changes to Housing Benefit - Parliament (publications) - Parliament UK

House of Commons Work and Pensions Committee

Changes to Housing Benefit announced in the June 2010 Budget Second Report of 2010–11 Volume I: Report, together with formal minutes, oral and written evidence Additional written evidence is contained in Volume II, available on the Committee website at www.parliament.uk/workpencom Ordered by the House of Commons to be printed 15 December 2010

HC 469 Published on 22 December 2010 by authority of the House of Commons London: The Stationery Office Limited

The Work and Pensions Committee The Work and Pensions Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Work and Pensions and its associated public bodies. Current membership Anne Begg MP (Labour, Aberdeen South) (Chair) Harriett Baldwin MP, (Conservative, West Worcestershire) Andrew Bingham MP, (Conservative, High Peak) Karen Bradley MP (Conservative, Staffordshire Moorlands) Alex Cunningham MP (Labour, Stockton North) Kate Green MP (Labour, Stretford and Urmston) Mr Oliver Heald MP (Conservative, North East Hertfordshire) Glenda Jackson MP (Labour, Hampstead and Kilburn) Brandon Lewis MP (Conservative, Great Yarmouth) Stephen Lloyd MP (Liberal Democrat, Eastbourne) Teresa Pearce MP (Labour, Erith and Thamesmead) The following Members were also members of the Committee during the Parliament: Ms Karen Buck MP (Labour, Westminster North), Margaret Curran MP (Labour, Glasgow East), Richard Graham MP (Conservative, Gloucester), Sajid Javid MP (Conservative, Bromsgrove) and Shabana Mahmood MP (Labour, Birmingham, Ladywood) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/workpencom The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee are Carol Oxborough (Clerk), Andrew Hudson (Second Clerk), Hanna Haas (Committee Specialist), Laura Humble (Committee Media Adviser), James Clarke (Inquiry Manager), Sonia Draper (Senior Committee Assistant), Dory Royle (Committee Assistant) and Stephen Price (Committee Support Assistant). Contacts All correspondence should be addressed to the Clerk of the Work and Pensions Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5833; the Committee's email address is [email protected]

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Contents Report

1

Summary

3

Introduction

5 5 6 8 9

Structure of the report Housing Benefit and Local Housing Allowance The June 2010 changes The Government’s impact assessment

2

Housing Benefit costs The Government’s objectives for reform Possible reasons for rises in Housing Benefit costs

3

Potential for rent shortfalls Estimating LHA losses Impact of setting LHA rates at 30th percentile of market rents Impact of the maximum 4-bedroom rate and the maximum weekly caps Change of up-rating mechanism from RPI to CPI Differences by region and local authority London

4

Impact on different household types Impact on large families Impact on disabled people Impact on older people Impact on young people Overcrowding

5

Potential risk of evictions and homelessness Estimated number likely to be pushed into severe housing difficulty Estimates of number of households who may have to move Estimates of costs of homelessness The impact on local authorities The impact on community cohesion

6

Transitional arrangements and Discretionary Housing Payments Increase in Discretionary Housing Payments Transitional arrangements

7

The Private Rental Sector and responses to the proposed reforms Adjustment and substitution The accessibility of the Private Rental Market to LHA claimants Willingness of landlords to accept lower rents Direct payments to landlords

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Page

Addressing barriers to work in the Housing Benefit system

11 11 12 17 17 18 19 20 21 22 25 25 26 28 29 32 35 35 38 39 41 43 47 47 50 53 53 54 57 59 64

2

Comparison between Low-Income Working Households and Housing Benefit recipients in the private rental sector Access to employment 10% Housing Benefit cut for recipients on Jobseeker’s Allowance The claimant perspective The effectiveness of sanctions The provider perspective The underlying purpose of Housing Benefit

64 66 69 70 74 75 76

Conclusion

79

List of conclusions and recommendations

80

Formal Minutes

87

Witnesses

88

List of printed written evidence

88

List of additional written evidence

88

List of Reports from the Committee during the current Parliament

91

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Summary The Government proposed wide-ranging reforms to the Housing Benefit system in the June 2010 Budget. The reforms are intended to slow the sharp rise in the cost of Housing Benefit, and in particular to reduce the amount paid to households securing accommodation in the private rented sector, and thereby to influence the private rental market. We support the Government’s objective of managing the costs of Housing Benefit. We also agree that support for low income families towards their housing costs should represent value for money for the taxpayer and reflect the housing choices available to low-income working households. The effects are likely to vary across different households types and different areas. This report therefore focuses on the potential challenges and the steps which we believe the Government should take to mitigate potential adverse effects. We also highlight impacts on different categories of claimant. The Government has made clear that it does not expect a substantial increase in homelessness as a result of the reforms. It increased the level of funding for Discretionary Housing Payments (DHP) by £180 million in this Spending Review period to provide claimants with further financial assistance when a local authority considers that help with housing costs are needed. We would like to see further analysis of the anticipated demand for this funding, in order to understand the extent to which DHP is likely to be effective in supporting benefit claimants through the transition period and helping to avoid evictions. Some witnesses believed that an increase in evictions and homelessness was inevitable. Large families occupying bigger and more expensive properties are likely to be most seriously affected by the cap on the total amount of LHA that can be claimed. Many people are likely to struggle to meet the shortfalls between the reduced amount of benefit they receive and the rent they need to pay to secure appropriate homes. As a consequence of the Government’s intention to apply downward pressure to rents charged to benefit claimants, many people are likely to have to move to cheaper properties and to cheaper areas. The Government should monitor the costs of the policy to local government and be prepared to consider additional funding if necessary in order to ensure that appropriate support and services can be provided to the new areas. We accept that some landlords will lower rents for claimant tenants in response to the caps on LHA rates. However, the extent of that response cannot be accurately predicted and is likely to vary between different areas, depending on local market conditions. Paying LHA direct to landlords rather than to claimants might increase landlord confidence by reducing the risk of arrears. The Government’s recent decision to temporarily widen the discretion of local authorities to make direct payments to landlords is therefore welcome. However the principle of paying benefits direct to claimants is an important one. Local authority schemes which combine direct payments to claimants and rental guarantee for the landlord should therefore be promoted by the Government. We recognise that Housing Benefit has an important role to play in the decision to take a job and that the Government’s plans to reduce Housing Benefit by 10% after a year on

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Jobseeker’s Allowance will ensure that a claimant is better off in employment, albeit from a lower base. However, a number of concerns have been expressed to us in relation to this proposal, including on its interaction with the Universal Credit and the Work Programme and the particular impact on people who face the greatest barriers to work, such as disabled people and lone parents, and on those who live in areas of high unemployment. The Government needs to explain how it plans to address these concerns.

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1 Introduction 1. The Government put forward proposals for wide-ranging and radical reforms to the Housing Benefit system in the June 2010 Budget. The proposals are intended to slow the sharp rise in the costs of Housing Benefit, and in particular to reduce the amount paid to households securing accommodation in the private rented sector, and thereby to influence the private rental market. The impact of the changes was clearly going to be significant and we therefore decided to conduct an inquiry into the changes immediately after the Committee was established. In particular, we asked for evidence on the implications of the announced changes for: x

Incentives to work and access to low paid work

x

Levels of rent, including regional variations

x

Shortfalls in rent

x

Levels of evictions and the impact on homelessness services

x

Landlord confidence

x

Community cohesion

x

Disabled people, carers and specialist housing

x

Older people, large families and overcrowding

2. We invited witnesses to submit written evidence by 6 September and received 79 submissions from a wide range of individuals and organisations. We took oral evidence from the Local Government Association, London Councils, Shelter, the Chartered Institute for Housing, the Cambridge Centre for Housing and Planning Research, the British Property Federation and the Residential Landlords Association; and from Lord Freud, the Minister for Welfare Reform and DWP officials. We also visited a Citizens Advice Bureau in Balham to discuss the impact of the changes with clients and held an informal briefing at the Royal Institution for Chartered Surveyors. We are grateful to everyone who contributed to our inquiry. 3. We would also like to thank Professor Steve Wilcox1 from the Centre for Housing Policy, University of York, for assisting us as Specialist Adviser during the inquiry. We very much appreciate the contribution he made to our work.

Structure of the report 4. In this introduction, we set out the background to Housing Benefit and the Local Housing Allowance scheme, which is the Housing Benefit paid to tenants renting in the

1

Relevant interests of the specialist adviser were made available to the Committee before the decision to appoint him on 26 July 2010.The Committee formally noted that Professor Wilcox declared an interest relevant to the Committee’s work as an unpaid member of the Department for Work and Pensions Housing Benefit Strategy Committee.

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private rented sector (PRS). This section also outlines the reform proposals, and summarises the Government’s initial assessment of the impact of those proposals. Chapter 2 examines the causes behind the rising costs of Housing Benefit in the PRS in recent years, which have in part prompted the Government’s reform proposals, and explores the other objectives of the reforms. In Chapter 3, we look at the potential for shortfalls between Housing Benefit and rents in the PRS, and how this may vary in different areas. In Chapter 4 we then look in greater detail at how these measures may impact on different household types. We highlight which groups are likely to be the most affected and examine the steps which the Government should take to protect them. In Chapters 5 and 6 we examine the extent to which transitional arrangements and Discretionary Housing Payments could help to ease the transition. In Chapter 7 we explore some of the behavioural responses the Government is expecting: from tenants in terms of moving to cheaper accommodation; and from landlords in terms of their willingness to lower rents. Finally, in Chapter 8 we explore how Housing Benefit claimants compare to low-income working families in terms of rent paid in the private rented sector, and whether the measures are appropriately designed to incentivise claimants to move off benefits entirely and into work.

Housing Benefit and Local Housing Allowance 5. Housing Benefit is an income-related benefit providing support for rental housing costs for tenants on low incomes (both in and out of work). It is a scheme covering England, Scotland and Wales, with almost all benefit costs met by central government. Together with Council Tax Benefit, it is administered by 380 local authorities. If these provisions are mirrored in Northern Ireland, our colleagues on the Northern Ireland Affairs Committee may wish to investigate the implications there. 6. As at May 2010, there were 4.75 million family units in receipt of Housing Benefit. Of these 1.46 million (31%) were tenants in private rented sector accommodation and 3.29 million (69% ) were living in the social rented sector. Overall, Housing Benefit expenditure amounted to around £17 billion in 2008/09.2 7. Local Housing Allowance (LHA) is the type of Housing Benefit available to claimants securing accommodation in the private rented sector. It was introduced in nine "Pathfinder" areas from November 2003 and was extended to a further nine areas from April 2005. The experience of the Pathfinder areas led the Government to legislate for the national roll-out of the LHA from 7 April 2008. It is means-tested and can be claimed by people in work as well as those who are disabled, retired, carers or unemployed. 8. LHA is administered by local authorities, to whom a tenant must apply for support. The LHA is a flat rate allowance for different sizes of properties within a Broad Rental Market Area (BRMA). Prior to the introduction of the LHA, these areas were known as "localities". The Rent Service is responsible for determining BRMAs. When determining BRMAs the rent officer takes account of the distance of travel, by public and private transport, to and from facilities and services of the same type and similar standard.

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9. Central to the system are “LHA rates” which are the maximum amount of benefit that will be paid in different BRMAs. These rates are published, so that those seeking rented accommodation know in advance what they will be able to afford based on where they live and what size of dwelling they are entitled to. These LHA rates are currently the median (or 50th percentile) of a sample of rents in a local area. The rents data are gathered by the Valuation Office Agency (VOA), who also publicise the current rates for each size of dwelling in each area. 10. The actual benefit amount in a given case is worked out from detailed information that applicants provide about their rent, the property, whom they live with, and their own income and savings and that of others in the household. The number of bedrooms for which a household is entitled to claim benefit is based on the number and age of its members (size criteria). One bedroom is allowed for each of the following: x

a couple

x

a person who is not a child (age 16 and over)

x

two children of the same sex

x

two children who are under 10

x

any other child

11. The previous Government amended the Housing Benefit regulations to cap the highest possible level of LHA at the 5-bedroom rate from 6 April 2009. It argued that the move followed concerns raised by rent officers in England, Scotland and Wales who reported difficulties in determining LHA rates for larger properties. It stated that where larger properties are available, they tend to be at the luxury end of the market.3 12. LHA is paid to the tenant. It can only be paid to landlords in circumstances where:

3

x

There are at least eight weeks rent arrears (compulsory);

x

Deductions are being made from other benefits and are being paid to the landlords to pay rent arrears (compulsory);

x

The authority considers the claimant “is likely to have difficulty managing his/her financial affairs” (often referred to as “vulnerable” claimants);

x

The authority “considers it improbable that the claimant will pay their rent”;

x

Landlord payment has been made previously under either of the two compulsory grounds (1st or 2nd bullet point) (so for example, payment to the landlord can continue even where the arrears have reduced to below 8 weeks or have been cleared);

x

For up to eight weeks where the authority suspects that the 3rd or 4th point above applies and it is considering making payments on those grounds;

Work and Pensions Committee, Fifth Report of Session 2009-10, Local Housing Allowance, HC 235, para 148

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x

If the tenant leaves with arrears of rent owing.4

The June 2010 changes 13. The programme of Housing Benefit reform measures announced in the June Budget will come into force between 2011 and 2013. The proposed reforms that relate exclusively to the private rented sector were as follows: x

Restricting the maximum benefit entitlement to the 4-bedroom rate, from April 2011;

x

Capping maximum LHA weekly rates at £250 (for a shared room and 1 bedroom property), £290 (for a 2 bedroom property), £340 (3 bedrooms) and £400 (4 bedrooms), from April 2011.

x

Setting LHA rates based on the 30th percentile of private sector rents (rather than the median or 50th percentile) from October 2011.

x

Removing the provision for claimants to retain a maximum of up to £15 per week, in cases where their contractual rent is below the LHA rate, from April 2011 (as announced by the previous Government).

x

From April 2013 LHA rates will be uprated based on the Consumer Price Index, rather than on the basis of local rents.

In recognition of the potential transitional costs that will arise for some households as a result of all these changes the Government has also made provision for increased expenditure on Discretionary Housing Payments, of £10 million in 2011-12 and £40 million a year thereafter. 14. In addition, a number of measures have been proposed that will impact on social sector tenants, and claimants in all rented tenures. They are as follows: x

Provision for an additional bedroom allowance for a carer where there is an established need for overnight care, from April 2011.

x

The rates of non-dependant deductions will be increased in three annual steps from April 2011, so that they reach levels reflecting increases in rents and council tax since 2001. 5

x

Size criteria will be applied to working age claimants in the social rented sector, from April 2013.

x

Jobseeker’s Allowance claimants will only receive full Housing Benefit entitlements for a period of 12 months. Thereafter their Housing Benefit entitlement will be reduced by 10%. This will apply from April 2013.6

4

Housing Benefit Regulations 2006, Regulations 95(1), 96(1)(c),(2)(b),(3A),(3B)

5

A non-dependant is a person who resides with the claimant, and is not a partner or dependent child of the claimant and/or their partner. Children of 18 years or over are, as a general rule, treated as non-dependants. (Source: Regulation 3 of the Housing Benefit Regulations 2006)

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15. Since these changes were announced in the June 2010 Budget, the Government decided as part of the Spending Review to extend the shared room rate (the rate of benefit paid to single people who are aged under 25) to adults aged up to 35.7 The rate is calculated on the basis of average cost of a single room in a shared house. 16. On 30 November 2010, the Government laid the Housing Benefit (Amendment) Regulations 2010 and amendments to the Rent Officers (Housing Benefit Functions) Order 1997 that will bring the Budget measures into effect. At that point it announced that the timetable for making the changes would be amended as follows: x

All changes that will adjust the way Local Housing Allowance rates are calculated will come into force from April 2011 for new claims.

x

Existing claimants will continue at their current rate of benefit until their claim is reviewed by their local authority; they will then have a further period of transitional protection at their current Local Housing Allowance rate of up to nine months if there has not been a relevant change of circumstances.

At the same time, the Government also announced a further allocation to the Discretionary Housing Payment fund, which local authorities draw on to assist people who face particularly acute problems with housing costs. A further £50 million will be provided over the Spending Review period to support the implementation of the new measures.8

The Government’s impact assessment 17. DWP’s initial assessment of the impact of the Housing Benefit reforms was set out in a paper issued in July.9 While this went into some detail, it was essentially limited to an assessment of the “first round” impacts on existing Housing Benefit recipients, and did not make any assessment of the potential behavioural responses to the reforms, either by landlords or tenants. 18. The initial assessment found that virtually all private tenants claiming LHA would receive less benefit, with an average loss per claimant of £12 per week. The losses would be greater for tenants entitled to larger dwellings. Claimants entitled to the 5-bedroom rate, which is to be abolished, will lose on average £57 a week. Reflecting this, the impact assessment shows that families with dependent children would lose on average more—£14 per week—than those without. LHA is claimed by those in work and retired people as well as those who rely on state unemployment or disability benefits. The measures will cut LHA to all those groups, with the largest number affected being those on “other or no benefits”—many of them low-income employees—followed by those on long-term sickness benefits.10

6

HM Treasury, Budget 2010, HC 61, June 2010, pp 33-34, 48

7

HM Treasury, Spending Review 2010, October 2010, p 69

8

HC Deb, 30 November 2010, Col 72WS

9

Department for Work and Pensions, Impacts of Housing Benefit proposals: Changes to the Local Housing Allowance to be introduced in 2011-12, July 2010

10

DWP Impact assessment, Table B1, p16f

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19. In November, the Government published a second impact assessment of the changes which recognises that there are a number of risks as follows: x

an increase in the numbers of households with rent arrears, evictions and households presenting themselves as homeless;

x

disruption to children’s education and reduced attainment;

x

disruption to support services for people with disabilities and other households with care and support needs;

x

an increase in the number of households living in overcrowded conditions; and

x

a decrease in the number and quality of private rented sector properties available to Housing Benefit tenants.

It added that “the overall economic impact of the measures cannot be quantified with any degree of certainty as it is not possible to predict the behavioural effects of tenants or their landlords”.11

11

DWP, Impact Assessment, Housing Benefit: Changes to the Local Housing Allowance Arrangements, 24 November 2010

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2 Housing Benefit costs 20. The Department told us that the costs of Housing Benefit have almost doubled over the last decade, rising from £11 billion in 1999-2000 to £20 billion in 2009-10 and are forecast to reach £25 billion by 2015-16.12 Figure 1 shows the cost of Housing Benefit, broken down by tenure, from1998 to 2010. It demonstrates that overall expenditure has risen by almost 50% in real terms and that the cost of Housing Benefit in the private rented sector more than doubled in that period. Figure 1: Housing Benefit Expenditure 1998-2010

We examine the reasons for the rises in costs in detail in the sub-section below.

The Government’s objectives for reform 21. The rises are an understandable cause for concern at a time when the Government is making substantial and widespread reductions in public spending in order to contain the levels of government budget deficits. The Department states that it “needed to act quickly to take steps to curb increases in expenditure, particularly given the wider need to tackle the budget deficit”.13 The Government has explained that it does not want to be a passive observer paying out blank cheques to private landlords, but rather to allow taxpayers on low earnings to have a voice in the debate about the proper level of housing benefit.14 22. The proposed Housing Benefit reforms have also been shaped by a policy focus on how benefit claimants compare to low-income working households in terms of access to affordable accommodation. That focus particularly relates to the proposals to cap the levels of Local Housing Allowances (LHA) available to claimants securing accommodation in the private rented sector (PRS). The Department states that “Local Housing Allowance 12

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HC Deb 13 July 2010, col 223WH

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measures will provide a more sustainable Housing Benefit scheme by ensuring that people on benefit are not living in accommodation that would be out of the reach of most people in work, creating a fairer system for low-income working families and for the taxpayer”.15 The Government asserts that low-paid earners typically choose a rent around the 30th percentile. Steve Webb MP, the Minister for Pensions said: If someone takes a low-paid job, they do not have an unlimited choice about where to live. They cannot live in as big a house as they would like. They are constrained in where they live. Why should our constituents who take a low-paid job with all the associated uncertainties and have to restrict their housing choice be in a worse position than those [...] who are, for example, unemployed? 16 The Minister also said that: Some of the figures that have been quoted for losers assume that nothing changes and that people will go on living exactly where they are living and making the same choices, but the whole point of the reform is to have an influence on the housing market, and to try to do something about escalating rents.17 23. The Department also argued that the measures will improve incentives for customers to enter work. It suggested that: Providing some customers, mainly in London, with the ability to live in very high cost rented properties makes it extremely unlikely they would ever move completely off Housing Benefit because of the very high income levels required. Moving to more affordable accommodation could therefore encourage households to take up employment and move completely off benefit.18 24. We agree with the Government’s objective of managing the costs of Housing Benefit. We also agree that support for low-income families towards housing costs should represent value for money for the taxpayer. We hope that the Government will be able to influence the rent levels of properties in the private rental sector available to Housing Benefit tenants. Further detailed research should be undertaken on this issue as the policy is implemented

Possible reasons for rises in Housing Benefit costs 25. Brighton & Hove City Council said that it welcomed the changes to Housing Benefits and “the savings they should deliver”.19 The Mayor of London agreed that “a thorough overhaul is necessary to bring down the escalating benefits bill, to remove the perverse disincentives to work and to tackle the current excesses that undermine public confidence in the scheme”.20

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HC Deb 13 July 2010, col 223WH

17

HC Deb 13 July 2010, col 223WH

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26. The Building and Social Housing Foundation argued that “it is incorrect to portray Housing Benefit as a system that is ‘out of control’. In fact, as a proportion of the overall benefits bill it is striking that Housing Benefit has remained remarkably constant at around 14% of total expenditure for many years”.21 This point is illustrated by Figure 2. The proportion of total welfare payments made up by Housing Benefit expenditure largely reflects the large share that housing costs represent in average household budgets. In 200708, for example, net housing costs represented 21% of disposable incomes for all households.22 Figure 2: Help with Housing Costs as a percentage of total benefits expenditure (including tax credits) 1994-2010 25,000

14

£ millions (Real)

20,000

12 10

15,000

8 10,000

6 4

5,000

2 0

Percentage of Total Benefits

16

0 1995

2000 HB Expenditure

2005

2010

HB as % of All Benefits

Expenditure at constant 2010/11 Prices. Years are financial years. Source: DWP and HMRC statistics

27. The Chartered Institute of Housing (CIH) also emphasised the need to consider the causes of the rise in HB costs. It argued that: This should be a starting point in looking at Housing Benefit reform, not an afterthought. Housing costs for all households, whether renting or owning, have increased as we have failed to supply enough housing to meet the changing needs of our population and economy.23 Shelter acknowledged that “the very recent sharp increase in the cost of Housing Benefit in the PRS [private rented sector] is a cause for concern”. It believed, however, that: It has been caused by a combination of increasing numbers of claimants, due to the recession and Government policy to make greater use of the PRS; and, rapidly rising private rents. [...] Housing more claimants in social rented housing, would be more cost-effective in the long run but requires significant up-front public investment. [...] A further trend underlying the nominal increases in the overall cost of HB has been the huge shift of claimants from Local Authority owned housing to Registered Social 21

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22

Family Spending, Expenditure and Food Survey 2007-08, Office for National Statistics

23

Ev 44

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Landlords, where rents and the proportion of tenants claiming are slightly higher, over the past decade.24 28. Part of the increase in costs has also been attributed by the Government to rent levels for claimants in the private rented sector increasing more rapidly than average market rents in the overall private sector. In oral evidence, the Minister quoted pre-LHA figures for 2000-2007 which showed an overall increase in the private rented market of around 15% in real terms; while rents paid by LHA claimants went up by 25%.25 However, the greater rise in Housing Benefit rents over the period to 2007 reflects a number of factors. The overall rental market rise figures quoted relate exclusively to assured tenancies set at market rents. The Housing Benefit rents also include those fixed by rent officers for regulated tenancies at below market levels, and the proportion of claimants with regulated tenancies with lower rents declined from 14% in 2000 to just 7% in 2007. 29. The Minister also cited more recent evidence of Housing Benefit rents rising while wider market rents have been falling: [...] from November 2008, for the next 15 months, the property index declined by 5% and our HB claimants’ payments went up 3%, which shows the disconnect there is between what is happening in the marketplace and what we are paying.[…] That is a very, very good example of what has been going wrong in the marketplace as a result of us being pretty un-smart buyers of private rented accommodation.26 However the source for these figures is a web-based index of “asking” rather than “achieved” rents, which was identified as the Find a Property private rental index. The Secretary of State for Work and Pensions issued a Written Ministerial Statement on 25 November correcting the source of similar figures which he used in an Opposition Day debate on Housing Benefit on 9 November.27 30. According to the Valuation Office Agency, claimant rents moved in line with changes in the LHA rates in the first three quarters of the period from November 2008. It is only in the last two quarters that average rents for claimants rose ahead of LHA rates. In a period of rapid market change, and a sharp rise in the numbers of claimants in the sector, it is important to ensure that the Department obtains value for money in the Housing Benefit budget. We recommend that the Department undertake further research into the reasons for the increased rent levels and the methodologies used to measure them. 31. The Minister also presented evidence that rents are increasingly clustering around LHA rates.28 The Department suggested that:

24

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Q 103. The Minister provided the Committee with an analytical supplement which gave the background to these figures. This is available on the DWP website at http://research.dwp.gov.uk/asd/index.php?page=recent

26

Q 131

27

HC Deb, 25 November 2010, col 54WS.

28

Q 103

15

Some landlords may raise their rents to the rate that they know will be met by benefit levels. Research undertaken by the Department for the two year review of Local Housing Allowance found that local authority Housing Benefit managers feel that more landlords are raising their rents to Local Housing Allowance levels. They believe landlords see this as the going rate in the absence of other rent setting methods.29 This evidence was supported by the British Property Federation: The new Government inherited a local housing allowance system that was always going to cost more in comparison with what had gone before. It is true that rents in some areas have adjusted towards the local housing allowance rates and in markets where there are significant claimants this is seen as ‘the going rate’.30 The National Housing Federation told us that: Private sector landlords increased rents with the introduction of Local Housing Allowance [...] the average housing benefit award for Local Housing Allowance is over £9 per week more than for people still on the previous scheme [...] The Local Authority Omnibus Survey [...] finds that Housing Benefit managers say that some landlords are using the transparency of the arrangements to raise rents to the Local Housing Allowance level. 31 Paddington CAB said that: “we understand the need to place a cap on rents paid by the taxpayer, especially in central London where the LHA is spiralling out of control.”32 32. Table 1 below shows a degree of convergence of claimants’ contractual rents around the LHA rate. Table 1 Distribution of claimants’ contractual rents relative to LHA rates Difference between rent and LHA + £15 to £20 + £10 to £15 + £5 to £10

Apr 2009

Aug 2009

Apr 2010

Aug 2010

26 21 14

29 23 16

30 25 17

31 25 17

+ £0 to £5

6

7

8

8

Equal to LHA rate - £0 to £5

7 7

8 8

8 7

9 8

- £5 to £10

14

16

15

15

- £10 to £15

21

23

23

23

- £15 to £20

25

27

27

26

Source : DWP analysis of the Single Housing Benefit Extract.

33. However, two points should be noted. The first is that there is more “downward” convergence of rents that are above the LHA rate, than there is “upward” convergence of 29

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rents below the LHA rate. There is a 3% increase in the proportion of above LHA rate rents that are no more than £10 above the rate (from 14% to 17%). In contrast there is only a 1% increase in the proportion of below LHA rate rents that are within £10 of the rate (from 14% to 15%). 34. The second point is that downward convergence of rents towards the LHA rate could be just as readily explained in terms of tenants’ choices in the light of the more transparent information the LHA rate provided on the level of benefit available, as it could in terms of any decisions of landlords to reduce rents towards LHA levels. The rising costs of Housing Benefit can therefore be partly explained in terms of economic conditions and Government policies. 35. There is some evidence that the introduction of the Local Housing Allowance has led to a convergence of rents around the level of the LHA. This has involved both upward and downward revisions and has varied between areas, but it is clearly a factor in the rising costs of Housing Benefit.

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3 Potential for rent shortfalls 36. As we have said, the initial DWP assessment of the impact of the Housing Benefit reforms to the LHA regime was set out in a note issued in July. While this went into some detail, it was essentially limited to an assessment of the “first round” impacts on existing Housing Benefit recipients, and did not make any assessment of the potential behavioural responses to the reforms, either by landlords or tenants.33 Key findings from the initial assessment are set out in the following paragraphs. A wider discussion of all the evidence we received on the likely impacts of the reforms, including a discussion of the potential behavioural responses, is presented in Chapter 7 below.

Estimating LHA losses 37. Table 2 shows the overall impact of the changes by size of dwelling, and for households with and without dependants.34 The Table clearly shows the greater cash impact of the overall changes on households with dependants, and particularly those requiring larger accommodation. Table 2: Overall impact of LHA package by size of dwelling and household type Impact Group Shared Room 1 Bedroom 2 bedroom 3 Bedroom 4 Bedroom 5 Bedroom With dependants No dependants Total impact

LHA Caseload 74,690 387,740 328,250 112,550 27,900 8,100 450,650 488,570 939,220

Average maximum HB £pw 69 107 139 164 201 260 151 103 126

Estimated number of losers 73,610 386,560 328,250 112,550 27,900 8,100 450,650 486,310 936,960

Estimated percentage of losers 99 100 100 100 100 100 100 100 100

Average loss per loser £pw -7 -11 -12 -15 -22 -57 -14 -10 -12

Table 3 shows that the cash impact is relatively uniform across the country, but with a much greater impact in London, partly as a result of the particular impact of the national caps in central London. Both tables shows that virtually all households face losses as a result of one or more of the measures in the LHA package. Within that overall impact 414,000 (44%) households face losses of up to £10 per week, 469,000 (50%) face losses of between £10 and £20 per week, while 44,000 (5%) face losses of over £20 per week.

33

DWP, Impacts of Housing Benefit proposals: Changes to the Local Housing Allowance to be introduced in 2011-12, July 2010

34

It should be noted that all tables slightly underestimate the numbers of households affected, as the DWP analysis is based on the 939,220 cases for which full data was available, out of the total 1,015,330 LHA claimants in March 2010.

18

Table 3: Overall impact of LHA package by region Region North East North West Yorkshire and the Humber East Midlands West Midlands East of England London South East South West Scotland Wales

LHA Caseload

Average maximum HB £pw

45,160 131,180 87,310

96 102 93

Estimated number of losers 45,160 130,900 87,310

59,100 80,140 71,010 159,370 123,000 83,180 51,060 48,710

99 107 124 204 138 117 106 95

58,680 80,140 70970 159,370 123,000 83,180 49,370 48,530

Estimated percentage of losers 100 100 100 99 100 100 100 100 100 97 100

Average loss per loser £pw -9 -10 -9 -10 -10 -10 -22 -12 -10 -10 -10

Impact of setting LHA rates at 30th percentile of market rents 38. Table 4 shows the impact of setting LHA rates based on 30th percentile market rents, by size of dwelling, and for households with and without dependants. It again demonstrates the greater cash impact of this specific measure on households with dependants, and those requiring larger accommodation. Table 4: Impact of 30th percentile LHA rates by size of dwelling and household type Impact Group Shared Room 1 Bedroom 2 bedroom 3 Bedroom 4 Bedroom 5 Bedroom With dependants No dependants Total impact

LHA Caseload 74,690 387,740 328,250 112,550 27,900 8,100 450,650 488,570 939,220

Average maximum HB £pw 69 107 139 164 201 260 151 103 126

Estimated number of losers 70,430 298,700 294,490 94,680 13,500 8,100 384,860 390,110 774,970

Estimated percentage of losers 83 94 77 90 84 48 39 85 80

Average loss per loser £pw - 6 - 7 -10 -12 -20 -36 -14 -11 - 7

39. Table 5 shows that while the cash impact is greatest in London, a slightly lower proportion of households are affected by this specific measure. More generally, both tables show the widespread national impact of this measure on its own, with five out of six households seeing a reduction in the level of their LHA rate. 40. The overall impact of the 30th percentile rates measure is that 512,000 (55%) households face losses of up to £10 per week, 223,000 (24%) face losses of between £10 and £20 per week, while 40,000 (4%) face losses of over £20 per week. This measure accounts for the greatest part of the reductions in expenditure within the total package of measures.

19

Table 5: Impact of 30th percentile LHA rates by region Region North East North West Yorkshire and the Humber East Midlands West Midlands East of England London South East South West Scotland Wales

LHA Caseload 45,160 131,180 87,310

Average maximum HB £pw 96 102 93

Estimated number of losers 38,890 114,180 78,280

Estimated percentage of losers 88 87 90

59,100 80,140 71,010 159,370 123,000 83,180 51,060 48,710

99 107 124 204 138 117 106 95

51,920 67,490 59,460 113,300 96,300 70,430 40,420 43,270

88 84 84 71 78 85 79 89

Average loss per loser £pw -7 -7 -7 -8 -8 -8 -17 -9 -8 -7 -8

Impact of the maximum 4-bedroom rate and the maximum weekly caps 41. Table 6 shows the impact of the maximum 4-bedroom rate and the maximum weekly caps by size of dwelling, and for households with and without dependants. It demonstrates the very substantial impact of these changes for households affected by these two measures, although it affects relatively small numbers of households. Table 6: Impact of 4-bedroom rate and maximum caps by size of dwelling and household type Impact Group Shared Room 1 Bedroom 2 bedroom 3 Bedroom 4 Bedroom 5 Bedroom With dependants No dependants Total impact

LHA Caseload 74,690 387,740 328,250 112,550 27,900 8,100 450,650 488,570 939,220

Average maximum HB £pw 69 107 139 164 201 260 151 103 126

Estimated number of losers 3,230 8,290 2,900 1,080 5,570 16,970 4,100 21,600

Estimated percentage of losers 1 3 3 4 69 4 1 2

Average loss per loser £pw - 83 -52 -103 -135 -75 -72 -83 -74

42. Table 7 shows that the greatest impact of these measures will be in London, with the national maximum caps impacting on far more households than the maximum 4-bedroom rate. Altogether only 3,650 households outside London are affected by the maximum 4bedroom rate. 43. Within the overall impact of these two measures 5,000 (0.5%) households face losses of up to £10 per week, 1,170 (0.1%) face losses of between £10 and £20 per week, while 14,890 (1.6%) face losses of over £20 per week.

20

Table 7: Impact of 4-bedroom rate and maximum caps by region Region North East North West Yorkshire and the Humber East Midlands West Midlands East of England London South East South West Scotland Wales

LHA Caseload 45,160 131,180 87,310

Average maximum HB £pw 96 102 93

Estimated number of losers 240 700 400

Estimated percentage of losers 0.5% 0.5% 0.5%

Average loss per loser £pw - 37 - 36 - 25

59,100 80,140 71,010 159,370 123,000 83,180 51,060 48,710

99 107 124 204 138 117 106 95

310 520 340 17,410 520 310 110 200

0.5% 0.6% 0.5% 10.9% 0.4% 0.4% 0.2% 0.4%

- 36 - 30 - 56 - 81 - 75 - 47 - 51 - 34

Change of up-rating mechanism from RPI to CPI 44. The measures discussed so far, particularly the change to using the 30th percentile rather than the median to set the maximum allowable rent, will reduce the proportion of private lettings which are affordable to LHA claimants in each area. We have not looked so far at one of the measures which is expected to bring large savings in expenditure on HB/LHA: the switch to using the Consumer Price Index (CPI) as the basis for increasing allowable rents for an initial two-year period from 2013 to 2015. 45. The Minister explained that: [...] the CPI figure will come in in the year 2013 and effectively it is set for the next two years, because we are talking about a settlement for this spending review, the SR10. So what we are doing is breaking the link into the market as a whole for two years, in order to keep downward pressure.35 However, he also acknowledged that at a point in the future the Government would need to review the operation and impact of using CPI to annually uprate LHA rates. 46. At present, the rates permitted for different bedroom sizes in different rental markets are set by reference to actual rents, which are collected by the Valuation Office Agency (VOA). From 2013, the current rates will simply be uprated by CPI as one measure of general price inflation in the economy—one that excludes homeowners’ housing costs from the basket of goods whose market prices are tracked to produce the index. 47. A recent study by the Cambridge Centre for Housing and Planning Research (CCHPR) highlights that “if rents increase faster than general prices, then the proportion of rental properties in each market that can be afforded using LHA will diminish as time passes. Such an effect will be progressive and cumulative”.36 The Chartered Institute of Housing (CIH) has produced a spreadsheet which explores how long it might be until LHA tenants' purchasing power, increased by CPI, can no longer meet the cost of the cheapest properties 35

Q 145

36

Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 28

21

in different areas. CIH projects that within 15 years, all two-bedroom properties in 42 of 154 rental market areas will be at rents above LHA rates. This study assumes supply and demand are unaffected. 48. To explore these cumulative effects further, the CCHPR study took inner Greater Manchester as an example rental market. It found that by 2018, only the bottom 5% of 2bedroom properties might be available at or below the LHA rate. The study suggests “this holds true for many other areas, and thus the pool of adequate properties affordable to LHA claimants will inevitably shrink”.37 CIH emphasised that: It is critical to understand that this means that over time the effect of the CPI cap will be to break the link between what help tenants receive with their housing costs and the actual rent they pay. At this point it can no longer be said that Housing Benefit will be meeting its central policy objective: to ensure that accommodation is available to all households regardless of their income [...] the effect of this measure in shrinking the affordable supply will be two-fold. First, for tenants the purchasing power of their LHA will diminish. Second, long-term landlord investment in rental stock is likely to shrink because long-term investment is predicated on long-term rental income yields.38 This study assumes no new building to meet demand, and that rent increases will in future be faster than general increases in prices. 49. Sam Lister of CIH said that “if there was one measure that we would pick as one that we would get rid of, that would be the one".39 The British Property Federation argued that “this is the most severe aspect of the current proposals for reform”.40 50. We recommend that the Government fully evaluate the impact of the changes to Housing Benefit introduced in 2011, including on rent levels, before introducing the change to using the Consumer Price Index (CPI) for uprating LHA. If uprating using CPI is introduced in 2013, it should be accompanied by an undertaking that the Secretary of State will review the Local Housing Allowance rates in relation to prices in the wider private rental market prior to 2015.

Differences by region and local authority 51. As shown in the Tables above, the measures do not affect all parts of the country to the same degree. This is partly because there are more LHA claimants in some regions than others, and especially in London, where housing costs are highest relative to incomes. The greatest reductions in LHA payments are forecast in parts of London, in some rural areas, in metropolitan districts in Lancashire and in some coastal areas. In many places, a district where many tenants will face large reductions directly neighbours a district much less affected. This may stimulate migration of LHA claimants into the cheapest districts of cities and cheapest settlements in rural areas, since the broad rental market areas (BRMAs) used 37

CCHPR Study, September 2010, p 30

38

Ev 55

39

Q 81

40

Ev 41

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to administer LHA do not correspond with local authority district boundaries. A more distinctive pattern emerges for losses for larger dwellings. These losses are concentrated in the rural areas of the South and East of England, and in most parts of the capital.41 52. Citizens Advice Scotland highlights that the City of Edinburgh is in the top 10 cities in the UK that will be affected by Housing Benefit changes and estimated that 9,660 households would be worse off as a result. It argues that “these cuts will leave tenants falling into rent arrears and increasing debt or being forced to leave their homes and at worst becoming homeless”.42 London 53. The impact of the LHA reforms will be particularly acute in London. This is partly because the maximum caps will affect more households in central London, but also because of the high number of properties with more bedrooms in many parts of outer London. Only six London boroughs (out of 33) are not affected by the national cap for any size of dwelling.43 Another significant factor is that the private rental sector is a much larger part of the overall housing market in London. Rents are therefore higher and consequently average cash reductions in LHA rates will be much larger than in other parts of the country, even in cases where the national caps will not apply (see Table 7 above). 54. The deep impact of the national caps in central London (City of London, Kensington and Chelsea, and parts of Camden, Hackney, Hammersmith & Fulham, Islington, Tower Hamlets and Westminster) may result in unsustainable shortfalls. The proportion of lettings available at or below LHA rates is estimated by DWP to fall from 52% to just 7% in that area.44 55. Evidence from the Mayor of London stated that the package of cuts (the caps, the change from the median to the 30th percentile and the loss of the £15 excess), will mean that London LHA claimants will lose an average of £22 per week — compared with £12 in the South East and £10 or less elsewhere. It pointed out that London is the only region of the country where over 20,000 households (12% of claimants) will have weekly losses of more than £30. Almost a quarter of London claimants will lose £20 per week or more, compared with 2% in two regions, 1% in two regions and none in the rest. Overall, all of the capital’s LHA claimants will face losses as a result of the changes. 56. The Mayor also emphasised that the move from the median to the 30th percentile in setting LHA rates will have a much more serious effect in London than the rest of the country. London will have average weekly losses of £17 for each claimant as a result of this

41

Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 10. The map set out in the report indicates the impact in different areas of the country.

42

Ev w249

43

DWP, Impacts of Housing Benefits Proposals: Changes to the Local Housing Allowance to be introduced in 2011-12, 23 July 2010

44

DWP, Impacts of Housing Benefits Proposals: Changes to the Local Housing Allowance to be introduced in 2011-12, 23 July 2010

23

change. This compares with £9 or less in all other regions. Overall, over 113,300 Londoners will be affected by this change.45 However: It is the caps that will have the most significantly different impact on London to elsewhere, as only four other regions will be affected by the caps (and only 1% of claimants in each of these). More than one in ten claimants in London (around 17,400 households) will lose out as a result of the caps, with an estimated average level of losses of £81 per week.46 57. Westminster City Council provided the following table, which shows for each London local authority affected, the number of benefit recipients who will lose out specifically as a result of the LHA national caps.47 Local authority

Westminster Brent Wandsworth

Number of claims where HB will reduce 4,010 2,070 1,790

Kensington & Chelsea Hackney Camden Tower Hamlets Ealing Hammersmith & Fulham Islington

1,650 1,570 1,090 970 940 710 680

Barnet

440

Hounslow Haringey Lambeth Richmond upon Thames Merton

190 150 100 90 60

58. London Councils suggested that the caps will result in: [...] substantial movements of current claimant households out of central, and much of inner London. This will be particularly marked for the single person and childless households, where the pressures to move will not be mitigated to any significant degree by councils’ use of DHP budgets [...] Other areas in London will as a result face added pressures to their markets from claimant households migrating out from central London, at the same time as the impact of the new LHA limits on existing claimants in their areas. […] Those additional migratory market pressures are also likely to offset the potential for landlords in outer London to reduce rents in response to the LHA changes.48

45

Ev w137

46

Ev w137

47

Ev w175

48

Ev 70

24

59. It is difficult to predict the precise impacts of the LHA changes in London given the number of factors involved. Nonetheless it is clear that the changes in London will result, as they are intended to, in substantial levels of household movement. The Government has acknowledged this and has increased funding for Discretionary Housing Payments, in order to provide local authorities with the means to assist with the transition. We examine later in this report whether this support is likely to be sufficient.

25

4 Impact on different household types Impact on large families 60. The Department states that it: [...] recognises that the measure to cap Local Housing Allowance rates at the four bedroom level will impact mostly on larger families. It is important to note, however, that this does not mean families will be obliged to live in properties with four bedrooms or fewer. Rather, the maximum amount of benefit a customer will receive will be based on properties of that size. Customers will need to make their housing decisions based on the size and location of the accommodation. It adds that “this measure will bring the housing choices of larger families more in line with those who do not claim Housing Benefit”. It refers to research into low-income working households which found that “for properties of four or more bedrooms, low-income working households paid rents that were around two-thirds of the Local Housing Allowance rate outside of London and the South East”.49 61. Roger Harding from Shelter argued that “there is an over-focus on larger families in this debate. The people claiming the 5-bed rate make up 0.01% of LHA claimants”.50 Birmingham City Council suggested that: [...] the high rents in the capital have disproportionately influenced the level of changes in other areas. When the previous Government limited LHA payments to the 5-bed rate, we noted that only 21 families were affected in Birmingham representing savings each year of only £60,000. Yet for those families, the reductions in actual benefit were significant and severe.51 The Child Poverty Action Group stated that: It seems from the figures given by the DWP that a smaller percentage of larger households will lose, but their losses will be greater than those of smaller households; so for a shared room 94% of claimants will lose, and the loss will average £6 per week; for a 4-bedroom house, 48% of claimants will lose, and the loss will average £20 per week. The loss jumps to £36 for 39% of 5-bedroom households (to be abolished altogether from April 2011).52 62. The Equality and Human Rights Commission (EHRC) referred to the Government’s Equality Impact Assessment, which “recognises that some ethnic minority groups tend to have a higher proportion of large families, and so these measures may impact on them disproportionately”. However, it also states that there is a lack of data on this issue to allow

49

Ev 66

50

Q 48

51

Ev w160

52

Ev w125

26

a full assessment. The Commission was disappointed that there was no mention of action to remedy this problem.53 63. Citizens Advice Bureau (CAB) agreed that “this is highly unsatisfactory and we consider it is essential that DWP prioritises the collection of additional data in order to assess the impact before these measures come into effect”.54 CAB is also concerned at the decision to restrict LHA rates to 4 bedrooms, “when the impact of the previous decision to limit LHA to the 5-bedroom rate has not yet been assessed”. The EHRC highlighted that these changes might undermine the child poverty target. It quoted research by the Joseph Rowntree Foundation which found that : x

in 2004-05, 50% of children in four plus-child families were poor compared with only 23% in one-child families

x

children in four plus-child families constitute 19% of all poor children.55

64. Concerns have been expressed to us that a few, highly publicised cases of large families in high rent properties in central London are distorting the public perception of the scale of the problem and driving policy changes which affect a much wider range of people. Evidence shows that large families make up a very small proportion of claimants but will be hardest hit by the changes to LHA. Many amongst this group come from ethnic minorities. We have heard that shortfalls between Housing Benefit and rents will be so large for some that evictions are likely and in some cases temporary homelessness. Use of Discretionary Housing Payments will be important in managing the transition of such families. We would like to see an analysis of the effects of the policy on large families during implementation to enable policymakers to respond to any impact on child poverty.

Impact on disabled people 65. From April 2011 LHA claimants (or their partners) who have demonstrated the need for an additional bedroom for a non-resident overnight carer will be entitled to an extra bedroom Local Housing Allowance rate. It is estimated that around 10,000 individuals could benefit from this measure.56 66. While most submissions welcomed this change, other written evidence stated that other significant issues affecting disabled people had not been addressed. These include: parents of disabled children who need an extra bedroom to care for their disabled child; pensioner and other couples who need an extra room due to their medical needs; disabled people requiring extra space for wheelchair use, dialysis and other equipment or a guide dog; and a requirement for ground-floor and level access accommodation. 67. The Snowdon Award Scheme pointed out that “some families have a severely disabled child who needs regular night-time attention and where sharing a room with a sibling is

53

Ev w239

54

Ev w39

55

Ev w239

56

Ev 60

27

not in either child’s best interest”.57 The Disability Benefits Consortium argued that “given the already overcrowded conditions that many families with disabled children live in and the need for more space, for example, for equipment, this would be a reasonable adjustment to the policy”.58 Similarly CAB states that “Bureaux regularly report the distress and hardship caused where older couples need separate bedrooms because one of them has severe health problems”.59 Our predecessors’ report in March 2010 on LHA said that these factors were posing considerable barriers to independent living and should be addressed urgently.60 68. The EHRC referred to the Government’s own Equality Impact Assessment (EIA) which recognises that, despite being eligible for the extra room, there may be a small number of disabled people who are worse off or who see no benefit, due to the interaction with the other changes to HB. The EIA states: It is possible that a small number of people receiving an additional bedroom entitlement in their Housing Benefit calculation could receive cash awards that are actually lower than their previous Housing Benefit entitlement due to the impact of other changes. Analysis has shown this situation could only arise in the few areas affected by the Local Housing Allowance caps (three out of around 200 Broad Rental Market Areas in Great Britain, most notably in London). There are a further ten Broad Rental Market Areas where it is possible to have a zero net gain when the impacts of all the measures are considered. Mencap highlighted that the EIA: [...] makes it clear that where for example someone already qualifies for the maximum 4-bedroom rate, the need for an extra bedroom for a carer would be ignored. Furthermore, there are altogether 13 Broad Market Rental Areas in which individuals entitled to an extra bedroom would have either no net-gain from this policy or would actually still lose money.61 The Local Housing Allowance Reform Group argued that the EIA: [...] was totally inadequate as it failed to consider how many properties in the lowest 30th percentile rent band were in any way accessible or in what ways. It merely stated that the impact of these changes would be the same for everyone so it did not matter if disabled people were negatively affected. This EIA therefore fails to meet the current requirements of the DDA [Disability Discrimination Act] 2005 and neither does it meet the requirements of the Single Equalities Act in relation to meeting the needs of disabled people.62

57

Ev w3

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Ev w85

59

Ev w38

60

Work and Pensions Committee, Fifth Report of Session 2009-10, Local Housing Allowance, HC 235, para 167

61

Ev w72

62

Ev w148

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69. Roger Harding from Shelter pointed out that people with a physical disability may have had their accommodation adapted, and “now will need to move and go through a process of finding an appropriate property and then having that adapted sufficiently and claiming state subsidies for that”.63 Richard Capie from the Chartered Institute of Housing stressed that “we invest in adapting those private properties to make those properties suitable for disabled people, and then we would be requiring those people to move from those properties, even though we have invested public money to adapt those properties in the first place. I am not sure that makes sense”.64 70. We welcome the allowance for an extra bedroom for live-in carers. This is something our predecessor Committee recommended and we fully endorse. However, we would have liked to have seen this provision extended to cover all disabled children and disabled people who need more space for wheelchair access, a guide dog, essential equipment, or a live-in carer, or where a child is unable to share with a sibling due to disability. 71. Evidence from the Government’s own impact assessment suggested that disabled people might still face shortfalls and might have to move house and have new homes adapted. We would wish to see Discretionary Housing Payments used to avoid disabled people suffering housing disruption. 72. The Government should monitor the cumulative impact of all of the measures on disabled people. It should also carry out an analysis of the availability of affordable and accessible homes for disabled people and work with other government departments and local authorities to address the need for an adequate supply of such housing. 73. We discuss later in the report how vulnerable claimants should be supported in the transition to these changes.

Impact on older people 74. The Department “recognises that those pensioners claiming Housing Benefit according to Local Housing Allowance rules will receive less Housing Benefit and, in a small minority of cases, may have to move as a result of these changes”. It also acknowledges that “older people will be affected by the increases in the rate of non-dependant deductions (NDDs). There is an expectation that these non-dependants should contribute to the household expenses of the accommodation where they live. Non-dependants who are in employment have a deduction applied which reflects their gross weekly income”. It adds that “although data is limited, the Department estimates that most of those who will benefit from the additional room for carers will be elderly”. 65 75. Citizens Advice Bureau accepted that older people might not be so widely affected by the HB cuts as other groups because a lower percentage are in receipt of LHA, and some of the measures will not affect older people. However it pointed to DWP’s own calculation

63

Q 71

64

Q 71

65

Ev 65

29

that some 80,000 older people were in receipt of LHA.66 Age UK stated that “older people may have moved to what was a low rent area to be close to family but have seen rents rapidly escalate over time due to area improvement and a shortage of alternative accommodation. They have not deliberately settled in a high rent area.”67 The Camden Federation of Private Tenants reiterated this point: when many of its private tenants first started living in central London 20, 30 or even 40 years ago “they were not the expensive, exclusive and upmarket locations they are now. In fact, the very reason people moved to places like Westminster and Kensington and Chelsea was because of the cheap rents available in certain parts of the boroughs — not the central location”.68 76. The Notting Hill Housing Group suggested that “the challenge of having to move from the neighbourhoods and communities in which they have established roots to less expensive areas will impact particularly heavily on older people”.69 Age UK believed that: This could result in older tenants having to move to substandard accommodation in poor areas away from friends, family and facilities. It will be particularly challenging for those who suffer from ill health or a disability and may need access to a nearby hospital or local care and support services. It also argued that older private tenants also face some of the worst housing conditions in comparison with other tenants.70 The EHRC pointed out that “33% of homes occupied by older people fail the Decent Homes Standard, with the majority being in the private sector”.71 77. We accept that at retirement many households will review their housing location once they are in receipt of a pension. However, we strongly believe that older people on low incomes who have little opportunity to improve their financial circumstances should not face being made homeless or find themselves in accommodation that risks being detrimental to their health and well-being. We would wish to see Discretionary Housing Payments used to minimise housing disruption for the elderly. 78. The Government should also look at ways of protecting vulnerable older people and ensure that they receive the help they need to find decent alternative accommodation, taking into account proximity to friends, relatives and support networks, should they need this.

Impact on young people 79. Centrepoint argues that young people will be particularly badly hit as single people under the age of 25 are only entitled to the shared room rate which, even when calculated at the median, has been found to be too low to find a decent quality tenancy in many

66

Ev w39

67

Ev w131

68

Ev w135

69

Ev w20

70

Ev w130

71

Ev w235

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areas.72 The Government announced in the Comprehensive Spending Review 2010 that it would extend the shared room rate to young people aged up to 35.73 Centrepoint points out that the shared room rate is less than half that of the one-bed rate (to which over-35s would be entitled) in most London BRMAs. It referred to DWP’s own evaluation of the LHA scheme which stated that while the LHA was generally felt to be fairer for most claimants than the previous HB system: A notable exception to this is the treatment of claimants under 25 years, which is widely argued to be no fairer—or just as inequitable—as under previous HB regulations and to still be causing this group many difficulties […] The LHA rates themselves in most areas are felt to be fair and, as a generalisation, there are relatively few complaints about the level at which these rates have been set. However, the rates set for shared rooms are an exception.74 80. The Local Government Association reported that “young people under 25 currently receive reduced LHA, based on rent for shared accommodation and this has resulted in 70% of young people subsidising their rent from other income. A further reduction in LHA rates will exacerbate this situation”.75 CAB agreed that: Shortfalls have always been particularly common for this group—DWP commissioned research published in 2005 found that 87% of all SRR [single room rate] claimants faced a shortfall, averaging £35.14 per week. Although the definition of the single room rate was slightly broadened with the introduction of the LHA, CAB evidence does not suggest that this has had much impact in easing the extent of these shortfalls.76 Centrepoint stressed that “if the rates are calculated at the 30% percentile, young people on the shared room rate will face even greater shortfalls. Given that they receive 20% (£13.60) less JSA [Jobseekers Allowance] per week than those over 25, unemployed young people will find it particularly difficult to meet any increase in shortfall”.77 81. The Valuation Office Agency has calculated what the June 2010 LHA rates would have been if they were calculated at the 30th percentile rather than the median. These show that a young person renting a room in shared accommodation in Inner North London stands to lose £25 per week in LHA if the changes go ahead. This would represent nearly half of their weekly £51.85 JSA payment.78 82. Centrepoint argued that the detrimental effects will not be limited to London: “A young person renting a single bedroom in private, shared accommodation in Durham faces a potential shortfall of £16.65 per week, representing approximately a third (32%) of his or her weekly £51.85 JSA payment”. It believes that “due to their inability to make up 72

Ev w203

73

HM Treasury, Spending Review 2010, October 2010, p 69

74

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Ev 70

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78

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such large rent shortfalls, young people in varying circumstances from across the country are likely to fall into arrears and risk eviction and homelessness”.79 Citizens Advice Bureau agrees: “In many parts of the country, property matching the SRR definition simply does not exist, but one bedroom properties are completely unaffordable, leaving young people at high risk of homelessness”.80 83. The Local Government Association argued that “the rapid increase in non-dependant deductions will further compound this problem as it can be expected to increase the number of young people who leave home”.81 The Building and Social Housing Foundation suggested that: The increases in these deductions announced in the budget will mean that they significantly reduce the Housing Benefit of some households. However the single room rent, a special low rate of Housing Benefit paid to under-25s, is generally so low that it makes finding decent accommodation very difficult.82 84. DWP told the previous Committee’s inquiry into LHA that: The principle of paying the different amount for people who are under 25 is the right one, [...] but we do certainly appreciate that sometimes in practice it is difficult for people to access that type of accommodation, so we will be looking at shortfalls and we will be looking at availability of and accessibility to that type of accommodation.83 Our predecessors concluded that: The Minister's statement that the Government is not currently looking into changes to the shared-room rate for the under 25s does not sit well with the Department's acknowledgement that there aren’t enough places available for young people at this rate. We have heard that as a consequence many face shortfalls between benefit and rent, which leaves local authorities and third sector organisations to make up the rest. We recommend that the Government considers the proposal to allow for the calculation of the shared-room rate for LHA to include the rent for bedsits in order to improve access to accommodation for young people.84 85. Young people will be particularly hard hit by the LHA changes as single people under the age of 35 will only be entitled to the shared room rate which, even when calculated at the median, has been found to be too low to find a decent quality tenancy in many areas. The problem of lack of available accommodation for young people has been acknowledged by DWP, and our predecessor Committee recommended that the level of benefit for young people should be increased. However, the Government’s reforms take this in the opposite direction: benefits for young people will be lowered as a result of setting the shared room rate at the 30th percentile and extending the shared

79

Ev w207

80

Ev w36

81

Ev 70

82

Ev w15

83

Fifth Report of Session 2009-10, Local Housing Allowance, HC 235, para 172

84

HC (2009-10) 235, para 173

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room rate policy to young people under the age of 35. We understand the need for savings at a difficult time economically, but it should be considered as an interim measure and the Government should review this policy prior to 2015. At this point, we would like to see a reconsideration of our predecessors’ recommendation.

Overcrowding 86. The Department acknowledged that: In a small number of cases, the combination of the removal of the five bedroom rate and the reduction in Local Housing Allowance rates to the 30th percentile could lead to some overcrowding [...] the number of households currently receiving benefit at the five bedroom rate is a very small proportion (0.7%) of the caseload of over one million. Around one fifth (1,300) of these families have six or more dependent children (March 2010 figures).85 87. Nigel Minto from London Councils argued that: Family size homes are the ones about which we are most concerned because they are in shortest supply in London both within the private rental sector but also the social sector. […] The abolition of the five- and six-bedroom rate, with a cap at the fourbedroom rate, will mean that larger households will need to overcrowd in smaller sized accommodation.86 The Westminster Community Network suggested that: The removal of the five-bedroom rate and the capping at the four-bedroom rate of £400 for all families is likely to increase overcrowding and inadequate standards of living, particularly for children included within the household. There are only a limited number of properties available for rent at this price within greater London, and it is almost impossible to find any property for this rental value within the Central London area.87 The Child Poverty Action Group believed that: [...] this measure will impact on children living in large families, which are defined as families with three or more children. These children are at high risk of poverty, 42% after housing costs, and they make up 40% of children living in poverty. It therefore seems likely this measure will make what is already a bad situation substantially worse, and will have a particularly negative impact on the government’s ability to meet its child poverty targets.88

85

The Department states that “the English Housing Survey definition of overcrowding is the most widely accepted benchmark among stakeholders. This standard expects household members of the same gender to share a bedroom up to the age of 20. The Local Housing Allowance size criteria expect household members of the same gender to share a bedroom up to the age of 16”, Ev 66

86

Q 15

87

Ev w75

88

Ev w129

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88. Catch22 referred to research which showed that overcrowding is associated with a number of negative outcomes for families and young people including exacerbating conflict in the home, risking the mental and physical health of family members, and negatively affecting educational outcomes as younger family members have nowhere quiet to study.89 Professor Peter Ambrose of the Zacchaeus Trust pointed to data from Shelter which showed that: [...] overcrowding has got significantly worse over the past five years and it continues to worsen as the shortage of genuinely affordable rented homes gets more acute. The 2009 London Citizens report 'Housing our Future' […] uncovered the extent of overcrowding among a sample of primary school children at four schools in Wandsworth [...] These effects were judged by over 60% of the parents to be harming their children’s educational and social progress in six different ways.90 Mencap stated that families with disabled children are 50% more likely than other families to live in overcrowded accommodation and rate their home as being in poor state of repair. They believed that “these measures are only going to make a bad situation even worse”.91 89. Kirklees Council emphasised that “no analysis has been undertaken as to the availability of 5-bedroom accommodation at or below the 30th percentile for 4-bed property. If insufficient 5-bedroom accommodation is available at the proposed rate all of those families will find themselves in overcrowded accommodation”. It suggested that “the only solution for some of those families will be for the family unit to break up, therefore increasing the number of households needing to claim HB. This scenario will not be peculiar to 5-bed households and we anticipate that there will be increased pressure on the housing market for 1-bed accommodation”. It argued that “this scenario will be echoed throughout the market regardless of property size and need, and will affect all households”.92 90. London Borough of Newham reported that it had “significant overcrowding occurring in [its] housing stock which is dominated by homes with 3 bedrooms or less”.93 The Residential Landlords Association (RLA) suggested that “for single people it may well take the form of sofa surfing or hot bedding”. The RLA’s particular concern is that landlords will be blamed for this situation whereas “in reality this will not be their fault in many instances but it will be a direct result of the proposals once these are in force”.94

89

Ev w29

90

Ev w7

91

Ev w69

92

Ev w82

93

Ev w146

94

Ev 103

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91. Significant concern was expressed to us that the number of households living in overcrowded properties will increase as a consequence of the reforms. This will not only affect large families, but households of all sizes who try to find new accommodation within their budget. We heard from a witness that, for large families, this might result in the breaking up of the family unit, especially where the families have chosen to live in a multi-generation household as is often the case in ethnic minority families. This would increase the number of claims for Housing Benefit. The issue of overcrowding highlights the need for the Government to thoroughly assess the availability of properties of all sizes in the bottom third of the rental market.

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5 Potential risk of evictions and homelessness Estimated number likely to be pushed into severe housing difficulty 92. The recent CCHPR study for Shelter was based on the findings from LHA Pathfinders, which is considered the best available data. On this basis, it estimated that 71% of households would be able either to negotiate a rent reduction or make up the difference, but that 29% (between 136,000 and 269,000 households) would be in severe difficulty, and would find it very hard or impossible to keep out of rent arrears or other debt. These households may have to consider alternative accommodation. Between 75,000 and 147,000 were families with children. The study estimated that in 50% of these cases landlords would not seek to enforce arrears.95 93. The study identified the regions with the largest number of households placed in serious difficulty as those where there are large numbers of LHA claimants in the private rental sector. Despite having fewer claimants than London, the South East and the North West have almost as many households in severe difficulty, because they have many of those on the lowest incomes: the retired, the sick and the unemployed. Further, the study finds that numbers for London are lower than might be expected partly because there are more working LHA claimants with somewhat less marginal incomes there, and partly because the sample size is not sensitive to the special effects of the cap and abolition of the 5bedroom rate in the capital.96 94. London Councils estimate that the total number of claimants in London who might need to move because they could face eviction or their tenancy agreement not being renewed at the end of the term “could be as high as 82,000 in 2011-12.97 Lib Peck from London Councils explained that this: [...] is not the total number of people affected. Over 160,000 households will be affected by the changes, and it includes what we think will be the severest impact that could result in people thinking they are about to be made homeless and therefore presenting themselves as potentially homeless, or those people being homeless. […] 160,000 will be affected and we think half of them will be affected very profoundly.98 95. The Minister insisted that he “must put on the record that we are not expecting any significant increase in homelessness as a result of these changes; we do not expect that at all”.99 He added that:

95

Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 4, 17. The low and high numbers reflect survey data (low), and numbers rounded up to match household caseload data (high); and an assessment of the likelihood of landlords adjusting rents, and of tenants capacity to absorb rent shortfalls, based on evidence from DWP evaluation of the LHA Pathfinders.

96

CCHPR Study, pp 15,18

97

Ev 70

98

Q 10

99

Q 106

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[...] at a pinch a council can say, ‘Anyone who has to look at their financing and cut their cloth to what they can afford has a risk of homelessness.’ [...] it is immensely unhelpful when people and commentators stir up fears using somewhat arbitrary figures about potential homelessness, because it frightens people.100 However, Brighton & Hove City Council believed that “the consequence of the HB changes in the short term, may be to make the private sector a less attractive option for households faced with homelessness, which would in turn increase homeless applications”.101 96. The London Borough of Islington argued that “due to tenants’ inability to meet HB shortfalls and subsequently falling into rent arrears, there will inevitably be an increase in evictions and homelessness, and an increased need for temporary accommodation”.102 Birmingham City Council agreed that “it is inevitable that there will be an increase in homelessness as a result of these changes”.103 97. Sunderland City Council told us that in 2009-10 it resolved or prevented homelessness for 157 households by helping them to get private rented accommodation. It suggested that “the changes are very likely to make it harder for the Council to use that route. This may increase the time that people spend in temporary accommodation”. It adds that “the temporary accommodation currently available to the Council—other than bed and breakfast—is fully occupied. Any additional need for temporary accommodation would, at least initially, have to be met by using bed and breakfast accommodation”.104 98. Crisis reported that “in 2009, of the 75,520 households helped to find alternative accommodation by local authorities’ homelessness prevention work, half were offered PRS [private rented sector] accommodation”. It argues that “undermining the ability of the PRS to house vulnerable people will have a huge and detrimental impact on existing and future efforts to tackle and prevent homelessness and rough sleeping across England”.105 The West London Housing Partnership also reported that “big reductions in homelessness acceptances and temporary accommodation have been achieved largely through the use of the private rented sector. These proposals will have a major negative impact on boroughs’ ability to continue to do this”.106 The Royal Institution of Chartered Surveyors similarly believed that “homelessness services will struggle to cope if there are difficulties finding alternative accommodation”.107 99. Lib Peck from London Councils argued that “for the first time in 15 months we have seen 11 families go into bed and breakfasts for the last two weeks, and that is primarily

100 Q 120 101 Ev w62 102 Ev w94 103 Ev w161 104 Ev w239 105 Ev w86 106 Ev w116 107 Ev w245

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because of private landlords withdrawing their stock from the market”.108 Nigel Minto from London Councils also reported that: [...] boroughs have been tooling up since the summer in terms of procuring bed and breakfast accommodation and some of the central London boroughs have been doing block bookings in outer London, because they know they will not have the accommodation available in central London in the private rented sector. […] The second issue is that boroughs have been procuring private rented stock outside of London because they cannot procure it in London.109 The Secretary of State contradicted this assertion in a debate on Housing Benefit on 9 November 2010. He said: The facts are exaggerated. For example, there is the ridiculous fact that we might have to spend an additional £120 million to provide temporary accommodation. That is ludicrous. [...] The reality is that this is not going to happen. There should be no need, with the discretionary allowance, for people to be made homeless.110 The Welfare Reform Minister told us that “the London boroughs are buyers of bed and breakfast and have been for years. That is what they do”.111 He emphasised again that the Government does “not expect a significant increase in the use of temporary accommodation”.112 When we asked if the Department would conduct a review of the measures, Paul Howarth confirmed that: [...] there was a commitment to do a review of the Local Housing Allowance in any case and that commitment will be kept. What I am saying is that when the changes are introduced there will be a full evaluation; a much bigger evaluation, actually, than the one that is being done already.113 100. We recommend that the Government obtain information from local authorities about the extent and nature of their reliance on, and procurement of, additional temporary accommodation, if any, inside and outside their local areas. 101. There is inevitable uncertainty over the impact of expected shortfalls on possible levels of evictions and homelessness. Much depends on whether the savings the Government expects to make are achieved through landlords’ willingness to renegotiate rents and claimants’ ability to find accommodation at the lower end of the private rental market. We welcome the Department’s commitment to a full review of the impact of these changes.

108 Q 25 109 Q 30 110 HC Deb 9 November 2010, cols 161 and 169 111 Q 125 112 Q 129 113 Q 115

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Estimates of number of households who may have to move 102. The Department acknowledges “that a small number of people will have to move as a result of measures to moderate Local Housing Allowance rates in 2011”. However, it adds that “whilst the risk of eviction cannot be discounted entirely, this is only expected to occur in exceptional circumstances”. It also stresses that it is “working with other government departments and the devolved administrations over the forthcoming months to explore strategies that could be adopted to ease the process for households seeking and moving to alternative accommodation”.114 103. The recent study by the CCHPR estimated that between 68,000 and 134,000 households might be in severe difficulty. It found that the total loss in Housing Benefits “across all the groups is between £42 million and £82 million. This suggests that even if the additional discretionary payments of £40 million were allocated only to LHA claimants, and with perfect efficiency—a heroic assumption—they would be inadequate to prevent involuntary homelessness and forced moves among LHA tenants”.115 Westminster City Council pointed out that “it is difficult to assess with any accuracy at this time the effect on Westminster's homelessness numbers resulting initially from the fall out of existing private sector tenants following the introduction of the new caps from April 2011”. 104. The Minister emphasised that: If you take all Housing Benefit customers in inner London, 7% have losses of more than £10 a week and only 4% of them have a shortfall of more than £20 a week. […] this is not just done in an instant, it is done at the anniversary of people’s rental agreement. So there is plenty of time for councils to manage the process of getting people moving into their next affordable home in a timely way.116 However, evidence from the Mayor of London suggested that over 9,000 London households might have to leave their current home as a result of the caps and that less than a third of these would be able to find an alternative home in their local area. It estimated that most—around 6,800—of those who would need to move are families (ie households living in 2+ bed homes), of which at least 4,600 would be unable to find anywhere else to live locally. The evidence argued that ”based on conservative assumptions about occupancy levels, we estimate that over 20,000 London children will have to leave their home, at least 14,000 of whom will have to leave their local area”.117 Lib Peck reported that London Councils asked central London boroughs how many properties of between two and four bedrooms would be available. “They came up with a figure of 261 would be available. There is a caseload at the moment of around 9,000. So people inevitably will be moved out of those central London boroughs”.118

114 Ev 63 115 Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 21 116 Q 128 117 Ev w137 118 Q 31

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105. The Minister argued that: There is a lot of misunderstanding about what the private rented sector actually is. It is not like the social rented sector, where people are very long-term tenants. There is a lot of churn in the private rented sector. 40% of people have been in their rented accommodation for a year or less and 70% less than three years.119 The Minister is correct. However, a recent DWP study of low-income working households (LIWH) in the private rented sector found that Housing Benefit recipients appeared to move home less frequently than LIWH: 55% of HB households had lived in their accommodation for over two years compared with 27% of LIWH in the survey. The study concluded that HB recipients “emerge as relatively stable residentially”. 120 106. The Resolution Foundation stated that: The Government’s proposals assume that people will move to areas or accommodation with cheaper rents, but our research suggests people will stay put and struggle to make up the difference themselves, in order to provide stability for themselves and their children. It reported that “people talked about the physical and mental upheaval of moving […]. At the same time, the lack of affordable local supply meant that many were over-stretching themselves financially and they were susceptible to arrears”. 121 Family Action points to the findings of Dr Rebecca Tunstall of the London School of Economics which showed that, in contrast to home moves by more affluent families which regularly enhance children’s educational development, “moves by very disadvantaged families and very frequent moves are less likely to improve housing conditions or school quality, and may exacerbate disadvantage.”122 107. While the Department acknowledges that some households may have to move, evidence suggests that these numbers may be much greater than the Government expects. We have also heard of the difficulty of identifying households who may have to move and that people on Housing Benefit tend to move home less often than lowincome working households and often over-stretch themselves financially in order to stay within their community network where possible. The Government should monitor the extent of enforced moves and resulting hardship and increase Discretionary Housing Payments if necessary.

Estimates of costs of homelessness 108. A local authority must consider whether someone is “threatened with homelessness:”.123 A person is “threatened with homelessness” if he or she is likely to become homeless within 28 days. Where someone is threatened with homelessness, the

119 Q 108 120 Low income working households in the private rented sector, DWP research report No.698, 2010, p 77 121 Ev w152 122 Ev w97 123 s.175(4) of the Housing Act 1996 (as amended by the Homelessness Act 2002)

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local authority should act to try to prevent the applicant becoming actually homeless wherever possible. Under the Housing Act 1996, a person is homeless if he or she has no accommodation in the UK or elsewhere which is available for his or her occupation and which that person has a legal right to occupy.124 A person is also homeless if he or she has accommodation but cannot secure entry to it, or the accommodation is a moveable structure, vehicle or vessel designed or adapted for human habitation (such as a caravan or house boat) and there is no place where it can be placed in order to provide accommodation. A person who has accommodation is to be treated as homeless where it would not be reasonable for him or her to continue to occupy that accommodation (for example if they are at risk of domestic violence).125 109. Where a household is deemed to be unintentionally homeless and in priority need, the local authority is required to provide at least temporary accommodation. The CCHPR estimates a one-off cost of between £61 and £120 million for temporary accommodation for England alone as a result of the changes126. Cllr Mike Haines from the Local Government Association stressed that: Inevitably when families find themselves homeless then it is the local authority’s job to find them accommodation in the short term and then the longer term, and that has a cost to it. [...] between £300 and £400 a week is what we pay to keep a family in a bed and breakfast.127 110. The Mayor of London estimated that “in the first year of the changes (2011-12), homelessness acceptances in the capital could increase by around 50%, at an estimated cost of around £78 million for the additional 5,000 households that could be placed in temporary accommodation”.128 It argued that: The cost to the public purse of accepting a homelessness duty is likely to far outweigh any savings in LHA that would be made as a result of the caps for an individual household, given the high cost of temporary accommodation and the associated health and education costs of homelessness, the likely protracted length of stay in that accommodation (running into many years for larger families in particular) and the cost of providing social housing (an estimated £125,000 in subsidy for an average three bedroomed home) at the end of the period. Fast Trak Solutions pointed out that: 90% of people who use temporary accommodation do so through HB. The taxpayer will still need to fund accommodation for those households, albeit with the added premium attached to temporary accommodation; in 2009/10 the Government will distribute nearly £80 million to local authorities in homelessness grants to cover the

124 s.175 of the Housing Act 1996 125 Source: Part 7 of the Housing Act 1996 (as amended by the Homelessness Act 2002) 126 Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 23 127 Q 28 128 Ev w139

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cost of finding that accommodation. This comes on top of nearly £600 million spent on HB for renting temporary accommodation in England.129 111. The Minister emphasised that the Government is “expecting transitional costs but not a substantial increase in homelessness”.130 When we asked him whether he would consider reviewing the statutory definition of homelessness and the local authorities’ obligation to house those in need, he responded: “I actually think it might be quite valuable”. However, the Secretary of State asserted in a debate on Housing Benefit on 9 November that “We have absolutely no plans to do that”.131 In a written parliamentary answer, Rt Hon Grant Shapps MP, Minister of State for Housing and Local Government, stated that: [...] there have been problems with the way homelessness has been perceived and measured in the past. […] We are committed to maintaining a robust homelessness safety net, and will keep the current framework under review to ensure that local housing authorities in England have sufficient flexibility to meet housing need in the most effective way.132 112. The Minister for Welfare Reform emphasised that he is not expecting a substantial increase in homelessness as a result of the reforms. However some witnesses believed that a substantial increase in homelessness was inevitable. The Mayor of London estimates a 50% increase in homelessness at a cost of around £78 million for the additional 5,000 households in London which could potentially be placed in temporary accommodation. If this proved to be an accurate forecast, we would be concerned about the resulting impact on the families affected. 113. We welcome the Minister of State for Housing and Local Government’s recent announcement of the Government’s commitment to maintaining a robust homeless safety net. Very careful consideration would need to be given to any proposal to amend the statutory obligation on local authorities to house vulnerable people.

