Welfare Reform and Work Bill Committee

Written evidence submitted by Shelter (WRW 35)

1. Shelter helps millions of people every year struggling with bad housing or homelessness – and we campaign to prevent it in the first place. We’re here so no one has to fight bad housing or homelessness on their own.

2. The Welfare Reform & Work Bill seeks to alter the support available to people facing bad housing or homelessness. We are concerned that some of the measures will make it harder for the people we help to find and keep affordable accommodation, putting many more at risk of homelessness.

Summary of Sections

3. Freezing Local Housing Allowance will mean more and more private renters w ill be unable to pay their housing costs as rents outstrip housing benefit rises and wage growth. Shelter analysis suggests that i n 2 yea rs , LHA will not cover the bottom third of rents in almost all local authorities, as it i s meant to . After four years , 60 areas will be very unaffordable and virtually out of bounds to households on benefits. The bill represents an opportunity to seek reassurances that the government will not allow such significant affordability problems to become entrenched.

4. The Benefit Cap has fundamentally changed. The cap is no longer made with reference to average earnings, making it punitive. It will now affect much smaller families in less expensive areas. This will increase the ris k of homelessness and price out- of - work families out of whole swathes of the country.

5. Support for Mortgage Interest benefit payments for homeowners will be replaced by a loan . This greatly reduces the financial risk to the Government and negates the need to make claimants wait for 39 weeks to apply instead of the current 13 weeks. The role of third party organisations as providers of both loans and advice raises questions of financial impartiality and the need for independent advice .

6. Reducing Social Rents is welcome as long as it does no t compromise supply ; tackling the high cost of housing is the only sustainable way of reducing welfare spending. But h ouse building – the only way to bring housing costs down in the long term – must not be undermined, reinforcing the need for direct investment in genuinely affordable rented homes.

7. Removal of the Family Premium and restrictions on housing benefit for families with more than two children will lead to reduced housing benefit for working families, making it harder for them to manage the shortfalls as the value of LHA falls. The impact of this change on families has not been modelled by the government and is of great concern.

8. The removal of housing benefit for 18-21 year olds will remove support from an extremely vulnerable group. The Government must set out its commitment to robust and practical exemptions, and the passage of this Bill should be used to debate them, in advance of them being made via regulations. However, even with exemptions, many will likely fall through the net and become street homeless.

1) Freezing Local Housing Allowance (LHA)

Section 9, Pg.11.

Key points:

· Freezing LHA rates for 4 years means more struggling private renters unable to pay their rent as housing benefit is inadequate to cover rising private rents

· By 2019, LHA will not cover the cost of the bottom 10% of properties in 60 local authorities

· 39% of LHA claimants already work

9. Local Housing Allowance is used to calculate housing benefit for private renters. It is set at different rates across the country to reflect variations in rent. Before 2011 LHA rates covered the bottom 50% of the rental market and were linked to actual market rents, rising or falling accordingly. In April 2011, LHA rates were rebased at the bottom 30% of the market and the link to market rents was broken in April 2012 – meaning support could no longer keep track with rising rents. In recent years, increases have been capped at 1%. In the last year, average rents in England increased by 2.1%. As a result LHA rates already do not cover the bottom third of rents in nearly 70% of England.

10. Policy changes have failed to bring down rents as hoped and rising rents have outstripped LHA increases and wage growth, leading to increasing shortfalls between housing costs and incomes. Many households are struggling to stay in their homes or to find new ones, meanwhile the ending of an Assured Shorthold Tenancy has become the leading cause of homelessness in the UK.

11. Freezing LHA rates for a 4 years will mean further increasing the gap between rents and incomes for the 1.4 million people receiving this support. On current trends, we estimate that rates will have fallen behind rents in the bottom 30% of the market in nearly every single local authority after two years.

12. In some areas the gap between LHA rates and rents will be so great that housing benefit claimants will be unable to find anywhere affordable. Shelter analysis suggests that by 2019, 60 local authorities will be very unaffordable and virtually off limits to LHA claimants – meaning their support will be insufficient to cover the rent for less than one in ten homes in that area. More and more people will be chasing fewer and fewer affordable properties. For many, accepting overcrowded or very poor quality accommodation will be the only way to stay in their local area.

