Welfare Reform and Work Bill Committee

Written evidence submitted by the Chartered Institute of Housing (WRW 46)

About CIH

The Chartered Institute of Housing (CIH) is the independent voice for housing and the home of professional standards. Our goal is simple – to provide housing professionals and their organisations with the advice, support and knowledge they need to be brilliant. CIH is a registered charity and not-for-profit organisation. This means that the money we make is put back into the organisation and funds the activities we carry out to support the housing sector. We have a diverse membership of people who work in both the public and private sectors, in 20 countries across five continents.

Further information is available at: www.cih.org

1. Introduction

1.1. CIH welcomes this opportunity to present our analysis of the potential impact of the Welfare Reform and Work Bill 2015 to the Bill Committee. Our response covers only those parts of the Bill relating to the welfare measures first announced in the Summer Budget. We have included our comments on all the main Summer Budget welfare measures, whether or not they are included in the Bill, because we do not think that the Bill measures can be considered in isolation.

1.2. Our response reflects social housing providers’ concerns about the impact on their businesses and financial viability of measures such as the one per cent reduction in social housing rents. But our primary concern is the effect of the Bill’s measures on the quality of life of the residents and communities where our members work. And for this reason we also comment on welfare measures that relate to non-housing costs, such as living expenses other than rent or mortgage payments. What matters most is the overall level of cash support individuals receive not just the support they receive for their housing costs.

1.3. Our members already have direct experience of the effects of the Summer Budget 2010 welfare measures on residents in their communities. Residents respond in different ways to cuts in their essential living expenses and while most find ways to cope, the overall result is usually that the stress is transferred to some other aspect that diminishes their quality of life (such as poorer physical or mental health or increased debt). For example, one landlord found that while some residents responded to the social sector size criteria by accumulating rent debt others appeared to cope but were failing to heat their homes adequately – an outcome that only emerged when the landlord noticed a sharp rise in complaints about condensation (Work and Pensions Committee 04/12/2013, oral evidence HC 720 Question 124).

1.4. Our response is based on our current understanding of the proposals. We are waiting for further details of many of the measures, which will emerge during debates on the Bill and in regulations made under new powers contained in it. Some of the other Summer Budget welfare measures will be made under regulations using existing powers.

2. Clauses 1-6

We have no specific comments on these measures other than to say we are disappointed that changes to the Child Poverty Act targets effectively mean that the Government has abandoned its commitment to end child poverty. While we agree that work is the most effective route out of poverty, it is unrealistic to expect all families to be in employment at every stage in their working lives, especially those in low paid occupations where job security tends to be more precarious. Theemphasis on work as the way out of poverty makes the cuts to in-work benefits announced in the Summer Budget surprising.

3. Clause 7: benefit cap

3.1 The impact of this measure on social and private landlords’ income streams will be worse in the earlier years as the reduction in benefit will be applied to housing benefit (HB) until the planned reductions in child support for larger families (three or more children) take place in 2017. In the later years, as reductions in child support gradually come on stream (implemented on a new claims only basis), the numbers affected by the cap – and so facing a cut via their housing costs support – will fall because the reduced level of child support will mean that they are eligible for more help with their HB.

3.2 The cap is introduced in 2016/17 but the reductions in child support will not take place until the following year (2017/18) and then only on a new claim/ new birth basis. In effect the cap is being used as a substitute to make cuts in child support by cutting housing costs support instead.

3.3 Our analysis shows that the reduced caps will affect modest sized families in large parts of the country including those families with low or moderate housing costs. Arguably this takes the measure beyond the targets it was designed for. Our analysis highlights that the following outcomes are likely:

From April 2016 most two parent three child families on HB living outside London will be affected regardless of tenure. Any household of this type on a working-age passport benefit (i.e. income-based JSA, income-related ESA or income support) with HB in excess of £61 is liable to have it capped at this level unless they qualify for an exemption (i.e. receive the appropriate disability benefit)

For couples with two children living in private rented housing outside London there are very few authorities in Southern England (below a line between the Wash and Severn Estuary) where the rent on a three bedroom property would fall within the cap