The impact on local authorities 114. Fast Trak Solutions told us that it was “worth noting” that meeting the costs of homelessness does not fall within the responsibility of DWP but on the Department for Communities and Local Government and local authorities.133 Age UK agreed that “the proposed changes will cut spending on Housing Benefit but some of the savings could be offset by pressure on other services including local authority provision”.134 Citizens Advice Bureau stated that:

129 Ev w43 130 Q 106 131 HC Deb, 9 November 2010, col 165 132 HC Deb, 11 November 2010, col 425W 133 Ev w43 134 Ev w130

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Bureaux are already reporting that their local authorities are extremely concerned at the financial implications for their homelessness functions, at a time when their budgets will be facing sharp cuts. It will be crucial that local authorities’ homelessness prevention funds are not only protected in the forthcoming comprehensive spending review, but indeed expanded by redirecting savings made from the HB cuts.135 115. Birmingham City Council argued that “the reduction in the Housing Benefit budget achieved will in our view be at least partly offset by increased costs on Local Authorities”.136 The London Borough of Camden estimated that Housing Benefit expenditure “will reduce by nearly £6 million per annum in Camden but costs borne by Camden and other boroughs will increase”. It expects “significant pressure on homelessness prevention resources, the number of households presenting as homeless and needing temporary accommodation, the demand for local social housing and the costs of health and social care provision”.137 116. Lib Peck from London Councils argued that “there is a real issue about the savings that we might see up front disappearing when you look at the impact of it overall”.138 Mike Haines from the LGA added “the problem we see is the net effect it will have on the public purse in terms of more homelessness costs. Potentially it will increase the other social costs in terms of mental and physical healthcare, childcare and across those sorts of areas”.139 117. Durham County Council's Revenues and Benefits and Welfare Rights Services suggested that “these changes would appear to be a false economy as inevitably people subject to these cuts would turn to local authorities, health services, temporary accommodation and social services for assistance. The Federation of Law Centres have estimated that an eviction and homelessness can cost up to £34,000”. It adds that “should increased numbers fall on hard times then costs will merely be displaced from the HB scheme to other budgets, or worse still we will see new pools of unmet need.140 118. The Building and Social Housing Foundation argued that: [...] whilst there is a clear need to manage overall Housing Benefit expenditure, care must be taken not to create significant adverse effects in the process. At their worst, negative impacts could undo any public expenditure savings made, by resulting in the need for additional expenditure on homelessness provision, health, education and other service areas.141 The Disability Benefits Consortium called for the Government “to carry out a further assessment of the projected savings from the proposed changes to identify whether these

135 Ev w37 136 Ev w159 137 Ev w59 138 Q 30 139 Q 2 140 Ev w78 141 Ev w13

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are absolute savings or whether costs are simply being deferred to other bodies and organisations”.142 119. In relation to the possible increased pressure on local authority services, Neil Couling from DWP told us in oral evidence that 74% of primary schools in London and 66% of secondary had surplus places. This equates to 50,500 places in London primary schools and 31,000 in secondary schools.143 Information on the availability of school places in each London borough was provided in the supplementary written evidence which DWP sent to us following the oral evidence session.144 120. The Department states that: As part of the longer term measures in the social rented sector the Department is working closely with devolved administrations and Communities and Local Government to consider any potential impacts including those on local authority homelessness services and eviction risks.145 It added that “in relation to how the changes will impact in London the Department will continue to work with local authorities who will be most affected by the 2011 changes, including providing support to develop the way in which housing advice and assistance might be coordinated”.146 121. We welcome the Department’s assurance that it will engage with the Department for Communities and Local Government, local authorities, and the devolved administrations to assess the impact of the changes and provide appropriate support. However, it is essential that the Government considers the wider impact of the Housing Benefit changes on public services. It has been suggested that local authorities will experience increased pressures on their services as a result of these measures. The Government should monitor the costs to local government of the policy changes and be prepared to consider additional funding if necessary to ensure that appropriate support and services can be provided in the areas where people might find new accomodation. We recommend that the Department takes these broader considerations into account when estimating the likely savings to be achieved and overall taxpayer value for money.

The impact on community cohesion 122. The Department told us that: Although the Government is committed to supporting community cohesion, it cannot do so regardless of the cost and fairness. Housing Benefit will still support people to live in reasonable accommodation, but we expect customers to make the same choices as people who are not on benefit.

142 Ev w84 143 Q 155 144 This is published in the analytical supplement to the oral evidence and is available on the DWP website at http://research.dwp.gov.uk/asd/index.php?page=recent 145 Ev 63 146 Ev 64

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It emphasised that it “is working with other government departments including the Department of Health and the Department for Education to discuss the impact of people moving address and needing to find new childcare, schools and health services”. It adds that “some customers will need to move away from extended family support networks; this however reflects the choices that most people in work also have to make”.147 123. The London Borough of Islington told us that it was “concerned that many people with close links to the communities would be forced out by these changes. We do not wish to see the Borough become the preserve of just the affluent”.148 The Building and Social Housing Foundation suggested that “in the longer term, concerns will centre on the potential for the creation of Parisian-style banlieues, areas on the outskirts of the city with concentrations of deprivation, while the city centre becomes exclusively for the very well off”.149 124. Citizens Advice Bureau pointed out that “in central London, only 7% of accommodation will fall within the LHA rate once the cap is applied, and it is therefore clear that many households will have to move away from their existing communities to those parts of outer London which are relatively unaffected by the cap”.150 The West London Housing Partnership agreed that this “will mean the forced movement of poor families out of the more expensive areas in central London to cheaper areas”. It argued that “the changes will further increase the concentration of HB claimants in the outer boroughs, causing increased housing stress and concentration of poor families. This will increase the pressure on schools, health and social services”.151 The Notting Hill Housing Group believed that: The influxes of poorer families with no community links into these areas is bound to create animosity in the existing communities in those areas, and therefore damage community cohesion. In the longer term the changes will lead to even greater polarisation of communities in central London, as only relatively well off households or those fortunate enough to secure social housing will be able to afford to live there.152 125. Homeless Link stressed that “while the LHA caps are likely to have the greatest impact in London, these changes have the potential to concentrate deprivation in particular areas, most likely the outskirts of cities, with more likelihood of creating no-go, ghettoized areas of poor quality housing”.153 Birmingham City Council argued that “research into regeneration of poor areas of Birmingham demonstrate that clustering people of low incomes in cheap/sub standard housing in particular areas of the city has the impact on increasing cost on other service such as policing, waste management etc”.154 The

147 Ev 64 148 Ev w91 149 Ev w14 150 Ev w38 151 Ev w117 152 Ev w20 153 Ev w106 154 Ev w161

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Residential Landlords Association believed that “we face even lower levels of educational attainment, health problems, increased dependence on drugs and alcohol and loan sharks preying on the hard up”.155 The LGA stated that: Concern has also been expressed at the effect in rural areas. The LHA changes will limit the number of properties in an area that are affordable to households on HB. […] Tenants in rural areas will find it extremely difficult to access alternative affordable accommodation and may be forced to move considerable distances. This will disrupt community support networks, schooling and access to employment.156 126. London Borough of Camden stressed that: If families are forced to move, children may not be able to commute to their current school in Camden and find that they have to wait for a place in the new Borough […]. Equally, older people and those with disabilities rely heavily on formal and informal links in their local communities, not least with their GPs, health care practitioners, carers and support groups.157 Family Action explained that: Part of the work we do to ensure family stability is about helping vulnerable parents, frequently with a range of mental health problems, put down roots and feel safe and supported by getting to know others in their local communities [...] their children, who are at greater risk of developing mental health problems and behavioural disorders, are greatly helped by the certainty of attending the same school and being able to form networks of friends over time. If vulnerable families become known to neighbours, teachers, GPs, churches and playgroups, the children will also be better protected.158 127. The Minister argued that: Just because you have to adjust your house does not mean you have to adjust your area and then when you move your area, it does not mean that the area has to be very, very far away. So, looking at the figures, as you start moving down them, you end up with a relatively modest problem.159 We note that much of London’s population is mobile and there are good transport links. In the private rented sector there is a good degree of mobility in the capital.

155 Ev 102 156 Ev 69 157 Ev w58 158 Ev w96 159 Q 159

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128. We agree with the Government’s principle that Housing Benefit levels should be appropriate to what is affordable for people on low pay and should represent value for money for the taxpayer. However, we would not like to see Britain reduced to exclusively affluent and deprived neighbourhoods. A number of government departments have an interest in the issue of community cohesion. We recommend that the Government monitors the effect of the Housing Benefit changes on community cohesion and continues to help people on low incomes, both in and out of work, to live in communities which are socially mixed.

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6 Transitional arrangements and Discretionary Housing Payments Increase in Discretionary Housing Payments 129. Discretionary Housing Payments (DHPs) provide claimants with further financial assistance when a local authority considers that help with housing costs is needed. The regulations covering DHPs are the Discretionary Financial Assistance Regulations 2001. The Department states that: The increase in the Government contribution to Discretionary Housing Payments will be an important element in the strategy to ease the transition for existing customers. In 2011-12 the Government will increase its allocation by £10 million and in subsequent years it will treble its allocation to £60 million per year. This will provide local authorities with substantial support in helping customers through the transition period and help avoid evictions.160 When the Government laid Regulations in November 2010 to implement the changes, it announced a further £50 million over the Spending Review period “to help meet the housing needs of claimants who are affected by the changes”.161 This brings the total amount of additional funding for DHP over the Spending Review period to £180 million.162 130. The LGA suggests that “the increase by £10million a year in 2011-12 and by £40 million a year (which will be a total government contribution of £60 million) comes against a likelihood of increased demand.” It also highlights that “local authorities are currently permitted to top-up DHP grant payments in a ratio of 3:2; assuming that this remains the case the total theoretical DHP payments will become £150 million per annum; (£90 million in council contributions; £60 million grant from the Government)”. It adds however “whether local authorities can afford to top up at a time when their overall grant from the government could shrink has got to be debateable”.163 131. Crisis states that the increase “is a fairly insignificant amount set against the scale of the cuts”.164 A number of submissions referred to estimates from the Chartered Institute of Housing, which show that the increase announced in the June Budget equated to about £8.30 per household per year. In England this would support around 60,000 who face the maximum loss from the 30th percentile change for one year (leaving nothing for social sector claimants or those facing having their LHA capped). This is equivalent to just 1.5% of the entire caseload and less than 2.5% of the total package of Housing Benefit cuts.165

160 Ev 63 161 HC Deb, 30 November 2010, cols 71-72WS 162 Qs 105 and 154; and HC Deb 30 November 2010, cols 71-2WS 163 Ev 68 164 Ev w89 165 Ev 40 [Chartered Institute of Housing as quoted by British Property Federation].

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132. The Mayor of London estimated that in 2011-12, the demand for DHP in London could be in the region of £38 million (almost four times the additional amount being made available in that year). 166 London Councils believed that “to avoid potential evictions and to manage the migration, an increase of at least £20 million is necessary to the 2011-12 DHP pot and £18 million of that should be directed to London”. It added that: The Homelessness Prevention grant is scheduled to end in 2010-11, being the last of the three years originally granted. It is imperative that this grant is maintained and it should be increased to match the extra workload arising from the continuing need to liaise with HB departments, landlords and claimants at risk.167 133. Westminster City Council stressed that it had experienced the combined effects of having the highest number of losers and the largest shortfalls. “Kensington & Chelsea are similarly affected by large shortfalls but have significantly fewer losers in comparison to Westminster: 1,650 losers in Kensington & Chelsea and 4,010 in Westminster”. It argued that there is a strong case: [...] for allocating the greatest share of the extra DHP funding to councils such as Westminster with large parts of its borough within the central London rental area. […] The formula for distributing the extra DHP should therefore not be based solely on a headcount of the number of losers. Instead the amounts of shortfall between existing LHA rates and the caps should also be taken into account.168 Birmingham City Council stressed that DHP should be allocated fairly across the country: The potential additional allocation (if awarded on the current formula) would result in approximately £300,000 in year one followed by an extra £1.2 million in successive years. Given that current budgets are over-committed this will be insufficient to offset the likely problems faced by customers due to other changes.169 However, Brighton & Hove City Council pointed out that “DHP allocation is going to be based on a separate formula which will direct the additional funding to the areas that will suffer the most detriment out of the proposed changes. In effect this means, almost exclusively, central London”. 170 134. Peabody called for “clarity on how it [DHP] will be prioritised and allocated. If we can agree consistent guidelines, we will be able to better advise tenants, and succeed in taking the right action sooner to deal with arrears”.171 The Association of Housing Advice Services recommended that DHP “should be targeted or ring fenced for only those tenants who are facing losses due to the LHA changes and prioritised for families where the council is seeking to prevent homelessness”. 172

166 Ev w138 167 Ev 71 168 Ev w176 169 Ev w161 170 Ev w65 171 Ev w123 172 Ev w181

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135. The Minister explained to us the thinking behind the increase in funding: Rather than us, every time there is a problem, putting in a blanket system, which is incredibly expensive and not needed, […] making it the responsibility of people on the ground and providing resources in the discretionary housing allowance is precisely the way that we can allow for those tough cases of people who need support. We can then get that support to them. That is the idea behind it.173 However, Leonard Cheshire Disability, amongst others, told us that “given payments made under the scheme are discretionary with no corresponding right to support and no formal appeals process, we are concerned that this action alone is an insufficient safeguard against the impact of the proposed cuts in Housing Benefit on disabled people”.174 The Child Poverty Action Group argued that “discretionary payments are no substitute for benefit entitlement as of right”.175 136. The National Association of Welfare Rights Advisers (NAWRA) and Contact a Family highlighted that these payments have traditionally been for short periods of time and that there is no guarantee of award either at first application or on renewal.176 NAWRA argued: Not only does this make it extremely difficult for people on fixed income to budget, but with possible changes to the amount of LHA payable on renewal claims it must make it difficult to achieve stability. This can only lead to a less favourable climate between landlords and tenants.177 137. The Muscular Dystrophy Campaign pointed out that “you cannot claim for a DHP until you have moved into the relevant property. This means that a claimant who requires a larger property than the LHA will provide for would have to sign a lease and move into a property before they know if they will be able to afford the rent.”178 Roger Harding from Shelter said that “there is a gap currently in the transitional funding […] it won’t be able to help with other things such as purchasing new school uniforms if people have to move out of the catchment area of schools. So, currently we have not seen any concrete proposal from the Department that suggests how they are going to fill that gap”.179 138. The Law Centre NI expressed its concern “as to how long this pool of funding will last and what additional safeguards will be in place should it run out. We would welcome further clarification on this matter”.180 The Royal National Institute of Blind People told us that the increase in funding “is welcome as far as it goes and will help cushion the impact of

173 Q 196 174 Ev w141 175 Ev w129 176 Ev w157 and Ev w190. 177 Ev w157 178 Ev w25 179 Q 75 180 Ev w243

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adverse changes in a number of individual cases, but is not greatly relevant to the overall structural issues”.181 139. The Minister said that the increased DHP: [...] will keep people in homes where needed; there are some people who may be living in more expensive homes than the LHA rate will become who will need to stay there, for instance people who have very heavily adapted that home. […] Clearly, the rest of it will be to help with the transition and to support recipients.182 140. We welcome the Government’s £50 million addition to the funding originally announced for Discretionary Housing Payments (DHP) in the June Budget, which brings the total amount of additional funding for DHP over the Spending Review period to £180 million. We note however, that the sum allocated is intended to provide a solution to a very wide range of identified areas of concern. We would therefore like to see further analysis of the anticipated demand for this funding, compared to the resources available, in order to understand the extent to which this fund can support benefit claimants through the transition period and help avoid evictions. We recommend that DWP carries out robust monitoring of DHP to ensure that any shortfalls and unmet needs are identified and acted upon swiftly.

Transitional arrangements 141. The British Property Federation stated that “one of the most worrying aspects of the current reform package for 2011-12 is the attention paid to transition arrangements”.183 The Residential Landlords Association suggested that: Historically when changes have been made, particularly changes of this magnitude, either existing customers have been protected altogether or at the least the changes have been phased in over a period of time. There is no such protection here and, indeed, the change-over will be on a hit or miss basis depending on what is the date of the anniversary of the claim.184 142. Crisis told us that “in those areas where the cuts to benefit levels are the greatest, we would like to see transitional measures put in place so that only new claimants are affected. As well as being beneficial for the individuals involved, reducing the number of households who need to move would lessen the burden on local authorities”. It also suggested that “given the very tight timescale involved and the fact that claimants affected by the caps will be affected again by the move to the 30th percentile later in the year, we would like to see the introduction of the caps moved back to October 2011”.185 The TUC also pointed out

181 Ev w22 182 Q 105 183 Ev 40 184 Ev 105 185 Ev w91

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that some tenants would have to move home multiple times.186 Lib Peck from London Councils said that: It is the double whammy of changes coming in in April 2011 and then in October 2011—so the caps and then the percentile decrease from 50% to 30%—that we are very concerned about, and that is what we are saying impacts on 160,000 households in London, and the fact that both of those are within a six-month period.187 143. Citizens Advice Scotland argued that “the lack of transitional protection means that these caps will be applied to the existing claims on their next annual review, meaning that some tenants will suddenly find that their rent is completely unaffordable”.188 Gingerbread, amongst many others, called for a delayed introduction of caps to LHA rates to October 2011: This would align with the introduction of 30th percentile rates and ensure that households are not forced to move twice in quick succession if they are affected by both measures. Single parent families, as well as couples with children, are more likely to be affected by the caps, and it would be extremely unfair to expect families with children to move twice, potentially within the space of six-months, if they are affected by both measures.189 144. We asked the Minister if he would consider easing the transition by accepting the anniversary of the tenancy as the breaking point when the new rates come into effect. His response was that: The process starts in April or October, depending on the start date, and takes effect at the next anniversary [...] We are talking about running right out to October 2012, in practice, the whole process, which does two things: it means that it is not sudden death—it runs to the natural break point, the annual anniversary of your contract— and allows the adjustment process to take place over this extended period.190 145. The Chartered Institute of Housing stressed that “there must be clear and timely communication to the individuals affected about the change to their benefit entitlement. Particular attention should be paid to vulnerable claimants”.191 Homeless Link stated that the Government must ensure “that all claimants are informed of impending changes by letter or email. It is vital to give due notice to people who may be affected so they can begin the process of adjustment or housing move now”.192 However, Loughborough University emphasised that “informing tenants of changes to LHA rates by letter is unlikely to be sufficient. Furthermore, our research has found that information given to tenants by Local

186 Ev w164 187 Q 25 188 Ev w249 189 Ev w173 190 Q 190 191 Ev 59 192 Ev w108

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Authority staff is described as being “patchy” and sometimes conflicting. This would need to be addressed”.193 146. Paul Howarth from DWP agreed that: It is absolutely vital that we give as much information to recipients of Housing Benefit, particularly existing recipients, as we possibly can. […] We will be, on this occasion, breaking our ban on paying for communication materials, you will be glad to know, and we will be funding whatever is needed by way of leaflets, posters, draft notification letters; anything that we can do, basically, to help local authorities in this transition, we will do.194 As we have already indicated, after this evidence was taken, the Government laid the Regulations to implement the changes and amended the timetable for bringing them in as follows: All changes that will adjust the way Local Housing Allowance rates are calculated will come into force from April 2011 for new claims. Existing claimants will continue at their current rate of benefit until their claim is reviewed by their local authority; they will then have a further period of transitional protection at their current Local Housing Allowance rate of up to nine months if there has not been a relevant change of circumstances.195 147. Serious concern was expressed when the measures were first announced in the June 2010 Budget both about the inadequacy of transitional arrangements and the timetable for change. This would have meant that some households would potentially have been affected twice in 2011 by the changes to be introduced in April and then in October. We welcome the Government’s recognition of the depth of these concerns and its subsequent decision to allow existing claimants a transitional period of at least nine months. 148. This welcome amendment to the timetable for change does not however lessen the obligation on the Government to support local authorities in communicating the changes to benefit recipients. We believe that it is essential that all households in receipt of Housing Benefit are giving clear information about how and when the changes will affect them. This may best be communicated in a letter giving specific details on what the new benefit rate for that household will be; from when it will apply; and, where relevant, the likely shortfall between the rent and the new benefit level.

193 Ev w111 194 Q 194 195 HC Deb, 30 November2010, cols 71-72WS

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7 The Private Rental Sector and responses to the proposed reforms 149. In this section we assess the evidence we have received on the potential responses of claimants and landlords to the reforms, and the extent to which these might mitigate the impacts discussed in the previous chapters. The Minister told us that the Government is paying rent for 40% of the whole of the private rented sector.196 We explore the implications of this in this chapter.

Adjustment and substitution 150. The Department states that: Tenants will have the choice of whether to meet the shortfall from other sources of income, or to move into more affordable accommodation. In all but three Broad Rental Market Areas (from a total of 193) a minimum of 30% of properties will be affordable to Housing Benefit customers.197 151. The recent CCHPR study suggested that “underlying the proposed measures are assumptions [...] that consumers will seek to buy similar goods at lower cost, or else change the mix of goods they buy to achieve similar ends”. It estimated that 71% of tenants would either negotiate a rent reduction or make up the difference and that landlords would not enforce arrears in half of the remaining 29% of cases. However, it also highlighted that several features of housing make it unlike other goods and limit the applicability of this model: Changing housing entails personal and financial costs that are of a different order from switching brands of bread or where one goes for groceries. The main way a tenant could switch supplier to consume the same value of goods at a lower price is by moving from private renting to a social landlord. Given that social housing is in short supply, with little apparent prospect of this easing, this will be the resolution for only a few.198 The Residential Landlords Association similarly argues that: In theory, if an individual is faced by the reduction in their income they have to shop around and try to find cheaper goods or services. This theory breaks down if you are already at rock bottom. After all, if you already shop at Aldi or Lidl, rather than Tescos there is hardly anywhere else cheaper to go. At least with food, supermarkets are well stocked. [...] The position with accommodation is rather more complicated. [...] Unlike the supermarket or the electricity supplier the question is much more whether there is any accommodation elsewhere when and where you need it; let

196 Q 111 197 Ev 63 198 Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, pp 17-24

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alone is it available at a cheaper price? Also, associated with moving accommodation are the inevitable expenses (e.g. van hire to move your furniture; possibly finding a deposit and so on).199 The Cambridge study concluded that: “this means that some tenants will therefore have to accept housing of lower value and qualitatively inferior to their present situation. [...] The substitution then involves moving to overcrowded accommodation, or to a dwelling that is otherwise unfit”.200

The accessibility of the Private Rental Market to LHA claimants 152. The concern of many witnesses was that, while the DWP’s analysis states that a third of properties will still be “affordable” to claimants, this does not mean that properties will be “available”. The TUC referred to research undertaken by the Department for Communities and Local Government which suggests that at least a proportion of “affordable” housing will not be “available” to claimants, and that this problem is likely to increase as the changes lead to arrears and delays in payment become more commonplace.201 153. Research by Shelter found that 60% of landlords would not accept Local Housing Allowance claimants. Other evidence stated that landlords would be more willing to rent to Housing Benefit tenants if they received direct payments.202 Evaluation of the LHA also found that 7% of landlords and agents contacted via newspaper directories preferred nonHousing Benefit claimants, but even among landlords who were contacted via their benefit recipient tenants, 52% preferred not to let to this group.203 In a few cases people did not admit to receiving HB, or managed to conceal it by having their Housing Benefit paid directly to them. We heard about this first-hand when we met CAB clients in receipt of LHA as part of this inquiry. One client told us that the only way of getting his current flat was to conceal the fact that he was in receipt of Housing Benefit. 154. Research by the Resolution Foundation highlighted that: Many low earners are already experiencing difficulties accessing the PRS [private rental sector] due to poor local supply, lack of decent accommodation and few landlords willing to let to this market. The Government’s proposed changes to Local Housing Allowance will further reduce choice for low earners and may encourage landlords to stop letting to this group entirely.204

199 Ev 94 200 Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 24 201 Ev w163 202 See for example Qs 33, 85-86 and 89. This is discussed in detail below. 203 Shelter, For whose benefit?, 2009 204 Ev w151

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The Building and Social Housing Foundation argued that: As tenants’ benefits payments seem even more uncertain than they were previously, the ability of private landlords to finance the acquisition and improvement of homes may be hindered. Private landlords may decide to stop renting to Housing Benefit recipients altogether if they can find alternative tenants, making it harder still for benefit recipients to secure accommodation.205 155. Peabody told us that “with forecast growth in London’s population and a reduced number of affordable homes being completed following the economic downturn, pressures on housing supply are likely to grow”.206 The Papworth Trust stressed that “unless the Government matches its plans to reduce LHA with plans to create more affordable housing, the rented market will not be able to cope”.207 The Residential Landlords Association highlighted that “all of this is occurring at a time when the waiting lists for social housing are increasing”. It reported that: There is a waiting list of 4.5 million for affordable housing. In the year 2007/2008 only 30,677 new affordable homes were built, primarily by housing associations. [...] We simply do not have nor are they likely to have enough houses available in the social/public sector. These shortages of available affordable accommodation, with the problems facing the owner/occupier market, are one of the reason why the private rented sector is now such an important expanding sector.208 This point was echoed by the London Borough of Islington, that with “over 8,000 people on its housing register, and demand for social housing far outstripping its supply, the borough relies heavily on the private rented sector to help house its residents”. It also believed that “the proposed changes will lead to a reduction in the amount of private sector properties available to claimants of Housing Benefit”.209 156. We asked witnesses whether the measures might mean that claimants of HB would be squeezed out of the private rental market. Richard Jones of the RLA told us: I think that the answer is yes. [...] there are likely to be major cuts in social housing and building new social housing is going to come to a standstill; that sector is declining. So it is the private rented sector that has made up the shortfall. [...] Landlords are going to look elsewhere if they can find the tenants elsewhere and [...] therefore the LHA customer is inevitably going to be squeezed out.210 157. The British Property Federation criticised the Government’s own impact assessment of the changes for failing to provide any “consideration of the wider property market, demand for rented accommodation, and how that affects the ability of claimants to access property at or below the 30th [per]centile rent”. The Federation assessed some high

205 Ev w14 206 Ev w121 207 Ev w60 208 Ev 94 209 Ev w95 210 Q 94

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demand areas of housing. It suggested that, in some areas, for example Harrogate and Trafford, for every LHA claimant family there could be close to 10 times the number of working families chasing a 2-bed plus property to rent. In many other areas the ratio is over 6:1.211 The Federation also highlighted that: 150,000 additional claimants will have to be absorbed by the private rented sector over the coming year. Insufficient attention seems to have been paid as to whether the sector can absorb such numbers, and whether the competing forces of demand and Government desires to cuts rents will deliver the projected savings. The Federation concluded that “a significant proportion of LHA claimants, probably more than half, live in areas of high demand for housing and therefore are going to find it difficult to compete for available homes”.212 158. The Minister argued that: There may be in some markets some difficulty, but the raw truth is that since 2007, an extra 400,000 households have been added to the private rented sector. So there has been a huge expansion, which would fly straight into the face of a claim that said that landlords were shutting their doors to these renters. Indeed, when you are looking at 40% of the market, it is very hard to see how that can happen. It can happen individually and the market can adjust; different people specialise in different areas. But what we see is that there is a degree of specialisation among landlords and landlords who specialise in this area, interestingly, on the survey work that we have done, say that they are intending to stay in the market.213 159. The Royal Institution of Chartered Surveyors believed that “before any changes are introduced the Government should carry out a thorough examination of their impacts at a regional level”. It argued that: There needs to be a clear evidence base for the policy which takes into account differences between areas of the country and who will be affected. Housing Benefit policy also needs to be clearly aligned with housing supply policy to ensure a clear link between the two.214 160. The Government has suggested that lower benefits rates will not lead to increased levels of evictions and homelessness if tenants are able to make up the shortfall through other income or move to cheaper accommodation. The latter assumes that enough such affordable accommodation is available. However, evidence indicates that, in the context of a shortage of social housing and high demand for rental accommodation, this may not be the case. Tenants may be left with no other option but to accept overcrowded accommodation, or a dwelling that is otherwise unfit, or in a different location. We recommend that the Government carry out a review of how the changes are likely to impact on tenants’ ability to access the bottom third of the market. This

211 Ev 39 212 Ev 39 213 Q 111 214 Ev w245

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review needs to be clearly aligned with an assessment of housing supply and demand below the 30th percentile of the market.

Willingness of landlords to accept lower rents 161. The Department stated that it “expects that in some cases tenants will be able to renegotiate their rent with their landlord, and reduce or remove the shortfall altogether”.215 In oral evidence, the Minister told us that: In principle we are expecting a large number of people who receive less Housing Benefit to be able to negotiate their rents downwards and that the landlords will move to the new LHA rate. The new LHA rate, in many cases, at 30% is not very far apart […] from the 50% rate in the rest of the country outside London.216 162. The recent study by the CCHPR referred to the evaluation of the LHA Pathfinders which found that 50% of landlords whose tenant did not pay the difference in shortfalls between benefit rates and rent took no further action. The study suggested that: Landlords may be willing to accept falls in rents [...] if the loss in immediate rental yield is compensated for by strong expectation of capital yield. However, many independent forecasters expect weak growth in house prices in the near future, so landlords may prefer to exit the LHA market altogether by either switching their portfolio or letting to other types of tenants. Moreover, landlord’s intentions and behaviour will also depend on the extent to which there is local demand for rented property from households that do not rely on LHA to meet the rent”. Maps provided by CCHPR show the extent to which private renting is taken up by LHA claimants in different parts of the country. The markets with the highest proportion of tenants claiming LHA are in towns and cities in formerly industrial regions, in coastal areas, and in East London and its Kent and Essex hinterland. 217 163. The Minister stressed that “in many, many markets, when you are a 40% purchaser and you are changing the terms of trade, there is nowhere else for many landlords to go. Now, I know that is not the case in every market and there are different sub-markets, but as an average and as a whole, that is what we would expect to happen”.218 Roger Harding from Shelter disagreed: The Government has put a lot behind this argument that rents will drop if benefit levels drop [...] [But] by the Department’s own estimations almost 50% of claimants make up a shortfall between what they get in payments and what they pay in rent, suggesting that, at least in 50% of cases, rents will not drop. In only 5% of cases what

215 Ev 63 216 Q 109 217 Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, pp 17, 28 218 Q 110

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claimants receive is at market level. As I say, currently, the Department has not really put forward any detailed research or evidence to suggest that rents will drop.219 164. Sam Lister of the CIH pointed out that LHA rates are set by non-Housing Benefit rents: So in theory all the Housing Benefit rents could lower down and that would not necessarily affect the Local Housing Allowance rate at all. Obviously it is going depend on what the particular composition of the market is, because the effect will be greater if you have got a market that is dominated by the Housing Benefit sector.220 Ian Fletcher from the British Property Federation suggested that the overall downward pressure on rents would be negligible: Let’s say that 50% of landlords did reduce their rents and they reduced them by £10 a week, and you multiply that by the million claimants that there are and 52 weeks, you get to a figure of around £0.25 billion. That has to be seen against the context of a private rental sector rent roll per annum of something in excess of £100 billion a year. So, it would simply be a small stone in [...] the Atlantic. [...] there is this huge tsunami of different people trying to get into the private rented sector at the moment. I have seen figures out today from Countrywide saying, I think, a 43% increase in tenants trying to get into the rented sector over the year; I think something like 19% over the last quarter.221 165. The RICS Residential Lettings Survey for the three months to July 2010 showed that tenant demand continued to increase, and at broadly the same pace as the previous quarter. 26% more surveyors reported a rise in demand for property than a fall. Moreover, the survey found that 33% more surveyors expected rents to increase in the next quarter than to fall. This outlook was strongest in London and the East.222 166. Alex Fenton from the CCHPR agreed that: All the projections are that the private rented sector will continue to increase because all the other sources of demand in the private rented sector—the frustrated owneroccupiers, because they cannot get mortgage finance, students—are all projected to continue to be the same size or to increase. So there is enough demand out there in the private rented sector that landlords need not accept a cut in their rent.223 Kirklees Council argued that: If landlords are prepared to accept reductions to those levels then they will be shouldering around £4.5 million of the cuts in this borough alone. Conversely if rents do not reduce and cheaper alternative accommodation is not available then we will

219 Q 63 220 Q 68 221 Q 84 222 RICS Residential Lettings Survey, July 2010 223 Q 68

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see claimants having to find an additional £4.5 million to support rents from their other income. In any event £4.5 million will be lost to the local economy.224 Citizens Advice Bureau were concerned that no research or assessment had been carried out on which to base the assumption that rents would fall and highlighted that “if rents do not fall, the full burden of the cuts will be experienced by claimants”.225 167. We accept that there will be a response by landlords to the lower LHA rates in terms of lowering rents, but the extent of that response cannot be accurately predicted. Moreover, the landlord response will vary from area to area depending on local market conditions, and the degree to which landlords have choice in securing tenants who do not rely on Housing Benefit, bearing in mind that the proportion of claimants within local private rented markets ranges from less than 10% to over 80%. The Department should monitor the extent to which tenants make up the difference and landlords accept lower rents in particular Broad Rental Market Areas and work closely with other government departments and with local government to ensure that adequate support is in place in areas where more tenants have to move home.

Direct payments to landlords 168. When the previous Committee looked into LHA earlier this year, it found that direct payments to the tenant were the “most controversial aspect of the LHA and the aspect on which the Committee received most evidence. The majority of written submissions came from individual landlords and letting agents who expressed their concerns over direct payments to tenants”.226 Its view was that: We fully support the objectives behind direct payments to tenants to promote personal responsibility and financial inclusion and, through this, removing barriers to work. We believe direct payments to the tenant should remain the default supported by the necessary financial advice and vulnerability safeguards as discussed in this report. Managing one’s own finances is an important element of workreadiness which the Government should aim to support. There is evidence that giving tenants the choice of having rent either paid to them or the landlord may not be a real choice as landlords then tend to demand direct payments to them as a condition of agreeing to the tenancy. Such an arrangement would defeat this important objective of the scheme and help perpetuate benefit dependency.227 169. In evidence to our current inquiry and referring to this conclusion, the Residential Landlords Association (RLA) stated that, whilst it agreed that it was important to try to enhance financial responsibility on the part of tenants, it “strongly disagrees with the [previous] Committee’s views believing that the arguments in favour of retaining the present system of payment is far outweighed by other important considerations”.228

224 Ev w80 225 Ev w35 226 Fifth Report, Session 2009-10, Local Housing Allowance, HC 235, para 31 227 HC (2009-10) 235, para 55 228 Ev 91

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170. Most witnesses expected rent arrears to increase as a result of the announced changes. It is therefore unsurprising that direct payments have again been raised as an issue in our current inquiry. The Mayor of London highlighted that: There is evidence that since LHA was introduced, and direct payments [to landlords] withdrawn in most cases, landlords have lost on average more than £2,100 in unpaid rent. [...] Anecdotal evidence also suggests that, as a result of this, landlords are increasing their rents in order to mitigate the risk presented by tenants falling into arrears.229 171. The British Property Federation told us that “time after time speaking to landlords over the past couple of years the main issue that has been on their agenda has been the restoration of choice of payment of benefit to claimant or landlord for those renting in the private rented sector.”230 The RLA was clear that “one cannot over-emphasise how hostile landlords are” to direct payment to tenants. 231 The Association of Housing Advice Services suggested that payment direct to the landlord “is the one major incentive which all private landlords want and could prove a strong inducement to balance a reduction in rental income”. It “strongly recommends that DWP guidance is relaxed and clarified to allow rent direct payments to landlords in all homelessness prevention cases. [...] This single change would be the most important aid to reducing the impact of evictions”.232 172. London Councils referred to a survey it carried out with the London Landlord Accreditation Scheme, in which 46% of landlords indicated they might accept rent shortfalls if landlord direct payment was reinstated. It too believed that “this may help to decrease rent levels and evictions if reintroduced”.233 The Mayor of London suggested that “LHA should, across London, be paid direct to those landlords whose tenants currently receive LHA above the new limits, provided that these landlords agree to reduce their rents to within the new limits”.234 173. In oral evidence, Nigel Minto of London Councils suggested that, in order for local authorities to be in the position to negotiate rents down: There needs to be something in it for the landlords. Rent paid direct does save the landlord money in terms of managing the risk of collecting the rent from the tenant etc, but it can also be used as part of a wider procurement strategy by the local authority when it procures private sector rental stock from landlords.235 Chris Town from the RLA agreed that direct payments to landlords “would bring more security and there would be less inclination for people to exit the sector”.236 However, the RLA also pointed out that “the DWP Paper, 21st Century Welfare, indicates a single 229 Ev w139 230 Ev 42 231 Ev 94 232 Ev w182 233 Ev 71 234 Ev w137 235 Q 19 236 Q 86

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payment system, including housing costs, paid to the tenant”.237 In designing the move to a single benefit system, the Papworth Trust “urges the Government to retain the option which allows Housing Benefit recipients to have their rent paid directly to their landlord”.238 174. We asked the Minister if he would consider reinstating direct payments to landlords. He told us: The Government have committed to looking at this in the context of the review of the LHA and the report that is coming out later this month. I have to say I have glanced at some of the outline in that report and I am not sure that it is going to be hugely helpful in taking that decision […] the essential component of the Universal Credit is that we are trying to break down the distinction between out-of-work benefits and in-work benefits to try to eliminate the problem of being stuck on outof-work benefits and being frightened to go into a job. [...] if you are going to have direct payments to landlords, [...] have you created an unnecessary block on people going from being out of work to in work just based on who is paying?239 175. However, we have heard of good practice examples where local authorities have been able to negotiate good value for money for their clients without making payments direct to landlords. Ian Fletcher of the British Property Federation told us of experience in Edinburgh: Edinburgh City Council [...] process claims very quickly. If people do not pay, they enact the vulnerability provisions very quickly, so the bad debts don’t run up. As a result, they have a very good relationship with companies of that kind, who are prepared to take slightly lower rent for the assurances that that sort of system gives them.240 176. Edinburgh City Council provided us with more details on how their Letfirst scheme with the company Orchard & Shipman works: x

Tenants are referred via Edinburgh City Council and/or support agencies and they have to prove that they cannot access the private rented sector independently due to their personal circumstances

x

All tenants receive an intensive tenancy management service and additional support is organised prior to the start of the tenancy or during a tenancy if/when further support or vulnerability needs are identified

x

Tenants sign up to a traditional Short Assured Tenancy agreement and the rents are in keeping with LHA rates

x

Benefits advice and assistance is provided to all tenants and Orchard & Shipman complete HB applications on behalf of the tenants

237 Ev 91 238 Ev w60 239 Q 133 240 Q 95

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x

Housing Benefit is paid direct to the tenant unless the tenant is classed as vulnerable in line with the normal LHA guidance

x

A representative from Orchard & Shipman hand delivers completed HB application forms to the team that deals with these cases to get them checked for accuracy, completeness, etc

x

The Letfirst claims are “fast tracked” (ie, processed within 14 days) as Orchard & Shipman ensure that the claims are complete.241

Orchard & Shipman states that the scheme “provides a rental payment guarantee to landlords whilst tenants are occupying their property. Orchard & Shipman take on any risks associated with unpaid rent by paying the monthly rent on the property direct to the landlord”.242 177. CAB suggested that one measure which could help improve landlord confidence would be if local authorities were to engage in larger scale private sector leasing arrangements “Local authorities would be better placed than individual claimants to negotiate lower rent levels, within LHA rates, and landlords might be persuaded to accept lower rent levels in return for greater certainty over their rental income stream and void levels.”243 When we asked landlords if it would be possible to get better value out of the system in return for better security for landlords, the answer was a unanimous “yes”.244 178. As previously mentioned, after we had finished taking evidence, the Government laid the Regulations to implement the changes. At the same time, it announced that it is: [...] temporarily widening the discretion of local authorities to make direct payments to the landlord in some circumstances where it will support tenants in retaining or securing a tenancy. The Government will work closely with local authorities to ensure this provision is used only in very specific circumstances where landlords are reducing rents to a level that is affordable for claimants.245 179. Some landlords may be willing to reduce rents in return for better security of payment, and landlords also stressed that direct payment would improve their confidence in the Housing Benefit market. It is likely that this would also increase the supply of private rented housing for Housing Benefit tenants. Direct payment to landlords could therefore be a useful bargaining tool for local authorities in trying to secure cheaper accommodation for clients. In that context, we welcome the Government’s recent announcement that it would temporarily widen the discretion of local authorities to make direct payments to landlords who are willing to reduce rents to a level that is affordable for claimants.

241 Ev w251 242 Orchard & Shipman Press release, November 2010, available at: www.orchard-shipman.com/news/general/orchardshipman-launch-unique-letfirst-scheme-in-edinburgh/ 243 Ev w38 244 Q 96 245 HC Deb, 30 November 2010, cols 71-72WS

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180. We note the important principles behind payments to claimants as supported by our predecessors. The Government’s plans to introduce a Universal Credit, bringing together in and out of work benefits, will rely on Housing Benefits being paid direct to the claimant. We believe that, both to retain this important principle and to help build landlord confidence in the sector, the Government should promote good practice schemes such as LetFirst in Edinburgh which brings together direct payments to the claimants and rental guarantee for the landlord.

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8 Addressing barriers to work in the Housing Benefit system Comparison between Low-Income Working Households and Housing Benefit recipients in the private rental sector 181. The Department states that the Local Housing Allowance measures announced in the June 2010 Budget, will “provide a more sustainable Housing Benefit scheme by ensuring that people on benefit are not living in accommodation that would be out of the reach of most people in work, creating a fairer system for low-income working families and for the taxpayer”. 182. The Minister told us that “low-income households rent at about 90% of what the Housing Benefit recipients are renting at. So they are renting at a lower level. [...] the facts are that low-income people who are not taking Housing Benefit are having to live in cheaper housing”.246 He was referring to DWP research into housing choices and rental commitments made by low-income working households (LIWH) in the private rented sector, which found that “most LIWH pay a rent which is, on average, less than the LHA rate set for the property they occupy although, other than in the case of large properties, the amount paid is in the main 90% or more of that rate”.247 The authors of the study stress that: This is unsurprising given that the LHA rate is the median of market rents (across all income groups) and LIWH would be expected to be paying rents at the lower end of the market. However, over 40% of households live in larger properties than those for which HB would deem them eligible and choose to pay about £14 per week more in rent than they would be entitled to under the LHA based on a property of the appropriate size for them.248 The study concluded that “overall the typical levels of rent (the median and modal level) are quite similar for those receiving and not receiving HB; those not receiving HB were more likely to be paying higher rents, but also more likely to be paying a relatively low rent. Levels of rent were somewhat more widely spread for non-recipients of HB”.249 183. Sam Lister of the Chartered Institute for Housing said “it is nonsense to say that people have an unequal playing field in terms of what access they have to accommodation, because Housing Benefit is an in-work benefit as well, so you should be able to access it”.250 The Residential Landlords Association argued that “there is something of a contradiction

246 Q 104 247 Ev 59 248 Low-income working households in the private rented sector, DWP Research Report, No 698, 2010, Summary 249 Ibid, p 15 250 Q 36

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in terms in the Government’s case because the Government’s proposals bear down equally on the low paid in work and those who are wholly dependent on welfare benefits”.251 184. The DWP study found that “while HB recipients, by definition, receive assistance towards some or all of their rent through HB, the great majority of LIWH (99%) meet their rent without such assistance”. However, it also emphasised that “it would be a mistake to see ‘HB claimants’ and ‘low income working families’ as totally distinct categories”. It states that “the same household could one day be a LIWH and the next a claimant. Further, where HB is claimed as an in-work benefit, households are essentially both low income working households and claimants at the same time”.252 Findings also indicated that the HB recipient group is somewhat older than non-recipients—about 23% of LIWH were aged under 25 compared with 10% of those in the private rental sector receiving HB. HB recipients were much more likely than LIWH to have dependent children. In particular, lone parents emerge as being much more frequent among households receiving HB—32% in the LHA Evaluation and only 5% in the LIWH survey. Conversely, only 6% of claimants in the LHA Evaluation were couples with no dependent children, compared with 31% of LIWH in the survey. Further differences include the finding that 91% of HB claimants are White (White British and Other White) compared to 72% of LIWH. Strikingly, 47% of HB claimants had no formal educational qualifications at all, compared with less than 10% of LIWH.253 185. The findings suggest that there is no strong incentive for LIWH to claim HB. It also found that lack of awareness of the HB system was not preventing applications from those families who perceived themselves to have problems paying the rent. However, previous bad experience of the HB system might deter a few from applying again.254 186. Roger Harding from Shelter said that “by the DWP’s own estimates, there are potentially up to 590,000 working households who could claim LHA but do not, suggesting therefore that it is not currently an unequal playing field in favour of claimants, otherwise there would be a large number of people who would be claiming”.255 The Scottish Federation of Housing Associations stated that: 50% of working people entitled to claim Housing Benefit are not claiming it, with the average amount of weekly unclaimed Housing Benefit for this group being £41.00. HMRC statistics show that over £1 million is unclaimed in Housing Benefit each year and in total £16 billion in all benefits is unclaimed each year.256 187. One of the Government’s stated objectives of the Housing Benefit reforms is to create a level-playing field between households in receipt of Housing Benefits and lowincome working households (LIWH). We note that about 10% of LHA recipients are LIWH and that 50% of working people entitled to claim Housing Benefit are not

251 Ev 88 252 Low-income working households in the private rented sector, DWP Research Report, No 698, 2010, Summary 253 Ibid, pp 27-32 254 Ibid, p 76 255 Q 36 256 Ev w224

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claiming it. We believe that the Government should also recognise that households in receipt of Housing Benefit are also more likely to be older and lone parents households. Evidence also suggests that overall the “typical” levels of rent are quite similar for those receiving and not receiving Housing Benefit.

Access to employment 188. DWP has stated that it is: […] committed to tackling welfare dependency and improving incentives for customers to enter work. Providing some customers, mainly in London, with the ability to live in very high cost rented properties makes it extremely unlikely they would ever move completely off Housing Benefit because of the very high income levels required. Moving to more affordable accommodation could therefore encourage households to take up employment and move completely off benefit.257 189. The London Borough of Camden emphasised that: Many of the working claimants are carrying out vital but traditionally low paid jobs in the borough, such as in schools and local small businesses. They play a vital role in the economic recovery of the borough but may not be able to afford to commute if forced to move.258 The North West Landlords Association pointed out that distance to work is not just a London issue: “Transport home for the low-paid who work unsocial hours in the provinces is patchy at best, an example being the difficulties experienced by hotel staff in central Manchester. Here we have no Tube system and the buses are de-regulated”.259 190. Our predecessors expressed concern that Broad Rental Market Areas (BRMAs) were set by access to facilities rather than by access to transport or work. It strongly recommended that “the Department includes access to low paid work as an underlying criterion for setting BRMAs. This would help the scheme to meet the Government's overall objective of helping people out of benefit dependency and into work”. 191. The Minister told us that: Some of the concerns that people will move from inner London to outer London, away from jobs, are exactly the opposite of what [...] data would suggest. In practice, if you were to go out from central London to Bromley, for instance, to take one of these outer areas, you are actually more likely to go to a place with jobs than where those people are currently living.260 However, Citizens Advice argued that Office for National Statistics Labour Market Statistics for the London area suggest that there is a relationship between rent levels and rates of unemployment: 257 Ev 62 258 Ev w58 259 Ev w39 260 Q 173

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In the three local authorities which will be most affected by the cap, unemployment rates are much lower (Westminster 2.77%, Camden 3.3%, Kensington and Chelsea 3%) than in some of the few London boroughs which will be unaffected by the cap and to which claimants may therefore have to move (Barking and Dagenham 5.78%, Newham 6.44% Redbridge 4.15%).261 192. The study by the CCHPR looked into the probabilities of “this assumption, that reduced benefits rates will stimulate legitimate employment amongst those not presently working [...] and serve as an incentive (or rather, a threat) to work and away from an habituated dependency on welfare”. It concluded that “these measures are likely to have nil net effect on economic activity among current claimants”.262 The study showed that fewer than a quarter of those affected were currently unemployed; most were already employed, or retired or sick. It also stated that the prospects of finding work would be greatest in regions and cities with strong demand for labour relative to supply: broadly, London, the South and East. However, in these regions, similar to the point made by CAB, those people affected by the cuts were more likely to be already in work or retired. The study highlighted that in the North and Midlands, rates of unemployment and inactivity reflected long-term structural weaknesses of regional economies more than individual unwillingness to take up paid work.263 193. Kirklees Council emphasised that: If it is accepted (and we believe it is) that there is something wrong with the current system because of the way in which HB is withdrawn at the point someone starts work, then it is difficult to see how the changes announced do anything to help address that problem.264 The TUC suggested that a “substantive evidence base has documented the financial disincentives to work that steep withdrawal rates for Housing Benefit can have”.265 Danny Hardie, a welfare benefits adviser for the Peabody Trust, explained that: Earnings disregards have been frozen since 1988. [...] Currently a single person has only £5 disregarded, which after deductions makes little over one hour’s work. Thereafter, they lose 85p in benefit for each £1 earned. This is a disincentive to increasing hours as a claimant is so marginally better off.266 The Royal National Institute of Blind People believed that: The problem lies in the tapers and earnings disregards. [...] claimants are in effect expected to spend 85% of earnings above basic benefit levels on rent and council tax.

261 Ev w34 262 Alex Fenton, How will changes to Local Housing Allowance affect low-income tenants in private rented housing?, Cambridge Centre for Housing and Planning Research, September 2010, p 19 263 ibid 264 Ev w80 265 Ev w164 266 Ev w1

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Earnings disregards are low and not index-linked, so that work-related expenses can indeed take claimants below basic benefit levels.267 The TUC referred to recent work undertaken by the Centre for Social Justice which concluded that: "the swift withdrawal of benefits, offsetting earnings from work, creates a deeply regressive system that punishes low earners who are trying to earn more". It argued that “changes therefore have potential to discourage unemployed people from moving into work, as their effective in-work incomes will be lower”.268 194. Citizens Advice welcomed “the recognition by DWP Ministers that a key disincentive to work is the rate at which HB is withdrawn as income rises. As the White Paper 21st Century Welfare outlines, tackling levels of marginal deduction rates is central to improving work incentives”.269 The Equality and Human Rights Commission suggested the following measures to ensure that work pays: x

reducing complexity in the benefits system so that people are able to see clearly the financial benefits of entering work

x

changes to withdrawal rates,

x

ensuring that benefits aid the transition into work

x

raising awareness that people can claim Housing Benefit when in work, as this will help people to see the incentives of being in employment. The DWP consultation on Housing Benefit from 2009 estimated that around half of working people entitled to Housing Benefit still do not claim it.270

CAB also argued that the proposals under consideration by the previous Government to introduce fixed period awards for people in work, would be “a very positive step in reducing the hassle factor for people in low paid work trying to manage their HB claim if their income is continually fluctuating”. It stated that “Bureaux regularly report clients in low paid work falling into rent arrears or facing recovery of overpayments because their HB has not kept pace with changes in their income”. 195. The North West Landlords Association confirmed that: Landlords have observed problems for tenants who start work when claiming Job Seekers Allowance. It seems difficult to re-start benefits if the work is only of short duration [...] Those whose only choice is work that may be of limited duration are understandably deterred by the risk that starting work could be a costly mistake.271

267 Ev w22 268 Ev w164 269 Ev w34 270 Ev w238 271 Ev w40

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The National Federation of Arm’s Length Management Organisations (ALMOs) pointed to: Housing Benefit problems that can be caused by a series of low paid temporary periods of work followed by a period of unemployment, which often leads to periods of unpaid rent whilst Housing Benefit claims are made and arrears which build up whilst the tenant does not know how much rent they need to pay.272 196. We asked the Minister if he would consider extending periods of Housing Benefit payments as people moved into work. He responded that: The energy and effort that is required to get the Universal Credit in is much better spent in a root and branch transformation of the system as a whole, which will solve the problem, than in tinkering with little bits of it for an interim period of a year or two in practice. Paul Howarth of DWP added that it “was a very interesting idea and did command a lot of support, but I do not think there are any plans to introduce that now.”273 197. We agree with the Government’s objective of trying to address barriers to work in the benefit system. The evidence is very strong that the greatest barrier to employment is the complexity, confusion and limited net gains for claimants arising from a combination of taper rates and earnings disregards for benefits. We therefore welcome the principles behind the Universal Credit as set out in the recent White Paper. We intend to pursue issues arising from the proposals and look forward to seeing more details, including on how housing costs will be dealt with under the new scheme. However, we are concerned that the proposed reforms to Housing Benefit may contradict some of the objectives of Universal Credit. We recommend that the Government allow Housing Benefit to “run on”, as people move off benefit and into work, a measure which previously commended support from both sides of the House.

10% Housing Benefit cut for recipients on Jobseeker’s Allowance 198. The Government announced in the June 2010 Budget that Housing Benefit for jobseekers would be time-limited: awards would be reduced to 90% after 12 months (or 52 weeks) for claimants of Jobseeker’s Allowance.274 DWP told us that this had two objectives: x

To help change the behaviour of Jobseeker’s Allowance customers who are perhaps selective about the sort of work they take, or the action they take to make themselves job ready, because they have their rent met in full through Housing Benefit if not working.

x

By increasing the gap between in-work income and out-of-work income benefits and earnings, this measure will make work more attractive compared to benefits— i.e. help address the unemployment trap.

272 Ev w183 273 Q 177 274 HM Treasury, Budget 2010, HC 61, June 2010, p48

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It added that “while most Jobseeker’s Allowance customers remain on benefit for much less than 12 months, this change would make it clear that people who are expected to work cannot continue to receive maximum help from the benefit system to pay their housing costs indefinitely”.275 The Minister confirmed that, once the change has been implemented, the reduction in Housing Benefit would take effect immediately for those who had been claiming JSA for 12 months.276 The claimant perspective 199. Most witnesses argued that the proposal to cut HB by 10% after a year on Jobseeker's Allowance (JSA) would disproportionately affect those who are disadvantaged in the labour market. New client groups will be brought into JSA and therefore potentially affected by this change. From October 2011, lone parents with children aged 5 and over will move from Income Support to JSA, and from February 2011 onwards Incapacity Benefit claimants will be migrated to the new Employment and Support Allowance, or JSA, or will become ineligible for benefits. 200. The TUC provided an analysis of the estimated impact of the 10% reduction in Housing Benefit on JSA claimants. It shows that as many as 35% of claimants affected may be lone parents with children aged 5-6, and that at least 13% will be disabled people who had previously spent several years claiming incapacity benefits. Migration from Incapacity Benefit to Employment and Support Allowance 201. A number of people claiming Incapacity Benefit will move to JSA as a result of the migration to Employment and Support Allowance (ESA). Disability organisations and CAB expressed significant concerns about the number of claimants in poor health who are passing the Work Capability Assessment (WCA) for ESA and therefore being found fit for work. The Government has recently published a report of the independent review of the WCA by Professor Malcolm Harrington CBE, which sets out a series of substantial recommendations for reform, which the Government has accepted. Also, a panel has been formed, including representatives of disability rights organisations to ensure complaints are properly considered.277 202. Witnesses pointed to some of the issues which had previously arisen as a result of the migration to ESA. Mencap stated that the changes and problems with the medical assessment meant that more people with a learning disability (as well as other disabilities) would be moved from Incapacity Benefit to Jobseeker’s Allowance.278 Affinity Sutton highlighted that ESA is the most commonly appealed benefit accounting for 8,000 tribunals per month. This is twice the number of the next most appealed benefit, Disability Living Allowance, which has seven times more claimants. 40% of ESA decisions are reversed at the tribunal stage.279 The Papworth Trust believe that the WCA is a flawed 275 Ev 62 276 Q 178 277 An Independent Review of the Work Capability Assessment, Professor Michael Harrington, November 2010,and the Government’s Response to the Review, November 2010, Cm 7977 278 Ev w70 279 Ev w198

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assessment and argued that “until the failings of that assessment are corrected, we do not believe other parts of the benefits system should be linked to its outcome.”280 203. The Disability Benefits Consortium suggested that “the stringency of the new Work Capability Assessment means that many more disabled people, some of whom will face significant barriers to employment, will be receiving JSA. The reality for some of these people will be that it will take much longer than 12 months to find a job”.281 The Muscular Dystrophy Campaign, amongst others, said that people with a disability often face “insurmountable barriers to obtaining employment due to a lack of physical access to the workplace, jobs which require greater mobility than a disabled person may have, and discrimination on the part of employers”.282 Lone parents 204. Gingerbread highlighted that Housing Benefit is an extremely important benefit for single parent families: In 2008, 42% of single parents were in receipt of Housing Benefit, compared to just 6% of couple families. [...] DWP’s own equality impact assessment shows single parents make up almost a third (32%) of LHA claimants, virtually all of whom will be affected by the changes to LHA announced in the June 2010 Budget. This means that well over 300,000 single parent families will be facing reductions in their LHA levels as a result of these changes.283 205. The Government announced in the June 2010 Budget that from 2011 single parents whose youngest child is five or older will be required to seek work. This follows on from the change in October this year under which single parents whose youngest child is between seven and ten will be moved from Income Support to Jobseeker’s Allowance and required to seek work. This change will affect around 120,000 single parents from October 2010 and an estimated further 100,000 in 2011. Gingerbread pointed out that 56% of single parents are already in work, and many more would like to be. However, Gingerbread believed that the right kind of jobs for many single parents—for example those available in school hours, on a job-share, or flexible in some other way—are not available for the vast majority of single parents who would like them. It argued that: If the current proposals go ahead, even if they have done everything necessary to comply with jobseeking requirements, if they haven’t found a job after 12 months then their Housing Benefit will be cut by 10%. For single parent families who are already on desperately low income levels, we believe this is an unduly harsh measure which has no clear rationale and which in no way acts as a work incentive.284 206. Kirklees Council pointed out that the deepest cuts would be borne by those whose HB was the highest—those with children. It argued that “this is not an incentive to work and 280 Ev w59 281 Ev w85 282 Ev w25 283 Ev w173 284 Ev w174

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for many will simply mean an increase in rent arrears and ultimately homelessness and in particular for those with families”.285 The Child Poverty Action Group believed that “this measure will adversely affect children living in poverty, drive further households containing children into poverty and additionally will hinder the government in meeting its child poverty targets”.286 207. We asked the Minister if he would consider a more nuanced approach in order to recognise the substantial barriers that a small number of lone parents may face. He responded that “the risk is you can over nuance things. We want to send out a very clear message that work is what we expect people to go to and we are going to put a lot of resource into helping them get back into work”.287 Older and Young People 208. Age UK referred to recently published Labour Market Statistics which showed that over two in five (43%) unemployed people aged 50 and over—a total of nearly 170,000 people—had been out of work for more than a year. This is the highest rate for any age group. Furthermore, a study in 2006—before the recession—showed that men out of work in their 50s have only a one in five chance of being in a job two years later. Age UK argued that the number of older unemployed people was likely to increase as a direct result of the migration from Incapacity Benefit to Employment and Support Allowance. Around one million people aged 50 or over receive Incapacity Benefit and some will be newly classified as unemployed and moved on to JSA. Many of these will have been receiving Incapacity Benefit for some time and will be a great distance from the labour market.288 The changes are also likely to affect older women whose Statutory Retirement Age is set to rise to 66 by 2020. 209. Catch22 pointed out that the unemployment rate for young people is currently double that for the general population. It argued that: In the current economic climate, jobs are hard to come by and punishing job seekers by reducing Housing Benefit seems counter-productive. For some young people, not having a job may simply be because there are no jobs to be had, rather than because they have not made the effort to find work.289 Prospects for employment and the Work Programme 210. The CIH argued that the proposed 10% reduction in HB for those on JSA for 12 months took no account of the difficulties that people face due to local economic conditions.290 Alex Fenton from the CCHPR told us that:

285 Ev w80 286 Ev w126 287 Q 179 288 Ev w132 289 Ev w28 290 Ev 57

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The rates of people that are claiming long-term—12 months plus—JSA vary very widely between regions. That is very strongly correlated with the availability of jobs in different regions, so in regions like the North East, Wales and Yorkshire and Humber, for example, a lot more people are chasing a lot fewer jobs because of those regions having lower economic growth compared with places like the South East and London.291 Peabody was concerned that: The proposed reduction in Housing Benefit is not connected to any criteria other than length of receipt. The proposal is not linked to any direct programme to assist people into work and it is unclear whether there is evidence to support the proposal that a reduction in Housing Benefit would act as an incentive for people to find employment.292 211. The Minister told us that, through its unified welfare-to-work scheme, the Work Programme, the Government was “putting a huge amount of resource into helping people back into the workplace and this is the counterpart of that. This is a very substantial message to tell people that the solution here is to get into the workplace”.293 The TUC noted that the Work Programme is likely to provide support to unemployed people after one year of claiming JSA, and therefore explicitly recognises that some people need additional support to move into jobs, aiming to support people with “complex and overlapping barriers to work, providing personalised help for people who find themselves out of work”. It believed that it was therefore: [...] odd that when developing payment structures for welfare to work service providers, the Government recognises that long-term unemployed people need significant help and that their job outcomes rates are likely to be relatively low, but that when it comes to providing benefits to the same unemployed people, the Government blames them for their predicament.294 212. We put to the Minister the point that most people on JSA will not get support from the Work Programme until they have been on the benefit for 12 months, but at that point they will already face the cut in Housing Benefit. He responded that the Government is: […] looking hard at the timings of when people go on to the Work Programme and we are looking in particular at fast-tracking particular groups on to it early. We are exploring how to get the more vulnerable groups on earlier to get earlier support. We think that the most vulnerable will be getting support. 295

291 Q 38 292 Ev w123 293 Q 187 294 Ev w165 295 Q 185

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213. Crisis, amongst others, argued that There is a fundamental injustice in a measure which punishes people regardless of the efforts they may be making to improve their situation and find work. Instead, we would like to see the introduction of proposals which were being considered by the previous Government and those which were proposed by the Centre for Social Justice to help remove barriers to work. These included the introduction of fixed payment awards for those in work, extended benefit run on when a claimant moves into work and bringing down Marginal Deduction Rates so that work always pays.296 The effectiveness of sanctions 214. The TUC pointed out that a recent DWP review of the effectiveness of different types of active labour market policies found that blanket cuts in benefit levels do not increase employment outcomes, and warned that: Evidence from the US suggests that sticks, i.e. financial sanctions, should be implemented with caution, as they tend to affect individuals with the most severe barriers to employment. For instance, a Minnesota study found that sanctioned families were four times as likely as the caseload as a whole to report chemical dependency, three times as likely to report a family health problem, and twice as likely to report a mental health problem or domestic violence.297 The TUC also highlighted that the Social Security Advisory Committee had shown that there was little evidence that sanctions are an effective tool in changing behaviour. It also referred to recent DWP research on lone parents which concluded that: “the sanctions regime has had negligible effects upon labour market behaviour”.298 Citizens Advice agreed that “evidence is—at best—mixed as to whether sanctions are effective in encouraging people into work, and we can see no logic to making such a cut from a household’s HB, especially in circumstances where the claimant has fully complied with requirements to actively seek work”.299 215. The Equality and Human Rights Commission argued that “in applying sanctions, consideration could also be given to the discrimination that certain groups of people face in entering employment”. It referred to a number of DWP research reports which found discrimination in recruitment of disabled and ethnic minority people. It believed that “this demonstrates that reducing Housing Benefit by 10% because people have been in receipt of Jobseeker’s Allowance for 12 months could disproportionately impact on those who want to work, but are unable to access employment because of (multiple) external barriers”.300

296 Ev w87 297 Ev w165 [DWP review as quoted by the TUC] 298 Ev w165 299 Ev w33 300 Ev w238

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The provider perspective 216. The North West Landlords Association argued that “arbitrary reductions in benefit rent levels will force landlords to preferentially house those in work”.301 The Residential Landlords Association believed that: If the benefit customer is already a tenant then very quickly shortfalls will mount up and the landlord will take steps either to evict or will decline to renew the tenancy once it has come to an end. Thus, this measure is going to shut the most vulnerable out of accommodation altogether.302 217. The Salvation Army and a number of other providers of hostels and supported accommodation stressed that claimants who have been receiving JSA for 12 months will be deterred from entering hostels, or may enter hostels only to be evicted shortly after, because they are unable to afford to meet the 10% shortfall in hostel charges. Others who enter the hostel after a shorter period of receiving JSA may be forced to drop out part way through a rehabilitation programme if they cannot afford to meet the 10% shortfall once they have been on JSA for 12 months. The Salvation Army argued that “this creates more rough sleepers and perpetuates the ‘revolving door’ of homelessness”. It also highlighted that this would threaten the financial viability of hostels. A survey of current residents of the Salvation Army suggested that approximately 50% were in receipt of Jobseeker’s Allowance. The other main benefits were Employment and Support Allowance and State Pension. 218. In the financial year 2009-10, the Salvation Army received approximately £22 million in income from residents’ Housing Benefit. “If we were to lose 10% of this, the loss would be £2.2 million which is a significantly prohibitive sum to the organisation”. It added that it has already withdrawn from providing three homeless hostels since April 2010, in London, Bolton, and Darlington, and other services are under threat of closure. It stressed that, as a consequence of the reform: Perversely, those who have been in receipt of JSA for more than 12 months would be unable to stay in hostel accommodation, where they would receive support to access the professional support services, treatment programmes, and training opportunities to enable them to return to independent living and the work market.303 219. This experience is echoed by St Mungo’s. According to its own estimates of the impact based on those clients who have currently been on JSA over 12 months there will be a shortfall between rent and Housing Benefit of £287,000 a year, equivalent to £820 per client per year. It states that “if, rather than covering the cost, we opted to evict those who couldn’t pay we may well be evicting significant numbers of people on to the streets where other services would have to pick them up, significantly undermining an individual’s ability to move on from homelessness and further using expensive services”. St Mungo’s 2010 survey found that 26% of its clients were on JSA and 24% had been on JSA for over 12 months. 26% had been out of work between five and ten years and 27% for over a decade. 301 Ev w40 302 Ev 95 303 Ev w114

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The survey also indicated the current support needs for clients on JSA: 23% have a significant medical condition; 51% have a mental health condition (diagnosed or suspected); 43% use alcohol problematically; 57% misuse prescribed drugs or use illicit drugs . Another survey showed that many clients lack basic skills such as being able to read and write. St Mungo’s estimates that 35-40% of clients do not have literacy to the level of an 11 year old, severely impairing their chances of employment. 304 220. Centrepoint stressed that they are “extremely concerned about the impact on young people living in supported accommodation, such as Centrepoint services, many of whom have complex support needs”. The average rent in Centrepoint services is £111 per week. If Housing Benefit were cut by 10% young people would have to make up £11 of their rent from their £51.85 JSA. This represents over 20% of their weekly income. The average service charge is £10 per week, which would leave them with only £30.85 to meet all their remaining costs including food, clothing, toiletries and travel. Centrepoint’s experience suggests that this is not enough, particularly for young people in its central London services. 221. Centrepoint argued that its clients are “already subject to sanctions under the existing JSA regime that ensure they are actively searching for work, making this additional cut unnecessary and unfair”. It stressed that young people who have been at Centrepoint for over two years are more than twice as likely to be in work as those who have been there for a year to 18 months. “Cutting benefit after a year could therefore disadvantage young people at a very sensitive time when they are making progress towards work. Any resulting arrears could risk reversing the progress made”.305 222. Like the Salvation Army and St Mungo’s, Centrepoint stressed that these changes could also have a serious impact on its financial viability. Rents and service charges make up around a quarter of Centrepoint’s total annual income (£4 million out of £16 million total income). If 30% of young people at Centrepoint (and therefore of its rental income) was subject to a 10% cut, Centrepoint could stand to lose almost £130,000 a year. It states that “at a time when Supporting People contracts from local authorities are being cut by around 25%, this puts further strain on our finances”. 223. We are concerned about the potential impact of the 10% Housing Benefit cut on providers of hostels and supported accommodation. This measure is likely to have a negative impact on the financial viability of these providers, forcing them to close facilities or to evict clients on Jobseeker’s Allowance. We urge the Department to work closely with other government departments, with local government and with these organisations to ensure that they remain able to provide a place for homeless people to live and support them into work.

The underlying purpose of Housing Benefit 224. The Riverside Group stated that “it is right that claimants who have no intention of going back to work should be encouraged to seek employment—however we feel that the

304 Ev w186 305 Ev w204

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JSA system, rather than Housing Benefit, would be the appropriate way to manage this”. The Building and Social Housing Foundation agreed that: If the government wishes to create work incentives through the withdrawal of benefits (as opposed to, or in combination with, positive methods such as enhanced support for the long-term unemployed), there seems to be little logic for applying the cuts to Housing Benefit. Local variation in rent will lead to people losing very different sums depending on where in the country they live, therefore providing a different perceived ‘work incentive’ in different geographical areas.306 225. St Mungo's, amongst others, stressed that Housing Benefit is intended to ensure that people can afford to live in an acceptable standard of accommodation. It argued that “the proposed link to a person’s out of work status therefore represents a departure from this fundamental concept”.307 The Chartered Institute of Housing also questioned “the shift towards making elements of Housing Benefit conditional, for example around behaviour in seeking work, given that the purpose of Housing Benefit is to support people with their housing costs.308 The Building and Social Housing Foundation referred to the Council of Europe’s guidelines on the effective use of housing allowances that state: The goals for a housing allowance system should be to improve access to decent, affordable housing for all households on low incomes and to function as a safety net for these households against increases in housing expenditure or decreases in income.309 St Mungo’s also argued that As a broad principle there are many merits in adopting a narrow purpose for Housing Benefit, and not attempting to use it to achieve policy objectives that are non-core for the benefit. Housing Benefit is more likely to be successful if it is only trying to do one or two jobs and is doing them well, than if it is used to achieve multiple (potentially conflicting) policy objectives, as it is at present.310 226. The Law Centre (NI) stated that: There is urgent need for the Government to define the purpose and objective of Housing Benefit. It appears that there is conflict emerging between providing a benefit to assist low income families’ cost of rented accommodation and a direct work incentive. We consider the primary focus of Housing Benefit to be to provide access to good quality housing to low income families.311 The Scottish Federation of Housing Associations believed that:

306 Ev w16 307 Ev w185 308 Ev 45 309 Ev w13 310 Ev w13 311 Ev w242

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There is also a question of fairness relating to this measure. It only affects people who receive Housing Benefit. There is no equivalent penalty for people who are long term unemployed who own their own homes or live with other people and do not pay rent.312 227. We note that the Government plans to cut Housing Benefit by 10% for those who have been claiming Jobseeker’s Allowance (JSA) for 12 months. We recognise that Housing Benefit has an important role to play in the decision to take a job and that the reduction by 10% after a year of job search will increase the net gain to a job seeker, from this lower base, when they eventually find work. Taken together with our proposal to “run on” Housing Benefit, this may provide an improved incentive to work. 228. A number of concerns have, however, been expressed to us about other possible implications of this proposal: x

It risks adding further complexity to the benefits system and thereby detracting from the Government’s plans to simplify working-age benefits, by moving to a Universal Credit.

x

It is not clear how it fits with the Government’s new welfare to work programme. Support from the Work Programme will only be available to many people once they have been claiming JSA for a year. They may therefore lose 10% of their Housing Benefit for being out of work before they have received the additional support they need to find a job which the Work Programme is intended to provide.

x

The number of people potentially affected by the 10% Housing Benefit reduction will be larger and more varied than the current Jobseeker’s Allowance client group, and will include more vulnerable people. This arises from two changes: the migration of a number of current Incapacity Benefit and Employment and Support Allowance claimants to JSA; and moving lone parents from Income Support to JSA when their youngest child reaches the age of 5, with the accompanying requirement to seek work.

x

It does not take account of the variations in availability of employment across different regions of the country, nor of a claimant’s particular suitability for the work available or of the greater barriers to work faced by some people, including disabled people, older people and lone parents.