13. Even if rents rise slightly slower than they had in the past, the gap between rent and support could be substantial. Our analysis suggests that families renting at the bottom quarter of the market in almost a third of the country (98 local authorities) will face a gap between their rent and support of more than £100 a month. This includes families in job creating cities where working people need to live. For example, by the end of the freeze, our analysis suggests that families renting at the bottom quarter of the market in Manchester or Bristol could face a gap of over £230 a month .

14. Families will be put at increased risk of homelessness as their tenancy ends or because they are evicted due to rent arrears. There is a risk that landlords will pull out of the housing benefit market. Those households who do have a home will be forced to cut back on essential spending and risk getting into debt to manage rising shortfalls between LHA rates and rents.

15. The Chancellor did announce in the Summer Budget that there will be additional Discretionary Housing Payments (DHPs) provided to help those struggling and Targeted Affordability Funding to raise LHA rates where rent increases are unusually high. Both these measures are welcome. However, TAF is drawn from the savings of the LHA freeze, which is likely to mean no further funding available to alleviate high rents until at least 2017-18, as savings are benchmarked against what it would have cost to up-rate LHA rates by CPI rather than rent increases. Sadly, neither DHPs nor TAF will be enough to significantly mitigate the enormous impact this policy will have on affordability across the country.

Recommendation:

16. LHA rates should reflect the real, reasonable cost of renting in each area to ensure availability of affordable properties, preventing shortfalls and homelessness. The link to actual market rents should be restored and rates allowed to fall or rise in line with local rent pressures.

17. Should the government go ahead with the freeze, the rates should, at the very least, be reviewed annually to assess whether they need to be rebased to ensure private renters can find homes. This would mean re-setting LHA rates in line with the bottom 30% of market rents at that time.

18. TAF funding must be available from 2016/17 to recognise recent and projected increases in actual rents. TAF must be adequately funded and DHP increased and promoted to private tenants until LHA is brought back in line with market rents to help those struggling to stay in their homes.

2) Reducing the Benefit Cap

Section 7, pg. 8.

Key Points:

· The link to average earnings has been broken, making the policy unnecessarily punitive

· The policy goes beyond large families in expensive areas and will now affect smaller families in towns across England

· The cap risks increasing homelessness and will make it very hard for local authorities to find anywhere affordable to rehouse families

19. The Welfare Reform and Work Bill seeks to reduce the benefit cap from £500 per week to £442 in London and £385 outside of London. This will include housing benefit to pay rent. Shelter remains particularly concerned that the cap ignores the high and variable housing costs paid by families across the country. With more people affected, more will struggle to pay their housing costs.

20. The government’s rationale for the original cap was to ensure people claiming benefits could not receive more than the average family earnt. The original cap, therefore, was made with reference to average household earnings. Over the course of the policy it has affected almost 58,000 households in England. These are mostly large households in relatively expensive areas. Households could escape the cap if they moved in to work, however, only a minority of these were actually able to do so.

21. The new lower cap, however, fundamentally alters the nature of the policy. The new cap no longer makes reference to average incomes. This new, arbitrary threshold will drastically change the impact of the cap; rather than affecting large families in expensive areas it withdraws support from small families right across the country. For example, the new cap would affect a family with 1 child living in Guildford or a family with 2 children living in Leeds or Plymouth. By ignoring the impact of high rents fuelled by the housing shortage, it creates a postcode lottery at the heart of the safety net, with whole swathes of the country being deemed excessive for support.

22. The DWP estimate the benefit cap case load to be 120,000 households in the implementation year (2016/17); that’s an additional 90,000 households. This new group, despite already deemed in need of state support, could have their housing benefit substantially reduced, even though they do not live in areas considered atypically expensive, needlessly risking homelessness.

23. Those affected by the new cap will increasingly be modest sized families in averagely priced areas, simply struggling to make ends meet. The new cap will put these families closer to losing their homes. Those that do lose their homes and are found to be in priority need are often placed in Temporary Accommodation (TA) by their local authority. Councils are already struggling to secure enough TA (leading to an increase in bed and breakfast use or people being rehoused away from their local area) and rents are often higher than market rates due to additional management costs. This challenging situation will be made more difficult as homeless families will still be subject to the benefit cap. This will force local authorities to subsidise the cost of temporary accommodation and make it harder to re-house homeless families as the benefit cap will make alternative housing options unaffordable. The policy therefore risks the perverse scenario in which families are made homeless because of the benefit cap and then trapped in the limbo of temporary accommodation – at expense to the public purse.

