Last night, I went to a post-Budget seminar to find out what the experts thought of the highly gloomy 55 minute Budget statement delivered by the Chancellor earlier in the day. There was plenty to talk about, but despite the furore over CGT, the group of diverse individuals chose to focus their harshest criticisms on the Chancellor’s housing benefit cuts.
On the panel was the former Department for Work and Pensions minister Kitty Usher. Now chief economist at the think-tank Demos, she acknowledged that Housing Benefit had been the hardest issue to tackle with the Housing Benefit bill having inflated over the last ten years from £14 billion in 2000 to £21 billion today.
So, it is clear to everyone: Government, Opposition and Local Authorities, that carrying on as we have been was not an option. The current Housing Benefit bill is both unsustainable and unmanageable.
Cuts were always on the cards. This wasn’t reform, this wasn’t efficiencies; these were just cuts – pure and simple.
The first thing is that it’s not really Housing Benefit as a whole that has been cut; just Local Housing Allowance. Limiting social sector Housing Benefit to appropriate-size properties will only save £500m. And it will only start making these savings from 2013 onwards, a very small part of the £11bn savings the Chancellor wants to make.
That means that only the private-rented sector will bear the brunt of these cuts.
Why? Well it seems that the Chancellor seemingly believed the tabloid press and thinks that landlords across the UK were fleecing Government to house families for £104,000 a year in housing benefit.
As the Chancellor of the Exchequer, you would expect a little more focus on the figures his DWP colleagues have been publishing. The average weekly award for LHA was £112 per week, or £5,824 per year. Also, civil servants already know that almost half of LHA tenants have a shortfall of almost £100 per month.
Rather than face up to the reality that it costs a lot to invest in housing the message is clear – it’s cheap housing or nothing.
But what will the cut really mean?
Wading through the Treasury’s Budget Red Book, the cuts look to be two-stage.
A cap on LHA rates from next April-
- £250 per week for a 1 bedroom property
- £290 p/w for a 2 bedroom property
- £340 p/w for a 3 bedroom property
- £400 p/w for all properties with 4 bedrooms or more
While this won’t affect the majority of claimants, this will not be a painless cap. And not just families in London dealing with expensive local housing markets, families living in Brighton (and other cities) will also find it even harder to rent.
That is only the first stage.
In October 2011, LHA rates will be set at the 30th percentile of local market rates rather than the current median value, a very painful 20 per cent cut. Tenants already struggling to find landlords willing to take on LHA tenancies will now find themselves excluded from 70 per cent of local housing market.
Last year Shelter reported that out of snapshots in four Broad Market Rental Areas, every area had less than 50 per cent of the PRS affordable under the maximum LHA award.
What will this mean to the current 1,015,033 LHA recipients is simple: their challenge is to find cheap property that they can afford. Standards, quality, professionally-managed properties don’t matter, just find cheap housing.
The idea that landlords will muddle on regardless is silly.
Can they all afford to drop their rents by 20 per cent? That’s a very high bet for the Government to be taking. So far no one from the Treasury or DWP has contacted us to discuss how they think these cuts will work in practice.
Whether they want to face it or not, the reality is that these cuts will drastically reduce supply as landlords move out of the LHA market. The spiralling journey towards less choice and less affordable housing will mean an exodus of housing benefit tenants to the few areas where they can afford to rent.
Nicola Smith from the TUC wrote yesterday about the changes:
“…it seems highly likely that they will lead to LHA recipients being marginalised into the worst accommodation in the poorest areas, or to it being impossible for families to be accommodated at all – which will mean that the costs of temporary and bed and breakfast accommodation, as well as social service budgets, will rocket.”
Under the previous Government, LHA meant dealing with the very real risk of rent arrears. Many tenants frequently dipped into LHA payments to meet other costs, leaving landlords footing the bill to the tune of millions. Under this new Government, landlords renting to LHA tenants face unsustainable rent levels.