229. We request that the Government provides us with information on how it plans to address these concerns, in its response to this Report. We would also be interested to hear about alternative measures it would be prepared to consider, which might offer a more nuanced approach, using targeted sanctions for those who refuse to engage in the process of finding employment, rather than a blanket approach for all JSA claimants.

312 Ev w227

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Conclusion 230. One of the key features of this inquiry has been the level of uncertainty around the likely impact of each of the proposed changes to Housing Benefit and their combined effect on households. A number of witnesses believed that they would result in shortfalls between benefits and rents, and that evictions and increased levels of homelessness would be inevitable, for some client groups and in some areas. Large families, young people, older people and disabled people may be particularly affected. 231. Another key concern expressed was the scarcity of accommodation in the private rental sector which will be affordable for Local Housing Allowance claimants. The possible increase in homelessness and the influx of households to cheaper localities are likely to increase pressure on local authorities. Community cohesion may also be lost if people are obliged to move away from their local networks. 232. One of the key determinants of the success of these reforms will be landlords’ willingness to reduce rents. It is possible that the Government’s objective of downward pressure on rents paid by benefit claimants will be achieved, resulting in better value for taxpayers. However, the private rental sector is a market and the behaviour of markets is very difficult to predict. Moreover, savings in Housing Benefit may be offset to some extent by increased costs in other parts of the public sector, particularly increased demands on local authority resources. 233. The Government’s increased allocation to Discretionary Housing Payments, which support local authorities to meet acute housing needs, is welcome. However, at this stage it is difficult to assess the extent to which this fund will be sufficient and effective in mitigating hardship. 234. Many Housing Benefit claimants are amongst the most vulnerable members of society. Given the level of uncertainty about how different groups of people and different regions of the country will be affected by the changes, it is vital that the Department for Work and Pensions monitors the impact of each of the proposed changes on each client groups across the different regions of the country. Appropriate further mitigating measures should then be swiftly taken to protect people from homelessness and hardship.

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Conclusions and recommendations Government’s objectives for reform 1.

We agree with the Government’s objective of managing the costs of Housing Benefit. We also agree that support for low-income families towards housing costs should represent value for money for the taxpayer. We hope that the Government will be able to influence the rent levels of properties in the private rental sector available to Housing Benefit tenants. Further detailed research should be undertaken on this issue as the policy is implemented (Paragraph 24)

Rises in Housing Benefit costs 2.

According to the Valuation Office Agency, claimant rents moved in line with changes in the LHA rates in the first three quarters of the period from November 2008. It is only in the last two quarters that average rents for claimants rose ahead of LHA rates. In a period of rapid market change, and a sharp rise in the numbers of claimants in the sector, it is important to ensure that the Department obtains value for money in the Housing Benefit budget. We recommend that the Department undertake further research into the reasons for the increased rent levels and the methodologies used to measure them. (Paragraph 30)

3.

There is some evidence that the introduction of the Local Housing Allowance has led to a convergence of rents around the level of the LHA. This has involved both upward and downward revisions and has varied between areas, but it is clearly a factor in the rising costs of Housing Benefit. (Paragraph 35)

4.

We recommend that the Government fully evaluate the impact of the changes to Housing Benefit introduced in 2011, including on rent levels, before introducing the change to using the Consumer Price Index (CPI) for uprating LHA. If uprating using CPI is introduced in 2013, it should be accompanied by an undertaking that the Secretary of State will review the Local Housing Allowance rates in relation to prices in the wider private rental market prior to 2015. (Paragraph 50)

Potential for shortfalls 5.

It is difficult to predict the precise impacts of the LHA changes in London given the number of factors involved. Nonetheless it is clear that the changes in London will result, as they are intended to, in substantial levels of household movement. The Government has acknowledged this and has increased funding for Discretionary Housing Payments, in order to provide local authorities with the means to assist with the transition. We examine later in this report whether this support is likely to be sufficient. (Paragraph 59)

Impact on different household types 6.

Concerns have been expressed to us that a few, highly publicised cases of large families in high rent properties in central London are distorting the public

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perception of the scale of the problem and driving policy changes which affect a much wider range of people. Evidence shows that large families make up a very small proportion of claimants but will be hardest hit by the changes to LHA. Many amongst this group come from ethnic minorities. We have heard that shortfalls between Housing Benefit and rents will be so large for some that evictions are likely and in some cases temporary homelessness. Use of Discretionary Housing Payments will be important in managing the transition of such families. We would like to see an analysis of the effects of the policy on large families during implementation to enable policymakers to respond to any impact on child poverty. (Paragraph 64) 7.

We welcome the allowance for an extra bedroom for live-in carers. This is something our predecessor Committee recommended and we fully endorse. However, we would have liked to have seen this provision extended to cover all disabled children and disabled people who need more space for wheelchair access, a guide dog, essential equipment, or a live-in carer, or where a child is unable to share with a sibling due to disability. (Paragraph 70)

8.

Evidence from the Government’s own impact assessment suggested that disabled people might still face shortfalls and might have to move house and have new homes adapted. We would wish to see Discretionary Housing Payments used to avoid disabled people suffering housing disruption. (Paragraph 71)

9.

The Government should monitor the cumulative impact of all of the measures on disabled people. It should also carry out an analysis of the availability of affordable and accessible homes for disabled people and work with other government departments and local authorities to address the need for an adequate supply of such housing. (Paragraph 72)

10.

We accept that at retirement many households will review their housing location once they are in receipt of a pension. However, we strongly believe that older people on low incomes who have little opportunity to improve their financial circumstances should not face being made homeless or find themselves in accommodation that risks being detrimental to their health and well-being. We would wish to see Discretionary Housing Payments used to minimise housing disruption for the elderly. (Paragraph 77)

11.

The Government should also look at ways of protecting vulnerable older people and ensure that they receive the help they need to find decent alternative accommodation, taking into account proximity to friends, relatives and support networks, should they need this. (Paragraph 78)

12.

Young people will be particularly hard hit by the LHA changes as single people under the age of 35 will only be entitled to the shared room rate which, even when calculated at the median, has been found to be too low to find a decent quality tenancy in many areas. The problem of lack of available accommodation for young people has been acknowledged by DWP, and our predecessor Committee recommended that the level of benefit for young people should be increased. However, the Government’s reforms take this in the opposite direction: benefits for young people will be lowered as a result of setting the shared room rate at the 30th

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percentile and extending the shared room rate policy to young people under the age of 35.We understand the need for savings at a difficult time economically, but it should be considered as an interim measure and the Government should review this policy prior to 2015. At this point, we would like to see a reconsideration of our predecessors’ recommendation. (Paragraph 85) 13.

Significant concern was expressed to us that the number of households living in overcrowded properties will increase as a consequence of the reforms. This will not only affect large families, but households of all sizes who try to find new accommodation within their budget. We heard from a witness that, for large families, this might result in the breaking up of the family unit, especially where the families have chosen to live in a multi-generation household as is often the case in ethnic minority families. This would increase the number of claims for Housing Benefit. The issue of overcrowding highlights the need for the Government to thoroughly assess the availability of properties of all sizes in the bottom third of the rental market. (Paragraph 91)

Potential risk of evictions and homelessness 14.

We recommend that the Government obtain information from local authorities about the extent and nature of their reliance on, and procurement of, additional temporary accommodation, if any, inside and outside their local areas. (Paragraph 100)

15.

There is inevitable uncertainty over the impact of expected shortfalls on possible levels of evictions and homelessness. Much depends on whether the savings the Government expects to make are achieved through landlords’ willingness to renegotiate rents and claimants’ ability to find accommodation at the lower end of the private rental market. We welcome the Department’s commitment to a full review of the impact of these changes. (Paragraph 101)

16.

While the Department acknowledges that some households may have to move, evidence suggests that these numbers may be much greater than the Government expects. We have also heard of the difficulty of identifying households who may have to move and that people on Housing Benefit tend to move home less often than lowincome working households and often over-stretch themselves financially in order to stay within their community network where possible. The Government should monitor the extent of enforced moves and resulting hardship and increase Discretionary Housing Payments if necessary. (Paragraph 107)

17.

The Minister for Welfare Reform emphasised that he is not expecting a substantial increase in homelessness as a result of the reforms. However some witnesses believed that a substantial increase in homelessness was inevitable. The Mayor of London estimates a 50% increase in homelessness at a cost of around £78 million for the additional 5,000 households in London which could potentially be placed in temporary accommodation. If this proved to be an accurate forecast, we would be concerned about the resulting impact on the families affected. (Paragraph 112)

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18.

We welcome the Minister of State for Housing and Local Government’s recent announcement of the Government’s commitment to maintaining a robust homeless safety net. Very careful consideration would need to be given to any proposal to amend the statutory obligation on local authorities to house vulnerable people. (Paragraph 113)

19.

We welcome the Department’s assurance that it will engage with the Department for Communities and Local Government, local authorities, and the devolved administrations to assess the impact of the changes and provide appropriate support. However, it is essential that the Government considers the wider impact of the Housing Benefit changes on public services. It has been suggested that local authorities will experience increased pressures on their services as a result of these measures. The Government should monitor the costs to local government of the policy changes and be prepared to consider additional funding if necessary to ensure that appropriate support and services can be provided in the areas where people might find new accommodation. We recommend that the Department takes these broader considerations into account when estimating the likely savings to be achieved and overall taxpayer value for money. (Paragraph 121)

20.

We agree with the Government’s principle that Housing Benefit levels should be appropriate to what is affordable for people on low pay and should represent value for money for the taxpayer. However, we would not like to see Britain reduced to exclusively affluent and deprived neighbourhoods. A number of government departments have an interest in the issue of community cohesion. We recommend that the Government monitors the effect of the Housing Benefit changes on community cohesion and continues to help people on low incomes, both in and out of work, to live in communities which are socially mixed. (Paragraph 128)

Transitional arrangements and Discretionary Housing Payments 21.

We welcome the Government’s £50 million addition to the funding originally announced for Discretionary Housing Payments (DHP) in the June Budget, which brings the total amount of additional funding for DHP over the Spending Review period to £180 million. We note however, that the sum allocated is intended to provide a solution to a very wide range of identified areas of concern. We would therefore like to see further analysis of the anticipated demand for this funding, compared to the resources available, in order to understand the extent to which this fund can support benefit claimants through the transition period and help avoid evictions. We recommend that DWP carries out robust monitoring of DHP to ensure that any shortfalls and unmet needs are identified and acted upon swiftly. (Paragraph 140)

22.

Serious concern was expressed when the measures were first announced in the June 2010 Budget both about the inadequacy of transitional arrangements and the timetable for change. This would have meant that some households would potentially have been affected twice in 2011 by the changes to be introduced in April and then in October. We welcome the Government’s recognition of the depth of these concerns and its subsequent decision to allow existing claimants a transitional period of at least nine months. (Paragraph 147)

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23.

The welcome amendment to the timetable for change does not however lessen the obligation on the Government to support local authorities in communicating the changes to benefit recipients. We believe that it is essential that all households in receipt of Housing Benefit are giving clear information about how and when the changes will affect them. This may best be communicated in a letter giving specific details on what the new benefit rate for that household will be; from when it will apply; and, where relevant, the likely shortfall between the rent and the new benefit level. (Paragraph 148)

Private rented sector and responses to the proposed reforms 24.

The Government has suggested that lower benefits rates will not lead to increased levels of evictions and homelessness if tenants are able to make up the shortfall through other income or move to cheaper accommodation. The latter assumes that enough such affordable accommodation is available. However, evidence indicates that, in the context of a shortage of social housing and high demand for rental accommodation, this may not be the case. Tenants may be left with no other option but to accept overcrowded accommodation, or a dwelling that is otherwise unfit, or in a different location. We recommend that the Government carry out a review of how the changes are likely to impact on tenants’ ability to access the bottom third of the market. This review needs to be clearly aligned with an assessment of housing supply and demand below the 30th percentile of the market. (Paragraph 160)

25.

We accept that there will be a response by landlords to the lower LHA rates in terms of lowering rents, but the extent of that response cannot be accurately predicted. Moreover, the landlord response will vary from area to area depending on local market conditions, and the degree to which landlords have choice in securing tenants who do not rely on Housing Benefit, bearing in mind that the proportion of claimants within local private rented markets ranges from less than 10% to over 80%. The Department should monitor the extent to which tenants make up the difference and landlords accept lower rents in particular Broad Rental Market Areas and work closely with other government departments and with local government to ensure that adequate support is in place in areas where more tenants have to move home. (Paragraph 167)

26.

Some landlords may be willing to reduce rents in return for better security of payment, and landlords also stressed that direct payment would improve their confidence in the Housing Benefit market. It is likely that this would also increase the supply of private rented housing for Housing Benefit tenants. Direct payment to landlords could therefore be a useful bargaining tool for local authorities in trying to secure cheaper accommodation for clients. In that context, we welcome the Government’s recent announcement that it would temporarily widen the discretion of local authorities to make direct payments to landlords who are willing to reduce rents to a level that is affordable for claimants. (Paragraph 179)

27.

We note the important principles behind payments to claimants as supported by our predecessors. The Government’s plans to introduce a Universal Credit, bringing together in and out of work benefits, will rely on Housing Benefits being paid direct to the claimant. We believe that, both to retain this important principle and to help

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build landlord confidence in the sector, the Government should promote good practice schemes such as LetFirst in Edinburgh which brings together direct payments to the claimants and rental guarantee for the landlord. (Paragraph 180) Addressing barriers to work in the Housing Benefit system 28.

One of the Government’s stated objectives of the Housing Benefit reforms is to create a level-playing field between households in receipt of Housing Benefits and low-income working households (LIWH). We note that about 10% of LHA recipients are LIWH and that 50% of working people entitled to claim Housing Benefit are not claiming it. We believe that the Government should also recognise that households in receipt of Housing Benefit are also more likely to be older and lone parents households. Evidence also suggests that overall the “typical” levels of rent are quite similar for those receiving and not receiving Housing Benefit. (Paragraph 187)

29.

We agree with the Government’s objective of trying to address barriers to work in the benefit system. The evidence is very strong that the greatest barrier to employment is the complexity, confusion and limited net gains for claimants arising from a combination of taper rates and earnings disregards for benefits. We therefore welcome the principles behind the Universal Credit as set out in the recent White Paper. We intend to pursue issues arising from the proposals and look forward to seeing more details, including on how housing costs will be dealt with under the new scheme. However, we are concerned that the proposed reforms to Housing Benefit may contradict some of the objectives of Universal Credit. We recommend that the Government allow Housing Benefit to “run on”, as people move off benefit and into work, a measure which previously commended support from both sides of the House. (Paragraph 197)

30.

We are concerned about the potential impact of the 10% Housing Benefit cut on providers of hostels and supported accommodation. This measure is likely to have a negative impact on the financial viability of these providers, forcing them to close facilities or to evict clients on Jobseeker’s Allowance. We urge the Department to work closely with other government departments, with local government and with these organisations to ensure that they remain able to provide a place for homeless people to live and support them into work. (Paragraph 223)

31.

We note that the Government plans to cut Housing Benefit by 10% for those who have been claiming Jobseeker’s Allowance (JSA) for 12 months. We recognise that Housing Benefit has an important role to play in the decision to take a job and that the reduction by 10% after a year of job search will increase the net gain to a job seeker, from this lower base, when they eventually find work. Taken together with our proposal to “run on” Housing Benefit, this may provide an improved incentive to work. (Paragraph 227)

32.

A number of concerns have been expressed to us about other possible implications of the proposal to reduce Housing Benefit after 12 months on JSA:

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33.

x

It risks adding further complexity to the benefits system and thereby detracting from the Government’s plans to simplify working-age benefits, by moving to a Universal Credit.

x

It is not clear how it fits with the Government’s new welfare to work programme. Support from the Work Programme will only be available to many people once they have been claiming JSA for a year. They may therefore lose 10% of their Housing Benefit for being out of work before they have received the additional support they need to find a job which the Work Programme is intended to provide.

x

The number of people potentially affected by the 10% Housing Benefit reduction will be larger and more varied than the current Jobseeker’s Allowance client group, and will include more vulnerable people. This arises from two changes: the migration of a number of current Incapacity Benefit and Employment and Support Allowance claimants to JSA; and moving lone parents from Income Support to JSA when their youngest child reaches the age of 5, with the accompanying requirement to seek work.

x

It does not take account of the variations in availability of employment across different regions of the country, nor of a claimant’s particular suitability for the work available or of the greater barriers to work faced by some people, including disabled people, older people and lone parents. (Paragraph 228) We request that the Government provides us with information on how it plans to address these concerns, in its response to this Report. We would also be interested to hear about alternative measures it would be prepared to consider, which might offer a more nuanced approach, using targeted sanctions for those who refuse to engage in the process of finding employment, rather than a blanket approach for all JSA claimants. (Paragraph 229)

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Formal Minutes Wednesday 15 December 2010 AFTERNOON SITTING Members present: Miss Anne Begg, in the Chair Harriett Baldwin Andrew Bingham Karen Bradley

Alex Cunningham Kate Green Mr Oliver Heald

Draft Report Changes to Housing Benefit announced in the June 2010 Budget, proposed by the Chair, brought up and read. Ordered, That the draft Report be read a second time, paragraph by paragraph. Paragraphs 1 to 234 read and agreed to. Summary agreed to. Resolved, That the Report be the Second Report of the Committee to the House. Ordered, That the Chair make the Report to the House. Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134. Written evidence was ordered to be reported to the House for printing with the Report, together with written evidence reported and ordered to be published on 15 September.

[Adjourned till Monday 20 December at 4.30 pm.

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Witnesses Wednesday 20 October 2010

Page

Cllr Lib Peck, Lambeth Housing Lead Member, London Councils, Nigel Minto, Head of Sustainable Communities, London Councils, and Cllr Mike Haines, Teignbridge District Council, Deputy Chairman of LGA’s Environment and Housing Board, Local Government Association.

Ev 1

Richard Capie, Director of Policy and Practice, and Sam Lister, Policy and Practice Officer, Chartered Institute of Housing, Roger Harding, Head of Policy, Research and Public Affairs, Shelter, and Alex Fenton, Research Associate, Cambridge Centre for Housing and Planning Research, University of Cambridge.

Ev 8

Ian Fletcher, Director of Policy (Real Estate), British Property Federation, Chris Town, Director, and Richard Jones, Policy Director, Residential Landlords Association

Ev 17

Wednesday 3 November 2010 Lord Freud, Minister for Welfare Reform, Neil Couling, Benefit Strategy Director, and Paul Howarth, Divisional Manager, Housing Benefit Strategy Division, Department for Work and Pensions

Ev 20

List of printed written evidence 1

British Property Federation

Ev 38; Ev 42

2

Chartered Institute of Housing

Ev 44

3

Department for Work and Pensions

Ev 59

4

Local Government Association

Ev 66

5

London Councils

Ev 70

6

Residential Landlords Association

7

Shelter

Ev 86; Ev 107 Ev 107; Ev 112

List of additional written evidence (published in Volume II on the Committee’s website www.parliament.uk/workpencom) 1

Danny Hardie

Ev w1

2

Snowden Award Scheme

3

Zacchaeus Trust

4

Building and Social Housing Foundation

Ev w12

5

Notting Hill Housing Group

Ev w17

Ev w2 Ev w3; Ev w9

89

6

Royal National Institute of Blind People

Ev w21

7

Lister Housing Co-operative Ltd

Ev w24

8

Muscular Dystrophy Campaign

Ev w24

9

National Federation of Property Professionals

Ev w26

10

Catch22

Ev w27

11

South Yorkshire Housing Association

Ev w30

12

Citizens Advice Bureau

Ev w33

13

North West Landlords Association

Ev w39

14

Fast Trak Solutions

Ev w41

15

New Charter Housing Trust Group

Ev w45

16

The Riverside Group

Ev w49

17

East London Housing Partnership

Ev w51

18

London Borough of Camden

Ev w57

19

Papworth Trust

Ev w59

20

Brighton and Hove City Council

Ev w62

21

Mencap

Ev w68

22

Westminster Community Network

Ev w74

23

Durham County Council’s Revenues and Benefits and Welfare Rights Services Ev w76

24

Kirklees Council

Ev w79

25

Down’s Syndrome Association

Ev w83

26

Disability Benefits Consortium (DBC)

Ev w84

27

Crisis

Ev w86

28

London Borough of Islington

Ev w91

29

Family Action

Ev w96

30

Homeless Link

Ev w104

31

Loughborough University

Ev w110

32

Salvation Army

Ev w111

33

West London Housing Partnership

Ev w116

34

Peabody

Ev w121

35

Child Poverty Action Group

Ev w125

36

Age UK

Ev w129

37

Camden Federation of Private Tenants

Ev w134

38

The Mayor of London

Ev w135

39

Leonard Cheshire Disability

Ev w140

40

Paddington Citizens Advice Bureau

Ev w142

41

London Borough of Newham

Ev w144

42

Local Housing Allowance Reform Group

Ev w147

43

Barnardo’s

Ev w150

44

Resolution Foundation

Ev w151

45

Defend Council Housing

Ev w155

46

National Association of Welfare Rights Advisers

Ev w156

47

Birmingham City Council

Ev w158

48

Trades Union Congress

Ev w162

49

Housing Rights Service

Ev w168

50

Gingerbread

Ev w172

90

51

Westminster City Council

Ev w174

52

Guinness Northern Counties

Ev w177

53

Association of Housing Advice Services

Ev w180

54

National Federation of ALMOs

Ev w182

55

St Mungo’s

Ev w185

56

Contact a Family

Ev w188

57

Institute of Revenues Ratings and Valuation

Ev w192

58

Affinity Sutton

Ev w196

59

Council of Mortgage Lenders

Ev w199

60

Tameside Metropolitan Borough Council

Ev w200

61

Centrepoint

Ev w203

62

National Housing Federation

Ev w212

63

Scottish Federation of Housing Associations

Ev w224

64

Citizens Advice Northern Ireland

Ev w228

65

London Borough of Camden, Children Schools and Families Directorate

Ev w230

66

Equality and Human Rights Commission

Ev w234

67

Sunderland City Council

Ev w239

68

Law Centre(NI)

Ev w241

69

Royal Institution of Chartered Surveyors

Ev w245

70

Citizens Advice Scotland

Ev w247

71

Edinburgh City Council

Ev w250

91

List of Reports from the Committee during the current Parliament Session 2010–11 First Report

Youth Unemployment and the Future Jobs Fund

HC 472

Second Report

Changes to Housing Benefit announced in the June 2010 Budget

HC 469

Work and Pensions Committee: Evidence Ev 1

Oral evidence Taken before the Work and Pensions Committee on Wednesday 20 October 2010 Members present Miss Anne Begg (Chair) Harriett Baldwin Karen Bradley Richard Graham Kate Green

Mr Oliver Heald Sajid Javid Stephen Lloyd Shabana Mahmood ________________ Examination of Witnesses

Witnesses: Cllr Lib Peck, Lambeth Housing Lead Member, London Councils, Nigel Minto, Head of Sustainable Communities, London Councils, and Cllr Mike Haines, Teignbridge District Council, Deputy Chairman of LGA’s Environment and Housing Board, Local Government Association, gave evidence. Q1 Chair: Thank you very much for coming along this morning. May I begin by asking you to introduce yourselves for the record, please? Mike Haines: I am Cllr Mike Haines, Deputy Chair of the Local Government Association’s Environment and Housing Programme Board, and I am a district council executive member at Teignbridge District Council, which is in south Devon. The main settlement is Newton Abbot. Lib Peck: I am Lib Peck. I am a Labour councillor in Lambeth and have been since 2001. For the past two and a half years I have been the lead for housing there. Today, I am speaking on behalf of London Councils. Nigel Minto: My name is Nigel Minto. I am Head of Sustainable Communities at London Councils. I am an officer and work very closely with all 33 boroughs. That includes the housing directors but also the members in those boroughs. Chair: Thank you very much for coming along. This is the first formal evidence session of our inquiry into the proposed changes in Housing Benefit, and we have a number of questions for you. First, Harriett Baldwin will ask you some questions. Q2 Harriett Baldwin: Do you agree that there is an issue with the rising cost of Housing Benefit? The Government stated that one of their objectives in reforming Housing Benefit was to tackle the fact that costs had been growing fast. If you agree, do you think that the changes announced will help tackle that? Mike Haines: We would all wish to see benefit costs being affordable. The problem we see is the net effect it will have on the public purse in terms of more homelessness costs. Potentially it will increase the other social costs in terms of mental and physical healthcare, childcare and across those sorts of areas. The fact that it will cause problems for people in these circumstances is exacerbated at this time because of the whole situation of social housing. The number of houses coming into the Registered Social Landlords (RSL) sector is very low at the present time. There have been problems with that, albeit my own authority has managed significantly to boost the number in the past couple of years; it is up to about 150 compared

with only 50 to 80 in previous years. Obviously, we see that coming to a halt because of the grant situation hereafter and no market housing being built, of which social housing would be a proportion. The problem is that while this attempts to tackle the whole issue of benefit cost, it comes at a time of shrinkage in available alternative housing for people to move into if they cannot afford rent because they receive less benefit. Therefore, the two major concerns are: the wider public purse and the whole situation in the housing market. Lib Peck: We appreciate there is a clear issue about the financial backdrop with which all of us are grappling and the increase in the Housing Benefit budget, but that is made up of two factors: the private rental cost, so the charge by some of the landlords, but also increasing numbers of people who access that benefit. Sometimes that need is not played out perhaps as fully as it should be. Therefore, we recognise there is a problem, but the concern stems from the rather fast introduction of some of these changes and the compound effect of both the cap and the reduction from the 50th percentile to the 30th percentile and its impact in London where, obviously, market rents are very different from those in the rest of the country. Therefore, the impact on the supply of private sector accommodation for people who are homeless, or those we try to divert from homelessness, may well be affected. Clearly, there will be lots of individuals accessing that benefit who will not be able to live where they do now. Therefore, the most pressing concern for us is the potential number of people who will be made homeless as a result of these changes, which we estimate at around 83,000. That is a big figure. I appreciate the context in which these changes are being made, but the proposals are being brought forward very fast and could have disproportionate effects. Q3 Harriett Baldwin: You referred to 83,000 people being made homeless. Does that describe the process when someone has to move from perhaps a two to a one-bedroom property on a lower rent or the fact you do not believe that £250 a week for a one-bedroom property will be adequate to find anywhere?

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20 October 2010 Cllr Lib Peck, Nigel Minto and Cllr Mike Haines

Lib Peck: We are talking here about two things. I was not talking about 83,000 people but 83,000 households, so in terms of people we are talking of a lot more. In terms of people being made homeless, the statistic derives from the figures DWP put out for the number of people who would be affected by both the cap and the percentile change, but it was also in a sense put through the filter of a study done by London Councils with landlords, the Landlord Accreditation Scheme. They spoke to over 250 landlords and asked them what they would do in certain instances. If people stopped paying rent and were unable to meet a £20 shortfall would they evict them? How many of those are likely to withdraw from the market? The cumulative effect, and therefore the answer that came back in terms of statistics, was a figure in the region of 82,000 homes and families, and therefore potentially up to 250,00 people—a quarter of a million—would be affected. Therefore, they would be looking for alternative accommodation. For those people there might not be alternative accommodation available, certainly not in the central London area. Q4 Harriett Baldwin: So, the phrase “being made homeless” could also mean the need to move to somewhere less expensive in perhaps the outer boroughs of London as you say? Lib Peck: Yes, but in the first place it would mean having to move out of the place they were occupying and, we think it very likely, not being able to find, if this was somebody affected in central London, a property for the right amount of rent they would be able to afford, so there would be an initial problem with supply in the immediate area. If you move that into the outer boroughs you might also have tension around availability of stock. For example, if someone was made homeless in the central area of London and came to Lambeth, which is the borough I represent— I do not represent it today—we have 22,000 people on our waiting list who are looking for a change in their properties. There is no opportunity for us to be able to house a substantial increase in homeless people. That is a big contrast. At the moment, potentially it could affect 250,000 people. I am trying not to sound alarmist. These figures were drawn from the DWP projections and based on research done by London Councils around the landlord survey. That is set against last year’s homeless figure of 9,500. Q5 Harriett Baldwin: Perhaps I may drill down a little. You keep using the phrase “being made homeless” which for me has the emotional connotation that you will have to be in a cardboard box under a bridge. You are using that interchangeably with being required to leave the current accommodation or finding that the current accommodation is not affordable under the new limits and having to move to somewhere at a lower rent. Are you using those as equivalents? Nigel Minto: Shall I put this into context? The 82,000 to 83,000 figure is clearly an estimate, but it is one that we have arrived at independently. We arrived at that figure partly in order to prep the boroughs.

Q6 Harriett Baldwin: I am not questioning the figure; I am trying to understand your definition of “being made homeless”. Nigel Minto: The people who will have to move from the central broad market rental area comprise a significant number of people who have been placed in the private rented sector by the local authority, but there will also be households that have approached a local authority and said, “Look, we think we might be homeless.” The local authority has worked with that household and found that it is not statutorily homeless at that time and has directed it into the private rented sector to provide accommodation. A good way to look at it is to consider the overall number of people in temporary accommodation in London compared with four or five years ago when it was about 70,000. It is now down to 35,000 because local authorities work very closely with the private rented sector. The private rented sector has been a key aspect in reducing homelessness in London in terms of placing people who are homeless or on the verge of being homeless. That is where we are coming from with that figure in terms of the number of people who are in that accommodation. There will be a significant number who will be physically homeless. Q7 Harriett Baldwin: But is that number 83,000? Nigel Minto: The simple answer is that we do not know at the moment. We are working closely with the directors of housing and the boroughs to get a handle on that figure. It is fair to say that is our working assumption at the moment, and that figure will become clearer as we move down the track in terms of time. Q8 Harriett Baldwin: Is there another number greater than 83,000 for those people who will move into less expensive accommodation, or does that figure encompass everyone who will move into less expensive accommodation and those who may not be able to find accommodation at that level? Nigel Minto: We have not sized it up in that way because as an organisation we represent the boroughs that manage policy changes, and look at the likely movement of households and the impact on local authorities in outer London. Q9 Harriett Baldwin: So, the 83,000 includes the movement of households and potentially homeless people? Nigel Minto: Yes. Q10 Harriett Baldwin: But the 83,000 is the umbrella number for that, as opposed to the description of “being made homeless”? Lib Peck: But it is not the total number of people affected. Over 160,000 households will be affected by the changes, and it includes what we think will be the severest impact that could result in people thinking they are about to be made homeless and therefore presenting themselves as potentially homeless, or those people being homeless. It is quite difficult to chart the start and end of a person’s journey, but there is a sophistication in that 160,000 will be affected and

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20 October 2010 Cllr Lib Peck, Nigel Minto and Cllr Mike Haines

we think half of them will be affected very profoundly. Q11 Harriett Baldwin: One of the other objectives of the Government is to try to create a more level playing field between someone who is in low-paid work and someone who is not working at the moment and in receipt of Housing Benefit. I find it much easier to work with particular examples. Let us take as an example someone who is working in a nursery near Waterloo station in London. Yesterday the Committee made a very useful visit to the Citizens Advice Bureau where we met specific individuals, all of whom were currently in private rented accommodation, who would be affected by these changes. One of the people we met was single, with grown-up children who had moved away and were working. That person, in twobedroom accommodation in central London with a weekly rent of £400, had been offered nursery work but found that, obviously, the net impact on the household would have been such that it would not have been attractive. It was much more attractive to stay in the current two-bedroom accommodation at £400 a week and not work than to take that low-paid work. One of the things the Government is looking at is the person who has taken that nursery job and whose taxes effectively go to pay for someone in twobedroom accommodation in central London who is not working. Do you think the changes potentially could make a more level playing field between those two individuals? Nigel Minto: Quite possibly, we are mixing up a number of things here. The first is the current Housing Benefit system, its transparency and the ability to understand it, but also the disincentives built into it, particularly in terms of the Housing Benefit thresholds. Very often they will disincentivise a householder from returning back to work because of the amount of money that is lost. As an organisation we have been campaigning on the need to remove those disincentives. If any reform of Housing Benefit system made it more transparent and removed those disincentives, we would support it, I imagine. The second issue is the perception that the majority of people who are on Housing Benefit are not in work. That is not the case. There are significant numbers of households with families, particularly in central London, on very low incomes. Our concern is that they need to be near to their area of work, particularly because they will not be able readily to afford transport costs. Essentially, the households that need to be near their work will have to move further away from it. Quite possibly, they might lose their work, but if they have to move away from work they will need to find alternative accommodation with all those costs. Essentially, what you are saying is that potentially nobody on a low income will be able to afford anything in the private rented sector in central London. We are talking here of seven boroughs, not just all of Westminster and Kensington and Chelsea but parts of Camden, Hackney, Islington, Brent and Tower Hamlets. It is of that significance. Q12 Mr Heald: One of the points made to us by Westminster Citizens Advice Bureau is that the effect

of putting a cap on rents may well be that rents in central London reduce, which is something Westminster Council has also said. The British Property Federation has also suggested there is evidence that private sector landlords have increased rents with the introduction of the LHA; that the average Housing Benefit reward is £9 a week higher than previously, and so on. There is a lot of evidence that a substantial number of landlords will reduce rents as a result of this change. If that happens is it an assumption you have made in the comments you have just put forward? Lib Peck: I just wonder whether it is worth going back to the landlord survey that London Councils did with the accreditation scheme, just to confuse the picture slightly. At the moment about 260 landlords are involved in private rented accommodation, and some clearly have more than one property. There is a whole range of different property sizes. When questioned, a fairly significant proportion of them were looking at withdrawing from the private rented market for people in receipt of Housing Benefits. Certainly, 90% of those questioned said that if there was a disparity of £20 or more in the rent per week they would look elsewhere. I think 60% were talking about £10 or more. When you look at the impact of that percentile reduction from 50 to 30 in central London you begin to see, therefore, that there is a real problem of availability of accommodation. I suppose part of the argument of London Councils is that not only is there an issue about some of the people in this accommodation being unable to afford properties and being moved out but also a potential issue about the availability of private rented sector accommodation on which we have relied over a long period of time because of the shortage in the capital. Q13 Mr Heald: But that was not the question, which was about the effect of the something like 29% of residential landlords—I think the figure from the Cambridge study done by Shelter suggested something like 31%—who would either reduce or accept lower rent. What is the effect of that likely to be on the rental market? Surely, it will have an impact. Nigel Minto: We cannot assume that all landlords will reduce their rents; some landlords will reduce their rent. Our survey indicated that 60% of the landlords we surveyed would not reduce their rent within the central broad market rental area for the reason that it is a very buoyant market. You only need to reference the Evening Standard last week, which said that the whole issue about younger people being unable to access owner-occupation was pushing up rental prices in London. That is very clear evidence. Q14 Mr Heald: Let’s just look at it from the other end of the telescope. If 40% reduce their rents, if that is what you say, do you say that will not have an overall effect on the market? Surely, it will. Nigel Minto: Quite possibly it will have some effect on the market, but at this stage we cannot accurately predict in what area and what size it will be.

Ev 4 Work and Pensions Committee: Evidence

20 October 2010 Cllr Lib Peck, Nigel Minto and Cllr Mike Haines

Chair: We have the landlords coming in as well. I am conscious of the time. I will take Kate and Richard, but keep your questions short, please. Q15 Kate Green: I just wonder whether you can say anything about the different kinds of accommodation we are discussing here. My reading of some of the evidence we have received is that landlords might reduce rent at around the £10 to £20 mark, but that was much less likely for large properties. Picking up Nigel’s point about the fact we have a cadre of young professional people who are also in the market for smaller properties in central London, can you expand on what you think will be the differential impact on family homes and smaller homes in the capital? Nigel Minto: To start with family homes, probably family size homes are the ones about which we are most concerned because they are in shortest supply in London both within the private rented sector but also the social sector. Future changes proposed by the Government in terms of Housing Benefit will provide an incentive for people to over-occupy properties when they need larger ones. The abolition of the fiveand six-bedroom rate, with a cap at the four-bedroom rate, will mean that larger households will need to overcrowd in smaller sized accommodation. This is inextricably linked with the level of child poverty in London particularly in terms of larger households. Those households will be the most vulnerable in terms of moving from central to outer London. Lib Peck: To add to that, one of the things about which we are particularly concerned is, obviously, the impact in London. I think a quarter of the homes that will be affected because of the cap on four-bedrooms and the abolition of five-bedrooms are in London, which is quite a lot compared with the rest of the country. Potentially, the unintended consequence of that is to push families outside the centre of London. We are already experiencing pressures on primary school places in boroughs like Lambeth and other areas of the South that are ill-equipped to deal with them. I suppose it then becomes a bit more of a costshunting exercise rather than necessarily a financial saving, if it is viewed in the longer term. Mike Haines: Can I come back to areas outside London? In trying to answer the question earlier on, I recognise that London will be perhaps the worst affected area, but we have evidence from places like Brighton and Hove, for example, where, to come back to your earlier point, 35% of the LHA claimants are from working households. The problem for Brighton and Hove is that about 43% of the total private rented sector are people in the benefits section, so with a 30th percentile a lot of them would still be above that and just could not afford it. There are problems elsewhere, not just in London, that need to be examined. To come back to the “young professionals” point, Oxford is a good example of that. We have evidence that in Oxford itself prices will be a lot higher and people on benefits cannot afford that; they have to go to the rural surrounds. If they are to work they have to bear the transport costs to commute in because young professionals and others are able to afford higher rents. There is always a differential in the level of rents within the broad rental market area because of

where the jobs are and people wish to be. That forces the people on benefits out into the margins and they have to come in. I want to make sure you are not focusing just on London, although I recognise that is a big problem. Chair: We did have later questions about London, and we have probably answered them now. Q16 Harriett Baldwin: I go back to the example I gave earlier about someone living on their own in SW1 who pays a rent of £400 a week. That is accommodation someone on low-paid work simply cannot afford, and it is considerably above what MPs are allowed to claim for a second home in SW1. Do you think it is right that the Government is trying to create a more level playing field for someone in lowpaid work who would never be able to afford that kind of accommodation? Mike Haines: As Nigel says, it is part of the overall package, and I think that 21st Century Welfare reform needs to look at this as a whole and not necessarily approach it by this particular route.1 Q17 Harriett Baldwin: What would you do? Lib Peck: You are recognising that there is a problem, and that’s fine, but I think the solution that has been identified is being introduced very quickly and gives us a lot of concern about the unintended consequences, both financial in terms of cost-shunting and social in terms of moving people around and the pressures that might put on other local authorities. Q18 Harriett Baldwin: But what would you do differently? Nigel Minto: To reiterate some of the lobbying points we put in our evidence, one is to focus on the Discretionary Housing pot; the other is to give boroughs discretion when they award Local Housing Allowance to negotiate with landlords to try to drive down their rates, because it is not the applicants who get this money but the landlords. That discretion, which could be used as a stick to drive down the rates, could be available to local authorities to pay landlords rent direct, so it is a bit of a two-way process. Q19 Harriett Baldwin: So, the preference or default option is that the money goes straight to the landlord? Nigel Minto: Yes, but it is conditional. Nobody disagrees that we need to drive down some of those higher rent levels. The issue is: what can we do in a negotiating position from the local authority perspective to negotiate with those landlords and get them to drive down their rates? Clearly, there needs to be something in it for the landlords. Rent paid direct does save the landlord money in terms of managing the risk of collecting the rent from the tenant etc, but it can also be used as part of a wider procurement strategy by the local authority when it procures private sector rental stock from landlords. It is a matter of having the stick and the carrot but using it in a more managed, progressive way over a longer period of time so you can begin to get to the state where I sense your question is directing it towards. 1

The Government’s proposal for a single working-age benefit—21st Century Welfare, DWP, July 2010 Cm 7913

Work and Pensions Committee: Evidence Ev 5

20 October 2010 Cllr Lib Peck, Nigel Minto and Cllr Mike Haines

Chair: Richard, do you want to ask your question or has it already been answered? I am conscious of the time; we might want to move on.

of house and the value of that rental property? Has anyone done any survey of that sort? Lib Peck: No.

Q20 Richard Graham: Yes. I just wanted to come in fairly quickly, if I might, on two or three very quick specific things. Firstly, in terms of surveying local landlords and asking them whether they would reduce their rental charges or not, I think you mentioned 60% said they would not. Isn’t there an element here of, “Well, they would say that, wouldn’t they?” When we saw the Royal Institution of Chartered Surveyors (RICS) yesterday it was pretty clear that, interviewing people close up, if they are asked that in a survey, that is what they are going to say. So would you agree that is not evidence; it is just how they would reply if you asked them that question? Nigel Minto: Let me give you some evidence. I accept that point; “Well, they would say that, wouldn’t they?” Richard Graham: Do you accept the general point that a survey of future intentions is not evidence? If you do a consumer confidence survey and 60% of the people tell you that they are not confident of the direction an economy is going, that does not mean an economy is going up, down or sideways; it just tells you how they are feeling on that particular day. Nigel Minto: No, not wholly, because you need to see the survey in the wider context. I referenced the Evening Standard report, which I think was based on the regular monitoring of rents in London; it said that rents were going up, number one. I would also reference it against—

Q24 Richard Graham: Okay. Lastly, I think there was a suggestion from Mike that some of these things are being moved too fast. As I understand it, the Housing Benefit award reduced to 90% of the initial award will come in in April 2013. That is two and two-thirds years from now. Would you not agree that that is quite a long time to prepare for that change? Mike Haines: That is for the Jobseeker’s Allowance reduction. Richard Graham: Yes. Mike Haines: Yes. That is a long time, but we are talking about other things coming in in April of 2011.

Q21 Richard Graham: Sorry, excuse me. That is not the same point at all. Whether the rents are going up in London at the moment factually is not the same as asking a landlord whether he would reduce his rents if the housing allowance went down. Nigel Minto: Let me move on to my second point. Q22 Richard Graham: But do you accept that? Nigel Minto: Well, let me move on to my second point, in terms of referencing it to feedback we are getting back from Directors of Housing from the 33 London boroughs. The 33 London boroughs are working with private landlords on a daily basis, and the feedback we have been getting from them since July and August—and this is increasing now as landlords are becoming more and more aware of the changes—is that landlords are beginning to move tenants out and are saying to local authorities, “We will not reduce our rents.” Q23 Richard Graham: Okay. Lib Peck: Can I just add to that, sorry? Richard Graham: Well I don’t think you have really answered that question, so let’s move on to the next one; we’ll have another go at something else. In terms of surveys, have any of you surveyed residents in London boroughs to ask them whether they think it is reasonable that an absolute cap is imposed on some of the higher-bedroom properties, or whether they believe, the majority of residents in these areas, that it is right and proper that people who are unemployed, who are on benefits, should have no cap on the size

Q25 Richard Graham: So you don’t have a problem with that one; it is the stuff that comes in in April next year? Mike Haines: Well, given that there is the 21st Century Welfare review going on, it just seems that if that is all being looked at then this could be considered as part of that and it would allow the whole issue to be considered without doing part of it and having to perhaps come back and revisit that. Lib Peck: I think it is the double whammy of changes coming in in April 2011 and then in October 2011— so the caps and then the percentile decrease from 50% to 30%—that we are very concerned about, and that is what we are saying impacts on 160,000 households in London, and the fact that both of those are within a six-month period. There obviously are other things further on down the line that could be of equal concern, but it is just that is a very short period of time. Can I just very quickly come back to your first point around the landlords survey? Richard Graham: Yes. Lib Peck: In Lambeth at the moment, for the first time in 15 months we have seen 11 families go into bed and breakfasts for the last two weeks, and that is primarily because of private landlords withdrawing their stock from the market. That is a genuine concern for us; about them abandoning— Richard Graham: So let me put the question back to you— Chair: Richard, I am going to stop you there, because we have 10 minutes left and we have two more sections to go with this set of witnesses. So I am going to move to Sajid. I think some of the questions have been asked, but I am sure in the questions about the shortfalls and his questions on the system might pick up on what has been said. Q26 Sajid Javid: Thank you, Chair and thank you all for coming in. Some of these points you have already raised, so I won’t go through all the questions we intended, because you have mentioned some of the points, but it has come back to this issue of shortfalls, evictions and homelessness. Certainly I have sensed in the panel a liberal use of these terms so far, because to me homelessness is someone who hasn’t got a roof over their head. Right? Homelessness is not someone who may have to move their house; they may even get evicted from their house and they may prefer a

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20 October 2010 Cllr Lib Peck, Nigel Minto and Cllr Mike Haines

larger roof over their head, but they still have a roof over their head. So I would like to split it into two parts. One is—to the extent that you can speak about it, Mr Haines—about outside London, and one in London. If we just start with outside London. In your area, what do you think the impact would be of these changes that would come in both in April and October on homelessness and evictions? Mike Haines: Right. Well I have the breakdown of the figures of how it is going to affect people in my district and I do not want to burden you with those. Sajid Javid: Yes; just more general. Mike Haines: Yes. At the moment we have a budget of I think £194,000 for the temporary accommodation we have to find during the course of the year, so inevitably when families find themselves homeless then it is the local authority’s job to find them accommodation in the short term and then the longer term, and that has a cost to it. I have just given you the budget figure we have in my authority for the year on that; between £300 and £400 a week is what we pay to keep a family in a bed and breakfast. I think inevitably, looking at the figures—which can be given for any authority but I can quote my own—you are looking at £500 per household average losing the £15 and then a similar sort of amount when you go to the 30th percentile. So that sort of amount, inevitably the figures are going to show that more households are going to be looking for other accommodation. I do not want to rehearse the arguments again, but it is going to add a cost to local authorities. This comes back to my original point, that it is all part of the public purse, and while money might be saved by not paying the level of Housing Benefit in the first place, there will be an extra cost and just part of that will be the inevitable need to increase that figure of £194,000 to find homeless accommodation. Q27 Sajid Javid: Do you not think that it will only be in exceptional cases that people can’t find an alternative home that has a cheaper rent, so that an increase in homelessness would be only in exceptional cases? Even in that case, the Government has proposed an increase in Discretionary Housing Payments as well to try to help with something like that. Mike Haines: I think we get about £40,000 a year of discretionary payments in my own authority, but I understand that the large bulk of what you are proposing will go to the London authorities; I think I have seen that in writing somewhere. While local authorities themselves can put money towards that in the ratio of three to two, because as one will hear shortly, our budgets are being reduced anyway, then we just will not have the money to back that up ourselves as well. So I think that is what we see as happening; that we will have higher costs and the overall cost to the public purse will be greater. Q28 Kate Green: Would you answer point? Will people be able to find accommodation without going down the extra cost to the local authority? Mike Haines: Well again, it may be landlords will go to more homes

Sajid’s first lower cost route of this that private in multiple

occupation to get smaller units. That may happen; we certainly do have old hotels in my authority that they might decide to do that with. However, because we are not having the building taking place and we do not have the RSLs coming along and the population is actually getting higher and housing density is gradually reducing, then inevitably there is going to be a lack of accommodation for people to go to. They may have to move to neighbouring authorities where there might be housing available. Q29 Sajid Javid: They may have to. There may well be plenty of people who will have to move, and they may have to leave their area, but that is not going to create homelessness and it is not going to increase costs for the Council. Mike Haines: No, that would not, but that may cause other social impacts in terms of communities and families. In terms of homelessness, we will have to see what happens. We believe that it will increase our costs in terms of having to spend on homelessness. Q30 Sajid Javid: Okay. Can we just turn to the London area? You used the figure of 82,000 before. Did you mean homelessness, or did you mean something else? Lib Peck: Well I think we went through this particular argument. I think we were talking about people who would have to move who we would classify at the first point as being homeless. Obviously, from the implication of your question, you think that they might be able to find alternative accommodation easily. I think I would be less reassured by that, to be honest. One of the things I would want to highlight is the shortage in the central London boroughs then of accommodation that people could afford. One of the searches that London Councils did was, looking at those central seven boroughs that we talked about previously, how many of those properties between two and four bedrooms would be available for people. They came up with a figure of 261 would be available. There is a caseload at the moment of around 9,000. So people inevitably will be moved out of those central London boroughs. Whether then all of them become homeless for any given period of time none of us know, but there is certainly that potential. What that then does is push costs and push social pressure into areas where it has not previously been recognised. If it comes into boroughs such as Lambeth, where there are already problems with primary school places, there is already a very high social need and there is already very reduced supply of affordable accommodation, that brings some problems; if it goes to the outer boroughs as well, where I think they are probably even less geared up for dealing with that kind of influx of people, I think that brings further pressure. That is social pressure, but it is also financial, and therefore I think there is a real issue about the savings that we might see up front disappearing when you look at the impact of it overall. Nigel Minto: I think the other issue with respect to homelessness is that borough officers working with the members have to see six to nine months into the future and they need to prepare for any eventuality in their role as prudent officers. Boroughs have been

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20 October 2010 Cllr Lib Peck, Nigel Minto and Cllr Mike Haines

tooling up since the summer in terms of procuring bed and breakfast accommodation and some of the central London boroughs have been doing block bookings in outer London, because they know they will not have the accommodation available in central London in the private rented sector that they would normally lease and in which they would normally place people. So number one is that they have to get some property. Bed and breakfast is only used in extremis in terms of an overnight stay because of all the issues with respect to social cohesion and families and doctors. So number one, we are seeing a move into bed and breakfast on a longer term. The second issue is that boroughs have been procuring private rented stock outside of London because they cannot procure it in London. We are looking at Luton, we are looking at Watford, we are looking at Slough, we are looking at Reading—somebody mentioned Hastings, an area that boroughs have used in the past—because there will not be that availability of private rented stock in London that they can use. Q31 Kate Green: And what is the problem with that? Nigel Minto: What, with placing households outside of London? Kate Green: Yes. Nigel Minto: Well, there is the whole disruption in terms of children’s education; there is a whole disruption in terms of people potentially losing their job; there is a whole issue in terms of the extra stress and the extra cost that would be placed on boroughs outside of London that would not be expecting an influx of people. Q32 Karen Bradley: I think all this has been very useful and interesting, but looking to you for suggestions now, what could the Government do to help support those local authorities in the areas that you think the Housing Benefit claimants may end up moving to, to support them with things like local schools, hospitals and other public services? Nigel Minto: There are two sides to this. One is an increase in the Discretionary Housing Payments pot. We have been advocating that as a way of better managing this process. We are not advocating an increase in the Discretionary Housing pot to supplant a significant reduction in Local Housing Allowance on a long-term basis. The reason we have been arguing that is: one, to try to keep households in an area on a short-term basis—it might be three to six months, where you have kids in a particular school, you have support from particular social services in an area, somebody has a job in that area— in order that they can make arrangements to move to another area of London. The second issue is about resources for the local authorities in terms of staff to facilitate that process. Because there is an issue with respect to the—I don’t like the term “exporting borough”—but the borough where the officers are looking at households that will need to move, in terms of providing support for those

households in a structured and ordered way and then the support for authorities that might very well be receiving people moving across London. Particularly in terms of working with them to find accommodation in the private rented sector, working with them to support them on rent deposit schemes and suchlike. Q33 Karen Bradley: Okay. So you feel that it is the Discretionary Housing pot that would be the most useful. One of the suggestions the Citizens Advice have given is to effectively “grandfather” existing rental contracts so that the impact of the changes does not come in until there is a break clause at a reasonable point in time beyond the date of the changes for new leases. Do you think that that would be an effective way to solve the issue? Nigel Minto: I think it would be one of the effective ways, yes. It has to be part of a portfolio of solutions. Lib Peck: I think Nigel referred earlier to some of the other measures, talking about obviously borough discretion not to pay some exorbitant rents would be one key thing; making sure that in some cases direct payments to landlords are also made to give them some incentive to keep in the private sector market for people in receipt of HB; obviously the Discretionary Housing Payments pot. While welcoming the £10 million increase this year, I do not think that is going to touch the sides in terms of the problem we are going to have in London; we are looking much more realistically at £18 million absolute minimum and possibly up to £38 million being important. I think those would be the key things. Mike Haines: The LGA is considering making a case for new burdens funding, which we would obviously then present to Department for Communities and Local Government (CLG), because of the extra costs we see falling on us. Clearly, if that is demonstrated to be the case then there would have to be more monies found for the new burdens. So that is a way in which it will be addressed in addition to what is being suggested. Nigel Minto: We are in the process of surveying borough Housing Directors at the moment in terms of what would be the expected additional staffing costs for the inner London and outer London boroughs and what would be the expected cost of additional rent deposits in terms of relocating people. I think we have had about 13 responses in from the boroughs and at the moment, we are just over £10 million. Now, I am not saying the figure would be £20 million or £25 million for London, but it is a substantial amount of money just in terms of the borough staffing costs to try to keep people within a particular area on a short-term basis, and resettle people in the private rented sector, be it in other parts of London or outside of London. Chair: Thank you very much for that. Obviously solutions are good for us as well, so thank you for that. We will move on to the next set of witnesses, but thank you very much for coming this morning.

Ev 8 Work and Pensions Committee: Evidence

20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

Examination of Witnesses Witnesses: Mr Richard Capie, Director of Policy and Practice and Mr Sam Lister, Policy and Practice Officer, Chartered Institute of Housing, Mr Roger Harding, Head of Policy, Research and Public Affairs, Shelter, and Mr Alex Fenton, Research Associate, Cambridge Centre for Housing and Planning Research, University of Cambridge, gave evidence. Q34 Chair: We have three sets of witnesses this morning and there is something called the Comprehensive Spending Review later on—I am not quite sure why people are in a hurry to get to that— but obviously we do not have a lot of time and I am sure, if the first set of witnesses is anything to go by, we could have spent at least twice the length of time that we have today. May I begin by asking you to introduce yourselves for the record? We’ll start with you, Roger. Roger Harding: Roger Harding, Head of Policy Research and Public Affairs at Shelter, the national housing and homelessness charity. Alex Fenton: I am Alex Fenton from the University of Cambridge Centre for Housing and Planning Research. Sam Lister: I am Sam Lister, Policy and Practice Officer at the Chartered Institute of Housing. Richard Capie: I am Richard Capie. I am Director of Policy and Practice at the Chartered Institute of Housing. We are the professional body for people working in housing, so both landlords and the local authority and housing association sector, but also, importantly in relation to this inquiry, local authority officers who are involved in the administration of Housing Benefit. Chair: Thank you very much. Shabana.

and they have created this idea of people on £26,000, which is the average income—that people on those kinds of levels of income do not get any access to benefits. Now, if the cap comes in, it will start to bite for large families, so families with five children will be affected and probably as low down as four or five children. Now, if you are earning £26,000 and you have five children, you would be entitled to tax credits of £9,000 a year; you would also be entitled to Child Benefit of £3,482 a year. If your rent was more than £68 a week, then in theory you would get help through Housing Benefit; and if your Council Tax was more than £1,100 you would be entitled to Council Tax benefit too. Harriett Baldwin: Can I just clarify? My understanding is that it is £26,000 net, so £35,000 gross, approximately. Sam Lister: Well, the point I am making is that those people on those kinds of levels of income are entitled to benefits as well. It is nonsense to say that people have an unequal playing field in terms of what access they have to accommodation, because Housing Benefit is an in-work benefit as well, so you should be able to access it. That comes to Roger’s point, that only about 40% of those who are entitled, who are in work, actually claim it. Those are the DWP’s own figures.

Q35 Shabana Mahmood: It is a question we put to the previous set of witnesses, so the same one to you. One of the Government’s objectives for reform to Housing Benefit is to create a level playing field between people who receive the benefit and those who are on low incomes. Do you accept that objective? Roger Harding: I accept the objective, but I just do not agree that there is an unlevel playing field at the moment. First of all, that is often couched in terms of people who are employed and people who are unemployed, and it is important to recognise there are a lot of claimants of LHA who are pensioners or people with disabilities who are unable to work. So it is not necessarily a like-for-like comparison. Taking that question straight on, it is not a level playing field at the moment because although theoretically rents allow people to access up to the 50th percentile of rent, we find that landlord supply is quite restricted because of the administrative burden and risk that often goes with renting to claimants. We often find because of that as well that the quality of accommodation that LHA claimants get for the same price is lower than non-claimants. By the DWP’s own estimates, there are potentially up to 590,000 working households who could claim LHA but do not, suggesting therefore that it is not currently an unequal playing field in favour of claimants, otherwise there would be a large number of people who would be claiming. Sam Lister: Roger makes an important point there, that the assumption behind the level playing field is—

Q36 Shabana Mahmood: Do any of the rest of you have anything to add? Alex Fenton: No. Richard Capie: No. Q37 Shabana Mahmood: Okay. The Government is proposing to reduce Housing Benefit by 10% for JSA claimants who are getting that benefit but have been getting JSA for a year. Do you think that cutting entitlement to Housing Benefit like this is an effective way of improving incentives to work? Alex Fenton: I suppose it presupposes that the main reason that people are claiming JSA for a long time is that they are unwilling to work rather than unable to find work. If you look at the figures for people who have been claiming JSA for over a year, they have more than doubled since 2008 to 2010; from September of those two years. In some regions they have more than tripled. So I think I would suggest that that is not to do with decreasing incentives to work, but rather the obvious effects of the economic recession. Similarly, the rates of people that are claiming longterm—12 months plus—JSA vary very widely between regions. That is very strongly correlated with the availability of jobs in different regions, so in regions like the North East, Wales and Yorkshire and Humber, for example, a lot more people are chasing a lot fewer jobs because of those regions having lower

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20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

economic growth compared with places like the South East and London. What I would suggest is that a lot of the reason that people are claiming JSA over the long term is not that they are unwilling to work, but that there are structural and cyclical factors like the economic downturn that explain why they are doing that. So if the reason is not that they are unwilling to work, then it is not going to act as much of an incentive; it is going to be more punitive to the majority of those who are genuinely seeking work but are not able to find it. Richard Capie: Part of what we talked about in our submission was the cumulative impact of these changes. So on the one hand you are in effect saying to people, “You are going to have to move into cheaper housing market areas.” There is a correlation between those cheaper housing market areas and the employment opportunities that are available, so on the one hand you are saying, “We are going to actually cut the amount of benefit you are going to receive if you can’t find work”; on the other hand, we have an imperative which is saying, “You must move into those areas where jobs don’t exist.” I think that is something that is a grave concern in some of these proposals. Roger Harding: If I could just finally add as well, it is a slightly odd thing to use Housing Benefit for that reason rather than using JSA itself. There is a lot of work that has been done by the previous Government on JSA to put sanctions in place and incentives for people to work. Obviously your need for housing does not change if you are employed or unemployed to that degree, so it is a very odd lever to use, given that it is related to housing and not employment. Sam Lister: I think the problem is that it is indiscriminate. It takes no account of the efforts that people are making to get into work and, as has been pointed out, there is a strong correlation between economic performance and the numbers of people who have been out of work for 12 months. Looking at just the JSA figures, for example, you must be very concerned about this, because your constituency comes out by far the worst— Shabana Mahmood: Yes, absolutely. We’re one of the— Sam Lister:—at 2,460 long-term JSA claimants, whereas compared with Anne Begg’s it is 105. So if the implication is that long-termness on benefit is an indication of how hard people are trying, that means that people in Birmingham are 23 times lazier than they are in Aberdeen. I find that pretty implausible, frankly. Q38 Shabana Mahmood: So do I. That is what I was really driving at, in the sense of the labour market in Birmingham Ladywood does not offer the opportunities to my constituents to be able to find work and that has nothing to do with their Housing Benefit levels. I think there are also obviously practical problems with this proposal. If you are moving further away in order to access your work, then that has an impact on childcare and so on as well, and travel costs, which are a real problem for people in my constituency as well. Would you agree, just

looking at Housing Benefit specifically, that it has to be reformed in order to improve work incentive? Richard Capie: Absolutely. I do not think anybody has an issue with that. Certainly, a lot of work that has been done in recent years by our respective organisations has advocated change. Some of the changes I think advocated in 21st Century Welfare, for example, would be beneficial in supporting that. I think everybody is quite enthusiastic about some of those measures and indeed some of the proposals that were considered by the previous administration around extended payments; there are some very, very good ideas out there, which I think would be very, very constructive in supporting people to secure employment. After all, going back to that original question, I think the best way to drive down the benefit bill is actually to get people into work that is sustainable. I think what is concerning about this is that we are moving the support that we pay families and individuals for their housing costs into a very, very different realm. As you said, that means you could have a wide range of impacts, in particular at the community level. For example, I think one of the things that we are aware that the Government is very enthusiastic about is building social capital: taking greater advantage of things like local networks around childcare, about supporting children to be able to do very well in their local schools. A pupil premium is not much help if you are forcing people to leave the area halfway through their school year. We need to look at this quite realistically in terms of what some of the societal impacts will be. Roger Harding: If I could just add to that as well, we would support some of the suggestions made in 21st Century Welfare about improving work incentives as they are currently laid out, such as unifying and improving the taper of when benefit is withdrawn when people increase their income. As Richard says, one of the biggest concerns about the measures from the Emergency Budget is that what you will see is people moving into poorer areas and areas away from employment opportunities. So while the potential benefit incentives may improve, the geographical ability for people to gain employment reduces quite considerably. Richard Capie: I would say that you could say that the proposals that came through in June—and I suspect we are going to see more of that this afternoon in terms of additional cuts—run contrary to what 21st Century Welfare is trying to achieve. There is a contradiction there, and the measures from June, for example, will undermine some of the very bold ambitions that the Government wishes to take forward around wider welfare reform. Sam Lister: I just want to add: on the JSA figures, if you look just at the numbers as they are, in some areas they don’t look too bad at all, and I think some people have been quite surprised by the number of long-term claimants, in that it looks quite low. What we don’t know at the moment is how people are going to be treated who are moved off in the migration process from Incapacity Benefit and Severe Disablement Allowance on to Jobseekers Allowance. So, there will be some who fall through the net there.

Ev 10 Work and Pensions Committee: Evidence

20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

Also, the previous administration has this plan, which I assume is still going ahead, to end Income Support and move the rest of those groups off, so lone parents, other long-term sick and carers. Now, the plan was to put those people on what was called Modified JSA, which is basically Jobseekers Allowance without the full labour market conditions. What we don’t know at this stage is what the Government’s decision is going to be in terms of how those claimants will be treated. Will they be treated in exactly the same way as those who are subject to the full labour market conditions? The numbers of people on Incapacity Benefit, when you look at those against some of the areas where the long-term JSA figures don’t look so bad, start to look pretty bad as well. So, for example, in your constituency, Anne, there are 2,860 who are on Incapacity Benefit; in Shabana’s, there are 5,840. Lone parents, another 3,140. Obviously, a proportion of those won’t be Housing Benefit claimants—broadly probably about 40%, taking a guess—so some of them will be owneroccupiers, I guess, but those numbers, which don’t look too bad at the moment, could still change quite dramatically, depending on what decisions are made about those particular claimants. Q39 Shabana Mahmood: Just in conclusion, in terms of Housing Benefit very specifically, what would your reform of choice be to reform it in order to address barriers to work? To each of you. Roger Harding: Specifically on LHA barriers, we would like to see the redrawing of the broad rental market areas to align them more to local authority areas, to mean that people get benefit payments that more directly align to the local rental area that they live in and, therefore, increase their ability to commute to areas of work within that. As I say, we support some of the proposals put forward in 21st Century Welfare. The trouble is if you just cut payments to move people out, you will move people into poorer areas, and that will run counter to those economic incentives. Alex Fenton: It would be withdrawal rates, as colleagues here have already mentioned. Sam Lister: The answer is the advantage of the measures in 21st Century Welfare, in particular the one that identified a single income taper, which is the best way to attack marginal withdrawal rates. I think we are all agreed about that. It also implies that there will be a substantial uplift in the earned income disregard, so again that would be most welcome. So, if those measures come through, then, obviously, that would be a big help. Richard Capie: I think one of the things that is really clear from the research is that the income component is important for claimants, but equally important is certainty—the ability to make long-term decisions around budgeting. People are wary of and, rightly, risk-averse about moving and changing their circumstances in a way that could backfire, as people have seen. People have found themselves in positions where they have had considerable repayments to make. I think one of the things that looks quite favourable in some of these proposals is that degree of certainty: that ability for households who, rightly I

think, are looking to say, “How can I plan to be able to best meet my housing costs over a longer period of time?” I think that is a very helpful step. Q40 Sajid Javid: I just wanted to come back to this point I think Mr Capie made: if someone moves from inner London to another area, rents might be lower but there is less employment. I think that is a generalisation, because if you just take the example that Mr Lister gave earlier, in Birmingham rents are high, unemployment is high, and there are certainly a lot of unemployment hotspots, but around Birmingham itself, within striking distance, maybe within a 20-mile radius, there are plenty of places where rents are far lower and employment rates are far higher. So, I think it is a bit of a generalisation just to say that that is not the case. Clearly, there will be pockets around the country where it is, but there are areas where people could move to if their housing benefits were cut that are maybe not too far from where they currently live, but where not just rents are lower but employment rates are higher. Richard Capie: I think one of the risks that exists is I guess what you would call displacement, which is if you, in effect, create a system which encourages or forces people to move from one particular market to another. The dynamics of the market that all of these people are moving to change pretty rapidly, so you might have an area where there is, for example, cheaper rates, but if you have an influx of people into that area who are seeking to actually occupy the same part of that housing market, that market is not going to stay the same for very long. There is a kind of dynamic there. I think, again, there are these socioeconomic issues as well about things like the roots that families put down in communities. I think we all understand that there is a concern about families who are in work, who are making decisions about having to go and live in communities where they have not grown up, having to go and move, for example, out into commuter areas in order to access work. I think we appreciate that that is a situation in which many people are finding themselves—having to make that choice—and are wondering, “Why am I in a different position from benefit recipients who are able to stay in areas where I can’t afford to live?” I think there are some genuine concerns there. I think what we’ve got to look at in the broader sense is, “Why are we in that situation for everybody? Why have we ended up with polarised communities? What is the best way to address that?” That suddenly gets you into the area of the wider concerns about supply, the different levels of rents that are available in markets. It takes you into the whole realm of why our housing markets are as dysfunctional as they are in some communities. Q41 Richard Graham: Can I just come in with some fairly short, sharp questions to each of you, and lovely short, sharp answers would be great. Roger, first of all, your definition of homelessness: does that include people who are moving from one property to another or from one area to another?

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20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

Roger Harding: I was going to come back to that, given the discussion in the previous session. It is important to state that homelessness goes well beyond rooflessness, and, therefore, it is about people having an adequate home, which means that, for example, they are not overcrowded or that it is of a decent standard, so— Q42 Richard Graham: Right. Okay, pause there. So, homelessness, in your view, includes people who are living in a home which you define as inadequate. Let us get on to what the definition of inadequate is. If you have four children, do you believe that each of those children is entitled, in a welfare state, to a separate bedroom? Roger Harding: No, and that is not currently included within the Local Housing Allowance either. Q43 Richard Graham: Would you accept that, for many people, the idea that homelessness means having a house which somebody else would describe as inadequate is a curious phenomenon? Roger Harding: Well, what we are talking about here, though, is things like there being a million children living in overcrowded accommodation. Q44 Richard Graham: What is the definition of overcrowding? Kate Green: It is a separate bedroom, isn’t it, for every child over the age of— Roger Harding: Up to 10. Kate Green: Of different sexes. Roger Harding: Of different sexes. Q45 Richard Graham: So, in that situation, my family would actually be described as having been inadequately housed for quite a long time, because we had two sons who shared a bedroom when they were both— Roger Harding: No, they are of the same sex and it is up to a certain age. Q46 Richard Graham: That would be overcrowded, inadequate or— Roger Harding: No, it wouldn’t be. Q47 Mr Heald: Can I just have one on that point, Richard? I think it is right that Shelter was against the five-bedroom cap and is against the four-bedroom cap, because your view is that however large the family is, it should not be overcrowded. Roger Harding: Well, I think there is an over-focus on larger families in this debate. The people claiming the five-bed rate make up 0.01% of LHA claimants— Q48 Mr Heald: But I am right, aren’t I? You are against that. Roger Harding: We want to see children adequately housed, yes. I am upfront about that. Mr Heald: I just thought it came on the point Richard was making. Richard Graham: No, that is very helpful. Thank you.

