaluate the merits of the reforms themselves. We are not a policy Committee; it is about the value for money of the proposals, not the general policy itself.

Professor Hills: My point was about the consequences in other parts of policy. A change in housing policy and the level of subsidy to the social sector has consequences for work incentives in another direction.

Q25 Ian Swales: I would like to extend the point about the not-London part of the country. My part of the world does not have a housing problem; the population has gone down by 3% in the past 10 years, and I just wonder what effect you saw these policies having on parts of the country like that-in particular, how the housing benefit tends to fix the rent levels in areas like mine. Have you studied that at all?

Professor Hills: I have not personally studied it in detail, but a point that comes out of the NAO Report which will be very important to watch is that the Department is intending to monitor what is happening for rental markets over the country, because one would expect very different effects in-sorry, I do not know your constituency-Morecambe from inner London. So part of the intention of the policy-general restrictions in housing benefit-is the worry that rent levels have been sustained by housing benefit being an open cheque. There are local authorities where a large proportion of the private rented sector has been financed by housing benefit, and one would expect caps of different kinds to start biting in the sector, with the 1% increase per year and so on. There are other parts of the country where you have a vibrant private rented sector, with demand from other places, where you might not see any effect on rents at all. So part of the point of the reforms is to change landlord behaviour, if you like, and I think it is going to be very important to monitor how landlords do change that behaviour. One would expect that precisely to be very different in different parts of the country.

Q26 Ian Swales: My other question is, have either of you looked at the question of shared tenancies on this under-occupancy rule? Certainly in my area, like so many, there is not a shortage of accommodation, but there is a shortage of smaller accommodation. I have now got people coming to me and saying that they want to share, but there is a concern about what the impact will be on their benefits and on the landlords, because they are not allowed to sub-let to each other under their rental agreements usually. Have either of you considered that, in terms of making better use of this?

Mike Donaldson: Most social landlords tenancies will allow people to have lodgers. They may not allow sub-letting it-or, without permission, they do not allow sub-letting, but they do allow lodgers. In that circumstance, it sounds more like having a lodger in, but there is an impact on your benefits. If you are taking in a lodger, you do not get the full benefit of whatever that charge you make is, so there is a withdrawal of benefit.

Q27 Ian Swales: What if someone came to you about a two-bedroom flat and said, "We want two rental agreements, two separate agreements," would you do that?

Mike Donaldson: No, we would not. We would only allow someone to have a lodger, but we would not create a separate tenancy in that property.

Q28 Ian Swales: It is something we can pick up with the next witnesses; but, obviously, if people do that then there are probably unpredictable effects on their benefits. Therefore, they are unlikely to do it. Is that something you would consider if you thought it would help to resolve some of the issues?

Mike Donaldson: Creating houses in multiple occupation-to be honest with you, if someone wants to take in a lodger, that is up to them and a deal they can make separately, but we would not get into the game of overcrowding our properties from day one.

Q29 Ian Swales: I am not talking about overcrowding; I am talking about properties that are, by definition, under-crowded. That is what the rules are about.

Mike Donaldson: But if you have two families occupying the same property-we have this now with the sharing of students in accommodation that we own, but that is regulated, because they all have their own bedroom. If the situation is that they all have their own bedroom, that is-

Q30 Ian Swales: Two single people, a two-bedroom flat- would you do it then?

Mike Donaldson: We would not give separate agreements, no.

Q31 Nick Smith: Mr Donaldson, you talked about rent arrears being likely to double to 7%. You talked about trying hard for some tenants to pay back their arrears but the difficulty of that as the overall amount goes up. What is that going to lead to with evictions? Do you have an estimate for how many evictions you will have?

Mike Donaldson: The estimate about arrears, just to make it clear, is about us making allowance for bad debt. We are not expecting that to happen, and we hope it does not happen, but the assumption is that evictions will go up as a result of this. We have not made an estimate in terms of overall numbers. Our evictions in the last five years have come down year on year. Eviction is not something that we want to happen, but we expect that it will happen, because some people simply will not respond in a sort of behavioural sense, which I know is part of the thrust here. They will not respond to the stimuli, and they will more than likely breach their tenancy agreements sufficiently for us to get a court order.

Q32 Nick Smith: Do you have any back of the envelope analysis on what will happen with evictions?

Mike Donaldson: We have not done that, no.

Q33 Nick Smith: What will be the effect on your cash flow, and how will that affect your borrowing to pay back any investment that you made in refurbishing or building new flats or houses?

Mike Donaldson: At the moment, we have put more money aside to account for bad debt in recognition of the fact that we are going to suffer some increase in non-payment, but it does not affect our cash flow to the extent that you are driving at.

Q34 Chair: What would you be doing with that money otherwise?

Mike Donaldson: Otherwise it would go into the maintenance of homes or into investment in new homes. We are talking in terms of millions of pounds here.

Q35 Chair: You are just setting that aside until you see the impacts on the number of new homes or maintenance of existing homes.

Mike Donaldson: Yes, it is coming away from things that we would normally do.

Q36 Nick Smith: So you are not building new homes and you are not maintaining your present stock.

Q37 Chair: Well, they will build some, but they are building less than they otherwise would.

Mike Donaldson: It reduces the overall resources available to do the things that we are here to do, which is to build and maintain homes.

Q38 Mr Bacon: Can you put a number on it? You said you had 52,000 properties. In a normal year, absent this, how many new dwellings would you create?

Mike Donaldson: For rent?

Mr Bacon: Yes.

Mike Donaldson: Something in the region of 1,000.

Q39 Mr Bacon: And because of this pressure that you are describing, how many fewer than 1,000 do you think it would be?

Mike Donaldson: Perhaps 80.

Q40 Mr Bacon: So 920 instead of 1,000. You mentioned that you have told your lenders that it will have this effect, although you are hoping you will do something about it. What effect is that having on what your lenders are asking in terms of interest rates? Is there a perceivable affect?

Mike Donaldson: It has had no effect so far. To be honest with you, we have tried to create confidence in that sector to carry on lending to the overall sector, so it is not something that we have been banging a drum about in terms of depressing everybody.

Q41 Nick Smith: Have there been any pilots by the social landlords for collecting rents in other parts of the country, and what is the result of those?

Mike Donaldson: None recently. We did one 10 or so years ago. We did find that rent arrears went up.

Q42 Nick Smith: But no pilots for what is occurring at the moment.

Mike Donaldson: The pilots being run at the moment are operating until next June. There is one in London and another six across the country.

Q43 Nick Smith: What is the early feedback from those?

Mike Donaldson: It is not well known. I understand that the rent arrears have gone up. I understand that getting hold of people, contacting them and telling them what is happening has been difficult, and it has taken some time. This is voluntary, so some of the behavioural stuff, of course, is difficult to estimate, because it is a voluntary arrangement.

Q44 Nick Smith: You do not know because it has not been published?

Mike Donaldson: I think it was due to be published around now by the Department, so maybe that is something you ought to ask the Department about.

Q45 Chris Heaton-Harris: You are obviously wary of the changes, but you are obviously aware of the general feel of public opinion on this issue, especially the further away you get from London. If you had an ideal solution to this-the £23.4 billion spending in 2011-12-knowing the Government finances as they are, if this is not the right way to do it, what is?

Mike Donaldson: Most of the increase in housing benefit over the last 10 years has come from the private sector, so it is private sector rents. The private sector is housing more of the country’s families, and they are charging more for those tenancies. That is the reason why housing benefit has gone up, largely, and the Report points that out. We have no problem with the changes. They are political decisions. We are not a political organisation. However, there are consequences, and obviously we have to face those consequences.

We did argue one thing at the beginning. When local housing allowances were introduced, they were piloted for a long time. There was lots of behavioural work, which was studied. It was six years effectively between the pilots beginning and the roll-outs across the country. This has been done incredibly quickly and on a much broader scale. On the consequences, I think to a certain extent that the Department is flying blind, and we will not know the consequences until it is far too late.

Q46 Chris Heaton-Harris: Has the sector any ideas on how the Department can reduce this increasing amount of money spent on housing benefit other than tipping more money in?

Mike Donaldson: The commitment has been made by politicians, not by the housing sector.

Q47 Stephen Barclay: Mr Donaldson, your evidence is very much against change. However, if you look at the figures, over the 10 years to April 2011 the amount of money going in increased by 54%-that was the increase in real expenditure-yet the total stock of social housing decreased by 6%. Almost half as much money again is going in, and yet the number of social houses is coming down. That suggests the policy is not sustainable, surely?

Mike Donaldson: First, the majority of the increase was in the private rented sector. Stock leaves the social housing sector because of right to buy, not just because of housing associations-

Q48 Stephen Barclay: But that reduces demand. It is still providing accommodation to people.

Mike Donaldson: Yes, but it is not new demand because it goes to sitting tenants. No new person has a house because of right to buy. In reality, it has left the sector and is not available to anyone else in the future. The supply of new housing has not been there. At the heart of this issue is that not enough housing is being built, either for social housing or for the private rented sector. Certainly in London, that is the case. There is not enough supply, which is why people are having to move into the private sector. The alternative would be to go into the social housing sector. That is also pushing up prices, particularly in London. So more social housing and more subsidy might be one solution.

Q49 Mr Jackson: Housing associations have accessed huge amounts of capital via stock transfers in a way that local authorities would never have been able to envisage. I think Mr Barclay has a fair point. In terms of absolute cash you have had for capital expenditure over the past 10 years, you can talk about planning, but the issue is why registered providers have not built more homes to meet the demand over the past 10 to 12 years.

Mike Donaldson: We have built the homes that public subsidy was there to ask us to build. An amount of money available from what was the Housing Corporation and is now the HCA for a finite amount of housing based upon an agreement amount of subsidy. We have built what we were asked to do.

Q50 Chair: John, do you want to come in on this argument? I am dying to hear from you. My first love was housing policy, rather than how much money-

Professor Hills: We are dealing with an incredibly difficult situation. I do not think there are any easy answers to it. To go back a bit, we are celebrating the 70th anniversary of the Beveridge report. There is whole chapter in the Beveridge report about the problem of rent. He could not solve the problem of how to set a level of benefit to cope with the variations in rent at that time. He was dealing with a situation where rents were 22% of other substance needs. As a result of what has happened to house prices and the cost of housing, we are dealing with a problem that is effectively three to four times as big as that. This is a really tough issue.

