On Comment is Free, Tim Leunig reveals some alarming impacts of the government’s housing benefit cuts:
Imagine two sets of people, both renting from private landlords. One is an Islington couple who have never worked. The other is an Oldham family with four children, where the working parent has just lost his or her job. The Islington couple currently receive £250 a week in housing benefit, while the Oldham family gets only £150.
Times are tough, and the government wants to save money. Which family should have its housing benefit cut? George Osborne has chosen the Oldham family. He is cutting its housing benefit to £96 a week, while allowing the Islington couple to continue to claim £250 a week for as long as they like.
It may sound like odd logic, but that is the reality of the £26,000 benefit cap. It takes no account of your employment history or family size. So a central London couple who have never worked are unaffected, because they currently receive less than £26,000 in benefits. But a large family – even in a cheap house – will be hit. That is not sensible.
You can read the full article here.
* Paul Walter is a Liberal Democrat activist and member of the Liberal Democrat Voice team. He blogs at Liberal Burblings.
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26 Comments
Where do you get 62p per day from? £26k is £72.23 per day… or if you take into account what you’d have to earn to take home £26k post tax then it’s £95.89.
Read the article… it’s after rent, council tax, utilities have been deducted.
The problem is that private rental costs (and yes, £400pw is not unrealistic for a family home) have become bloated on the back of housing benefit, but the solution is not to turf people stuck in that situation out on the street.
I support a cap on benefits limited by the assesed needs of the household in question; in reality the cap exists, with the exception of housing benefit, other benefits are, almost without exception, paid at fixed rates for fixed circumstances, and increase in line with the needs of the individual household.
So IDS has really addressed the wrong issue, it is not “benefits” that needs to be capped, but rather “housing benefit” and Local Housing Allowance.
Why do we have a problem with runaway rents? The sale of large numbers of council houses, particularly in London which has led to a huge increase in the need for private rentals. The private rental market has responded as is to be expected by raising rents in line with the increases in property prices. Now many families are renting former council houses at vastly inflated prices, and are now to be punished (despite what IDS says) by having a limit imposed on how much assistance the state will provide to allow them to stay in houses which may have been occupied for many years.
This government is very good at telling people they need to get a job, whilst never acknowledging that the number of people requiring jobs is significantly higher than the availability of jobs. Similarly they are now saying people should pay less rent when the availibility of low rent property is very limited in supply.
The only people really benefitting from the obscene level of rents being paid through HB and LHA are private landlords that actually receive the benefit of the huge payments. In most cases households are more interested in a secure roof over their heads than in how much it costs.
You can find the calculations here: http://centreforumblog.wordpress.com/2012/01/23/calculating-how-the-benefit-cap-cuts-tim-leunig/
Remember that this family would get £21k in benefits even if they earned £35k gross. http://www.turn2us.org.uk can give you more details.
Absolutely Julia. Around where I live, small flats which only a couple of years ago were renting at around £180- – £200 a month are now charging the maximum allowed, on the basis that there are enough unemployed people now to fill them. The maximum allowed for a one bedroom flat is around £380 a month in my town. So landlords are making massive profits on the government’s (our) money.
Of course if the Tories hadn’t allowed the sale of council houses, rents could easily have been controlled. now in Scotland we have banned sales of any more council houses, and started to build new ones. But it is a long slow process. In England they have continued to sell, at even bigger discounts, to people who probably can’t really afford houses (and all the costs involved in them), and they say they will build a new one for every old one sold, but that remains to be proved.
The implications of many of the benefit cuts are horrific. However, it is not helpful to blame them on George Osborne when Nick Clegg is going out of his way to defend them at every opportunity. The Lib Dems went into Coalition promising to reign in Tory excesses. Sadly it seems the leadership have been compromised and are no longer representing party interests, let alone those of the wider public, the majority of which did not vote for the Tories.
If the system of capping can be introduced so that a Housing Benefit cap is separate from a general benefits cap the problem is largely resolved.
Tim,
what of the impact of collecting local taxes for housing benefit (which is essentially a localised form of welfare)?
“Tim Leunig – Housing benefit cap: can you live on 62p a day?”
I think I could manage to live on the benefits cap of £500 per week. I’ll never understand why anyone wants to fight the Tories on this, of all things.
Agreed. The solution is to keep them where they are, reduce housing benefits, and tell their landlords to suck it up and refuse to permit them to evict the tenants.
Excellent article, thanks Tim
@AndrewSuffield – your solution is not in the bill, and if it were it could easily lead to the landlord harassing the tenant. The landlord might argue that without the full rent he cannot pay the mortgage and use that as a pretext to sell the property and effectively evict the tenant anyway.
Looking forward to the day I buy a house, decide to rent it out and immediately get told I won’t be renting it for it’s market price, but for a severely reduced council stipend, because I have to ‘suck it up’.