Q49 Sajid Javid: Can I just add to that point? I was brought up in a house with five children and both my parents in two bedrooms. Is that homelessness? Roger Harding: Yes, that would be in the broad definition, because it is overcrowded and, therefore, inadequate for the family. Q50 Sajid Javid: I know many people like that and they paid for it themselves, but they coped with it perfectly adequately. Do you really believe the state should be paying for much larger houses in situations like that for people? Alex Fenton: It is a legislatively defined standard that we are using. Q51 Sajid Javid: No, but Shelter is not run by legislative standards. These are your standards, aren’t they? Alex Fenton: Yes, it is statutorily defined, the standard that we are using. Q52 Sajid Javid: I thought I was talking about Shelter’s standard. Roger Harding: Shelter, along with other charities, has a broader definition that does include other people—for example, people who are “sofa-surfing” and other such things—but there is a statutory definition as well, which means that, if you qualify for that, you get extra priority. Sajid Javid: Okay, but I didn’t feel homeless. Q53 Richard Graham: I think we have satisfactorily established that a number of this Committee were formally homeless at one or other point in their lives. Let’s move fairly swiftly on. Richard, a number of things you have been saying—and, indeed, others before you—suggest that there is, possibly in your mind, a philosophical objection to the idea of families moving to places where there is work, that a child moving from one school to another is going to go through incredible stress as a result of doing that, and that not being able to work very close to where you live is, somehow, extraordinary. Would you accept that everybody in the armed forces who moves around the world and moves from school to school and house to house and so on would be, by that definition, really almost incapable of working, because they would be going through so much stress, and that there are vast numbers of people all over the world—and especially in continental Europe—for whom it is perfectly normal to move from rented accommodation in one place to another fairly regularly in order to pursue work opportunities? Yes or no? Richard Capie: I think you have talked about a number of different issues in there. I don’t think anybody has any philosophical objection or problem with the idea of people being mobile in their housing in order to seek or obtain work or, indeed, to move for other reasons. That is generally why we look at social mobility and housing and are very concerned about some of the blockages that exist in, for example, the current social housing system around that— something I know the Government has been actively working on. I think that we are concerned also about some of the dips that are happening in the housing

Ev 12 Work and Pensions Committee: Evidence

20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

market, and people being locked into home ownership because they are caught in an equity trap. I think that idea of mobility is something that people are very enthusiastic about. I think one of the things that we can accept is that there can be consequences if we are looking to uproot people. I think one of the things we also have to accept is, if the housing market that you have lived in all of your life changes around you and you have been living, for example, in social housing in that area— so, for example, in London, look at somewhere like Shoreditch—we have communities that have been there for decades, that have established roots in those areas, and it has suddenly become a very popular, fashionable part of London. Part of the reason for that is, arguably, because those communities have been there. I think we have to acknowledge the contribution that those people have made to those communities, and that is one of the things that we try to achieve with social housing. Q54 Richard Graham: But you do accept that mobility is a normal feature of life in a free market as people move around to chase job opportunities and all the rest of it. Richard Capie: As I said, I don’t know any organisation that is actively opposed to mobility in housing. Q55 Richard Graham: Sam, can I just ask you: you talk quite a lot about employment, unemployment and so on. Do you accept the concept that the Government is advancing that it is abnormal for the UK to have 2.9 million people on Incapacity Benefit? This is a form of benefit that does not exist anywhere else in continental Europe and this figure has grown exponentially quickly. There are large numbers of people there who, if given the incentives to work— and I think you have all expressed enthusiasm for the idea of getting rid of the disincentives through the universal benefit in the taper—that could bring that figure down quite sharply, and that, in turn, would have a knock-on effect in terms of the numbers of people who would need the sort of housing support that they currently do? Sam Lister: Well, we agree that the best way for people to get out of poverty is to get into work. The problem is those 2.1 million who are on Incapacity Benefit are people who are some of the furthest distance from the labour market, and they have to compete with other people who are looking for jobs. So, what is needed is a good system of support for helping people back into work. Now, Employment and Support Allowance is kind of one part of the process in doing that, but we agree with the principles that were set out in the Gregg report, that distance from the labour market should be proportional to the amount of support that you receive in terms of getting back into work. Q56 Richard Graham: Okay, thanks for that. Lastly, Alex, in terms of what you were saying about the longer-term unemployed and so on, are you aware of some of the experiments going on in Jobcentre Pluses around the country, some of which are beginning to

show, over a short space of time—so, no long-term trend can be proved—that additional help in terms of the amount of contact between people at the Jobcentre Plus with the unemployed is proving very successful in getting people back into jobs really quite fast? Is that something that you are aware of, and do you agree that that is—more or less in line with what Sam was saying—a trend which could prove extremely useful to the Government’s efforts of getting down the numbers of unemployed? Alex Fenton: Absolutely. The Department of Land Economy has done several evaluations on things like the Working Neighbourhoods Fund, which was introduced by the previous administration, and that did lots of different projects that provided the sort of intensive support that you are talking about, and there are promising results from quite a lot of those pilots. They are commendable and I would like to see more of them, but the concern we are raising is that the measures that we are discussing here today are being introduced in isolation, without that package of support, and that is why we said in my study that we published that we didn’t really feel it would, in itself, have any effect on labour market incentives or labour market behaviour. So, great, we would like to see more support, but it is not there in this package that we are discussing today. Q57 Richard Graham: But you recognise it might be coming quite soon if these experiments— Alex Fenton: I hope so—I look forward to it, yes. Richard Graham: Good. Thank you very much. Q58 Karen Bradley: I just want to build on that. The 10% reduction in Housing Benefit is not coming in till 2013. Do you feel that if the Work Programme that will be starting in March 2011 after two years has demonstrated that it can help to get people back into work within 12 months of starting to claim Jobseekers Allowance, that this reform to the Housing Benefit system is, in many ways, irrelevant; that it will only affect those people who are not being successful on the Work Programme? Alex Fenton: There are two sides of it. So, there is the labour supply side—the people who are claiming benefit and seeking work: are they doing enough, do they have enough support and do they have sufficient skills? The other side of that is, of course, the demand for labour—are there the jobs out there and the employers seeking to take people on? Most of the projections are that, at least for the next three or four years, we will see fairly minimal falls, if at all, to claimant unemployment and to the unemployment rate. There is, in many places, in some regions more than others, an imbalance between the amount of labour that is being demanded, the amount of jobs that are available, and the number of people that are seeking work. There are more people seeking work than there are jobs. So, that is why, I think, there remain concerns about the 10% cut, because that will not necessarily go away by the time that the measure is introduced in 2013. Q59 Richard Graham: Do you accept that the whole business, though, of anticipating forward the supply

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20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

of new jobs is a virtually impossible one to guess? I wonder, for example, if any of you had anticipated that 280,000 new jobs would have been created in the last quarter—the largest increase for 20 years. Did any of you anticipate that? Roger Harding: Well, in our submission, we have been using the data from the Office for Budget Responsibility (OBR) on levels of unemployment going forward to look at the potential impact that the LHA changes will have, and that is why we have based our assessment that, of themselves, they don’t seem to indicate that they would massively increase employment. I should add, those pilots that you mentioned, and the degree to which they have been successful, have been done in the absence of a 10% cut to people’s Housing Benefit. Richard Graham: Yes, which, as Karen points out, comes in 2013. Q60 Mr Heald: Of course, we are in a period where there is a major economic problem in the country, and the sort of measures you welcomed, like the Universal Credit, which I think we would all applaud, cost money. So, would you agree it is important to ensure that we get value for money out of the Housing Benefit budget? Richard Capie: Absolutely. I don’t think anybody has an issue with that, and I think one of the things that we have been encouraged by has been the Government’s willingness to invest in 21st Century Welfare. I think everybody in the housing sector appreciates that there is a cost attached to that, and that that investment is being put in. I think what we have to accept about 21st Century Welfare is that the housing component is part of that. The objectives of that programme are much wider. I think one of the things that we have to be careful of, though, is that we do not, in effect, undermine what that programme is trying to achieve by making sweeping cuts to other areas of the budget in the meantime. Q61 Mr Heald: Yes. However, if you look at it, there is quite a bit of evidence that we are not getting value for money in all places out of the Housing Benefit budget. Do you agree with that? Richard Capie: I think it is important to put this in a non-welfare context but in the housing context itself, which is that we do have a fundamental problem with the supply of housing relative to the demand, and that is what is driving up prices and rents, and that is having a bearing on the Housing Benefit bill overall, inevitably. It is important to note that three-quarters of claimants of Housing Benefit are already in poverty, regardless of these changes, and up to half of LHA claimants are paying a shortfall already, before these changes. So, it is very hard to cut Housing Benefit as it currently stands, without, basically, taking money away from more vulnerable claimants. Q62 Mr Heald: But don’t you accept, for example, that Westminster CAB told us they understand the need to place a cap on rents paid by the taxpayer, and believe rents in central London may drop as a result? Westminster Council—same area—are concerned that the current system contributes to inflation of rental

costs. British Property Federation cites rents in some areas have adjusted towards the LHA allowance rates and are seen as the going rate, and there is evidence to suggest private-sector landlords increased rents with the introduction of the LHA, and so on. There is a concern, isn’t there, that value for money is not being achieved everywhere with Housing Benefit? Richard Capie: There are number of different elements to unpick in that. One of the value for money equations around Housing Benefit is also looking at the contribution it makes to the net new supply of social housing, so it has been part of the way that we have supported the construction of new social rented housing going forward. Two-thirds of Housing Benefit payments are to the social housing sector. That has helped to pay and bring in, importantly, private finance; so finance that is off the public balance sheet, that is not public debt, in order to build new homes. I think that is an important part of the value for money equation and I think that is part of the nervousness that has existed, in particular from landlords, from providers, about some of these changes. As you will have seen, some of the credit ratings agencies have been very overt in their statements about the links between changes to regulation, changes to the capital supply, and changes to Housing Benefit, in terms of how they would be prepared to treat new investment into our sector at a time when we need it most. So, that is an important part of the VFM equation. The other part, I think, is that question about: has recent Housing Benefit policy, in particular LHA, had an inflationary impact on the private rented market. Certainly in the evidence that we gave to a previous DWP Select Committee, looking at the Pathfinders, looking at LHA, we were not clear that that was the case. Certainly, there was an assumption being made that if you cap the benefits, landlords will adjust their rents. Obviously, you have heard earlier today that some people believe that is starting to take place, but when this announcement was made, we were not aware of any firm evidence that would suggest that that would be the case. I think, if you look at markets like Westminster, you obviously have to appreciate that that is a very different housing market from somewhere like Hull. There is a lot further distance to travel in relation to that. Roger Harding: Just adding to that as well. I mean as Richard says, obviously Westminster is quite an atypical example in this regard. The Government has put a lot behind this argument that rents will drop if benefit levels drop. I am afraid at the moment there is not the evidence to suggest that that is necessarily the case. As I say, by the Department’s own estimations almost 50% of claimants make up a shortfall between what they get in payments and what they pay in rent, suggesting that, at least in 50% of cases, rents will not drop. In only 5% of cases what claimants receive is at market level. As I say, currently, the Department has not really put forward any detailed research or evidence to suggest that rents will drop. Q63 Mr Heald: I have got one or two detailed questions for Alex, because he has prepared this Cambridge Centre report and I wanted to ask him a little bit about that. Looking at it on the basis of what

Ev 14 Work and Pensions Committee: Evidence

20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

happened with the Pathfinders, I think your view, Alex, is that about 16% of landlords would reduce their rents if this went ahead, and that about half of 29% would be likely not to enforce in circumstances where the tenant paid a lower rent. So overall about 30%, the way I calculate it, would either have their rent reduced by agreement or would not be enforced and there would be a reduction in effect. Now the residential landlords have done some survey work that shows about 29% of landlords would be prepared to reduce their rent. We heard earlier on from the London evidence that it might be as high as 40%; British Property Federation came in with 29%. So do you agree there is a picture of something less than a third of landlords in the subsidised sector reducing their rents? Alex Fenton: Yes, well 16% in the LHA Pathfinders explicitly agreed a rent reduction with their tenants. Of the remainder where the tenant did not pay the difference, about half did not take it. Obviously that leaves the tenants in a vulnerable position vis-à-vis the landlord. I think you are right: there is a picture of maybe about 30% overall where there will be some explicit or de facto reduction in the rent. That picture will vary very considerably from place to place, but also whether there are alternative sources of demand. In London obviously there is a very buoyant market. In many big cities there is a student market who are competing for the same sort of slightly cheaper and maybe larger properties that many claimants are taking. It also depends a bit on the economic circumstances. So finance has become extremely difficult, but you have a panel on that afterwards. Q64 Mr Heald: What I cannot entirely work out is, if a third or just under of third of landlords in this sector who have subsidised rents reduce their rents, what would the effect be on the overall market because that is quite a big change isn’t it? Alex Fenton: About 20% of private tenancies are supported by LHA. So if we took 16% of those where the public rent was reduced by that, that is about 3% or 4% of rents are going down. That to me does not sound like that would have a broader market effect. So 20% of private tenancies, overall, are supported by LHA or HB. If we are talking about 16% of those where the landlord is accepting an explicitly contractually agreed reduction in the price, rather than something like an informal, “We are not going to take it up right now. We might pick it up later.” The 16% where they agree a— Q65 Mr Heald: But if you just stick with the general consensus that it is around 29%—something like that—you are saying that would not have an effect on the overall market. Alex Fenton: We are talking about 6%, 7%, 8% of the market is going down very considerably between areas. Q66 Mr Heald: That is a lot. Alex Fenton: That’s a fair chunk in one segment of the market.

Q67 Mr Heald: Do you think it is unreasonable for the Government to say, Look, if 8% of the market or whatever the figure is—7% or 8%—sees rents fall, the overall effect may be that the market generally, certainly in a lot of places, will fall and the effect of that will be we will get better value for money out of Housing Benefit budget. Alex Fenton: No, because all the projections are that the private rented sector will continue to increase because all the other sources of demand in the private rented sector—the frustrated owner-occupiers, because they cannot get mortgage finance, students— are all projected to continue be the same size or to increase. So there is enough demand out there in the private rented sector that landlords need not accept a cut in their rent. Sam Lister: On a technical point, the Local Housing Allowance is set by non-housing benefit rents. So in theory all the Housing Benefit rents could lower down and that would not necessarily affect the Local Housing Allowance rate at all. Obviously it is going depend on what the particular composition of the market is, because the effect will be greater if you have got a market that is dominated by the Housing Benefit sector. Whereas if you have a market where Housing Benefit is just a small proportion of the overall rental market, then the effect is likely to be considerably smaller. Q68 Mr Heald: Just going back to Alex again for a second. In your report you said you thought that the households who might have to move, or the ones in severe difficulty, would be between 68,000 and 134,000; that is table 12 on page 20. You also thought the annual cost of making good the losses for those in severe difficulties would be between £42 million and £82 million. Alex Fenton: That’s right. Q69 Mr Heald: Were you thinking there that that would be part of this Discretionary Housing Payments scheme, is that your assessment of how much money needs to go into that or is it a separate calculation? Alex Fenton: It was a separate calculation. The calculation is those who find themselves in real problems one way or another with their money and their housing, and they can’t get an agreement from their landlord, the landlord then takes it further, and therefore they face moving or eviction. We think it is somewhere near the upper estimate of 134,000, but possibly as low as 68,000. What I wanted to show there was the amount of savings from those households and, of course, what we do not know and what local authorities will not be able to do, is to know whose housing is really at risk, because if they could do that then they could allocate that money perfectly. The reason we compared it with the Discretionary Housing Payments was that the Discretionary Housing Payments were intended to soften the blow, as it were, and to mitigate the consequence of this. We wanted to give a sense of the relative scale of households who might be in severe difficulty and facing eviction relative to the mooted increase.

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20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

Mr Heald: I was just really trying to work out if it was a bid for an extra £22 million or not. Chair: Oliver, I am very conscious of time. Mr Heald: Yes, sorry. I have had a good go. Chair: Kate. Q70 Kate Green: Sorry, I was getting so interested in this discussion. I wanted to ask particularly about the impact on some of the more vulnerable groups and particularly, perhaps, starting with disabled people. Can I ask what your assessment is overall of the impact of the reforms on disabled people and where you see people who may be winners but also people who may be particularly adversely affected? Alex Fenton: The study that we published was based on survey data so we were not very good at picking up the numbers of disabled households. I just note that probably the largest group that is picked up in the impact assessment is those claiming IB or Severe Disability Allowance, so there is certainly a big chunk among those who will be feeling the losses and a pinch on their budgets, but we were not able necessarily to disaggregate to see how many of those might be made homeless. Q71 Kate Green: Anyone else want to come in? I suppose I am interested particularly in whether there are any particular housing needs or mobility issues for disabled people if they see a reduction in their Local Housing Allowance that would mean that they would have to move? Alex Fenton: This was a comment that was made in the study with regard to families and to older people, but I think it applies equally to disabled people: that their housing choices are somewhat more specialised. They need particular forms of housing more so than a younger, single person who can adapt perhaps much more easily by moving from a one-bedroom house to a shared house, if they are 25 and fit and single. The transaction costs and difficulty of moving are consequently quite a lot greater for some kinds of households than others, and I think disabled households and disabled persons would feature very highly among those. So the assumption that has gone through both this discussion and the previous discussion is that in some senses it is tough luck— you just have to move sometimes. I think that ignores that it is quite expensive monetarily: you have to pay someone to move your stuff; you have got to find a deposit for your next place, when you perhaps have not recouped the deposit on the last place, which is difficult for low-income households. There is also the physical and mental stress of moving and that may bear particularly heavily on some vulnerable groups like disabled people, as you are asking about. Roger Harding: Particularly as well where they have accommodation—if they have a physical disability— that they have had adapted, and now will need to move and go through a process of finding an appropriate property and then having that adapted sufficiently and claiming state subsidies for that. Richard Capie: Perhaps another point that I would reinforce is that we invest in adapting those private properties to make those properties suitable for disabled people, and then we would be requiring those

people to move from those properties, even though we have invested public money to adapt those properties in the first place. I am not sure that makes sense. Q72 Kate Green: Can you think of any mitigation then that might be sensible or policy approaches that might specifically address that? Richard Capie: I think you would find yourself in a situation where you would have to reinvest in aids and adaptations elsewhere, if you were requiring that person to move. Q73 Kate Green: Okay. There is nothing else that can be done? Richard Capie: Unless you are prepared to adjust the policies. Q74 Kate Green: I beg your pardon, Richard? Richard Graham: The welfare state must march on regardless, is that broadly what your message is? Richard Capie: Well I think if you have requirements for disabled people to have aids and support in their homes, and there is a need for that support to be provided, then I think if we are requiring somebody to leave a property where those facilities exist and move to a property where they do not, then there is a requirement to provide that support. Q75 Chair: Yes, if you are going to be sending people back to work they have to be actually physically able to get out of the house and it is amazing how many disabled people can’t get out of their own houses. Can I just ask, on that, whether you have done any work on how much it costs people to move? Because that certainly came through in our visit to CAB yesterday, that the biggest barrier of all to moving—maybe a slight answer to Sajid’s point— was the cost and upfront cost: they needed a deposit, which they did not get back from the previous landlord and the first one, sometimes even two, month’s rent. They said they just do not have that money; no matter how cheap the accommodation is, they cannot get that money together. Roger Harding: There is a gap currently in the transitional funding to deal with that as well, because there has been or will be increases in Discretionary Housing Payments and that will help with some of these elements but it won’t help with all. So it won’t help with direct moving costs, for example. It won’t be able to help with other things such as purchasing new school uniforms if people have to move out of the catchment area of schools. So, currently we have not seen any concrete proposal from the Department that suggests how they are going to fill that gap. Q76 Kate Green: Can I also ask about non-dependant deductions, which are now to be increased after a long period when they have been left untouched. Do you agree that there is a case for increasing non-dependant deductions in line with some or other form of inflation—and I think it is actually Consumer Price Index (CPI) that has been selected by the Government—and can you see any consequences of that that we should be aware of?

Ev 16 Work and Pensions Committee: Evidence

20 October 2010 Mr Richard Capie, Mr Sam Lister, Mr Roger Harding and Mr Alex Fenton

Roger Harding: Perhaps if I can answer just on a quick broader point, which is the more general link to CPI, which doesn’t tend to be touched on in some of these debates on Housing Benefit. Probably over the long term the most damaging of all the changes proposed in the Emergency Budget is that it will decouple how LHA payments go up, so that rather than going up relative to housing costs, they will now go up from 2013 relative to CPI. Over the last decade rents have significantly outstripped CPI, so we will see payments relative to rents go down substantially after 2013 and that will bar people from living in quite huge swathes of the country in time. On non-dependant deductions, there is some worrying knock-on effects that could happen from increasing them. One, it would potentially discourage intergenerational households. Another is that it potentially provides a work disincentive for the nondependant, potentially because there are varying rates whether they are employed or claiming JSA as a non-dependant. Also, you could see in some of these instances—as would affect the impact on larger families—that there might be an economic incentive for the household unit to split up and mount separate claims. I am not proposing that that is going to be a widespread trend, but that is, economically at least, an incentive that the system could put in place. Richard Capie: I was going to say, just to echo that point about CPI, that probably the major concern that exists in the proposals is it would delink the support for housing from the housing costs, and certainly the evidence over the past couple of decades would suggest we would have a massive shortfall. It would suggest that that 30th percentile would be a lot smaller than that 30th percentile, and in some areas that percentile would be zero. So that is— Q77 Kate Green: I just noticed you are all nodding at that. What would you do instead then in terms of ensuring that there is a link between Housing Benefit and market rents and do you feel that the current LHA system adequately reflects an accurate cost for housing? Roger Harding: Not perfectly, but it is at least linked to local relative costs, whereas rents are included in the CPI measure, but they make up about 5% to 6% of the CPI measure. To give a comparison with that, I think restaurant and café costs make up a bigger proportion of CPI costings than housing. Alex’s research highlights that over a decade, given the scale at which rents tend to go up and the low scale at which CPI tends to go up, there will be very few properties left for people in certain areas. So, for example, in projections Alex has done, by 2018 there will be less than 5% of two-bed properties available in Manchester for claimants if the link to CPI goes ahead. Q78 Richard Graham: So is your policy recommendation there that the DWP look at increasing the weighting given to rentals in the composition of CPI? Roger Harding: It is not, no. I think that is an issue for the Bank of England, in terms of how they manage

inflation. It is basically to maintain the principle that if you have a benefit to pay for housing costs that it is linked to housing costs. That decoupling of that link to CPI is a fundamental change in the benefit. Q79 Richard Graham: But follow the logic: if rentals are included in CPI there is a link. The only question is whether the link is adequate and strong enough. If your recommendation is that rental should be a higher part of the weighting, then that is something that we can take note of but— Alex Fenton: The link reflects the amount that the average householder across the whole of Britain spends on rents, so since the vast majority of those households spend nothing on rent, because they are owner-occupiers, that is why the weighting is so small. What you might consider would be an index that reflected the amount that low-income households spend on rent, in which case it might be 30% or 40% for the private tenants that we are talking about and that might be an adequate reflection. All I would say is it makes sense—why not just link it to real rents? If there are concerns about the kind of market-shaping behaviour, because landlords then set it to that, then have the power for, as the previous panel suggested, local authorities to review and punish in some way landlords who appear to be setting to those rents without reflecting the value of the property itself, what its real market value is. Q80 Kate Green: So is your response here that linking uplifting of Housing Benefit, Local Housing Allowance, to CPI is an extremely unhelpful step in ensuring that people are supported financially to meet real housing costs? Sam Lister: We are all agreed here that if there was one measure that we would pick as one that we would get rid of, that would be the one. Q81 Kate Green: And find other ways to control excess rents, as we were discussing earlier on this morning? Sam Lister: It is because the problem, which Beveridge identified all those years back, has been that rent is the most variable amount of the household budget across the country and there was not any way of dealing with it, which is why we have a benefit which is linked to real housing costs at the moment. Roger Harding: I think it is comparable if not worse than the decoupling of the basic state pension from earnings, an impact that is not dramatic in the first year or two, but when spread over a decade or two really devalues the benefit, as the relative benefit of the basic state pension has dropped and hence the current Government has now re-linked it to earnings. We could see something similar if not substantially worse if Housing Benefit is decoupled from housing costs. Kate Green: Thank you. That is very helpful. Chair: Thank you. Thank you very much. I realise that we have run over by about 20 minutes. I am sorry about that, but thank you very much for coming along and thanks for your evidence. It has been very useful.

Work and Pensions Committee: Evidence Ev 17

20 October 2010 Mr Ian Fletcher, Mr Chris Town and Mr Richard Jones

Examination of Witnesses Witnesses: Mr Ian Fletcher, Director of Policy (Real Estate), British Property Federation, Mr Chris Town, Director, and Mr Richard Jones, Policy Director, Residential Landlords Association. Q82 Chair: Sorry, we are slightly denuded, but we are still quorate and we will be until about 25 past 11. So I am sorry for keeping you waiting and sorry that you have sort of got squeezed in at the end, but it was always going be a packed evidence session. Can I ask you first of all to introduce yourselves for the record? Chris Town: Chris Town, I am a director of the Residential Landlords Association. I also declare an interest in that I am a landlord and I do have some LHA tenancies. Richard Jones: Richard Jones, Policy Director for the Residential Landlords Association. Ian Fletcher: Ian Fletcher, I am a Director of Policy at the British Property Federation. Q83 Chair: Can I just pick up on some issues. I think you have all been sitting in, so you have heard the previous evidence sessions and many of the points that Oliver Heald has been making with regard to the inflated rents. The reason that the Government is looking at this is that the landlords have been inflating their rents in order to come up to the levels of the Local Housing Allowance, and in fact it is perfectly reasonable for the Government to try and drive down those rents, and therefore drive down Housing Benefit costs. Ian Fletcher: Shall I take that first? I would make about six issues in response to that. The first one would be the point that the growth in the Housing Benefit bill is significantly caused by the additional claimants and because the LHA part of the benefit bill is the flexible part, the bit that is going to expand. Obviously the costs of the private rented sector are going to look disproportionate to other parts of the Housing Benefit bill. I think, secondly, obviously in our evidence we had said, yes, that there is some migration of rents towards the LHA rate, and it is worth very much stressing that that is no sort of deep, deep secret. That was something that came out of the Pathfinder research. It was not something that was particularly debated when the Welfare Reform Bill went through even though it was apparent, and as far as I have seen, the two-year review of the LHA has not shown that this is an epidemic in that respect. I think that the third thing would be to say that while some landlords have gained from the current system, others have lost out. Direct payment has meant that in terms of bad debts there is something like £400 million among private landlords that they have felt. The lack of sophistication in the current system also means that we have a two-bedroom rate, but in the market the two-bedroom rate can mean anything from a two-bedroom basement flat to a two-bedroom bungalow, and the market would value those different kinds of property differently. I think it is also important to stress where we have come from and to remember the old system and the processing times of 70 days—more than 100 days even in some local authorities—because of this

calculation of the individual rents. People were waiting for three to four months, with all the stress that that entailed in terms of whether they would get the money that they were expecting. From landlords’ perspective they were in effect providing interest-free credit to the state for about four months while that cheque came through. I think finally, and perhaps the most important point in reacting to Oliver Heald’s remarks, is to look at the maths. If there was to be an adjustment of the kind that he was intimating in terms of—let’s say that 50% of landlords did reduce their rents and they reduced them by £10 a week, and you multiply that by the million claimants that there are and 52 weeks, you get to a figure of around £0.25 billion. That has to be seen against the context of a private rental sector rent roll per annum of something in excess of £100 billion a year. So, it would simply be a small stone in—I don’t think the metaphor would be right—the Atlantic in terms of the ripples it would cause within the greater private rented sector. So, you also have to bear in mind that obviously that—continuing the metaphor— there is this huge tsunami of different people trying to get into the private rented sector at the moment. I have seen figures out today from Countrywide saying, I think, a 43% increase in tenants trying to get into the rented sector over the year; I think something like 19% over the last quarter. Richard Jones: Could I just make one short additional point as well? The great advantage of the current system is that it is transparent and a point was made earlier on about the certainty of planning finances on behalf of tenants, and the published rate does make that a lot easier. The old system came in for an awful lot of criticism because nobody, especially the tenants, knew where they stood. Q84 Chair: Do you have any sense that the Government’s purpose is to squeeze the private rented sector out of the Housing Benefit sector completely? In other words, anyone who is on Housing Benefit will not be able to afford any property in the private rented sector and they are going to have to be housed in the social rented sector? Chris Town: I think there is a danger that there is a race to the bottom here, whereby landlords will exit the market once they have reached the cut-off point. Certainly in my particular area in Leeds, we were part of the Pathfinder and there was quite a flight of landlords from the sector when LHA was introduced because of the insecurity of receiving or hoping to receive the rent. So the overriding factor that landlords dial into this is the security of receiving the rent. There is some flexibility around the rent level, as has been illustrated by the survey results, but that is weighed against the actual security of receiving the rent in the first place and that is an important factor. Chair: I was going to bring Stephen in here.

Ev 18 Work and Pensions Committee: Evidence

20 October 2010 Mr Ian Fletcher, Mr Chris Town and Mr Richard Jones

Q85 Stephen Lloyd: In a way that tails in with precisely what I want to ask. We have not got a lot of time, so I am really cutting to the chase with what I think is the most important issue. I would be interested to hear what you have to say. What difference would it make to the rented sector if we went back to direct payments to landlords? Chris Town: I think it would bring more security and there would be less inclination for people to exit the sector, but there has always been a resistance to rent to Local Housing Allowance tenants or Housing Benefit tenants on the basis that those tenancies take much more management effort; there are more losses involved. Even with direct payment there is a risk that the tenant is receiving benefit that he is not entitled to and the landlord will then have to, if he is on direct payment, pay that benefit back with no hope of receiving any rent support from the tenant, because clearly he does not have the means. So it has never been a great business proposition to be involved in that market. Q86 Stephen Lloyd: No, I can appreciate that, so that is why I am coming back to the point of direct payments. I see a lot of landlords in my constituency; I have had numerous discussions on this. If we remove some of the reasons why we moved away from direct payment for the minute and just come back to where we are today, which is that there is going to be an area of substantial change around Housing Benefit, we all understand that—we heard it often in the last hour and a half—from your perspective what difference with your clients, customers, members, would it make if it went back to direct payments straight to landlords? Richard Jones: I think it would help greatly. It would allow some people to stay in the market. Probably a considerable number of landlords would reconsider their positions, because obviously they are looking at the real return and if they have an assurance of payment—in our evidence we likened it to secured and unsecured lending—through direct payments then I am sure that a number would then agree to remain in the market. Without that, I think there is going to be a huge flight from the market and, as I think other witnesses have agreed, there are many alternative markets for them to look at. Stephen Lloyd: You are both in the same body, and you’re in a different one, but broadly you would agree with that statement? Ian Fletcher: Yes.

authority will look to the landlord—for example, if there is a failure to notify that the tenant has left the property. On the other hand if it is the tenant who has been working on the side and not declaring the earnings, the local authority are more likely to go after the tenant rather than the landlord. Q89 Sajid Javid: As you describe it, that sounds quite reasonable. Is there any change there that you are advocating that would help? Chris Town: In practice that varies between local authorities and how they apply the regulation, and the first principle is that it is the person who has received the benefit who they would pursue in the first instance in most cases. The landlord would then have to argue his case that he would not have the knowledge that the tenant had been working, for instance, and not declaring that income. So it is not a certainty that it would always be pursued from the tenant. Richard Jones: That is why I used the word “broadly” when I made my statement. Ian Fletcher: I would just add to the direct payment point. There are two aspects of the current system that lead, almost inevitably, to bad debts for landlords. First, the landlords are paid in arrears, whereas most other tenants are paying in advance, so there is never that cushion should the tenants run off without paying; and secondly, in comparison with social landlords where the occupier will tend to stay in occupation even if they have not paid and the social landlord is allowed to attach some sort of repayment plan against their income, that is not the case in the private rented sector. If the person runs off with the money, you cannot attach any sort of income repayment plan through the courts to repay that rent. Q90 Sajid Javid: Okay. So is there any reason to think that if rent was paid upfront for a number of months by the councils directly to the landlords—so, say six months’ rent in one whack—do you think that would encourage landlords to reduce their rents, in exchange for upfront payment? Chris Town: Yes, I think broadly it would give landlords confidence that they have a rental stream that they can rely on.

Q87 Sajid Javid: Just to clarify something there, Mr Town, is it currently the case that if a landlord receives rent from Housing Benefit but it turns out later that that recipient of Housing Benefit was not entitled to the benefit, is the landlord legally liable to pay that back? Chris Town: He is requested to repay that benefit.

Q91 Sajid Javid: Any estimate that landlords might cut by 5%, 10% or something, or any estimate on that? Chris Town: I think it depends on the area and it depends on what other tenancies are available in that area. I think that is the problem: it is a dynamic business and it does vary quite largely. We have heard a lot of comment on the London market, which is completely different from the rest of the country, and there are differences within the country as well. Ian Fletcher: To some extent it already happens in the temporary accommodation market, where the local authorities do do deals with agents and landlords to procure property.

Q88 Sajid Javid: Is there an actual liability? Richard Jones: Can I come in? Yes, there is and I think one can broadly say nowadays under the current regulations, if it is in some way the landlord’s fault that there has been an over repayment, the local

Q92 Chair: We’ll leave the direct payments because already there are people who are making up the shortfall between what they can get in Housing Benefit and the actual rent. If these changes go in, your estimate is that that shortfall will be greater and

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20 October 2010 Mr Ian Fletcher, Mr Chris Town and Mr Richard Jones

it will be a lot more than £10 a week. So even the direct payments do not necessarily solve that problem if the tenant is still having to find money from their own benefits or their own income if they are in work. Chris Town: No, it wouldn’t do. If there is flexibility in the market and, for instance, speaking from my own experience, I have a number of tenants who are on LHA and I broadly would not want to lose them; they are good tenants. So there is some wriggle-room there, if you like. Clearly, that is my own personal experience and not generally the experience of everyone. Ultimately, there are other pressures on landlords, from lenders, for instance; if there is a change to the lending criteria, then the landlord has no option but to seek a higher rent because ultimately he has to manage his business financially. Q93 Chair: You talk about the shortfalls in rent perhaps leading to increased poverty and ghettoisation, and we also have the CPI uprating as opposed to RPI. When you take all of those changes together, what do you think is the future for the private rented sector providing sufficient houses for people who are dependent on Housing Benefit or LHA? Or are we just going to see more and more landlords just get out of that sector completely? Richard Jones: I think that is the risk. That was your earlier question, which I think we never properly answered: are LHA claimants going to be squeezed out of the market? I think that the answer is yes. By very definition they are not owner-occupiers; as we have seen in the press, there are likely to be major cuts in social housing and building new social housing is going to come to a standstill; that sector is declining. So it is the private rented sector that has made up the shortfall. I have had a number of individual conversations with local authorities under their various housing option schemes where they have looked increasingly to the sector to provide additional accommodation for those who then receive support through LHA. Landlords are going to look elsewhere if they can find the tenants elsewhere and, from the evidence we heard earlier today, the owner-occupier sector—or those who would otherwise be the owneroccupier sector, should I say—will look towards the private rented sector, and therefore the LHA customer is inevitably going to be squeezed out. Ian Fletcher: On the ghettoisation point, as somebody whose wife has just had a young son recently in Kingston Upon Thames Hospital, the major concern I would have is that without the Housing Benefit supporting low-paid incomes, there will be an impact on the delivery of public services. I know that the Coalition has policies that will ameliorate some of that in terms of moving to local pay bargaining vis-à-vis central pay bargaining, but that huge issue will take, I

would imagine, several years to deliver. In the meantime, these impacts are going to be felt. I think on the CPI point, the previous witnesses articulated our concerns very well in terms of it being no index on which to base a person’s housing costs. I have done some calculations; I have taken the three-bedroom rate in Basingstoke just as being something reasonably typical: at the moment it is £170 and if it had been indexed to CPI over the past 10 years, rather than to rents, the difference would be £13 per week. After five years it would be £25; after 10 years it would be £57. So there is significant difference between rental growth and CPI growth, and that would be felt in terms of major shortfalls that people would be facing. Q94 Chair: So the sense I am getting from you is that people are going to move out of the sector rather than perhaps what Oliver is suggesting, that rents will be driven down by this and, in fact, from your point of view you would try and rent elsewhere rather than to people with Local Housing Allowance. Ian Fletcher: It is difficult to see where they are going to move to in terms of the announcements yesterday and today on social housing and how to support that. It is difficult to see that the social housing sector is going to deliver those units that have previously been provided in the private rented sector. Q95 Chair: Is there some scope for local authorities to negotiate with groups of landlords? In other words, by doing that they can fix a rent that is much lower than the going rate in order to place their tenants—the tenants that they have got a statutory obligation for? Ian Fletcher: There is; we have a largish member called Orchard & Shipman that does just that in Edinburgh. Edinburgh city council are, I think, a very good exemplar of how to pay Housing Benefit. They process claims very quickly. If people do not pay, they enact the vulnerability provisions very quickly, so the bad debts don’t run up. As a result, they have a very good relationship with companies of that kind, who are prepared to take slightly lower rent for the assurances that that sort of system gives them. Q96 Mr Heald: Just coming in on this, so really the overall weight of your evidence is that it is possible to get better value out of the system, but you need to give better security for landlords in exchange? Ian Fletcher: Yes Richard Jones: Yes Chris Town: Yes, in a nutshell. Chair: Thank you very much. Thanks for coming in and thanks for your time this morning, and your evidence will be very useful for us when we come to write our Report. Thank you.

Ev 20 Work and Pensions Committee: Evidence

Wednesday 3 November 2010 Members present: Miss Anne Begg (Chair) Harriett Baldwin Karen Bradley Alex Cunningham Richard Graham Kate Green

Mr Oliver Heald Glenda Jackson Sajid Javid Stephen Lloyd Teresa Pearce ________________ Examination of Witnesses

Witnesses: Lord Fre d, Minister for Welfare Reform, Neil Co ling, Benefit Strategy Director, and Pa l Howarth, Divisional Manager, Housing Benefit Strategy Division, Department for Work and Pensions, gave evidence. Q97 Chair: Welcome, Lord Freud, to this, our second formal evidence session of the Housing Benefit inquiry that we are undertaking. Would you like to introduce the people that you have with you? Lord Fre d: Thank you very much. I have brought with me Neil Couling on my left, who is the Director of Benefit Strategy in the DWP, and on my right I have Paul Howarth, who is the Head of Housing Benefit Strategy, again at the DWP. Q98 Chair: You are very welcome. I am sorry about the room; it is a bit large and we are a bit far away from you, but I am sure the quality of your evidence will not be affected by that. Can I just ask some practical questions to begin with? I understand that the Government are planning to lay the Statutory Instruments shortly that will give effect to the changes that have been proposed in Housing Benefit; the ones that have been announced. We know there are a number of different changes; the cap, the 30th percentile and then the 10% deduction on those who have been on Jobseeker’s Allowance. Which of the changes will be covered by that initial group of regulations? Lord Fre d: We will put all the regulations into one, so those regulations will all be presented as a package, even though their timings are slightly different. So they are coming in in one place and they are due to be laid late this month. Q99 Chair: Late this month? Lord Fre d: I do not have the precise date— Chair: Are we talking the last week of the month, second last week of the month? Lord Fre d: Neil, do we have a precise date yet? Neil Co ling: There is a mixture of measures. The caps and the move to the 30th percentile we wrapped into one Statutory Instrument that we are expecting to lay some time in November. We try to give local authorities six months’ notice. Then there are other measures; the non-dependant deductions measure will be enacted through the uprating order, which on normal timings is January, February time. Then there are provisions for the changes to the social rented sector and the 10% reduction in Housing Benefit for Jobseeker’s Allowance; those measures need primary legislation.

Chair: Right, okay. That was going to be my next question; what needed primary legislation. Pa l Howarth: Could I just add to that, to be clear, that the package to be introduced in November will also include the measure to remove the £15 excess and the measure to give extra help to a non-resident carer for disabled people. Q100 Chair: What parliamentary procedure will the SI go through? Lord Fre d: Well, I think it will go through the standard SI. Some of it is negative, isn’t it? Neil Co ling: It is all negative. Lord Fre d: Is it all negative? It is all negative SIs. We will bulk them up, effectively. Obviously, we will not touch the 10% one, which goes into primary legislation next year, but the regulations we will bunch up. Q101 Chair: I suppose really my question is will there be any chance to debate this on the Floor of the House? Or will it be done in Committee? Unless it is prayed against. Pa l Howarth: They will need to be prayed against. Q102 Chair: Right, okay. But even then, it may not be able to be debated on the Floor of the House; that would still be in Committee? Lord Fre d: Yes. Chair: Okay. Oliver. Q103 Mr Heald: The Government have talked about three reasons for the Housing Benefit changes. First of all, curbing costs against a fast-rising background; secondly, the issue of fairness with taxpayers; and third, disincentives to work. Just starting with curbing the costs, you have obviously had a chance to look at this over a period of years, because I think you were an adviser to the last Government as well as being a Minister in the Coalition, but we are having different evidence given about what is driving these increased costs. On the one hand, the British Property Federation say that the new Local Housing Allowance has made the situation more transparent; that landlords now in effect are establishing a going rate around the level of LHA and that is driving increases. Others say no, it isn’t that; it is the fact that there are fewer of the Housing Benefit claimants in the social rented

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sector and therefore they are moving into the private rented. Others say that there are other factors; that rents are rising faster with earnings. What is your take on what it is that is making this happen? Lord Fre d: What is happening in the housing market is clearly immensely complicated and has a number of different factors at play. Let me just focus in on the factors that are playing in the particular area that we are talking about, which is the private rented sector. Here we have a position where in practice the dominant buyer is the Government. We are effectively, in the private rented sector, supplying benefit for just short of 1.5 million people: 1.47 million people, more than 1 million of those in the LHA system. The total market for private rentals is around 3.6 million currently. So you can see we are looking at a position where the Government represent 40% of the market. Now, that varies depending on the market: some places it is 20%; some places it is 70%, obviously. Now, what our data are showing is that the rents that we are paying—what benefit recipients are paying— are rising faster than the market. I am sure I will be probed on numbers, but it is in real terms rising considerably faster. For instance, figures for 2000 2007 show an overall private rental market gain of around 15% in real terms; our rents are going up 25%. The impact of the LHA is difficult to analyse. When you have published what rate you are prepared to pay, it is not surprising that the market tends to gravitate to that rate, particularly as we have put it effectively at rather a high rate at the halfway point. I would not agree with some of the evidence you have seen saying that there has been no bunching at LHA; we see quite a lot of bunching already. So there is a lot of evidence that prices are going up in our area; they are going up faster than in the market as a whole. We can see a mechanism whereby that can happen and it does not take very much to get very concerned about the feedback loops that we are creating in the marketplace, of driving up the whole rental market. Injecting that kind of money into a marketplace drives the whole marketplace, just like the starter buyer drives the whole of the purchasing marketplace. So we are a very big factor and we have to get pretty smart about—sorry, I am moving on now to why we are doing it. I think that summarises the position. Q104 Mr Heald: No, that was very helpful. Just moving on now, you are quoted in e elegra as saying that landlords are ripping off the system and there is this piece of research—the Low Income Households DWP research—that is often quoted in this context. Do you take that research to be saying that landlords are renting properties out to Housing Benefit tenants at higher rents than they would actually charge to somebody who was not on Housing Benefit, or is it the situation that lower income working households are actually renting property at a lower cost than Housing Benefit claimants are, which is another interpretation of it? In that context, the evidence we have heard is that somewhere between 30% and possibly as many as half of landlords would respond to the changes that you are making by cutting

rents or accepting lower rents. What is your take on that? Lord Fre d: Well again, the bottom line is when you are such a big purchaser there is an element of negotiation going on between Government and landlords. Some of the things one hears, and results of surveys, have to be taken in that context. However, we are putting out a paper, I think next week, on the comparison between low-income working households and Housing Benefit households, which is dealing with information at the current time. A lot of the debate that has been going on has been looking at rather out of date pre-LHA information. The information that we have and will be putting out and clearly can share with the Committee is that the lowincome households rent at about 90% of what the Housing Benefit recipients are renting at. So they are renting at a lower level. Now, exactly why that is happening—clearly one can have a long debate about whether they are a more or less desirable tenant and they can do deals, or whether they are better at negotiating. So there are a number of reasons, but the facts are that low-income people who are not taking Housing Benefit are having to live in cheaper housing. Q105 Mr Heald: The Mayor of London, London Councils and others have expressed concerns about what the changes may mean for local government in terms of cost. There is obviously also the Discretionary Housing Payments fund that you have established to deal with the transition and the problems that may arise, but have you worked out what the costs are likely to be, first for local government and secondly in terms of discretionary payments to set against the savings that you are hoping to make? Lord Fre d: We have put aside a total of £140 million in this Spending Review, the bulk of which is in the Discretionary Housing Payments. £20 million is coming out of the Department for Communities and Local Government (CLG); two lots of £10 million.1 Our expectation is that will be adequate to support the people who need supporting. It will keep people in homes where needed; there are some people who may be living in more expensive homes than the LHA rate will become who will need to stay there, for instance people who have very heavily adapted that home. I suspect that is not a large number of people; we think that is not a large number of people. Clearly, the rest of it will be to help with the transition and to support recipients. Q106 Mr Heald: And what about DCLG having to spend more money on their homelessness obligation side of things? Lord Fre d: Well that is what the CLG money is for; the two lots of £20 million. I must put on the record that we are not expecting any significant increase in homelessness as a result of these changes; we do not expect that at all. We are expecting transitional costs but not a substantial increase in homelessness. Mr Heald: No. Thank you very much. 1

See Q154 for corrected figures.

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3 November 2010 Lord Freud, Neil Couling and Paul Howarth

Q107 Chair: Can I just be clear about that? Richard Blakeley, the Mayor of London’s Director of Housing, writing in this week’s use aga ine, says, “These changes could result in an additional bill of £78 million a year in temporary accommodation costs.” Do you dispute that figure? Lord Fre d: Yes, we do dispute that figure. We do not think some of these very dramatic figures that are being put out bear any relationship to what is likely to transpire. Q108 Glenda Jackson: Well can I just follow up on your last answer to Miss Begg’s question? What is your evidence for that? The Chartered Institute of Housing has done a breakdown on the actual weekly loss of every single category of Housing Benefit claimant within the private rented sector and that ranges, off the top of my head, from something like £1 a week for a shared room, for example, up to £256 a week for a family in a four bedroom property. Certainly, in the questions that I raised with one of the local authorities that serve my constituency on the initial announcement of the £400 cap on four bedroom properties, 313 families in the Borough of Camden will lose their homes because of that cap. So can you flesh out your answer with something rather more than simply not accepting the figures? Lord Fre d: Yes, of course I will. Do you want me to take it right from the top? Glenda Jackson: Well I want you to explain to us how it is that people will not be made homeless when they cannot actually meet their rents. That is what will happen. Lord Fre d: Well, let’s just look at the housing market, because there is a lot of misunderstanding about what the private rented sector actually is. It is not like the social rented sector, where people are very long-term tenants. There is a lot of churn in the private rented sector. 40% of people have been in their rented accommodation for a year or less and 70% less than three years. So in this area, people do move and move on a regular basis. So the fact that people are moving is not something that is abnormal or odd in any way in this sector. When you start looking at these figures—and we can go into the actual numbers—in principle we are expecting a large number of people who receive less Housing Benefit to be able to negotiate their rents downwards and that the landlords will move to the new LHA rate. The new LHA rate, in many cases, at 30% is not very far apart—I can go through numbers again—from the 50% rate in the rest of the country outside London. I think the average difference is around £6? £9? We have some data on that. So the move from the difference between the 50% and the 30% is not great. There is a larger impact with the caps and clearly, when people make their next move and their anniversary comes up, they will have to look at housing that is affordable for them and indeed the kind of housing that ordinary, working families afford when they are making their housing decisions. Q109 Glenda Jackson: But many people on Housing Benefit are ordinary working families. I find it very hard to accept that landlords are going to lower their

rents when we have a situation at the moment where, increasingly, landlords in the private rented sector are refusing to accept tenants on Housing Benefit; where there is already a discrepancy between the rent a landlord in the private rented sector will charge and what the local rent officer deems to be a proper rent for that property; and where claimants are already seeing a shortfall in the rent that they have to pay. So with the increasing caps, I do not know how you can say that there will not be an increase in homeless. Is it in order, Miss Begg, for me to read out a briefing of the Citizens Advice Bureau on this very issue? Chair: I think that might be a bit too detailed, but— Glenda Jackson: Not at this moment? Okay. Lord Fre d: Sorry, so— Chair: I think the question— Q110 Glenda Jackson: The issue centrally is that you are arguing that what the Government are going to introduce in reductions as far as Housing Benefit is concerned is not going to create homelessness, because you also argue that apparently people on Housing Benefit are constantly churning every year. That might be the case for single individuals; it most certainly is not the case for people with children; it is not the case for people with disabilities; it is most certainly not the case for pensioners. Where are they going to live? Lord Fre d: Well, as I say, we have £140 million going into a discretionary housing allowance. Glenda Jackson: That is peanuts. Lord Fre d: So where there are hard cases—and there will be some—there is— Glenda Jackson: Several. Lord Fre d: There will be some. We have made arrangements and provided funding to allow those people to be supported as appropriate. But the bulk of people who have relatively small reductions in their Housing Benefit—and the average in London is £22 overall—we would expect to be able to establish new rates with their landlords. The reason we are expecting that to happen is not very far to seek. In many, many markets, when you are a 40% purchaser and you are changing the terms of trade, there is nowhere else for many landlords to go. Now, I know that is not the case in every market and there are different sub-markets, but as an average and as a whole, that is what we would expect to happen. The evidence against that has been based on very small surveys with very small response rates and is absolutely not compelling. Q111 Glenda Jackson: So you are disputing my statement that, increasingly, landlords in the private rented sector are refusing to accept tenants who will pay their rent via Housing Benefit? If you are, can you give me the evidence? Lord Fre d: There may be in some markets some difficulty, but the raw truth is that since 2007, an extra 400,000 households have been added to the private rented sector. So there has been a huge expansion, which would fly straight into the face of a claim that said that landlords were shutting their doors to these renters. Indeed, when you are looking at 40% of the market, it is very hard to see how that can happen. It can happen individually and the market can adjust;

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different people specialise in different areas. But what we see is that there is a degree of specialisation among landlords and landlords who specialise in this area, interestingly, on the survey work that we have done, say that they are intending to stay in the market. Q112 Glenda Jackson: And do you intend to carry out a survey with those who do not? Lord Fre d: Well, we have done general surveys; there are general surveys. Q113 Glenda Jackson: With respect, you have just said that the surveys are very small. You seem to be undermining your own argument. Lord Fre d: No, I was talking about surveys done— Neil Co ling: The Mayor’s survey had a 3.5% response rate from landlords. Lord Fre d: The Mayor’s, yes. Q114 Glenda Jackson: So will you do another one in the light of these changes? Clearly not. Lord Fre d: Paul, would you like to pick that up? Pa l Howarth: Well we will do a full evaluation of all of these changes. So we will involve landlords in that. We are also conducting a two-year review of the Local Housing Allowance in any case and that will report later this month. That will include evidence from landlords about what is happening in the market. Q115 Glenda Jackson: So the evaluation will be done before the changes are introduced? Pa l Howarth: Well, there was a commitment to do a review of the Local Housing Allowance in any case and that commitment will be kept. What I am saying is that when the changes are introduced there will be a full evaluation; a much bigger evaluation, actually, than the one that is being done already. Q116 Glenda Jackson: And if that evaluation shows that homelessness has vastly increased, will the Government be changing their policy? Lord Fre d: I had better pick that one up. Again, this is the kind of thing where if things come up, clearly one reacts to them, but at the moment that is a hypothetical question and impossible to answer at this stage. Glenda Jackson: Not as hypothetical as you think. Q117 Chair: While we are talking about figures, you mentioned to Oliver Heald that you have evidence that the rates in the Housing Benefit part of the private sector have gone up by 25% as opposed to 15% elsewhere. I know we do not have that evidence; do you have that evidence that you could supply to the Committee? Lord Fre d: I actually have quite a lot of data that I am very willing to let the Committee have at the end of this and we will make sure that we pass it on. Chair: That would certainly be useful. Certainly that is not what we have been hearing about up to now; that differential. There may be the odd case where there is a differential between what somebody on Local Housing Allowance is getting and somebody who is on private rent, but we do not seem to have the evidence that covers all of that.

Lord Fre d: I will of course make some of these data we have just been working through available. Chair: Right. Yes, Oliver. Q118 Mr Heald: On the surveys you were mentioning, we have had evidence from many organisations on how many landlords will reduce their rents. The variation is from about 29% to 30%—that is the Shelter and Residential Landlords Association evidence—London Councils said 40% would reduce their rents and, in evidence last week in working out their calculations, the British Property Federation said, “Let’s say that 50% of landlords did reduce their rents,” and then went on to calculate the cost. What is your take on the likely percentage who will reduce their rents? What is your working assumption? Lord Fre d: What we have—I am just trying to look at a particular piece of evidence that we have and I might ask either Paul or Neil to just hone down on the actual figure. Pa l Howarth: One comment I would make in response to that is that I think it is important to look at the amounts of the shortfalls in rent that people will have, rather than just the percentage of landlords who will reduce their rent. In a sense, when you talk about the percentage of landlords who will reduce their rent, it is a bit meaningless. What we really want to know is how many people have a shortfall of a certain level and what that will mean; how that will translate into landlord behaviour. I think when you look at the fact that, for example, 450,000 people will end up with a shortfall between their rent and their Housing Benefit of less than £10 per week, if you look at it from that perspective then I think you might be able to make some better assumptions than some of those that we have seen. Lord Fre d: The evidence in the London Councils— and as I say, that was a fairly poorly responded-to survey—suggested that half of the larger landlords would be prepared to reduce their rates, but clearly there is an element here of sending messages through polls. So our experience on previous occasions like this is that landlords do not necessarily behave in the way that their polls previously suggested. Q119 Sajid Javid: Minister, I think you said earlier that the rents on average paid by low-income working households was lower than people on Housing Benefit; I think you said it was about 10% lower or something on average. I assume that is just a reflection of the fact that Housing Benefit is currently set at a median, whereas low income obviously is at the low end of the spectrum. I guess that the changes proposed by the Government reflect a policy desire that people on Housing Benefit should be forced to make similar housing choices as people on low incomes. Clearly as a result of that there will be, as you have said yourself, people who will be forced to move homes. There has been a lot of talk of homelessness in previous panels that we have had here as well, but would you agree that although someone may be forced to move their home, let us say, from a five bed to a four bed property, as long as they are in a four bed property, perhaps in a different location, they are not homeless?

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3 November 2010 Lord Freud, Neil Couling and Paul Howarth

Lord Fre d: Well I was very interested to read the last Committee evidence session where you went in fascinating detail into the way that we define homeless. Clearly, the common view of homelessness is nothing over one’s head at all. The statutory and different definitions of course are different from that and they are about adequate housing. Interestingly, just looking at these figures here, the number of people living in overcrowded accommodation on those terms is actually already pretty substantial; in the social rented sector it is over 250,000 and in the private rented sector it is now 160,000-odd. So depending on how one defined it, one could if one wanted to be dramatic say they were homeless. Q120 Richard Graham: Chairman, can I just come in on that? In fact, Minister, the definition of homelessness goes even further than that, in a sense, because it includes the phrase “threatened with homelessness”, which includes a definition, “If it is not reasonable for them to continue to occupy their accommodation because of the severity of overcrowding.” So in fact, a local authority can define a household as homeless if they have decided either that a family could not afford the rent or if they believe that that family is overcrowded in either the bedroom standard or the LHA standard. Do you believe that it is possible for the DWP to actually calculate the numbers of people who will be defined as homeless, in answer to a couple of questions from other members of the Committee, or in fact could that figure be any figure that local authorities decide to make it on the basis of judgments on overcrowding or statutory definitions of homelessness? Lord Fre d: That is a very good question and a difficult question. That is one of the reasons that this debate is being slightly bedevilled by some extravagant claims, because at a pinch a council can say, “Anyone who has to look at their financing and cut their cloth to what they can afford has a risk of homelessness.” That is the point you are making. So we have found it very difficult to define homelessness in this country for that reason. The estimates of it go from a few thousand to hundreds of thousands depending on who you are talking to. Indeed, if I can just make the point, it is immensely unhelpful when people and commentators stir up fears using somewhat arbitrary figures about potential homelessness, because it frightens people. Q121 Richard Graham: Do you believe it is time for a redefinition, in fact, of the word “homeless”? Lord Fre d: I actually think it might be quite valuable. Q122 Richard Graham: Could I make the suggestion the DWP look at this, which would then enable not just members of this Committee but other voluntary organisations outside to revise some of the calculations on which they are making assumptions of homelessness at the moment? Lord Fre d: Thank you very much. Q123 Alex C nningham: I was interested earlier on when you were talking in terms of landlords may well

accept a reduced rent, particularly where somebody is maybe £10 a week short of the existing rent. I just wonder what evidence you have, because we have a situation where the outer-London boroughs are already buying up bed and breakfast accommodation; they believe that there is going to be a movement out of the inner parts of London to the outer parts. We also have a situation where the landlords believe that the marketplace is good enough for them to let to young professionals or others, so there are enough people to fill the properties that other people may leave. So I wonder, what discussions have you had with landlords or what evidence do you have from landlords that they will be accommodating to people who might actually just be on the margins of losing their homes? Lord Fre d: Well there are clearly many, many thousands of landlords. We have to go on past evidence and evidence of current behaviour and what we are seeing is many landlords—the ones who are specialising in this area—starting to bunch their rates around the LHA, which, after all, has only been going for a couple of years. The bunching is quite substantial now. We have moved from seeing 28% of Housing Benefit recipients within the £10 either way of the LHA rate to now it is up at 32%; so it is moving very quickly to that. Now, the straight answer is when you are 40% of the market on average, it is very difficult for the supplier to do anything but take serious notice of the new terms of trade. Q124 Alex C nningham: So are the landlords actually telling the Government that they will accommodate this? Lord Fre d: The survey is not very well filled out in percentage terms; a 3.5% response rate. However, those surveys are saying that half of larger landlords would adjust. Clearly, what you say in a poll is a message and our expectation is that we would do better than that. Q125 Alex C nningham: So does that mean that the outer-London boroughs are wasting their time and resources in buying up bed and breakfast accommodation that is not going to be needed based on your figures? Lord Fre d: The London boroughs are buyers of bed and breakfast and have been for years. That is what they do. Q126 Alex C nningham: But we are being told that they are buying up everything that is available in order to deal with the number of people they are expecting to move out. Lord Fre d: Well I cannot see any evidence except a claim that they are buying up everything; I have not seen any evidence. Let me turn to Neil on this. Neil Co ling: When we asked Communities and Local Government whether they had any evidence that this was going on, they could find no evidence of this mass buy-up that was being alleged was occurring. So we have no evidence that it is occurring. Alex C nningham: I suggest, Chair, that we need to explore that. Richard Graham: Chairman—

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Chair: Sorry, Richard, I was going to go to Kate and then I am going to move on. So I will go to Kate first and then I will move on, because we are still on the first question, believe it or not. So Kate first and Richard, you can come back later. Q127 Kate Green: Thank you. In passing, I note your interest in revisiting some of the homelessness and accommodation standards, and I would just point out that our overcrowding standards are based on standards that really date back to around the time of the Second World War. I would hope that we could be more ambitious now, given that living standards generally have risen so substantially over the last 60 or 70 years. I wanted to pursue a little further the issue Alex was raising about bed and breakfast use and temporary accommodation. Pre-the 1996 Act, we did see a substantial number of families forced into bed and breakfast accommodation, and one of the reasons that the definition of homelessness was looked at again leading to the 1996 Act was because we saw the damage that that kind of accommodation did to children and families. I wonder what evidence you have considered in relation to the poor outcomes for children of time spent in temporary accommodation and what assessment you are making of the likely numbers and periods that families will have to spend in temporary accommodation as a result of these measures. Lord Fre d: As I say, we are not expecting substantial numbers to have to go through that kind of process. Q128 Kate Green: What evidence have you looked at? Lord Fre d: We are looking at the numbers of people affected by these changes. Let me just run through the numbers. A third of people—32%—will see no increase in their shortfall at all. If you take all Housing Benefit customers in inner London, 7% have losses of more than £10 a week and only 4% of them have a shortfall of more than £20 a week. As I have been saying, I am anticipating that the more modest shortfalls will in practice be made up by landlords. That leaves us with relatively modest numbers. What we have looked at has been considered over a period; this is not just done in an instant, it is done at the anniversary of people’s rental agreement. So there is plenty of time for councils to manage the process of getting people moving into their next affordable home in a timely way. Q129 Kate Green: So you do not expect a significant increase in the use of temporary accommodation as a result of these measures? Lord Fre d: We do not expect a significant increase in the use of temporary accommodation, no. Kate Green: No doubt when we have the evaluation that Mr Howarth mentioned, we will be able to look at that. Chair: I am going to move on. Stephen has been waiting patiently for the last half hour to come in with his question.

Q130 Stephen Lloyd: Back on to impact assessment, what do you have to say about Shelter? e server a couple of weekends ago ran a long story that 82,000 people in London will be made homeless on the basis of the changes you are bringing in. Lord Fre d: I was very disappointed in that kind of story. It was based on the raw figures that we supplied in the impact assessment and then the poll that we have been talking about—I think it is the same poll as the CLG poll, isn’t it, Neil—which had a response rate of 3.5%. So they put two and two together and made a very large number and I think created some very exaggerated figures; very exaggerated indeed. Q131 Stephen Lloyd: Right, okay. Thank you. What assessment have you made of the wider property market and demand for rented accommodation and how that affects the ability of claimants to find property at or below the 30th percentile of rent? Lord Fre d: One of the most shocking things that has been happening in the market, when you look at the marketplace, is what happened after the crash and the onset of the recession. From November 2008, for the next 15 months, the property index declined by 5% and our HB claimants’ payments went up 3%, which shows the disconnect there is between what is happening in the marketplace and what we are paying. It is one of the reasons that we took the view that we have to break this feedback loop of us pumping in money that pumps up the amount of money we have to pay. That is a very, very good example of what has been going wrong in the marketplace as a result of us being pretty un-smart buyers of private rented accommodation. Q132 Stephen Lloyd: So to a great extent, we are back to the fact that generally speaking we are 40% of the market; that means the buyer has the whip hand. So you are very confident that the size and scale of the Government market means we are going to be able to drive the changes aggressively through? Lord Fre d: Clearly, one has to look at micro-markets and an average is an average. So there will be areas where we are not the dominant buyer and where there will be more of an issue, but across the country as a whole, the fact of being a 40% purchaser is a very important one. Q133 Stephen Lloyd: Okay. I am particularly interested in the direct payments concept and we have taken quite a lot of evidence, as I know you are aware. Landlords, local authorities and other stakeholders would like to see LHA paid direct to landlords to address concerns over non-payment, arrears and shortfalls. Also there is a reasonably strong argument that the changes that the Government are proposing mean that there is an even stronger rationale to revisit paying direct to the landlords from the DWP. Are you in favour of direct payments to landlords and what are your thoughts about possibly reintroducing it or not in the next year or two? Lord Fre d: Currently I think about 20% of private rented tenants have direct payments; the rest pay for themselves. The reason that this was driven in so that tenants pay for themselves was to allow them financial

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responsibility. Indeed, that was an aim of the last Government that was supported by this Committee in its previous incarnation. So there are some valuable things to be said about allowing tenants to pay their own way. We have committed to looking at this in the context of the review of the LHA and the report that is coming out later this month. I have to say I have glanced at some of the outline at that report and I am not sure that it is going to be hugely helpful in taking that decision, but we are committed to looking at the issue; we understand the issue. It is not straightforward and I will explain why. We are bringing in the Universal Credit in three years’ time and the essential component of the Universal Credit is that we are trying to break down the distinction between out-of-work benefits and in-work benefits to try to eliminate the problem of being stuck on out-of-work benefits and being frightened to go into a job. So the Universal Credit, with a single taper, is designed to do that. If you are going to do that system, it clearly begs the question: if you are going to have direct payments to landlords, at what point do you break that as you run down the taper, and have you created an unnecessary block on people going from being out of work to in work just based on who is paying? It is, however, something that landlords have been calling for, but that should not be a surprise to anyone, because who would not want to go from a triple C sub-prime payer to a triple A—we have kept our triple A in this country—sovereign buyer? So that is no surprise that we are getting the call; the issue is balancing these quite complicated factors out as we try to get the cost of Housing Benefit under control. Q134 Stephen Lloyd: I can appreciate the challenges you will have because of the Universal Credit and the tapering; I do understand that. That was going to be one of my supplementary questions, so thank you for answering that. What would you have to say to the proposition that will be coming from the private landlords—and I have had a number of them make representations myself in my own constituency—that, “Stephen, we accept the Government’s narrative and the direction of travel; we accept that there are going to be reductions in rental from LHA. But we think”— and I am using this anecdotally to a certain extent— “that if the Government are able to go back to that direct payment our experience from our own perspective and from all our colleagues who we have talked to is that that would make a significant difference in denying the dangers that Shelter are alluding to of these tens of thousands of people’ becoming homeless”? They propose that for the very reasons that you alluded to. So presumably you appreciate that and so, despite the difficulties of the universal benefit and how we would squeeze it in there, can you confirm yes or no whether that could be seriously considered and looked at within the evaluation? Lord Fre d: Yes, we are committed already to looking at this issue. It is one of the key issues within the two-year review that we are undertaking of LHA. One of the issues that we are committed to look at is the direct payment issue, but I have to tell you it is a

very complicated issue; as I was trying to explain, it has a lot of implications. It is not an easy issue. Q135 Karen Bradley: It is actually on the same theme but not specifically on the private rented sector; I merely wanted to make a plea that has been made to me by social housing providers that they have a great fear that the Universal Credit will take away direct payments to them and that could cause problems in the social housing sector. It was merely just to make that point. Lord Fre d: Okay, I hear the point. Q136 Glenda Jackson: One of the reasons that Housing Benefit should be paid essentially to the tenant and then the tenant pay the landlord was—I frankly admit I thought it was mis-thinking—that avenue meant the tenant could negotiate the rent down and that clearly did not happen. You also gave the example of the first stages of the recession, where I believe you said the housing index fell, but rents went up. So I am still somewhat perplexed as to why you think that the Government’s introduction of these changes to Housing Benefit will bring down rents in the private rented sector. What is the evidence to support this? What we have seen, as I have said, is rents increasing. Lord Fre d: Well as I say, we have actually seen rents coming down recently. Q137 Glenda Jackson: Where? Lord Fre d: I think I take the point about expecting tenants to negotiate and incentivising them to do so, which you said in retrospect you would not have supported. Glenda Jackson: It didn’t work. Lord Fre d: I think the evidence on whether it has worked is that there is not much evidence it worked, and when you think about it, there is a very good reason for that. That is, if you are negotiating and someone has put up on a screen what your final negotiating position actually is, you are not going to be very effective in that negotiation. In practice, that is exactly what the excess system was doing; the landlords knew exactly what they could charge and that therefore undercut the tenants who were trying to negotiate a discount from that rate. So it is not surprising that we have not had evidence that the excess has worked. Q138 Glenda Jackson: But you are confident, are you, that the obverse of that, namely private rented sector landlords seeing just how much the Government are prepared to pay in Housing Benefit, will automatically bring those rents down, even though, as I have had occasion to say, many private landlords are refusing to accept tenants on Housing Benefit? Why would they refuse to accept them when the rents are high, when you are arguing that they will be only too happy to accept them when the rents go down? Lord Fre d: We’re going back to— Glenda Jackson: It is rather central, I think. Lord Fre d: Yes, but—

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Q139 Richard Graham: Chairman, can I come in just to try to clarify? Minister, would it be fair to say that effectively, the Department’s position on the 10% reduction in housing allowances in April 2013 is based on the assumption that with buying power of about 40% of the market, you can go to the provider and oblige them to discount slightly in the same way that a supermarket would go to a supplier if it had 40% of the market? Lord Fre d: No, that is a different measure. This is the measure to reduce people on Jobseeker’s Allowance (JSA) for more than 12 months that we are going to is it, Richard? Chair: Can I maybe come back to this, because I think what Glenda Jackson asked was a legitimate question. I wonder whether, if you can remember what the question was, you can answer that. Glenda, very quickly, if you could say it again. Q140 Glenda Jackson: Well essentially, you are arguing, it seems to me, that in the past because landlords saw what they could obtain, they refused to negotiate their levels down. You are now asking us to accept that because landlords will see the maximum that Government are prepared to pay as far as Housing Benefit is concerned, they will automatically lower their rents, even though they are at perfect liberty to refuse, and are indeed so doing at the moment, to accept Housing Benefit claimants. I do not understand how those two views can coincide. Lord Fre d: Well, you have to distinguish between the average and the particular. On average, we are a 40% buyer. Now, on average, that is a very powerful position. In particular markets, you will find attractive markets—and indeed Camden, in some parts anyway, may very well be one of them—where people have more ability to pick and choose. You are meeting landlords who have decided to go into particular parts of the market, but overall, whereas we have had a system with the excess of expecting individual tenants to negotiate down and be incentivised to do so, we have now effectively gone to an end-to-end negotiation where we are just saying what our rate is. So that is a completely transformed nature of negotiation. Q141 Chair: Can I be clear about this 40% figure? Are you saying that in a local authority area—a broad area of housing—40% of the homes are procured by Housing Benefit tenants? Lord Fre d: Yes. Let me just go through this— Chair: That figure cannot be right for the rest of the country; I am sure it cannot be anything like that in Aberdeen, for instance. Lord Fre d: Well let me take you through the actual figures. The private rented market in the country as a whole is 3.6 million. That is the private rented market; those are the number— Chair: Well we have been told it is about £100 million. Lord Fre d: 3.6 million units. Chair: Oh, sorry. Lord Fre d: Okay. We are buying 1.46 million, the bulk of those on the LHA. So we are the buyer of 1.47 out of 3.6 million units of housing.

Chair: Sorry, that is an average, but— Lord Fre d: It is an average across the country. It will be different in different areas. Some areas— London—it is 20%; others, it is 70%. Go to Blackpool and it is 70%. That is the average. Chair: Right, okay. Kate I am going to bring in and then I am going to go back to Richard, because I think he has already asked some of his questions. Q142 Kate Green: It is on this point and at the moment I am very willing to accept the Minister’s figures at face value and I am sure he has examined the evidence. I also absolutely accept that it is going to be different in some markets than in others and in London, for example, the private rented sector is a market that is accessed by many more than simply Housing Benefit recipients; young professionals, for example, are competing for those properties. In my own borough of Trafford, 10 times the number of working families are looking for two bedroom properties than it seems will be available to rent at the LHA rate, according to a brief that has very helpfully been provided to us by the British Property Federation. What I want to ask, Lord Freud, is: in those markets where there is an alternative for the landlord, he could shop around and go to another tenant; how is he going to ensure that a Housing Benefit claimant, often quite vulnerable—perhaps a pensioner, perhaps somebody with mental health difficulties—is going to be able to negotiate with the landlord given the inequality in the bargaining relationship? What support is he going to put in for those more disadvantaged individuals who are trying to do a negotiation? Lord Fre d: Well clearly we are going to be putting out a lot of information and support in this process and we have committed to doing that. We are expecting councils to help more vulnerable people through this process. That is what their job and our expectation is. Q143 Kate Green: Will you be pressing your colleagues in CLG and Justice to ensure that there is adequate funding for advice and advocacy services because councils are facing real attacks on those budgets? Lord Fre d: Well, our view is that it is the job of the local authorities to make sure this happens for their clients, smoothly and effectively. That is our view and we are putting a lot of resource into helping councils do that; that is the £140 million that we are putting in over the period. Clearly, this will take place over a period, giving time for councils to put that support in. Chair: Okay. Richard, I think you have maybe asked some of your questions. Q144 Richard Graham: Not many. Chairman, can I just start by just putting on the record—in response to an earlier comment from Kate about hoping that we would be moving forward in terms of improving the LHA standard or bedroom standard of accommodation provided to everyone because it had been designed a long time ago—that my wife and all her brothers and sisters were brought up in a house that did not meet the definition of satisfactory

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accommodation in terms of the bedroom standard, and my children’s accommodation did not meet the LHA standard? All of them, as far as I know, have grown up to be pretty sensible sorts of people and I do not believe that this constant trend to try to isolate children in separate bedrooms where they watch their own TV, play with their own computer games and do not have interaction with other people in the family is a positive for the families in this country. I would just like to start by putting that on the record. When it does come to looking at the redefinition of homelessness, bedroom standards and LHA standards, there is absolutely no reason, in my view, for trying to isolate children even more than they already are. Turning now to the Minister and the evidence today, we have heard quite a lot, Minister, about the question of evictions and homelessness. I think we have probably gone into the homelessness business enough for now, but in terms of evictions, does your Department believe that there will be significant numbers of people actually evicted from privately rented accommodation and therefore moving out of the area in which they currently live, and do you believe that a certain amount of that is what actually happens in the non-social housing world, where people move from job to job in different parts of the country, commute into jobs from outside where they live or, in the case of people in the armed forces, are transferred by their employer from place to place, their children move school and move house? What do you see as the balance here? Lord Fre d: Well, it is very easy to get into a very static mind-set about where people live and how they behave. The reality is that we are a hugely mobile society. Just taking even London alone, the number of moves every year within inner London alone is around 250,000. We are also expecting London to expand—I forget the exact figure—5% or 6% over the coming year. So we are expecting to see big movements of people and we do see big movements of people. We also need to remind ourselves that commuting is a fact of London life. The average Londoner travels just short of 10 miles every day—15 kilometres. So people are moving around in terms of their homes and they are moving in terms of getting to their jobs around London as a normal part of being a Londoner. So that is the context in which we are looking at some of these changes. Q145 Richard Graham: Thank you. Can we move on now to the linkages of Housing Benefit to the Consumer Price Index (CPI)? Of the various charities and voluntary organisations we have already taken evidence from, I think it is true to say that the one thing almost all of them would like to see changed if they could—and many of them singled this out as the one thing they would like to have changed—would be to take away the linkage to CPI, presumably back to Retail Price Index (RPI) where I imagine it was, on the basis that this will mean that the proportion of the market available to people on Housing Benefit will shrink below the bottom third. Do you believe that is the case? Do you anticipate changes in the composition of the CPI that may alter that? Or is it something that you are not too concerned about?

Lord Fre d: Of course I am concerned about all aspects. Let’s just address it. What we used to have is rents set by the broad market rent—the average figure that landlords charged. The CPI figure will come in in the year 2013 and effectively it is set for the next two years, because we are talking about a settlement for this Spending Review; the SR10. So what we are doing is breaking the link into the market as a whole for two years, in order to keep downward pressure. That supposes that it is downward; as I say, rents have been going down so it may not be downward when we get there—we do not know—but we are trying to keep pressure on this ballooning figure in those two years. Now, it will be up to future Governments to decide whether that approach needs an adjustment; if rents get well out of kilter, for instance, there could be an adjustment. But that is a matter for another Government. To try to extrapolate CPI, which I think some of your witnesses have done, for decades on the basis of a two-year attempt to squeeze the ratcheting up of rental inflation is not sensible. Q146 Richard Graham: Thank you. You talked earlier about effectively the bulk-buying power that the Government has in the private rental market. You have also heard from the Committee about the Committee’s interest in reviewing again the possibility of rental payments being made directly to landlords as effectively a pay-off for accepting a lower rent in return for greater security of income. To what extent have you seen programmes in other places, both in the UK and outside, that give the Department confidence that the measures being introduced on housing are likely to succeed? For example, quite a lot has been talked about the Edinburgh experiment. I wonder whether you would like to say more about that and any other pilots or practices you have seen overseas that could give the Select Committee encouragement that what you are doing has shown evidence of success elsewhere. Lord Fre d: Well I think I ought to turn to Paul on this, just to go through what the evidence base on this kind of thing is—to the extent that you have it at your fingertips, Paul, which you may or may not have. Pa l Howarth: Yes. I do not think we have a lot of evidence from other countries. I think the problem with looking at Housing Benefit in other countries is that the whole social security system is so different in other countries that it is very difficult to make meaningful comparisons. So, although we can certainly pick out policy measures that other countries have adopted and consider those, to actually look at a system outside and say, “Well that is something that we would like to adopt in full,” is not something we could do. Q147 Richard Graham: Does that imply that our system is much less generous or similar or rather more generous than what is available, for example, in continental Europe? Pa l Howarth: In continental Europe—I think things are changing now—by and large, certainly historically, there have been very much higher rates of benefit for living expenses, often earnings related. Therefore, it has been much more possible to

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contemplate the idea of the housing allowance being somewhat less and that people might be expected to spend some of their other benefit income on their housing. I think that is the expectation in some continental countries, but in this country then typically the income-related benefits are primarily designed for living expenses and Housing Benefit is designed for the rent element on top of that. So it is rather different and I think the way the benefit system has been developed in this country is very different indeed. Q148 Richard Graham: And can you say something about the Edinburgh method, which I believe means that there are very low arrears in Housing Benefit because of more proactivity from the local authority in collecting arrears? Do you know anything about that? Pa l Howarth: I am not familiar precisely with what you mean by the Edinburgh experiment. Richard Graham: I believe what happens is that, in essence, if a tenant falls into arrears, the local authority is very quick in changing the method of payment so that the Housing Benefit is then paid direct to the landlord. Pa l Howarth: Right. Yes, well that happens, actually, in quite a few areas and it is something that we very much advise local authorities to do. What we say to local authorities in the guidance on direct payments is that, “If there are signs of trouble, don’t wait for eight weeks to elapse before you intervene. If there are signs of trouble, try to manage that situation; try to talk to the landlord; try to ensure that you are doing everything you can to safeguard both the interests of the tenant and the landlord.” Q149 Richard Graham: You effectively have two options, don’t you? One is to statutorily decide that the payment should be made direct to the landlord and the other would be to work with and encourage local authorities to speed up the way in which they handle arrears so that, effectively in both cases, you arrive at the same solution, which is to give the private landlords the confidence they need in the marketplace and the certainty of income, in return for which that gives you greater buying power on the discounts that effectively you are applying. Pa l Howarth: Yes. Lord Fre d: Yes. Just to pick that up, when we are looking at this issue, we will look at it quite widely in terms of there being more ways to approach this than just a simple, “Right, we’ll pay then,” because, in the end, we must get it to be consistent with the Universal Credit, through which we are trying to blend all of these payments into one. So we will take it in the round. Q150 Richard Graham: Yes. Last question, Chairman, if I might. Clearly, whenever you are making radical changes to a policy it will never be easy to anticipate exactly what the response in the marketplace is going to be. If some of these dire predictions about shortfalls, evictions, real homelessness—people without roofs over their heads—and so on start to become a reality, what is the Department’s plan in terms of response, evaluation and so on?