There are up to 44,000 three child families in social rented housing that have an award in excess of the cap. Using Family Resources Survey (FRS) data we would expect around one third of these to be exempt from the cap

There are around 28,000 three child families renting privately with an HB award above the cap and we expect around one quarter of these to be exempt from the cap

Around a further 17,000 two child families and 18,000 four child families living in social rented housing outside London are potentially affected and 29,000 two child and 4,000 four child families in private rented accommodation

Inside London the cap is higher. We estimate around 12,000 households with one to four children living in social rented housing are potentially affected and around 10,000 private renters (with similar proportions being exempt)

3.4 The number of childless households affected by the benefit cap is more difficult to estimate and our analysis does not take account of households that are out of work but not on a passport benefit. After taking account of exemptions, we estimate that the numbers of those affected in year one who receive a passport benefit are:

85,000 social renters, of which around 12,000 are in London

54,000 private renters, of which around 10,000 are in London

The cap may also affect a small number of households working part-time whose hours or earnings are insufficient to exempt them from it. Part-time work can act as an important bridge between long-term worklessness and full-time employment something that UC was designed to encourage.

4. Clause 8: benefit cap review

4.1 CIH welcomes the proposal that the Secretary of State must review the cap at least once each Parliament. However, we are concerned that, as there are no criteria setting out how the review should be conducted, it gives the Secretary of State arbitrary powers to increase or decrease the cap in ways which are not part of the original policy intent which is that the cap should be linked to lower quartile earnings – or at least earnings percentiles. This should be the only criteria against which the cap could be reviewed.

4.2 The proposed levels of the cap in the Bill are set at lower quartile earnings for London and the rest of Great Britain (or two-thirds that level for a single earner). We believe that the Secretary of State should be required to report to Parliament and to justify his/her decision if, following the review, the cap is reduced to figure below this minimum standard.

4.3 In conducting the review the Secretary of State should be required to consult the Social Security Advisory Committee (SSAC) before reaching his or her decision (the members of which are appointed by the Secretary of State him/herself) and then to publish a report to lay before Parliament about how he/she has reached his/her decision and, if it applies, why he/she has decided to reject any recommendations the committee has made. The report should include the full evidence submitted to him/her by the SSAC.

5. Clause 9: freeze on social security benefits for four tax years

5.1 This measure will have a significant impact on tenants in the private rented sector. Local housing allowance (LHA) rates are frozen and are based on the 30th percentile rent. This policy means that private tenants on HB have access to the lowest 30 per cent of the market – provided that LHA rates continue to be set using local rental market evidence. But this link was broken in April 2013 when LHA rates were uprated by CPI and in 2014 and 2015 by one per cent - a policy that shrinks the market available and which will accelerate when LHA rates are frozen. (Private rents, representing a return on investment, tend to rise faster than CPI).

5.2 The LHA freeze will particularly badly affect the in-work claimants who comprise the fastest growing part of the HB caseload. It is unrealistic to expect all lower quartile earners (who by definition are one quarter of the work force) to work their way off benefits by increasing their earnings. A two child family on lower quartile earnings (£20,000) and paying a market rent of £150 per week (the lower quartile rent for a two bedroom property in South East England) would need to increase their earnings by over one quarter to £25,200 in order to escape HB. In London, where the lower quartile rent for a two bedroom property is £254, the same family would require earnings of £42,100 (a pay rise of 210 per cent that lifts them into the top 25 per cent to 30 per cent of London earners).

5.3 Instead the result will be that hard working families have a shrinking share of the market that is affordable, confined to the very worst accommodation in the bottom 10-20 per cent, or to spending a very high proportion of their earnings on rent and with a consequent reduced standard of living.

5.4 In the social sector, only those tenants with an income above the basic passport benefit rates receive less HB (passport benefit claimants receive 100 per cent HB and reduced passport benefit instead). Given that the majority of working age tenants on partial HB are in low paid work, as far as social landlords are concerned, their income stream is only affected if the tenant moves off a passport benefit and into work. The incentive for landlords to support their tenants back into work is therefore diminished. This issue is only compounded by the work allowance cut in universal credit (UC) and the fact that most of the other cuts to in-work and out-of-work benefits apply to new claims only. (See also the comments in paragraph 6.4.)