This morning Iain Duncan Smith said that his department was aware of all of those who would be affected by the proposed changes (honest). Most of them were not people who had, unfortunately, recently lost jobs but those who had never been in employment. If this is true, it backs the argument of the right that the proposals will only affect those who have made long term unemployment a life choice. If not then it would appear that this is a vindictive piece of populist legislation.
It is entirely different to have a system which supports people over through hard times (whatever their previous income) and a system which encourages large families and a lifetime of unemployment.
What’s the truth?
Isn’t the appropriate approach to differentiate those requiring ‘Social Security,’ from those who are playing the system. In the case of short or medium term job loss, the state should provide whatever support is in the best interests of the family and therefore the state. However, after a time, any family, no matter what its previous expectations should adjust its lifestyle to new circumstances. Is this subtlety beyond our legislators? A blanket financial cap seems such a blunt instrument.
Here is another perhaps more abstract contribution: why don’t we alter our benefits system so that it better distinguishes between those who have contributed to the system but fallen on hard times and those who haven’t contributed (obviously excluding disabled/seriously ill people/victims of domestic violence etc)?
In other European countries, the benefits you receive when you have lost your job and those you receive when you have never worked are different (perhaps not always in amount, but in the way they are administered).
In Belgium, when you have worked and you lose your job, you get “unemployment allocations” to which you are entitled because you have paid your social security contributions (if your partner works or you have savings, this is irrelevant). If you haven’t worked or haven’t worked enough in recent times, you are not entitled to unemployment allocations. So no-one accuses a person who is receiving unemployment allocations of being a sponger as they are only receiving them because they paid enough social security contributions.
Although in theory, Belgian unemployment benefit is linked to your previous level of income, the ceiling is quite low, so unlike in France (where the maximum is 6000 euros a month in the short term!), for most people this doesn’t have any effect. The amount a single person with no dependents would currently receive is I believe around 1100 euros a month (there is no housing benefit on top). This is enough to survive on if you are careful, but it’s hardly a fortune. It means however that in the short term, you can concentrate on finding a new job without worrying that you will lose your home or be unable to pay household bills. I think this is a good approach.
If you haven’t paid contributions or haven’t paid enough but find yourself without an income, you are entitled to “social assistance”. I’m afraid I don’t know if the amount you receive would be less than unemployment allocations, I suspect the maximum is less.
I don’t think there is any time limit to how long you can claim, but the social assistance office will keep in touch with you and (at least from what I know) provide you with advice and assistance e.g. referral to other health and social services if needed. I guess their aim is to get you off social assistance and into work if you are able to work, but I don’t personally know anyone who received this assistance (whereas I know plenty of people who have at times received unemployment allocations and none incidentally have stayed unemployed for longer than a year as their previously salaries were far higher than the unemployment allocations).
In addition, making such a change would remove the possiblity of so-called “benefit tourists” (although to be honest I doubt many really exist) as under the Belgian system someone who hasn’t paid enough social security contributions (even if they are Belgian) cannot receive unemployment allocations, and someone who doesn’t meet certain residency requirements (once again even if they are Belgian) would not be (immediately) eligible for social assistance.
Any thoughts?
Tim – just seen your demolition of Mary-Ann Sieghart (representing the coalition position!) on Sky News. Game, set and match to you methinks.
“This morning Iain Duncan Smith said that his department was aware of all of those who would be affected by the proposed changes (honest). Most of them were not people who had, unfortunately, recently lost jobs but those who had never been in employment.”
If he did say that, it’s at odds with his Department’s ‘Impact Assessment’, published today (which is admittedly not very clear).
That breaks down those affected according to main benefit received:
39% JSA
38% Income Support
22% ESA
2 % Other
Then it says “The majority of cases were on benefit for longer than two years and were on Income Support …” Obviously “majority” here can’t mean more than 50%, as only 38% were on Income Support in the first place. Maybe it means that the majority of those on JSA had been on benefit for more than two years?
Then it says “For those who were on JSA, the nature of that benefit is such that very few had been on for longer than a year” and “For the minority who were on ESA only a small proportion had been on for a duration of over two years (this is at least partly because the benefit was introduced relatively recently)”.
On that basis it sounds as though not more than around 40% (and perhaps a lot less) were known to have been on benefit for more than a year or two, though perhaps in most cases it was not known how long they’d been on benefit. I’m not surprised if a politician was unwilling to let his ignorance get in the way of a good story, though.
Forgot link to impact assessment:
http://www.dwp.gov.uk/docs/household-benefit-cap-wr2011-ia.pdf
@Ruth
Yes I was surprised to see Mary-Ann Sieghart coming out in support of the cap, I usually agree with her analyses. Faced with two commentators I respect coming to opposite conclusions I wasn’t entirely sure whose argument to believe, but on balance I think Tim seems to have a better grasp of the numbers and hence the implications on this issue.