Lord Fre d: Well, we are going to evaluate this rather carefully. Indeed, I have been pretty disappointed to see the evaluation done on the introduction of the LHA, which is to be published shortly. I think that was starved of funding and I am absolutely determined that we will get a proper assessment and evaluation of these sets of changes, for just the reason that you are pointing out that we need to know what is happening and we need to be able to respond. Q151 Teresa Pearce: Richard asked you a question about eviction and your reply seemed to be about London and commuting, which confused me a little. I would just like to ask you about that, because when you are talking about that, I presume you mean that people who are working and on Housing Benefit have no need to live in Central London; that they can commute in every day, like many people do—like I do—and that is why the idea of having this cap, say for a one bedroom property of £250 a week, is being brought in, because that is public funds. I just wondered how you felt about the fact that, if that is meant to be fair and we are all in this together, Members of this House can claim £350 a week out of public funds for a property in Central London. Lord Fre d: Well I don’t think it is for me to comment on the level of payment that— Teresa Pearce: I am asking you because you were talking about normal people commuting in. So why is it not normal for other people? Lord Fre d: What are you saying? Teresa Pearce: You were saying that people do not need to live near their work; it is perfectly reasonable for them to commute and that it is not right that public funds should pay more than £250 a week for a one bedroom property. But I am just asking why that is— Lord Fre d: Well we have taken a decision at what seem to be reasonable rates. If you take the top rate— £400—it is already £20,000 a year; that is a lot of money. I think six average taxpayers’ income tax goes to support that rate. I think we would all want to live in a country that supported people who needed this support—that is entirely right and appropriate—but it is not entirely right and proper that we support people to live in houses that people who are working and supporting those people cannot themselves afford. To take a rent to a payment at the top cap—the £400— you would have to be earning, I think, in the £90,000 to £95,000 bracket; £95,000, I think the exact figure is. That takes you right up into the top third earners in the country. Richard Graham: Significantly more than the MPs’ allowance. Lord Fre d: More than the MPs. So the level of support that we are still offering is by no means ungenerous at all. I think you could hear criticism— Q152 Teresa Pearce: It is not equivalent, is it? £250 is not £350. Lord Fre d: No. Alright, I am taking the different— Teresa Pearce: You are taking the higher and I am talking about a one bedroom flat. Lord Fre d: Okay, you can do the sums; 250 times five—I am sure I could do it if I had a calculator here. On the direct comparison, the way that the MPs’

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figure was arrived at was entirely different and was made within the context of a whole set of issues, so, frankly, I do not think I am in a position to offer a direct comparison. Teresa Pearce: Okay. Chair: Can I just move on to Sajid, because I think this may come up in his set of questions as well? Q153 Sajid Javid: I just want very quickly to ask a question prompted by that as well, before I move on to these, which was about the quality of accommodation for Housing Benefit recipients. As a member of the Armed Forces Parliamentary Scheme, I had the privilege of going to an army base recently. One thing that struck me that is directly relevant to what has been said about quality was that I had the opportunity to see housing accommodation for soldiers and their families. At this particular site, a large chunk of that accommodation had been sold off recently to the local council and it was made available to mostly Housing Benefit recipients. However, once the local authority first received those properties, they deemed them unfit for people receiving Housing Benefit. So I just wondered, is that something the Government have looked at? What really struck me was how can homes be deemed fit enough for our brave men and women in our armed forces and their families but at the same time there seem to be somewhere in the Government rules that say they are not fit for people on Housing Benefits? Is that something you have looked at? Lord Fre d: To be honest, it is not something we have looked at. I am conscious, like everyone else, that there were concerns about the estate of the armed forces and indeed that is why I think the sell-offs were occurring. Certainly, we have not done any work on that. Q154 Sajid Javid: Okay. I just wondered if that is something that could possibly be looked at by DWP later on, because I just think that there should be some consistency there. From what I could tell when I looked at the army accommodation, it seemed perfectly adequate for what was required. I think they told me that on average £25,000 per unit had to be spent to bring the Housing Benefit units up to standard. It just struck me that there is obviously a big difference in standards and many people around the country wonder why that exists. Back to these questions, this is really on the impact on local authorities and community cohesion. As a result of these changes, as you have already said, a number of people currently on Housing Benefit will be forced to migrate to homes similar to those occupied by low-income working households. To manage that migration, in one of our previous panels we were told by London Councils that they thought further Discretionary Housing Payments were required in 2011 12 of around £20 million nationally, of which they thought £18 million would be required in London. Is that something you have looked at? Lord Fre d: Clearly we are looking very closely at the costings. What we have is £140 million available for managing, of which the bulk—£130 million—is in the Discretionary Housing Payments and £10 million

is in the homelessness stream. Sorry, I must correct myself; I made a mistake when I said it was £20 million from CLG; it is £10 million from CLG—if I could correct myself—and another £130 million over Discretionary Housing Payments. So that is the money we have made available to help and support councils in this process and it is essentially up to them to manage those resources in a way that makes this transition smooth. Q155 Sajid Javid: Okay. As some people move from their current home to a new home, some of them will potentially move out of their current local areas and that will put some pressure on public services in the new local area they may move to, such as schools and hospitals. Have you done an assessment of what the likely impact might be in certain areas of that? Lord Fre d: Well we have had a look generally at where the extra cost might arise in terms of schooling and so on and so forth. The schooling figures in London show that there are primary and secondary places available in most schools. Neil Co ling: 74% of primary schools. Lord Fre d: 74% of primary and what, 80% of secondary, is it? Neil Co ling: No, it is 74% of primary schools in London and 66% rounded—65.8% actually—in secondary have surplus places. The actual places for London are: 50,500 surplus places in London primary schools and 31,000 in secondary schools. I have the figures nationally as well if the Committee wants them. Lord Fre d: Now, do not forget we are looking at a context where there are a lot of moves going on anyway; I talked about the 250,000, plus the influx of people as London grows. In the context of those, the figures that we are talking about pale by comparison. Q156 Sajid Javid: Okay. It would be useful, I think, for the Committee to get some of those numbers, if they are available; it would be helpful. Lord Fre d: Yes, as I said to the Chairman, we are very pleased to supply these data. Q157 Sajid Javid: Thank you. As those moves take place, a natural consequence of any move from one area to another will be an impact on the social capital that you had, such as childcare arrangements and things like that. Is that something that your Department has looked at? Lord Fre d: Yes, we have. But as I say, some people who will have to move, but not the kind of huge numbers that other commentators are talking about. Some people will need support in their move and support in the area in which they move to. Q158 Sajid Javid: And I assume social capital is probably only an issue when they are moving to a different area? Lord Fre d: An entirely different area. You can move four miles down the road and keep your networks. We have some of the best transport networks in the world in London, still. They may be overcrowded, but in terms of actual access, we are not talking about huge areas. We are not talking about, as in America, where

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people are moving hundreds if not a thousand miles; we are talking about moving a few miles. So we are not talking about a wholesale breakup of networks. Q159 Sajid Javid: Also, presumably you could even possibly stay in the same street and just get a house with one less bedroom or something. Lord Fre d: Well yes, or a few streets over, in some cases. So just because you have to adjust your house does not mean you have to adjust your area and then when you move your area, it does not mean that the area has to be very, very far away. So, looking at the figures, as you start moving down them, you end up with a relatively modest problem. Q160 Glenda Jackson: Very briefly on the issue of movement, indeed the distance may not be very great, but the fares are constantly rising and for people on already very restricted incomes, that is a serious consideration. On the issue of the surplus places in London schools, both junior and secondary, could you furnish us with those figures for every one of the London boroughs, so we know how many spare places there are in all the London boroughs? Could we also have a rather more detailed breakdown of the numbers and those on benefits who you believe will have to move from their present homes? If you are discounting the idea that the movement is going to be very great, that should be quite simple to furnish the Committee with, shouldn’t it? Lord Fre d: Do you want to deal with this, Neil? Neil Co ling: Certainly on providing a breakdown, I will talk to colleagues in the Department for Education and see if we can get you a breakdown by local authority area for London. On fares in London, bus fares are currently 26% below their 1999 levels in real terms; I think it is about £1.20 with an Oyster card for a one-way bus fare, about to go to £1.30. So there are issues of cost, but fares have actually been falling in London. Glenda Jackson: Not on the underground though. Neil Co ling: And the other thing I would just add in terms of the dynamic population movements in London is that now, in any one year, one in 11 people in inner London moves across a local authority boundary—this is even before these changes—and in outer London that is one in 16. So there is already quite a dynamic movement of population going on inside the London area. Q161 Glenda Jackson: Yes, but in the light of what the Government are proposing, it would be interesting to know who those people are, because it is my contention that people, for example, who are pensioners, who suffer from disabilities, who may have to take care of a member of the family, are not this peripatetic population that you are attempting, with all due respect, to represent Housing Benefit claimants as being. Chair: In fact, on that very question, that is Harriett’s. So I am going to go to Harriett. Q162 Harriett Baldwin: Thank you, Chair. Lord Freud, you were an adviser on benefit reform to the previous Government. Can you share with the

Committee whether, in that role, you looked at the limit that was set by the previous Government that currently exists for Housing Benefit, which is £104,000 per annum, or the tax and national insurance of 16 low-income working families, in fact average working families? Lord Fre d: Well I will just make clear what my previous role was so that there is no misapprehension. I wrote an independent report for the Government of the day on how to reform the welfare system, with particular emphasis on how to help people back into work. I then was asked by James Purnell if I would be an independent adviser—and I use that word very expressly—on getting my proposals through, which I was very happy to do, obviously. So I had a particular function then of advising the Government on what the welfare to work measures could be, which I did until the White Paper and Bill was available and then I had done the task. I did not in that period actually deal with or advise on housing or Housing Benefit. So I kept myself to this other particular area. Q163 Harriett Baldwin: In that role, then, as an independent adviser to the previous Government, were you aware of any work that the Department might have been doing to look at that overall limit in terms of Housing Benefit? Lord Fre d: Apart from overhearing conversations in corridors that housing reform was very important, I bluntly did not hear anything. Q164 Harriett Baldwin: I have read the paper that has just been published— Low-income working households in the private rented sector’—with a lot of interest and perhaps you could help me understand one of the things that I found contradictory between the evidence from that paper and the evidence that we have been given at the Committee. In evidence to the Committee, Sam Lister from the Chartered Institute of Housing said that, “It is nonsense to say that people have an unequal playing field in terms of what access they have to accommodation because Housing Benefit is an in-work benefit as well, so you should be able to access it.” That was evidence to the Committee. In the Low-income working households in the private rented sector’ paper—just for the record, that is in page 2 of the summary—it says that, “The great majority of low-income working households”—and it mentions the number 99%—“meet their rent without” any assistance from Housing Benefit. So can you reconcile those two seemingly contradictory statements for me? Lord Fre d: This category—the low-income working household—is broadly the category that does not get help from the state, and certainly not Housing Benefit. There are actually some elements of overlap, because as you pointed out, people who are in work also can get Housing Benefit, and I seem to remember a figure of around 14% of the Housing Benefit recipients are actually in work to some extent or another. So it is a comparison between two pretty distinct but not completely distinct categories. The comparison, however, when you look at the figures in that particular paper that you are referring to, was actually looking at somewhat historic data; it was comparing

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them in 2007 8. It was not comparing the two categories in the post-LHA world and we are producing some research, which I think is due to go out next week, which does do that comparison. It is that work that illustrates that there is a gap opened up; this 90% to 100% gap. We actually have some interesting data, again, that we can make available to the Committee, that shows what low-income working household families are paying for their rent and what Housing Benefit recipients are paying, broken down around the country. If someone could whip that table in front of me, I could give you some illustrative figures—I find it very hard to work my way through it. Right, I have two examples. Just take a Lewisham resident, for instance, in a one bedroom property. The Housing Benefit tenant would be paying £185; the low-income working household would be paying £172. That is an example. Let’s take—what is a nice place to go? Brighton and Hove; that’s lovely. On a two bedroom property there, a Housing Benefit tenant is paying £190 and the lowincome working household pays £178. So we have that information coming out; it will be available next week in time for you. But that is actually new information that the Committee and some of the people giving evidence have not had the advantage of seeing properly. Q165 Harriett Baldwin: That is very interesting. So the £217 a week, which the paper says is the average that a low-income working household pays in London, dates back now a few years and you have some more updated data that you will be able to share with the Committee. Lord Fre d: Yes. Q166 Harriett Baldwin: In terms of these two categories of people, then, it sounds as though about 86% of people on Housing Benefit are currently not in work. When we were doing evidence with individuals, we did meet people living in London in quite expensive accommodation who had refused work because they saw that it was going to affect their Housing Benefit and mean that they would not be able to live where they are living. So to what extent does Housing Benefit—and perhaps you could focus particularly on London—act as a barrier to work or as one of those barriers and economic disincentives to work? Lord Fre d: Well this is an immensely complicated issue, in which it is actually hard to take housing in isolation. Just setting it in context, what we have now built over decades is an extraordinarily complicated benefit system, which frankly nobody understands. Kate (Green) might be the only exception. So people have managed to get on a set of benefits and they are very reluctant to risk that by changing their situation. Forget the incentives; just that pure complexity factor is making it difficult for people to move. Now, over the years, Governments have put lots of bits of sticking plaster on and one of the bits of sticking plaster is that you can keep your Housing Benefit even though you are going into work, although it is usually for a period and there are some uncertainties around it,

because obviously Governments have tried to protect themselves from a wholesale transfer over. So as we were saying, 14% of people are getting Housing Benefit and are on a taper, and you can go on doing that for a period, but a lot of people are unwilling to take the risk; they have themselves sorted out and they are unwilling to take the risk. Clearly, if you are in a house that you know you could not afford on any kind of job that you are likely to be able to get, it is a huge disincentive to take the risk of launching into a situation where you do not know what will actually happen to your benefit support rate. Indeed, even if you went to an adviser in Jobcentre Plus, you would probably be sitting there for three quarters of an hour or an hour trying to work out what would happen to you with all the scenarios. Housing is such a huge element of the benefit support system that it is actually acting as a very great brake on people taking a risk. Harriett Baldwin: Thank you. Q167 Chair: Just to pick up on Glenda Jackson’s point, not everybody on low income is in work or could have the expectation of work; they might be too old or too ill. When we went out, we met an elderly gentleman who already under the present system is having to supplement his Housing Benefit to the tune of £10 a week out of his pension credit. Now, he is unlikely to be able to find anything much cheaper, even if he does move; he has tried to find as cheap as he possibly can. So what is the rationale for effectively sanctioning that group of people with regard to the Housing Benefit? With the best will in the world, what they get in benefit is all they are ever going to get and there are no barriers to work because they are not going to go into work. Lord Fre d: Well, just to close off the issue, it is a technical description. The low-income working household is what we have been talking about, which are people in work. That is just a category, which is clearly lots of people with low incomes generally, but we have been talking about a very specific category and comparing them with another specific category of Housing Benefit recipients and then there is a bit in the middle. Just picking up your more general point about some people finding themselves in very difficult circumstances as a result of this, that is exactly what we have been putting the discretionary housing allowance in for, to allow hard cases to be looked after. That is the reason and the thinking, and there are groups—some people with disabilities, some older people—who we expect would be recipients of that allowance. Q168 Chair: And that would continue year on year on year? Lord Fre d: We are keeping that, yes; it goes up from £10 to £20 million in the next year and then it goes up to £40 million and it runs at £40 million until the end of the Spending Review. Q169 Chair: And if you find that that amount of money is not enough—and most of the evidence that we have received would suggest it is not enough and most of it will be sucked into London—at what stage

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will you review the amount of money that is going into the discretionary allowance? Lord Fre d: Well, we have £140 million in this Spending Review; that is the money available for this and that is what we are expecting local councils to use in the best possible way. Q170 Glenda Jackson: On a follow-on to the unemployment issue, you said—and it is entirely right—that people have refused work because if they do they will inevitably lose their home. So presumably, you are looking—I do not know if you have figures on this—at the number of people who will lose their homes because you want to take away that disincentive to look for work. Have you any figures on the kind of jobs that you expect them then to be able to take; what those wage rates will be? Will they still, even though they have to move, have to claim Housing Benefit, for example, because the rates that they will be receiving will be so low? Do you have any figures on this? Lord Fre d: Well, what you are really asking is about dealing with all the perverse incentives in the current welfare system, which we would absolutely endorse. One of the most important initiatives of this Department and even of this Government is to try to reform the welfare system so that we do not have these perverse behaviours and perverse incentives in them. That is exactly what the Universal Credit is designed to do. Essentially we will be able to take people and give them a gross entitlement. Everyone will have that; everyone in this room will have effectively a gross entitlement, which will run down at a steady rate depending on the earnings; I think most people in this room have earnings that would take them out of the taper. People would then be able to understand that work will always pay and you are not tied up with concerns about what happens to your overall income if you take work. Frankly, unless we set up not only a system that does it but a message that is really simple and clear that work always pays so that you do not have to spend a huge amount of time researching it, because it is just how the system works, we will have odd things happening. The concern is that housing, which is such an important part of this, interrelates with all this complicated perverse incentive and that is what we are aiming to remove. Q171 Glenda Jackson: But with respect, the Universal Credit does not come in for another three years. The changes in Housing Benefit are coming in now. You have argued and made it clear to the Committee that you do not expect there to be increases in homelessness, yet you have told us that there are people who will lose their homes because they do not work, because work is the way that they see they are going to lose their homes. They are going to lose their homes anyway, so what I was asking you for is if you have any figures on those kinds of numbers of the people who will lose their homes and what the types of jobs are that you expect them then to be able to take, because you told us that they will have to move to areas, where they will still be able, I presume, to claim Housing Benefit, but much, much

lower Housing Benefit if they are not to be permanently homeless. Lord Fre d: Well, I do not think I accept any of the steps leading up to your argument. People do not lose their homes because they take a job; they simply do not. We are talking about getting a level of housing that is commensurate with the kind of housing they could afford if they had actually a rather decent job. As I say, if you just take the cap again—the £400 overall cap; the £20,000 for which you would have to earn £80,000-odd—you can hardly consider that an ungenerous level of support. Q172 Glenda Jackson: But that is the minority of Housing Benefit claimants. The majority of Housing Benefit claimants are in one or two bedroom properties; they are not in four bedroom properties. Lord Fre d: Well, yes. Sorry, I am using that as shorthand for the whole level of caps. None of them are ungenerous. Q173 Glenda Jackson: But you have just told us that one of the disincentives for getting people off Housing Benefit is that they believe if they take a job, the job will not pay sufficiently for them to be able to afford that property. What I am asking you is, have you any estimate of the number of people who will, because of the changes you are introducing as far as Housing Benefit is concerned, lose their homes? If they lose their homes, then where are they going to find the work and will that work ensure that having moved out of the areas where you say they should not be living because they cannot afford it, they will still be able to claim Housing Benefit or will they actually be permanently homeless? Lord Fre d: Clearly, as I have said, I am not expecting any substantial increases in homelessness as a result of this. In terms of if people move to an area and whether there are jobs there, the evidence is that the level of unemployment is pretty steady right the way across London; east and west London. We have some data on the unemployment. The inactivity rate and the unemployment rates across London vary between 14% in some areas, while we have lower rates in places such as Bromley and, interestingly, we have lower rates of unemployment and, by implication, more jobs in outer London than in some of the inner-London areas. Some of the concerns that people will move from inner London to outer London, away from jobs, are exactly the opposite of what these data would suggest. In practice, if you were to go out from central London to Bromley, for instance, to take one of these outer areas, you are actually more likely to go to a place with jobs than where those people are currently living. Q174 Glenda Jackson: So your argument would be that having made people homeless in central London, you would advise them to go, for example, to Bromley, where they will be able to get a job with great ease and be able to rent a house without recourse to Housing Benefit. Is that the argument? Lord Fre d: As I say, I am not expecting people to be made homeless because they have to move,

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because people move regularly in the private rented market anyway. So I am not accepting— Q175 Glenda Jackson: No, we are talking about people who do not take work because they are afraid that if they take low-paid work, they will lose their home. I am asking you what figures you have on the number of such claimants at the moment who will inevitably lose their homes; that is the whole purpose of the changes to Housing Benefit. Where will they go to find the jobs that will pay them sufficiently well? You quoted Bromley and I am asking you, do you have the figures of the number of available properties and jobs in Bromley that will ensure that the person who loses their home, because of the changes in Housing Benefit and they are not employed, will not be permanently homeless? Lord Fre d: I am completely baffled by your question. Glenda Jackson: Well, I must be honest: I am completely baffled by your answers. Chair: I think we need to move on. Kate Green. Q176 Kate Green: A supplementary question from me, first of all. Returning to a point you made a few moments ago, Lord Freud, in which you said that the link to CPI was for this Parliament, will the Government put a sunset clause into the legislation to that effect? Lord Fre d: We have not. Neil, this is primary legislation? Neil Co ling: Yes. Lord Fre d: So we have not yet— Kate Green: You might consider it. Lord Fre d: We have not yet drawn up the legislation. Q177 Kate Green: Fine. The previous Government were looking, among other things on Housing Benefit, at extending run-ons— Lord Fre d: Sorry? Kate Green: The previous Government were looking at extending run-ons of Housing Benefit as people moved into work at the same level as they had been receiving while out of work, for perhaps a longer period. That seemed to command of a lot of support across the country and across the political divide. Is that something that the present Government continue to be interested in? Lord Fre d: I will turn, I think, to Paul for this. Our fundamental view is to get the Universal Credit in. Kate Green: In the meantime? Lord Fre d: Well, I am just coming to answer. In the meantime, I think the energy and effort that is required to get the Universal Credit in is much better spent in a root and branch transformation of the system as a whole, which will solve the problem, than in tinkering with little bits of it for an interim period of a year or two in practice, with all the energy and implications required. But I will turn to Paul, if he has anything to add to that. Pa l Howarth: I do not think I have much to add to that, because you are right. I think now we are in a position where we want to put all our effort into developing Universal Credit, which is going to be a

major change that will improve work incentives for all. So I do not think we have any plans to look at it. You are right, it was a very interesting idea and did command a lot of support, but I do not think there are any plans to introduce that now. Q178 Kate Green: Okay. That is disappointing, but I note what you say. Can I turn to the moving of people off incapacity benefit or income support and on to Jobseeker’s Allowance and the risks they now face if after 12 months they are not able to find work and will see a reduction in their Housing Benefit as a result? When will that 12 months start to run for those people? Will it be at the moment that they move on to JSA or will it be from when they first went on to benefits? Lord Fre d: The way that it is constructed at the moment is from the time that they start on JSA. So it is 12 months from the time that they start on JSA. Q179 Kate Green: Good, thank you. Lord Freud, you are well aware, because we have had many conversations about it in the past, of the barriers that, for example, lone parents can face to finding suitable employment. Doesn’t the Government think that this blanket reduction in Housing Benefit after 12 months on JSA will bear very harshly on some of those lone parents? Wouldn’t it be preferable to consider an approach that said that it was a refusal to accept suitable employment that triggered this reduction in Housing Benefit and not simply a failure to find work at all? Lord Fre d: We are trying to set up, or we are setting up, a balance here. This is a measure that is coming in in 2013, by which time we will have on the other side put an enormous amount of resource into introducing the Work Programme, which is a national programme designed to put a lot more resource than current programmes into helping people back into the workplace. We are balancing that effort and energy with a clear message to people on JSA that they really have to get into the workforce, by putting this measure in to cut the Housing Benefit to 90%. Now, I just want to put that into context. That is not taking their Housing Benefit away; that is reducing it by 10%. So the average figure of reduction is around £9 in practice. So that is the design of the system; it is to balance an expectation with a lot more support to get back into work. Q180 Kate Green: Don’t you think it would be preferable, though, to have something that was a little more nuanced in order to recognise the substantial barriers that a small number of lone parents may face? Lord Fre d: The risk is you can over-nuance things. We want to send out a very clear message that work is what we expect people to go to and we are going to put a lot of resource into helping them get back into work. Q181 Kate Green: Last question from me, Chair, which is in the context of the Government’s overall cap on benefits in total not to exceed, I think, £26,000, which I have heard Ministers argue is actually £35,000 when you gross it up. I am still trying to get

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my head round that; perhaps later on someone will explain it to me. But can you clarify for me within that overall cap of £26,000 what that would mean in terms of potential maximum levels of Housing Benefit and council tax payments? Lord Fre d: The overall cap comes at the end, in 2013. Before then, we will have put in a lot of these other measures, which will actually, if you like, take the strain. It is within the context of an overall cap arriving. I have to make the point that we are excluding people with disabilities and we are excluding people who are in work; who take a job. So it is another measure—the £500 measure—that reinforces the fact that you can avoid this cap if you take a job. Q182 Kate Green: How many families are we talking about? How many households are we talking about that you expect to be hit by this cap? Lord Fre d: By the overall cap? Kate Green: Yes. Lord Fre d: By then? Kate Green: Yes. Lord Fre d: Well I think we have put in an expected saving on this, haven’t we? Neil Co ling: That is right. Lord Fre d: Which is what, £200— Neil Co ling: It is about £240 million. Lord Fre d: £240 million.2 Q183 Kate Green: How many households is that? Lord Fre d: Well, you can do the sums. Neil? Kate Green: I don’t think I can, actually. Neil Co ling: It is about 50,000. Lord Fre d: 50,000. Kate Green: 50,000? Lord Fre d: Yes. Q184 Chair: Can I just be clear on a couple of things? Kate asked about the year on JSA. The changes come in in 2013, so if someone has already been on JSA for a year by April 2013, will they immediately face a 10% reduction in their Housing Benefit? Lord Fre d: Yes. That’s how we expected— Chair: So it will be a historical thing? Lord Fre d: Yes. Q185 Chair: You also mentioned the Work Programme. Maybe you can clarify this for me. When the Secretary of State was before us, he said that people would not go into the Work Programme until they had been out of work for a year, unless they came through the Incapacity Benefit Employment and Support Allowance (IB ESA) route. I’ll start again, shall I? Lord Fre d: Sorry, I find it difficult to use my ears twice. Chair: Yes, I appreciate that. The Secretary of State, when he appeared before us, said that those who would go into the Work Programme would not do so until they had been out of work a year, unless they came through the ESA Incapacity Benefit route, where they would go straight on to the Work Programme. So 2

See Q188 for corrected figure.

if the Work Programme is going to help them get into work, they will have already been out of work for a year and they will already be facing the 10% reduction in the Housing Benefit before they get the specialist help, the extra investment to get them into work that the Work Programme would bring. Is that not a bit unfair? Lord Fre d: We are looking hard at the timings of when people go on to the Work Programme and we are looking in particular at fast-tracking particular groups on to it early. We are exploring how to get the more vulnerable groups on earlier to get earlier support. We think that the most vulnerable will be getting support. Q186 Chair: But you have the single person on JSA, who would not be classed as vulnerable; it will be a year before they get their help from the Work Programme. JSA is only £65 a week, but you are saying on average they will lose £9 a week in Housing Benefit. On top of that, they have all these travel costs because they may have to move out to find accommodation they can afford. It is rather a lot of sanction, which they do not seem to be able then to get out of, because presumably that 10% will follow; even if they move house and they try to get a cheaper rent, that 10% sanction will follow them wherever they go. They can’t get away from it. Lord Fre d: No. The way they get away from it is getting a job. Q187 Chair: And if they genuinely cannot find a job? They have done everything that the Government has asked of them; they have done absolutely everything and after a year they do not have a job. Lord Fre d: Well we are putting a huge amount of resource into helping people back into the workplace and this is the counterpart of that. This is a very substantial message to tell people that the solution here is to get into the workplace. Q188 Kate Green: I just wanted to ask one final supplementary on my question to Lord Freud about the £26,000 cap, which will imply a substantial downward pressure on help with housing costs and council tax costs. Can you give me some more information about the make-up of the families that will be affected by that cap? How many of them will be families with children? What sort of family size are we talking about? Clearly, to be able to be in receipt of benefits of such a substantial amount, you are going to be meeting a high level of needs, probably supporting a number of people in the household. So if you have some information on the differential impact on different family sizes, that would be useful. Lord Fre d: Neil. Neil Co ling: I thought I could start by just slightly correcting my savings figure as well. I had plumped for £240 million, but in fact the 2014 15 saving figure is £270 million from the cap. Apologies for that, Chair and the Committee. In essence, the people affected by the cap is a function of high housing costs and larger family size. In terms of breaking down that 50,000 figure, I cannot recall in my head exactly how that falls by and if you would like, we can pop you in a

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3 November 2010 Lord Freud, Neil Couling and Paul Howarth

note that just sets out what we have. I have to say that when you get into the larger family sizes, the sample sizes that we are drawing the estimates from are quite small in the Family Resources Survey, so you get more uncertain as you go up in family size in terms of trying to model those numbers exactly. Q189 Kate Green: Yes. But essentially, what we are saying is this cap will affect larger families who, by definition, are likely to have higher housing costs. What do you say to the argument that has been made that that might be an inducement to families to break up? Neil Co ling: Can you take that? Lord Fre d: You want me to take that? Well, the reasons for break up are pretty wide and we do not anticipate that a cap like this effectively puts a very substantial pressure on break-up rates. There are two solutions to this for people: find appropriate, affordable housing within the cap; and, bluntly, the moment you get a job—one of the parents, if it is a two-parent family, gets a job—the cap will no longer apply. So it is a pretty straightforward solution. Q190 Karen Bradley: Thank you, Chair. We have touched on many of these issues, but I just wanted to cover the specific transitional arrangements. One of the suggestions that has been put to us by a number of bodies, particularly the Citizens Advice Bureau, is the possibility of effectively grandfathering existing leases to the point where there is a break clause, so that instead of the cut-off coming on 1st April or 1st October where that household is affected, perhaps having a few months where the Housing Benefit is still paid at the existing lease level. I just wondered whether the Department had looked into this at all. Lord Fre d: Well that is exactly what is happening, because the process starts in April or October, depending on the start date, and takes effect at the next anniversary. So in practice we are doing exactly that; this is not just a sudden death on those two days. It is an important thing, because that means that the whole transition period runs over an extended period. We are talking about running right out to October 2012, in practice, the whole process, which does two things: it means that it is not sudden death—it runs to the natural break point, the annual anniversary of your contract—and allows the adjustment process to take place over this extended period. Q191 Karen Bradley: Okay. So if you are in accommodation today that has a lease that runs until, let’s say, June next year and you would have been affected by the changes that are coming in with effect from 1st April, you will continue to receive the Housing Benefit at current level until the break clause? Lord Fre d: Exactly. Pa l Howarth: What will happen in practice is that for existing customers, benefit will change from the anniversary date of their original claim for Housing Benefit, so it is not related to the tenancy as such, but it does mean that there will be this gradual take-on for existing cases.

Q192 Karen Bradley: So it is not the point at which you can get out of the lease; it is the point that is the anniversary of you first claiming Housing Benefit? Pa l Howarth: That is right, but in practice it will mean that a lot of people will be in the position you describe and will have that long period of time in which to get out of their lease. Karen Bradley: Okay. So— Neil Co ling: Sorry, can I just say that we think Crisis, in their evidence to the Committee, although it is not their fault, have misunderstood how this will work, because they have suggested that people who take a job will immediately then trigger the new system. That just will not happen, as Paul has been saying; it is on the anniversary of the claim that the new rules take effect. Q193 Karen Bradley: And presumably, for anyone who is in a situation where they can’t get out of their lease and their anniversary falls earlier, the discretionary housing allowance is there to help them. Lord Fre d: That is exactly what it is for. Karen Bradley: That is very helpful. I think that covers the transition. Q194 Kate Green: Can I just ask one very final question on that? What are the plans for communicating to current Housing Benefit recipients about the changes that are coming and how they will affect them? Are you confident that the Department has an adequate communications budget, because I understand it has been under pressure? Lord Fre d: We are determined to, and we have planned a very thorough consultation exercise. Paul, why don’t you just outline the elements of it? Pa l Howarth: We do appreciate that it is absolutely vital that we give as much information to recipients of Housing Benefit, particularly existing recipients, as we possibly can. So as soon as the regulations are laid, we will be working very closely with local authorities, both the Housing Benefit and the housing departments, so that we can link up together and get the messages out. We will be, on this occasion, breaking our ban on paying for communication materials, you will be glad to know, and we will be funding whatever is needed by way of leaflets, posters, draft notification letters; anything that we can do, basically, to help local authorities in this transition, we will do. Q195 Richard Graham: Chairman, could I just ask that it be made sure that that information goes as widely as possible; to MPs, CAB, Age UK; all the people who are inevitably involved with constituents who are confused? Lord Fre d: Yes. Q196 Chair: I promise this is the last question. First of all to say well done in recognising that some disabled people may need a live-in carer and that will be recognised in the system. However, a lot of disabled people do not need a live-in carer, but they do need a bigger house; they perhaps need an extra bedroom because they cannot share a bedroom with anyone else or because of the equipment. Now, that is

Work and Pensions Committee: Evidence Ev 37

3 November 2010 Lord Freud, Neil Couling and Paul Howarth

recognised in terms of the council tax system, but I see no recognition in any of your plans that in fact someone who needs a wheelchair to get around will need a bigger house, with potentially extra rooms. That does not seem to be recognised in your plans with regard to Housing Benefit. Lord Fre d: Our whole thinking around this really is we are trying to get the people on the ground—the councils, who should be aware of these particular needs—the funding so that they can take measures based on the needs of individuals; this is what our discretionary housing allowance is about. So rather than us, every time there is a problem, putting in a blanket system, which is incredibly expensive and not needed—an unnecessary expense for many people— making it the responsibility of people on the ground and providing resources in the discretionary housing allowance is precisely the way that we can allow for

those tough cases of people who need support. We can then get that support to them. That is the idea behind it. Q197 Chair: So they will have to go into negotiation with the local authority if they are in that position? Lord Fre d: Yes, absolutely. Chair: Well thank you very much. We have kept you a bit longer than we intended. Thank you very much for coming along. This is the last of the evidence sessions; we will now write a report. I know you have offered to provide us with a lot of statistics and figures; we would much appreciate if you could do that and that would help us as well. Lord Fre d: We will get those to you. Chair: Thank you very much for coming today. Lord Fre d: A great pleasure. Thank you.

Ev 38 Work and Pensions Committee: Evidence

Written evidence Written evidence s bmitted by the British Property Federation 1. The Need for Reform 1.1 The new Government inherited a local housing allowance (LHA) system that was always going to cost more in comparison with what had gone before. It is true that rents in some areas have adjusted towards the local housing allowance rates and in markets where there are significant claimants this is seen as the “going rate”. This should come as no surprise, however. Landlord organisations had forewarned this was a likely consequence of moving to the local housing allowance system. However, presumably policymakers at the time accepted this as a factor, but price worth paying for the other objectives of reform. Another objective behind LHA was to simplify a system that had previously been based on individual rent assessments that were timeconsuming and labour intensive to collect and had led to longer processing times, something that the local housing allowance system has helped improve significantly. A second objective was to make claimants more work ready’ by making them responsible for their rent payments. There is little evidence that we know of that the second of these objectives has been largely achieved. 2. Who is Affected? 2.1 The current Government’s reforms aimed at 2011 12 seem to have two broad objectives; to reduce the housing benefit bill and therefore contribute to deficit reduction; and, to create a more level playing field between the property that those in low paid employment and those out of work can afford, in turn providing greater incentive to be in work. 2.2 De facto, in pure cost terms the first of these objectives will be achieved, but that does not take account of other consequences that will themselves have costs and we hope to show that the objective of work incentive is over-exaggerated. 2.3 It is important to understand who will be affected by the cuts in Local Housing Allowance, both because the stark one million figure, is made up of many households’ personal circumstances, but also because understanding who is affected will help explain the likely impacts, consequences and actions. 2.4 A majority of housing benefit claimants are in the social rented sector, claiming rent rebate or rent allowance (approx. 1.5 million and 1.7 million respectively). About 1m claimants are on Local Housing Allowance, with a further 450k in the private rented sector on the “old” housing benefit system or on regulated rents. Table 1 Casel ad t usands

2

Rent Rebate Local A thority Rent Allowance: RSL Private Sector egulated rivate Se t r: eregulated rivate Se t r: Local Housing Allowance Other Private Rental Sector Total Ho sing Bene t Caseload: S ur e: une 2 1

udget

utturn

2 1 r visi nal

2 1 11 re ast

2 11 12 re ast

2 12 1 re ast

2 1 1 re ast

2 1 1 re ast

1 533

1 512

1 500

1 440

1 380

1 328

1 304

1 583

1 719

1 795

1 760

1 706

1 655

1 636

1 049 56

1 316 52

1 456 48

1 468 43

1 447 39

1 420 36

1 410 33

360

841

1,120

1,239

1,278

1,277

1,297

633

423

288

185

130

107

80

4 166

4 547

4 750

4 667

4 534

4 403

4 350

re asts

W

2.5 The popular perception is that benefit claimants are largely the result of some long gone recession. Table 1 illustrates that many of those on LHA are not in this category, but claimants as a result of the most recent downturn. Even allowing for switching from the “old system” to LHA there is growth of 400,000 in the number of LHA claimants between 2008 09 and projections for 2010 2011. A statistic that is missing for the DWP impact assessment, and would be helpful in casting further light on who is affected would be to look at those affected and provide a time-profile of the age of their housing benefit claim. 2.6 Many LHA claimants are also “in-work” claimants and thus to an extent reliant on the accessibility of their home to their workplace. It is hard to draw out a precise figure on this from the DWP impact assessment and this is something that should be rectified. At present the figures listed catagorise those affected by the

Work and Pensions Committee: Evidence Ev 39

reforms, by benefit claims (income support, job seekers allowance), with a residual category of “others” at just below 400,000. Presumably most of these claimants are “in work”? 2.7 Another perception is perhaps that this is an issue mainly linked to low demand areas of industrial decline. Annex 1 n t rinted represents the statistics from the DWP impact assessment in map form. It illustrates that the impact of the package of reforms will hit many areas of significant housing and rental demand. Roughly speaking, half of current LHA claimants live south of Watford.1 2.8 A third element to this is that almost half (450,000) of the 1 million claimants that will see their LHA cut by the 2011 12 package of reforms are living with dependants. 3. Consideration of Wider Demand 3.1 One of the surprising aspects to the DWP impact assessment is no consideration of the wider property market, demand for rented accommodation, and how that affects the ability of claimants to access property at or below the 30th centile rent. 3.2 The Federation has tried to broach that question by examining some high demand areas of housing. Table 2 illustrates research that Steve Wilcox and Hometrack published in 20072 looking at the size of intermediate markets by local authority area and compares this with the number of LHA claimants in those areas requiring a 2 bedroom property or more. We have selected certain high demand areas. The figures in % are the proportion of younger working households that cannot access what the research termed the Wide Intermediate Housing Market—defined as all younger working households unable to buy at lower quartile prices for two three bedroom homes, and therefore prime candidates for renting privately. Table 2 DEMAND FROM CLAIMANTS AND YOUNG WORKING HOUSEHOLDS al aut rity

East Lindsey Broxbourne Colchester Brent Waltham Forest Trafford Brighton and Hove Slough Southampton Cornwall Teignbridge Birmingham Harrogate Edinburgh Pembrokeshire

lai ants f r a 2 ed lus e

e r rti n f y unger r ing use lds una le t uy at t e l er uartile use ri es

e nu er f y unger r ing use lds una le t uy at t e l er uartile use ri es

1,730 810 1,550 5,410 3,930 1,250 4,660 2,030 2,270 6,220 1,980 11,880 1,090 5,270 1,120

60.7% 71.4% 56.6% 76.6% 72.4% 51.4% 71.7% 65.9% 51.9% 73.8% 74.3% 41.8% 65.1% 48.5% 64.1%

6,570 5,539 9,379 16,556 18,682 11,352 23,052 9,232 15,662 28,283 7,038 35,313 10,501 29,206 6,218

3.3 As the table shows, in some areas, for example Harrogate and Trafford, for every LHA claimant family there could be close to 10 times the number of working families chasing a 2-bed plus property to rent. In many other areas in the table the ratio is over 6:1. 3.4 Other sources also illustrate that demand for private rented housing is strong in most areas. For example, 70% of ARLA member offices say that there are more tenants than available properties.3 Indeed, even in those areas where LHA recipients are able to afford property to rent, Shelter research has shown that landlords occasionally insert additional hurdles which put LHA tenants at a further disadvantage compared to individuals who are able to afford to pay their own rent4. 3.5 The projection in table 1 also illustrate that 150,000 additional claimants will have to be absorbed by the private rented sector over the coming year. Insufficient attention seems to have been paid as to whether the sector can absorb such numbers, and whether the competing forces of demand and Government desires to cuts rents will deliver the projected savings. 1 2

3 4

Not printed. Can’t Buy Can Rent, S Wilcox and R Donnell, Hometrack, 2007, see http: www.hometrack.co.uk documents Steve_Wilcox cantbuycanrent.pdf ARLA Press Release, 16th July 2010, see: http: www.arla.co.uk events news_details.aspx?id 142 Shelter research briefing (Feb 2009): A postcode lottery—Part 1 of a study monitoring the implementation of Local Housing Allowance’

Ev 40 Work and Pensions Committee: Evidence

3.6 What is clear from table 2 and the map in Annex 1 is that many of the areas with high levels of LHA claimants are also areas of high demand for housing. Places like Cornwall, most other parts of the South West, London and its surrounds, Brighton, Colchester, Harrogate and so on. ill landl rds rea t t t e ref r s 4.1 From the prior analysis it is difficult to generalise how landlords will react, much will depend on local market conditions. The key point to emphasise again is that this is not a benefit that is paid to people just in areas of low housing demand, but one that has significant concentrations in high demand areas. 4.3 There are two sources of data we are able to draw upon. One an independent market research company, BDRC, which conducts a tracking survey of 500 landlords, ascertaining their views on various issues once a quarter.5 The other is a survey conducted by the Residential Landlords Association, one of the largest landlord organisations in the UK. 5.4 The most recent figures we have from BDRC claim that 36% of landlords will not consider renting to benefit claimants. And only 14% of landlords offer tenancies to those on housing benefits. These figures have stayed relatively stable over the last few years. 4.5 In addition, landlords are already experiencing a rise in rental arrears. It is reported that 34% of landlords have experienced rental arrears in the last 12 months. BDRC also state that landlords that have experience with arrears are more likely to have tenants on housing benefit; 41% of landlords that rent to housing benefit claimants experienced rental arrears. Only 24% of landlords that do not rent to housing benefits have experienced arrears. Landlords that own a small amount of properties are disproportionally affected by rental arrears. Many feel that renting to benefit recipients is risking their own financial wellbeing. 4.6 BDRC’s latest report also found that landlords believe capping LHA payments will lead to increased arrears (52%). As a result, a third said they would scale back letting to LHA tenants, and 59% thought that the reform package of measures would lead to decreased availability for these tenants. 4.7 For some landlords adjusting rent will be difficult. This may or may not be feasible with about 20% of landlords claiming they break even or experience a loss with their rental property. Only 30% of landlords make enough from letting property to save money, with many smaller landlords attracted to residential renting for its capital gain. Contrary to perhaps popular opinion residential property is not a particularly high yielding asset income returns averaged only 2.7% in 2009 according IPD, whereas capital returns were 8.1%. The long run average net yield is a little over 3% and must take account of voids, maintenance, servicing debt, etc. 4.8 A lot has been made of landlords “overcharging”. It is worth stressing that rents used by the Valuation Office Agency will be evidenced in the market place and by their nature historical. Although, some landlords in high benefit areas will be paying the “going-rate”, rents themselves being quoted by the VOA will be behind the times and won’t reflect landlords in the market who have not got around to a rent review. Landlords “overcharging” has been the focus of much of the Parliamentary debate thus far. It would be interesting to know from the DWP what proportion of claimants are actually being charged the full Local Housing Allowance rent? 4.9 The RLA statistics are based on an August 2010 survey, which was responded to by 852 member landlords of the RLA. 4.10 When asked how far they would be willing to lower their rent in light of the LHA reforms, 71% indicated not at all, 23% less than 10%, and 6% between 10 and 20%. 4.11 When asked what were the most common problems landlords faced with tenants on housing benefit, the most popular responses were LHA tenants failing to pay rent at 42%, followed by the allied answer of inability to obtain direct payment (34%), this was followed by administration problems (24%). 5. Transition Arrangements 5.1 One of the most worrying aspects of the current reform package for 2011 12 is the attention paid to transition arrangements. On a spending basis, the £40 million made available in the Budget per annum to cover additional discretionary housing payments pales into insignificance in comparison to the near £2 billion of cuts per annum by 2014 15 particularly bearing in mind this must cover the social and private rented sector reforms. 5.2 The Chartered Institute of Housing estimates this equates to about £8.30 per year per case. In England this would support around 60,000 who face the maximum loss from the 30th percentile change for one year (leaving nothing for social sector claimants or those facing having their LHA capped) this is equivalent to just 1.5% of the entire caseload. The total increase in spending is less than 2.5% of the total package of housing benefit cuts.6 5.3 The need for proper thought going into transitions does not stop there. Some landlords will undoubtedly have tenants facing large rent deficits and unable to meet their obligations under their tenancy agreements. Some will probably come to amicable arrangements as most landlords have a reticence of going to court, 5 6

BDRC Continental Landlords Panel, Quarter 2 2010 CIH Briefing paper on the impact of changes to housing benefit and local housing allowance in the Budget (July 2010)

Work and Pensions Committee: Evidence Ev 41

perhaps at least waiting until the tenancy is due for renewal. Some, however, either by choice or force will end up taking possession proceedings. This will place an additional burden on county courts at a time when 54 spread across the country are earmarked for closure. The DWP impact assessment makes no estimate of this additional court load. 5.4 Nor does the impact assessment make any assessment of the additional strain that will be placed on local authorities, their housing staff, and pressure to find alternative accommodation. 5.5 For particularly hard to house claimants, such as those leaving hostels and with mental and other illnesses, charity and local authority run schemes will suffer, as claimants’ benefit does not meet private sector rents. At the very least, some additional funding should be made available to sustain these schemes. 6. The Policy Objectives of the 2011 12 Reforms 6.1 Summarising, it is indisputable that the reforms will help cut the housing benefit bill. However, the DWP impact assessment is crude, because it takes no account of the different demand for property in local areas. Simply saying that 30% of the market is open to rent at the levels of benefit that claimants are being paid, takes no account of the wider market context and competition for homes in any particular area, which as we have shown can be fierce in many of the areas with LHA claimants. 6.2 As we have tried to illustrate, a significant proportion of LHA claimants, probably more than half, live in areas of high demand for housing and therefore are going to find it difficult to compete for available homes. There are social and economic consequences and costs that go with this, in terms of overcrowding, increasing concentration of claimants into particular areas, difficulties for employers in recruiting people in low paid employment, homelessness and more multi-generation families under the one roof, with the tensions that creates. 6.3 The levelling the playing field’ argument is easy to convey, but as we have shown a majority of LHA claimants are either in work, or are relatively new claimants, who have been forced to claim by recent economic conditions. Those in work by definition do not need incentive to find it. Having LHA that covers median rents however, may help them live in areas where there is employment and where they will struggle to find accommodation at the 30th centile. 6.4 For those who are claiming as a result of short-term unemployment caused by the recent recession, there are issues of fairness and practicality. Much of the rest of the housing support framework, such a mortgage interest support, is based on the premise that it is better to keep a person or family in their home. The stability that provides aids their job search. This policy could see a person and their family faced with short-term unemployment, having to move because their median rent is no longer covered by LHA, causing them to move away from the employment market they know best and creating significant disruption in their lives at a time when all they want to do is find that next job. Given the profile of a lot of those on LHA, it is by no means certain that the policy will incentivise claimants back to work and could have the opposite effect of making their job searching more difficult. 6.5 There is also debatably an issue of fairness in terms of a lot of people facing short-term unemployment, who previously would have had their full rent paid, will now have to move or face significant shortfalls, and who if they were in owner-occupation, would get more generous support. 7. What the Reforms Will Not Do 7.1 It is worth remembering that LHA has only been in existence nationally for two-and-a-half years and yet in that time has experienced significant tinkering or proposed reforms. The 2011 12 reforms act as a sticking plaster to aid deficit reduction, rather than resolving some of the fundamental issues that go to the heart of problems with this method of paying housing benefit. Some may not like the fact that rents will congregate around the LHA “going-rate”, but these reforms do not resolve that, and simply move the “goingrate” to the 30th centile. We believe that the benefits of a quicker system, outweigh these costs of bunching around the LHA rents, but some landlords feel very aggrieved that the system no longer reflects a premium for better quality accommodation or even different types of property, which the market does, in terms of house, flat, bungalow, etc. 7.2 The reforms equally do not resolve some of the issues around the casting of Broad Rental Market Areas. Nor do they tackle the issue of direct payment, which we will come to, but first want to focus on what we see as the most unfair and damaging of the reforms announced at Budget time. 8. Linking Housing Benefit to Consumer Price Inflation From 2013 14 8.1 We believe this is the most severe aspect of the current proposals for reform. There is a large body of evidence going back long periods, which shows that rental growth tracks average earnings very closely. Annex 2 not printed illustrates a chart produced by HM Treasury in February of this year, which shows just that over the past decade.7 7

Not printed.

Ev 42 Work and Pensions Committee: Evidence

8.2 Long run average earnings growth in the UK tends to average about 4% per annum. The Bank of England on the other hand has the explicit target of maintaining CPI inflation at 2% per annum. 8.3 The consequences of such a difference are stark. The Chartered Institute of Housing has calculated that in some areas after the changes have come into place, it could take as little as two years for there to be no properties available that could be paid for by the LHA in some areas.8 8.4 In turn, the consequences must either be to eat into claimants other income, lead to greater indebtedness or greater levels of rent default. None of these seem particularly palatable. 8.5 It could be argued that working households have to juggle their housing costs and other spending priorities, but benefit claimants often start from a different position in terms of debt and income. More than half of households with serious debt problems are in the very lowest income group of less than £7,500 a year.9 Working households will also tend not to be faced with an unremitting erosion of their housing purchasing power. 8.6 On a more technical basis it does not seem right that a benefit meant to cover a person’s housing costs, should be set by an index that incorporates everything from the price of sausages to net curtains. Rent makes up a relatively small proportion of the current basket of goods that form the CPI, because the majority of the population are not renters. Even if the index is reformed to include mortgage costs this will not wholly resolve the issue because approaching half existing homeowners have no mortgage and therefore mortgage costs do not figure in their basket of goods. 8.7 Although the differences may appear small, a per cent or two a year, the consequences of getting caught on the wrong index can be severe. History illustrates this through the experience of pensioners. 9. Direct Payment 9.1 Time after time speaking to landlords over the past couple of years the main issue that has been on their agenda has been the restoration of choice of payment of benefit to claimant or landlord for those renting in the private rented sector. 9.2 There was a unambiguous commitment to restoring the choice of paying benefit to claimants or their landlords made by the Conservative Party in opposition. No other policy probably gained more landlord votes in the past election. 9.3 We get regular feedback from landlords that have suffered significant rent arrears from LHA claimants of the order of thousands and sometimes tens of thousands of pounds, who either know how to play the system, or are in the unfortunate position of having to juggle paying their rent vis vis other commitments and debts. The situation can only deteriorate with the proposed cuts in local housing allowance payments. Will local authorities have the resource to cope with the increase in “vulnerability” claims at a time when their own departmental budgets (and headcount) are being squeezed? 9.4 We urge the new Government to deliver on the Conservative Party’s promise, made in opposition, to restore choice of payment to tenant or their landlord. Se te

er 2 1 F rther written evidence s bmitted by the British Property Federation

We much appreciated the opportunity to give oral evidence to the Committee on Wednesday 20th October. As you know, time ran out on us and there was some additional evidence we wanted to cover but were unable to and hence this further written submission. A. Misrepresentation of the Low Income Working Households DWP Research Report You may have seen press coverage of the housing benefit reforms in e elegra on 17 October, a copy of which is enclosed at Annex 1. This refers to a DWP commissioned research study, n e W r ing use lds in t e rivate ented Se t r which it misrepresents. Focussing on two particular aspects: 1. The claim in the Telegraph article that the study found that “on average, private landlords charge higher rents to housing benefit claimants than working adults in equivalent accommodation, but provide worse conditions”. This is not what the study found at all. The Department are referring to a statement on page 56 of the report: “that Low Income Working Households (LIWH) tend to pay rents which are less than the LHA rate.” Clearly all this reflects is a truism that Low Income Working Households by definition are likely to be on rents that are less than the median rent at which LHA is set. There is no cause and effect however, that 8 9

CIH Briefing paper on the impact of changes to housing benefit and local housing allowance in the Budget (July 2010) The Griffiths Commission on Personal Debt, Centre for Social Justice, March 2005

Work and Pensions Committee: Evidence Ev 43

this proves, in terms of landlords charging higher rents on the same property to housing benefit claimants than low income working adults. Indeed perhaps anticipating the scope for misrepresentation the researchers are at pains to discount such a notion, stressing on page 78 of their report: “Since LIWH are, by definition, among the lowest income groups in such properties, it might be expected that they would occupy a property where the rent is less than the median rent.” And . “Indeed, findings from modelling rent levels with data from the Family Resources Survey suggests that whether or not a household is receiving HB is not statistically significant in explaining any differences in the rents paid by the two groups of recipients and non-recipients.” 2. The article stresses that “the research also offered compelling evidence that benefit is distorting incentives to work, underlying the need to reform”. It goes on to quote a sentence from the research, which states that “LIWHs with children aged under 16 do appear to be worse off in terms of property size that they occupy and the rates they would be entitled to if they were eligible for housing benefit.” This quote is taken from page 2 of the summary. The full paragraph, however, reads: “While the HB arrangements do not seem to unduly favour LHA compared to most LIWH, the exception is the small group of households with children aged under 16 who appear to be worse off than other household groups in terms of property size that they occupy and the rates they would be entitled to if they were eligible for housing benefit.” Clearly the absence of the first part of the sentence makes a world of difference to the claim DWP is making. In any case there are so few households with children aged under 16 in the sample under consideration that we have to question the statistical validity of the DWP assertions. The end of the article quotes a DWP source as saying “Some private landlords specifically target the housing benefit sub-market because they know they can command higher rents from these tenants ..causing a knock on effect on rents in the area.” I hope we illustrated in our oral evidence that the notion that LHA rents in an area are having a knock-on consequence on other rents just doesn’t bear proper scrutiny. It is a pity that the Department has felt the need to misrepresent what is a very good and interesting piece of research. This must be so disappointing to the authors. We are also very disappointed that the Department should feel the need to engage in playing on popular prejudices towards landlords to seek to justify its policies. B. Orchard and Shipman In our oral evidence I had mentioned the example of Orchard and Shipman working collaboratively with local landlords and the local authority to place tenants in the PRS on local housing allowance, first in Edinburgh and more lately also Westminster. More details can be found on the company’s website http: www.orchardshipman.com , and I am sure they would be very happy to speak to the Committee if required. C. The Rising Costs of HB Finally, there was obviously a lot of discussion at the oral evidence session about the rising funding required to pay for Housing Benefit. The Committee may find it helpful in that regard to be aware of the following chart, taken from a recent publication, Su rt it using C sts: evel ing a si li ed and sustaina le syste published by the Building and Social Housing Foundation (BSHF): http: www.bshf.org publishedinformation publication.cfm?lang 00&thePubID AB588DD9 15C5-F4C0 993D5892C8E1DCC1 Figure 5: Proportion of the increase in the Housing Benefit bill due to different factors, November 2008 to April 2010

Increase in average payments in the social rented sector 17.7%

Increase in recipients in the private rented sector 52.8%

Increase in average payments in the private rented sector 13.2%

Increase in recipients in the social rented sector 16.3%

Ev 44 Work and Pensions Committee: Evidence

What the research shows is that about 70% of the growth in the housing benefit bill is due to new claimants, 13.2% is due to higher average payments in the private rented sector, but this is rather smaller than the contribution made by higher average payments in the social rented sector (17.7%). The latter can be explained by transfers of social rented stock from councils to housing associations, who will charge higher rents. We much appreciated the constructive dialogue with the Committee. I hope we have shown that the best way to tackle the task of finding savings in the benefit budget is to engage with and involve landlords, rather than the Department’s current tactics which seem to be increasingly desperate to pin the blame on landlords, for what gain I do not know, by fishing in an ever decreasing pool of supportive evidence. 22

t er 2 1

Written evidence s bmitted by the Chartered Instit te of Ho sing 1. Introduction 1.1 CIH welcomes the Select Committee’s enquiry into the impact of the changes to housing benefit announced in the June 2010 budget. 1.2 CIH is the professional body for people working in housing. We are a charitable membership organisation with extensive reach across all parts of the UK, covering rural and urban communities, and every local authority area. We have a membership base of 23,000 individuals and every year we provide professional training and services to more than 30,000 housing sector professionals. 1.3 We are unique in housing in that we have a “domain” approach to our work—reaching out not just to a particular sector, but to everyone who works in or is involved with housing, communities and regeneration. This includes housing associations, local authorities, ALMOs, private sector landlords, umbrella organisations, tenants’ organisations, academics, funders, developers and members of the wider third sector (for example refugee community organisations, housing advice centres, credit unions, BME community organisations etc). 1.4 Our view’s on the changes announced in the June budget are informed by the concerns of our members about the impact on their businesses and the people they work with and for. 1.5 Our response in based on a body of research and work that CIH has had underway for some time. Indeed, we have long called for a closer examination of the way that housing support is provided across tenures, including reforms of housing benefit. We are therefore encouraged that the government has undertaken work to look at benefit reform, including the role, cost and operation of benefits to support individuals and families with housing. 1.6 We were however disappointed that the announcements made in June appear to have been made in some isolation and in advance of the fundamental welfare reform programme being driven forward by the Department for Work and Pensions. The measures announced in June will have a considerable and detrimental impact on tenants and providers, yet the full implications appear to have been poorly assessed before the decision to reduce funding was announced. The motive appears to be reducing expenditure with little co-ordination or regard for the purpose of the benefit itself. We are also dismayed that while some impact assessments have been conducted by government, no consideration appears to have been given to the cumulative impact of measures, which taken together, equate to much more significant changes than the individual components. This is a significant oversight that downplays the real impact of the reforms too date. 1.7 We are also not convinced that the necessary steps have been taken to examine the important interrelationships between housing benefit, rents and new housing supply. Housing providers and the lending community are both clear that changes to housing benefit, in particular in the social sector, will have important effects on business plans and the ability to service existing debt as well as new borrowing. The off-balance sheet borrowing undertaken by housing associations is of particular importance, given its pivotal role in providing for the building of new affordable housing. Changes to housing benefit will have ramifications across other areas of public expenditure (for example the impact and effectiveness of capital investment in new homes) that need to be fully understood and quantified. 1.8 CIH is clear in recognising the over-riding imperative and importance of cutting the deficit and controlling public expenditure. This is a key consideration across all areas of government programmes and it is right that housing finance, in its entirety, should also come under scrutiny. With over 80% of public money spent on housing going through housing benefit it is particularly appropriate that this area is closely examined. Moreover, significant concerns have existed for some time around a housing benefit bill that has continued to rise in recent years. 1.9 Yet we must also acknowledge and consider why this has been the case. This should be a starting point in looking at housing benefit reform, not an after-thought. Housing costs for all households, whether renting or owning, have increased as we have failed to supply enough housing to meet the changing needs of our population and economy. In this sense, the housing benefit bill, as well as other economic and social costs, is a price that we are paying for a wider inability to address provision of sufficient housing across markets.

Work and Pensions Committee: Evidence Ev 45

1.10 We must also acknowledge that housing benefit has a distinct role in the welfare pantheon, in that it is necessary to help people afford to live in an appropriate home, something that isn’t an optional extra. Indeed, given that housing benefit’s purpose is to support people with their housing costs, CIH questions the shift towards making elements of housing benefit conditional, for example around behaviour in seeking work. 2. The Budget Measures Taken as a Whole 2.1 Our main concerns about the measures announced in the Budget is that the package as a whole takes little account of the primary policy objective for which housing benefit was created: to ensure that low income households have access to accommodation that reasonably meets their needs. 2.2 The measures appear to be overwhelmingly driven by the need to pursue, and achieve, short-term budget savings. We are not opposed to the pursuit of budget savings and we recognise the clear economic need for savings across public expenditure. We are however also clear that the measures being considered around fuller welfare reform could make important progress in a better service for consumers as well as better value for money for the taxpayer. It is therefore disappointing that these cuts are separate from what will be a more thorough and evidence based approach to reform. 2.3 Indeed, it would appear that the process has started from the position of a figure to be saved and the measures have been contrived to generate it. The justification, consequences and assessment of the impact have all followed later. Little account appears to have been taken of the immediate costs that will arise elsewhere (eg from increased homelessness) let alone the long-term costs and the impact these measures could have on the government’s own longer term policy objectives around welfare reform, community sustainability and housing policy. 2.4 Taken in isolation the justification for each of the individual measures in the Budget package can appear reasonable. Collectively however they lack coherence. For example, setting the Local Housing Allowance (LHA) at the 30th percentile is justified on the grounds that the bottom 30 per cent of the market is a reasonable expectation for a household on benefit (although the Department for Work and Pensions does not say what proportion would be the minimum acceptable). The government’s impact assessment goes into great detail to demonstrate at least 30% of the market is available in every area. However, the inevitable consequence of the LHA caps and the CPI cap is that over time the proportion of the market that is available will shrink below 30%. 2.5 This is by no means the only element in the package which raises the risk of contradiction in realising government’s stated ambitions. Raising non-dependant charges will encourage young people to leave home, whereas the social sector size limits are justified on the grounds that they will help ensure more efficient use of the housing stock. Fixing the LHA at the 30th percentile will supposedly encourage tenants to shop around for reasonably priced accommodation but the abolition of the £15 excess (announced before the Budget measures but of relevance) removes an incentive to do so. 2.6 Likewise the LHA reforms are supposed to encourage tenants to consider moving to less expensive areas and this is likely to follow as benefit levels are constrained. However, housing is cheapest where employment opportunities are the most limited—JSA claimants will increase their risk of being caught by the time-limiting provision if they move. In this, it seems that whatever tenants do—including behaviour that would reduce their housing costs or boost their employment opportunities—they risk being penalised. This arguably runs contrary to government’s own work in encouraging tenants to be more mobile for employment purposes, and to make work more attractive and accessible for people currently on benefits. 2.7 Despite the pursuit of budget savings there also appears to be little attempt to understand the reasons for growth in the housing benefit budget. In the long-term this suggests that the objective to control expenditure will not be a success. The most likely outcome is that the long term spending pattern for housing benefit will continue: sustained periods of growth punctured by periodic spending crises and one off adjustments. The result is arbitrary cuts which apart from the hardship they cause to tenants and the damage to investor confidence also tend to undermine benefit simplification and administrative efficiency. 2.8 In the long term what is needed is a more stable system of housing support that helps both tenants and landlords plan their finances with greater certainty. 2.9 We would also note that the DWP is not producing an impact assessment of the whole package. Instead an assessment has been made of the LHA measures being introduced during 2011 12 (as required by the SSAC). However, in terms of LHA reform even this is partial as it takes no account of the effect of the CPI cap on LHA rates from 2013. Assuming the LHA caps are not up-rated in line with inflation the effect of both of these measures will be to squeeze the supply available to LHA claimants from both ends of the market (ie expensive and inexpensive). 2.10 We would expect that separate impact assessments of the JSA measure and social sector size limits will follow once the secondary legislation is published. At this stage it is however unclear whether an assessment will be made of the CPI cap. For technical reasons this may be exempt from referral to the SSAC. No impact assessment may for example be made of the increases in non-dependant charges because these are exempt from referral to the SSAC.

Ev 46 Work and Pensions Committee: Evidence

2.11 The DWP has published an impact assessment of the LHA measures being introduced during 2011 12. This includes the combined effect of the LHA caps, the 30th percentile and abolition of the £15 excess (which strictly speaking was not part of the June budget but which is significant). CIH has looked at these figures and identified those areas where the combined average weekly loss is £15 or more for the main property types (one bed, two bed and three bed properties which account for 88% of the caseload). Our analysis shows that these substantial losses are not just confined to London but also heavily affect the surrounding counties and a number of other more distant areas as well (Scotland and Nottinghamshire): see Table 2.1 for details. 2.12 The DWP’s impact assessment shows that although these very heavy losses are a minority of the LHA caseload (7%) substantial numbers are still affected (over 68,000) and for the majority of cases the average losses are still in excess of £10 per week. The total numbers losing more than £10 per week on these three measures alone is in excess of half a million—55% of the LHA caseload. 2.13 CIH believes it would be appropriate for DWP to carry out an impact assessment that takes in to account the full range of inter-relating measures that are contained in the whole package. The cumulative elements of the measures clearly outweigh the impact of the measures taken in isolation and a complete picture is needed to fully understand the consequences for both tenants and landlords. Table 2 1 AREAS WHERE THE AVERAGE LOSS IS £15 OR MORE PER WEEK BY PROPERTY TYPE (ONE BED, TWO BED AND THREE BED PROPERTIES ONLY) Esti ated average l ss er l ser r n ti nal l ser r ee erseyside St. Helens tting a s ire Nottingham UA Erewash Broxtowe Gedling Rushcliffe Ca ridges ire Cambridge East Cambridgeshire Huntingdonshire South Cambridgeshire Esse Epping Forest Harlow Uttlesford ertf rds ire Broxbourne Dacorum East Hertfordshire St Albans Three Rivers Watford Welwyn Hatfield Suff l St Edmundsbury nner nd n Camden City of London Hackney Hammersmith and Fulham Islington Kensington and Chelsea Lambeth Lewisham Newham

1 ed asel ad

1 ed

2 ed asel ad

ed

tal asel ad

1,340

-15

50

-24

1,340 5,010 3,180 640 410 480 300 1,880 690

3,180 640 410 480 300

-15 -15 -15 -15 -15

510

-16

130

-23

240

-15

210

-17

70 170

-17 -15

520 170

170

-16

250

-21

80

-21

150 140 70

-19 -16 -17

180 150

-17 -19

500 360 150 140 70 730 180 150

90 60 80 110 60

-16 -22 -24 -21 -16

90 60 80 110 60

2 ed

ed asel ad

340

-15

90

-15

1,250 20 2,140

-31 -64 -21

730

-53

230

-96

1,690

-27

550

-26

430 35,320 2,210 20 4,380

950 1,900

-20 -22

700 620

-24 -36

150 140

-47 -75

1,800 2,660

1,200

-67

620 1,520 2,900

-147 -25 -20

150 440 1,070 1,180

-281 -27 -20 -20

1,970 1,960 3,970 1,180

Work and Pensions Committee: Evidence Ev 47

Esti ated average l ss er l ser r n ti nal l ser r ee Southwark Tower Hamlets Wandsworth Westminster uter nd n Barking and Dagenham Barnet Brent Croydon Ealing Harrow Havering Hillingdon Hounslow Kingston Upon Thames Merton Redbridge Richmond Upon Thames Sutton Waltham Forest er s ire Slough UA Windsor and Maidenhead UA u ing a s ire Chiltern South Bucks Wycombe a s ire Winchester ent Canterbury Sevenoaks Tunbridge Wells f rds ire Cherwell Surrey Elmbridge Epsom and Ewell Guildford Mole Valley Reigate and Banstead Runnymede Spelthorne Tandridge Waverley Woking Susse East West Brighton and Hove UA Hastings Lewes Rother Chichester Crawley Horsham

1 ed asel ad

1 ed

2 ed asel ad

2 ed

ed asel ad

ed

2,130 3,170 2,490

-19 -17 -73

840 990 2,190 1,360

-25 -29 -19 -140

220 350 880 550

-25 -27 -27 -262

1,060 3,470 6,240 4,400 25,360

670 1,020 1,340 1,070 1,040 1,060 420 720 630

-20 -18 -37 -21 -27 -17 -20 -20 -20

670 1,020 8,910 1,070 3,630 1,060 420 720 2,380

4,390

-18

350

tal asel ad

3,180

-23

2,590

-16

1,750

-17

730 1,080

-25 -16

300 440 950

-20 -21 -22

1,030 1,520 950

630

-24

170 350 830

-21 -20 -20

1,270

-15

500

-16

800 350 830 2,260 1,770

-15

140

-17

490

40 50 180

-16 -17 -16

70

-17

210 90 100

-16 -15 -18

200

-15

140

-24

200 2,010 140

110 170 60

-21 -22 -19

110 680 60

120 70 130 80 90 120

-18 -23 -23 -19 -20 -25

120 70 130 80 90 530

510

410

-15

-16

270 40 50 180 70 400 210 90 100

5,260 3,040

-16

830 360 230 190 140 250 90

-19 -17 -16 -17 -15 -16 -16

3,870 360 230 190 140 250 90

Ev 48 Work and Pensions Committee: Evidence

Esti ated average l ss er l ser r n ti nal l ser r ee

1 ed asel ad

Mid Sussex v n Bath and North East Somerset UA rset Bournemouth UA Poole UA Christchurch Purbeck ev n Exeter rt Wales Isle of Anglesey Ynys M n S tland East ast Aberdeen City Aberdeenshire Angus Dundee City S tland Central elt East Dunbartonshire East Lothian East Renfrewshire Edinburgh, City of Renfrewshire Eilean Siar

1 ed

630

2 ed asel ad

-16

2 ed

160

ed asel ad

ed

tal asel ad

130

-16

130

-18

790 970

320

480 320 90 80

-15 -15 -15 -15

480 320 90 80

150

-19

150

-15

120

-16

440

230 290

-16 -16

50 140 160 270

-16 -16 -18 -20

1,140 280 430 160 270 1,580

70 110

-13 -18

70 110

70

-18

70

1,130 200 10

-19 -16 -15

1,130 200 10 10

3. Impact of the Measures in Isolation 3.1 This section gives details of the impact of each of the June 2010 budget measures in isolation rather than their cumulative impact. 3.2 For those measures being introduced during 2011 12 that relate to LHA and which are the subject of the SSAC consultation the data is largely drawn from the DWP’s impact assessment that accompanied the consultation. 3.3 For the other measures we have relied on official statistics where available or otherwise the Government’s own research data. Ca s and

ur ed i it

3.4 We understand that one of the stated objectives of the caps is to ensure that the benefit is sustainable. We believe that if caps are to be imposed they should at least take account of the regional differences in housing costs. It is because the caps take no account of the wide variation in housing costs between the UK countries and regions that they will have such a pronounced and devastating impact on high value areas and in particular London. 3.5 The effect of this measure on London is multiplied because the LHA rates feed into the housing benefit subsidy regulations10. The subsidy rules determine how much local authorities are reimbursed for families rehoused in temporary accommodation under their homelessness duties. Most (short-term) private sector leasing schemes are funded in this way. Leases can be for up to ten years in duration and many existing contracts will be affected when the changes take effect. Some time delay is built in because the rates of subsidy for each financial year are determined by the LHA rates set the preceding January. So if (as expected) the caps come into operation from April 2011 subsidy will not be affect until April 2012. 10

See Housing Benefit Subsidy Order 1998 No.562, Article 17A

Work and Pensions Committee: Evidence Ev 49

3.6 London is particularly reliant on temporary accommodation to manage its homelessness problems. This is not going to change in the foreseeable future. In the first quarter of 2010 there were 51,310 households in temporary accommodation in England, 39,030 (76%) were in London. As much as 85% of London’s temporary accommodation will be affected by changes to the subsidy rules. Table 3 1 CASELOAD AFFECTED AND AVERAGE WEEKLY LOSS RESULTING FROM THE LHA CAPS AND FOUR ROOM LIMIT IN LONDON verage Wee ly l ss al aut rity Camden City of London Hackney Hammersmith and Fulham Haringey Islington Kensington and Chelsea Lambeth Lewisham Newham Southwark Tower Hamlets Wandsworth Westminster Barking and Dagenham Barnet Bexley Brent Bromley Croydon Ealing Enfield Greenwich Harrow Havering Hillingdon Hounslow Kingston Upon Thames Merton Redbridge Richmond Upon Thames Sutton Waltham Forest Total

Casel ad 1,090 10 1,570 710 150 680 1,650 100 120 90 30 970 1,790 4,010 30 440 20 2,070 30 80 940 90 30 90 10 70 190 50 60 130 90 10 70 17,470

-81.00 -73.00 -22.00 -35.00 -73.00 -63.00 -138.00 -48.00 -68.00 -48.00 -49.00 -11.00 -38.00 -147.00 -66.00 -62.00 -75.00 -71.00 -72.00 -73.00 -55.00 -83.00 -71.00 -73.00 -81.00 -51.00 -41.00 -57.00 -57.00 -83.00 -26.00 -66.00 -58.00 -81.00

3.7 Because of the interaction with the subsidy rules, those authorities that are worst affected by the caps, and who will experience the biggest homelessness problems as a result, will also take the biggest hit on their temporary accommodation budgets. 3.8 With the exception of the four-bed limit, the DWP impact assessment shows that the caps as presently set will not have an impact outside London. 3.9 However, importantly, if the caps are not up-rated in line with inflation (let alone in line with increases in rent levels) then this is likely to change and they may soon begin to impact on other areas. 3.10 If the purpose of the 30th percentile reform is to ensure that claimants have access to at least the bottom 30% of the market, then the effect of the caps will be to reduce that proportion which is available. Overtime if the caps are not up-rated in line with inflation (and there is no mechanism for doing so) the rate at which the available market shrinks will accelerate. 3.11 The four bed limit also hits hardest in London, but does have some effect outside of London. Although the numbers of households affected in each authority area are small, homelessness services will find the task of identifying suitable accommodation particularly challenging. The numbers are small partly because suitable accommodation for larger households is so scarce. 3.12 Unlike smaller households where the shortfall created by the change to the 30th percentile may be small enough for households to manage, the losses are so large from the four bed cap that homelessness is almost inevitable. The average weekly losses from the caps for four and five bed properties are £137 and

Ev 50 Work and Pensions Committee: Evidence

£74 respectively (or £90 and £63 if authorities that are wholly or partly within the Central London BRMA are excluded. 3.13 In these circumstances, homelessness will be an issue. If households trying to juggle their finances are unable to meet their housing costs and have to make a homeless application their local authority is obliged to consider whether their existing accommodation is affordable. If it is not they must accept them as being homeless11. 3.14 Significantly, if there is no suitable accommodation available to re-house a large family then the local authority may be forced to re-house the household in two separate homes. In these circumstances housing benefit would be payable on both properties12. Perversely, we could end up in a position whereby a provision which is designed to make a saving actually ends up costing the tax-payer more whilst causing distress for the individual families concerned. 3.15 We are also concerned about the equality impact of the proposed caps. Our view is that they will have a greater adverse impact on BME households and households headed by women. Larger households are not just affected by the four bed limit. The proportion of claims affected by the caps increases with property size. The authority areas affected also tend to have higher than average BME populations. In the eight worst London authorities affected (which account for 80% of the London caseload) BME households account for at least 20% of the population and in six out of the eight it is at least 29%. 3.16 The DWP statement and impact assessment prepared for the SSAC states that “it is not possible to provide the specific impact of this measure on race equality due to limitations in the data”13. We do not understand why this is case because a full equality impact assessment was produced in 2009 when the five bed limit was introduced14 and this included impacts for all property sizes. Indeed, this work showed the impact of the measure on various groups for all sizes of household, concluding: 3.17 “These figures demonstrate there is likely to be a disproportionate percentage of customers from minority ethnic groups entitled to six or more bedroom properties, raising concerns of indirect discrimination . Taking five or more bedroom characteristics as a guide The Department recognises this disproportionate impact on ethnic minority groups, but considers this to be justified ” : Set at

t

er entile f

al ents

3.18 The DWP’s impact assessment shows that in 81 local authority areas the average loss will be £10.00 or more per week. These 81 areas account for 162,960 households (17% of the LHA caseload). In a further 108 authorities (caseload 249,750, 26.6% of the total) the average losses are between £8 and £10 per week. In 354 authorities (81% of the LHA caseload) the average loss is £5.00 or more per week. Table 3.2 shows the 81 authorities where the average loss is £10.00 or more each week. Table 3 2: AUTHORITIES WHERE THE AVERAGE LOSS PER LOSER FROM THE 30TH PERCENTILE REFORM IS £10 OR MORE PER WEEK. a le 1 : Esti ated nu n ti nally l sing

er f

re i ients l sing r

Avon Bath and North East Somerset UA Berkshire Slough UA Windsor and Maidenhead UA Wokingham UA Buckinghamshire Aylesbury Vale Chiltern South Bucks Wycombe Cambridgeshire Cambridge East Cambridgeshire Huntingdonshire South Cambridgeshire Devon Exeter Essex Basildon 11 12 13 14

The Homelessness (Suitability of Accommodation) Order 1996 No.3204, Art 2. Housing Benefit Regulations 2006 No.213, Regulation 7(6). DWP Equality Impact Assessment, Annex C page 30 http: www.dwp.gov.uk docs localhousinglargerproperties.pdf

Casel ad affe ted

verage l ss er l ser

1,160 4,050 2,570 840 640 2,700 1,030 370 310 990 2,200 330 450 920 500

-13 -14 -15 -12 -11 -12 -10 -13 -17 -12 -14 -20 -13 -11 -18

1,550 5,670 1,830

-10 -11 -10

Work and Pensions Committee: Evidence Ev 51

a le 1 : Esti ated nu n ti nally l sing

er f

Brentwood Epping Forest Thurrock UA Uttlesford Gloucestershire Cotswold Greater Manchester Salford Trafford Hampshire Winchester Hertfordshire Dacorum St Albans Three Rivers Watford Inner London Camden City of London Hackney Hammersmith and Fulham Haringey Islington Kensington and Chelsea Lambeth Lewisham Southwark Tower Hamlets Wandsworth Westminster Kent Tunbridge Wells Nottinghamshire & Derbyshire Broxtowe Erewash Gedling Nottingham UA Rushcliffe Outer London Barking and Dagenham Barnet Bexley Brent Bromley Croydon Ealing Enfield Greenwich Harrow Havering Hillingdon Hounslow Kingston Upon Thames Merton Redbridge Richmond Upon Thames Sutton Oxfordshire Oxford South Oxfordshire West Oxfordshire Scotland Aberdeenshire Suffolk

re i ients l sing r Casel ad affe ted

verage l ss er l ser

420 980 2,070 370

-11 -10 -11 -12

540 5,890 3,920 1,970

-10 -10 -11 -10

350 2,570 730 480 500 860 37,450 2,060 20 4,990 2,130 4,460 1,310 1,610 4,230 6,350 1,550 1,900 3,190 3,650

-11 -12 -11 -13 -13 -12 -24 -31 -18 -22 -21 -11 -34 -44 -16 -15 -20 -28 -26 -46

800 9,750 1,150 1,620 1,400 4,860 720 64,960 3,310 7,120 2,390 5,810 2,910 6,480 4,330 7,380 2,770 3,400 2,330 3,130 2,630 1,240 2,270 4,550 1,110 1,800 3,020 1,830 670 520

-11 -11 -11 -11 -11 -12 -11 -14 -11 -11 -10 -27 -10 -12 -19 -11 -10 -13 -11 -12 -17 -21 -14 -13 -20 -12 -11 -11 -10 -10

420

-12

Ev 52 Work and Pensions Committee: Evidence

a le 1 : Esti ated nu n ti nally l sing

er f

re i ients l sing r

St Edmundsbury Surrey Elmbridge Epsom and Ewell Guildford Runnymede Spelthorne Waverley Woking Sussex (East & West) Brighton and Hove UA Lewes Adur Wales The Vale of Glamorgan Bro Morgannwg Wrexham Wrecsam Yorkshire (North) York UA

Casel ad affe ted

verage l ss er l ser

690 5,290 960 650 1,110 430 830 570 740 9,340 7,260 1,330 750 3,340 2,110 1,230

-12 -12 -11 -11 -12 -11 -11 -11 -15 -12 -13 -10 -10 -10 -10 -10

1,220

-11

3.19 Table 3.2 shows that the heaviest impacts of the 30th percentile measure are not confined to London. Other counties (1974 boundaries) seriously affected are: Cambridgeshire, Berkshire, Buckinghamshire, Essex, Greater Manchester, Hertfordshire, Nottinghamshire, Oxfordshire, Surrey and Sussex. There are few other isolated areas from Aberdeen to Bath but it is too early to tell whether these are a permanent feature of the local market or a one off quirk in the figures for the particular month the sample was taken. 3.20 DWP has justified this measure partly on the grounds that because the LHA rates are set at the 30th percentile claimants will still have access to 30% of the market, indeed they go further and claim that because the market clusters around the median in most cases between 33% and 34% of the market will be available. 3.21 Shelter and other organisations have previously criticised the (current) LHA rules because they maintain that although the LHA is set at the median market rent this takes no account of the landlord’s willingness to let to potentially more risky tenants. They contend that in reality a much smaller proportion of the market is actually available to housing benefit tenants. If a landlord perceives a prospective tenant to be high risk they may demand a higher deposit that is out of the range of lower income households. CIH has always been broadly supportive of the LHA but this was based on purchasing power set at levels of at least 50% of the market, even if what was actually available was smaller. Under the current system 43% of tenants are entitled to the excess (of up to £15) which may help in their negotiations to secure a property. However we would note that this will not continue. 3.22 Our view is that whatever rate the Government decides is appropriate for LHA tenants (be it 30% or some other figure) the lower the rate the more certain they need to be that proportion of the market is actually available to claimants. 3.23 CIH has identified a problem with the evidence base used for setting rents in some areas. This may be a reflection of a small private rented market or a combination of other factors. The problem is most acute for the rarer property sizes (shared room, three bedroom and four bedroom properties). 3.24 In one case we found the LHA for the month in question had been set on an evidence base of just six rents. In these circumstances we do not see how the Department can confidently assert that the rent is set at the 30th percentile that 30% of the market is actually available. Whilst it is true that a small private rented sector will translate into a small caseload, this will be of little comfort to the individuals concerned if they cannot secure a place to live. It may also mean that the local authority concerned has to spend a disproportionate amount of time securing housing for a small number of cases and this cannot be effective use of resources. 3.25 In June 2010 (the same month that the DWP used for 30 percentile impact assessment) CIH has identified 83 instances in England where an evidence base of less than 100 rents was used to set the LHA (Table 3.3). A further 167 LHA rates were set from an evidence base of less than 250 rents.