5.5 Estimates of the total value of the cut to HB (non passport cases) depend on predictions for inflation. We estimate around £90 million for each one per cent of inflation – subject to compounding over the four years. A proportion of this loss to tenants may fall on landlords as rent arrears.

6. Clauses 10-13: four year freeze to child benefits and reductions in tax credits and UC for families with children

6.1 As with the four year freeze (paragraph 5.4), for tenants on a passport benefit there are no consequences for their HB. Tenants with children on tax credits and partial HB will lose £4.50 per week (£11.30 if on HB only) as a result of the loss of the family element/family premium/reduced child element in UC for the first child.

6.2 Although they do not affect HB for tenants on a passport benefit, the cuts to child support and the effect on the overall levels of income available for non-housing costs are bound to have implications for some tenants’ ability to sustain their tenancy.

6.3 The cuts in support for the third and subsequent child are particularly severe. Families lose up to £53 for each child after their second child (in addition to the reduced support for the first child). In the longer term, following the roll out of UC, tenancy failure may increase as tenants use their housing costs element towards other household expenses.

6.4 As with many of the other measures, cuts to HB directly only occur for non-passport cases. This potentially creates an employment trap for households that are in and out of work. The proposed six month linking rule (which treats gaps of six months or less as an unbroken claim) helps but tenants may still fear losing income in the medium term as a result of starting work, especially if their employment is unlikely to be stable or if they are offered a temporary contract.

7. Clauses 16-18: support for mortgage interest to be in the form of a loan

7.1 We are not opposed to this measure in principle– what most matters is that support is available to home owners to avoid repossession as and when they need it. If anything, the scale of the cuts to family benefits is a greater threat to sustainable homeownership than this change. For the vast majority of households that need some form of support an equity loan will be sufficient to avoid the threat of possession action. After five to ten years most homeowners will have sufficient equity to reassure the lender that there will be sufficient equity to repay the charge.

7.2 However, we are concerned about the effect in those cases where owners have not built up sufficient equity to prevent their lender from seeking possession. Our research on mortgage possessions suggests that those households that have been driven by their aspirations to become owners, but whose ability to sustain ownership is at the margins, are overrepresented within the group that has insufficient equity. In the medium to long-term this may set back ministers’ aspirations to expand the number of home owners.

7.3 The Bill is unclear about when the loan for interest payments is to be repaid. Is the loan deferred indefinitely until the home is sold or is repayment required as soon as the owner no longer qualifies for assistance? If repayment is deferred it is unclear whether the loan continues to roll up the interest until the time at which the home is sold.

8. Clause 19: reduction in social housing rents for four years

8.1 Following on from a 10 year rent settlement based on annual increases of CPI plus one per cent which came into effect in April 2015, the announcement in the budget of a one per cent rent reduction for the next four years represents a significant change for the social housing sector which had relied upon the Government's previous commitment.. Out of all the recent announcements, this is potentially the biggest threat to social landlords’ viability.

8.2 While we recognise that a rent reduction provides some help to some tenants, for others the positive impact will be far outweighed by the cuts to in-work benefits announced in the Summer Budget and, in particular, some of the other measures included in this Bill that affect support for children. Average social sector rents are around £90 per week so a 1 per cent cut provides a family saving of £0.90 – this represents only one fifth of the loss to a working family receiving tax credits and HB as a result of the loss of the family element in tax credits. It is less than 10 per cent of the loss for a working family in receipt of tax credits only. This measure has no benefit for any household (working age or pension age) receiving full or partial HB – the whole of the reduction is met with a corresponding reduction in their HB (or UC if they receive UC instead), the only exception is if their award is less than the reduction itself.

8.3 Because of the rules about how a change of circumstances is implemented tenants, on UC will be at a disadvantage compared with tenants on HB. Changes in UC are always implemented at the start of the assessment period when the change takes place (so a tenant with a rent increase gains but with a rent reduction loses). This means their UC award could be reduced up to 30 days before the rent reduction actually takes place regardless of whether the tenant is in or out of work. It will also mean that landlords operating in areas where UC has already been switched on will be at a disadvantage.