The tenant sitting in the same property with the housing market rising around them-the boom in which house prices doubled was financed by people whose incomes were rising and who benefitted from the capital gains-is facing the effects of that. To an extent, the housing benefit bill was where that balloon pushed out. With rising rent levels, that was where the money was paid out. The alternative is to depress further the incomes people have for other parts of their subsistence. As the whole range of restrictions we are talking about come in, that is the inevitable consequence, unless there are large-scale moves to cheaper parts of the country, or to small property. However, in some parts of the country, that small property does not exist.

Chair: I’ve got another answer.

Q51 Guto Bebb: I have just a quick question to Mr Donaldson in relation to the point you made about your rent arrears going up from 3.5% to 7%. You also said that that did not create any immediate problems for you with your bankers. A number of housing associations I have met in north Wales indicated banking covenants of 5% of turnover. How common is that within the sector?

Mike Donaldson: It depends on how long you have been borrowing. Some of the old covenants have very restrictive terms. That well could be what that applies to. Most developing associations have renegotiated those covenants over a number of years, and so we have got out of those restrictive arrangements.

Q52 Guto Bebb: So it would be a minority of housing associations with those covenants?

Mike Donaldson: That is the view, although there could still be some old loans hanging around, which could give organisations a problem.

Q53 Guto Bebb: Secondly, in terms of north Wales, I have four or five housing associations in my constituency, and it appears that this looming policy change has led to co-operation and joint working among them. Are you seeing any evidence of that in terms of the shortage of one-bedroom flats? For example, flats being allocated from one housing association to a tenant of another; is that happening across the country?

Mike Donaldson: We have certainly seen it in terms of organisations outside London. Most of the bedroom tax problem is outside London, in reality. We have certainly been working with one or two associations in Kent to try to assist people. In London, we have seen that in terms of assisting people through mutual exchange, because the only answer we have is people mutually exchanging because there simply is not the right match of properties. There is a lot more collaboration going on, yes.

Q54 Jackie Doyle-Price: I have a quick question for Professor Hills. I am interested in turnover of stock and the degree to which people move around. Is there any evidence that suggests that tenants of social housing are less likely to move than those in private housing or any other tenure?

Professor Hills: There certainly was evidence at that kind. Sorry, I have not looked at it recently, but that might be a good question for officials.

Chair: He shook his head behind you.

Professor Hills: There are two different issues. One is the relative level of moves between the social sector and the private sector. Clearly, there are just huge barriers to moving in the social sector, because exchange arrangements between social landlords are very partial and there is no system that allows you to decide, for different reasons, that you want to move from Manchester to London.

Q55 Jackie Doyle-Price: I am also interested in downsizing. We are moving to a system in which there is a big stick to encourage you to move, because it is difficult to give the carrots when, ultimately, and particularly if tenants rely on housing benefit, there is no incentive to downsize. Does that hamper social landlords from efficiently managing their stock?

Professor Hills: I think it does, although some social landlords-you might well have details-have in the past given incentives for people to move and free up stock where possible, but with relatively low take-up. That has worked, but the scope for doing it is really quite limited. That is against the context nationally of lower levels of mobility overall and much less flexibility in the system. A thing that changed from the 1980s to the 2000s was that there was much less turnover in social housing and much less ability to take in new tenants, which just means that the whole system is much more gummed up than it used to be.

Mike Donaldson: That is definitely the case. The turnover in numbers has dropped like a stone in the past 10 years. It is a precious commodity and so people will not give it up. That is why it has led to a concern over the years that we cannot encourage people enough to move to smaller accommodation. They just simply will not give it up.

Q56 Jackie Doyle-Price: I give the example of my 86-year-old grandmother-God bless her-who is rattling around in a three-bedroom council house. She has no incentive to downsize from her home because her rent is paid whatever she does. You are criticising the stick, but how else can you incentivise somebody who has no financial incentive to move?

Mike Donaldson: Don’t worry; she is safe now, because the proposals do not touch her.

Q57 Jackie Doyle-Price: I know she is safe, but there is a weakness in the system, which needs to be addressed, and needed to be addressed.

Professor Hills: It is a more general issue. Obviously, it is an issue for owner-occupation as well. More of the people who are rattling around in large houses will be owner-occupiers, and as far as they are concerned-

Q58 Jackie Doyle-Price: But they have a financial incentive to downsize.

Professor Hills: They have some financial incentive; they do not have very strong council tax incentives, but they might have some. They could theoretically make a gain, but by the time you have taken account of the costs of moving and buying and selling, there are people who clearly gain from downsizing, but it is happening in all tenures, not just in social housing.

Q59 Jackie Doyle-Price: But the taxpayer is not subsidising that. That is the issue.

Professor Hills: The issue is overall that we have a general, national shortage of housing space. We are trying to grapple with ways that across the board make better use of that housing space. I think that is something that is cross-tenure, rather than just in the rented sector.

Chair: Good. That was very informative. Thank you very much indeed. We will now move to the main session.

Examination of Witnesses

Witnesses: Robert Devereux, Permanent Secretary, Department for Work and Pensions, and Andrew Parfitt, Head of Housing Policy Division, Department for Work and Pensions, gave evidence.

Q60 Chair: Good afternoon, both of you. We are going to start with the housing benefit and then move to the Work programme. Is that all right with you?

What is clear to me, and really from the early session it came out: there are huge variations in attitudes, depending on where you live-

Robert Devereux: In attitudes?

Q61 Chair: In attitudes to the changes, from us as representatives. If you look at it, the way we think it will impact locally, and the value that it will have locally, is very much a function of where you live. If I look at the Report, just looking at one aspect of it-the supply and demand, which is pretty important in the discussion we had: on page 12 it says: "The Departments have compared supply and demand of different property sizes to identify imbalances at the national level but not at regional levels." I read that and I thought, "That completely misses the point, because we do not have a national market in housing." We do not even really have a regional market. We have a local market, and the impact of these changes will be very different if you go round this table in each and every one of our constituencies. I am slightly concerned that the Department has chosen not to be aware of that, from that paragraph, which I assume you accepted.

Robert Devereux: Okay, I agree with you. Later on, we are going to come on to some of the projections that the NAO have done. They have largely based that on allocating regional data to local authority level, and you simply cannot do that; so I entirely agree with you. This is an incredibly diverse market. It varies by the mile, round where I live, and certainly elsewhere-

Chris Heaton-Harris: By the street.

Robert Devereux: By the street, exactly. So I think, consistently, we are going to be talking this afternoon about setting in train a set of changes where the principal intent, basically, is behaviour change. It is a very difficult thing to predict. The only way to actually engage with that is to be very careful to watch the data as it moves along-to look at what has happened to homelessness, what has happened to the use of discretionary housing payments; to look at the way in which people are occupying their properties, and actually watch what happens in practice-because I am afraid all the evidence suggests that revealed preference is a rather more impressive thing to look at than stated preference, and actually that is the only way we are going to get through this.

Q62 Ian Swales: Can I just build on that point? One of things I often say in my local area is that we suffer from what I call M25 policies-policies formed within the M25 that make sense within the M25, whether it is choice of schools, or whatever, but don’t make sense when you are 200 or 300 miles away. This decision to average-was that part of your input to the policy makers at the time?

Robert Devereux: To average what?

Ian Swales: This point the Chair made about the comment in the Report about assessing housing stock across the whole country.

Chair: It does say there that you looked at the demand and supply of housing-let me get it up on my new system: page 12.

Q63 Ian Swales: I just make the point because under the previous Government my area was asked to build 3,000 extra houses in an area of declining population, because it was just an allocation nationally, and made no sense locally.

Robert Devereux: Let’s have a think about what these policies are. The policy that has probably the biggest impact on most people in the private rented sector is the one about changing the local housing allowance to the 30th percentile. The 30th centile is in each broad market region, so I have brought with me, because it is an incredibly long table-

Chair: Can you speak up a bit?

Robert Devereux: I have brought with me, because I have no idea which one you were asking about, the individual rents at the 30th percentile, for every single one of those broad market areas. So this is not a national policy. The national policy is to make it affordable at the 30th percentile level, which is a reduction from the median, but it is not a standard number, and it varies by every bedroom.

Q64 Chair: Okay. I have found it now: "The Departments"-I assume that that is you and DCLG-"have compared supply and demand of different property sizes to identify imbalances at the national level but not at regional levels." You will accept that they are very different. I am beginning to see the impact. I represent an outer London borough-I am sure you will hear a lot of this today-and, for the first time ever, we are seeing a growth in homelessness. For the first time in a decade, we have 150 families in bed and breakfast. For the first time ever, I have had two cases in my surgery of people who have been placed in Barking and Dagenham by Kensington and Chelsea because of the changes in rent levels, so the impact is beginning to be felt.

One family came to see me because it had split up following a divorce and had lost its home, so they were forced into accommodation. Of course, the children go to school-these are all with children-in Kensington and Chelsea. One woman works, and she cannot get the children to school and get to work in a sensible way. She just cannot manage it on her own. There is an impact on her, on the children’s education-we heard about this from John Hills-and on the woman’s ability to work. All those things are impacted.

The other thing is that my borough is placing people I dread to think where, but probably Stoke, if one is honest. It is certainly placing people outside borough, and when I asked why on earth it was doing that, it said that private rents in the borough had gone up, and were it not to do that, it would cost an extra £5 million-that is the estimate from the housing official in charge-on council expenditure. With the cuts it must find, that is just a silly way of spending its money. It is taking in people from Kensington and Chelsea, putting Barking and Dagenham people goodness knows where in the country, homeless is rising, and we are beginning to see the impact.

I understand that it will be very different throughout the country and in other people’s constituencies, but that cannot be the intended impact of the policy, so I do not know how you will cope with it, apart from the fact that you have told us you will be sensitive, but I am telling you that it is out there and it is happening.

Robert Devereux: Okay. I listened to Professor Hills saying what needed to be said, which is fundamentally that there is a housing problem. Against that background, we have put in place a number of reforms to save money, because the Government’s view was that public spending needed to be reduced very sharply, and housing benefit is part of that. The reductions that we have made have essentially tried to do two things. One is to try to get better use of the stock and the contributions that people in that stock are paying, which is all the stuff to do with the size criteria, the benefit reductions and the reduction of the £15 excess. The other is to try to encourage people to be in cheaper accommodation. The fact that there have been some movements of 1,000 or so-of the order of 10% or 13%-out of the Westminsters and Kensington and Chelseas into some of the boroughs you are describing is, in one sense, the effect of the policy. The policy is indeed-

Q65 Chair: May I take that in terms of value for money? The main change will come in April. The first two cases I have had are the start of the changes. In terms of Government expenditure, there will be expenditure around the children’s schools and welfare expenditure, because in one of my cases the woman is in work and will probably have to leave her job because she cannot get the kids to school and get to her job. Looking at the impact of these policies, I completely understand that it will be different-

Chris Heaton-Harris: Chair, how many of these cases have you got?