Work and Pensions Committee: Evidence Ev 53

Table 3 3: BRMA AREAS IN ENGLAND WHERE THE EVIDENCE BASE TO SET THE LHA WAS LESS 100 RENTS (LHA RATES JUNE 2010).

East f England Huntingdon Huntingdon Huntingdon East idlands Chesterfield Chesterfield Lincolnshire Fens North Nottingham Northants Central Peaks & Dales rt East Darlington Durham Northumberland Sunderland rt West Barrow-in-Furness Barrow-in-Furness Barrow-in-Furness Bolton and Bury East Lancs Fylde Coast Kendal Lancaster North Cheshire Oldham & Rochdale South Cheshire St Helens St Helens St Helens Tameside & Glossop West Cumbria West Pennine West Pennine Wigan S ut East Ashford Aylesbury Basingstoke Chichester Dover-Shepway Eastbourne Isle of Wight Isle of Wight Newbury Newbury North West Kent North West Kent Sussex East Thanet Thanet S ut West Gloucester Mendip Mid & East Devon Mid Dorset Mid Dorset North Cornwall & Devon Borders North Cornwall & Devon Borders Salisbury Weston-S-Mare

Eviden e ase

r erty si e

81 98 66

1 Bed Shared Room 4 Bed

58 89 49 39 89 93

Shared Room 4 Bed Shared Room Shared Room Shared Room 4 Bed

54 87 23 94

Shared Room Shared Room Shared Room 4 Bed

78 17 58 86 35 55 64 73 87 59 48 65 63 39 66 13 26 48 47

1 Bed Shared Room 4 Bed Shared Room Shared Room Shared Room 4 Bed 4 Bed Shared Room Shared Room Shared Room 1 Bed Shared Room 4 Bed Shared Room Shared Room Shared Room 4 Bed Shared Room

79 69 94 73 94 85 62 86 60 92 55 75 63 69 98 76 70 72 25 69 63 95 63 72

Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared Shared

4 Bed Room Room Room Room 4 Bed Room 4 Bed Room 4 Bed Room 4 Bed 4 Bed Room 4 Bed

Room Room Room Room 4 Bed Shared Room 4 Bed Shared Room Shared Room

Ev 54 Work and Pensions Committee: Evidence

Eviden e ase

r erty si e

59

Shared Room

95 51 86 85 92 22 87 44 49

Shared Room Shared Room Shared Room 4 Bed Shared Room Shared Room Shared Room Shared Room Shared Room

82 58 74 76 93 21 89 23 40 95 6 93 52 76 86 55 70

1 Bed Shared Room 4 Bed Shared Room 4 Bed Shared Room 4 Bed Shared Room Shared Room 1 Bed Shared Room 4 Bed Shared Room Shared Room 4 Bed 4 Bed Shared Room

Winchester West idlands Black Country Eastern Staffordshire Herefordshire Herefordshire Rugby & East Solihull Warwickshire South Worcester North Worcester South r s ire u er Barnsley Barnsley Barnsley Doncaster Grimsby Halifax Halifax Harrogate Leeds Richmond & Hambleton Richmond & Hambleton Richmond & Hambleton Rotherham Scarborough Scarborough Scunthorpe Wakefield : S it

t C

nde ati n r

2 1 1

3.26 The effect of this particular measure is difficult to model because actual local rent inflation is so difficult to predict. The picture is further complicated by the fact that even if local rent inflation can be identified for a particular area it may well not be even across the whole market. For example, rents may well rise at a faster rate in the top 70% of the market than at the bottom 30% of the market. 3.27 However, it is reasonable to assume that broadly over time rent inflation will outstrip CPI inflation. Indeed government appears to be making this assumption if the policy is to make the savings that have been built into the budget. 3.28 The logical consequence of this is that overtime the 30% of the market that is available to tenants will be squeezed. In theory, working on the assumption of uniform rent inflation and that rent inflation will outstrip CPI, there will come a point at which the current lowest rent that is available has overtaken the 30th percentile rent up-rated in line with CPI. At that point there will be no properties available at the LHA rate. 3.29 CIH modelled this reform using the overall average rates for rent inflation and CPI over the period 1991 to 2009 (from the bottom of the previous recession to the current one). Over this period rent inflation outstripped CPI by an average of 2.57% per year (in fact it was higher in every single year with the sole exception of 2009). We inflated the current lowest rents available from the rent officer data set at CPI plus 2.57% (using the CPI average 1991 2009) and compared them with the rent officer figures for the 30th percentile up-rated in line CPI. 3.30 Our results illustrate the time in years it would take for LHA to fall behind the lowest rent if these assumptions held good. The worst affected areas (ie where the gap is closed the quickest) in table 3.4. Table 3 4: TIME IN YEARS FOR LHA TO FALL BEHIND THE LOWEST RENT S ared

1 edr i e

West Cumbria Chesterfield Richmond & Hambleton Mid Dorset Barrow-in-Furness Harrogate

1.13 1.72 3.26 3.39 6.64 7.23

i e Barnsley Oldham & Rochdale St Helens Aylesbury Chilterns Swindon

8.22 9.09 9.10 9.66 10.50 11.02

Work and Pensions Committee: Evidence Ev 55

S ared

1 edr i e

Herefordshire Winchester Kendal Northumberland Southampton Worcester North Sunderland Darlington Teesside Worcester South

7.42 7.43 7.55 7.64 7.65 8.06 8.38 8.72 8.86 8.89

2 edr

i e Solihull Isle of Wight Worcester North Milton Keynes North Nottingham East Cheshire Kendal Darlington East Thames Valley Walton edr

i e Ashford East Thames Valley East Cheshire West Wiltshire Mid Dorset Winchester Basingstoke Chichester Aylesbury Maidstone Stevenage & North Herts Warwickshire South Swindon Milton Keynes Southend Darlington

11.09 11.20 11.20 11.31 11.51 11.72 11.72 11.72 11.72 12.22

9.99 10.43 10.65 11.59 11.77 12.63 12.77 13.04 13.38 13.38 13.38 13.70 13.70 14.04 14.04 14.45

i e Newbury Maidstone Outer East London Worthing West Wiltshire Chilterns Harlow & Stortford Lancaster Richmond & Hambleton West Pennine Cherwell Valley Salisbury Darlington Crawley & Reigate West Cumbria Mendip

8.46 10.47 11.72 12.63 12.82 13.06 13.45 13.49 13.49 13.69 13.71 13.91 14.02 14.19 14.19 14.21

edr i e Eastbourne Newbury St Helens Worcester South Richmond & Hambleton Blackwater Valley Huntingdon Salisbury Oldham & Rochdale Herefordshire Milton Keynes Taunton & West Somerset Southport Ashford North Cornwall & Devon Borders Stevenage & North Herts

6.09 8.61 8.70 9.09 9.53 10.87 10.93 11.01 11.18 11.43 11.64 12.15 12.36 12.39 12.50 12.73

3.31 Our modelling has shown that broadly the effect of the CPI cap will be to work in the reverse way that 30th percentile. The areas most adversely affected are generally those where median 30th percentile rents are closest together because these are normally the markets where the gap between the lowest rent and the 30th percentile rent are also closest. In other words, in markets where the 30th percentile is already close to the lowest rent the gap will close more quickly. 3.32 It is critical to understand that this means that over time the effect of the CPI cap will be to break the link between what help tenants receive with their housing costs and the actual rent they pay. At this point it can no longer be said that housing benefit will be meeting its central policy objective: to ensure that accommodation is available to all households regardless of their income. 3.33 That is why, this is the budget measure that CIH is most strongly opposed to.

Ev 56 Work and Pensions Committee: Evidence

3.34 The effect of this measure in shrinking the affordable supply will be two fold. First for tenants the purchasing power of their LHA will diminish. Second long-term landlord investment in rental stock is likely to shrink because long-term investment is predicated on long-term rental income yields. 3.35 We are also seriously concerned that once this measure has been introduced into the private rented sector that this will then be used to justify its extension to the social rented sector. This would have serious consequences for social landlords and their business plans. We would stress that any such measure would need to be fully and comprehensively considered, in particular looking at the inter-relationship between housing benefit, regulated rents and new supply. Deductions for Non-Dependants: Reverse Previous Freezes on Up-Rating and Maintaining Link With Prices From 2011 12 3.36 We have no objection to the principle of non-dependant charges, it is reasonable to expect nonhouseholders to contribute towards the householders housing costs. But we have concerns about charges which are set at a rate which are effectively higher for lower income households than those which people in nonbenefit households would be expected to pay. 3.37 If it is right to peg benefit rates to what low income working households can afford, then that principle should apply to the setting of non-dependant charges also. Also if it is right to peg benefit rates to CPI then non-dependant charges should also be tied to CPI. We would ask that government is clear as to the index that will be applied to the unfreezing and to subsequent increases thereafter. 3.38 We also object to the reduction of benefit levels at a rate that is faster than inflation. This would be carried out under a general benefit up-rating and it is unclear whether there will be any effective scrutiny. The impression given by the budget statement is that the DWP is returning to a policy of up-rating non-dependant charges in line with prices. This would appear to be misleading. There is no established policy as to how nondependant charges are up-rated. The Social Security Administration Act allows the Department to apply any level of increase they decide without the need to refer the matter to the SSAC even if the increase is more than the general increase in prices15. In fact this loophole was regularly taken advantage of during the 1990s resulting in charges which were widely accepted as being unfair—hence the policy of freezing. 3.39 We note that it is implicit from the Budget 2010 Policy Costings16 that the increases in non-dependant charges also apply to council tax benefit. Obviously this will mean that this particular measure will apply to and affect all tenures. But it also means that tenants will be hit twice with both higher rent and council tax payments. It seems likely that this measure will hit pensioners particularly hard. 3.40 It is difficult to model the effect of the increase in charges on households without information about what the expected rate17 of increase will be. However, we understand that the final cumulative increase will be within the region of between 60%-90% of current values. 3.41 Table 3.5 shows our estimate of the rate of charges once the policy has been fully phased in based on increases of 60% and 90%. We have also attempted to estimate the numbers of people affected based on known data from historic housing benefit caseloads. We do not have equivalent historic data for council tax benefit but based our estimates on the same proportions as in housing benefit. Table 3 5: ESTIMATED CURRENT CASELOADS AND RATES OF NON-DEPENDANT CHARGES FROM APRIL 2013 IF CURRENT RATES ARE INCREASED BY (A) 60% OR (B) 90%.

using ene t

Current rate

in rease

in rease

tal Esti ated asel ad

£47.75 £43.50 £38.20 £23.35 £17.00 £7.40

£76.40 £69.60 £61.10 £37.35 £27.20 £11.85

£90.75 £82.65 £72.60 £44.35 £32.30 £14.05

19,020 7,130 11,890 14,260 9,510 98,630

£6.95 £5.80 £4.60 £2.30

£11.10 £9.30 £7.35 £3.70

£13.20 £11.00 £8.75 £4.35

1 C un il a

15 16 17

ene t

23,150 8,670 31,830 131,630 1 2

Esti ated ensi n age asel ad

2

1

Social Security Administration Act 1992, s150(7) & Schedule 7 paragraph 3 http: .parliament.uk deposits depositedpapers 2010 DEP2010 1600.pdf We say expected because of course the Department cannot know for certain what rate of inflation will be for the three years over which the “unfreezing” will take place. It could however publish its figure for the cumulative up-rating 2001 2010 if the freezing had not taken place.

Work and Pensions Committee: Evidence Ev 57

Current rate tal affe ted y

in rease

in rease

t

tal Esti ated asel ad

Esti ated ensi n age asel ad

1 2

C tal

use lds affe ted

21

Social Sector: Limit Working Age Entitlements to Reflect Family Size 3.42 The Budget Policy Costings show that this measure out of the whole package is likely to have the most significant impact on social landlords. Out of all of the measures this is also the one which it is most difficult to estimate the impact for the lack of any hard data. 3.43 The Departmental estimates for the Budget Policy Costings were based on the preliminary data from the English Housing Survey (EHS)18 rather than DWP data from the Single Housing Benefit Extract. EHS data does not however show a breakdown of under-occupation, according to working age and pension age. We have therefore had to base our modelling on estimates on the relative rates of under-occupation. It may well be that rates of under occupation in Scotland and Wales are at different levels to those in England—although England accounts for the lion’s share (83% of caseload and 86% of expenditure). 3.44 A further difficulty with making estimates about the number of losers and the average rates of loss arises from the fact that the detailed policy framework for the reduction in the award for under occupation has not yet been set. For example it is unclear whether the policy concerning under-occupation will mirror the size criteria applied to private sector tenants. This would raise questions about, for example, single people aged under 25. 3.45 Our estimate is that this measure will affect around 220,000 households (at current caseload levels) at an average loss of around £9.00 per week. However, it should be noted that this would only generate around one quarter to one third of the savings compared to that estimated in the Budget Policy Costings. 3.46 This suggests that either the deductions for under-occupation are expected to be a lot more significant (we have assumed an average reduction of around 15% of the award) or the numbers affected are expected to be much greater (or a combination of both). 3.47 It is unclear at this stage whether the policy will take account of the unique characteristics and accepted standards that apply to the social sector. For example, social landlords do not develop new bedsit accommodation and landlords do not have a responsibility to ask tenants to consider downsizing when there is a change in household size. 3.48 It would seem reasonable to assume that this measure will have a disproportionate impact on those parts of the UK where demand is the lowest: Scotland, Wales the North of England and the Midlands. It also has the potential to undermine attempts at regeneration (eg in the Housing Market Renewal Pathfinder areas) if the policy is implemented inflexibly. 3.49 As with the CPI measures we are concerned that once this measure has been applied to working age households the logic will be to apply it to pension age households at some later date on the grounds that their exception is an unjustified anomaly (we would for example note that the size criteria in the private rented sector are applied regardless of the age of the tenant). 3.50 Reduce awards to 90% after 12 months for claimants of JSA 3.51 We think this proposal may well have the opposite effect to that intended: to encourage unemployed tenants back into work. We maintain that a stable home and family life is a pre-requisite for a stable job. We are particularly concerned about the effect of this measure on the supported housing sector (for example Foyers) where landlords are working intensively with tenants on their underlying problems to help them make them work ready. We note that rents and service charges in these schemes are higher to take account of the landlord’s increased risk and therefore tenants will take a higher loss. 3.52 This measure will be felt in particular by single people aged under 25. The average benefit award for the LHA shared room rate is £69.00. The average loss with the reduction to the 30th percentile is £6.00 per week making the average award under the new regime £62.00. So the total loss in income will be £12.30 which they will have to make good out of a total benefit income of just £51.85 per week. This also assumes that they do not already have a benefit shortfall. 3.53 Our modelling has shown that this measure will have the biggest impact in the regions: Birmingham is very severely affected (Birmingham Ladywood standing out as being by far the worst). This highlights the fact that it takes no account of the difficulties that people face due to local economic conditions. It is also indiscriminate: it penalises those who are making genuine efforts to return back to work as much as those that 18

Hansard 6 July 2010 column 214W 6502 http: www.publications.parliament.uk pa cm201011 cmhansrd cm100706 text 100706w0002.htm 10070668000023

Ev 58 Work and Pensions Committee: Evidence

do not. We would also note that the number of people affected by this measure will increase as planned benefit reforms move more people off incapacity benefits on to JSA. Table 3 6: TOP 30 PARLIAMENTARY CONSTITUENCIES AFFECTED BY PROPOSAL TO REDUCE AWARDS FOR JSA CLAIMANTS TO 90% AFTER 52 WEEKS

arlia entary

nstituen y 2 1

Clai ant unt in re ei t f S f r 2 ee s r re ay 2 1

Esti ated nu er f using ene t ases affe ted

2,560 1,760 1,510 1,360 1,360 1,285 1,275 1,255 1,240 1,240 1,235 1,235 1,235 1,225 1,210 1,195 1,185 1,180 1,175 1,155 1,145 1,135 1,130 1,130 1,100 1,095 1,085 1,085 1,075 1,055

1024 704 604 544 544 514 510 502 496 496 494 494 494 490 484 478 474 472 470 462 458 454 452 452 440 438 434 434 430 422

Birmingham, Ladywood Birmingham, Hodge Hill Birmingham, Erdington Birmingham, Perry Barr Tottenham West Ham Birmingham, Hall Green Liverpool, Walton Nottingham North Birmingham, Yardley Bootle Kingston upon Hull North Birmingham, Northfield Foyle Belfast West Poplar and Limehouse Middlesbrough Bethnal Green and Bow Hull West and Hessle Leicester West Leicester South Leeds Central Birmingham, Edgbaston Camberwell and Peckham Newry & Armagh Manchester Central Liverpool, Riverside Brent Central Kingston upon Hull East Wolverhampton South East

E

f lai ant unt y l al aut rity 42.0 42.0 42.0 42.0 49.5 65.5 42.0 8.3 22.2 42.0 16.7 3.1 42.0 No data available No data available 60.4 8.6 60.4 3.1 41.6 41.6 17.7 42.0 52.5 No data available 28.3 8.3 62.2 3.1 28.4

Esti ated at f t e S asel ad S ur e: W a ur ar et Statisti s Additional Bedroom for Carers 3.54 We welcome this measure but point to the very limited circumstances in which it will apply. For example, it will not apply to severely disabled tenants who do not have a carer, but nevertheless require the use of an extra room. 3.55 It should also be recognised that those who benefit from this policy will be precisely the same people who are guaranteed to face a loss from one or more of the PRS measures that come into force in 2011 12. Increase Discretionary Housing Payments Budget 3.56 Whilst this is welcome the total increase in the budget amounts to 1.7% of the total expected savings made. Taking the 30th percentile measure alone, and using the current distribution formula, we estimated that this would be enough sustain around 60,000 cases covering the full loss between the median and the 30th percentile for a year—just 6% of the LHA caseload. However, this assumes the whole additional budget would be spent solely on the 30th percentile losses and would leave nothing to cover for losses resulting from the other measures (eg the non-dependant charges) and assumes that there nothing to cover social sector tenants. 3.57 DWP has said that it will be revisiting the discretionary housing payment funding distribution formula so that it better takes account of those areas that will be worst affected by the changes. Whilst this is of course welcome it does inevitably mean that it will sustain fewer cases.

Work and Pensions Committee: Evidence Ev 59

Conclusion 4.1 The long-term objective of Government, tenants and housing providers should be to provide a system of help with housing costs that is both politically and economically sustainable. 4.2 CIH is clear that the starting point in moving towards success in this objective is focusing on the reasons for growth in the housing benefit budget and what policies around housing support in the round (both in the social and private sectors) are aiming to achieve. 4.3 As noted, the measures in the June budget have significant shortcomings and are inconsistent with wider, stated government ambitions around welfare reform. 4.4 CIH is very concerned at the scale and nature of the cuts announced to Housing Benefit in the Emergency Budget. Nearly a million households will be affected by the first tranch of cuts alone. 4.5 We believe that such cuts will put a severe strain on some of the poorest and most vulnerable households across the country, causing hardship and in the worst instances homelessness. 4.6 What’s more we believe that they will not deliver the savings to the public purse envisaged as whilst benefit payments reduce, costs stack up in other areas including through homelessness, temporary accommodation, hostel places, personal debt, education, health, social services and criminal justice. 4.7 We therefore strongly oppose these cuts and are also concerned at the short timescales involved. However, if they are to go ahead we believe that there are measures which if adopted could help minimise the impact and smooth the transition for those households affected. 4.8 We have written to the Secretary of State with other concerned organisations outlining our recommendations on the implementation and communication measures which need to accompany these changes if we are to avoid a surge in levels of debt, overcrowding and homelessness. 4.9 In particular, we propose as an immediate course of action: — Moving the introduction of caps back to October 2011. — Caps to be uprated in line with rent inflation. — Reviewing the Broad Rental Market Areas to ensure 30% of the PRS is available to claimants in each local authority. — Additional support and resources to assist claimants, especially those with vulnerabilities. — Discretionary Housing Payments being proportionally allocated to those authorities worst affected. — Clear and timely communication with particular attention paid to vulnerable claimants. — Clarification on the guidance around intentional homelessness. 4.10 There are also significant longer term questions which the June announcements raise, notably around housing benefit, rent levels and housing supply. We would urge government to carry out comprehensive analysis around the trade-offs in public expenditure and the impact on private investment in affordable housing, before taking any further steps in this direction. Se te

er 2 1 Written evidence s bmitted by the

epartment for Work and Pension

WP

Summary — As at May 2010, there were 4.75 million family units in receipt of Housing Benefit. Of these 1.46 million (31%) were tenants in private rented sector accommodation and 3.29 million (69%) were living in the social rented sector. Overall, Housing Benefit expenditure amounted to around £17 billion for the year 2008 09. — Housing Benefit expenditure has risen considerably in the past 10 years, from £11 billion in 1999 2000 to £20 billion in 2009 10 and is forecast to reach £25 billion by 2015 16. The Government needed to act quickly to take steps to curb increases in expenditure, particularly given the wider need to tackle the budget deficit. — The package of measures being introduced for the Local Housing Allowance in 2011 12 will achieve savings of around £1 billion by 2015 16. — Local Housing Allowance measures will provide a more sustainable Housing Benefit scheme by ensuring that people on benefit are not living in accommodation that would be out of the reach of most people in work, creating a fairer system for low-income working families and for the taxpayer. — Currently some Housing Benefit recipients are able to live in very expensive properties in areas that most working people supporting themselves would have no prospect of being able to afford. — Other changes to Housing Benefit announced in the June Budget including those in the social rented sector are estimated to save a further £1.1 billion in 2015 16. Overall, this represents a reduction of 9% in the total 2015 16 forecast expenditure on Housing Benefit.

Ev 60 Work and Pensions Committee: Evidence

— To give support and flexibility to local authorities in mitigating the impact of the reductions the sum allocated centrally for Discretionary Housing Payments will increase by £10 million in 2011 12 and in subsequent years the Government will treble its allocation to £60 million per year. — From April 2011 customers (or their partners) who have demonstrated the need for (and do in fact have) an additional bedroom for a non-resident overnight carer will be entitled to an extra bedroom Local Housing Allowance rate. It is estimated that around 10,000 individuals could benefit from this measure. Section 1—Introduction 1.1 This memorandum is provided by the Department for Work and Pensions as a contribution to the Work and Pensions Select Committee’s inquiry—Impact of the changes to Housing Benefit announced in the June 2010 Budget. 1.2 Housing Benefit is an income-related benefit providing support for rental housing costs for tenants on low incomes (both in and out of work). It is a scheme covering England, Scotland and Wales, with almost all benefit costs met by central government. Together with Council Tax Benefit, it is administered by 380 local authorities. 1.3 As at May 2010, there were 4.75 million family units in receipt of Housing Benefit. Of these 1.46 million (31%) were tenants in private rented sector accommodation and 3.29 million (69%) were living in the social rented sector. Overall, Housing Benefit expenditure amounted to around £17 billion for the year 2008 09. a gr und t

udget ann un e ents

1.4 Housing Benefit expenditure has risen considerably in the past 10 years, from £11 billion in 1999 2000 to £20 billion in 2009 10 and is forecast to reach £25 billion by 2015 16. The Government needed to act quickly to take steps to curb increases in expenditure, particularly given the wider need to tackle the budget deficit. 1.5 The package of measures being introduced for the Local Housing Allowance in 2011 12 will achieve savings of around £1 billion by 2015 16. The other changes to Housing Benefit announced in the June Budget are estimated to save a further £1.1 billion in 2015 16. Overall, this represents a reduction of 9% in the total 2015 16 forecast expenditure on Housing Benefit. 1.6 The measures will provide a more sustainable Housing Benefit scheme by ensuring that people on benefit are not living in accommodation that would be out of the reach of most people in work, creating a fairer system for low-income working families and for the taxpayer. Currently some Housing Benefit recipients are able to live in very expensive properties in areas that most working people supporting themselves would have no prospect of being able to afford. The Budget announcements will mean that people claiming Housing Benefit will have to make similar accommodation choices to those families not on benefit. Fig re 1: HOUSING BENEFIT E PENDITURE, WITH AND WITHOUT REFORMS, IN CASH TERMS 30

25

20

15

10

5

6 /1

5

Expenditure without reforms

20

15

4

/1 14

20

/1

3 13

/1 12

20

11 /

12 20

20

/1 1

0 /1

10 20

9 /0 20

09

8 /0 20

07

08

7

Expenditure with reforms

20

/0

6 06 20

/0

5 05 20

/0

4 04 20

/0

3 /0 20

03

2 /0 20

02

1 /0

01 20

00

99 19

20

/0

0

0

Work and Pensions Committee: Evidence Ev 61

1.7 The Department has published an extensive assessment of the impact of the changes that will come into effect in 2011, including at local level. This document is available on the Department’s website at: http: www.dwp.gov.uk local-authority-staff housing-benefit claims-processing local-housing-allowance impact-ofchanges.shtml. using ene t: une 2 1

udget

easures

1.8 The programme of Housing Benefit reform measures announced in the June Budget will come into force between 2011 and 2013. Measures that come into force in 2011 will be taken forward by amendments to secondary legislation. Measures that will come into force in 2013 may require primary legislation. The changes are, from April 2011: — Local Housing Allowance levels will be restricted to the four bedroom rate. — A new upper limit to the Local Housing Allowance rates will be introduced for each property size, with upper limits set at: — £250 a week for one bedroom. — £290 a week for two bedrooms. — £340 a week for three bedrooms. — £400 a week for four bedrooms. — As previously announced, the £15 weekly excess provision currently payable within the Local Housing Allowance rules will be removed as planned. — The size criteria will be adjusted to provide for an additional bedroom for a non-resident carer where a customer and or partner has an established need for overnight care and has an additional bedroom for that carer to use. — From October 2011, Local Housing Allowance rates will be set at the 30th percentile of rents in each Broad Rental Market Area, rather than the median. — There will be staged increases in the rates of non-dependant deductions in the income-related benefits from April 2011. By April 2014, these increases will bring the rates to the level they would have been had they been fully up-rated since 2001 to reflect growth in rents and council tax. The Government announced three measures that will come into effect from April 2013, these are: — Local Housing Allowance rates will be up-rated on the basis of the Consumer Prices Index, rather than on the basis of local rents. — Housing Benefit for working age customers in the social rented sector will be restricted for those who are occupying a larger property than their household size and structure would warrant. — Housing Benefit customers who are claiming Jobseeker’s Allowance will only receive their full Housing Benefit award for a period of 12 months. After that period, their Housing Benefit will be reduced by 10%, and they will continue to be ineligible for the full out of work Housing Benefit rate until they have left the benefit system and been in work for a period. 1.9 The Government also announced that it would provide additional support for customers who may be affected by these changes and the sum allocated centrally for Discretionary Housing Payments will increase by £10 million in 2011 12 and by £40 million a year thereafter. This is aimed at giving more flexibility to local authorities to help a greater number of new and existing customers who face a shortfall in rent because of changes to the Housing Benefit rules. le enting udget

easures

1.10 The measures to modify Local Housing Allowance rates in 2011 along with the provision for nonresident carers are being taken forward by a package of amendments to Housing Benefit regulations and the Rent Officers (Housing Benefit Functions) Order. The Department expects that following consideration of the Social Security Advisory Committee’s formal report (following the Committee’s consultation exercise) it will lay amendment regulations for these measures in November 2010. 1.11 The Department will announce the increases in non-dependant deductions when presenting the annual Social Security Benefits Up-rating Order to Parliament. The order provides for the annual up-rating of social security benefits under sections 150 and 150A of the Social Security Administration Act 1992 (“the Act”). 1.12 Most of the 2013 measures will require primary legislation and the Department expects that these will form part of the Welfare Reform Bill, which we aim to introduce to Parliament in the New Year. The detailed policy design for these measures is still being developed. The Department is therefore unable to provide the same level of information on the specifics of these changes, or the anticipated impact, as is the case for measures to be introduced in 2011.

Ev 62 Work and Pensions Committee: Evidence

Section 2—Incentives to Work and Access to Low Paid Work 2.1 The Government is committed to tackling welfare dependency and improving incentives for customers to enter work. Providing some customers, mainly in London, with the ability to live in very high cost rented properties makes it extremely unlikely they would ever move completely off Housing Benefit because of the very high income levels required. Moving to more affordable accommodation could therefore encourage households to take up employment and move completely off benefit. 2.2 The Department has also been conducting a two-year review of the Local Housing Allowance arrangements and separate research into housing choices and rental commitments made by low income households in the private rented sector. The review and research will be published later in the year but the preliminary findings suggest that most low income working households pay a rent which is, on average, less than the Local Housing Allowance rate for that property, although the amount paid is usually 90% or more of the Local Housing Allowance rate (except for large properties). 2.3 The research did not find any evidence that low income working households pay the very high rents that have been supported in some circumstances by the Local Housing Allowance arrangements. The decision to set the Local Housing Allowance rate at the 30th percentile of rents in each area and to cap very high rents is generally supported by the research. In addition, it found that rents paid by both this group and Housing Benefit recipients for properties of up to three bedrooms are very similar. 2.4 The measures to reduce Local Housing Allowance rates in 2011 will mean that in all but the most central areas of London, between 30 and 40% of properties will still be affordable for Housing Benefit customers in each Broad Rental Market Area. Whilst it is possible that customers in inner areas of London may have to move home, the Government expects that this will usually be only short distances that will mean employed people on Housing Benefit will still have easy and affordable access to their place of work. Moving to more affordable accommodation would reduce the economic barriers to work created by high cost properties in inner London. 2.5 The Budget measure to time-limit full Housing Benefit for jobseekers and reduce awards to 90 per cent after 12 months (or 52 weeks) for claimants of Jobseeker’s Allowance has two objectives: (a) To help change the behaviour of Jobseeker’s Allowance customers who are perhaps selective about the sort of work they take, or the action they take to make themselves job ready, because they have their rent met in full19 through Housing Benefit if not working. (b) By increasing the gap between in-work income and out-of-work income benefits and earnings, this measure will make work more attractive compared to benefits—ie help address the unemployment trap20. 2.6 While most Jobseeker’s Allowance customers remain on benefit for much less than 12 months, this change would make it clear that people who are expected to work cannot continue to receive maximum help from the benefit system to pay their housing costs indefinitely. Section 3—Levels of Rent and Regional Variations and Shortfalls in Rent 3.1 Local Housing Allowance rates are set by rent officers currently at the median level of the rents they collect within Broad Rental Market Areas. Broad Rental Market Area boundaries are also determined by rent officers and are intended to represent an area from which to draw a pool of comparative market rental evidence so that maximum rates of benefit can be determined. 3.2 Local Housing Allowance rates are published on a monthly basis on the Valuation Office Agency’s website as well as by each local authority. Publishing Local Housing Allowance rates in advance promotes transparency and helps tenants and landlords to know the maximum amount of financial help that may be available. However, this also increases the risk that some landlords may raise their rents to the rate that they know will be met by benefit levels. Research undertaken by the Department for the two year review of Local Housing Allowance found that local authority Housing Benefit managers feel that more landlords are raising their rents to Local Housing Allowance levels. They believe landlords see this as the going rate in the absence of other rent setting methods. 3.3 Clearly, rent levels differ considerably across the country, and this variation is accounted for by setting Local Housing Allowance rates within local areas. Within those areas, rent levels can be distributed in different ways—in some areas, rents are clustered primarily around the middle of the market whereas in others, there is a more even distribution of rents. The Valuation Office Agency publishes graphical representation of rent distribution in each Broad Rental Market Area in England on its website: https: lha-direct.voa.gov.uk Secure Default.aspx 19

20

People on IS, JSA(IB) and ESA(IR) are “passported” to maximum HB minus deductions for any non-dependants in their household. Maximum HB is total rent after deductions for certain service charges and adjustments to take account of overaccommodation. People not on benefits may also qualify for some HB based on the level of their income, which may be subject to the 65 per cent taper. The unemployment trap is used to describe the situation when somebody has a level of disposable income when out of work which is close to or higher than their level of disposable income would be if in work, especially when other costs of working such as travel and childcare are taken into account.

Work and Pensions Committee: Evidence Ev 63

3.4 In the longer term, the Government has announced its intention to set Local Housing Allowance rates according to the Consumer Price Index. The Department is currently developing the detailed policy design of this measure with the aim of taking this forward shortly in forthcoming legislation. S rtfalls in rent 3.5 The Government expects that in some cases tenants will be able to renegotiate their rent with their landlord, and reduce or remove the shortfall altogether. Although this will not be possible in all cases, tenants will have the choice of whether to meet the shortfall from other sources of income, or to move into more affordable accommodation. In all but three Broad Rental Market Areas (from a total of 193) a minimum of 30% of properties will be affordable to Housing Benefit customers. 3.6 The Department believes that it is essential to give customers advance warning that they are likely to be affected by the changes and advice on the options open to them. As for previous changes to the Local Housing Allowance arrangements, we will provide practical support for local authorities and intend to undertake a wide ranging awareness campaign to ensure people know of the changes well in advance. 3.7 We will be working with local authorities and welfare and housing advisers to ensure that a comprehensive and consistent communication strategy for customers is developed. The Department’s main aim is to ensure that people know in good time when their Housing Benefit is going to change so that they have enough time to make alternative provision. 3.8 Currently, customers living in the social rented sector have their entire rent met by Housing Benefit, subject to the usual income and capital rules; there is no limit placed on the size of the accommodation occupied by the household. However local authorities should seek a rent officer’s rent determination for registered housing association tenants where they consider the rent unreasonably high. 3.9 We expect as part of the Welfare Reform Bill, the Government will introduce powers that will allow Housing Benefit in the social sector to be restricted to a level appropriate to the size of the customer’s household. These arrangements will apply to those of working age from April 2013. The Department is currently in the process of developing the detail of how this might work in practice. Section 4—Levels of Evictions and the Impact on Homelessness Services 4.1 The Government accepts that a small number of people will have to move as a result of measures to moderate Local Housing Allowance rates in 2011. However, whilst the risk of eviction cannot be discounted entirely, this is only expected to occur in exceptional circumstances. This is because the Department is undertaking a programme of work to ensure that customers facing a shortfall have access to options ranging from support in renegotiating their rent levels with landlords through to applying to their local authority for assistance in obtaining alternative accommodation. This will be publicised and tenants will be encouraged to consider these options before it is too late and eviction proceedings are initiated. 4.2 Other measures such as the up-rating of non-dependant deductions and the 10% reduction in Housing Benefit awards for those claiming Jobseekers Allowance for more than 12 months may have some impact on the risk of eviction. By staging the increase in non-dependant deductions over three years we are minimising the impact. 4.3 The Department is also working with other government departments and the devolved administrations over the forthcoming months to explore strategies that could be adopted to ease the process for households seeking and moving to alternative accommodation. 4.4 The increase in the Government contribution to Discretionary Housing Payments will be an important element in the strategy to ease the transition for existing customers. In 2011 12 the Government will increase its allocation by £10 million and in subsequent years it will treble its allocation to £60 million per year. This will provide local authorities with substantial support in helping customers through the transition period and help avoid evictions. 4.5 As part of the longer term measures in the social rented sector the Department is working closely with devolved administrations and Communities and Local Government to consider any potential impacts including those on local authority homelessness services and eviction risks. Section 5—Landlord Confidence 5.1 The Government recognises the importance of a robust private rented sector housing market and of private investment in affordable housing. The Department will therefore engage with landlords in the private and social sector to ease the transition when measures are introduced in both the short and long term. 5.2 As at May 2010 the number of customers claiming Housing Benefit in the private rented sector stands at 1.46 million which represents 31% of all Housing Benefit recipients. The number of people claiming under Local Housing Allowance rules is 1.06 million which represents 75% of all those claiming Housing Benefit in the private rented sector. This demonstrates that, despite landlords’ reservations about the Local Housing Allowance scheme, they are letting their properties to customers claiming Housing Benefit. Research

Ev 64 Work and Pensions Committee: Evidence

undertaken by the Department reported that 67% of Housing Benefit managers reported that landlords in their area were happy to let property to people on Housing Benefit. 5.3 In May 2010, the average Housing Benefit award for Local Housing Allowance cases was over £9.50 per week more than for customers still on the previous scheme in the private rented sector. Although this difference may be because the non Local Housing Allowance cases are based on older tenancies, anecdotal evidence suggests some landlords may be increasing rents excessively in line with Local Housing Allowance rates. Housing Benefit managers reported that landlords appeared to be raising rents to Local Hosing Allowance levels. It is expected that reducing these rates will exert downward pressure on rent levels generally. 5.4 Research21 commissioned as part of the two year review of the Local Housing Allowance with landlords was mixed, however, some landlords have had a positive experiences with letting to Housing Benefit tenants under the Local Housing Allowance scheme. Many see the benefits of transparency and publication of Local Housing Allowance rates and as a result will track the published rates, while others will undercut published rates to minimise tenant turnover. 5.5 In developing the changes to introduce size criteria for tenants in the social sector, we shall consider the likely effects on landlords. Section 6—Community Cohesion 6.1 Although the Government is committed to supporting community cohesion, it cannot do so regardless of the cost and fairness. Housing Benefit will still support people to live in reasonable accommodation, but we expect customers to make the same choices as people who are not on benefit. In some cases, this will mean Housing Benefit customers will no longer be able to live in the most expensive areas of city centres. 6.2 The Department will continue to engage with Communities and Local Government and the devolved administrations to consider where there could be a noticeable impact on communities as a result of these changes. In relation to how the changes will impact in London the Department will continue to work with local authorities who will be most affected by the 2011 changes, including providing support to develop the way in which housing advice and assistance might be coordinated. 6.3 As the measures to modify Local Housing Allowance rates in 2011 mean that all but three Broad Rental Market Areas will contain at least 30% of properties affordable to Housing Benefit customers, the Government does not expect a significantly negative impact on community cohesion as a result of these measures. Even for those customers who may have to move, this will generally be within the local area. 6.4 The Department is working with other government departments including the Department of Health and the Department for Education to discuss the impact of people moving address and needing to find new childcare, schools and health services. Some customers will need to move away from extended family support networks; this however reflects the choices that most people in work also have to make 6.5 The Government believes that the impact of the staged increase in non-dependant deductions will be minimal although could introduce a small risk of some households deciding to change their living arrangements as, for example, it could make sense for adult children to live separately. However, this staged change will only return levels to where they would be at if they had not been frozen for 10 years. There was no evidence at that time that the rates of non-dependant deductions had any adverse effect on community cohesion. Section 7—Disabled People, Carers and Specialist Housing isa led e le and arers 7.1 From April 2011 customers (or their partners) who have demonstrated the need for (and do in fact have) an additional bedroom for a non-resident overnight carer will be entitled to an extra bedroom Local Housing Allowance rate. This will contribute to the ability of certain disabled individuals to live independently. It will apply to all new and existing customers and the Department is working with local authorities, Jobcentre Plus and the Pension Disability and Carer Service on the best way to publicise this change. It is estimated that around 10,000 individuals could benefit from this measure. Su

rted a

dati n

7.2 Those living in supported accommodation that is classed as “exempt accommodation” (provided by a not-for-profit landlord who also provides care, support or supervision) are exempt from mainstream Housing Benefit rules and are therefore not affected by the changes announced in the Budget. e

rary a

dati n

7.3 There are more than 64,000 households living in temporary accommodation in Great Britain with almost two thirds of the caseload situated in London. Most of this temporary housing is procured from private landlords 21

“Private landlords and the Local Housing Allowance system of Housing Benefit” is expected to be published on 30th September 2010

Work and Pensions Committee: Evidence Ev 65

by local authorities or registered housing associations22 and rent levels can be high, which may be perceived by these households as a barrier to work. 7.4 A new Housing Benefit subsidy scheme, based on Local Housing Allowance rates (including upper cap limits), was introduced in April 2010 to encourage local authorities to reduce their costs and charge households in temporary accommodation more reasonable rents. 7.5 The Department intends to extend the Local Housing Allowance based subsidy scheme from April 2011 to include cases in temporary accommodation provided by a registered housing association. This will lead to an equitable level of funding (through Housing Benefit subsidy) among different providers of temporary accommodation. The Government has committed to maintaining subsidy levels based on January 2011 Local Housing Allowance rates, for two years until the end of March 2013. This should give local authorities and housing associations greater confidence in running temporary accommodation schemes over this period whilst the impact of the changes to Local Housing Allowance in the private rented sector becomes clearer. Section 8—Older People, Large Families and Overcrowding lder e le 8.1 The Government recognises that older people may have specific concerns relating to housing and therefore, most of the longer term Housing Benefit measures announced in the emergency Budget will not apply to pensioners. The measure to reduce Housing Benefit by 10% after a continuous period of one year only applies to customers in receipt of Jobseeker’s Allowance, and therefore only working age customers. The measure to limit Housing Benefit for customers living in the social rented sector to a property appropriate for their family size will also only apply to working age customers. 8.2 Measures aimed at reducing Local Housing Allowance rates will apply to all client groups, including pensioners. The Department recognises that those pensioners claiming Housing Benefit according to Local Housing Allowance rules will receive less Housing Benefit and, in a small minority of cases, may have to move as a result of these changes. To help support pensioners (and others) who may be affected as a result of these changes, the Government has increased Discretionary Housing Payment funding substantially. In addition, the Department will provide practical support for local authorities including a comprehensive communication strategy and a range of practical support through guidance and best practice material. 8.3 Although data is limited, the Department estimates that most of those who will benefit from the additional room for carers will be elderly. 8.4 Older people will be affected by the increases in the rate of non-dependant deductions. There is an expectation that these non-dependants should contribute to the household expenses of the accommodation where they live. Non-dependants who are in employment have a deduction applied which reflects their gross weekly income. 8.5 Table 1 displays the breakdowns of the effect of the non-dependant deductions measure by working age and elderly customers. It show that 60% of customers affected by the measure are of working age while 40% are elderly, compared to 66 per cent and 34% respectively for Housing Benefit Council Tax Benefit overall. Non-dependants living with Housing Benefit Council Tax Benefit customers are overwhelmingly of working age (92%). Table 1: HOUSING BENEFIT COUNCIL TA BENEFIT CUSTOMERS WITH NON-DEPENDANT DEDUCTIONS, AND NON-DEPENDANTS BY AGE C ust ers affe ted y li y Working Age Elderly S ur e: a ily es ur es Survey

it

n de endants living C ust ers

60% 40% Single

using ene t E tra t

ll

92% 8% ar

C

ust

ers 66% 34%

2 1

arge fa ilies 8.6 From April 2011, the maximum Local Housing Allowance rate will be set for a four bedroom property. Families who are currently assessed according to the five bedroom Local Housing Allowance rates will have their Housing Benefit assessed according to the four bedroom rate when their case is reassessed by the local authority, usually at the anniversary point of their claim. 8.7 The Government recognises that the measure to cap Local Housing Allowance rates at the four bedroom level will impact mostly on larger families. It is important to note, however, that this does not mean families will be obliged to live in properties with four bedrooms or fewer. Rather, the maximum amount of benefit a customer will receive will be based on properties of that size. Customers will need to make their housing 22

This includes a registered provider of social housing in England

Ev 66 Work and Pensions Committee: Evidence

decisions based on the size and location of the accommodation. This measure will bring the housing choices of larger families more in line with those who do not claim Housing Benefit. 8.8 Research into low income working households23 found that, for properties of four or more bedrooms, low income working households paid rents that were around two-thirds of the Local Housing Allowance rate outside of London and the South East. 8.9 The staged increase in non-dependant deductions will have an impact on larger families where older members of the household will be expected to contribute more to the housing costs of the household. ver r

ding

8.10 In a small number of cases, the combination of the removal of the five bedroom rate and the reduction in Local Housing Allowance rates to the 30th percentile could lead to some overcrowding. The number of households currently receiving benefit at the five bedroom rate is a very small proportion (0.7%) of the caseload of over one million. Around one fifth (1,300) of these families have six or more dependant children (March 2010 figures). 8.11 The most commonly used definition of overcrowding is based on a bedroom criterion that is less generous than the size criteria set out within the Local Housing Allowance rules. The English Housing Survey definition of overcrowding is the most widely accepted benchmark among stakeholders. This standard expects household members of the same gender to share a bedroom up to the age of 20. The Local Housing Allowance size criteria expect household members of the same gender to share a bedroom up to the age of 16. Using this definition, even fewer families would fall into overcrowding conditions as a result of the Budget measures. Se te

er 2 1 Written evidence s bmitted by the Local Government Association LGA

Key Points in This Submission — The Local Government Association is concerned at the effects of the budget measures on the private rented sector and at the potential effect on homelessness, with potential consequences for community safety, physical and mental health, social care, child protection and other services. — The increase in the non-dependent deduction, which could increase by up to 160% in some cases over the next four years, is likely to have an effect on household stability and could affect community cohesion. — The LGA welcomes the provision for an additional bedroom within the LHA calculation for nonresident carers. This was something which the LGA and specialist organisations had called for. — The LGA is concerned at the increasing burden represented by supported “exempt” accommodation; one council reports this could amount to 2% of its revenue budget and 3 4% on its council tax. Introduction 1. The Local Government Association is pleased to submit written evidence to the Select Committee on the effects of the changes announced in the Emergency Budget 2010 on housing benefit, specifically on local housing allowance. 2. The Local Government Association (LGA) is a voluntary lobbying organisation, acting as the voice of the local government sector. We work with and on behalf of our membership to deliver our shared vision of an independent and confident local government sector, where local priorities drive public service improvement in every city, town and village and every councillor acts as a champion for their ward and for the people they represent. 3. The 423 authorities who make up the LGA cover every part of England and Wales. Together they represent over 50 million people and spend around £113 billion a year on local services. They include county councils, metropolitan district councils, English unitary authorities, London boroughs, shire district councils and Welsh unitary authorities, along with fire authorities, police authorities, national park authorities and passenger transport authorities. Of these, local housing allowance most immediately affects housing and council tax billing authorities, who have responsibility for assessment and payment of housing benefit. 4. Our submission is based on the areas of inquiry set out by the Committee. 23

DWP commissioned the Centre for Urban and Regional Studies at the University of Birmingham to lead a research programme into low income working households (LIWH) of working age-that is, working households under pension age who are not in receipt of Housing Benefit in the private rented sector. The over-arching objective of the research was to fill a perceived gap in information and understanding about the housing situation of non-HB recipient LIWH, particularly in respect of the type and cost of accommodation that such households occupy and the sort of barriers they need to negotiate in order to secure it. The research is expected to be published as n e W r ing use lds in t e rivate ented Se t r in late September

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Introductory Section 5. The Local Government Association gave evidence to the Select Committee in its last enquiry into Local Housing Allowance. We also responded to the previous Government in its Housing Benefit consultation issued in December 2009. 6. We said that although we did not want the LHA to have an effect of distorting the rental market locally, we equally warned against measures that would increase homelessness through making renting to housing benefit customers less attractive to the private rented market. We said that the private rented sector has played a crucial role in tackling homelessness and we would not like to see this reversed, particularly as extra homeless acceptances will lead to more expenditure for councils. 7. We also opposed the plans to remove the £15 excess when they were proposed by the previous government as a measure which would impact on the poorest in society. 8. We do welcome a greater government contribution towards discretionary housing payments and for more flexibility on size limits for disabled customers. We had called for both of these. 9. LGA member authorities believe that the measures in the Budget are bound to have an effect on homelessness. This will have the effect of increasing local authority costs, which have come down in recent years, thanks to the private rented sector. 10. Member authorities point out the wider impact of homelessness on public services including Local Government—community safety, physical and mental health, social care, child protection and other services. The wider impact of these changes should not be underestimated and will result in increased cost for Local Government and other public services, at a time of squeezed budgets. 11. Homelessness prevention and housing options work in member authorities has been very effective and has, since the highpoint of 2005, steadily reduced homelessness. The changes will undermine this valuable work and will make it much more difficult to prevent homelessness. The PRS plays a critical role in the housing options approach, but the housing benefit changes will severely limit its role as a higher proportion will become unaffordable or inaccessible to people on housing benefit. 12. There is particular concern over the non-dependent deduction which could increase by as much as 160% over three or four years. One suggestion would be for there to be a cap on non dependant deductions so that a non dependant is not expected to pay for more than 50% of the householder’s housing costs. Incentives and Access to Work 13. The budget measures are primarily about savings and do not directly address incentives or access to work. Those who argue that benefits are a disincentive to work would argue that reduction in benefits, in particular the JSA cap, increases the incentive. As opposed to that, it could be argued that the measures act as a disincentive to those looking for work on the following grounds: — The JSA cap, and the punitive approach to worklessness that implies, will only have an effect if work is readily available. If it isn’t it will only have the effect of reducing benefits for the poorest in society without affecting overall employment and of increasing poverty. In addition it could lead to serious shortfalls in rent, thus pushing customers into debt and disengagement from landlords and local authorities, and making their employability less. — With the general reduction of LHA rates and the caps, more areas will become unaffordable. We previously voiced our concern that broad rental market areas are set by access to facilities rather than by access to transport or work. The budget measures will particularly affect low paid claimants in London; there could be an effect in other areas. If within a particular BRMA the area with better employment opportunities has higher rents overall; the reduction will affect affordability within this area and restrict claimants to an area within the same BRMA with lower employment opportunities. An example of this is Oxfordshire; there are more jobs in Oxford city but rents in the surrounding rural area are lower. Travel costs in this instance are likely to act as a major disincentive to work. — The reduction will hit all LHA rates, for those in as well as those out of work. So those on low incomes will have less of a top up; this could act as a disincentive when a benefit customer decides whether or not to take a low paid job and considers their total income. For example in Brighton and Hove 35% (4,211 claims) of LHA claimants are from working households, who will lose on average £755 per year. — The higher deduction for non-dependants, which affects all housing benefit irrespective of sector, as well as council tax benefit, could also act as a disincentive when households consider overall affordability. It might also act as a disincentive to non dependents such as young adult children taking a low paid job, given the effect on overall household income.

Ev 68 Work and Pensions Committee: Evidence

Levels of Rent, Including Regional Variations 14. Figures published by the DWP and the Valuation Office Agency shows the effect that the measures will have. It will clearly have an effect on LHA rates and thus on housing benefit. Those who support the measures would argue that it is bound to have a downwards effect on rents generally, correcting the tendency for high LHA rates to contribute towards their upwards movement. As opposed to that it can be argued that rents generally are set by market factors and that LHA will not have an effect. 15. There could be a differential effect on the market. In an area where rents are low, where landlords rely on benefit customers to fill their properties and find it difficult to substitute other tenants, there could be reductions. Where other potential tenants are available, a fall in rents is unlikely. The very high LHA rates which were the subject of media attention were in Central London and the Central London rental market is affected by wider factors such as overall confidence and the state of the economy rather than by LHA. 16. In the long term, uprating in line with CPI rather than market evidence could accentuate the divorce between LHA rates and actual rents. There needs to be more clarity about the role of the Valuation Office Agency in future once updating by CPI comes in. Some have expressed concern that it will no longer gather detail on private sector rents and that broad rental market areas will no longer be reviewed and updated regularly. 17. The size and basis of broad rental market areas means that the policy will continue to have a different effect in different areas. The 30th percentile approach takes no account of the total proportion of claimants in the total. If 10% of private tenants in an area are claimants; the 30th percentile may be affordable but if 40% are on benefits (for example the LHA caseload in Brighton and Hove of 12,000 is approximately 43% of the total private rented sector, 28,000), the 30th percentile is likely to be low and many benefit customers will be unable to find affordable accommodation. Shortfalls in Rent 18. According to DWP evidence as cited by Crisis, 48% of people already face shortfalls in their benefits. The measures seem likely to accentuate this. 19. For example, Camden Council have carried out an analysis which shows that following the introduction of capping over 2,000 claimants currently living in privately rented accommodation will be affected. This represents around two thirds of those who currently receive LHA. Some will need to renegotiate their rents while others will have to find alternative accommodation within the limits set down by government. While the number of claimants affected fluctuates daily, the borough’s analysis shows that, currently, over 1,200 claimants are set to lose £30 or more per week. Over 500 claimants will lose £50 or more per week. In Brighton and Hove the average loss has been calculated by the council to be £13.70 per week. 20. The reduction in the bedroom limit and the caps for the various size of property will not take effect until the anniversary of a claim. However Camden Council estimates that on a rolling basis from April 2011, 250 existing claimants each month will face a reduction in their current housing benefits and will require advice and assistance to find alternative accommodation. 21. Some authorities will experience significant peaks in impact which will apply particularly acute pressure on local benefit services, housing services and the rental market. For example in Brighton and Hove in April 2012 it is expected 2,623 cases will experience a change in their entitlement which will take their LHA rates lower (or lower still) than the level of rent they pay. 22. In response to this the Government has announced it is increasing the amount made available in Discretionary Housing Payments (DHPs). The LGA had previously called for the amount made available in DHPs to be increased. However the increase by £10 million a year in 2011 12 and by £40 million a year (which will be a total government contribution of £60 million) comes against a likelihood of increased demand. 23. Areas such as Central London, where benefit customers face a potentially unmanageable reduction of up to £1600 a week in some of the largest properties are likely to be particularly affected by the capped rates but measures such the 30th percentile and non dependent deductions will mean that all areas face increased pressure. 24. Local authorities are currently permitted to top-up DHP grant payments in a ratio of 3:2; assuming that this remains the case the total theoretical DHP payments will become £150 million per annum; (£90 million in council contributions; £60 million grant from the Government). However whether local authorities can afford to top up at a time when their overall grant from the government could shrink has got to be debateable. Levels of Eviction and Impact on Homelessness 25. The budget measures; in their totality seem bound to increase the number of evictions for non-payment of rent. As the LHA reductions become effective from April 2011 onwards; customers will face a position where LHA covers less of their rent. Some will doubtless attempt to negotiate their rent downwards, but if that it not successful it could lead to increased numbers of evictions as benefit customers fall further into arrears. Managing this is likely to be a major challenge for local authority benefits and homelessness sections. Although

Work and Pensions Committee: Evidence Ev 69

the private rented sector is likely to be the worst affected initially, the social housing sector will also be affected, particularly from 2013, by uprating in line with CPI and the limits in line with household size. 26. Social housing is extremely scarce and reductions in central government capital spending are likely to reverse the upward trend in new social housing completions achieved in recent years. This means that there will not be an adequate or growing social housing stock which can pick up the strain of people priced out of private rented housing. 27. There is a risk that there will be even more pressure on social housing, with councils forced to make even more difficult choices than they do already about who gets access to what stock there is. That will reinforce still further the concentration of people with the lowest incomes, who are in other ways the most vulnerable, in social housing stock. 28. One option for councils seeking to free up larger social stock which is being under-occupied is to encourage and facilitate moves into the PRS. However the benefit changes are likely to make that option more unattractive and risky to tenants with a secure social tenancy. 29. Councils will continue to have a duty to house those who are homeless and this will be a challenge to council homelessness budgets. Although the precise extra cost is still hard to estimate, temporary accommodation costs seem certain to be higher. Landlord Confidence 30. The PRS plays a crucial role in the housing system by meeting the needs of households who are unable to access owner occupation or social housing. The LGA is aware that many landlords consider that the introduction of LHA and of payments direct to customers has shaken landlord confidence and thus willingness to let to housing benefit customers. 31. As opposed to that some local authorities consider that it has had a positive effect on landlord tenant relations as landlords have got to make an effort to collect rents thus facilitating more contact with tenants. 32. The budget measures seem bound to affect landlord confidence in renting to housing benefit claimants. If landlords consider that they cannot realistically ask for substantially more than the LHA rate it is bound to have an effect on landlord willingness to let to benefit customers, when they could potentially get a higher rent from tenants not on benefits. 33. The LHA changes seem likely to increase arrears as households find it difficult to access affordable accommodation with the result that landlords, who are already concerned about direct payment of LHA to tenants, may cease renting to tenants on benefit. Other landlords may well decide to move away from owning property with the result that the pool of rented accommodation will start to decline. If significant numbers of properties are put up for sale over a short period of time this could also have a negative impact on the wider housing market. 34. The LHA changes are also likely to increase the demand for the cheapest rented accommodation which may result in landlords investing in property of the poorest standards e.g. HMO’s. This will not only impact on health and safety it will also increase the pressures on the Local Authority enforcement teams. Community Cohesion 35. There are concerns that the changes will have a negative effect on community cohesion. This will come about because benefit customers are likely to be concentrated in smaller areas. In addition, restricting housing benefit within the social sector could have an effect on community cohesion. Local authorities are keen to release family size accommodation but many of those affected are likely to people well rooted in the local community, often with caring or being cared for responsibilities and with community involvement in “Big Society” activities. In addition the LGA has heard concern that many local authorities may not have a ready supply of two bedroom accommodation within which to accommodate customers who no longer qualify for larger accommodation. 36. The increase in the non-dependant deduction could have a negative effect on family and community stability to the extent that young adults feel that they have to move out of the family home; there could be more concealment of their presence and income, which will add to the level of fraud and error. 37. The capping of LHA rates for larger accommodation may impact disproportionately on some black and minority ethnic households who tend to live in larger households. 38. Concern has also been expressed at the effect in rural areas. The LHA changes will limit the number properties in an area that are affordable to households on HB. This will have a particularly severe impact in some rural areas where it is already very difficult to find affordable housing to rent. Tenants in rural areas will find it extremely difficult to access alternative affordable accommodation and may be forced to move considerable distances. This will disrupt community support networks, schooling and access to employment.

Ev 70 Work and Pensions Committee: Evidence

Disabled People, Carers and Specialist Housing 39. The LGA welcomes the provision for an additional bedroom within the LHA calculation for non-resident carers. This was something which the LGA and specialist organisations had called for. 40. One issue which has been raised by member councils is the position on supported exempt accommodation. In this case, typically where houses purchased on the open market have been adapted by nonprofit organisations or charities to house individuals with specialist care needs, all costs above the determination by the rent officer is not funded by DWP. Depending whether the claimant is considered vulnerable, local authorities have to meet 40% or 100% of the additional costs. 41. Districts in Lancashire report that they have seen the total cost associated with exempt accommodation rise from £1.9 million in 2007 08 to £3.5 million in 2009 10. This is a cost which the authority has to meet from its own resources and which potentially falls on council tax papers. One Lancashire district reports that the sum represents 2% of their entire revenue budget and 3 4% on their council tax. Older People, Large Families and Overcrowding 42. Young people under 25 currently receive reduced LHA, based on rent for shared accommodation and this has resulted in 70% of young people subsidising their rent from other income. A further reduction in LHA rates will exacerbate this situation. Young people will also be hardest hit by the 10% reduction for those on jobseekers allowance for more than a year as youth unemployment is disproportionately high and is increasing rapidly (Welsh colleagues point out that figures for youth unemployment in Wales increased by 20% in the last year). The rapid increase in non dependent deductions will further compound this problem as it can be expected to increase the number of young people who leave home. 43. The capping of LHA rates for larger accommodation will affect large families and will lead to significant reductions in benefit for larger households. This is likely expected to increase levels of homelessness, increase levels of overcrowding and reduce the ability of extended families to live together which in turn will increase housing need and pressures on social housing. Further Assistance 44. The Local Government Association will be happy to be of any further assistance to the Committee Se te

er 2 1

Written evidence s bmitted by London Co ncils Summary This paper sets out London Councils’ evidence to the DWP Select Committee on the impact of the changes to housing benefit announced in the June 2010 budget. London Councils is conscious of the need to address the budget deficit the need for a welfare system which helps people out of poverty and to assists them into and to maintain work. However the June 2010 budget proposals, with the exception of the extra room for non resident carers, is focused on cutting the costs and is not an integrated set of reforms based on a holistic approach to welfare and housing support. This approach has a number of consequences which outweigh the estimated savings. Specifically on the impact of the proposed changes to Local Housing Allowance in London, which it is understood will; — affect an estimated 159,370 households across London by October 2013. — lead to an estimated 11,380 households moving from central London to secure cheaper accommodation else where in London and beyond — Impact disproportionally on low income or workless households who will loose up to £641 a week. — Increase the number of homeless households in temporary accommodation across London by 4,589 by March 2012. Our Key Points and Proposals Are: ati nal Ca s and ent evels London has been disproportionately affected by the national cap, which is expected to reap a saving of £55 million in 2011 12. We estimate that £37.3 million of that will come directly from London ie 68% of the saving; but London has only 16.9% of the caseload. — London Councils requests the government to reconsider the level of the national cap in London and for the Central BRMA in particular, and introduce a transitional scheme which can be later integrated into the reform of the whole welfare scheme to ameliorate the impact on London.