8.4 Social landlords have based their business plans and secured loans on the previous 10 year rent settlement of CPI plus one per cent agreed in 2014. The risk now is that in many cases those plans will need scaling back to respond to rent reductions.

8.5 The National Housing Federation has forecast the impact of the Budget announcement compared with the rental income that had been expected under the CPI + one per cent regime - the cumulative loss to the housing association sector’s total rent revenue is estimated at around £3.85bn over the four years to 2019/20 (assuming CPI of 1.2 per week per year). The LGA has estimated the cumulative loss to be £2.6 billon from local authority housing business plans.

8.6 The Office for Budget Responsibility has estimated that this measure will result in 14,000 fewer social homes being built, but the National Housing F estimate is 27,000 fewer homes. However, this measure does not only affect social landlords’ ambition to build new homes. It also places at risk the excellent work that social landlords are doing to support tenants and residents into employment and training. Not only is this improving the quality of people’s lives – it is also supporting the key government policy objective of reducing benefit dependency. A 2014 Ipsos MORI survey commissioned by the National Housing Federation showed that around 40 per cent of housing associations are providing some form of employment and skills support.

8.7 In reality the overage damage to social landlords’ business plans is much greater than the cumulative four year loss because of the compounding effect of inflation and assumed rent increases (CPI plus x) that would have otherwise taken place over the normal 30 year business planning cycle under which social landlords operate. Thirty year business plans are industry standard for ensuring that landlords are self sufficient to maintain and invest in their existing stock without requiring investment from the taxpayer.

8.8 This comes at a time when social landlords are being urged by Government to make better use of their assets but the risk to business plans of future rent reductions now mean that would it be ill-advised to increase leverage. The measure encourages landlords to take less risk and to accumulate surpluses in order to remain financially viable.

8.9 We consider that sub-clause 10 – the definition of "rent" - is too restrictive (see s275 Housing and Regeneration Act 2008). As it stands, the definition potentially includes all payments under a tenancy or licence agreement, including any kind of service charge payment such as a charge for maintaining communal areas or for care or support in specialist housing.

8.10 It is unclear whether it is the policy to include service charges within the global rent when calculating the one per cent reduction. If it is not then the definition should be amended to make this expressly clear (precedent already exists that would prevent potential abuse through landlord reclassification of charges).

8.11 Alternatively if the one per cent reduction is intended to include service charges, we make the following observations and suggest further powers to prevent the occurrence of the likely unintended consequences:

It is common practice for social landlords to set service charges at a level that merely recovers the cost of providing the service and in the case of variable service charges, the law requires it (the charge must be ‘reasonably incurred’ to be recoverable: ss18-30 Landlord and Tenant Act 1985)

A key element in any service charge is labour costs often for unskilled work such as cleaning. It seems likely that labour costs will be affected by the introduction of the national living wage which raises the minimum wage by over 10 per cent

The failure to exclude service charges could have unintended consequences for local authority leaseholders. Tenants would benefit from a reduced charge and the shortfall in costs could fall exclusively on leaseholders (being ‘reasonably incurred’). Alternatively, the service could be withdrawn as being uneconomic and the building could deteriorate along with the value of their home

In other cases specialist supported or sheltered housing could become unviable

If service charges are not expressly excluded by the Bill it should contain the power for the Secretary of State to specify any part of the gross rent that relates to a ‘service or facility provided’ that is not ‘pure rent’ (i.e. payment for the right to occupy only) to be excluded from the one per cent reduction on a similar basis to the power for exemptions (see clause 20(3))

The power to exclude part of the rent would provide the Secretary of State with greater flexibility. As it stands the powers in clause 20 mean that a type of letting has to be excluded from the one per cent reduction either completely or not at all

This may result in either the intended savings from HB not being achieved because the only option is to exclude a broad category of dwellings or the exclusion being drawn too narrowly

If the exemptions are too narrow and there is no power to exclude service charges, the Bill may put in jeopardy support services for elderly or otherwise vulnerable tenants or the accommodation itself may become unviable. For example, if the Government wished to make the distinction between extra care housing and sheltered housing. Exempting only extra care housing may mean that large numbers of sheltered housing units for elderly people become unviable and are forced to close (see commentary on clauses 20-21 for numbers affected).

