Coalition plans to cap benefits will not work as intended, and are unnecessarily draconianby Tim Leunig / November 17, 2010 / Leave a comment
Published in December 2010 issue of Prospect Magazine
Policies designed to hit people who never work and have child after child will hit others too—not least children themselves. Photo: Paul Box/Reportdigital
Housing benefit is suddenly newsworthy. It costs £20bn a year and will rise to £25bn without reform. The government’s planned changes are sweeping. The most prominent is an absolute cap on rent: £250 for a one-bedroom property, £400 for a four-bedroom one. London’s mayor Boris Johnson says it will lead to “ethnic cleansing”; London’s former mayor Ken Livingstone that the Tories are gerrymandering, Shirley Porter-style. The Guardian’s Polly Toynbee worries that central London will run out of cleaners. All are wrong.
Yes, the changes will force some people to leave central London, but this is not ethnic cleansing. Provided that childrens’ educations are not disrupted, and excepting a few special cases, it is reasonable for society to refuse to fund people living in London’s best addresses. Ken’s gerrymandering argument is self-evidently absurd, as every voter moving out of one constituency moves into another. And cleaners can commute from zone three, just like other workers. If companies are short of cleaners, they can raise wages. Make no mistake: outside London people are shocked at anyone claiming £400 a week for rent.
But other changes are more brutal. Forcing all single people under 35 on benefits to share a flat, for example, is pretty harsh on the dyslexic child who didn’t do well academically despite trying and left at 16. After ten years of working in a supermarket he’s still got nine years to go before allowed a place of his own. Is that fair?
Even worse is the new £500 a week cap on all benefits for the unemployed, to apply from 2013. “Why should someone who isn’t working get more than the average person in work?” the department for work and pensions press officer asked me, adding: “it’s about fairness.” At first sight that argument is compelling, yet it is flawed. If a person in work receives the average wage and has a partner and four children, and lives in outer London, they will receive their earnings plus around £490 a week in benefits, giving a total weekly income of about £870. It simply isn’t the case that the unemployed get more than the employed.
Imagine this person now loses their job. Under the current system, they receive £715 a week in jobseeker’s allowance, child benefit, council tax benefit, child tax credit and housing benefit—a cut of £155 a week in their income. Under the proposals, they will lose a further £215 a week, to bring their income down to the £500 cap. This includes just £118 to cover their rent.
Imagine the family live in Tolworth, described by the Evening Standard as the “scrag end of Kingston Borough.” The cheapest four-bedroom property costs £317 per week. The younger children share a bedroom, while the two teenagers, one girl and one boy, get a room of their own. Council tax is £32 a week and gas, electricity and water come to the same amount. After those bills, the family has £119 a week to live on, or under £3 per person per day. No one can live on that. Evidently, this has not been thought through.
Worse still, there is no safety net for such families. If the government cuts your benefits and you can’t pay your rent, you not only become homeless, but are defined as “intentionally homeless,” (much as you may be deemed “intentionally jobless” if you don’t take work offered), which means that your local council has no duty to help you. Although the government is making some money available to local councils for special cases, it seems likely that these ad hoc payments will prove to be token.
This family is not unique. There are many with four children living in private rented accommodation costing over £118 a week. Pretty much all properties of a relevant size in London, the southeast, the southwest and the Midlands cost more. The closest places to London with lots of relevant property at that price are Sheffield and Merthyr Tydfil. Should all unemployed families with four children move to Yorkshire or the Welsh valleys? How will this help reduce regional inequalities?
The government will say that cutting benefits will cause rents to fall. No independent expert thinks this will be true to any extent—and no one could even pretend to think that rents will fall from £317 to £118. The landlord can let the property to students, or sell it on the open market.
Clearly, the cap hits people in private housing with large families hardest. It is easy to say that people who have never worked and have child after child are taking advantage, but designing policy to penalise this group will hit others hard too—not least children themselves. Moreover, having four children is not proof that you’re irresponsible, and people do lose their jobs. Unemployed families with three children will also lose £155 a week, and those with two children £100, pricing even them out of many parts of London and the southeast. Only those in social housing will be able to stay, increasing the divide between this group and other families. (Those in social housing are far more likely to be unemployed than people in other forms of housing. However that is not because of the entrapment effect of housing benefit, but rather the selection criteria for social housing.)
The government says that we are all in this together. As a higher-rate taxpayer with one child, losing child benefit makes my household about £1,000 a year worse off. Yet an unemployed couple with two children in my area will be about £5,000 a year worse off, and one with four children about £11,000 worse off. That is not fair.
The rise in housing benefit costs has not been caused by unemployed people having too many children and demanding larger houses. Nor has it been caused by rising unemployment: housing benefit costs increased during the boom. Instead, it’s the result of rises in house prices and rents. Those lucky enough to own a house gained. Those unlucky enough not to lost out, and now the government says that they should bear the brunt of the cuts.
We can easily allow more houses to be built. These do not have to be subsidised social housing, which we cannot afford. All we need is a reformed planning system so that more private homes are built. Basic economics is surprisingly reliable. If we build few houses, then prices and rents will rise. If we build more houses, prices and rents will fall. And when rents fall, the housing benefit bill falls with it, eliminating the need for draconian cuts.
Britain has a choice. We can restrict housebuilding, tolerate high house prices and pay a fortune in housing benefit to the poor. This was the last government’s approach. We can restrict housebuilding and restrict the housing conditions of the poor so that the housing benefit bill stops rising. That is the current government’s approach. Or we can sacrifice two or three per cent of the 80 per cent of our land that is undeveloped, and build enough houses so the vast majority of people can afford a place of their own. Yes, green fields are nice to have, but we have a lot of them—and the price we pay to keep each one is high house prices, people badly housed, and an out-of-control housing benefit bill. That’s not a price worth paying. We need more houses, and we need them now.