Housing Benefit should no longer have to ‘take the strain’ of support with housing costs
The announcement of a white paper on welfare reform has been described by Iain Duncan Smith as a ‘once in a generation’ change. Analysis of these proposals needs to be set within the wider context of the welfare system and particularly support with housing costs.
Successive governments have allowed Housing Benefit to ‘take the strain’ of support with housing costs. At the Building and Social Housing Foundation (BSHF) we are keen to highlight how other mechanisms, including housing supply and taxation, could be used more effectively to relieve the burden on Housing Benefit and ensure that everyone in the UK has access to decent and affordable housing.
Both the coalition government and opposition have rightly expressed their commitment to reforming the welfare system. The problems with work disincentives and the difficulty of controlling costs have been discussed at length. Housing Benefit also struggles to respond to the increase in flexible and short term working patterns which often lead to frequent changes in income for low paid workers. The welfare system has also failed to keep pace with the trend towards more fluid and complex household structures.
Many of the problems with Housing Benefit are direct results of problems in the wider housing system. The most obvious of these is the massive variation in rental prices across the UK. What makes this particularly important is that housing costs are usually both the biggest item of expenditure for a household and the most difficult to change. Trying to reduce the cost of housing often involves a costly move to an area with lower rents that breaks ties with a community and other types of support, such as schools and healthcare, and potentially access to employment.
Changing Housing Benefit on its own will not have the desired results. Housing Benefit is not the only type of support with housing costs provided in the UK. The provision of social housing at sub-market rents and favourable taxation of owner occupation are also major subsidies. Wider changes to all three areas of support and other aspects of the housing system are essential if Housing Benefit is to be financially and politically sustainable in the long term. BSHF has recently published a wide ranging analysis of support with housing costs covering Housing Benefit, housing supply and housing taxation. It is based on discussions between leading practitioners and academics held at St George’s House, Windsor Castle in June. The report makes three major proposals.
The first proposal is that the purpose and operation of Housing Benefit should be simplified to ensure that it is sustainable in the long term. Housing Benefit is being asked to achieve too many different objectives at the moment. It should return to its primary purpose of ensuring that households have sufficient income left over after paying their housing costs.
Secondly, housing supply, particularly social housing supply, should be increased to suppress price rises through a better balance of supply and demand. An under-supply of housing drives up rents as well as purchase prices, and hence is a major contributor to the cost of providing Housing Benefit.
Finally, housing taxation should be made fairer. Favourable taxation of owner occupiers represents a major subsidy that is rarely discussed. This foregone income of approximately £20 billion per year cannot be justified in a period when the government is seeking to quickly cut the budget deficit. Revenue raised from this measure could be reallocated to provide other types of support with housing costs.