Work and Pensions Committee: Evidence Ev 71

— Changes could be made by reinstating the local authority power to refuse unreasonable rents asking them to take account of the national cap, but not necessarily placing that as the upper limit. — A London maximum cap based on the estimated 30th percentile rate could be introduced for the Inner London or the Central BRMA. This would cut off the highest end of the market but not prompt wholesale migration. — London Councils believes the anomaly for non resident carers should be removed and reconsideration be given to the original intention of the change rather than allowing the caps to restrict it. — If the government reconsider the national cap and 30th percentile LHA change in the London context , the change to increases by the CPI index may not have such a severe impact, but if this takes place after the current proposals are implemented the long term rental market available to benefit claimants will be of the poorest quality. Evi ti ns and elessness — In a survey undertaken by London Councils and the London Landlord Accreditation Scheme, 46% of landlords have indicated they might accept rent shortfalls if landlord direct was reinstated. This may help to decrease rent levels and evictions if reintroduced. — London Councils believes to avoid potential evictions and to manage the migration, an increase of at least £20 million is necessary to the 2011 12 DHP pot and £18 million of that should be directed to London. — The Homelessness Prevention grant is scheduled to end in 2010 11, being the last of the three years originally granted. It is imperative that this grant is maintained and it should be increased to match the extra workload arising from the continuing need to liaise with HB departments, landlords and claimants at risk. — London Councils also requests that transitional relief be applied to current HAL leases for at least a two year period allowing the rental market to settle following the impact of these changes. n entives t r — The caps, in creating a financial incentive to live in outer London areas, effectively encourages a move to areas where there are fewer employment opportunities, and perversely away from family child support, whilst also adding to transport costs. — With regard to the 10% reduction, London Councils believes each case would have to be considered on its merits and the consequences of applying any reduction on any family members taken into consideration. Although a reduction in benefit could act as a rather harsh incentive to move into work, it should only be applied once a new welfare system lays the proper foundation for making work pay and providing help to access work. — Increasing non-dependent deductions could be counter productive, especially in social tenancies, becoming a rising cause of evictions due to rent arrears and or increasing the number of under 25s leaving home. In short, London Councils believes the impact of the June proposals could be devastating to London. The proposed cuts to benefit levels (taking no account of traditional rent levels) will cause migration out of central London to poorer areas, increase homelessness and overcrowding, intensify areas of deprivation, intensify pressure on local authorities at a time of severe budget constraints and sows the seeds of a return to systemic poor housing conditions with long term health and educational problems for the capital. We believe that a transition process which recognises the traditional high rent levels should be put in place preceding any major reform of the welfare system avoiding the more costly unintended consequences of these reforms. 1. Introduction 1.1 London Councils is committed to fighting for more resources for the capital and getting the best possible deal for London’s 33 local authorities. We lobby key stakeholders, develop policy and do all we can to help our boroughs improve the services they deliver. We also run a range of services ourselves, all designed to make life better for Londoners 1.2 This document sets out evidence from London Councils to the DWP Select Committee on the impact of the changes to housing benefit announced in the June 2010 budget. It addresses the key points outlined in the brief and highlights the concerns and opportunities raised by London boroughs. 2. Background 2.1 The June 2010 budget set out a range of changes to the Housing Benefit (HB) scheme, from changes to the Local Housing Allowance (LHA) rates to the removal of 10% of entitlement after a year on HB. All but one of the changes were aimed at reducing the HB bill, therefore it comes as no surprise that the impact is

Ev 72 Work and Pensions Committee: Evidence

huge, especially in London with its 799,56024 claimants accounting for a significant part of the HB budget25 (£5,185 million of £17,591 million for England). 2.2 However the numbers on benefit do not tell the whole story, which is one of demand and the lack of affordable housing, resulting in a city with exceptionally long waiting lists for social housing (354,389)26, nearly twice as many overcrowded households in the privately rented sector to the rest of England27 (London 9.8% England 4.9%) and 76% of the number of households in temporary accommodation28 (39,030 out of England’s 51,310). 2.3 In London the advent of the Local Housing Allowance offers a real alternative to households, enabling them to find affordable property and sustain a tenancy. It also allows local authorities the genuine option of discharging their statutory duty to the homeless into the private rented sector, instead of housing them in temporary accommodation until a social tenancy can be found (in some cases for 10 or 11 years) 2.4 London Councils welcomes the government s aim to reform the welfare system into one which provides support, but incentivises work and understands the pressure on the Housing Benefit budget. However we believe the proposals disproportionally affect London and the full range of the unintended consequences have not been considered. 2.5 These unintended consequences include: — Increased rent arrears and evictions leading to increasing homelessness; — A decrease in the number of landlords willing to accept LHA claimants in Central London in particular; — A decreased supply of move-on accommodation for hostel residents in Central London; — The creation of a no go area for LHA claimants in Central London; — A two tier system of housing support, where claimants who have been on benefit since prior to the introduction of LHA are not affected; — Increasing hardship for households trying to make up shortfalls; — Additional personal costs to the households as they are forced to move, e.g. the loss of local support groups and close family networks and interrupted education; — Increased amounts of overcrowding in the private rented sector as families opt to stay in overcrowded accommodation in order to find properties within their LHA budget; — Significant migration to cheaper outer London areas and out of London; — A decrease in the number of in-work benefit claimants as they are forced to move further away from their jobs and areas of employment; — The loss of the private rented sector as a valid option for family households in London resulting in a redirection of households down the homeless route especially for large families; — An increase in homeless households and placement in temporary accommodation; — A return to the use of bed and breakfast accommodation for family groups as competition for temporary accommodation increases; — Increased competition for larger properties to use as temporary accommodation; — A cost shunt to boroughs faced with increasing costs for homelessness advice support and leasing costs above the temporary accommodation subsidy cap; — Transfer of “household support costs” from central London to outer boroughs for larger families; — Further pressure on school places in outer London. The evidence for our statements and our proposals are divided into the key topics as requested below. egi nal ariati n and evels f ent 3. Regional Variation 3.1 Admittedly, LHA rates have increased above pre LHA Levels (2008) Housing Benefit levels, particularly for high demand properties ie larger properties. There is some anecdotal evidence of landlords raising their asking rents to the LHA level, which in turn incrementally raises the LHA rate, but the proposed national caps of £250, £290, £340 and £400 for one, two, three and four four properties takes no account of the traditionally higher rents charged in London. 3.2 These higher rent levels are as a result of the scarcity of affordable housing in London and the cost of land and property in the capital, rather than a product of the benefit system as evidenced by the relative rises since LHA started (see Appendix A). 24 25 26 27 28

http: http: http: CLG http:

research.dwp.gov.uk asd asd1 hb_ctb hbctb_release_aug10.xls research.dwp.gov.uk asd asd4 h_tables_budget2010.xls www.communities.gov.uk documents housing xls table600.xls Table 807 overcrowding by tenure 2005 6 to 2007 8 www.communities.gov.uk documents statistics xls 1610971.xls

Work and Pensions Committee: Evidence Ev 73

3.3 The DWP analysis clearly shows the inherently unfair impact of the proposed cap, with London being the only area within Britain affected by the level of the national caps at one to four bed level. 15,530 households in London are affected by the cap in one to four bed properties compared to none elsewhere29. London also has a further 1,910, five bedroom households affected by the restriction to a four bed property and the £400 cap, ie over half of the numbers affected. 3.4 Although these proposals will lower rent levels in some areas, with a robust and buoyant PRS sector in Central London not reliant on benefit claimants, there seems little chance of landlords accepting the huge shortfalls and tenants will face eviction. Not only will this have an impact on the “ethos” of stable mixed communities, but will cause further hardship to low income households with extra costs for removal, interrupted schooling, loss of support groups and possibly making the commute to work unaffordable as they are forced to relocate to outer boroughs. 3.5 The private rented sector in the Central BRMA will become a no go area for benefit claimants for one, two, three and four four properties, and the Inner North and Inner West BRMAs will become increasingly restricted for two bed size upwards. Current claimants in these areas will be forced to move as the likelihood of them finding alternative accommodation at the cap levels in their respective boroughs is practically nonexistent (a London Councils survey30 of the seven most affected boroughs revealed a total of 261 properties available at or below the cap across the range of 2 4 4 bedroom size).( Appendix B) 3.6 Further evidence of this no go area is found in Table 931 which considers the availability of accommodation after the national caps and 30th percentile changes have been applied. London has the only BRMAs where the availability of accommodation is less than 30%, in fact it has three. The Central BRMA will have 7% of accommodation available, clearly being the exception to the idea that 30% of the accommodation should be available to tenants on LHA. 3.7 Another perverse incentive may develop as a result of the national caps being applied in the Central BRMA. The estimated 30th percentile LHA rate for a shared room at £137.50 is well below the single one bedroom (self contained cap) of £250; but, if a landlord decides to let one of his her three or four bedroom properties as a shared house or on individual room agreements the rental value can increasing to say £550 for a four separate rooms or even further if public rooms are turned into bedrooms giving a six room shared house at £825. Families could be evicted for a more profitable clientele and houses of multiple occupation could multiply in areas of Central London. 3.8 However, that does not display the effect at individual BRMA level where individuals, with possible shortfalls rising to £25.50, £30, £40, £61, £57 for 1 shared, one bed, two, three, and four bed respectively (Appendix C). Even when the effect of the inner London BRMAs is separated out (Appendix C graph) London is still faced with large shortfalls. 3.9 The range of shortfalls on the estimated 30th percentile change across all the London BRMAs is worrying. Unless landlords are willing to accept the shortfall claimants will find it exceptionally difficult to make up the differences in these amounts on their low incomes. Although we recognise Local Housing Allowance is a significant force in the market, any moves to influence rent levels has to take into account the current buoyancy in the market, as it will be claimants who will bear the brunt of this move to use LHA to alter markets. 3.10 The London Councils and the London Landlords Accreditation Scheme joint survey of landlords indicates that landlords will be unwilling to drop rents and intend to evict (Appendix D). 11 nd n C un ils as s t e g vern ent t re nsider t e level f t e nati nal a in nd n and f r t e Central in arti ular vern ent s uld intr du e a transiti nal s e e i an e later integrated int t e ref r ft e le elfare s e e S e i ally — Current lai ants in t e Central are su e t t t e t er entile ange fr ril ut n t t e nati nal a — ny ne lai ants in t e Central nd n uld nd a r erty uld e su e t t t e nati nal a — e rest f nd n uld f ll t e urrent W r sals — ere uld e a steady r gressi n t ards t e nati nal a level i uld e ade annually f r entral nd n 3.12 This would cut off the highest end of the market but not prompt wholesale migration 3.13 Changes could be made by reinstating the local authority power to refuse unreasonable rents, asking them to take account of the national cap but not necessarily placing that as the upper limit. 3.14 The provision of a room for a non resident carer is welcomed but here again Londoners may fall foul of the impact of the national caps, eg someone in a one bed property in the Inner North BRMA in Islington (LHA £245) looking for a two bed property below the cap would have to move, with only the Outer North 29 30 31

http: www.dwp.gov.uk docs impacts-of-hb-proposals-tables.xls Table 22 London Property website, 2 July; properties in Camden, City, Hackney, LBHF, RBKC, Westminster and Tower Hamlets. The site itself had a total 11,502 properties from shared to 4 registered http: www.dwp.gov.uk docs impacts-of-hb-proposals-tables.xls Table 9

Ev 74 Work and Pensions Committee: Evidence

BRMA being available in the borough below the cap limits. How easy this would be for someone registered as disabled is questionable. While those already in larger properties in Central London will be forced to move due to the same caps even with an extra bedroom added to their LHA allowance. 3.15 A further anomaly exists in that claimants who are on Housing Benefit rather than LHA will be able to apply to the Valuation Office Agency for a new decision which will not be affected by the £290, £340 and £400 caps. 1 nd n C un ils elieves t e an aly f r n n resident arers s uld e re ved and re nsiderati n e given t t e riginal intenti n f t e ange rat er t an all ing t e a s t restri t it 4. Rent Levels 4.1 Claimants and LHA have been viewed as responsible for increasing rents in London, but in fact the DWP analysis32 clearly shows that 82,640 households are in property which is rented at below the maximum LHA, ie 52% of London claimants. 4.2 Rent levels in London are high and have been traditionally high, as reflected by the Local Reference Rents from 2005 for Central and Inner North areas (despite the fact that the local reference rent disregards the exceptionally high rents in the range):

LRR centre N LRR centre LHA June 2010 Central BRMA Proposed April Cap

1 ed and e uivalent

2 ed

ed

ed

£235 £290 £350 £250

£345 £435 £480 £290

£415 £546 £700 £340

£473 £625 £1,000 £400

4.3 There have been marked increases in rent levels, but these are not solely attributable to Housing Benefit or LHA claimants. They are more a function of the property market with rises in property prices33 over the same period in Westminster of 50% and Camden of 43% easily justifying rent increases, while outer London boroughs of Croydon and Waltham Forest show increases of 4% and 13%. 4.4 Landlords are unlikely to reduce their rents if their property costs are high when there is a buoyant market. This fundamental truth will cause evictions throughout parts of London. The decision then becomes one of budget constraints versus the impacts of households having to move out of their own area, increased overcrowding, cost shunts to local authority homelessness budgets as they try to find accommodation for larger families, increasing concentrations of areas of deprivation and whether society should establish separate areas for the rich or poor. 4.5 The announcement that LHA rates will be uprated in line with the Consumer Price Index and not the market is highly disturbing for London. This presents a scenario in that all areas become less and less affordable as the competition increases in areas where rents are currently low. Ultimately, all of London is constrained by the national caps and the worst aspects of “Rackmanism” are reinstated in the capital. f t e g vern ent re nsider t e nati nal a and t er entile t e ange t in reases y t e C inde ay n t ave su a severe i a t urrent r sals are i le ented t e l ng ter rental ar et availa le t rest uality

ange in t e nd n nte t ut if t is ta es la e after t e ene t lai ants ill e f t e

5. Levels of Eviction and the Impact on Homelessness Services 5.1 The London Councils and London landlords Accreditation Scheme has recently undertaken a survey of landlords. Our survey findings on landlord behaviour in the light of the proposed changes are of more concern than original estimates. Our estimates were that for properties of one to two bedroom sizes landlords would accept shortfalls of £30 and £50 for four to five bedroom properties, again with the caveat that in areas with a robust rental market and demand that might not be the case. Based on those assumptions and the DWP analysis34 of the impact of all the changes at borough level our initial estimate was that from the worst affected boroughs ie those with a part of the central BRMA 11,340 households would be forced to move (Appendix E) 5.2 The survey findings35 indicate that whilst a notable proportion of landlords would be willing to reduce their rent by up to £10 a week for one and two bed properties (39% would reduce) and by up to £20 a week for larger properties (35% would reduce), numbers plummet at the next chosen bands of £10 20 (22%) for one and two bed and £20 50 for three bed plus (7%). 32 33 34 35

http: www.dwp.gov.uk docs impacts-of-hb-proposals-tables.xls Table 12 http: www1.landregistry.gov.uk houseprices housepriceindex report http: www.dwp.gov.uk docs impacts-of-hb-proposals-tables.xls Table 7 and 8 Based on replies from 193 LLAS accredited landlords with an estimated 2,600 properties

Work and Pensions Committee: Evidence Ev 75

5.3 A significant number of landlords are proposing to wait until the tenancy ends rather than evict, but the end result will be the same unless the market drops dramatically. Responses are shown in the table below: L N

evel f s rtfall

NC

NCILS LLAS LAN L R

S R E

ti n t e ta en y t e andl rd edu e t e rent t edu e rent t end ange t rent t e ne level f t e ntra t and evi t if t ey fall in t e l ng ter t en end t e tenan y int arrears

S aller r erties ne and t £1 10 £10 20 £20 40 £40 arger r erties t ree ed £5 20 £20 50 £50 75 £75

t er

ase

ed 39% 22% 4% 2%

25% 34% 34% 28%

35% 44% 60% 69%

1% 1% 2% 1%

181 181 181 181

35% 7% 3% 1%

23% 37% 28% 23%

40% 54% 68% 75%

2% 3% 1% 1%

120 120 120 120

5.4 By applying the above probabilities from the survey data to the DWP impact analysis36 and our own modelling of caseload review we estimate that the total the number of claimants who could face eviction or their tenancy agreement not being renewed at the end of the term in London could be as high as 2 in 2011 12. This comprises 15,000 tenants who would be at risk of eviction following the April caps and another 67,000 tenants at risk following the October percentile change. 5.5 39% of landlords indicated they might be prepared to act differently if the tenants have been long term tenants, but we suspect that will also be a function of the amount of shortfall. 5.6 Similarly 46% of landlords have indicated they might accept rent shortfalls if landlord direct was re instated. 5.7 The actual levels of eviction could be lowered by the use of Discretionary Housing Payments, but for 2011 12 the increase in DHP is only £10 million nationally. Although initial indications are that London would receive the majority share, a look at the estimated amount shortfalls in London show that figure to be completely inadequate: — Disregarding those with shortfalls of below £30 (Appendix E), London would need approximately £36.8 million; or, — Disregarding those with under £10 shortfalls but only giving Discretionary Hardship payments to families37 (Appendix F), London would need approximately £35.3 million, — Concentrating on those boroughs in the Central BRMA alone (again disregarding £10 shortfalls) would need £27.8 million. 5.8 nd n C un ils elieves t av id signi ant nu in rease f 2 illi n is ne essary f r t e 2 11 12 t nd n

ers f tenant evi ti ns and anage t e igrati n an t and t at 1 illi n f t at s uld e dire ted

5.9 Having exhausted DHP, tenants will have no alternative but to move. Some will of course make that move unaided. However, households who have already been through the homelessness route are likely to return the borough to seek assistance. The local authority has been able to discharge its statutory homelessness duty into the private rented sector using the current level of LHA, perhaps with the aid of a deposit. These households will be returning to the local authority as a source of help, especially in the central boroughs as the caps make their tenancies unsustainable. The subsequent budget costs for lost deposits to the boroughs will in some cases be over a £1 million. 5.10 The Homelessness Prevention Statistics38 show 15,000 households were helped to access alternative accommodation by London boroughs in 2009 10, boroughs with the central BRMA as part of their areas were responsible for 3,128 of these. 5.11 Central London boroughs have already started to contact landlords, who have indicated they will not let tenants stay if there are large shortfalls, setting up a revolving door for the homelessness services and a move to find other properties. 5.12 There will be other families seeking assistance, although the impact on services is more difficult to quantify as it will depend on a number of factors: i. liaison between housing benefit departments as they consider DHPs; 36 37 38

http: www.dwp.gov.uk docs impacts-of-hb-proposals-tables assuming two ,three and four four bed properties are families http: www.communities.gov.uk publications corporate statistics homelessnessprevention200910

Ev 76 Work and Pensions Committee: Evidence

ii. signposting to Housing Options; iii. availability of accommodation within the areas the household wishes to move to or conversely their current area; iv. whether they wish to join the queue for social housing; v. whether they are willing to take whatever location the homelessness services can find in the hope of returning to their original borough; vi. the likelihood that they can afford a property of their choice elsewhere under the new LHA rates. 5.13 The GLA has estimated that an additional 4,865 households will be accepted as homeless and moved into temporary accommodation in 2011 12 because of the proposed changes, but the number could be higher, boosted by those in need of larger properties. 5.14 e e tra r l ad f r r ug s es at t e sa e ti e t at t e elessness reventi n rant is s eduled t end 2 1 11 eing t e last f t e t ree years riginally granted t is i erative t at t is grant is aintained and it s uld e in reased t at t e e tra r l ad arising fr t ese anges r ug s s uld n t e enalised it less res ur es in eeting t e allenge f an in reasing level f tential and a tual elessness The Homelessness Prevention Statistics39 show 32,600 households were helped in London through 2009 10. 5.15 Boroughs will have to expend considerable resources locating new properties, of which a significant number will need to be larger properties. It is likely that in many cases these properties will be outside London and there will be an additional impact on homelessness services in locating and resourcing these given the numbers involved. 5.16 Boroughs in the east of London are already receiving an increased number of out of borough placements from other London boroughs and are very concerned that this will become the norm and in doing so establish long term migratory patterns of poor households from central high cost boroughs to outer London. 5.17 The introduction of the £375 and £500 subsidy cap on PSL in 2010 created a number of problems for boroughs looking to locate their temporary accommodation within their own boundaries. 5.18 Further announcements that from April 2011, temporary accommodation procured through Housing associations will also be subject to the Private Sector Lease subsidy regime is causing further anxiety. Boroughs had looked to place within their boundaries using Housing Association Leasing Schemes and they now face shortfalls on current contracts of between £1 and £3 million. Housing Associations have also indicated that they are finding difficulty finding properties at the subsidy cap levels (£375 and £500). 1 nd n C un ils re uests t at transiti nal relief e a lied t urrent leases f r at least a t year eri d all ing t e rental ar et t settle f ll ing t e i a t f t ese anges 5.20 Mapping of the shortfalls of benefit as an indication of where claimants will migrate to in their search for affordable housing produced some interesting patterns (Appendix G). There will be increased competition in these areas between households looking for affordable housing, local authorities seeking to house their larger homeless families and the host borough trying to fulfil its own homelessness duty. In some cases London boroughs are already looking outside the M25. 6. Landlord Confidence 6.1 The rental market in London is currently buoyant40 as corroborated by our landlord survey with high percentages of landlords indicating they would evict tenants or not renew their tenancies for shortfalls of between £10 20 (one two bed) and £20 50 (three to four bed). 6.2 However the possible churn throughout London and the uncertainty around the actual value of the drop to the 30th percentile value, (depending as it does on the range and spread of properties available for rent) creates a challenge to landlords and their business plans, in particular their decision to let to claimants on benefit, unless they wish to specialise in low cost accommodation. 6.3 The changes to temporary accommodation subsidy, which have been taking place on an annual basis also makes it difficult for landlords to manage and plan their portfolios. 6.4 Borough officers are advising that landlords will withdraw from the Housing Benefit market due to the continuing uncertainty which is further exacerbated by the hidden nature of any 30th percentile change. 7. Incentives to Work 7.1 The impact of the caps in London could be a retrograde step in the government’s drive to move people into work. Claimants forced to move may find this makes a vital difference to their access to work. They may lose support, eg childcare, which enables them to join the workforce or find the combination of travelling time 39 40

http: www.communities.gov.uk publications corporate statistics homelessnessprevention200910 http: www.rics.org site scripts documents_info.aspx?categoryID 409&documentID 37

Work and Pensions Committee: Evidence Ev 77

and travel costs will mean that work doesn’t pay. Figures from seven central boroughs indicate this could affect at least 4,000 working claimants41 or approximately 57% of the caseload. 7.2 The proposal to have a staged increase in non-dependent deductions may act as a disincentive rather than an incentive to work, but London Councils’ concern is the effect it may have on rent arrears in both the PRS and the social sector and the possible increase in evictions. 7.3 The proposal of reducing benefit by 10% after 12 months in receipt of Jobseekers Allowance needs to be carefully considered. Are there jobs available? Are they suitable and accessible for the claimant? Presumably this would not be a case of moving to find cheaper accommodation as any reduction would still apply. nd n C un ils elieves ea ase uld ave t e nsidered n its erits and t e nse uen es f a lying any redu ti n n any fa ily e ers ta en int nsiderati n lt ug a redu ti n in ene t uld a t as a rat er ars in entive t ve int r it s uld nly e a lied n e a ne elfare syste lays t e r er f undati n f r a ing r ay and r viding el t a ess r 8. Community Cohesion 8.1 It is understandable the government wishes to make best use of a scarce resource and intends to reduce housing entitlements for working age people in the social sector to the required bedroom size, ie on a par with the PRS, but this fails to take into account the reason someone is in a house too large for them, eg have they taken over the tenancy from a dead parent? Has a child died or family member died? 8.2 Any moves to reallocate households to smaller properties must be on a case by case basis, especially as it may be the prelude to a similar move for pensioner claimants where it would in fact make a significant difference to the availability of housing stock. APPEN I A COMPARISON OF THE STARTING, CURRENT AND PROPOSED LHA RATES IN THE CENTRAL BRMA rate in t e Central Rate in April 2008 Current rate DWP proposed rate

41

S ared

1 ed

2 ed

ed

ed

£147.70 £140.94

£340.00 £350.00 £250.00

£495.00 £480.00 £290.00

£700.00 £700.00 £340.00

£900.00 £1,000.00 £400.00

Based on the number of non passported cases

Ev 78 Work and Pensions Committee: Evidence

APPEN I B LHA RATES TO BE CAPPED (BY BOROUGH): BASED ON JAN 2010 DATA

Local Housing Allowance Rate

LA BARKING & DAG BARNET BEXLEY BRENT BROMLEY CAMDEN CITY OF LONDON CROYDON EALING ENFIELD GREENWICH HACKNEY HAMM & FULHAM HARINGEY HARROW HAVERING HILLINGDON HOUNSLOW

ISLINGTON KEN & CHELSEA KINGSTON LAMBETH LEWISHAM MERTON NEWHAM REDBRIDGE RICHMOND SOUTHWARK SUTTON TOWER HAMLETS WALTHAM FOREST WANDSWORTH WESTMINSTER

BRMA

1 bed

2 bed

3 bed

4 bed

Outer NE NW Outer N Inner N Outer SE NW Inner W Inner N inner SE Outer SE Central Inner N Central inner SE Outer S NW Inner W Inner N Outer W Outer N inner SE Outer SE Central Inner N Inner East Central Inner W Inner N Outer N Inner N NW Outer NE Essex NW Outer W SW Herts Outer W Inner W Outer SW Central Inner N Outer N Inner East Central Inner N Outer SW Outer S inner SE inner SW inner SE Outer SE Outer S inner SW Outer SW outer E outer E Outer NE inner SW Outer SW Outer W inner SE Outer SW Outer S Inner East Central outer E Outer NE inner SW Outer SW Central Inner N

150 173 175 250 150 173 240 250 185 150 355 250 355 185 156 173 240 250 167 175 185 150 355 250 240 355 240 250 175 250 173 150 127 173 167 150 167 240 196 355 250 175 240 355 250 196 156 185 231 185 150 156 231 196 165 165 150 231 196 167 185 196 156 240 355 165 150 231 196 355 250

191 219 230 350 185 219 300 350 242 185 496 350 496 242 185 219 300 350 208 230 242 185 496 350 300 496 300 350 230 350 219 191 160 219 208 196 208 300 254 496 350 230 300 496 350 254 196 242 300 242 185 196 300 254 202 202 191 300 254 208 242 254 196 300 496 202 191 300 254 496 350

231 277 288 450 219 277 395 450 300 219 775 450 775 300 219 277 395 450 254 288 300 219 775 450 355 775 395 450 288 450 277 231 185 277 254 231 254 395 311 775 450 288 355 775 450 311 242 300 369 300 219 242 369 311 254 254 231 369 311 254 300 311 242 355 775 254 231 369 311 775 450

300 335 375 600 289 335 525 600 415 289 1050 600 1050 415 289 335 525 600 300 375 415 289 1050 600 425 1050 525 600 375 600 335 300 253 335 300 380 300 525 415 1050 600 375 425 1050 600 415 323 415 513 415 289 323 513 415 297 297 300 513 415 300 415 415 323 425 1050 297 300 513 415 1050 600

LHA rate above the proposed cap level

Work and Pensions Committee: Evidence Ev 79

APPEN I

C

THE RANGE F P SSIBLE SH RTFALLS IN L N N B BRMA CA SE B THE APRIL CAPS AN 30TH PERCENTILE CHANGES SING THE A ESTIMATE CT BER 2011 LHA RATES ange 1 1 2 3 4

room bed Bed bed bed

£3.44 £5.75 £11.50 £11.51 £18.00

s rtfall

ril Ca

£25.50 £30.00 £40.00 £61.30 £57.53

£100.00 £190.00 £360.00 £600.00

Graph of Regional shortfalls comparing LHA rates at June 2010 and the VAO estimated October 2011 LHA rates (by BRMA) Relative loss caused by the 30% change by region 60.0

Average amount of loss per week

50.0

40.0 1 Room loss 1 Bed loss 2 Bed loss 3 Bed loss 4 Bed loss

30.0

20.0

10.0

0.0 East

EM

Lon (inner)

Lon (outer)

NE

NW

SE

SW

WM

YH

S ared r

-20 -7 -13 -13 -11 -9

-31 -64 -21 -20 -22 -67 -19 -73

-53 -27 -24 -36 -147 -29 -140 26,044 21,754 9,710

2 ed

ed

8 AS AN E AMPLE

1 ed

London Total London total disregarding shared accommodation 2,3,4 4 bed total (ie family claims)

Camden City of London Hackney Hammersmith & Fulham Islington Kensington & Chelsea Tower Hamlets Westminster caseload Totals

as

average l ss

WP ANAL SIS TABLES 7 AN

r ug s it Central art f t e

ATA FR M

:

-96 -26 -47 -75 -281 -27 -262

ed -146 -23 -116 -114 -386 -19 -373

ed -262 -125 -282 -267 -641 -55 -622

F THE W RST AFFECTE

APPEN I

S ared r

470 4 290

270

650 10 2,080 810

asel ad affe ted

1,250 20 2,104 950 1,900 1,200 2,130 2,490 12 044

1 ed 230 550 150 140 150 350 550 2 120

730 1690 700 620 620 990 1360 6 710

ed

ed

170 40 40 40 80 140 560

50

ed

160 20 20 10 30 50 320

30

GHS WITH THE CENTRAL BRMA

2 ed

AREAS IE TH SE B R

Ev 80 Work and Pensions Committee: Evidence

London Total

11,380

Camden City of London Hackney Hammersmith & Fulham Islington Kensington & Chelsea Tower Hamlets Westminster Caseload Totals

FH

SEH L S WH

S ared r

-75 -281

-36 -147 -140

-67 -73

-262

-96 -

ed

-53 -

2 ed

-31 -64

1 ed

T

M

ET

-373

-116 -114 -386

-146 -

ed -262 -125 -282 -267 -641 -55 -622

ed

270

650

470 1390

S ared r

ATI N

2490 4960

1200

1250 20

1 ed

1360 3330

620 620

730

2 ed

550 1070

140 150

230

ed

in three or o r ed Properties

NEW ACC MM

in one or two bed properties and

WILL LIKEL BE REQ IRE

ased on n mber o ho seholds where short alls are o er

N MBER

140 310

40 40 40

50

ed

160 20 20 10 30 50 320

30

ed

Work and Pensions Committee: Evidence Ev 81

Ev 82 Work and Pensions Committee: Evidence

APPEN I E: COST OF DHP ASSISTANCE TO MAKE UP SHORTFALLS TO THE END OF 2011 12 ssu ing

use lds it less t an

s rtfall are disregarded and in s ared r erties

disregard r ug

1 ed

Barking & Dagenham Barnet Bexley Brent Bromley Camden City of London Croydon Ealing Enfield Greenwich Hackney Hammersmith and Fulham Haringey Harrow Havering Hillingdon Hounslow Islington Kensington and Chelsea Kingston Upon Thames Lambeth Lewisham Merton Newham Redbridge Richmond Upon Thames Southwark Sutton Tower Hamlets Waltham Forest Wandsworth Westminster Total

2 ed

£0 £0 £0 £148,667 £0 £0 £0 £1,131,052 £0 £0 £377,294 £972,030 £32,619 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £99,864 £14,602 £0 £0 £42,089 £0 £0 £0 £0 £0 £0 £0 £0 £110,267 £530,766 £2,026,811 £2,429,466 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £48,051 £0 £0 £0 £0 £4,677,511 £5,082,163 £7,239,103 £10,484,149

ed

ed

ed

t tal need

£0 £0 £50,893 £208,131 £93,874 £283,642 £0 £0 £42,230 £1,064,724 £822,463 £1,068,238 £0 £0 £56,465 £574,880 £193,577 £208,290 £0 £0 £0 £0 £0 £146,711 £319,696 £305,056 £530,541 £0 £35,640 £211,263 £0 £0 £62,439 £34,549 £0 £530,390 £162,670 £123,750 £149,460 £12,354 £30,586 £228,972 £0 £0 £168,277 £0 £0 £29,524 £0 £0 £92,443 £25,376 £67,146 £121,591 £273,810 £120,074 £141,445 £1,120,102 £408,606 £169,865 £0 £10,224 £87,569 £71,788 £11,302 £80,493 £0 £26,761 £207,476 £8,395 £0 £69,194 £0 £0 £120,586 £0 £0 £281,075 £12,614 £4,606 £21,333 £0 £4,018 £51,353 £0 £0 £24,142 £21,097 £0 £39,567 £0 £0 £97,138 £432,091 £443,466 £718,081 £3,809,185 £1,385,262 £821,492 £8,151,463 £4,086,411 £6,912,176

£50,893 £734,314 £42,230 £4,086,477 £56,465 £2,326,071 £32,619 £146,711 £1,155,293 £246,903 £62,439 £664,803 £450,482 £314,001 £168,277 £29,524 £92,443 £214,113 £1,176,362 £6,154,850 £97,793 £163,583 £234,237 £77,589 £120,586 £281,075 £38,553 £55,371 £24,142 £108,715 £97,138 £1,593,638 £15,775,613 £36,873,302

NB: the level of need is based on replacing the full shortfall as cases come up for review at standard rate throughout the year DHPs are also normally paid for a short time eg six months but the constraints of modelling cases undergoing the change at different times of the year do not lend themselves to this modelling. In our model there are cases that will only be coming under the caps percentile change at week 51 and therefore not inflating the cost; equally there will be cases who start at week1 or 26. APPEN I F COST OF DHP ASSISTANCE TO MAKE UP SHORTFALLS TO THE END OF 2011-12 ssu ing use lds it a 1 s rtfall are disregarded and t se in s ared r erties and ne ed r erties are disregarded n t e asis t at t ey uld e re ile t an fa ily use lds 1 disregard r ug Barking and Dagenham Barnet Bexley Brent Bromley Camden City of London

2 ed

ed

ed

ed

t tal need

£116,305 £336,163 £83,800 £1,371,414 £95,008 £972,030 £0

£73,898 £290,854 £25,483 £1,064,724 £23,701 £574,880 £0

£6,426 £136,802 £7,088 £822,463 £8,600 £193,577 £0

£50,893 £283,642 £42,230 £1,068,238 £56,465 £208,290 £0

£247,522 £1,047,461 £158,601 £4,326,839 £183,774 £1,948,777 £0

Work and Pensions Committee: Evidence Ev 83

r ug Croydon Ealing Enfield Greenwich Hackney Hammersmith and Fulham Haringey Harrow Havering Hillingdon Hounslow Islington Kensington and Chelsea Kingston Upon Thames Lambeth Lewisham Merton Newham Redbridge Richmond Upon Thames Southwark Sutton Tower Hamlets Waltham Forest Wandsworth Westminster Total

2 ed

ed

ed

ed

t tal need

£228,517 £430,258 £213,047 £83,040 £99,864 £224,610 £167,266 £123,976 £71,166 £116,316 £139,112 £530,766 £2,429,466 £102,389 £208,360 £283,563 £87,576 £0 £124,126 £78,158 £115,982 £71,011 £48,051 £0 £98,328 £5,082,163 £14,131,834

£135,061 £439,204 £95,402 £24,324 £127,246 £162,670 £50,926 £96,092 £47,628 £79,704 £89,143 £273,810 £1,120,102 £31,469 £71,788 £91,004 £62,183 £132,139 £131,200 £30,825 £26,700 £38,202 £21,097 £88,239 £432,091 £3,809,185 £9,760,972

£25,283 £305,056 £35,640 £11,372 £86,374 £123,750 £30,586 £24,327 £6,861 £22,453 £67,146 £120,074 £408,606 £10,224 £21,796 £26,761 £14,272 £17,618 £30,524 £14,178 £4,018 £5,160 £22,408 £14,780 £443,466 £1,385,262 £4,452,949

£146,711 £530,541 £211,263 £62,439 £530,390 £149,460 £228,972 £168,277 £29,524 £93,820 £121,591 £141,445 £169,865 £87,569 £80,493 £207,476 £69,194 £121,395 £281,075 £21,333 £51,353 £24,142 £39,567 £98,281 £718,081 £821,492 £6,915,507

£535,572 £1,705,059 £555,352 £181,175 £843,874 £660,490 £477,750 £412,672 £155,179 £312,293 £416,992 £1,066,095 £4,128,039 £231,651 £382,437 £608,804 £233,225 £271,152 £566,925 £144,494 £198,053 £138,515 £131,123 £201,300 £1,691,966 £11,098,102 £35,261,262

NB: the level of need is based on replacing the full shortfall as cases come up for review at standard rate throughout the year.

Ev 84 Work and Pensions Committee: Evidence

APPEN I G MAPPING OF AVERAGE SHORTFALLS FOR DIFFERENT BEDROOM SI ES AS A MEASURE OF FUTURE AFFORDABILITY IN AREAS Impact of all the LHA changes on London: (by potenal average LHA shorall) Enfield

Barnet Harrow

Waltham Forest

Haringey

Redbridge Havering

Brent

Hillingdon

Camden

City of Westminster

Ealing

th mi rs m me ha m Ful Ha nd a

K an en d s in Ch g el ton se a

Hackney

Islington

Barking & Dagenham

Tower Hamlets

Newham

City of London

Southwark

Greenwich

Hounslow

Bexley Wandsworth

Lambeth

Lewisham

Richmond Upon Thames

Merton Kingston Upon Thames Bromley

£20 + per week shorall Croydon

Sutton

£10-£19.99 per week shorall £5-£9.99 per week shorall

Shared Room

£1-£4.99 week shorall

Impact of all the LHA changes on London: (by potenal average LHA shorall) Enfield

Barnet Harrow

Waltham Forest

Haringey

Redbridge Havering

Brent

Hillingdon

Camden

City of Westminster K a n en d sin Ch g t el on se a

Ealing

Hackney

Islington

Barking & Dagenham

Tower Hamlets

Newham

th mi rs m me ha m Ful Ha nd a

City of London

Greenwich

Southwark

Hounslow

Bexley Wandsworth

Lambeth

Lewisham

Richmond Upon Thames

Merton Kingston Upon Thames Bromley

£60+ per week shorall £40 -£59.99 per week shorall

Sutton

Croydon

£30 -£49.99 per week shorall £20-£29.99 per week shorall £15 -£19.99 per week shorall £10-£14.99 per week shorall £0-£9.99 per week shorall

1 Bedroom

Work and Pensions Committee: Evidence Ev 85

Impact of all the LHA changes on London: (by potenal average LHA shorall) Enfield

Barnet Harrow

Waltham Forest

Haringey

Redbridge Havering

Brent

Hillingdon

Camden

City of Westminster K an en d sin Ch g el ton se a

Ealing

Hackney

Islington

Barking & Dagenham

Tower Hamlets

Newham

th mi rs m me ha m Ful Ha nd a

City of London

Southwark

Greenwich

Hounslow

Bexley Wandsworth

Lambeth

Lewisham

Richmond Upon Thames

Merton Kingston Upon Thames Bromley

£140+ per week shorall Croydon

Sutton

£100 -£149.99 per week shorall £50 -£99.99 per week shorall £30-£49.99 per week shorall

2 Bedroom

£20 -£29.99 per week shorall £10-£19.99 per week shorall £0-£9.99 per week shorall

Impact of all the LHA changes on London: (by potenal average LHA shorall) Enfield

Barnet Harrow

Waltham Forest

Haringey

Redbridge Havering

Brent

Hillingdon

Camden

City of Westminster K an en d sin Ch g el ton se a

Ealing

Hackney

Islington

Barking & Dagenham

Tower Hamlets

Newham

th mi rs m me ha m Ful Ha nd a

City of London

Greenwich

Southwark

Hounslow

Bexley Wandsworth

Lambeth

Lewisham

Richmond Upon Thames

Merton Kingston Upon Thames Bromley

£250+ per week shorall £150 -£249.99 per week shorall

Sutton

Croydon

£100 -£149.99 per week shorall £50-£99.99 per week shorall £30 -£49.99 per week shorall £20-£29.99 per week shorall £0-£19.99 per week shorall

3 Bedroom

Ev 86 Work and Pensions Committee: Evidence

Impact of all the LHA changes on London: (by potenal average LHA shorall) Enfield

Barnet Harrow

Waltham Forest

Haringey

Redbridge Havering

Brent

Hillingdon

Camden

City of Westminster

Ealing

th mi rs m me ha m Ful Ha nd a

K an en d sin Ch g el ton se a

Hackney

Islington

Barking & Dagenham

Tower Hamlets

Newham

City of London

Greenwich

Southwark

Hounslow

Bexley Wandsworth

Lambeth

Lewisham

Richmond Upon Thames

Merton Kingston Upon Thames Bromley

£250+ per week shorall Croydon

Sutton

£150 -£249.99 per week shorall £100 -£149.99 per week shorall £50-£99.99 per week shorall

4 Bedroom

£30 -£49.99 per week shorall £20-£29.99 per week shorall £0-£19.99 per week shorall

Impact of all the LHA changes on London: (by potenal average LHA shorall) Enfield

Barnet Harrow

Waltham Forest

Haringey

Redbridge Havering

Brent

Hillingdon

Camden

City of Westminster K an en d s in Ch g el ton se a

Ealing

Hackney

Islington

Barking & Dagenham

Tower Hamlets

Newham

th mi rs m me ha m Ful Ha nd a

City of London

Southwark

Greenwich

Hounslow

Bexley Wandsworth

Lambeth

Lewisham

Richmond Upon Thames

Merton Kingston Upon Thames Bromley

£500-£700 per week shorall £250 -£499.99 per week shorall

Sutton

Croydon

£150 -£249.99 per week shorall £100-£149.99 per week shorall £70 -£99.99 per week shorall

5 Bedroom

£50-£69.99 per week shorall £0-£49.99 per week shorall

Written evidence s bmitted by the Residential Landlords Association Summary 1. Over 75% of those respondents say that they will not be prepared to reduce their rental levels as a result of the Government’s proposals. 54% say that they intend to stop letting to LHA claimants. 2. Landlords do not have to provide accommodation to LHA customers and they will only continue to do so while it is economically advantageous to them. 3. There is already evidence that landlords are moving out of the LHA sector. These proposals will accelerate this trend. Landlords are able to find other tenants. 4. The RLA believe that the cuts will not be realised in the first place or they will increase the cost to the Treasury in other areas. They will not help benefit customers into work. They could lead to barriers to work being erected because benefit customers will be driven into ghettos.

Work and Pensions Committee: Evidence Ev 87

5. The overall reduction in landlords’ income will result in the loss of the amount of accommodation for the low paid and those wholly benefits. 6. Reduction to the 30th percentile point coupled with linking of LHA rates to the Consumer Prices Index will have the most impact. 7. Some many think all landlords represented are crying wolf. This is not the case. Landlords are not going to simply swallow the reduction and continue to rent as at present to LHA customers. 8. Beside the budget proposals the main concern of landlords is that LHA is normally paid direct to tenants. This jeopardises landlords’ income. Landlords want to see the return to the old system so that tenants can choose. This is already causing withdrawal from the market for LHA customers. 9. The RLA does not accept this Committee’s views on direct payments when it reported on this in the previous Parliament. We believe that arranging for direct payment is part of managing the tenant’s financial affairs. 10. Landlords are generally small business people. Our survey results indicate the average number of properties rented out to the housing benefit LHA market is an average of 8. Loss of income can have serious consequences. 11. Previous RLA surveys show that 90% of landlords of those who are on LHA benefits had to apply for direct payments because the tenant was more than 8 weeks in arrears. 97% of all respondents support the change back to the old position. 12. The Government and the Committee have chosen to ignore the fact that in the social public sector rents are still paid direct rebated. Helping tenants to improve their financial responsibility does not seem to matter in the case of public sector tenancies even though there are more tenancies in that sector who are assisted by HB . 13. Small landlords in the PRS less able to take the knocks resulting from non payment. If direct payments are to continue to tenants then LHA rates ought to be higher to reflect the financial risk to landlords. 14. The RLA recognises the need to curtail public expenditure and supports the Government’s objective of getting people into work and off dependency on benefits. However, the purpose of HB LHA is to support individuals by helping them meet their housing costs. We do not believe that it should be used as a tool to force people into work. 15. HB LHA must not be looked at in isolation. They are part of a wider benefit system. If you cut the level of LHA it impacts on overall household income whether this is received from other benefits or tax credits or wages. 16. The worst off in society will be hurt. We already have some 13.4 million living in poverty. 17. Poverty levels will rise as a result of these measures. 18. If LHA falls short of the amount required to pay for accommodation recipients will have to look at other sources of income and if they are solely supported by benefits these are the benefits already set at the basic minimum anyway. 19. The RLA does not believe that the individual tenants will be able to trade down to find alternative accommodation. This is not practical or realistic. 20. The woeful shortage of housing overall is at the heart of this problem. 21. Landlords have to compete to purchase properties with owner occupiers. They have to find capital and need a proper return on that capital investment. 22. PRS rental levels inevitably reflect an investment. This is unlike the situation in the public sector where there is no requirement for a return on investment. 23. Returns in the private rented sector are not excessive. Rental returns are inadequate anyway and landlords are dependent on capital returns which are not available at the present time. 24. HB LHA customers are not able to access public housing because there is not enough of it. Without support in the PRS they will be homeless. 25. The purpose of HB LHA is to support housing costs and this helps low wage earners find accommodation. Wages have to be kept at a low level to provide jobs and ensure competition is retained globally. 26. The RLA does not think that they are going to be able to find alternative cheaper accommodation. The very proposals themselves will make it even more difficult because of the reduction in the percentile to 30%. They will be shut out 70% of properties in the market from LHA customers. 27. The first option is for the tenant try to negotiate the rent with his her landlord. Our survey evidence is that landlords will not be willing to concede a reduction. Landlords themselves are already operating on a low

Ev 88 Work and Pensions Committee: Evidence

return. Those with loans are facing higher margins from banks. The position could become worse as interest rates rise. 28. It is not easy to expect tenants to move to cheaper areas. The position is even worse in and around London. 29. By expecting tenants to move to obtain cheaper accommodation will be a major adverse consequence on society with ghetto-isation and more degraded poor quality areas with sub-standard accommodation. 30. Increasingly, local authorities have been asking the PRS to house the homeless because there is insufficient social housing. Our evidence is that PRS landlords will turn away benefit customers again this will increase the level of homelessness. 31. HB LHA’s role is not to incentivise people into work. You cannot look at one means tested benefit in isolation and expect this policy to succeed in this object. 32. HB LHA is not a subsidy for the PRS. It is intended to meet housing costs so that individuals can obtain decent affordable accommodation. They are low paid or wholly dependent on benefits and cannot afford accommodation without support to meet its full cost. 33. These proposals in any case bear down equally on the low paid as much as those who are dependent on welfare benefits. 34. The Government’s proposals assume that work is available. The RLA does not believe that it is at the moment nor in the foreseeable future that this will be the case. The reduction in public sector jobs will make the position worse. 35. The main tool to get people to work seems to be the 10% reduction in job seekers allowance after 12 months. What will happen however if there is a break in continuity of claims? Landlords will refuse tenancy applications from those in receipt of JSA or if they are already in a tenancy will have steps to evict them refuse to renew the tenancy. 36. Even though this measure is postponed until April 2013 we do not think that unemployment will have fallen sufficiently by then other this will just increase homelessness. 37. If, as a result of the Government’s proposals the level of support for housing is reduced particularly for those in work it eats into their wages tax credits. This will be a disincentive for work because they incur other costs such as travel to work costs. 38. It is likely that more and more LHA customers will be concentrated in the areas of low value, poorer quality accommodation which they cannot get out of. This will reduce job mobility. 39. Of particular concern is the particular impact on all of this on low paid workers. 40. The PRS market is made up of a number of sectors of which LHA is only one. Landlords will look to let their properties to non benefit customers. This is going to be particularly easy in certain areas such as the South East London where there is considerable demand. 41. Levels of rents vary across the country. Cost of acquisition value of the properties is of vital significance. A flexible system of housing support dependent on local market rents is extremely important. 42. PRS rent levels are not excessive when measured against the social public rented sector. This is subsidized in other ways, eg the £37 billion spent on decent homes programme. 43. The RLA believes that the PRS gives good value for money and compares well when comes to tenant satisfaction surveys. The PRS faces challenges because of its older stock. Low rents mean poor quality accommodation which is not well maintained. 44. Breaking the link between market rents and LHA rates by linking LHA to CPI is of particular concern. 45. The Government believe that landlords will accept a reduction in rent because of landlords renting properties to HB customers in the PRS do charge less and supposedly according to emerging research those not on benefits pay around 10% lower. Landlords will not agree to this reduction particularly because their income from LHA claimants is far less secure. This is shown by the results of our survey referred to above. This process of disengagement from LHA customers has started already because of the current system of direct payments to tenants. It is all about security of income. 46. RLA research shows that nearly 45% of landlords have experienced problems due to the tenant failing to pay rent from LHA received. 24% have experienced administration problems. About one third are concerned because they have been unable to secure direct payments. 47. If the Government were to rethink its position in relation to direct payments then this may persuade a number of landlords to continue letting properties to LHA tenants. 48. Rental levels are improving as is demand from tenants. This shows that landlords in PRS can let to tenants other than benefit claimants.

Work and Pensions Committee: Evidence Ev 89

49. As the quantity of accommodation available to LHA tenants decreases this itself will push up rents. In turn this will reflect through into LHA rates thus cancelling out some of the supposed savings. 50. When it comes to looking at regional variations of more concern is differences within individual broad market rental areas. LHA had started to break up ghettos but the old situation is going to return. 51. In London there are going to be particular problems because of the caps (coupled with the abolition of five bedrooms) as well as the reduction to 30% BMRA LHA levels. 52. Normally, LHA does not underpin market rental levels. Even in those areas where there are more benefit customers market rents depend on other factors because some tenants still work and rents also reflect capital values investment. The LHA market does not exist in isolation even in these areas. The level of borrowings and the cost of borrowings are also important factors. Landlords may have little choice in setting their rent levels. 53. So far as shortfalls of rent are concerned, landlords try to recover these but currently experience difficulties in many cases. Many tenants already have considerable shortfalls (£23 per week is the average). Having to repay previous overpayments can also cause shortfalls. 54. As shortfalls increase as a result of these proposals landlords’ attitudes will harden. Linking rates to CPI will worsen the gap. 55. Landlords are not going to be prepared to accept this situation and it is going to lead to eviction refusals to renew tenancies. 56. Shortfalls are exacerbated by the current system of direct payment to tenants. This leads to rent arrears. Landlords have to look at the real return on their investment. 57. Undoubtedly, the Governments’ proposals will lead to increase the number of evictions because of rent arrears. Landlords will refuse to renew tenancies which run out. Tenants, as a result are going to find themselves homeless. 58. Landlord confidence is at a low ebb as a result of these measures. This links in with reduction in rent levels and the shortfalls rent arrears. Coming on top of the situation regarding direct payments to tenants this will push landlords over the edge. 59. Community cohesion is going to be adversely affected. Tenants are going to be forced to move out of areas. As already pointed out this is going to lead to ghettos. 60. The RLA welcomes the allowance for an extra room for carers. However, no provision has been made for couples who have to sleep apart due to medical conditions. 61. The RLA has campaigned for the abolition of the under 25 rule. The position for them is going to be made worse by these measures. 62. Problems can be made worse for larger families. There is already a shortage of four five bedroom social housing anyway. With older families because of the uprating in non dependent allowance there will be pressure on children to leave home. They may not be able to find accommodation at all but ironically if they can this will cut back on savings because of new LHA claims. 63. The proposals can lead to an increase in overcrowding. There will be more hot bedding and sofa surfing. Landlords will be blamed for this when it is not their fault. 64. Since the deregulation of rents in 1988 LHA has been tied into market rents. Breaking this link will have adverse consequences. Levels of rental support will drop and tenants will have to raid other benefits low wages to try to make up the difference. Many will not be able to do so. 65. There is a technical objection to the use of CPI which has been raised by the Institute of Financial Affairs Royal Statistical Society. CPI impacts adversely on those who live on benefits. 66. The RLA is opposed to the abolition of the excess entitlement. As 47% of LHA claimants receive this it does give tenants incentive to negotiate their rents. This incentive will disappear and landlords will simply put their rents up to the LHA rate. There will be an adverse impact on child poverty in particular as well. 67. The Government could look to save money by centralising LHA administration. Direct payment to landlords would also mean less financial transactions were involved with less cost. 68. The amount made available for additional discretionary housing payments is woefully inadequate. There need to be clear transparent policies in place as to how these amounts will be administered. 69. The RLA is perturbed at the lack of transitional arrangements for those already in receipt of LHA 70. The RLA has set out the rationale which underlines its views looking at the macro position due to the lack of overall housing provision including public social housing. Only the PRS could cater for the extra number. However, the PRS will only be prepared to provide accommodation for LHA claimants if it is economically viable to do so. Low earners benefit customers are dependent on financial support to access

Ev 90 Work and Pensions Committee: Evidence

housing in the PRS and if support is inadequate to meet what landlords want as a result then landlords are not going to cater for this sub-sector of the market. 71. Even though the State may try to dictate the price it is not to say landlords will accept it. They will look at alternative markets. The position is worsened by there being lack of security for landlords’ incomes. Tenants themselves have no realistic alternative resources because they are on minimum incomes anyway. 72. Housing support is vital to enable the low paid those on benefit to live. Landlords are not going to provide the accommodation without there being a proper return. 73. Confidence on the part of landlords as providers of this accommodation is falling. A change back to the old system of payment of benefits could help, particularly due to the current hostility by landlords to the present method of direct payments to tenants. ut t e esidential andl rds ss iati n 1. The RLA is one of the three bodies representative of residential landlords in England and Wales. Two of these organisations, of which we are one, have direct membership. The RLA has over 8,000 subscribers representing over 13,000 members (as corporate membership entitles those members to five memberships). Our membership continues to grow. Members who include letting and managing agents rent out properties in all subsectors of the private rented sector (“PRS”) including letting to those who are in receipt of housing benefits (“HB”) or local housing allowance (“LHA”). Survey nf r ati n gat ering 2. To help in the preparation of our evidence we have recently conducted a survey of landlord’s concerns intentions. This is at Appendix 1 not printed . 71% of respondents say that they would not be prepared to reduce their rental levels as a result of the Government’s proposals. 53.5% state that they intend to stop letting to LHA claimants. These figures make disturbing reading. Details of this survey have been sent not just to members but more widely through our data base of over 40,000. We received around 860 responses. We have also conducted a focus group discussion in Hull with landlords who are involved in letting to the LHA market to establish their opinions. Additionally, we have had contact with landlords and others on an individual basis who have contacted us to give us their views on the Government proposals. RLA Directors have hands on experience of the HB LHA market. e

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3. As the RLA is representative of landlords some may well say that our evidence is tainted by self interest. At the end of the day, however, landlords are the providers of a service. Ultimately, they do not have to provide accommodation if they do not want to. They will only continue to carry on with this service so long as it is economically advantageous to them to do so and they receive a realistic return on their investment. If, however, they can find alternative buyers for their services and it is more advantageous for them to deal with them they will abandon the HB LHA market. We therefore feel that we can best service inquiry by reporting to the Committee on landlords intentions and concerns as well as setting out what we believe will be the consequences once these proposals start to take effect. The evidence put before the Committee reflects the providers view. 4. Many tax payers no doubt welcome these proposals. They see them as reducing public expenditure, penalising the work shy and cutting back on landlords’ incomes. However, the RLA believes that these cuts will be imaginary because they either will not be realised in the first place or they will increase costs to the Treasury elsewhere. In themselves they will not have any significant impact on helping benefit customers into work. In fact, perversely, they could lead to barriers to work being erected as benefit customers are driven into ghettos. The reduction in landlords’ incomes will result in a loss in the amount of accommodation provided both to the low paid and those wholly dependant on benefits. All of these factors will have adverse consequences which we will highlight in this evidence. 5. The Government’s proposals bear down disproportionately on those in receipt of LHA. Initially, it is the reduction to the 30th percentile point in determining rent levels, but, later on, it is the linking of LHA rates to the Consumer Prices Index (CPI”) which will have the most impact. The loss of up to £15 in the excess payment and the caps (coupled with the abolition of the five bedroom rule) will also operate to reduce LHA payments and caps in particular will have a significant impact in London. The abolition of the £15 excess rule will increase the level of poverty generally and child poverty in particular. It will also be counter productive in that it will mean that rent levels will equal the LHA rate across the board (unlike at present). 6. The Government are clearly looking for a 10% reduction in the LHA level (see Table 1 of the Impact Assessment). According to the Government’s Impact Assessment the average current LHA rate is £126 per week which will be reduced by £12 per week as a result of a package of measures across the board. This figure is based on March 2010 statistics but the latest DWP statistical survey, June 2010, showing the position at March 2010, shows that the current average award is in fact just short of £113 per week, which is significantly lower than the figure used in the Impact Assessment Study. Very importantly, this ignores the subsequent linking of increases in the benefit to CPI, which will mean that over time the impact will be far greater and have a more significant adverse consequence which we explore further in this evidence.

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7. The big question is whether landlords who let currently to HB LHA claimants will accept this and reduce their rents commensurately. Alternatively will landlords maintain their rent levels and expect to recover the shortfall from tenants. If they do this, in turn, will the tenants affected be able to afford these shortfalls bearing in mind the other impacts on household budgets currently anticipated, eg the increase in VAT rate, reduction in other benefits, below inflation wage increases (where they are in work) and rising inflation eg for food stuffs. The other option open to landlords is simply to leave the benefit market altogether, where they can. Our evidence is that this is what will happen. Significant numbers of landlords will not reduce their rental levels and will desert the market for LHA customers. 8. Landlords themselves may of course not have freedom of choice, because they in turn face their own financial pressures, particularly the need to service loan repayments. Landlords also want to see a worthwhile return on their investment. In all of this much will depend on whether landlords find that they have an alternative market, particularly renting out to non benefit customers. 9. The RLA opinion is that in the current climate, as the private rented sector expands, more and more landlords will be able to rent out their properties elsewhere Landlords, therefore, will be able to shift their customer base away from the LHA market. Some may well say that landlords are “crying wolf” and in reality they will not do so. We believe that if the Government is assuming that landlords will simply swallow the reduction in rental income and continue to rent as at present to LHA customers then our view is that this is a misplaced assumption. 10. The estimated cost of LHA for 2009 2010 was £2.6 billion ansard 2 ar 2 . The overall cost is only around x% of the overall cost of the HB budget so the proposed cut backs are bearing down disproportionately on this sector. ire t ay ent f

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11. Beside the budget proposals the main concern on the part of landlords, so far as LHA is concerned, is that LHA is normally paid direct to tenants; rather than landlords as was the case under the HB system. This puts landlords’ incomes in jeopardy. Repeatedly landlords and their representatives have argued for a return to the same system as under HB; that is to say a system of tenant’s choice. Prior to the General Election both Parties now comprising the Coalition Government stated that they supported a return to a system of tenant’s choice so that, if the tenant wanted it, the benefit could be paid direct to the landlord. Since the General Election the Coalition Government has been silent on this issue, despite Parliamentary questions. The Government has indicted that it will be looked at as part of the two year review of LHA. However, the DWP Paper, 21st Century Welfare, indicates a single payment system, including housing costs, paid to the tenant. 12. The feedback which the RLA is receiving from its members and landlords more widely is that if, as now seems likely, the current payment system direct to tenants is retained, coupled with the reductions in the level of LHA resulting from the Emergency Budget, will lead to a refusal to lower rental levels coupled with wide scale withdrawals on the part of landlords from providing accommodation to LHA customers. The ongoing lack of security of income, coupled with a reduction in that income, will mean that landlords will no longer consider it economically worthwhile to rent properties to the LHA market. 13. This Committee addressed the question of change in the method of payment in its report on the local housing allowance in the last session of Parliament. Whilst acknowledging that its finding was controversial the Committee found that direct payments to tenants resulted in a positive increase in personal financial responsibility and financial inclusion. However, the Committee also thought that direct payments to tenants added to the time spent on administration. 14. Whilst the RLA agrees that it is important to try to enhance financial responsibility on the part of tenants, the RLA strongly disagrees with the Committee’s views believing that the arguments in favour of retaining the present system of payment is far outweighed by other important considerations. 15. The arguments advanced by the Committee as to why direct payments to tenants (rather than landlords) should continue are as follows: i. By signing up to direct payments to their landlords tenants are abdicating financial responsibility. They do not have to bother. ii. It is not a real choice (ie landlords insist on direct payment). iii. It diminishes tenants powers over rent levels. iv. It is part of the dependency culture. v. It is worthwhile noting that under LHA 72% of benefits are paid to tenants and 28% to landlords, whereas before it was 46% to tenants but 54% to landlords. 16. Quite rightly the Committee did acknowledge that more help was needed for tenants particularly more supportive vulnerability policies than those currently operated by most local authorities. 17. The RLA evidence to the Committee that choice as to where LHA was paid was part of financial management was acknowledged. We do not consider that actually having to handle the cash is an essential part of financial management. Making a choice as to how benefit is paid is just as much a choice. Indeed,

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unfortunately, by making the tenant receive the cash this immediately puts temptation into the hands of the tenant so that the money paid as housing support costs ends up being used for something else. Landlords view this as fraud. 18. The fundamental consideration for landlords is security of income. Landlords are generally speaking small business people. Interestingly, our survey results indicate that the average number of properties rented out to HB LHA claimants by respondents was on average 8.13. Loss of income from just one property can have a severe and disproportionate effect. Unfortunately, experience shows that where direct payment is made to the tenant there is a very considerable risk that the rent will go into arrears. 19. At Appendix 2 not printed is an earlier survey conducted by the RLA and analysed by PDRC carried out in December 2009. This showed that 90% of those who currently had LHA tenants had had to apply for direct payments because the tenant was more than eight weeks in arrears. 97% of all respondents supported a change to the regulations. The risk of non payment coupled with the “hassle” factor associated with LHA claimants are the two major factors which deter landlords from renting out to LHA claimants. 20. In their previous findings the Committee ignore the elephant in the room. This is the fact that there is direct payment to registered social landlords and rebates for tenants of local authority landlords. Thus, there is no attempt to lift them out of benefit dependency. We regret to say that this is the fundamental flaw in this argument. There are significantly more tenants in the social rented sector in receipt of housing benefits. The total number is 3,288,000 as against 1,428,000 (based on March 2010 from the DWP statistical return for June 2010). It is clear that for local authorities and registered social landlords security of payment is the overriding consideration. Indeed, much concern was expressed by the lenders who have funded registered social landlords at the prospects of the loss of direct payment to landlords; so much so that the former Government did a volte face. Thus the multitude of small business people who make up the PRS who let to HB LHA claimants are sacrificed on the alter so as to educate their tenants in personal financial responsibility but an entirely different rule applies to the public social sector. You have to set the same rule for all. Indeed, there is an argument that because small landlords in the PRS are less able to take the knocks it is even more important that they should have the security of payment which would be afforded by a return to the previous rule allowing payment to landlords at the choice of the tenant. Indeed from a financial perspective there is a strong argument that LHA rates should be higher to reflect the lack of security of income. One has to look at the real income received by landlords net of arrears shortfalls rather than the notional income suggested by levels of LHA awards. We will return to this issue again when looking at the individual topics which the Committee are considering in this inquiry. vern ent s reas ns f r

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21. The Government argue that the purpose of the proposed changes is to control and reduce the overall cost of housing benefit. They say that the measures announced will provide a fairer and more sustainable housing benefit scheme by taking steps to ensure that people on benefits are not living in accommodation that will be out of reach of most people in work. They argue that this will begin to address the disincentives to work in the current system created by high rates of benefit (see Explanatory Memorandum dated 23 July 2010 sent to the Social Security Advisory Committee). 22. The RLA recognises the need to control public expenditure and the RLA supports the Government’s objective of getting people into work and off dependency on benefits. Nevertheless, the purpose of HB LHA is to support individuals by helping them meet their housing costs whether in whole or in part dependent on their individual financial position. This should not be lost sight of and the RLA does not believe that this series of measures will help achieve Government’s objectives but, rather, it will be counter productive for the reasons we demonstrate in this evidence. in

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23. The RLA does not believe that HB or particularly LHA should be looked at in isolation whether from the wider benefit system, the part it plays in overall housing provision or its role in the wider economy. HB LHA provide the necessary financial support towards the cost of accommodation, a roof over ones head, which is one of the essentials of survival. It is but one of a series of benefits. Other income related benefits be they income support (“IS”), Job Seekers Allowance (“JSA”) or Employment and Support Allowance (“ESA”), or Incapacity Benefits (“IB”) all go towards meeting the other essential elements such as food, water, heat and light. Together they make up a package of support which along with tax credits provide assistance for those in work, the elderly, and those who are entirely reliant upon welfare benefits. HB LHA provide the housing costs element of this support for those who rent. Indeed, the cost of accommodation will be the single most expensive element in this package of support. As a result of the Government’s proposals tinkering with the housing support element particularly in relation to LHA will in turn impact on the overall household income whether this is received from other benefits, tax credits or wages. 24. These proposed cuts are aimed at the worst off in society. We already have some 13.4 million living in poverty (ie at or below 60% of the median income). It is inevitable that as a result of these proposals this number must rise.

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25. It is important to recognise that if one benefit, such as HB LHA, falls short of the amount required to pay for the essential commodity service in question, accommodation in this case, then recipients will have to look to another source of income. If that other source of income, is a means related benefit, is already set at the basic minimum requirement. Thus, in this situation, the individual has “nowhere to go” financially. The alternative is that the accommodation is lost. 26. These proposed cuts are predicated on the individual affected being able to shop around and trade down so far as finding alternative accommodation is concerned. For reasons which we explain in the next section we do not believe that in many cases this is either practicable or realistic. It also pre-supposes that there are landlords out there who will still be willing to provide the necessary cheaper accommodation. 27. Looking at this in the overall context, the woeful shortage of housing in this country is very much at the heart of this problem. We simply do not have enough accommodation available. This forces prices up and in turn leads to increased rental levels. It is no good blaming landlords for this situation. 28. After all, landlords have to compete predominantly with the owner occupied sector in order to acquire properties to rent out in the PRS. As with any investment, a landlord has to provide the capital to acquire the property and quite possibly to also refurbish it to make it fit for letting. As with any other investment the landlord expects to see a realistic return on his her investment. The acquisition cost is one of the major factors in setting that level of return. As a result of the last boom in house prices culminating during 2007 landlords have increasingly had to pay more and more to acquire properties to rent out. Since the advent of the credit crunch due to the restriction on available mortgage funds, despite falling house prices, it has become increasingly difficult for landlords to be able to raise the funds to acquire properties anyway. This will continue to be the case until there is an easing in credit conditions. 29. PRS rental levels will, inevitably, reflect the investment. On the other hand in the social public sector the reason why rental levels are lower is that they are essentially based on cost of provision and are not required to show any return on investment. Over the years successive governments on behalf of the tax payer have chosen to provide accommodation and set rental levels which, unlike the PRS do not show any return on that substantial investment. Furthermore, unlike the PRS, there has of late been a significant investment in the public social sector through the Decent Homes Programme. Communities and Local Government (CLG) have estimated that up until March 2011 this amounts to around £37 million (not far short of the annual defence budget) and that there are according to CLG some £6 billion worth of work still outstanding. To all intents and purposes, with the virtual abolition of grants, no such financial assistance is made available to the PRS. The PRS has to maintain its stock from its own resources. Often, in contrast particularly to RSL stock, this is older pre-1919 stock with consequent higher costs of maintenance and repairs. 30. The RLA does not consider that the level of return on investment in housing in the PRS is excessive. Landlords are not making huge profits, contrary to popular misconception. In any event rental yield in itself does not give a sufficient return. Residential landlords rely partly on rental yield but also on increased capital values over the long term. Traditionally, rental returns on residential accommodation in the PRS have been in the region of 3 to 4% per annum. The IPD UK Residential Investment Index 2009 showed a return of 2.7% for the year 2009. For the previous three years to the end of 2009 it was 3%, for the five years up to December 2009 it was 3.27% and over the previous nine year period up to December 2009 it was 3.8%. These are hardly large returns based purely on income when compared to returns on a Building Society account. Rather, the market is very much looking at a return on capital as well but this has largely disappeared at present due to the recession. Over the past nine years the combined return on income and capital has been 10%; again not a huge return. However, the past three years up to 31 December 2009 the return on capital was only 0.1% reflecting the slump in property prices as a result of the recession. 31. In fact these figures, being national figures, disguise considerable variations as between the different regions. For example, in northern England the total return over the last three years up to 31 December 2009 is in negative territory at approximately minus 3.5% (combined capital and income) according to IPD. When compared with other investments, taking into account the risk and the substantial amount of capital required, one can hardly argue that residential landlords are receiving excessive returns for their investment, having regard to the risk of default and voids. 32. HB LHA enable the low paid those not on benefits who would not be able to afford owner occupied accommodation and who are not able to access the social public sector (due to the lack of available accommodation in that sector) to obtain support for their housing costs. Without this support they would be homeless. 33. Looking at this across the wider economy, by providing support for housing costs HB LHA helps the low waged in particular to find accommodation. Both due to competition in a global economy and to avoid the danger of increased wage levels pricing workers out of the jobs market, the tax payer has no option but to subsidize housing costs in the form of rents. This is a part of the macro overview but we look in more detail at this aspect when looking at the Committee’s topic regarding incentives to work.

