Yesterday we published figures showing how vulnerable working families are to job loss. One in three working families told us they could not afford to pay their rent or mortgage for more than a month if they lost their job.
It’s not surprising that so many families feel ill-equipped for the proverbial rainy day. Nearly half of parents told us that housing costs were the biggest strain on their budgets and we know from previous research that nearly half of renters are paying such high rents that they can’t afford to put anything away each month. Combined with sluggish wage growth and the fact that one in five employees are low paid, working families are struggling to provide their own safety nets.
With struggling families on their own, attention naturally falls to government safety nets. Luckily, financial support is available through the benefit system for those who suffer a drop in income. At Shelter we welcome this, and see first-hand that access to adequate benefits in a timely manner can be the difference between a family losing their home and staying in it while they get back on their feet. And despite the often negative public debate on benefits, it’s a function the public do support: three in five people agree the government should be responsible for providing financial help for those who are out of work.
This raises the question, however, of whether the welfare safety net is adequate to meet people’s needs. Compared to average wages of £500 per week, a JSA payment of £73.10 for single adults over 25 can seem like scant support.
At Shelter we’re most interested in whether someone can keep their home during a spell out of work. For renters, it’s very welcome that housing benefit is available promptly, including for people in-work but who suffer a drop in earnings. This responsive safety net is why, traditionally, homelessness doesn’t spike among renters during an economic downturn.
But for this system to work effectively it has to reflect the costs of rent, and this is where we become concerned. Housing benefit for private renters has been systematically cut since 2011 and now bears no relation to the rising cost of rent. The new government inherited a risky four year freeze to support, which we predict will leave families in four-fifths of areas with a shortfall between the maximum help they can receive and the rent they’re likely to pay.
With the loss of a private tenancy already driving up homelessness and families telling us how difficult it is to find somewhere affordable to rent, we’re concerned that the four year freeze will push the system to breaking point. We hope that it will be high on the list for the new secretary of state at DWP to review.
Also of concern is a change that effects new benefit claimants – precisely those people who may have recently lost a job without savings to buffer them. Under housing benefit, households were protected from caps and other restrictions to support for the first 13 weeks of a claim, provided they had previously paid their rent independently. This gave much needed protection for the newly unemployed and ensured that the safety net reflected their costs. However, this has been ditched under Universal Credit, making the support short-term jobseekers receive markedly less generous.
Housing benefit isn’t available for mortgage costs and the support available for homeowners is limited. People claiming income replacement benefits can claim support for their mortgage interest costs but only after a waiting period. Generally speaking lenders have acted responsibly in recent years and supported borrowers during this tricky period. But in April this year the waiting period was increased from 13 weeks to 39 weeks. Coping with costs unsupported for nine months is a difficult ask and we hope that the government will keep this under review if repossessions start to increase or the economy falters.
Over the long term, perhaps it’s time for a broader re-think about how to support people during unemployment. Other countries do much more to cushion the drop between earned income and support. For example, Denmark has a far higher replacement rate for people who have lost their earnings. There’s also a valuable debate to be had about personal income protection products, particularly for homeowners. Should there be more expectations on households taking on large amounts of debt and financial risk to protect themselves against a dip in income? Or should we expect the state to better subsidise people to keep both a home and an asset?
In the short-term though, it’s vital that the new government takes this opportunity to review the safety net available and ensure that families don’t feel they’re on their own if the things take a turn for the worst; they need the reassurance of knowing the government is on their side to stop a stumble turning into a catastrophe. It’s not acceptable for one in three working families to feel so vulnerable to homelessness and they need the reassurance of an adequate welfare safety net.