@Rebecca Taylor
The funny thing is, what you’ve described is essentially the same in principle as the UK system (though more like the old system, with NI-based, mildly earning-related Unemployment Benefit and non-contributory Supplementary Benefit/Income Support, than the modern JSA — but there’s still a distinction between contributory and non-contributory types, such as you describe, with the former being time-limited). The key differences, I suspect, are (1) Housing Benefit — the major Achilles’ heel in our welfare system; (2) perhaps (I don’t know Belgium!) a lack of tabloid newspapers screaming about benefit scroungers all day?
Other features of the impact assessment that suggest much of the discussion here has been based on misconceptions. Of the households expected to be affected:
(1) 52% are single parents
(2) 51% have three children or fewer
(3) 44% are in the social rented sector
(4) 46% are outside London.
I am all for benefit cuts it needs to be done too cut the defecit but I wonder whats going to happen to the families that have 5+ kids…how will they live and be able to feed and cloth their kids :-/
some people might support the cuts to welfare, but one would hope that these people would arm themselves with the facts before forming and voicing an opinion
The Government wants to cut the welfare bill by £20 Billion.
Coincidentally. this is the same amount that is spent in total in “out of work benefits” as defined by the DWP
These include
http://fullfact.org/factchecks/foreigners_benefits_welfare_nationality_costs-3257
The DWP defines an ‘out-of-work benefit’ as “Incapacity Benefit, Income Support, Employment and Support Allowance (income related or contributory) or Jobseeker’s Allowance (income based or contributory).”
Looking at the DWP’s own benefit expenditure tables, we can see that the Department spent approximately £20.1 billion in these schemes”
Why did this nasty Tory led Government chose “£20 billion” as the figure for the cuts to welfare when that equals to the out of work benefits total and why are the Lib Dems allowing this to happen? It’s not as if they can plead ignorance. I thought this party stood on a constitution that says nobody will be enslaved by poverty
Sorry, Orangepan, I don’t follow your q to me – “Tim, what of the impact of collecting local taxes for housing benefit (which is essentially a localised form of welfare)?”
If you mean that HB should be financed locally then I imagine that would be a disaster for poor areas with a low tax base and high proportion of claimants. Even given that such areas have low housing costs, my sense is that they would be hit hard. As a rule, local financing of anything is regressive (which, incidentally is why local income tax is a Very Silly Idea – some areas have little income to tax, and generally have the highest needs)
Thanks Tim,
it’s important to raise the point about geographical differences to seperate out welfare which is universal support from individual support.
The Lords motion supported removing child benefit from the cap, but perhaps the ‘not comparing like with like’ argument is misplaced as only housing operates in an asset market whereas other benefits are goods.
I will agree that localising local benefit would mean relatively depressed areas would be doubly hit by their lower ratable base and greater demand, at least in the short tem, precisely because this highlights the difficulties caused by an economy with vast structural imbalances.
To overcome the negative consequences we’re complaining about there must be a political argument to encourage government to be more active in balancing the longer term economic pressures with the shorter term concerns. In other words to use local councils to devolve responsibility to local communities by introducing a gradual process of incentivising better planning decisions through the tax and welfare system, and doing so by being more responsive to individual needs.
So if LibDems wish to eliminate the structural imbalances which have a multiplying effect on the level of individual need and cause social division there needs to be a mechanism for changing from the short-term outlook, which will be at the expense of future generations.
Should society submit to economic expediency, the problems centralised tax and centralised welfare has in dealing with variable demographics will be exacerbated, so if we’re not searching for ways to break the unfairness lock of centralisation then any complaints are hollow.
Could the introduction of a local element be an effective mechanism for transition on the proviso that it is managed gradually? If not, what addional options are there to structure welfare for fairness?
If the problem is the long term unemployed, then why not find those that are the longest able bodied unemployed and tell them that they are lucky enough to have come to the top of the list of people eligible for one of the few jobs available.
Then, have them take it telling them that there are now no out-of-work benefits available for them, just in-work benefits.
So, if they lose or leave the job they have been given, they must take the next one given to qualify for any benefits. No excuses. No exceptions. After all they are able bodied. Sweeping the streets or whatever.
Work, or they and their families starve, are evicted, kids taken into care etc etc…
The longest-term unemployed are thus ‘forced’ to resume the dignity of employment and cannot blame anyone about the consequences of their refusing the opportunity given.
Do enlighten me as to why this treatment of those longest out of work is illiberal, unfair, impractical or impossible…
I would like to see the money spent more wisely.
Surely it makes sense to pay
10 families x 100 pounds
than
1 family x 1000 pounds
So to all those living in expensive areas, they should move or commute. I am working person and can’t afford to live in my own area, so why should those on benefits get to choose the nice areas to live in.