Recommendation:

24. The Government should consider the adverse effects of this policy on those at risk of homelessness and those that have already lost their home. Homeless families living in Temporary Accommodation will struggle to afford the emergency housing they have been placed in, forcing local authorities to subsidise their costs, and will often be unable to move into permanent housing because it is unaffordable under the benefit cap.

25. Local Authorities must be adequately supported to house families made homeless as a result of the benefit cap and other welfare reforms. This means adequately financially supporting them to find emergency housing for people who have lost homes and then to help find settled accommodation that is suitable for their needs. At present there is a risk that local authorities will be unable to rehouse those families made homeless because of the cap.

3) Support for Mortgage Interest (SMI) Grant to Loan

Section 16, pg. 15.

Key Points:

· In principle, Shelter is not opposed to requiring that home owners repay the assistance they receive, but loans must not become an additional burden for struggling households

· Greater clarity is needed on how loans will be administered and who will be responsible for collecting repayments and advising applicants. It is inappropriate for a third party administering SMI applications to be both an advice provider to claimants and a provider of loans. Claimants should have access to free and impartial advice.

· The waiting period for SMI should not be increased from 13 weeks to 39 weeks given financial costs to DWP are reduced under the proposed loan system, and this will increase the risk of households acquiring unsustainable arrears

26. People who are retired or out of work and struggling with mortgage payments may be eligible for Support for Mortgage Interest. This benefit covers the cost of a person’s mortgage interest (but not capital repayments) up to a £200,000 capital limit.

27. The Bill seeks to turn new SMI payments in to loans from April 2018 onwards. Interest will be charged on the loans, which will be secured on the claimant's property as a 'second charge', effectively a secured loan on top of the existing mortgage.

28. Paying support through a loan rather than benefit payment is a relatively sensible reform in principle, given that SMI enables homeowners to retain an asset and potentially gain substantially from rising house prices. But it must be introduced in a way that does not exacerbate affordability problems.

29. The Budget indicated that a repayment plan will be agreed when a person’s circumstances improve (for example they move back into work) or when the property is sold. SMI should never make a household’s situation worse – any repayment plan must be affordable and not compromise their ability to stay in their home.

30. More clarity is needed over the use of third party organisations that will administer the SMI as a loan. People in need of assistance should have free access to independent and impartial financial advice before applying for an SMI loan. It is inappropriate for an administering body to be both an advisor and administrator of loans.

31. An increase in the waiting period for SMI eligibility to pre-recession levels - up from 13 weeks to 39 weeks –is unnecessary. The move from a grant to a loan ensures the Government is able to recover the costs of supporting people to stay in their homes and may reduce demand for support. Delaying support from 13 weeks to 39 weeks will mean a significant and worrying delay in support for mortgage interest costs. Timely access to reasonable levels of credit should be beneficial, whilst waiting could increase the risk of people turning to toxic forms of debt, such as pay-day lenders or loan sharks, and risks accruing arrears.

Recommendation:

32. The Bill gives huge scope for the government to set the terms of repayments but more details are needed about the government’s intentions around repayments.

33. Urgent clarity is needed on how loans will be administered. The administration of SMI support should not conflate advice providers and loan providers.

34. Increasing the 13 week waiting period to 39 weeks is unnecessary in the long-term. The government no longer bears the risk of paying mortgage interest indefinitely with no hope of repayment. With this reduced risk, help should be made available sooner rather than later.

4) Reducing Social Rents

Section 19, pg. 18.

Key points:

· Shelter welcomes the reduction in rents for tenants in social housing but is mindful of the potential impact on future supply

· Lost revenues for housing associations or local authorities wanting to build reinforces the need for funding for affordable homes to rent to be maintained so homes suitable for households on low incomes can still be built

· It is welcome that housing benefit savings are being sought by reducing the cost of housing and this approach should be taken further by investing in genuinely affordable housing to shift public expenditure from benefits to bricks over time

35. The Welfare Reform & Work Bill seeks to reduce social rents by 1% a year for four years. This is good news for those on low incomes in social housing, whose rent will be reduced. The policy will also mean large savings to the welfare budget for the Department of Work and Pensions.

36. Tackling housing costs in this way, however, must not undermine the viability of house building itself. Many housing associations and local authorities use social rent revenues to fund the building of more homes. The Office for Budget Responsibility estimates the reduction in social rents could result in 14,000 fewer homes being built, whilst the National Housing Federation estimates the loss to be as much as 27,000.