Chair: These are the first two, that’s what I am saying.

Chris Heaton-Harris: Because I have people coming to my constituency surgery moaning that we are not doing enough on this issue.

Chair: I accept that it is very different in different areas, but this cannot be a value-for-money impact.

Robert Devereux: The first thing to say is that everyone will have a story of one individual family, and there is no point in-

Q66 Chair: It is very important to have those cases to give you a feel for what is happening-not just figures, but people, Mr Devereux.

Robert Devereux: I thought you would say that, so I brought with me some people stories. One of the policies that we have introduced, as you know, is the cap on benefits, and the NAO is very complimentary about the preparation-

Q67 Chair: Can you deal with my issue? I am not against the cap on benefits-I am not arguing about that. I am just saying that this is the beginning of what is happening in one borough.

Robert Devereux: With respect, you are giving me an example of where the behaviour change is precisely zero, as far as I can see-where nothing has changed behaviour-wise. All you have done is to observe that that person has less income and all of a sudden they have to move.

Q68 Chair: And I am also observing that my borough is having to place people very far from their communities, jobs and everything, because it cannot afford the increase in homelessness. My official has given me a figure of £5 million.

Robert Devereux: I have heard those anecdotes, too, but I am not sure what the evidence is for mass migration out of borough-I would quite like to see that.

Q69 Chair: Well, if I show it to you, how will it influence you? All I am saying is that these are the beginnings of impacts, although I accept that it is geographically very different.

Robert Devereux: Some of the people we have been researching who have gone to Walsall have found it a lot better, actually. They have managed to get work up there and found that rents are cheaper.

There are two ways of looking at this. Undoubtedly, these are policies to save money, because public spending needs to be reduced. I do not believe that it is necessarily the case that the consequence of saving money is that more expenditure will turn up somewhere else in the way that you have just described.

If I may, I will give some examples. With the benefit cap, which on the face of it is an even more intrusive change to the benefits system, we have been writing to individuals to say, "Look, something is coming your way. Would you like to engage with us face to face?" Let me take an example at random. In the north-west, a 31-year-old lone parent with eight children who had never worked and was about to lose £235 a week was invited to the jobcentre. They were helped to get into work and started work as a kitchen assistant for 16 hours a week, and they are out of the benefit cap altogether as a consequence. That is the sort of work that happens on an individual basis when my Department and good local authorities get together on the benefit cap, make actual contact with people and start to engage with how they might change the disposition of their rent and work.

This is about getting people into cheaper accommodation because, as we just observed, the nation cannot afford the amounts we are paying on accommodation at the moment, and also about getting people to do more work and to get more money for that, all of which seems to me to be a credible way of trying to make savings.

Q70 Chair: I will have one more go. I accept that for many people around the table, the situation is different from the London one, but-this comes out in the Report-this is not just Barking and Dagenham; it is all the London councils. If you look at the page in the Report where concerns are mentioned, Westminster is just as concerned. I cannot remember what page it is.

Robert Devereux: It is page 20.

Chair: Thank you. No, it is not that one; it is another page with all the concerns being raised by various bodies. Maybe you do not take Shelter and those sorts of bodies seriously. Is that the case?

Max Tse: It is page 20.

Robert Devereux: It is page 20. The very last bullet point talks about Westminster. It says that Westminster is struggling to find enough temporary accommodation.

Chair: Oh, yes, I’m really sorry; you are absolutely right.

Robert Devereux: One of the important changes that the Government have just made is to relax how a local authority can meet its duty under homelessness. In particular, it can make an appropriate offer to a homeless person of accommodation in the private rented sector.

Q71 Chair: Which costs more. Rents in the private rented sector are higher than social rents. That will add more to the benefit bill.

Robert Devereux: Okay, let me just try one problem at a time-

Q72 Chair: But you gave me an answer that does not hold true in terms of value for money, because the cost goes up. One of the reasons why the benefits bill has gone up is costs.

Robert Devereux: I am sorry but, with respect, if more people are occupying cheaper accommodation at the end of these policies, that is a fantastic value-for-money proposition, and I have heard nothing from you that suggests that that is not true.

Chair: Pardon.

Robert Devereux: The effect of these policies is to end up with cheaper accommodation being occupied and with less spend.

Q73 Chair: But this is the private rented sector. Am I reading this completely crazily? One of the reasons-

Robert Devereux: It is way cheaper than temporary accommodation.

Q74 Chair: It is cheaper than bed and breakfast, but we have been out of bed and breakfast for years. We are now going back into it.

Max Tse: It depends where people go. If the private rented sector is the alternative to temporary accommodation, it is probably better, but if it is an alternative to social sector accommodation, it would be more expensive.

Q75 Chair: If you look at the reason why the housing benefit bill went up so massively, it was because of the increased use of the private rented sector, I thought.

Robert Devereux: The private rented sector is more expensive than the social sector, yes. We subsidise one and we do not subsidise the other.

Q76 Nick Smith: But Mr Donaldson, our previous witness, said that they would be forced out of social housing and into the private sector and, because there was increased demand for private sector accommodation, the rents in the private sector would go up.

Robert Devereux: So again, going back to the point we have made already, there are a number of very small markets here, and the effect that there will be in any one area depends on the supply and demand in that area, so it is not necessarily the case that all these things are relevant. In some cases, we are absolutely the dominant purchaser of private sector rents, so it would be a surprise, if we start capping what we are prepared to pay, if rents don’t adjust. In other areas-let’s take Westminster and Kensington and Chelsea-we are clearly not. We are a very small part of it, in which case it is not obvious that the demand from housing benefit claimants is itself going to change the price.

Q77 Nick Smith: In Blaenau Gwent, we have mostly post-war three-bedroom housing. There is very little private sector housing with one or two bedrooms, and there is no alternative accommodation for people to go to. If you are going to push people in that direction, the private sector, because it has less supply, is likely to see its prices go up.

Robert Devereux: We are jumping from different sorts of things here. The particular reform you are talking about is the social sector size one, is it?

Nick Smith: Yes.

Robert Devereux: Okay. With that one-Mr Donaldson sitting here said this just a moment ago-the thing we most need is to get people to be accommodated in the right sized property. The conversation you were having earlier about, "What about all these properties that are occupied or under-occupied?"-[Interruption.] I am sorry, but this is important because, in the end, although you are all bound to come back to me to say that there is a shortage of one-bedrooms in the social sector, I can assure you-

Nick Smith: In the private sector.

Robert Devereux: I can assure you that it is cheaper to have one person in a one-bedroom private sector thing than to have a four-bedroom house in the private sector that could be in the social sector. The whole point of properly occupying this sector is to make sure that all the bedrooms are properly used. At the moment, we have lots of bedrooms in the social sector, subsidised, and not actually being used.

Q78 Chair: Can I just hog five minutes, because I want to get a clear answer? Then I have Ian, Meg and Stewart. Who else?

Mr Jackson: I just wanted to ask a helpful question.

Q79 Chair: Did you? I just wanted to get a straight answer.

Are you looking at the impact? Do you care about the impact? I understand that it’s a London-centric issue.

Robert Devereux: It is not a London-centric issue, and it is not your borough either. What I am saying is that you need to put these reforms in place, and you need then to understand and watch what is going on.

Q80 Chair: So what are you going to do when I am telling you that these things are going on?

Robert Devereux: Let’s wait. For the moment, the LHA changes are essentially all now in the system. Even with the generous grace period that the Government gave, it is all finished by December 2012. If you look at the homelessness statistics, they have not shot up by 775,000, and they have not shot up by the 80,000 that some researchers have said.

Q81 Chair: How much have they gone up by?

Robert Devereux: How much do you think they have gone up by?

Chair: I don’t know. You tell me. You’re the expert; I’m not.

Robert Devereux: For the end of shorthold tenancy across the country-

Chair: The end of what? How are you defining it? I bet it’s behind your definition. I know you, Mr Devereux.

Robert Devereux: Okay, shall we have a quiz?

Q82 Chair: How many local authority acceptances on homelessness? That’s the real issue.

Robert Devereux: In the last quarter, it was 13,890.

Q83 Chair: How does that compare with a year ago?

Robert Devereux: Well, that’s interesting, isn’t it, because a year ago, it was actually 12,510. However you look at it, these are not numbers with hundreds of thousands against them, which is what the Report might encourage you to think about, given this conversation. Don’t get me wrong; every single one of those homeless acceptances is a bad news story for the individual involved. However, the numbers that we are currently seeing for homeless acceptances are of the order of half what they were three, four or five years ago. We are much better at this now than we used to be.

Chair: I’m not sure.

Robert Devereux: These are the published statistics.

Q84 Chair: Well, all I can tell you is that Barking and Dagenham didn’t have people in-[Interruption.] I don’t believe that it is that exceptional, and I don’t believe that it is a bad housing authority.

Robert Devereux: We have had this problem before about whether it is anecdote or statistic. This time, I am actually going to go with the statistics.

Q85 Chair: Yes, but I am giving you the Barking and Dagenham statistics.

Robert Devereux: These are possibly quite true, because I think you also mentioned a figure of four or five people you have seen. Even four or five is consistent with 1,000 or so. You may have just five thousandths of the total. That is perfectly possible.

Q86 Chair: So is Shelter’s figure that homelessness is up a third since the election wrong?

Robert Devereux: Homeless acceptances at the point of the election were around 10,000, and they are now around 13,000 or 14,000, so up-

Q87 Chair: So it is about a third.

Robert Devereux: Okay, but before you look too smug-

Chair: No, I’m not getting smug; I just want to get underneath this.

Robert Devereux: The main reasons why those have gone up are to do with the fact that relatives and friends are no longer willing to provide accommodation, or there has been a relationship breakdown with a partner. When you look at the people who actually say that the reason they are homeless is the end of a shorthold tenancy, they have gone up by 1,000 since the election-from 1,700 to 2,800. For the 1,000 people in that situation, that is bad news, but in the grand scheme of things, where 775,000 people are affected by the LHA contraction, I would be perfectly happy to argue that actually this is a reasonable set of reforms. We need to be very careful that local authorities continue to manage this outcome well, but the evidence is they are managing it well.

Chair: Okay, I’ve heard enough; I’ll come back a bit later. Ian, Meg and then Stewart.

Q88 Ian Swales: Just to redress the balance slightly, a family with three children who came to see me two weeks ago were absolutely delighted that they were getting a three-bedroom house because the couple who had it were moving out due to these benefit reforms, so I have actually had one of those stories- [Interruption.]