9. Clauses 20-21: Exceptions and mitigations to social housing rent reductions

9.1 Sub-clause 3 provides for certain classes of tenants, tenancy types, and accommodation types prescribed by regulations to be exempt from the one per cent rent reduction. This allows for exemption, for example for housing designed or built for elderly people, specialist housing such as hostels, sheltered housing or extra care housing.

9.2 We are concerned about the effect of the one per cent reduction on the viability of specialist supported housing –including sheltered housing. There are roughly 330,000 purpose-built rented homes for elderly people in England that are provided by social landlords. Around 10 per cent of these are extra care housing.

9.3 We are concerned about the viability of specialist housing if it is not exempt – or only partially exempt from the one per cent reduction. See also our concerns about scheme viability for supported accommodation service charges above (clause 19). Gross rents for extra care housing are often in excess of £300 per week. These rents are often agreed in advance when the scheme is commissioned.

9.4 Many supported housing schemes are already under financial stress following the withdrawal of Supporting People funding in most local authority areas. As a result the viability of these schemes is now completely dependent on the income from (gross) rents.

9.5 Some local authority sheltered housing (and other supported housing such as hostel accommodation) fell outside decent homes funding because of the scale of the works required to remodel and provide them with the modern facilities required to meet the standard. These units are typically bedsits or have shared facilities. Ideally these homes should be upgraded further to meet the lifetime homes standard. But the required improvements may have to be postponed indefinitely if rents that are already barely adequate to maintain them at below the decent homes standard are reduced even further.

9.6 We urge MPs to seek reassurance from the Government that all homes that do not currently meet the decent homes standard will be excluded from the one per cent reduction. In the absence of any reassurance, the Bill should be amended to expressly say so. DCLG statistics show that there are around 146,000 local authority homes that do not meet the standard.

9.7 There are a number of charitable almshouses with fewer than 250 homes that are registered with the HCA often because they required access to HCA funds to meet the decent homes standard or because referral of the rent is not required for HB purposes. We urge MPs to seek reassurance that charitable almshouses will be exempt from the one per cent reduction.

10. Conclusion

10.1 The welfare cuts contained in this Bill not only create hardship for tenants out of work but also those employed with low and moderate earnings. The stress it will cause to families in the long term is incalculable.

10.2 Rent arrears will increase and landlords will have to devote more resources to rent collection. As a result fewer resources will be available for non-core activities such as supporting tenants back into work.

10.3 We fear that the early impact of the revised benefit cap has been seriously underestimated in terms of the effect that withdrawing HB will have on landlords’ income streams.

10.4 Although it is positive for some tenants, the planned one per cent rent reduction represents a significant loss of income for housing providers and will have a considerable impact on their business plans. This will be compounded by the increased threat of rent arrears and higher collection costs.

10.5 Ultimately fewer homes for rent will be built – around 14,000 according to the Office of Budget Responsibility many think this is likely to be an under-estimate.

10.6 In the long term the one per cent rent reduction is likely to mean that landlords will be wary of Government commitments. This is likely to result in more risk averse behaviour with resources being under-utilised.

10.7 Finally, we are concerned about the impact that these proposals will have on young and single people. Reducing and/or removing their entitlement to benefits will affect their ability to find and keep a home and also meet their basic living needs. We fear that, for those without a safe family environment to turn to, this will result in increased homelessness. Specific issues include:

· The removal of automatic entitlement to HB for under 21 year olds is not contained within this Bill but needs to be considered as part of a total package of measures which will have a detrimental impact

· Young and single people will be hardest hit by the benefit freeze as, with JSA rates of only £73.10 per week for those aged 25 and over and £57.90 for those under 25, there is limited scope to cut living costs. Many of these people will be affected already by measures such as the social sector size criteria (‘bedroom tax’) and the need to pay a proportion of their Council Tax – in some local authority areas the contribution is as high as 25 per cent

· Disabled single people on ESA receiving the work related activity component will see a big percentage drop in their income despite having additional living costs. This will make it harder for them to live independently and will place added burdens on already stretched health and social care services and budgets.

