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What should be done about housing benefit? Matthew Warburton - 29/06/2012

piggy_bank_300Having made fundamental reform of the benefits system a flagship of the coalition's legislative programme and put deep cuts in benefit spending at the heart of plans for deficit reduction it may at first sight seem surprising that the Prime Minister is now talking about further and more radical reform in the next Parliament.

It isn't really. But, before accepting any argument that further cuts in housing benefit entitlement is the way to go it is worth taking a look at how housing benefit spending got to its present level and alternative options for reducing it.

As David Cameron pointed out, despite everything the government has done so far, benefits still make up nearly a third of public spending. No strategy to reduce the deficit can ignore them. Partly they are so high, of course, because Britain remains in the grip of recession; the economic projections which underpinned the coalition's original deficit reduction strategy have turned out to be hopelessly optimistic.

Tax revenue is lower and out-of-work benefits higher than expected. If short term deficit reduction remains the government's objective, more cuts are needed. Benefit spending appeals to many as a more attractive place to look for them than education or the NHS.

Housing costs have always been a bit of an anomaly in the benefits system, partly because they are too variable to be subsumed under a general benefit payment but too important to be ignored, and partly because government has always had two options in relation to help with rent - pay benefit or intervene directly to influence rents.

For much of the 20th century, private sector rents were limited by legislation, and council rents were much lower in real terms than they are today. In the 1970s, for example, the government spent four times as much subsidising an annual house-building programme of 100,000 council homes as it did on housing benefits.

The dramatic rise in housing benefit spending over the last thirty years has been a deliberate creation of government policies aimed to revive the private rented sector and shift the focus of public housing subsidy from bricks and mortar to means-tested benefits.

Current public spending plans provide £4.5 billion for affordable housing, but £95 billion for housing benefit. Cuts in housing benefit spending do not have to be delivered by reducing entitlement; the alternative remains of looking to influence the housing costs that households on low incomes face.

Even if reintroduction of rent controls in the private rented sector is judged unattractive or unworkable, the provision of additional social housing at sub-market rents - social or affordable - would help reduce the overall benefits bill to the extent that it provided opportunities for low-income households who would otherwise rent privately. These potential savings should be factored into the calculation of the public sector costs of a new social housebuilding programme.

In a report published last week the Institute for Public Policy Research made the interesting suggestion of devolving the whole system of housing support to local government, making them responsible for administering an affordable housing grant which could be allocated as locally judged best between bricks and mortar and benefits, and between the social and private sectors. It is an idea worth thinking about.


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