Mr Jackson: We like that anecdote.

Ian Swales: And a sense of balance.

Chair: The coalition is working in this Committee.

Nick Smith: They’re still not voting for you.

Ian Swales: Yet-no, they do.

Can I come back to a point that was made by one of the previous witnesses? This was about the reform that said that housing providers could move up towards market rents. I did not specialise in these reforms as a parliamentarian, but I understood that to be where people could afford it, yet the previous witness suggested that this was actually increasing the housing benefit bill. Is that something that you recognise and was it an intended consequence of that change?

Robert Devereux: As I understand it, the Government have indeed allowed housing associations to charge closer to the market rent than previously, and a large part of that comes our way in the housing benefit bill. I think from memory that affordable rents are pitched at up to 80% of the market rent.

Andrew Parfitt: Absolutely. It was a joint endeavour between the DWP and the DCLG. We worked jointly on the assessment of the affordable rent policy, and it has two effects, which pull in different directions. As one of the earlier witnesses said, if you have unchanged supply, having affordable rent at up to 80% of market levels, rather than social rents at about 50% or 60% of market levels, will tend to increase your benefit bill. However, the affordable rents allow you to increase your supply of sub-market property, so in that instance you have savings going in the other direction. You have savings from having a greater supply of sub-market rent property than you would have done had you had the social rents, and this is all in the context of getting the best value for money out of a fixed capital grant.

Q89 Ian Swales: As Mr Barclay said earlier, since the whole stock transfer episode, there is no evidence that the supply of social housing is going up. Are you policing whether allowing them to charge those market rents is resulting in greater supply? Are you actually tracking the public pound, as it were?

Andrew Parfitt: Yes, that is vital. The DCLG has let the contracts to deliver this increased supply of affordable rents, and those contracts are starting to come through. It takes a while to build a house, but if you look at the DCLG’s plans, they are for the supply of several tens of thousands of these homes.

Q90 Ian Swales: Is the money ring-fenced-the difference?

Andrew Parfitt: In relation to the providers, I understand that the DCLG has contracts that say, "You will deliver these outputs of affordable rent tenure and you will charge these rents," so there is a bidding process.

Q91 Ian Swales: My other question-this point is mentioned in the Report in terms of homelessness, particularly for under-35s-relates to the question I asked the previous witnesses. People are coming to me saying, rather like in Blaenau Gwent, "There are a lot of three-bedroom properties with single people in them. Why can’t we have two tenancies for this place?" As the previous witness said, social housing organisations do not typically do that. They might allow lodgers, but then I think the DWP would treat such an arrangement as probably adversely affecting the benefits of whoever was the prime tenant with the lodger. Am I right?

Robert Devereux: I think not, but Andrew will correct me if I say this wrong. This is quite an interesting area. If we end up with a whole load of places with too many bedrooms, but on the face of it a whole load of people looking for bedrooms and somebody to share, then actually the smart thing to do would be to allow that to happen.

The way the housing benefit regulations work, if I choose to occupy a property with somebody else not even in my family, then the way in which you do the housing benefit calculations with allow the extra bedroom-all right?-so the bedroom will be provided for. We would then regard that individual as being a non-dependant in the area and we would expect some income back from them. But we certainly are not precluding people using some imagination and saying, "Okay, I’ve got a three-bedroom place. I only occupy one of the bedrooms. I’ve got two spare bedrooms. I wonder whether I might let that and do something with it." Actually, the benefits system does not disadvantage those people that take in lodgers in that way.

Q92 Ian Swales: So that would not be regarded as income, which is then deducted from other aspects of their benefits, would it?

Andrew Parfitt: It is relatively generous in housing benefit. You get the first £20 of income disregarded when you take in a boarder or lodger, and then you have relatively generous rules for income on top of that £20 disregard. In universal credit, because we have the opportunity of designing afresh, it is better still: we ignore all income from boarders and lodgers. We do not give them a room, mind, in the calculation, but it is really simple from the claimant, so if they have a spare room and take in a boarder and lodger, keeping all the income.

Q93 Ian Swales: One theme from the Report, and generally, is communication. In that case, it would be good if you were able to set out one of these simple cases of circumstances, because if the policy objective is to get more people into the existing accommodation, then clearly that would be one way of doing it. At the moment, I think people are nervous about heading down that road, and the social providers themselves do not seem to be encouraging it, either.

Robert Devereux: These particular constraints-the one on the way in which social science criteria we set-are for next April. We have been working closely with local government and housing associations to work out the right time to say what to people about that. If, actually, you think that would be helpful, we can easily do that.

Q94 Ian Swales: There is a planning element to this. People cannot act instantly on the day it changes, so the sooner they know what the regime is, the more they can make plans.

Chair: Chris wanted to ask a question of Andrew, then I am going to Meg.

Q95 Chris Heaton-Harris: I did not understand a word of your first answer, and I was hoping that you could rephrase it in layman’s terms so I can vaguely understand the way the markets interact.

Andrew Parfitt: The affordable rent?

Q96 Chris Heaton-Harris: Yes.

Andrew Parfitt: Okay. Before affordable rent was invented you had social rents, which were about half of private rents. Right? With affordable rents, what you have is the ability of landlords to charge up to 80% of market rents on that property. So you have moved from 50 to 80, say. There are two effects, which go in different directions. The witness earlier talked about one of them, which is that if you have a tenant who is paying an affordable rent rather than a social rent and they are on housing benefit, the housing benefit bill will be greater. However, DCLG, from their capital expenditure-from their grant for sub-market housing-had a choice of either producing x amount of social rents, which would be relatively small, or, because housing associations can get more borrowing and require fewer levels of grants, they can get a higher volume of affordable rent properties. So that means that-

Q97 Mr Bacon: They can create a higher volume of new ones.

Andrew Parfitt: A higher volume of new build. If you look at the impact assessment, which we jointly produced-it is a not a riveting read, but it does set it all out-it shows that you have these two effects. One increases housing benefit expenditure and the supply effect reduces housing benefit expenditure, with the net effect being a very small increase in housing benefit expenditure, which DCLG agreed with ourselves and Treasury colleagues, and there has been a small budget transfer to the Department by recognition of that.

Q98 Chair: Let’s just get that clear. Is that because you are assuming that the increased number of homes depresses rents in the private sector?

Robert Devereux: I think you can do it even more simply than that. If at the margin we have one person in the private sector today who is at market rents, who tomorrow could be in a place charging 80% of the market with some CLG subsidy, the housing benefit bill will be lower.

Q99 Chair: I see. So you are assuming that you will take more people out of the privately rented sector into the affordable rents homes?

Andrew Parfitt: It is a volume effect. I haven’t got the figures at the tip of my fingers, but instead of producing, say, 20,000 hypothetical units of social homes, you are producing 60,000 units of affordable homes, so you get that supply effect. You are able to bring more people out of the private sector.

Amyas Morse: We had a hearing on this in the summer, actually.

Q100 Meg Hillier: I need to comment in passing that in Hackney South and Shoreditch 80% of private rents is by no means affordable. I was surprised that Mr Parfitt talked about when affordable rents were invented. There has been a debate about this since the ’70s at least, when the housing association movement got going.

Andrew Parfitt: By way of clarification, it was when it was badged affordable rent tenure at DCLG. That is what I meant by that.

Q101 Meg Hillier: Right. Good, I am glad you are clear on that because I think it was between 25% and 30% of income depending on how you measured it. That is going to be a big issue.

Briefly on Hackney, as everyone has mentioned their constituencies, so it is important that I mention mine, there are serious issues in my constituency: to buy or rent in the private sector means you have to a very good income. A high percentage-about half-of my constituents live currently in the social rented sector. You can talk about many examples, but people who are on low incomes who need to be near to work because it would be ridiculous for them to travel long distances, for instance to work in a hospital, will not be able to afford to live in my constituency in future.

It is already difficult under the current system, but the bedroom tax will make it very difficult for many families. I wonder whether you have thought about and worked out the other costs to society of having a shortage of key workers, effectively, in places like mine where rents in the private sector are high, and therefore the 80% rent will also be very high.

Robert Devereux: The only way to answer that is, as I said earlier, to keep very close to the data as they move along. It is very easy to make sweeping statements and say that all key workers will be priced out of central London and they won’t be able to afford the travel, but I am not sure that is a sound basis for making policy. You know I have come from the Department for Transport: we put £2 billion a year into subsidising transport in London. There are different ways in which this calculation works. To assume that because we are in central London all of a sudden it is going to be on wasteland, that is not what the data show at the moment.

As I was trying to say earlier, when you look at the ways in which housing benefit caseload is changing, it is measured in 10% here, 15% there down, even at the most extreme, in your Westminsters and your Kensington and Chelseas. It is measured at plus 10% in some other places. These are not "shock, horror", nobody-

Q102 Meg Hillier: Okay. Can I tell you partly the reason for that? We are talking statistics, statistics. I appreciate we are looking at value for money and we need to look at the data. In the real world out there, my borough has grown by 30,000 between censuses. That is made up predominantly of under-5s, so that is the birth rate, and people in their 20s and 30s who are young professionals or young people starting out. The churn with both those groups is pretty high. It is not just about the cost of whether people can live, but of how long they can stay living there and keep holding on. We have a middle-management issue. People are moving and you are losing experience in London.

Robert Devereux: That is true of- The median tenure in the private sector is one year. It is the case that people are turning over in the private sector quite quickly. It has always been the case and will always be the case. In Hackney-

Q103 Meg Hillier: I’m sorry, I need to correct you. I have got private estates that have long-standing tenants because of the old tenancy rules. The reason for the churn is because-

Robert Devereux: The median is one year. In other words, there are a lot of people who are churning quickly and a lot of people who stay a long time.

Q104 Meg Hillier: Sorry, no, there are not many staying. The old tenancies are running out as people get older and die. The new tenancies are all assured shortholds, so that will reduce the-

Andrew Parfitt: They often get rolled over, don’t they?

Q105 Meg Hillier: Not that many in parts of Hackney, to be honest. There is a real issue. Young sharers often can’t afford to rent on their own because costs are so high.

Robert Devereux: Let me just bring you back to housing benefit, then. Private rented in Hackney, March 2011, before we started the reforms: 10,070 claimants; August 2012, the latest data: 10,360. That is a 2.8% increase, so it doesn’t feel to me as if some seismic event has occurred in Hackney.

