In yesterday’s speech to the Conservative Party Conference, the Chancellor proposed freezing working age benefits for two years and a reduction in the overall household benefit cap from £500 to £442 a week.
The freeze is likely to apply to a wide range of benefits, from jobseekers allowance and income support to tax credits and Local Housing Allowance rates. Disability and pensioner benefits are likely to be excluded. The rationale is that people claiming benefits shouldn’t see their income increase more than those in work, and there has been little or no wage growth for many people for years.
But this somewhat misses the point, because 41% of working age (16-64) LHA claimants ARE working taxpayers. With many families now limited to renting privately and private rents still shockingly high in many areas, people in low paid work need LHA to bridge the gap between their earnings and their rent. But the failure of LHA to keep pace with private rents means that it’s becoming more and more difficult to do so.
A further freeze would compound the broken link between real rents and benefits. LHA has already been subject to a series of cuts:
- set to the 30th percentile of local market rents;
- frozen for 2012/13;
- increased in line with CPI rather than RPI inflation from April 2013;
- limited to 1% rises from 2014 to 2016.
Last year, Shelter warned of the impact that the 1% limit would have on ordinary families. We gave the example of the two bed LHA rate in Solihull, which was £147.40 pw last April. With a 1% cap, this will increase to just £150.36 by next April. If LHA rates had increased by CPI inflation, they would be £4.20 a week higher at £154.56. But rents usually rise even faster than CPI. So by April 2015 the rate paid will be £11.88 below where we expect rents in the bottom third of the market to be.
This all means it will become more and more difficult to find a landlord willing to let to people on LHA. We’ve already seen landlords publicly evicting all their tenants on benefits for this reason.
Even if you find a landlord willing to take you on, the lower benefit rates may well not cover the rent, which means having to cut back on bills or food. Recent Shelter research shows that 625,000 low income households have missed a recent essential household bill and are falling through the safety net.
For those who can’t find an affordable private rented home, turning to the council for homelessness assistance is the last resort. But even being accepted as homeless and receiving council help does not mean the end of your problems. The ending of a private tenancy is now the cause of 30% of all homelessness cases, yet councils are increasingly having to send homeless people back to the private rented sector, raising the prospect of a revolving door of eviction and homelessness. The use of expensive B&B for families is already at its highest level for 11 years.
A reduction in the overall household benefit cap will also apply to temporary accommodation for homeless families. In order to find affordable places, councils will have to look further and further afield. Last week’s homelessness statistics show that a quarter of those placed in temporary accommodation are sent to another area – the highest level since records began in 1998.
For larger families caught by the cap, there is simply no affordable accommodation. A couple with three children will have £176 a week to cover rent and council tax and those with four children only £111. Short term funding for discretionary housing payments, temporary assistance for those struggling with shortfalls, is beginning to run out, leaving councils to bridge the gap from their own stretched budgets.
The failure of successive governments to build enough genuinely affordable housing has pushed more and more families into private renting, with housing benefit taking the strain. But existing restrictions mean too many are now falling through the safety net. If these new proposals take effect, many more families will feel the strain and councils will be left picking up the pieces. As the election looms, the parties have a challenge getting to grips with fixing the welfare system. The question the public will rightly ask themselves is whether the proposals currently on offer are fair.