Pay to Stay tapers - a policy not for u-turning

The front page of this weekend’s Observer newspaper declared that “ministers are planning to modify hugely contentious elements of the housing reforms the chancellor announced last summer” – namely the proposals for Pay to Stay. The paper said that the “partial U-turn, while unlikely to satisfy all critics of the policy, means that rather than social housing tenants facing massive rent rises once their household income rises above £30,000, a tapering system will mean that those who earn just over £30,000 will pay only “a few pounds extra a week”.

The Observer is right that a complicated system of tapers is unlikely to satisfy critics of the policy but, despite having read it several times, we are still looking for the U-turn.

As we have said before on our blog, Shelter is not against the principle of some social housing tenants paying slightly higher rents, depending on their income and household need. But we are very concerned that doing it in this way risks taking a sledgehammer to a nut and finding there is little of the nut left at the end. The Observer piece makes out that the Government’s decision to look at a system of tapers to soften the edges of the policy is somehow new, a U-turn. But it has always been the Government’s intention to consider tapers – indeed they expressly asked for comments on how such as system could be made to work in their consultation last year.

We have set out our thoughts on tapers, and Pay to Stay in general, here. It all boils down to the housing benefit bill and work incentives, where a ‘few pounds extra a week’ makes all the difference.

Lower social rents play an important role in work incentives, by stopping lower earning households needing housing benefit, meaning that they keep more of any additional income that they earn. Setting the income threshold as low as £30,000 or £40,000 would mean that families will find themselves with weak work incentives throughout their working life. It would also mean that an increase in rent could push them back into dependence on housing benefit.

A system of tapers, as suggested by the Government and highlighted by the Observer this weekend, would go some way to address this – but it is hard to fathom how a system of intermediate thresholds and tapers would work, without becoming so complicated as to remove any incentives to work.  This cannot be the Government’s aim.

Work incentives can be affected by factors such as the extra costs of travel or childcare, and tapers can have a real impact on whether work is financially and practically worthwhile. Although a gradual increase in rents as incomes rise does seem fairer than blunt thresholds, tapered rent rises must be set to ensure that tenants still see financial gains for earning more. As a starting point, tapers should be no higher than current benefit tapers (65%), which can already lead to work disincentives.

Multiple thresholds, though potentially simpler, run a risk of creating cliff edges where for each additional £1 earned, a household would lose more than this in their net income as a result of a rent rise. Introducing a new rent taper alongside a Universal Credit taper, however, runs counter to UC’s aims to simplifying the benefit system and improving work incentives. Many households will struggle to understand why increasing their earnings will affect both their rent and their Universal Credit entitlement, which are interlinked.

The only straightforward way to prevent a rise in the housing benefit bill and significantly reduced incentives to work is to exempt households entitled to housing benefit or universal credit from Pay to Stay completely. We look forward to the Government coming up with a scheme that convinces us otherwise.