Q106 Meg Hillier: But my point, Mr Devereux, is that this is not just about money. Of course there is a money issue. It was the current Chief Whip who talked about letting housing benefit take the strain, back in the ’90s, I think, or maybe the late ’80s. So housing benefit has been a running sore for a long time across Governments, hasn’t it, but there is a human cost to this churn that seems not to come into your calculations. It is a cost for every hospital that loses an experienced nurse, or every school that loses an experienced head of department or senior teacher, because those people decide to up sticks and move out of the area because it is expensive and they can get a better lifestyle in Teesside than they can in Hackney. I have to say that I could not see why anyone would move to Teesside compared with Hackney, but some people choose to do such things. My serious point, however, is that there is that churn. This has been looked at back in 2000, when I was in the London assembly. These are costs, too.

Robert Devereux: Okay. So I guess that all I am arguing is that I have now been in London for 35 years, and the people around me are moving all the time; they have done every single year. It has always been thus; I quite agree. In a world in which there was no churn, there may be some advantages.

It seems to me that these reforms have not accelerated that churn. I don’t know what data I would be looking at to demonstrate that, but it doesn’t look to me as if there are lots more people moving around here, and that is despite the fact that the local housing allowance reforms are largely complete now. We are now setting rents at the 30th percentile, not the 50th percentile, for virtually everybody in Hackney.

Q107 Meg Hillier: Well, we have had LHA for a while, and people move because they know that they are not going to be able to settle in Hackney. Many of those 20-year-olds would not have a hope of being able to settle, buy, or rent-

Robert Devereux: I am not sure which particular policy-

Q108 Meg Hillier: They are not necessarily claiming housing benefit, but soon they might be refused it if you ban it for under-25s, I have to say; the Minister has assured me that might not happen.

Robert Devereux: I am not too sure quite which part of the Government’s policy I am being invited to defend.

Q109 Meg Hillier: Can I just move on to the big issue that you have just raised about lodgers? This is very important. You said, Mr Parfitt, that you are changing the rules-I just need to get this absolutely clear-so that if a constituent of mine has a three-bedroom property that they are under-occupying, as they have two spare bedrooms, they can keep all the income that get from a lodger.

Andrew Parfitt: From a lodger, under universal credit.

Q110 Meg Hillier: So, in my constituency, where you could typically pay £250 a week-certainly in Shoreditch easily, and in Hoxton or Dalston-for a room, you could have a tenant living in social housing and earning £500 a week as a quasi-private landlord, keeping all of that money and presumably then paying tax on it and so on. Maybe they lose their benefit-so it reduces your benefit bill-but you actually have the bricks and mortar subsidy effectively allowing people to become private landlords. Have I misunderstood, or is that what you were saying?

Robert Devereux: This conversation has very quickly gone from, "Shock, horror, drama, there is nowhere to stay," through to, "Hang on a minute, there are too many incentives for somewhere to stay." I am not sure which one-

Q111 Meg Hillier: That, Mr Devereux, is a complete misrepresentation of what I said. I was changing subject, yes, to this issue that was raised by Mr Parfitt, which I was not aware of, that constituents can take lodgers in at whatever rent they choose. I am just asking. I am not suggesting that there are a lot of people in that situation, but I want to know what the issue is for people in that situation. I was making no comment about the numbers and the relative number of rooms available. I just want to know this, because I have a very high level of over-crowding in my constituency. We are in a very young borough, with a third of people under the age of 24, and a fifth of people under the age of 16, so I know that there is a lot of squeeze on housing space and a lot of overcrowding. So that was not the point that I was making-at all.

I am asking about the simple factual issue about lodgers. I don’t understand. Maybe I do understand the point. If I do, perhaps you could explain to me if I have got it right in my description of it.

Andrew Parfitt: There is a wider point. First, I will answer your question. Almost all council tenants and most housing association tenants have got the right to take in a lodger, to occupy a spare room, which must be a good use of the stock.

Q112 Meg Hillier: But you said that they can keep £20 of that, and that is disregarded against any benefits. But when universal credit comes in, they can take as much rent as they want?

Andrew Parfitt: I believe that the idea is to disregard the income from boarders and lodgers.

Q113 Chair: When is that change coming in?

Meg Hillier: So, completely disregard the income?

Andrew Parfitt: It will come in gradually, from October 2013.

Q114 Meg Hillier: Would there be a cap on that income?

Robert Devereux: I see exactly why you are interested. Let us check. The regulations on universal credit, as you know, were laid last week, so they are somewhere in the House. Let us go and look up exactly that point and let you know.

Q115 Nick Smith: Mr Parfitt was quite clear, so if you can get £250 a week for renting out a bedroom in Hackney, does that mean that you could make £1,000 profit over a month, and it would not apply to your universal credit benefits?

Andrew Parfitt: I think we should probably double check on that.

Nick Smith: I bet you will.

Robert Devereux: This is what he said, and we will check.

Andrew Parfitt: There are strong incentives in universal credit, quite rightly, to encourage people to let out their spare rooms. Whether there are some caps on it for the reasons that you are suggesting-

Mr Bacon: If there aren’t at the moment, there soon will be.

Q116 Mr Jackson: Obviously, the role of any Member of Parliament is to represent their constituency, but a national policy should not be predicated on what is happening in London. That is a general point, and I am not criticising other Members, but we have had this debate over the last year about the impact on, basically, six London boroughs-Camden, Kensington, Westminster, Brent and a few others-although, obviously, we have to look at the figures.

Are you saying that the changes will bring greater flexibility and therefore have a lower cumulative cost to the public purse? If you just take, for instance, Westminster city council, I got the impression that the changes are cheaper for the council, and possibly better for the individual family. If a family presented themselves as statutorily homeless under the Housing Act 1996, Westminster would, hitherto, have had to find them accommodation in Westminster, although hopefully not bed and breakfast. Now, the council can put them in bed and breakfast, but they could find them cheaper accommodation in the private sector, in, say, Cheshunt, Harlow, Slough or Crawley. Are you saying you have evidence that that will work for them in terms of having paid work, and, hopefully, moving off welfare? Are you also saying that only a small number of people are affected by the change? That is important in terms of looking at the numbers, rather than at anecdotes.

Robert Devereux: The thing I came back to the Chair on was the claims that people were being repatriated hundreds of miles up the country. I would like to see the evidence of that. Within London, the way it works from a value-for-money perspective is that if I have a family who need two bedrooms occupying a very expensive property in Westminster, and they then find themselves living in a slightly cheaper place south of the river-not even as far out as you suggested, because the rents are so wildly different-that saves money straight out from the housing benefit bill. You would have to check that it was not having second-round effects, which is the thing the Chair keeps coming back on, but it is not self-evident that that is going to be particularly affecting lots of people.

As I said earlier, some of this is also to do with what people’s attitudes to work are in all this. We are quite interested in making sure the stock is well used-that is all the stuff to do with bedroom occupancy. We are also quite interested in making sure that people recognise that there is not a free lunch here, and if some of this pressure, as in the story I gave you, turns into people finding work and being exempt from this, that is good news.

Q117 Mr Jackson: There is even a sub-borough market, isn’t there? If you want to live in the centre of Greenwich, you are going to pay a lot more than if you lived in Plumstead or Woolwich, so there are differences even within one borough. It is not apocalyptic; it is not as if people are trekking across deserts because they are not living in Kensington any more.

Robert Devereux: To be fair, there are indeed those ranges. For any one broad market rental area, we look at the range of prices, from the expensive to the very cheap, and we are now drawing the line at the 30th centile, whereas, previously, we drew it at the median. In principle, 30 properties in 100 are below that level.

Q118 Mr Jackson: I have one more general question. I know this is slightly away from value for money, but it is important. There are lots of debates about the impact on people of in-work and out-of-work benefits. I know you do not want to get into that bigger issue, but is there a rough estimate of the number of working-age people in social housing who were in work, say, 30 years ago, compared to now? There is a perception, rightly or wrongly, that there has been a quite substantial growth in the number of people in social housing who are not in paid work-a big social change-because it would have been quite normal in Barking and Dagenham 30 years ago for people to work at Ford and live in a council house. Now, there is a perception that if you are in a housing association property, you are on benefits and welfare. You may not be able to give us that figure now, but it would help to inform the debate about where we are.

Robert Devereux: I have figures with me that sort of get to that. There are in the order of 3.5 million people in the social-rented sector on housing benefit at the moment, and about two thirds of them are on passported benefits, so we may assume that they are probably out of work, and about a third are not passported, which probably means they are in work-they are earning something, albeit low enough to receive entitlement.

Mr Jackson: It was probably as recently as 1970 that only a fifth were not in work. In other words, it has now switched around. In those days, the bulk of people in social housing were in work.

Chair: I dare say that is true, Stewart, but the reason is that many of those in work bought their houses.

Mr Jackson: Especially in Barking and Dagenham.

Chair: Yes, especially in Barking and Dagenham. The better off, who were in work but might have been in social housing a generation ago, are now owner-occupiers, which is a good thing. I am not against that, but it means that the nature of the social-rented sector has changed.

Q119 Chris Heaton-Harris: On page 18 of the Report there is a paragraph that states that, essentially, in your savings you do not take into account the administrative costs of making the changes at local authority level. So how much do you think it will cost? Coupled with that, looking at paragraph 8 on page 6, what incentive is there for local authorities to implement these reforms to housing benefit when universal credit will take those things away from them? Why don’t they just let it wither for a bit, and then you take it all over?

Robert Devereux: The answer to your last question is that they have a statutory responsibility to run housing benefit, on which they do not have a choice. I am afraid that they cannot not do that, because they are constitutionally required to do so.

On the first question, there is quite a lot in the Report-paragraph 1.17 talks about the automatic transfer of data and the like-and some of the reforms will require further information to flash backwards and forwards to local authorities, particularly on the benefit cap. There is clearly going to be exactly the sort of face-to-face work you have described, which will be necessary to make the transition. The first thing we have done to try to get this away is to increase substantially the money we have allowed for discretionary housing payments to ensure that there is some money in the system to help facilitate some of the transfers that are needed. As a general rule, as you will all be well aware, for anything that central Government does that creates a new burden on local government, we have to sit down and have a day of reckoning with them to settle up. We will do the same for this.

Q120 Chris Heaton-Harris: We are expecting great savings from this, so how are the savings running at the moment?

Robert Devereux: Great savings from what?

Chris Heaton-Harris: From the changes we are making to housing benefit.

Robert Devereux: Okay.

Q121 Meg Hillier: You predicted £514 million for this year.

Robert Devereux: I am just wondering whether I have that figure with me. You have a table that says that the savings in 2011-12 would be £514 million, and I will have to write you a note on that because I do not know.