Appendix: Summer Budget welfare measures not in this Bill that impact on housing and work incentives

1. Discretionary Housing Payments (DHPs)

The Summer Budget 2015 set out the allocations for DHPs for the five years beginning 2016/17

The allocations are broadly at the same level before the measures announced in the Summer Budget and this Bill (at around £160 million annually). They appear to take little account of the impact of the measures described above, nor other Summer Budget measures – in other words take no account of the measures included in the Bill as well as other welfare measures set out in the Summer Budget which can be implemented using existing powers (such as reductions in the UC work allowance)

The allocations in the Summer Budget for DHPs are totally inadequate to deal with the expected impact from the reduced benefit cap, where bulk of the savings in the early years are implemented via cuts to HB

DHPs can play a highly effective role in enabling tenants to adjust to the new welfare system, helping them to manage the change and to avoid greater expense to the public purse should they fail in their tenancy. A more realistically funded DHP programme would better support the introduction of the new welfare system.

2. Increase tax credits taper to 48 per cent

This measure deepens the poverty trap for in-work claimants. For those that also rely on HB to help them with their rent the overall marginal tax rate rises from 86 per cent to 88 per cent (and is even higher for those that receive council tax support)

Our modelling shows that the overall package of Summer Budget changes keeps UC above existing benefits across the range of earnings for most family types. The overall cuts to UC are small compared with changes to tax credits and existing benefits. And yet even prior to the change UC is (broadly) more generous than existing benefits.

3. Reduce work allowances in UC

This measure severely undermines one of the clear goals of UC – to enhance work incentives and make them more clear and transparent. It is especially problematic for those considering the advantages of moving into part time work. The measure abolishes the work allowance for childless households (and reduces it for others such as disabled/ lone parents)

Our analysis shows that across a range of earnings childless households earning between £30 and £240 per week (£30 and £340 per week for a couple) will be over £16 per week worse off overall than under the existing UC work allowances

Although tenants claiming UC will still generally be better off than their counter-parts on legacy benefits who move into work, the change still has the potentially damaging effect of making the advantage of moving into work more difficult explain

The advantage of a work allowance/ earnings disregard is that it is easy to describe to claimants "you keep the first £25…" rather than explaining how much better off you are as a result of a benefit taper which varies with earnings. In the long run the overall outcome is likely to be that the message "work pays" is likely to be diluted.

4. Withdrawing housing costs element in UC for most out of work 18-21 year olds

The numbers affected by this change and the savings achieved as projected by the Treasury are not proportionate compared to the negative impact on those affected

Treasury savings are between £25 and £40 million per year. At present there are 107,000 18-21 year olds claiming HB. Only around 17,600 thousand of these claims are childless and on income-based JSA and further 10,000 that are childless and on income support

Of these 27,000, around 9,300 are private tenants, one quarter of which are entitled to the one bedroom rate which suggests they are likely to have recently have been in care. Allowing for an equivalent proportion in the social sector means that a maximum of 20,000 would be affected, or around 12,000 if the measure only applies to jobseekers.

5. Limit backdating in HB to four weeks

The projected saving from this measure is £10 million for 2016/17 and thereafter negligible (according to HM Treasury Summer Budget Policy Costings)

The current backdating rule makes an important contribution to the sustainability of tenancies and tenants only qualify if they can demonstrate good cause. In the long-term this measure could have a huge impact on the lives of the individuals affected for only a small saving in return.

6. Align the work-related activity rate with JSA for new claims

As with many of the other measures above, this only affects HB awards for non passport cases but represents a cut of £29.05 per week for disabled claimants despite the fact that they are likely to have additional costs arising from the additional costs of their disability

As with other measures that cut support for basic living expenses, in the long-term this is likely to have an impact on the sustainability of tenancies. Householders incur additional costs that do not apply to non-householders and for disabled householders these are likely to be higher.

September 2015

Prepared 14th October 2015