Scrutiny of benefit bill should trigger building, not cuts

After lots of policy posturing over the last few years, Ed Miliband’s speech today set out the clearest indication yet on what a Labour government would do on welfare, a sensitive and tricky issue for the party.

The main points from the speech were that the Labour party is now going to be using the term ‘social security’ instead of ‘welfare’, they are looking into an overall cap on welfare spending, and were crystal clear that the housing benefit bill had ballooned because of successive governments’ failures to build enough homes.

While it’s welcome that Labour have acknowledged that the size of our housing benefit bill is directly related to our housing shortage, we are concerned about the lack of clarity over their proposed cap on spending.

Policy details are sketchy (as with the Government’s version) but it seems Labour intends to have a cap that responds to changing economic circumstances rather than an outright monetary cap.

But it’s unclear whether there will be more specific caps placed on housing benefit, and the criteria which would decide how flexible the cap would be in practice.

Our primary concern is that housing benefit simply cannot absorb any more cuts. Families are already balancing budgets where 40p each way makes a difference and homelessness – particularly arising from the private rented sector – is increasing.

Rather than become another crude cut for individuals, this has the potential to be a helpful policy feedback loop – and be targeted at the structural drivers of increased housing benefit spend. Rising housing benefit expenditure should have sounded a klaxon in government years ago, warning of the need to increase supply of affordable housing.

Instead it went unnoticed until the 2010 Emergency Budget prompted deep cuts, putting individuals who have just lost their jobs or fallen ill at risk of poverty and homelessness.

For nearly 40 years successive governments have effectively handed a major lever of housing policy to the DWP in the form of housing benefit, but have failed to back this up with sound strategy. Housing benefit policy had become wholly reactive and overly focused on topping up individual incomes, rather than investing in new supply.

This was a direct consequence of the decision to switch investment from new supply to individual income subsidies. This may have been the correct solution in the 1970s when Britain did have sufficient supply of housing.

But this has long since ceased to be the case, and a shortage of supply has increased housing benefit expenditure. Average rents for all claimants have increased but more significantly the proportion of households living in the expensive private rented sector has expanded, due to an under-supply of social housing caused by the lack of investment.

Unfortunately, whilst they’ve recognized the need to build, Labour has not yet committed to the wholesale investment in new supply that is necessary to address the structural drivers of housing benefit expenditure.

Mr Miliband has spoken of the need to reduce rents but suggested piecemeal solutions such as bulk purchasing to enable local authorities to negotiate rents. It is very unlikely that this will produce the sort of savings required. It also lacks ambition at a time when local authorities are crying out to be able to borrow more to invest in new housing.

Shifting investment from benefits to bricks will require investment in bricks first. This is challenging for governments: it carries an immediate price tag and it will take a while for new supply to translate to reduced housing benefit payments. But the fact that both Labour and the Conservatives are now exploring caps on overall welfare spending reminds us that costs will emerge one way or another.

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