Q122 Mr Bacon: You don’t know whether you achieved that?

Robert Devereux: I don’t know. I have a bit of paper that tells me what I have done.

Q123 Mr Bacon: What have you done? Have you got your final reporting year?

Robert Devereux: Hang on. I can do better than this. I thought to myself that, as you see in the footnote, this is the table that the NAO produced pretty much at the same time as the initial reforms, so I asked for the table to be updated with our latest information. In the figures for Budget 2012 we estimated that in 2011-12 we had saved £450 million, which is at or around the number we were thinking of.

Chair: What is the figure we have in the Report?

Meg Hillier: £514 million.

Q124 Chair: What did you save?

Robert Devereux: Well-

Q125 Chair: You estimated. You said that you estimated at the time of the Budget that you had saved £450 million, which is a bit from £500 million. What did you actually achieve?

Robert Devereux: Before you say, "That is all a bit short," the estimate for the budget for the entire four years is £6.7 billion real, against £6.2 billion at the spending review.

Q126 Mr Bacon: Your estimate is that there is a saving of £6.7 billion?

Chair: No, that is across all benefits.

Mr Bacon: Let me be clear.

Robert Devereux: Just try the question and I will see if I can answer it.

Q127 Mr Bacon: It sounds to me like you have just said that the amount that you have saved, which for 2011-12 was expected to be £514 million, has now gone down to £450 million. But the amount that you are expecting to save over the whole period has gone up from £6.2 billion to £6.7 billion.

Robert Devereux: That is correct.

Q128 Mr Bacon: So, you have not only to regain what you did not achieve, but to achieve even more. Is that right?

Robert Devereux: That is correct. But remember, between summer 2010-

Q129 Mr Bacon: I am not saying that you will not achieve it.

Robert Devereux: I know, but there is a rather more important thing. Between summer 2010 and March 2012, the economy has changed its shape relative to what we were expecting. So these assumptions are based on the projections for inflation in the June 2010 budget. We are now using the latest ones.

Q130 Chair: Did you achieve £450 million in 2011-12?

Robert Devereux: Yes.

Q131 Chair: You actually achieved that.

Robert Devereux: So the table I have in front of me, which has come out of the Budget presentation, said that-or was it £445 million.

Chair: £445 million.

Q132 Mr Bacon: Is it the same table that says that you will have £6.7 billion of savings by the end of the period in 2014-15? Is that right?

Robert Devereux: It is exactly the same table.

Q133 Mr Bacon: It sounds counter-intuitive that at the same time as you are not quite achieving what you originally expected, the total amount you will save will be higher-just because of inflation.

Robert Devereux: No. The economy is in a different place. The projections of what housing benefit will cost us in the first place and then the projection of what it will cost with these reforms-

Q134 Mr Bacon: By the way, be very careful what you are doing with your hands-

Nick Smith: It’s like watching Ed Balls.

Robert Devereux: I am sorry. In order to work out what we have saved, you have to project what we actually spent and what we think we are going to spend under the current economic circumstances, which are different from those in summer 2010, and then you have to take account of changes in policy. One of those is a rephasing, which Mr Parfitt is quickly going to explain.

Q135 Chair: Can we just get some figures from Max?

Q136 Mr Bacon: Did you say rebasing?

Chair: Rephasing.

Andrew Parfitt: Rephasing.

Max Tse: The move from 6.2 to 6.7 is basically because the base has got bigger. If you take a saving off a big base, you get a bigger saving.

Mr Bacon: It is a rebase.

Amyas Morse: More claimants, is it?

Andrew Parfitt: More claimants, yes.

Amyas Morse: You are expecting more claimants?

Q137 Mr Bacon: And therefore more saving?

Amyas Morse: And therefore more savings.

Q138 Chair: And more spending?

Andrew Parfitt: That’s right.

Q139 Chair: So housing benefit will go up. The savings will go up.

Mr Bacon: The savings will be bigger because the total number will be higher.

Robert Devereux: Yes.

Q140 Mr Bacon: It is all smoke and mirrors, isn’t it?

Chair: Quite. Chris, you were interrupted. Do you want to carry on?

Chris Heaton-Harris: If I had seen the figures.

Andrew Parfitt: I just want to make a point about the phasing. It is an important to explain why the figure for 2011-12 has gone down from the figures in the original June impact assessment to the figures that Robert has just given you. That is because there was a policy change to phase in the introduction of the Local Housing Allowance (LHA). We have had this period, which now expires in December 2012, when existing LHA claimants-you are nodding, Max, as you recall this-were given nine months extra.

Max Tse: Figure 7 on page 23 of the Report explains some of the phasing changes.

Andrew Parfitt: That is why it went down in the first year, but, paradoxically and partly because we have a higher case load, we get greater savings overall.

Robert Devereux: That was in response to people saying that the policy should be adjusted, so we adjusted it.

Q141 Mr Bacon: May I just say that you were very unfair when you said-I am changing the subject slightly and going back to what we were talking about earlier-that the document about 80% affordable rents was not riveting. The chief executive of my local housing trust was quite riveted by it. In fact he got quite excited by it. He said, "I could do something with 80% of market rent." You have a fan somewhere. In the same breath, the same trust, Saffron Housing Trust, which is referred to in the Report on page 20, talks about the fact that the cost of chasing arrears and non-payments could be high. Indeed, paragraph 17 of the Report said, "Reforms are placing additional administrative burdens on local authorities and could lead to risks for effective implementation." Your savings so far do not take account of these administrative costs, do they? That is what it says in paragraph 1.17.

Robert Devereux: We were asked to prepare, because they are very large numbers, the savings to the benefit budget, and that is what the aim of the savings is.

Q142 Mr Bacon: But there will be a hit, because of the administrative costs?

Robert Devereux: There will be some hit, but as I have tried to explain, it is not self-evident that that is going to be a very large number. Local authorities are administering housing benefit as we speak. Paragraph 17, which you were talking about, is on the volume of transfers of material between the Department and local government. There are 20 million notifications a year going automatically between us and local government at large to make sure that they know when somebody has started work, when they have a new child and all the sorts of things that you are pleased to see when we have a conversation about error in the benefit system. With 20 million passing between us every year, these changes will not change the price of fish.

Q143 Mr Bacon: But the Report says that the number of notifications is going to increase substantially.

Robert Devereux: Yes, it will, but does it say "substantially"?

Q144 Mr Bacon: I am just curious. Is the ATLAS system of automatic transfers to local authorities ready to cope with the increased volume?

Robert Devereux: I don’t think it says "substantially", does it? It says that volumes will increase.

Q145 Mr Bacon: Did I say "substantially"?

Robert Devereux: You said "substantially".

Q146 Mr Bacon: Volumes are likely to increase further. I am afraid it was a rhetorical gesture.

Robert Devereux: Okay, sorry to be dull with the facts, but there are 20 million a year. The main thing on which we will have to send more information is the benefit cap, estimated to affect 56,000 people. It is true that it will increase, which is why I did not correct the Report, but-

Q147 Mr Bacon: You do not have a concern that the system will not be able to cope?

Robert Devereux: No. The most important thing about this paragraph is the extent to which, having provided a system which automatically announces to local government that things have changed, many authorities have fully automated that, so that my notification automatically changes their system. Not all authorities have done that, and not all their software suppliers have done it. One in particular has not yet done it, but they are just about to do it. The business of how much swishes between us is only as interesting as whether or not, at the other end, local government process it automatically. For the most part, they do.

Q148 Nick Smith: Mr Hills talked about the cumulative effects of all these changes. He talked about bedroom tax, housing benefit, direct payments and cash levels of benefits in the recent autumn statement and about the effect of all those cumulative changes. Do you think the Department has done a good job of telling social tenants about the many changes coming their way?

Robert Devereux: As I explained to one of the earlier questions-I was asked whether local government can bunk off duty, and I said no-we have been working closely with local authorities to make sure that they have the right information, and we have been meeting with their so-called operational practitioner group, which is, as you can imagine, a hands-on group, to work through exactly what the right point is to make communications with tenants, so they have enough information to act promptly on it but are not told so far in advance that it will just go into the bin. We have agreed those timings with them, and the communications are going out now. You only completed the social sector size criteria debate a couple of weeks back. It is now unequivocally in law, and the system is preparing to roll to get us through to April. We have sought to support local government in fulfilling its statutory obligations in good time.

Q149 Nick Smith: So you are sort of implying, "Not yet." Is that what you are saying? Do you plan to do it at a particular time?

Robert Devereux: What I am saying is that the local authorities who have to deal with those tenants because they are their statutory duty made a choice about the best time to deal with them in order to make sure that they take action promptly.

Q150 Nick Smith: I was with the Waundeg Warriors on a council estate in the north of Tredegar last week. The women there are what I think of as very strong valley mams. They are very good at looking after their family budgets. They told me that, from running their local neighbourhood centre, they have some sort of understanding about this, but their community really does not. They are very afraid that a lot of people will be shocked by all the changes and their cumulative effect. They do not think you are telling people in enough time for them to make decisions about family budgeting, because they do budget for their families.

Andrew Parfitt: There has been a lot of communication activity going on. We have been working with the Chartered Institute of Housing and its affiliates in Scotland and Wales to develop good practice guides. Landlords have been sharing good practice.

About the range of options available to the working-age tenants affected by the under-occupation penalties, they will typically be households with grown-up children, so they did have a house that was the right size, but the children have moved out. They tend not to be the households with large families, because, almost by definition, they are not likely to be under-occupied if they have lots of children.

In this good practice, there are actions on the tenants’ side. What choices are open to the tenants? Can they get into a job, increase their hours or-dare I mention it?-take in a boarder or lodger? And there are actions on the landlord’s side-to share good practice between landlords, and more specifically to pause allocations and look at the interaction with the private-rented sector. One option that some tenants may want to consider is to accept a smaller property of the correct size in the private-rented sector for a short period, but in return go to the top of the queue for when a suitably sized social sector property becomes available. There is a whole panoply of advice there.

As Robert was saying, there is a question about the right time to get the communications in. If you look at any of the websites of housing associations, the under-occupation penalty is up there in lights to warn tenants. Housing associations and local authorities are doing other actions to make their tenants aware. It is a progressive set of measures. You just need to avoid doing your comms so early that tenants forget about it, but do repeated comms, so that they have it in their minds and now is really the time they are hotting up. Lots is going on-

Nick Smith: Okay, I would say that your good practice guides are going to have to work very hard at getting these messages over, particularly in an area with 25% worklessness and very few one or two-bedroom properties.