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34. In theory, if an individual is faced by the reduction in their income they have to shop around and try to find cheaper goods or services. This theory breaks down if you are already at rock bottom. After all, if you already shop at Aldi or Lidl, rather than Tescos there is hardly anywhere else cheaper to go. At least with food supermarkets are well stocked. You have no problem finding the alternative; it is simply a matter of price. Likewise with electricity. You can try to switch electricity supplier but once you have found the cheapest at any one time you cannot get any cheaper. Suppliers are nevertheless out there The position with accommodation is rather more complicated. You have to try to negotiate with your landlord for a rent reduction if that is possible or, alternatively move, so as to trade down. Unlike the supermarket or the electricity supplier the question is much more whether there is any accommodation elsewhere when and where you need it; let alone is it available at a cheaper price? Also, associated with moving accommodation are the inevitable expenses (eg van hire to move your furniture; possibly finding a deposit and so on). 35. The very proposals themselves are designed to make it even more difficult to move. The reduction in the percentile for fixing rents in each broad market rental area is reduced from 50% to 30%. DWP’s statistics show that at the moment across the country just over 50% of the market is available to LHA tenants. By definition, this will be reduced once the change in the percentile level takes effect. They will, therefore, be shut out of approximately 70% of the market because of the rental levels. 36. As already indicated the first option is to endeavour to agree a rent reduction with landlords. Our survey evidence shows quite clearly that landlords are not generally speaking willing to concede any reduction in rent. We look further at the issue surrounding this when it comes to looking at the topic of rental levels. Landlords themselves are already operating on a low return on their investment in income terms, face the attendant difficulties with benefit customers as regards obtaining payment, face banks demanding higher margins on their lending and the option of alternative lets to non benefit claimants, are hardly likely to agree a reduction in rent. 37. It is often extremely difficult to expect tenants to move to cheaper areas particularly those who have families. We have to consider the consequent upheaval and, where applicable, a change in children’s schools, even if cheaper accommodation is available. Again, as already pointed out this presupposes that landlords are prepared to reduce rental levels which are charged to tenants. 38. The position is even worse in and around London. Here, unlike the rest of the country the caps come into play. Tenants who are no longer able to afford accommodation in Inner London are presumably expected to move further afield into the outer London boroughs. Again, will the accommodation be there for them? Bearing in mind the severe shortage of accommodation available generally in the London area for those on a low income, we do not believe for one moment that they will be able to move. Overall, the RLA’s view is that by expecting tenants to move to obtain cheaper accommodation will have major adverse consequences on Society, particularly community cohesion, which we address later in this evidence. There will be ghetto-isation for those benefit claimants who are even lucky enough to find accommodation in poor quality deteriorating areas. 39. All of this is occurring at a time when the waiting lists for social housing are increasing. The latest available figure is that there is a waiting list of 4.5 million for affordable housing. In the year 2007 08 only 30,677 new affordable homes were built, primarily by housing associations. The previous Government had a target of building 3 million new homes by 2020. This involved an additional 240,000 units per annum. David Orr the Chief Executive of the National Housing Federation is reported as saying that we will be lucky to achieve 1.6 million by 2020. (This was his prediction quoted in the Daily Telegraph on the 18 September 2008). This was before the full horrors of the credit crunch struck home. We simply do not have nor are they likely to have enough houses available in the social public sector. These shortages of available affordable accommodation, with the problems facing the owner occupier market, are one of the reason why the private rented sector is now such an important expanding sector. The size of the Sector has risen from less than 10% in 1988 up to just over 14% of overall housing stock. We do not believe that when these proposals are put in place LHA tenants will have much of a role to play in this expansion going forward. Our local housing allowance survey showed that in 2009 the nature of the LHA penetration had plateaued. 40. Increasingly, local authorities have been looking towards the PRS to house the homeless and to cater for those who are unable to access social housing. Applicants for this kind of accommodation are normally benefit customers. Increasingly, however, the evidence available to the RLA shows that the PRS landlords will turn away from benefit customers and look elsewhere to fill their accommodation. Many local authorities have operated housing options or similar schemes to facilitate PRS lets to benefit claimants. Local authorities who have been hostile towards the PRS in the past have turned to the PRS to look for accommodation for these cases. This trend is going to be turned on its head and the social public sector housing is in no position at all to deal with the consequences. i s

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41. We believe that it is important to give an overview to put matters in context before embarking on considering the individual topics upon which the Committee seek evidence. In any case, inevitably from the landlords’ perspective there is much overlap between some of these topics, particularly levels of rent, shortfalls

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in rent, levels of evictions (and impact on homelessness) and landlord confidence. We now turn to put forward our evidence on the individual topics. n entives t

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42. The Government argue that its proposals will incentivise work. However, the RLA does not believe that this is a purpose for which HB LHA should be used. It is not their role. In any case, one cannot look at one aspect of the means tested benefit system in isolation to try to achieve this purpose bearing in mind the point which we have already made that it is simply one element of the overall package of benefits although a very important element. 43. HB LHA is not a subsidy for the PRS. The function of HB LHA is to support those in need to meet their housing costs so that they can obtain decent and affordable accommodation for themselves and, where applicable, their families. It is not the role of HB LHA to try to force individuals into work. 44. By definition, by and large, those who require support for their housing costs via HB LHA and who are working will be low paid. Many of them provide essential services; services without which the economy and Society could not function. They cannot pay the full cost of accommodation and they need a support for their housing costs. 45. There is something of a contradiction in terms in the Government’s case because the Government’s proposals bear down equally on the low paid in work and those who are wholly dependant on welfare benefits. With the exception of the 10% cut after 12 months for JSA there is no distinction between the two categories, so far as those of working age are concerned. It is therefore difficult to see how the main objective of these proposals of incentivising work will therefore be achieved via these measures. 46. In the longer term, if we lose sight of the purpose of HB LHA i.e. subsidised housing costs this will be to the detriment of the economy and Society more generally. 47. The Government’s proposals are based on the assumption that there is work available. Unfortunately, at the moment and for the foreseeable future, the RLA does not believe that this is the case. So far, it is fair to say that jobless totals have not risen as much as anticipated as a result of the recession but we consider that this is about to change as a result of the forthcoming Comprehensive Spending Review (CSR). It has been predicted as a result of the CSR that up to 600,000 jobs in the public sector will be lost over the next 4 years. It is not, however, just about direct job losses. In many areas of the country, particularly the north and former industrial areas, local economies are heavily dependant on the public sector. The private sector also depends on the public sector e.g. for contracts. 48. Furthermore, the low paid face competition for jobs from EU migrant workers, particularly from the recent Accession States. The recently announced Government changes to immigration policy do not affect this sector at all. 49. Obviously, the main tool to try to compel the unemployed into work is the 10% reduction in JSA after 12 months. In the first place, there does not seem to have been any consideration about breaks in continuity of claims. For example, if a JSA claim is broken for a fortnight does this restart the 12 month clock. 50. To put matters into context if a family on JSA is receiving LHA of £300 per week then a 10% reduction will reduce the rental payment by £30. How is the benefit customer going to make this loss of benefits up? They will already be on minimum benefits through JSA anyway. 51. From the landlords’ perspective, in the first place a landlord will refuse a tenancy application from anyone already in receipt of JSA, especially nearer the end of the 12 month period for fear of a benefit cut. If the benefit customer is already a tenant then very quickly shortfalls will mount up and the landlord will take steps either to evict or will decline to renew the tenancy once it has come to an end. Thus, this measure is going to shut the most vulnerable out of accommodation altogether. 52. This change is trying to take effect from April 2013 by which time presumably the Government consider that unemployment will have come down. We find this hard to believe since there is still talk of a double dip recession. Furthermore, the direct job losses in the public sector are scheduled to take place over the next four years starting from April 2011, although some have already taken place already. The RLA does not think for one moment that by the time this measure is implemented unemployment will have fallen sufficiently. If there is no job to find then there is no job to find and the inevitable consequence will be the 10% reduction in benefit. One only has to watch television and read the newspapers to see stories of unemployed who have submitted countless CVs to prospective employers and do not even receive one acknowledgment let alone an interview. 53. The Government’s proposals are predicated on the ability of tenants to find work. We do not believe that there will be sufficient jobs particularly with the forthcoming public sector cut backs. If there is not enough work to go around particularly with an expanding working population, exacerbated by the elderly having to stay in work longer due to shrinking provision pension, coupled with inward immigration from the EU, however hard individuals try there are no jobs to be had. The position is even worse in the older industrial areas. However hard people try to get a job will be penalised. Unfortunately, landlords will not be able to differentiate

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between them and workshy. The consequences are going to be the same; either a refusal of accommodation for someone who is already on JSA or eviction if they are in accommodation because they can no longer afford to meet the rental payments. A landlord in Barrow in Furness has drawn the situation there to our attention. There is a persistent problem of long term unemployment in that area. This is just one example of this problem. 54. Unfortunately, the inevitable consequence of this measure rather to incentivise individuals into work, will simply be to increase the levels of homelessness with all the consequent costs incurred by local authorities in dealing with those concerned. 55. So far as the low paid are concerned as from the autumn of this year the national minimum wage for an adult will increase to £5.93 per hour. About 750,000 members of the work force are paid at the minimum wage (representing 3.2% of all jobs held) according to the Low Pay Commission. The national minimum wage is set roughly at 51% of median earnings. Obviously, the national minimum wage level underpins wage levels certainly for the lower paid. Since the national minimum wage was introduced in 1999 the national minimum wage level has risen by 61% whilst during that period average earnings have risen by 48% (according to the Low Paid Commission). For those in receipt of the national minimum wage or on low pay generally, clearly LHA plays a vital role to supplement earnings by supporting them with some, but often not all of their housing costs in the form of rent. If, as the result of the Government proposals, the level of this support is reduced then it eats into their wages or tax credits, which have to be used to contribute even more towards their housing costs. For them surely these measures will operate as a disincentive to work; not an incentive. One has to bear in mind the other costs associated with work, particularly travel costs and possibly some element of child care costs. 56. Perversely, the Government’s proposals could actually provide a barrier to work. It is perfectly foreseeable that the consequence of these changes will be that over time, in many parts of the country, more and more LHA customers will be concentrated in areas of lower value, poor quality accommodation. These will be in decaying areas resulting in lower rental levels, simply because that is all LHA claimants will be able to afford. This will, in turn, accentuate the benefit and dependency culture with an increasingly sense of hopelessness. LHA claimants will not be any better off in work. Their job mobility will be restricted because they will not be able to afford to move nearer work to get jobs and out of the ghetto areas which will be created. The situation will result because PRS landlords will look more and more to let to non benefit claimants in other areas. 57. Another concern in relation to the low paid is the impact on essential workers. Often they have to work unsocial hours. They need to live close to work. Again, if as is likely we see a marginalisation of accommodation into poorer areas these are likely to be away from city and town centres with consequent travel time and costs. There is clearly a shortage of social public sector housing available for these workers, again particularly in London and the South East. If they do not receive the necessary support via LHA to contribute towards meeting their housing costs how are employers such as the NHS expected to recruit workers to these essential positions? 58. We have to look at these issues in the context of lower paid workers such as street cleaners, shop workers and so on. All of these lower paid workers need adequate support to meet their housing costs. One of the important elements of the current HB LHA system is that it is sufficiently flexible to meet to deal with local PRS rental conditions. These vary widely from place to place across the country. The result of these Government proposals will, however, be to stigmatise benefit claimants. The problem will be both those in work and those out of work. The reduction to the 30th percentile when fixing rents will impose a squeeze at both ends. It will make it much harder for benefit customers, including those in low paid work, to find suitable affordable accommodation. It will bear down at the other end of the market because more and more wherever possible landlords will seek to let to non benefit claimants. Landlords will look at alternative markets. The point must be made that LHA is only one subsector of a varied market. This was identified by Julie Rugg and David Rhodes in their reports on the private rented sector for CLG. They, quite rightly, identified a considerable number of sub-sectors in the PRS of which the HB LHA market is but one sub-sector competing with others. 59. In some areas, particularly under the South East, it will be relatively easy for landlords to disinvest from the LHA sector and let to other market segments. There is always a high demand for rentals in these areas. This is also true of other areas particularly major cities such as Birmingham, Manchester and Leeds which have more vibrant local economies. Even in other more deprived areas such as Hull this is happening. Increasingly, however, in other areas wherever possible landlords will be looking for non benefit customers as their tenants in the future as a result of these proposals, coupled with all the problems associated with the system of direct payments to tenants. 60. When it comes to the minimum wage we have to accept that if this is increased in real terms significantly beyond its present level it will mean that the low paid cannot access jobs. Jobs for them will disappear. This has been accepted by successive Governments and by successive reports of the Low Paid Commission. It is the reason why the national minimum wage has been generally accepted by employers. At the same time, we have to compete on an international level and keep our labour cost levels down. Germany, for example, has recently been very successful in containing its wage costs and is now enjoying considerable success again in an export led recovery out of the recession. A price has to be paid for this. Housing costs for those in the rental sector have to be subsidized. Individual families need to be kept out of poverty so that they can live at

Work and Pensions Committee: Evidence Ev 97

a decent level. To do this their housing costs have to be supported by HB LHA. It is a modern form of the Speenhamland system linked to rental levels rather than the price of corn. evels f rent in luding regi nal variati ns 61. Whilst there can be local variations which can depend on the cost of transport or the extent of competition, broadly speaking the price for commodities such as food or fuel is the same from one place to another. Likewise, for the cost of electricity and gas. Rents are, however, entirely different. Across the country, rent levels vary considerably and, of course, rent levels vary according to the type size and location of a particular property. The cost of acquisition value of the property is of vital significance when it comes to setting a rent and this will depend on these various factors. This is why a flexible system of housing support dependant on local market rents is so important. 62. Implicit in the Government’s case for their purposes is somehow the suggestion that PRS rent levels are excessive when measured against those in the social public rented sector. This is an illusion. The reality is that when one looks at the private sector, (both owner occupation and private renting), as against the social sector has the appearance of being a cheaper alternative but this is not the case. As we have already pointed out there is no element of return on investment. This is the vital difference. Although we have not built a Council house for over 25 years (a slight exaggeration but not far from the truth) £17 18 billion is still owed in repaying borrowings to pay for local authority housing stock. This is currently paid for by the tenants through rents (subsidised by housing benefit) (“ e ef r f using evenue unts Su sidy use f C ns i rary rie ng te S S 1 . The Decent Homes Programme in the public sector (which is not even yet complete) will have cost at least £37 billion by March 2011, as we have pointed out above. Low rents mean poor quality properties as we are discovering following years of low rents as a result of the fair rents system in the PRS. Likewise, the provision of affordable housing by housing associations is subsidized in various ways by grant and is not entirely dependant on rental income. Landlords in the PRS receive no such public subsidy. 63. To give some idea of the comparisons taking a three bedroomed house in Milton Keynes the position is as follows: Local authority stock rent —£79 per week Housing Association—£94 per week Private rented sector LHA amount £129.50 per week 64. Currently, local authorities arms length management organisations are undergoing a programme to bring their rental levels in line with those charged by RSLs housing associations. 65. The position is confirmed by the averages disclosed by Table 1.1 in the Housing Benefit Council Tax Benefit statistics in the DWP Statistical Summary dated 15 June 2010. Tenancy Type—Average rents— Local Authority tenants—£67.44. Registered social landlord tenants (housing associations)—£77.02. Private regulated tenants (ie the old so called fair rent system)—£75.91. LHA tenants—£112.94. Non LHA tenants (ie HB tenants)—£103.65. 66. The RLA would contend that the PRS gives good value for money. It compares well with the public social sector when it comes to tenant satisfaction surveys. The PRS, however, faces significant challenges because compared to other sectors its stock is made up of older properties. 67. Landlords in the PRS letting under old style regulated tenancies (ie subject to the Fair Rent Legislation) are being compelled to provide the same kind of subsidy to their tenants as the social public sector is having to provide to theirs. It is well known that these private regulated tenancies often represent properties which are in the poorest condition state of repair. As already indicated the same has happened in the social public sector resulting in the need for the Decent Homes Programme. This is inevitably what happens when actual rents are divorced from market rents. This will be what will happen if the link is broken between market rents and LHA rates once benefits are up rated by referenced to CPI. 68. The Government’s proposals are based on landlords in the PRS reluctantly accepting a 10% reduction in rental levels where their tenants are in receipt of LHA. In support of this approach the Government seek to rely on two assertions. Firstly, they argue that landlords renting properties to the reducing HB sector of the market (ie non LHA tenants) charge approximately 10% less to those tenants. Secondly, they rely on what they say is emerging research as to rent levels charged by landlords to those not in receipt of HB LHA. They claim based on this research that landlords letting to these tenants charge a little over 90% of the going LHA rate. We have not seen this research so it is difficult to comment on it. For example how far are those in work actually in receipt of tax credits to help them meet their living expenses? 69. The RLA strongly believes that if this is the Government’s approach then they have miscalculated. We would refer at this stage to the results of our survey, 71% of respondents say that they would not be prepared to reduce rental levels at all as a result of the Government’s proposals. Only 22.5% say that they would be

Ev 98 Work and Pensions Committee: Evidence

prepared to reduce the rent by the required 10% which would be needed to meet the Government’s objectives. Coupled with this is the fact that some 53.5% of landlords say that one way or another they will cease to provide for LHA tenants at the end of their current tenancy either by re-letting elsewhere or selling redeveloping their property. But it is clear that landlords will vote with their feet so suggested savings will not materialise because of the resulting costs in other directions. 70. These two key findings from our survey should serve as a stark warning to the Government of landlords’ intentions in response to these proposals. Additionally, we discussed this issue with our focus group of Hull Landlords. During the discussion it became clear that many landlords who had previously rented out properties to LHA claimants were not renting these properties to benefit customers. The key reason given was the difficulties experienced as a result of the change over to direct payments to tenants. Thus it is clear that disengagement from LHA claimants is already occurring on a large scale. Hull is one of those areas where one might expect it to be more difficult to get away from the LHA market but clearly this is not the case from discussing the situation with local landlords. Again, this should serve as a warning to the Government of what will happen. These do not appear to be idle threats. Landlords are going to abandon the LHA market. 71. In Hull currently LHA recipients are predominantly those who are out of work. The breakdown between different categories is as follows:(1) Those who are working age but there is no one in the household working so they receive LHA and entirely dependent on benefits—35,385—76.51% (2) Those who are of working age who are in work (whether full time or part time) but claim LHA— 1,281—17.31%. (3) The elderly above working age who receive LHA—435—6 18%. NB: out of these 435, 10 currently have some earned income. It can therefore be seen that as landlords from Hull progressively withdraw from the LHA market, as they are doing, the impact will be greatest on those who are out of work. It is disturbing that in Hull where there is generally speaking over supply of accommodation in some areas but landlords are able to find other tenants. 72. The reluctance of landlords to engage with HB LHA customers can be seen by looking through newspaper or other advertisements for properties to rent. Often the advertisements state “no DSS”. Alternatively, they may say that only a certain type of applicant is acceptable eg a professional person. Indirectly, by asking for rental deposits many LHA claimants are shut out anyway because often they are unable to raise the money for a deposit. Just as an example the Barnsley Chronicle on 27 August 2011 Property to Let Section has the following: Total number of advertised properties to rent

54

Number stating no DSS

11

Number otherwise indicating DSS tenants not acceptable

4

Number stipulating a deposit

21

Three only expressly said DSO tenants are welcome. 73. Of course, that is not to say that in other cases landlords will check with applicants and refuse to take benefit customers even though this may not be mentioned in the advertisement. This is a well recognised ongoing phenomenon and is again significant evidence to demonstrate the reluctance of landlords to take on LHA customers. 74. Why then are landlords so concerned as to these proposals affecting LHA tenants when compared with PRS tenants who are still in receipt of HB LHA or those in work? This comes back to the security of payment point which we made at the outset. It is the fact that benefit is paid normally to the tenant rather than the landlord which is a key factor. It is human nature that if you are secure in your income and do not have problems in obtaining payment then you are prepared to accept a loss. It is the difference in interest rates between secure and unsecure lending. The secured lender always takes a significant lower rate of interest. 75. In any case those tenants still in receipt of HB instead of LHA are longer term tenants who have not moved for some time. The landlord knows where he she is with these. Those in work are found by landlords to be more reliable when it comes to payment. Our survey shows why landlords are concerned about LHA. 41.7% have experienced problems due to the tenant failing to pay rent from LHA received. 24.3% have experienced administration problems by the local authority. Significantly 34% are concerned because they have been unable despite trying to do so to secure direct payments. Much concern has been expressed about the way in which local authorities operate their vulnerability policy when it comes to direct payment of LHA. The earlier survey at emphasises the concerns. Often, in practice, the landlord has to wait until the rent is eight weeks in arrears. By then anyway it is too late to retrieve the situation and the damage is done. As we have already pointed out, if you are going to take a 10% hit on your rent and you experience all of these difficulties in getting the rent is paid then this is the reason why landlords are not going to be prepared to accept the Government’s proposals.

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76. Clearly, if the Government were to rethink its position in relation to direct payments it is likely that significant number of landlords may be prepared to reconsider their views going forward as to whether they are prepared to continue to rent out their properties to LHA customers. 77. Independently of concerns regarding LHA the most recent Royal Institution of Chartered Surveyors Residential Letting Surveys (July 2010) reports that the outlook for rents remains firm on rising tenant demand. They report that rental growth has risen for the second consecutive quarter and that yields have improved for a second consecutive quarter with this being the fastest pace since the back end of 2008. As we have already pointed out the IDP survey shows that the current income yield is 2.7% which is historically low. The RICS report therefore points to a correction occurring. This means that if rental levels are again rising this will make it easier for landlords to find suitable alternative tenants. 78. Importantly, rising rental levels must seriously call in to question of the Government’s projected savings. Whether set at the 30th or 50th percentile rising rents will mean increased LHA rates which will cancel out or at least reduce the projected savings. This is as a result of the major structural issue which we have already pointed out. It is due to the overall lack of housing provision and particularly social provision. With a waiting list of 4.5 million currently and no signs at all of any significant investment the social sector is not going to be able to take up the slack anyway. This is going to cause the upward pressure on rents. The structural imbalance between supply and demand which we have already highlighted is going to cause ongoing rental increases. Divorcing LHA rates from the market by linking them to CPI is not going to solve the problem either. It will mean that there is increasing shortfall in housing support for those individuals who need it with the consequences we have highlighted elsewhere in this evidence. 79. The Committee seek evidence on the question of regional variations in rental levels. The data provided by the Government’s own impact assessment gives a flavour of the different rents payable for different types of accommodation in different areas across the country. These differing rent levels reflect differing housing conditions in the broad market rental areas but they can only give a broad brush overview. Very significantly, it is the differences within these areas which can be very important. Take Leeds or Sheffield both of which are each a broad market rental area. Both have affluent areas (the north in Leeds and the south west in Sheffield) with significant student populations as well. Each have poorer areas with lower rental levels. The RLA fees that just looking at regional variations does not really give any meaningful picture but only a flavour of the situation at best. You need to burrow within the individual areas and look at the impact on localities. The affluent areas will not be touched. The question which has to be looked at is within the broad market rental areas and what will happen in the poorer parts of the area as a result of the Government’s proposals. As we said in our evidence to the Committee when it was reviewing the local housing allowance we believed that the LHA had started to break up the ghettos. We gave the situation in Leeds as an example. We now believe that the Government’s proposals will reverse this trend and will again lead to ghetto-isation for LHA claimants with all the adverse consequences which result. The trend will be for LHA claimants to concentrate in poorer degraded localities which will be islands of deprivation. 80. Whilst regional local variations are important, also of importance in the RLA’s view is the number of tenants seeking accommodation in the different areas as well as the different sub-markets which can exist within a particular area for rental accommodation. For example, in London where there will be swingeing reductions in benefit levels due to the 30th percentile rule but more particularly the caps, there is already an over supply of tenants anyway. Economically London and the South East are recovering faster. They do not have the problems suffered by the North, particularly with its higher dependence on the public sector. Likewise, other regional Cities such as Manchester, Leeds, Nottingham etc have more diverse local economies with greater demand for rental accommodation from working people, young professionals, students and so on. 81. In the RLA’s opinion in particular localities much will depend on what alternative markets are available but having said that it is our view that wherever possible landlords will now seek to disengage from the LHA market and seek available alternative lets. 82. The reality is that the 30th percentile rule, coupled with the cap, will have the effect of squeezing the market from both ends. At the cheaper end less properties will be available to LHA customers anyway. At the other end of the market there is a better chance anyway for landlords to obtain alternative tenants who are not in receipt of LHA anyway. 83. Perhaps to some extent the question of levels of rents is based on the idea that in some way HB LHA underpins rental levels. The RLA does not believe that this is the case generally speaking, although it may be true of certain areas where there is a concentration of benefit customers. Away from such areas there is a very real market. The landlord has a choice whether to take on benefit customers or not. In these areas rental levels are not driven by HB LHA rates but rather by earnings levels and the value of properties. 84. We do have to acknowledge that in certain localities (Blackpool and Hull are sometimes cited as examples) the market is more dependant on the level at which LHA is paid. At this lower end of the market benefits do have a much more significant role. Even here we must not lose sight of the reality that tenants in these areas do go in and out of work, often perhaps on a part time basis so that, as with the general market, the level of earnings is also a factor in determining the going rate in those localities. The HB LHA market certainly does not exist in isolation even in these areas. We have already pointed out the results of our focus

Ev 100 Work and Pensions Committee: Evidence

group discussions with local landlords in one of these areas, Hull, where in depth discussions with local landlords indicate that they are moving away from the LHA market and that it is possible for them to do so. 85. As we have already pointed out in our evidence it is essential to look at the total income in a household. This may be supported by HB LHA. There may be earnings. It is not just about the workers; it is also about the low paid and the elderly who are, of course, no longer of working age so that they are reliant on pensions. We view the impact on rental levels as a result of the proposals as being at least as detrimental for these groupings as for those who are out of work. This is why, in our view, that the impact of these proposals must be viewed in a holistic way; in the round which is why, as we have already argued, it is wrong to isolate HB LHA not just from benefits as a whole but from household incomes. If LHA rates are insufficient then Peter will have to be robbed to pay Paul and there will be a significant adverse impact as a result on people’s lives. It is vital to consider the human consequences. 86. An important issue for many landlords, in setting rental levels, is the level of their borrowings. This is particularly true of new entrants to the market, those thinking of investing in the market and those existing landlords who have acquired new properties in the recent past. The PRS is heavily dependant on borrowings to acquire properties. Whilst official interest rates may be low (Bank of England Base Rate currently being at 0.5%) as a result of the credit crunch banks have aggressively sought to increase their margins. They have also altered the terms of lending so that interest rates are now much more based on LIBOR rate (London Interbank Offered Rate); rather than bank base rates as has historically been the case in the past. 87. The number of buy to let mortgage products on offer now stands at around 260 (Source Northern Rock) whereas before the credit crunch there were 2,000 3,000 such products on offer. The current cheapest offer is one at effectively 5%. However, it is not just about interest rates nowadays; it is also about initial set up charges, arrangement fees etc, all of which increase the effective rate of interest. Whilst being historically low interest rates can only go one way. Inevitably they must increase because they are being held at an artificially low level. Due to the increased margins landlords who have significant borrowings face substantial increase in interest costs in the future. 88. Landlords therefore have little choice in setting rent levels in these circumstances. They must ensure that their rents are sufficient to service repayments as well as the cost of management repairs etc. There are other pressures due to possible breaches of loan covenants which we look at the next section. 89. Landlords have always been unhappy with the way in which local reference rents have been determined for the purposes of HB. This is still relevant, albeit to a declining number of benefit customers. It lacks transparency and was open to interpretation manipulation. The current system for LHA is somewhat more transparent. Some landlords still voice concerns as to whether LHA allowances do correctly reflect the going rate for market rents within their areas. This adds to landlords’ lack of confidence in the system. S rtfalls in rent 90. When it comes to any shortfall in the rent as between the amount contractually payable on the one hand and the amount of HB LHA landlords are inevitably the losers. The general experience of landlords is that if a top up payment is due it can be hard to obtain payment. “Blood and stone” comes to mind in some cases. In other cases tenants struggle to pay shortfalls. 48% of people on LHA already suffer a shortfall. The average is £23 per week currently ( ansard ar 2 2 At the moment one of the ways in which a shortfall can arise (usually unwittingly from the landlords perspective) is that the tenant is having to make a repayment in respect of previous benefit overpayment. This is clawed back from the benefit and it means that the landlords encounters a shortfall situation. 91. It is fair to say that at present landlords usually attempt to recover such shortfalls but, on occasion have to accept the inevitable and write them off. The Government’s proposed changes to LHA will result in a change in attitude, in all likelihood a harder attitude. Inevitably, short falls are going to increase in amount as well as in the number of tenants affected. The position in this regard will be significantly exacerbated once benefits become linked to CPI as the gap between rents and LHA levels widen. Likewise, once the new rule comes in so that JSA claimants who have been unemployed for more than 12 months suffer a 10% reduction again this will give rise to shortfalls. 92. Inevitably landlords will no longer be able or willing to accept the increasing levels of shortfalls which if the tenants are unable to pay are irrecoverable now are going to be even less likely to be recoverable they grow in size. Some tenants will inevitably try to dip into other benefits income to make good these shortfalls. Bearing in mind that they are at minimum levels already clearly they will struggle to do so. They may well have to go short elsewhere. 93. The RLA believe that as the level of shortfalls rises then landlords will seek to evict tenants and refuse to renew tenancies once they have run their course. Importantly, as already pointed out elsewhere, this will be a very good reason to avoid benefit customers as tenants anyway and to let properties to non benefit claimants, particularly those who are working. 94. The issue of shortfalls is compounded by the current system of direct payment to tenants. Shortfalls and arrears are intermingled. The landlord also loses out because money paid for housing support is used for other

Work and Pensions Committee: Evidence Ev 101

purposes which will again lead to evictions, refusals to renew or a disinclination to take on benefit customers in the first place. 95. In all of this one has to take into account the cost of tenancy changes. These inevitably impact on landlords. It is not just a matter of rental loss due to voids but there are also potentially advertising costs or fees paid to letting agents for finding tenants. Work may need to be done to the property on a change over of a tenancy. 96. Shortage in rents received may well cause problems for those landlords who have mortgage commitments. They are significant in number. Lenders lay down a requirement that the rental income must usually cover the mortgage interest repayments by 125% and stipulate loan to value ratios. Rental levels are also critical to valuation and again lenders lay down loan to value requirements. Yields govern capital values. At the moment many lenders are engaged in re-examining their security because of the recession. They are stipulating that properties should be revalued. If there is a shortfall in rent for whatever reason then interest cover covenants may be breached or properties may be down valued because of the rental reduction leading to breach of loan covenants as regards loan to value ratios. All of this is occurring against a background of values which have fallen by around 20 25% from their peak. In the Nationwide Housing Survey published last month (August 2010) shows that in the last two months house prices have fallen. This will further exacerbate problems with lenders. evel f Evi ti ns et 97. Eviction may be a misleading term in this context. Often landlords will prefer to wait until the end of the tenancy and then rely on Section 21 of the Housing Act 1988 to obtain a possession order. Tenants, of course, may in some cases choose to leave voluntarily. As tenants will be treated as homeless in this situation they will be advised by local authorities to stay in the property until the landlord at least obtains a Court Order. In the meantime the landlord suffers because shortfalls arrears of rent continue to grow. 98. One concern is where benefit shortfalls cause rent arrears how far local housing authorities will treat this as being intentionally homeless. Local authorities will be under increasing pressure to house the homeless so the experience of landlords is that authorities will use every reason they can to avoid their statutory homelessness duty. 99. For their part new landlords will be reluctant to take on tenants who have been evicted not had their tenancy renewed because of arrears. Usually landlords obtain references wherever they can and these will disclose the arrears history. 100. The question also arises as to whether landlords will accept the shortfalls and live with them. For the reasons we have explained elsewhere we do not believe that they will as they increase in number and size. A lot of landlords will not be in a position to do so financially anyway. 101. The level of evictions will depend on the extent of the shortfall in benefits arrears. This will cause particular problems in London where tenants will have a cap to contend with along with major reductions in benefit levels. Likewise, for those with five bedroomed accommodation. 102. From talking to local authorities even if they are able to provide accommodation which is clear that the number of four bedroomed or larger houses is severely constrained in the public social sector anyway. 103. The increasing reluctance on PRS landlords to take on benefit customers will mean that there is less and less accommodation available in the PRS to house the homeless. In 2009—75,520 people were helped by local authorities as being homeless according to CLG statistics and around half of these were rehoused in the PRS. 104. The majority of landlords only have small portfolios. Many have four or less properties. It is going to be extremely difficult for them to ride out arrears or to accept reductions in rents. The inevitable consequence must be that the proposals will lead to an increase in arrears non renewal of tenancies. After all every benefit customer is affected by these changes according to the Government’s Impact Study. One has to look at the cost to the sector overall even allowing for tenants themselves making up shortfalls the limited impact of discretionary LHA payments. We have some 936,000 people affected with an average reduction in rent just due to the 30th percentile rule of 10%. Based on the Government’s own figure of £126 per week at £12 per week this means that the total amount of LHA taken away from tenants (for them in turn to pay their rent) is going to be in the region of £560,000,000 although the Government estimate says it is £452,000,000 105. Even if tenants are able to struggle and make up the shortfall at the extent of say one half (which is purely a guess) the income to the sector from LHA claimants is going to be of the order of £280,200,000. This is not an income loss which small business people are able to stand. Added to this will be the impact of savings due to the cap and the abolition of the five bedroom rate. 106. Of particular concern in relation to evictions is the 10% deduction of benefit customers who have been on job seekers for 12 months. This will come in addition to the other shortfalls arrears and clearly in that situation a landlord is going to be even quicker to react and to evict tenants refuse a renewal. That is if a landlord will take such a tenant in the first place.

Ev 102 Work and Pensions Committee: Evidence

andl rd

n den e

107. Coming on top of all the problems associated with direct payment to tenants, these proposals will push landlords over the edge so far as LHA claimants are concerned. 108. If the Government do go ahead with their proposals then the RLA believes that the consequences are clear. We do believe that to some extent, without incurring extra costs the Government may be able to slow down the process and reduce its impact by altering the method of payments so that the norm is no longer that tenants are paid direct. The arguments in favour enhancing financial responsibility are, we feel, shot to bits because this rule is not being applied in the public social sector. Having put this evidence before the Committee we fear that this will be one of those cases where it will give us no pleasure in five years time to say “we told you so”. Our survey (of which over 95% of the respondents rent to tenants claiming LHA) shows landlord confidence at two out of five (one equals low and five equals high). When coupled with the intention of respondents both as to what will happen to LHA tenants when tenancies end and intentions regarding rental levels mean that the proposed measures will in our view amount to a body blow for the LHA market. All of the reports which we receive are surveys and our discussions with landlords indicate that landlords are out of patience with LHA and have lost confidence in the system. We have already set out our evidence in relation to rent levels, rent shortfalls and evictions. All of these issues clearly undermine landlord confidence in LHA. As a result wherever an alternative tenant can be found landlords will cease to rent out to LHA customers. The shortfall in support available for those in work will be as much a problem for those as those customers who are entirely dependent on welfare benefits. C

unity C esi n

109. In our evidence to the previous Select Committee on LHA we cited the position in Leeds where ghettos had developed in south Leeds prior to the introduction of LHA. Landlords experience was as a result of the introduction of LHA and LHA customers were enjoying increased mobility. This is now bound to come to an end. 110. Landlords are well aware that up and down the country in cities and towns there are often poor areas where benefit claimants and the low paid tend to congregate. These are often run down areas of older accommodation. Each member of the Committee will be aware of this from their own constituencies. Because it is poorer quality and in a worse area inevitably the accommodation is cheaper and this is what attracts benefit customers. 111. Our prediction based on experience and the evidence we see is that there will be again increased ghettoisation for benefit claimants. They will be left with no option but to move to these low quality areas and to live in less than decent accommodation. There are only some 1,500 qualified environmental health officers in the country and no doubt local authorities will face cuts in the housing regulatory function. As we have testified to CLG Select Committee we do not believe that the current system of housing regulation is working. The reality is that it concentrates on the generally compliant responsible landlord rather than homing in on the rogues. Housing regulation is therefore not going to help these individuals and at the end of the day if the rent is insufficient the landlord does not have the wherewithal or incentive to maintain let alone improve the property. As we have already pointed out earlier this was amply demonstrated by the impact of the fair rent system under the Rent Acts. 112. The problem of degraded areas into which benefit customers have moved can only become worse as a result of these proposals. Worst still will be the position of those who are made homeless. There will be those who have to sofa surf or live in overcrowded conditions. The RLA believes that an underclass will develop once these proposals become effective. 113. All of these factors destroy community cohesion. We face even lower levels of educational attainment, health problems, increased dependence on drugs and alcohol and loan sharks preying on the hard up. 114. We have already referred to the level of poverty and this will inevitably increase; again with adverse impacts on community cohesion. There will be increased levels of crime and begging. The Conservatives have made play of the broken society and these proposals can only exacerbate this. isa led et 115. The proposal for an extra room allowance for carers is to be welcomed. One issue not addressed by these proposals is cases where for medical reasons a couple cannot sleep together in the same bedroom, particular problems are elderly people. An extra room ought to be allowed in this situation. 116. Although probably not strictly termed as being specialist housing in the sense the Committee may employ the term, the RLA has for a long time voiced concerns about the operation of the under 25 rule and called for its abolition. This age group will be further penalised by the Government’s proposals. By way of an example in Leeds on present projections the single room rate will drop from £65 to £57 per week. This is going to hit home hard and these individuals are debarred from finding self contained accommodation already

Work and Pensions Committee: Evidence Ev 103

and it is now going to be even more difficult to find a place in a shared house because of the reduced housing support available because of the changes. lder e le larger fa ilies and ver r

ding

117. This particular topic links in with concerns over community cohesion. At the moment it is fair to say that many benefit customers are currently still in receipt of HB rather than LHA. This is born out by the statistics which we have obtained in Hull for the breakdown between working people and the elderly and for Leeds . . However, as our survey shows in 2009 the percentage of elderly tenants catered for by the PRS was around 12%. 118. Landlords predict that as the population ages and as access to social housing becomes more difficult more and more the elderly will have to turn to the PRS. They are then going to face exactly the same problems as those at working age because of the reduction in the available benefits as a result of the Government’s proposals. They are on fixed incomes. They are unlikely to have any personal pensions available and will be dependent on state pension pension credits. In many cases they are unlikely to have the option of finding paid work or will be unable to undertake it anyway. Effectively, they are stuck on benefits. Thus, it is likely as time goes on that these proposals will disproportionately bear down on this group. 119. Large families also face particular hardships. Very large families will be disadvantaged by the abolition of the five room rate. We have already pointed out the lack of larger accommodation available in the social sector. The uprating of non dependent deductions is going to hit home particularly harder with this group as children grow up. They face the double whammy of not being able to obtain adequate assistance themselves but at the same time they will come under increasing pressure to leave home. It is well known that older children living at home are not able to contribute do not contribute to rents anyway and there are no separate benefits available to them for this purpose. Ironically, in some cases, it may well put increasing pressure on the HB LHA budget because some of them may be driven to seek accommodation themselves if they are able to find it. This is because they will have to leave home. 120. Overcrowding is also a serious concern. It is note worthy that successive Governments have not overhauled the overcrowding standards since the 1930s although they are generally acknowledged as being unsatisfactory, with the possible exception of houses in multiple occupation (HMOs) accommodation. Licensable HMOs are subject to room size criteria control of numbers and there is power in the case of non licensable HMOs for individual overcrowding notices to be served. Across the board there are powers under the housing health and safety rating system (HHSRS) to deal with overcrowding on a risk basis approach. With limited resources and the problems associated with finding alternative accommodation, as individuals are rendered homeless, it is questionable how far local authorities would seek to use these powers other than in the case of HMO accommodation anyway. 121. Our information is that as it becomes increasingly more difficult for benefit customers to obtain housing inevitably overcrowding will occur. For single people it may well take the form of sofa surfing or hot bedding. For example, we are aware of one case involving trainee chefs who work very long hours where the local authority found that 12 people in London were sharing a two bedroomed flat paying a rent of £55 each. Whilst we deprecate this kind of exploitation unfortunately it is an inevitable consequence. Rogues will take advantage of this situation. They always do where shortages are concerned. This gives rise to reputational concerns for the PRS. 122. In particular, it is likely that the overcrowding problem will become serious in London where there are already considerable pressures regarding the availability of accommodation across the board. 123. The RLA’s particular concern is that landlords will be blamed for this situation. Some may even be prosecuted or subject to enforcement action because of overcrowding. In reality this will not be their fault in many instances but it will be a direct result of the proposals once these are in force. rating f n n de endent dedu ti ns 124. The major up-rating of non dependent deductions is going to cause considerable problems for particular families with older children, as we have already mentioned. Inevitably, this will lead to tensions within households and at the extreme insistence on adult children leaving home. It will exacerbate the problem regarding shortfalls in rent. rating f ene ts a

rding t C

125. Whilst the Committee has not expressly called for evidence on this issue the RLA believes that it is one of the most detrimental of all of these proposals. When market rents were introduced by the Housing Act 1988 the then Government gave a promise to link housing benefit rates to market rents. The successive Governments have honoured this, at least in principle. Now, for the first time the Government want to move away from this principle. 126. Between 1998 to 2010 private rented sector rents have risen by 63% from an average of £79 per week to £129 per week (CLG survey of English Housing). Over this period average earnings have roughly risen by

Ev 104 Work and Pensions Committee: Evidence

about 48%. This has resulted from the structural problems which we have already referred to in the housing market due to shortage of supply. With the ongoing shortage of supply no doubt this trend will continue. The gap between market rents and LHA rates will widen over time. 127. Clearly, the result of this will be that increasingly LHA will not provide sufficient support for housing costs and the shortfall in rent will increase. This will lead to all of the problems we have outlined in the earlier section regarding this topic. As we have also pointed out already it will mean that benefit customers will have to try to make up the difference from their other already minimum benefits or if they are working it would eat further into low wages making it less and less financially worthwhile for them to go to work in the first place. 128. The Government has chosen this measure of inflation not just for this purpose but for uprating other benefits because it is beneficial to do so CPI is, however, less representative of the depreciation in the value of the currency than RPI. 129. A particular technical objection which has been raised is in relation to how CPI is compiled to show how the worst off will be badly affected by this change.. This was highlighted in an article in the Daily Telegraph on the 30 August. As the CPI Technical Manual explains, CPI uses geometric averaging as opposed to arithmetic averaging. The RPI methodology is based on the assumption that people buy the same goods as in the previous year. It measures the average price change on the basis of the changed expenditure of maintaining the same consumption pattern for households (see paragraph 9.1.2 of the Technical Manual). There is also a different treatment of housing costs. RPI methodology assumes that people buy the same goods as in the previous year whereas in the CPI methodology they are assumed to spend the same amount of money on goods as the price increases. In other words the amount of goods purchased falls in exact proportion to the rise in prices. The amount of money spent does not vary. 130. The Government contend that CPI better reflects the spending of those receiving benefits. Both the Institute for Fiscal Studies and the Royal Statistical Society have also questioned this claim. Under RPI it is assumed that as the price of goods rise people look for cheaper alternatives. Whilst the assumption that people spend the same amount will apply for most people rather than the assumption that they buy the same amount of goods; this, however, does not necessarily apply in the case of benefits recipients. Those on minimum levels of benefits are only being provided with sufficient amounts of money for them to get by. It is inherent in this that they cannot respond to price rises by buying less. They are already at minimum levels. Over time this means that those already at these minimum levels will be able to consume less and less because benefits will be cut in real terms. As the Article referred to argues the Government appear to be punishing the poor by lining benefits, including LHA, to CPI rather than RPI. liti n f 1 e ess 131. In its previous evidence to the Select Committee and also in its response to the Social Security Advisory Committee (SSAC) the RLA opposed the removal of the £15 excess entitlement. It gives tenants the incentive to negotiate their rent with landlord on the basis that they could keep any excess and not to the maximum allowed. Statistics show that this has worked in 47% of claims. It was argued by the then Government that this helped empower tenants and give then greater financial responsibility. If this is no longer to be the case one of the key elements of the LHA edifice has been broken. The removal of the £15 excess rule means that in future there will be absolutely no incentive for tenants to try to and get a rent reduction because there is nothing in it for them. We are also concerned at the resultant adverse consequences in the terms of child poverty. The ability to retain an amount of up to £15 has provided a very useful supplement for those who are on the lowest incomes anyway. Furthermore, as we pointed out to the SSAC previously landlords will have absolutely no incentive to keep their rents below the local housing rate and we do wonder how far this aspect has been taken into account by the Government in their calculations regarding savings which will result from their own proposals overall. Landlords will still be receiving an appropriate rent for their properties (or, in realty much less than it should be) so clearly they are not “ripping off” the system. Quite rightly SSAC oppose this measure and we would again reiterate our opposition to this particular proposal. d inistrati n and its

st

132. The RLA think that if the Government is looking to save money this can be achieved by more efficient administration of the system. The views of the RLA on local administration have changed. We have always appreciated that there is the linkage with Council Tax Benefit (CTB) in administration. The local link has been valued by landlords. Now our considered view is HB LHA should be administered on a national basis alongside other benefits. The current system necessitates a huge exchange of information (often the same information) between the DWP and the local authority (and vice versa). Whilst Job Centre Plus has streamlined the system to a limited extent, the RLA now believes that significant savings to the costs of administration, as well as improvements in efficiency, can be achieved by merging HB LHA administration under the auspices of the DWP. As to CTB administration Council Tax could be rebated on the instructions of the DWP. The administration of the CTB system so far as it concerns the collection of Council Tax could be administered through existing Council Tax offices; rather than by separate benefit sections. 133. The RLA also believes that the restoration of the former system of direct payment to landlords and tenant’s choice would achieve significant savings. At the moment local authorities have to operate costly

Work and Pensions Committee: Evidence Ev 105

vulnerability policies with extra staff trained to deal with difficult issues. These have to of necessity be dealt with within a short time frame because of the eight week rule. Otherwise, vulnerability policies are meaningless anyway. We also believe that a smaller number of bulk payments to landlords must be a less costly way of administering the payment system. Under the old system if the tenant chose direct payment to the landlord this could be logged and then acted upon via bulk payments. Local authorities only had to administer the eight week rule for those not on direct payments; not vulnerability policies. At the moment considerable expenditure is having to be incurred in supporting tenants as part of the process. Obviously, this would have to continue where the tenant preferred payment to himself herself but there could be large savings achieved in those cases where direct payments to the landlord were put in place. 134. It also has to be remembered that where direct payments are made to the landlord should the landlord be held liable for over payments then there is far more chance of recovering the overpayment from the landlord (who will have assets) than from the tenant. That is not to say that where the tenant is at fault in such a situation the tenant rather than the landlord should be pursued for the over payment. is reti nary

using ene t ay ents

135. The Government have announced an increase from £10million per year to £40million per year in respect of the allocation to local authorities for discretionary housing benefit payments. It has been reported that a calculation has been made which indicates that even with this increase only 4% of LHA claimants could be helped. Coupled with the fact that there is no provision for transition from the old system to the new system for existing benefit customers, clearly there is going to be a wholly inadequate fund available to help those who are hardest hit by these measures. As local authority finances are constrained following the CSR in October then there is going to be no additional funding available from local authorities themselves. Experience shows that local authorities are not prepared to augment central Government funding for this purpose. 136. It will be very important for local authorities to adopt proper robust transparent policies for determining how they will allocate payments under the discretionary housing benefit system. These will be well publicised both to tenants and landlords for them to be able to assist their tenants to be able to obtain such payments in appropriate case. ransiti nal arrange ents 137. The RLA is perturbed at the lack of transitional arrangements for existing benefit customers. Historically when changes have been made, particularly changes of this magnitude, either existing customers have been protected altogether or at the least the changes have been phased in over a period of time. There is no such protection here and, indeed, the change over will be on a hit or miss basis depending on what is the date of the anniversary of the claim. We would strongly urge that consideration is given to phasing in these changes or, alternatively, making a substantially greater sum available for discretionary housing benefit payments. ati nale f t e

vie

138. The underlying rationale for the RLA’s views is as follows: (1) There is a fundamental problem with housing provision in this country because of the lack of supply. (2) The availability of public social housing is inadequate, the size of the sector relative to other sectors has declined and there are no prospects of any real increase, resulting in ever lengthening waiting lists. (3) This situation exists against the background of increasing demand for housing due to a growing population and an increase in the number of households, especially due to change in demographics leading to smaller household sizes. (4) The only possibility therefore is to look to maintain and increase the number of benefit customers housed in the PRS. (5) The PRS as a private sector provider will only be able and willing to provide the necessary accommodation, so long as it is economically viable to do o i.e. there is sufficient return on capital and the PRS is able to defray its costs. (6) Investment in residential property is not a separate asset class. PRS providers have to compete with owner occupation. Increased house prices (although they have fallen back to a certain extent) coupled with the structural problem and the overall lack of supply have inevitably forced rents up in the PRS and this trend will continue. (7) In any event PRS investment is dependent on a combination of income and capital yield; not income return alone. Returns are not excessive. (8) Low income earners and benefit claimants (whether or working age or the elderly) are dependant on financial support to access housing in the PRS and need such support to be able to afford decent accommodation. (9) The State on behalf of the tax payer dictates the price which it is prepared to pay and the extent of the financial support which it is able and willing to given in the case of benefit customers. (10) The private sector providers do not have to accept the price that the Government fixes and it may not

Ev 106 Work and Pensions Committee: Evidence

be economically viable to do so. In many cases matters may be out of their hands anyway because of the need to service loan repayments. (11) PRS landlords have alternative markets. (12) All PRS landlords do not have security of income because of the current system of normally paying tenants direct and this makes them increasingly reluctant to accept benefit customers as tenants together with the problems surrounding arrears and delays in payments. (13) It is the tenant who is contractually liable to pay the full rent. If housing support is insufficient the question is then whether benefit customers have alternative sources if income shortfalls. (14) The benefit customers who are wholly dependent on benefits are already at the minimum by definition. They will not be able to have the essentials of life. Therefore they will be unable to find sufficient money from elsewhere. (15) For their part landlords will not be prepared to accept increasing shortfalls because, again it eats into to the real return on their investment and prejudices their ability to meet their costs. (16) For those who are in work but who claim benefits they will be in receipt of low wages and in a lot of cases at or just above the national minimum wage. They have other costs associated with working. As their earnings increase benefits are withdrawn so rapidly it makes little sense for them to work. They will also struggle to meet shortfalls. (17) To remain internationally competitive and to ensure that workers do not price themselves out of a job wage levels have to be kept low for many jobs. The State has to provide financial support for these individuals for their housing costs. (18) If this support is insufficient then landlords will not provide the necessary accommodation in the PRS because the returns are insufficient and benefit customers themselves are not in a position to meet the shortfall in this State provision. (19) The net result is that it is no longer economically worthwhile for PRS landlords as providers to continue to provide the accommodation and they will either disinvest altogether or seek alternative markets. There is no prospect of social public sector meeting the shortfall. (20) Alternative markets are already available and PRS landlords are already moving away from benefit customers, not least because of their concerns over the current payment method. (21) The Government’s proposals which reduce the level of state support housing costs for benefit customers in the PRS, which is already insufficient, will cut this provision further in the short medium and long term. The speed of withdrawal by landlords from provision to benefit customers will increase markedly. (22) If you do not relate the price which the State is willing to pay to the market cost then the effectiveness of the benefit, in this case housing support, breaks down. (23) The Government’s case is based on an increasing number of benefit customers taking up work but this pre-supposes that there is work available for them and the RLA’s view that this is unlikely. (24) As landlords continue to withdraw from providing accommodation for benefit customers the smaller pool of available accommodation will in itself push up rents even further. This will track into and increase the level of LHA rates which will be self defeating so far as cost cutting is concerned. The switch over to the CPI link for uprating will not solve this problem because it will simply exacerbate the situation by further decreasing the available supply and further reducing the overall income for benefit customers. (25) The consequences are that additional costs will fall on Government in other areas which will have the effect of cancelling out any apparent savings. Confidence on the part of landlords as providers is falling. The Government could go a long way towards reversing the current trends by restoring the former payment method, ie payment to landlords if the tenant chooses. This will help reverse the trend of a real fall in return on investment. C n lusi n 139. Whilst the RLA acknowledges the need to constrain public expenditure, we believe that the Government’s intended savings will either not occur at all or if they do will be offset by significantly higher public expenditure elsewhere. Just as important, we believe that as is so often the case these policies will have other consequences both intended and unintended. These consequences will either damage the social fabric and be so counter productive that whilst not always measureable in monetary terms will outweigh the apparent savings with the Exchequer. The major consequence will be the refusal by landlords to take on LHA customers as tenants and will also lead to eviction termination of existing tenancies once they have run their course. 140. It is vital to reiterate that it is not just these Government proposals but it is the current system of direct payment and tenants. One cannot over emphasise how hostile landlords are to this payment method for LHA. A major disengagement for LHA housing provision is already underway and this will be speeded up by the Government’s proposals in the emergency budget in June 2010 as these are implemented. The reduction to the 30th percentile will shut out many existing tenants from the LHA market anyway. Ironically those who can obtain accommodation even though they receive LHA rents will have to pay higher rents. This is already the

Work and Pensions Committee: Evidence Ev 107

trend as demonstrated in this evidence but inevitably as LHA accommodation in the PRS becomes more scarce rents will also rise. This will put up rental levels thus influencing LHA rates even though they are set at the lower 30th percentile. Moving over to up rating according to CPI will not end these difficulties because that will have different but just as adverse consequences over time. The Government’s agenda is one of fairness but do not think that these measures will achieve this. Se te

er 2 1 F rther written evidence s bmitted by the Residential Landlords Association

1. The Residential Landlords Association (RLA) is grateful to the Committee for receiving some supplemental evidence. As time did not permit we were not able to present this evidence when we gave oral evidence to the Committee. 2. This evidence highlights the particular impact of the removal of the £15 excess from those who are working. It indicates how they will suffer disproportionately which is another disincentive to work. 3. This situation has been drawn to our attention by Mr. Andy Sims who is responsible for managing housing benefits in Hull. 4. Those people who are on a means tested benefit and are not working (such as income related job seekers allowance) who currently rent a property below the local housing allowance (LHA) rate will receive the LHA rate up to a maximum of £15 above their rental liability. For example a person in Hull renting a one bedroomed property for £59 per week would currently receive £74 per week LHA. Thus, they would receive the full £15 per week excess. 5. In the same scenario with a person in employment LHA is assessed on a means tested basis. The means test as an example might decide that they would have £20 to contribute towards their rent. Currently, in the example which we have already given they would be assessed on the £74 LHA one bedroomed rate but would receive housing benefit of £54 ie the £20 contribution would be offset against the appropriate LHA rate. They would therefore have £5 to contribute towards their rent. However, under the new proposed regulations from April 2011 the calculation will be based on the actual rent ie £59 per week. If the means test showed that they had £20 to contribute towards their rent they would in future only receive LHA of £39 so they would have to contribute £20 per week towards their rent (instead of £5 per week previously). 6. As a result those on passported benefits who are not working will see the £15 reduction as a loss of income. Those working but on LHA with rent currently less than the LHA figure will view it as getting less LHA and having to contribute more towards their rent. 7. Two case examples are shown attached. Example 1 is a calculation based on the situation already outlined for someone who is in receipt of means tested benefit and not working. 8. The fundamental point of all of this is that when it comes to the working person the calculation is based on the actual rent paid and not the LHA rate, once the change is effective in April 2011. The person who is not working will simply lose the excess; whereas the tenant is in work and will end up paying a larger contribution to his her rent. ve

er 2 1 Written evidence s bmitted by Shelter

I. Summary — Shelter welcomes the committee’s decision to hold an inquiry into the changes in housing benefit (HB) announced in the June 2010 budget. HB is a major priority for Shelter both in our campaigning work and in our front-line services. Shelter’s services provide practical advice, support and innovative services to over 170,000 people a year, helping people with housing, debt and welfare issues through face-to-face, online and telephone services. In the 12 months to the end of June 2010, more than 3,200 people contacted Shelter services in England for help with problems with HB. — At Shelter we draw on our experience in front-line advice and support services in the development of our policy and research expertise. Over the past year Shelter has undertaken and commissioned extensive research into Local Housing Allowance (LHA) and most of the evidence set out here has been based on those studies, particularly a forthcoming report on the impact of the budget announcements on LHA claimants, commissioned by Shelter from the Cambridge Centre for Housing and Planning Research (CCHPR).42 Our submission also draws on Shelter’s 2009 study of the implementation of LHA, r W se ene t.43 42 43

Fenton, A. (2010) ill anges t al using ll an e affe t l in e tenants in rivate rented using Centre for Housing and Planning Research, Department of Land Economy, University of Cambridge. Frost, A., Corker, S., Reynolds, L., Albanese, F. (2009) r se ene t study nit ring t e i le entati n f l al using all an e Shelter

Ev 108 Work and Pensions Committee: Evidence

— Of the changes to HB that were announced in the budget, Shelter’s two greatest concerns are the change in the way that LHA will be calculated, from using the median to using the 30th percentile, and the up-rating of LHA by the Consumer Price Index (CPI). — The brutality of these reforms cannot be underestimated. The result will be a dramatic decline in housing affordability for claimants, driving many households into serious financial difficulty and forcing many thousands of children deeper into poverty. The CCHPR research reveals that 269,000 households may be put into serious financial difficulty by the cuts and 54,000 children will be pushed below the minimum income guarantee for benefits.44 — There is no evidence that the reforms will do anything to reduce worklessness among benefits claimants, as they do nothing to tackle the barriers that claimants face when they try to go into work. Nor can it be assumed that the reforms will lead to drops in rent; it is more likely that tenants will face significant shortfalls once their benefit gets cut. As a result we may see landlords exiting the market, levels of overcrowding will rise, and local authorities will be put under enormous strain by the increase in the number of people seeking homelessness assistance. Furthermore, the effects of the changes will get worse over time as LHA rates are gradually reduced in real terms. Claimants will be increasingly forced into concentrated areas of deprivation, away from jobs and opportunities. — The budget announcements fail to address the major underlying problems of (a) the critical shortage of affordable housing, and (b) the flaws in the private rented sector (PRS). The increase in the cost of HB over recent years is mainly due to rising numbers of people being housed in the PRS, where rents are almost double those in social housing. If we are to reduce the HB bill in the long term, we must build more affordable housing. — S elter re gnises t e ressure t a e uts and lear t e de it ut e elieve t ese ref r s ill nly generate greater nan ial and s ial sts in t e future In the light of new evidence of the impact these cuts will have on vulnerable people and families, we are calling on government to urgently rethink its proposals and present more positive solutions to the housing crisis. The government should also give far greater attention and funds to transitional arrangements that could mitigate the impact of any changes that are made. II. Evidence n entives t

r and a ess t l

aid

r

1. e ref r s are li ely t redu e t e nu er f lai ants in r The changes do nothing to tackle the existing employment barriers for out-of-work claimants and they will create new problems for claimants who want to get into work. The government justifies the reforms on the basis of fairness, saying that the changes will put benefits claimants on a more equal footing with working families as well as get more claimants into work. It is crucial to understand that HB is actually available to low-income working people as well as those who are out of work, and that nly ar und 12 f all lai ants are une l yed 45 It does not make sense to reform the whole system so as to change the behaviour of a minority of claimants. 2. Unemployed claimants have to overcome significant barriers if they wish to go into work: — S ar ene t it dra al rates which mean that they will not necessarily be better off in work. For every extra pound earned, 65 pence of HB is taken away, and in some cases people can face an effective marginal tax rate of over 90% — E tra sts associated with work such as travel, clothes and childcare. — A system that is ig ly sensitive to changes in circumstances, so that any fluctuation in income can affect a person’s entitlement and lead to delays in payment during reassessment, which can deter claimants from taking up temporary jobs or roles with fluctuating hours. — Within LHA, problems with t e ay r ad ental ar et reas s are dra n mean many claimants are forced to live a long way from the urban hubs where most of the jobs are located. 3. New research commissioned by Shelter from the Cambridge Centre for Housing and Planning Research shows that the reforms are not targeted in a way that is likely to lead to a significant increase in the number of LHA claimants in work. The opportunities for affected households to increase their incomes via employment will be limited, not least because the areas it t e st e l y ent rtunities nd n and t e S ut East ave t e l est r rti n 1 f une l yed lai ants If we take into account low demand for labour46 and high withdrawal rates (see above), it is unlikely that many of the unemployed claimants who will be affected will be able to secure a viable job that either leaves them any better off or negates the impact of the cuts. 44 45

46

Defined as the lowest income level guaranteed by current welfare arrangements. From the CLG Survey of English Housing 2007 08. NB: When the term HB is used this refers to all claimants in the social rented sector and private rented sector, including LHA claimants. According to the government’s impact assessment, the proportion of LHA claimants on job-seekers’ allowance is 21%. The average recent long-term projections of independent forecasters published by the Treasury in May predict negligible falls in claimant unemployment before 2013; the Office of Budget Responsibility s forecasts do not see unemployment rates returning to pre-recession levels until 2015.

Work and Pensions Committee: Evidence Ev 109

4. The cuts to LHA may even enhance the barriers that already exist for unemployed claimants. The majority of LHA claimants are already struggling to stay afloat, with living el t e edian verty line and most of them will have a reduction in the amount of benefit they receive. This will force claimants to move to lower-rent areas, meaning that many of them will have to travel furt er t get t r leading t ig er travel and ild are sts 5. The proposal to restrict the receipt of full HB for unemployed claimants to 12 months and then reduce it thereafter also does nothing to address the legitimate barriers faced by unemployed HB claimants, and it unfairly penalises people who are unable to find work. 6. In a recent speech, the Secretary of State for Work and Pensions made it clear that the primary challenge in the benefits system is to tackle worklessness by making work pay for benefits claimants. There are far etter ays t i r ve r in entives than cutting HB: — Address the HB taper and reduce the steep withdrawal rate for households going into work,as the Secretary of State proposed to do in the recent 21st Century Welfare consultation paper. (In a survey, Shelter asked claimants whether a continuation of the out-of-work rate LHA rate for three months after employment starts would help them consider going into work, and 58% agreed that it would.47) — Extend the current HB run-on or extended payment scheme, and introduce fixed period awards for in-work HB claimants.48 — Review BRMAs to ensure that they are drawn in a way that better reflects local economies and maximises employment opportunities. Shelter has been calling for this for some time, and the need to do so now is even more pressing. evels f rent 7. t ann t e assu ed t at t e uts t ill lead t a fall in rent levels The way landlords respond to the reforms will depend largely on their local private rented sector market, as well as on their own financial circumstances. Landlords operating in areas with high proportions of LHA claimants are more likely to drop their rent than those operating in markets with a wider choice of potential tenants. If offered the choice, many landlords will shift to the non-LHA market, and Shelter’s new evidence indicates that no more than half of landlords will cut rent levels in response to the reforms. The impact of this will be that LHA claimants will be forced to move to the lower rent areas, ie those places where there are already large numbers of claimants. LHA claimants will be increasingly concentrated in smaller areas, exacerbating spatial inequality across the country. S rtfalls in rent 8. Virtually all LHA claimants—just over a million households—will see a reduction in their benefit. Many use lds t at are urrently ar und and ust el t e verty line ill e us ed int severe verty as a result of changes to the calculation of LHA. The research Shelter commissioned from CCHPR estimates that 269,000 households will be put into serious financial difficulty49 by the cuts, including 147,000 families with children (a total of 258,000 children). The research also reveals that 84,000 households will be pushed below the minimum income guarantee for benefits, including 27,000 with children (a total of 54,000 children), leaving them with less than £100 per week to spend on utilities, clothing, food and other essentials. 9. Even before the cuts, many claimant households are struggling to find accommodation within their budget. The government’s own figures show that nearly alf f lai ants already fa e s rtfalls averaging al st 1 a nt et een t eir and t eir rent 50 Shelter’s research last year found that 95% of claimants are already struggling to manage their finances to some degree.51 10. Shelter is concerned about the transition process for claimants who will be affected by both the cut to the 30th percentile and the cap on the maximum LHA payable for each property size, particularly as the two reforms are to be introduced on a staggered basis. The caps will be introduced in April 2011, in response to which claimants may move house and enter into a new tenancy commitment, only to be hit a second time by the cut to the 30th percentile after October 2011. Therefore, we recommend that the introduction of the cap is pushed back to October 2011 so that the two reforms can be implemented together with less scope for confusion. 11. e de isi n t u rate in line it t e C is tentially disastr us and will, over time, severely exacerbate shortfalls. This applies both to the overall rates of LHA and to the rate at which the new maximum caps for each property size are set. Although rental costs are included in the CPI they account for only a small 47 48 49 50 51

Shelter r se ene t Both of these options were proposed in DWP (2009) Su rting e le int r : t e ne t stage f using ene t ref r Defined as those households who will be left with the lowest residual incomes following the cuts and will be very likely to be forced to move out of their current homes unless they experience either an increase in their income or a reduction in their rent. Parliamentary question 5 March 2010: http: www.publications.parliament.uk pa cm200910 cmhansrd cm100305 text 100305w0002.htm 10030529000282 Shelter r se ene t

Ev 110 Work and Pensions Committee: Evidence

proportion of the basket of goods’ used to measure price changes,52 meaning that the C as ist ri ally failed t in rease at t e sa e rate as average rents Between 1997 98 and 2007 08, average rents increased by 70%, but over the same period CPI increased by only 20%.53 The linking of LHA with CPI will mean large parts of the country will become no-go areas for people on LHA, especially those areas that provide the greatest employment opportunities for existing benefits claimants. 12. The fundamental, and radical, nature of this reform is to letely de u le fr using sts Unlike other benefits, HB in the PRS is dependent upon local housing markets which are subject to geographical variations in rent. Having access to a benefit that is linked to housing costs has been an important safety net ensuring that most claimants can access a roof over their heads in the area that they live. It is essential that safeguards are put in place to ensure that the reform does not eventually prevent many claimants from being able to afford anywhere to live at all. Evi ti ns and i

a t n

elessness servi es

13. As a result of the changes, an estimated 1 use lds ay e f r ed t ve ut f t eir e isting es including 72,000 families with children (a total of 129,000 children).54 When families are forced to move, this will mean children being uprooted from schools in the middle of term and torn away from their friends and communities, with irreversible impacts on their education and social development. The DWP’s impact assessment left unanswered questions about how the reforms will affect local services, including homelessness prevention teams. However, there is no doubt t at t e anges ill ut a nsidera le urden n already stret ed l al aut rity res ur es For example, under the current system is already takes an average of 23 days for local authorities to process HB claims, and this is likely to get much worse once the changes have been implemented.55 14. Many of the claimants who face serious difficulties will seek advice from local authorities on their options. The CCHPR research shows that it would st ar und illi n er year t r vide legal aid to 22% of the households who are likely to experience serious unresolved difficulties as a result of the reforms.56 Much greater costs will be incurred where local authorities are obliged to provide temporary accommodation to priority need households presenting as homeless as a result of losing their home due to the HB reforms. It would cost 12 t r vide l ng ter a dati n to 26% of the priority need households who will have unresolved serious difficulties as a result of the HB reforms.57 Households that lose their home due to the reforms but are deemed by their local authority to be intentionally homeless may be left with no support at all. 15. Local authorities often lease private rented sector properties to use as temporary accommodation, paying for them with an HB subsidy which is set according to the LHA rate for the previous 12 months. To ensure that this type of accommodation remains a viable option for local authorities it is vital that private sector leasing is exempt from the cuts. 16. Areas where few residents are affected may face an influx of claimants from other local authorities, especially if they are adjacent to badly affected areas. For example, London Councils has predicted that the introduction of the caps will us re e le t live in uter nd n as inner London will become almost entirely unaffordable for LHA claimants.58 This will place a strain on resources in those areas, such as schools, doctors, advice and homelessness services. 17. e in rease in is reti nary using ay ent ill n t e ade uate to help all households affected by the reforms. Analysis by the Chartered Institute of Housing (CIH) shows that in England DHP would support around 60,000 households claiming LHA who face the maximum loss from the 30th percentile change for one year (leaving nothing for DHP claimants in social housing). This is equivalent to just 1.5% of the entire caseload.59 Local authorities can also share the allocation with council tax benefit claimants, which will further deplete the pot. Managing a greater number of applications and the distribution of the increased DHP funding will also create extra work for local authorities, for which they will need to be properly resourced. 18. Shelter recommends that transiti nal r te ti ns be put in place to minimise the short term impact of these reforms on claimants and local services, including: —

52

est ra ti e guidan e for local authorities on drafting standard communications to go out to households affected; delivering a personalised approach for vulnerable households; and giving sufficient advance notice to households that will be affected.

In 2010 actual rentals’ were given a weight equivalent to 5.7% of the total basket of goods used to measure changes in CPI. http: www.statistics.gov.uk articles nojournal weights-article-2010.pdf 53 CLG Survey of English Housing 2007 08 54 Calculated by taking half of the number of households who will be in serious difficulties. 55 http: research.dwp.gov.uk asd index.php?page rti 56 30,000 households at £167 per case. 57 Based on 35,000 families staying in temporary accommodation for an average period of 38 weeks. 58 London Councils, using ene t a f r nd n ust e revised r nearly 1 fa ilies uld l se t eir es, press release 16 July 2010 http: www.londoncouncils.gov.uk media current pressdetail.htm?pk 1116 59 Chartered Institute of housing (CIH), rie ng a er n t e i a t f anges t using ene t and al using ll an e in t e udget , July 2010 http: housing.cih.co.uk memberbriefing housingbenefit-July-2010.htm

Work and Pensions Committee: Evidence Ev 111

—

dditi nal res ur es for local authorities to help them cope with the increases in claimants requiring assistance, to cover: rent deposits moving costs for households who have to move as a result of shortfalls; increased advice provision; and resources to proactively identify households most at risk

— Clari ati n f intenti nality guidan e to local authorities to ensure that those who fall into rent arrears as a result of LHA shortfalls and subsequently present to the local authority are not classed as intentionally homeless. 19. The government should also monitor the effects of the reforms on the PRS market over time, by looking at the impact on rents, landlord letting policies and geographic concentrations of tenants. Local authorities could also add a new category of had to leave home due to LHA cuts’ when they register people as homeless. andl rd

n den e

20. A 2009 survey by Shelter revealed that 60% of claimants found it difficult to find a landlord who was willing to rent to an LHA claimant at current rates,60 and the budget reforms will deter even more landlords from participating in this market. In August, Shelter commissioned a poll of landlords to assess responses to the HB budget announcements. early alf f all landl rds n let t tenants said t at t ey intended t s ale a t e lettings they make to LHA tenants in the future. 21. One way to encourage landlords to stay in the LHA market would be to reform the direct payments system by giving tenants the choice over whether the LHA gets paid to the tenant or direct to the landlord. Landlords have been very unhappy with the system of presumed payment to tenants, so changing this would offer an incentive for them to stay in the market. Shelter’s recent poll revealed that 32% of landlords who would not currently let to LHA claimants would consider doing so if LHA was not automatically paid to tenants. C

unity

esi n

22. It is likely that the ref r s ill lead t a signi ant ve ent f lai ants from higher to lower rent areas. These areas are likely to be relatively deprived and lacking in job or training opportunities, transport links, and good schools. With a smaller proportion of housing in each BRMA being affordable on LHA, claimants will be concentrated into much smaller areas, creating fewer mixed communities and greater socioeconomic homogeneity within areas. isa led e le

arers s e ialist

using

23. The new provision in HB for an extra room for carers of disabled people will mean that many disabled households will be better off. However, according to the government’s impact assessment s e fa ilies it disa led e ers ill a tually e rse ff after the changes, once the impact of the caps and 30th percentile are taken into account (most notably in Central London, Inner North London and Cambridge).61 lder e le large fa ilies and ver r

ding

24. Families on LHA who will not be able to find cheaper homes of the same size will be forced to move into smaller living spaces, increasing already severe levels of overcrowding. Currently, ne illi n ildren are living in ver r ded nditi ns across the country, and the reforms are likely to make this situation worse. Overcrowding is not just a problem that affects large families: the majority of overcrowded households only have one, two or three children. Likewise, the HB reforms will not just affect large households, but also much smaller families living in two, three and four bedroom homes. 25. t is i rtant n t t e aggerate t e en en n f e e ti nally ig rents eing aid t large use lds in entral nd n: the number of households claiming the maximum rate available (ie for a five bedroom property in central London) represents only 0.01% of the entire LHA caseload. 26. estri ting fa ilies t s aller use lds ill n t ne essarily result in savings t t e u li urse For example, in the Southern Greater Manchester BRMA a household comprising of two couples (parents and grandparents), three children between 10 and 15, and one child over 16 would be eligible for £182.96 per week at the five-bedroom rate. If the household split up and three separate claims were made62 (at the 30th percentile rate) the claim would cost an extra £5,566.60 per year.63 Also, many larger households include members of the extended family who are relied upon for caring responsibilities (e.g. for elderly, sick or disabled relatives). 60 61 62 63

Shelter, r se ene t http: www.dwp.gov.uk docs lha-and-carers-eia.pdf, p16 17 For i) grandparents; ii) parents and 3 children between 10 and 15; iii) child over 16 Valuation Office Agency, June 2010

Ev 112 Work and Pensions Committee: Evidence

27. The CCHPR research revealed that around 20,000 households containing over-60s will be put into serious difficulty by the reforms. It will be much more difficult for older claimants to increase their income in response to the cuts, and moving house is likely to be particularly physically and mentally disruptive for them, especially if they have been renting the same property for a long time. Se te

er 2 1 F rther written evidence s bmitted by Shelter

Introduction 1. One of the primary justifications made by the Government for cutting housing benefit (HB64) is the “ballooning cost”65. In fact, the cost of HB today forms a smaller proportion of GDP than it did throughout the 1990s, when the cost of HB in relation to GDP rose far more sharply than it has in the last five years. 2. The increase in the nominal cost of HB over the past few years can be partly attributed to a recent rise in claimants due to the recession and the consequent increase in unemployment. However, the other major factor is the increase in the numbers of claimants living in the private rented sector (PRS), the majority of whom now receive Local Housing Allowance. The number of HB claimants living in private rented housing has risen by close to 400,000 in the period November 2008 to June 2010—a rise of 39% in just 20 months. 3. Rents in the PRS are considerably higher than those in the social rented sector: on average, almost £2,000 more per year. Furthermore, average rents in the PRS have risen sharply over recent years, increasing by 70% between 1997 98 and 2007 0866, and while claim amounts have gone up at a similar rate, they remain below average market rents and below the rents claimants typically pay. 4. The very recent sharp increase in the cost of Housing Benefit in the PRS is a cause for concern (see Appendix II), however: (a) It has been caused by a combination of increasing numbers of claimants, due to the recession and Government policy to make greater use of the PRS; and, rapidly rising private rents. However, the amounts claimants receive in comparison to the rents they are paying, has in fact reduced over the last five years. (b) Housing more claimants in social rented housing (SRS), would be more cost-effective in the long run but requires significant up-front public investment. This would shift the UK government move toward capital rather than revenue subsidy for housing. 5. A further trend underlying the nominal increases in the overall cost of HB has been the huge shift of claimants from Local Authority owned housing to Registered Social Landlords, where rents and the proportion of tenants claiming are slightly higher, over the past decade. The Cost of Housing Benefit 6. The cost of HB to the Treasury in nominal terms has risen in the past two decades, but when compared to all benefits, and to GDP, there has been no clear rising trend and certainly no “ballooning”. The latest year of statistics does show an increase in spending relative to GDP, which is attributable to the recession and the rise in unemployment after 2007, but this is still well below the highs of the early-mid 1990s. In contrast, the HB bill increased significantly in the aftermath of the last recession—from 13% of all spend on benefits in 1992 to 16% in 1995. See ta le 1 Note: Sources for all tables at Appendix V

64 65 66

The term Housing Benefit is used to describe Housing Benefit in both the social and private rented sectors, including Local Housing Allowance in the Private Rented Sector, unless specifically stated otherwise. Iain Duncan Smith, ansard, 28 June 2010 CLG Survey of English Housing 2007 08

Work and Pensions Committee: Evidence Ev 113

Table 1

HB expenditure as a % of all tax & benefits, and GDP 18.0%

1.6%

16.0%

1.4%

14.0%

1.2%

12.0%

Housing benefits as % of total benefits and tax credits

1.0%

10.0%

0.8%

8.0%

0.6%

6.0%

0.4%

2.0%

0.2%

0.0%

0.0%

Housing Benefits as a % of GDP

1991/2 1992/3 1993/4 1994/5 1995/6 1996/7 1997/8 1998/9 1999/00 2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10

4.0%

u

er f lai ants

7 The overall number of HB claimants has not risen greatly in the last ten years (though there has been an increase since 2007 as a result of the recession). There are actually fewer HB claimants now than there were in the mid-nineties after the last recession. See ta le 2 Table 2

Trend in numbers of HB claimants, by tenure (’000) 6,000 5,000 4,000 3,000

All claimants

2,000

Number of SRS claimants

1,000

Number of PRS claimants

u

2009

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

0

er f lai ants in t e rivate rented se t r

8 The number of HB claimants living in the private rented sector (PRS) has increased significantly—by 69% (half a million claimants) since 2003, with most of this increase (400,000) coming in the last two years. New PRS claimants account for the majority of the increase in overall numbers of claimants in recent years, and nearly all of these will be in receipt of Local Housing Allowance. PRS claimants now constitute 31% of all HB claimants, compared to 18% in 2003. See a endi i and ii

ents in t e rivate rented se t r It is significantly more expensive to house claimants in PRS rather than in the social rented sector (SRS). On average, rents are almost £2,000 cheaper per year in social housing, and average claims in the PRS compared to the SRS reflect this difference. See a endi iii and ta les and

Ev 114 Work and Pensions Committee: Evidence

Table 3

Average rents, by tenure £140 £120 £100

Market average PRS rent

£80 £60

Average RSL rent

£40 Average LA rent

£20 £0 2000 2001 2002 2003 2004 2005 2006 2007 2009

Table 4

Average claims, by tenure (£ pw) £120 £100 £80

Average claim - PRS

£60

Average claim - RSL

£40 Average Claim - Loc Auth £20 £0 2000

2001

2002 2003

2004

2005

2006 2007

2009

1 The average level of rent paid by claimants in the PRS has been increasing in recent years. The amounts of HB paid to claimants, as a proportion of their rent, has in fact gradually reduced since 2004, and HB can be seen to be struggling to keep pace with rising rents, even though claimants tend to pay below market average for their housing. This shows that the rising cost of HB in the PRS is not due to HB pushing rents up, but rather that it is a product of the overall trend of rental inflation in the PRS market. See ta le

Work and Pensions Committee: Evidence Ev 115

Table 5

Average PRS HB claims, rents paid and market average rents (£ pw) £120 £110 £100 £90

PRS market average rent (SEH)

£80

PRS Claimants average actual rent

£70 £60

Average PRS claim £50 £40 2000

edu ing t e

2001

2002

2003

2004

2005

2006

2007

2009

st f

11 A greater proportion of HB claimants living in the SRS rather than the PRS would reduce the overall cost of HB for government. If just 8% (currently 100,000) of claimants moved from the PRS to the SRS, this would amount to an annual saving of nearly £200 million. Furthermore, HB expenditure in the SRS is, once maintenance costs are covered, reinvested in new housing stock or local infrastructure by local authorities and registered social landlords (RSLs), rather than going to private landlords. Public investment in housing also draws private finance into house building and, without it, private construction alone has never managed to reach the levels of building we currently require to meet need. However, given the significant shortage of social housing, shifting claimants from the PRS to the SRS would require significant investment to boost the supply of social rented homes. See ta le iv t er 2 1 APPEN I (i)

f

lai ants in

S

ear 2000 2001 2002 2003 2004 2005 2006 2007 2009 June 2010 (ii) rivate ented Se t r ill as a er entage f t tal

19 19 19 18 19 20 21 23 27 31 ill

ear 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

19% 23% 25% 27% 29% 27% 26% 25% 22% 19%

Ev 116 Work and Pensions Committee: Evidence

ear 2002 2003 2004 2005 2006 2007 2009

20% 20% 21% 22% 23% 24% 33%

(iii) nnual average lai

er

lai ant

2001 2002 2003 2004 2005 2006 2007 2009 (iv)

u

uld e saved y

u er f lai ants ved fr urrent S lai ants

S

S S

£3,349 £3,567 £3,718 £3,994 £4,259 £4,420 £4,623 £5,413

£2,493 £2,493 £2,573 £2,654 £2,885 £3,014 £3,182 £3,348

£856 £856 £994 £1,064 £1,109 £1,244 £1,238 £1,275

Esti ated annual saving

ased n urrent average lai a unts

ving lai ants fr St S S

f

ifferen e

St S S

100,000 (8%) 250,000 (21%)

£193,648,000 £484,120,000

(v) S ur es igures are s ur ed fr using evie 2 1 Wil C S 2 ta les 1 11 11 r dire tly fr W e site unless t er ise stated using evie is a se ndary s ur e i llates using and e n i statisti s fr a variety f ri ary s ur es e ain ri ary s ur es f r t e statisti s used ere are: UK National Accounts, Economic & Labour Market Review, Financial statistics Benefit Expenditure tables, DWP website, Annual statistical enquiries Housing Benefit and Council Tax Benefit Summary Statistics, Department for Work and Pensions Survey of English Housing, CLG t er 2 1

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