37. The UK already builds less than half of the houses it needs, reducing the number of homes built – even if rents are reduced for some in the meantime – will not bring down the cost of welfare sustainably in the long term. Housing associations and local authorities, therefore, need continued access to alternative forms of funding to continue to build affordable homes to rent.

38. Reducing the benefits bill can only be sustainably achieved through reducing the cost of housing, which this policy recognises and seeks to do. Further long-term reductions in housing benefit can be achieved if the government invests in genuinely affordable social housing. This will reduce reliance on the expensive private rented sector, meaning working households are less likely to require a housing benefit top-up and reducing the cost of housing people who continue to require support.

Recommendation:

39. For those local authorities and housing associations who use revenues from social rents to fund house building, the importance of grant funding for new homes to rent is reinforced. Funding should be protected, if not increased, to ensure the building of affordable homes to rent continues, helping to alleviate the high cost of housing and subsequently welfare spending.

5) Removing Housing Benefit for 18-21s

Key Points:

· Young people are already penalised under housing benefit rules and receive little support

· Most young people do live at home until they can afford to move out, but l iving at home for many vulnerable young people is simply not an option

· The government must bring forward proposals on robust and enforceable exemptions , which should be subject to full Parliamentary debate and scrutiny

40. The decision to remove housing benefit from 18-21 year olds is highly regrettable. Shelter would never advocate the removal of housing benefit on the basis of age and rejects the proposition that a significant number of young people leave the family home in order to claim benefits.

41. Of the 1 7 ,000 18-21 year ol ds who will be affected by this change , 60% are in social housing and will have already met extremely strict criteria . The remainder of those el igible for help live in the private rented sector and receive the Shared Accommodation Rate, the lowest rung of housing benefit, barely enough to cover a room at the bottom end of the market .

42. For many young people , living at home is simply not an option, including those who have fled domestic violence or abuse, been asked to leave because of their sexuality , or have become estranged from their parents . Housing benefit helps people to live independently when living at home is no longer an option. Removing it may mean a choice between returning to a destructive family home or street homelessness.

Recommendation:

43. The government has made clear there will be exemptions for certain groups who cannot live with their parents but we would encourage them to come forward with detail s as soon a s possible to ensure they are robust and practical . Shelter has welcomed the commitment to protect vulnerable people but maintains that this is the bare minimum required; e ven with exemptions, many young people will slip through the net and become homeless. We would urge the government to reconsider its position on removing housing benefit for 18-21s.

44. T he decision to remove housing benefit from an age group on this scale is an unprecedented step and sets a worrying precedent . It is regrettable that s uch a measure will be implemented via regulations and we are concerned it will not receive sufficient scrutiny.

6) Removal of the Family Premium

Section 12, pg. 13.

Key Points:

· Removing the family premium and limiting support to a maximum of two children will lead to loss of income for low income working families

· The changes will affect working households and will reduce housing benefit

· The loss of income will exacerbate the financial pressure created by falling LHA rates

45. The Summer Budget announced changes to the means test for housing benefit which will make it less generous for working families. Already overstretched family budgets will have to be squeezed further if families are to pay the rent. This will be particularly problematic for households affected by the freeze in LHA rates despite rising rents.

46. The Family Premium will be removed from the housing benefit calculation for new claimants from April 2016. This is an income allowance worth £17.45 per week for families with children and was designed to reflect the increased cost pressures that families face. We are disappointed that the DWP has not produced any modelling of the impact. The losses are potentially significant, for example Shelter calculates that a single parent working part time (20 hours a week) at the new national living wage would lose around £11 per week.

47. The housing benefit means test will no longer reflect the additional costs of a growing family from April 2017. New claimants will not be eligible for a ‘child allowance’ for third or subsequent children. This reflects new restrictions on tax credits for more than two children. It will reduce the amount of housing benefit larger families are eligible for. Again, we are disappointed that DWP has not modelled the financial impact of this.

Recommendation:

48. We are concerned that these changes, which will affect both in work and out of work households, subject to the housing benefit means test, will reduce affordability at a time when housing benefit is already increasingly inadequate. This will make it even more important that LHA rates reflect actual rents so families are not left with shortfalls. LHA rates should reflect the actual cost of renting.

September 2015

Prepared 18th September 2015