Q151 Chair: Do Jobcentre Plus staff-the people who see them on benefits every couple of weeks-tell people about these changes, for example?

Robert Devereux: The examples I read-and I said I have pages of these-are from the job centres who are engaging with individuals-

Q152 Chair: So they are telling them.

Robert Devereux: Yes. The effect of working closely with local government is that people are encouraged to make contact with the job centre. We send in our own visiting officers. In Ealing, we sent out our own visiting officers-typically to elderly pensioners-to make sure that everybody who has been phoned and had a letter but has not responded gets somebody on the doorstep to try to explain this to them, in order to make sure face-to-face that people actually understand it. There is a lot of evidence that very few housing benefit claimants understand housing benefit as it is today, let alone understand the changes.

Q153 Nick Smith: Absolutely; you said it. I need to repeat this: in Blaenau Gwent, we have 25% worklessness and 11 people chasing every vacancy, alternative employment is going to be hard and there is very little alternative accommodation, so best of luck to Mr Parfitt with his good practice guide, but it is a tough call. As someone who spends a lot of time knocking on doors, I know that you get a lot of people who are out or not around. There will be those people on benefits and lots of people who you want to contact, but you just find it really hard. I think you need to work much harder at all of this.

Robert Devereux: Why don’t I make sure that the district manager in Blaenau Gwent actually goes and meets your-

Q154 Nick Smith: I would really appreciate that because people have to work together to get some of these best results and to get this awareness rating much higher than it presently is.

Robert Devereux: I would be delighted to do that.

Meg Hillier: Even in inner London, I find that when I speak to an audience and mention it coming, so many people do not know. Maybe it is a bit head-in-sand sometimes, and maybe they just have not had to think about it before. It is a real worry. There is a real worry about how they can up their hours as well, because that is a big issue with worklessness.

Chair: Right. Nick, what do you want?

Q155 Nick Smith: I have two more questions. I will be very quick.

Mr Parfitt, you talked about going through other institutions-local authorities and housing associations-to get these changes introduced and awareness raised. What are you doing with the private sector, given that it is much more atomised and much more difficult to communicate there?

Andrew Parfitt: With respect to which changes?

Q156 Nick Smith: The bedroom tax or other housing benefit changes affecting tenants in the private sector.

Andrew Parfitt: Most of the private sector changes have now gone through, and there was a comms strategy, which has been pretty effective, I would say. The Department has been working with the benefit-capped households and writing to them all.

Robert Devereux: I am not quite following the question. The so-called bedroom tax is about the social sector.

Nick Smith: I misunderstood that point. Please excuse me.

Robert Devereux: The thing that says we would like you to properly occupy a property of about the right size is all about the social sector. In the private sector, it is already the case that if I look at your family and decide you need two bedrooms, I only give you the two-bedroom rate.

Q157 Nick Smith: I have misunderstood that. I have one other question. What is happening to the direct payment pilots in terms of rent arrears and the possibility of evictions?

Robert Devereux: The rent payment pilots are important. When I said earlier that very few people understand housing benefit, this is in part because so few people ever see it. It is a fundamental part of the design of the universal credit to say that we want more people to have to participate in this, even if it is just to put a direct debit in. We know there is concern about it, so we are running pilots. I think there are eight around the country. We are trying to work out what would happen in practice if this was the case. It is still early days in the pilot, because the universal credit does not start yet anyway. Two things are coming out. On the plus side, many more people have got bank accounts in these areas that we are going to look at for direct payment than previously had been imagined.

Nick Smith: What is the figure? In Blaenau Gwent, I am told it is 70%.

Robert Devereux: Sorry, I do not have the numbers with me. On the flip side, the other thing that we are learning very clearly is that writing letters gets you nowhere. You have to sit down and eyeball people and explain it in words of one syllable. What is happening is that, by actually going out to particular landlords and social landlords and sitting down and working this through, it does look as if it will be possible to move quite a lot of people to direct payment relatively safely, but you have to do a lot of work to do it. Unsurprisingly, that is what we are going to have to cue up to get done.

Q158 Chair: In fact, you are going to maintain a lot of direct payments to both the social and-

Robert Devereux: No, that is not what I said. I said that a lot of people have got the apparatus to make a direct payment, but are not currently making a direct payment. The question then is how can we make sure that they can, for example, construct a direct debit on their account if they have an account? As I said, more of them have accounts-

Q159 Chair: So you are encouraging greater use of direct payments.

Robert Devereux: Direct payments from the tenant. But at the moment, the tenant knows nothing about it. It goes from A to B-

Q160 Chair: I think this is a really important issue, having been around this-as I said in our pre-meeting-for years and years. If we switch from direct payments from DWP or the local authority to the housing provider, whether it is a social housing provider or private, you will probably find that arrears will increase. I do not know whether you are finding that yet. Have you looked at that?

Robert Devereux: We are seeking to establish evidence by running pilots in eight parts of the country. I think it is eight.

Q161 Chair: What is the evidence?

Mr Bacon: Where are those eight?

Andrew Parfitt: It is six.

Q162 Chair: Is this on the administration or the impact on arrears?

Robert Devereux: What we are doing is going out to individual landlords in groups of properties and working with them and their tenants one at a time to work out what in practice would be the case if we paid the money to the tenant for the tenant to pay it on to the landlord, and we are exploring what has got to happen to make that real and make it work for most people. As I said, the suggestion so far is that this will be possible to do, but it will require quite a lot of work to educate and persuade and all the rest of it, which is what we are going to do. One of the reasons for doing this is that when people have got no idea what money is passing on their account, they will not understand changes and they will not make the right decisions.

Q163 Chair: In your pilots, have you stopped paying directly to the social landlord or to the private landlord? Have you stopped that? Except in the terms where there is an agreement from the tenant to do a direct payment-

Robert Devereux: What we are seeking to do is to find out how we can encourage-

Q164 Chair: But have you stopped? Can you answer the question?

Robert Devereux: I think the answer is yes, with the consent of the individual. But can I check that? The whole point is to try to make sure that-

Q165 Mr Bacon: Where are the six pilots? Paragraph 1.23 states that there are pilots in six areas to trial the direct payments process.

Andrew Parfitt: I did think of bringing a note on this, but I have not got it with me.

Max Tse: Here we are.

Andrew Parfitt: Thank you, Max. So we have Oxford, Southwark, Shropshire, Torfaen, Wakefield, and there is also one in the Edinburgh area of Scotland.

Q166 Mr Bacon: What volume is involved in these pilots? Is it everybody in that area or is it just a sample in that area?

Andrew Parfitt: It is basically about 3,0001 tenants in each area, both housing association and council tenants, and-

Q167 Chair: And private tenants?

Andrew Parfitt: No. For private tenants already the default is that private tenants on housing benefit will pay their own rent, but they will-

Q168 Chair: At the moment, for a third, the rent gets paid directly.

Andrew Parfitt: Absolutely. The default is that the tenant pays their own rent. However, there are protections for two circumstances. One is if arrears start to build up above a certain threshold, which I believe is eight weeks, then the housing benefit reverts direct to the private landlord. Secondly, if the initial assessment of a new claim suggests that a tenant has behavioural difficulty or mental health difficulty that makes it unlikely that they will be able to manage their own rent, the payment goes direct to the landlord from the start. So that is why you have this situation where about 500,000 private tenants have rent going to the landlords.

Q169 Mr Bacon: These 18,000 in the six areas that you are doing the pilots-

Andrew Parfitt: 30,000.

Q170 Mr Bacon: I thought you said 3,000 in six areas.

Andrew Parfitt: Oh, so it is 3,000 in six areas, yes, sorry.

Q171 Mr Bacon: With these 18,000, as it were, you test bed and you are experimenting with what works. Once you have identified what is good and bad, you then have to roll it out across the whole country. Presumably, unless you are equally careful in each and every bit that you do across the whole country, you are not going to get the same level of performance.

Andrew Parfitt: Correct.

Q172 Mr Bacon: So it is going to be a quite slow and costly process.

Robert Devereux: It is going to be a process in which each individual landlord and set of tenants is going to have to work their way through. But, as I said, this has got in the figures I am quoting, and 90% of the people that we have been sampling have a bank account, 81% of them already use it for direct debit and 80% of them think that they agree with the statement, "I am very well organised when it comes to managing my own money day to day."

Q173 Mr Bacon: 80%.

Robert Devereux: Yes.

Q174 Mr Bacon: Isn’t that one of those cases where stated preference is not revealed preference? That might tell us something.

Q175 Chair: I have not got a clear answer. You are piloting this system and trying to encourage individuals to do direct debits to their landlord. My experience tells me that some will chose not to, whether it is your 20%. Are arrears in your pilots going up? Is there any trend around arrears in those pilots?

Robert Devereux: I believe that I cannot give you an answer yet, but once we have enough of a range of time series to get arrears information which is available, we will be putting it out as part of the evaluation that is-

Q176 Chair: And what will you do if arrears, as I guess they will, go up in areas like Southwark?

Robert Devereux: We would have to understand why, Chair, and whether-

Q177 Chair: Because when people are tight on money and are facing a range of constraints around their lives, and higher prices, they will not-if the rent does not automatically go to the landlord, they do not pay their rent; the people who are in huge difficulties. That is what history tells us, Mr Devereux.

Robert Devereux: Okay. Maybe. Let me just try this thought. One of the reasons the Government want to do this is because at the moment we assume that, even if you put your hand up, we will pay it direct to your landlord. It is simply not obvious from this sort of data that that is necessary for the great majority of people. I am not going to disagree with you that some people will find this difficult. That is why Andrew has explained that there will be safeguards in the system.

Q178 Chair: Have you got no data on arrears so far?

Robert Devereux: We have only just done the fieldwork-and get people on to direct payments. It will take a while, obviously, to find out whether they collapse and-

Q179 Chair: A lot of what you are saying is, "Wait and see," which is a good thing, right? You are observing what is happening, which is a good thing, but I want to know how quickly you will respond and how. If you find, for example, in this instance, that arrears go up-my guess is that you will-what will you do and how quickly will you be able to react?

Robert Devereux: It will depend on what data we seek. I am not going to speculate, because-

Q180 Chair: But how quickly can you react? The policy says, "Do this." Right the way through this policy, if there is an impact that maybe was not intended, how quickly will you react, either with your discretionary payments or the money that you got under the autumn statement, or on this issue of direct payments?

Robert Devereux: If the way to override whatever is the default system is to allow the landlord to approach the housing benefit department to do something else, there must be a clear set of rules about the circumstances in which that may trump what the claimant wants to do. At the moment, it is set at one level and it is very low. We sought to set it slightly higher, but if it turns out that it is slightly too high, and with some finer words we can better identify the people we find actually have got into arrears-

Q181 Chair: Does that mean coming back to Parliament every time?

Robert Devereux: I do not know whether it is a regulatory question or a guidance question. That is a subtlety, and I do not know the difference.

Andrew Parfitt: We have designed the system-the universal credit-so that you can do it with the operational guidance, and you have the ability to have different arrears triggers in universal credit. That is what the pilots-the demonstration projects-are testing. There are different arrears triggers in the different co-study areas, so in one area I think it is four weeks and then the rent automatically reverts to the landlord. In other areas it is eight weeks, and in one area it is 12 weeks, so you will get information about that aspect of the design of the project on arrears, which will then feed into what the policy decision is, and what is the operational guidance on universal credit.

Robert Devereux: It seems to me like quite good work.

Q182 Nick Smith: Professor Hills talked about lots of cumulative changes, and it is good that you are doing this testing, but I understand that the direct payment changes will be introduced in relatively short order. Do you think you will have the information back in time to have confidence that your roll-out of the direct payment processes will work well?

Robert Devereux: Direct payments are being introduced only with the roll-out of universal credit. This is not the hearing for universal credit, but we intend to start a pathfinder for that in Manchester in April. The particular class of people that we are trying to engage with universal credit at that point are relatively straightforward claimants to make sure that they are easy to process, and few of them will have housing costs. By October, we shall start on more complicated claimants, including some with housing claims, and that will still be pathfinding.

Q183 Nick Smith: So you are testing now, and you are doing a pathfinder in March. Did you say it will be rolled out next autumn?

Robert Devereux: No, no. There will be a pathfinder for, let’s say, single, relatively young JSA claimants in Manchester. We will then pathfind what it is to process a couple with more complicated circumstances from October. When we know how that works during the course of October to the turn of the year, we will then seek to replicate that right across the country, so the expansion across the country will be into the early part of 2014.

Q184 Nick Smith: So this time next year, you will be rolling out direct payments.

Robert Devereux: Around that time, yes.

Q185 Guto Bebb: A quick observation to start with is that, in terms of your communication strategy, it seems to be working fairly well in north Wales-indeed to the extent that it seems to be working too well. It seems to be quite politicised in that people are being sent to me about, for example, the under-occupancy rules. They are pensioners, but they are sent to my office because I am responsible for welfare reform, and they will be affected because of the changes. I guess we will park that one.

What I really want to ask about is the discretionary housing payments, for which the Department has put aside £390 million. How did you arrive at that figure, and what is it aimed at providing? It seems to be the answer to many of the problems that are being discussed in relation to some of the changes.

Robert Devereux: Discretionary housing payments have been a feature of the housing benefit system for many years, but not at very high levels. It was running at about £20 million for many years. We have increased it substantially, and during this Parliament, it has increased to £390 million. Its purpose is basically to enable local authorities to assist with the transition, so it could be for short-term regular support, such as help with a deposit or removal expenses, or it could be used pretty broadly. We have given substantial discretion to local government to decide how best to spend it and so that there are few constraints on it.

Starting in the new year, when we will go beyond having just LHA reforms-the private sector reforms we have been talking about-we will get into the benefit cap and the social size criteria. We have asked local authorities specifically to report to us each month on which particular policy is triggering the payment, and we have also asked them to report each month what sort of thing they are purchasing with it, so whether it is a removal, a deposit, or whatever it might be. So it is a flow of information to tell us how people are using the additional money that we funded.

To answer why it was £390 million, it was a judgment made at the point that we did the spending review, along with lots of other things. You will recall that the emergency Budget was an emergency Budget-it was done in something like seven weeks from flash to bang. We signed up to these savings, and we put around 6% back into the DHP.

Q186 Guto Bebb: In terms of discretionary payments, just out of interest, one of the issues that has come up in my constituency surgeries is from parents with two children, one of nine and one of six-a boy and a girl. By the time the boy is 10, they will not have to share rooms. Would discretionary payments be allowed in order to allow that shortfall to be met over a short period of time?

Robert Devereux: Yes. One of the things that I said at the start was short-term rental support. I do not want local government to be subsidising anybody indefinitely, but if the answer was that, within a year, they were going to require the property they are in, that would be quite a good use of the money.

Q187 Austin Mitchell: It’s nice to see you are so cheerful.

Robert Devereux: It is Christmas; I am hoping that the Chair is going to buy me a drink.

Austin Mitchell: In fact, I do not think I have ever seen two officials look so happy in the face of what all London MPs I have talked to have told me is a looming disaster, but it is nice.

I think I heard you say at the start, Mr Devereux, that at the end of the day we shall see more people in cheaper accommodation-paying less rent for their accommodation. If that is the case, how will that be achieved and when?

Robert Devereux: Let’s take the private rented sector. I explained earlier that in every single part of the country, as we have observed right from the first moments, there is a broad range of rents available-from something that is very cheap to something that is very expensive. It was the policy of the previous Government to set the housing benefit cap at the 50th centile-halfway up the distribution. We have now pretty much completed-this is all over now-and announced capping that at the 30th centile. The way it saves money is because it restricts the proportion of properties in any one area-

Q188 Austin Mitchell: So it will bring private sector rents down-is that right?

Robert Devereux: It does not have to, but it might. I am not going to overclaim for it, but it clearly has the effect that for every claimant who only wants to take a property that is fully covered by the LHA, they will be fishing in a smaller pond of properties than they would have done previously. That will effectively mean that there is less money being spent on housing benefit.

Q189 Austin Mitchell: Will it see more affordable houses built?

Robert Devereux: That is an entirely separate issue.

Q190 Austin Mitchell: No, but will it? This problem is caused by the fact that we have not built enough social and council housing, isn’t it? If we had built enough, we would not have to be spending so much on housing benefit.

Robert Devereux: It is a much broader conversation, which the professor was getting into, about the total stock of properties in the country-full stop-and how they are all owned.

Q191 Austin Mitchell: Have you done any calculations of the effect of these measures on child poverty, and of any increase in child poverty that we will then see?

Robert Devereux: The Report carefully explains that when you are dealing with something that is a big behavioural change, it is quite difficult to project what it will be. I might imagine that if I had read out my case study earlier on and said to you, "What is going to happen?", many of you would have said-

Q192 Austin Mitchell: But there will be some increase in child poverty-there must be.

Robert Devereux: Because?

Q193 Austin Mitchell: Because people are forced to move into lower-rent accommodation or pay higher rents, and therefore there is less discretionary spending to spend on the kids.

Robert Devereux: Okay, you have answered your own question. It depends what people do by way of behaviour. If we have pitched the 30th centile as the place where people can find properties-

Q194 Austin Mitchell: But if they sit it out and pay the room tax or whatever-pay higher rents-there will be less money left for the kids.

Robert Devereux: We are switching from the private sector now to the social sector. In the social sector, if you are sitting on a property that has more bedrooms than you currently need, we are going to ask you for £14, if you are one bedroom over the limit, per week. In response to that, either £14 comes out of the household, in which case there may well be less to spend, or actually-this is what we are trying to encourage, and I hope that the landlords will encourage it-people will have a response to that. They might, for example, let that room. They might do two hours at the national minimum wage to earn some money. They could do a range of things, so all the calculations about what might happen to child poverty depend critically on what the parents of those children choose to do when confronted with the changes.

Q195 Austin Mitchell: Well, that’s true-and pigs might fly.

Robert Devereux: Pigs did not fly for the 31-year-old.

Q196 Austin Mitchell: I take it from previous conversations that you have not done any calculations on the amount of debt owing to social landlords. Our housing association in Grimsby-Shoreline-tells me that it is afraid that there will be a big increase in debt because people will not pay the rent, and the council is afraid that people will not be paying council tax either, because that is the kind of thing that they economise on to exist.

Robert Devereux: It is undoubtedly the case that there is a lot of fear about how this system will operate, but I know no way of modelling whether or not arrears will go up when that actually depends on what people do when confronted with changed circumstances.

Q197 Austin Mitchell: We are flying by the seat of our pants, aren’t we, into something that may be a disaster or may not.

Robert Devereux: No, with respect, we would get nowhere if I were to come up with some elaborate model that said that I have made the guess that this half of the population will waste all the cash and this half will not.

Q198 Austin Mitchell: But I would expect a responsible Department to make these kind of calculations, because they affect the interests, health and well-being of people.

Robert Devereux: Except that I am trying to explain that I simply do not know where any of us-the good professor included-would go to try to do that calculation.

Chair: Can we have one final thing, and then we must move on?

Robert Devereux: May I finish my answer? Let us not build models which we know to be wrong and which are based on huge studies of behaviour in a very complex and dynamic market. Let us instead keep very close to the data-that is why I keep coming back to what has been published-so that we know what is going on and then, in the light of that evidence, Ministers can decide whether their policy needs to be adjusted. Let’s not do it on the basis of speculation and expectation.

Q199 Austin Mitchell: I have one final question. If people are going to have to move, it is a fairly momentous decision, if you have to take the kids out of school and move somewhere cheaper-even come north to Grimsby or somewhere, where life is cheaper. These are momentous decisions, so would it not be better if the people who are forced to make these decisions, many of whom we are told do not even know that this is going to happen-that amazes me, because fear seems to be stalking the streets, certainly in London-were told in advance what the extra costs were going to be and what the effect of the single benefit system would be? They cannot make an honest and momentous decision in the light of very inadequate information at this stage.

Robert Devereux: I have tried to explain several times now that we will write as much guidance and as many letters as you like but, at the end of the day, this works really well at the point at which individual claimants are sat down with an adviser to go through their options. In the case that I read you about the 31-year-old lone parent who had never worked, she is in work today not because she got a letter, but because one of my staff sat down with her, went through what was the art of the possible and sorted out the child care, and then-hey presto-she is in work.

I am not sure that letters to people will get you anywhere. As the Report says, people’s circumstances change all the time, so the chances are that the letter will be slightly out, incorrect or misleading, which will not help. The right thing to do is to make sure that those closer to the individuals-whether their landlord, the housing authority or, indeed, our jobcentres-are working with these people to help them. The evidence here is that when we do that, good things happen.

Austin Mitchell: Keep smiling through.

Chair: Neatly, you take us on from this woman who appears to have been helped by Jobcentre Plus to our consideration of the Work programme.

[1] Note by witness: Mr Parfitt subsequently clarified that the actual figure was about 2,000 tenants in each area.

Prepared 25th March 2013