Housing Benefit: The Devil in the Devolution Detail

by Ken Gibb

IPPR has suggested that in the event of a ‘no’ vote, further devolution should include transfer of Housing Benefit (HB) to the Scottish Government. This work by Guy Lodge and Alan Trench was trailed in the Scotsman last weekend and published by IPPR on Tuesday (Devo More and Welfare: Devolving Benefits and Policy for a Stronger Union) and is a proposal receiving support and consideration in many quarters. The point is made that housing policy is devolved but in one respect it is not – the welfare payments that are so important to rental income. Cannot housing be dealt with more comprehensively if wholly devolved? At the same time, the widely recognised dislike in Scotland of the Coalition Government’s welfare reforms, especially the bedroom tax, has galvanised opinion and interest in welfare policy reform both from those who favour independence and those who do not.

The essence of their proposal can be summarised thus:

  1. There is no strong argument for devolving those benefits which are a core of the UK’s social union.
  2. But devolution of some aspects of welfare benefits could improve social and economic outcomes by among other things providing more joined-up policy.
  3. Housing benefit should be devolved because it is so closely linked to social housing policy and the housing element of Universal Credit should be separated where such HB devolution has occurred.
  4. The Work Programme and the child care element of Working Tax Credit could also be devolved, as could Attendance Allowance.
  5. Devolved governments might also be given a general power to supplement UK welfare benefits funded from devolved budgets.

Clearly one needs to accept the authors’ fundamental position on the referendum i.e. the position of devolution-plus and the social union. I think that their argument for devolving the work programme and attendance allowance – integration of funding and service delivery and joined-up programmes, most of which are already devolved – make a lot of sense. But I remain unconvinced about what they propose for Housing Benefit although it is more developed than was the SNP’s pledge to devolve HB in 2011.

The authors persuasively argue that devolution of welfare has to meet a series of internally consistent criteria. They accept that HB is to an extent counter-cylical but put this is wholly down to rents going up in the Private Rented Sector. They contend that social housing policy and property tax policy is devolved (or will be shortly) which helps their ‘integration’ case. They also build on the wider IPPR housing policy proposal that devolved governments (or local authorities) that makes a case for combining supply subsidies and HB in a single grant which can then be used with discretion to meet housing need – and thereby reverse the decline in supply subsidy relative to demand subsidy. They also propose that the devolved government should have the power to supplement HB funded from devolved funds.

I would make a number of responses to the report. First, if the cyclical element of HB is primarily down to the rental market why not just devolve HB for social housing – would that not fit better with the integration of social housing policy? Second, I agree that devolution can breed policy innovation that can have wider UK-level benefits so reform should support that capacity. Third, providing supplementary powers to add to welfare benefits (and potentially reduce too?) is interesting but is paid for directly out of the devolved budget. By the same token, the Scottish Government will need to effectively negotiate the change to the Block grant or increase in assigned tax revenues or tax powers that would fund long term changes associated with greater welfare benefit powers. This is a one off decision with long term consequences and not in any sense a straightforward calculation.

I have three more critical points to make. First, on balance I disagree that housing is quite as devolved as is suggested. In particular, mortgage lending and lending to social housing is not devolved; neither is the wider tax treatment of home ownership or that of private renting. I do not think we can talk about integrated policy if we are only looking at one sector of an inherently interdependent system. Second, I fundamentally disagree with the idea of combining benefits and supply subsidy and providing it locally. I think this will lead to a proliferation of local means tests (like it has in England with council tax reduction and in higher education) and there are massive transitional issues for benefit recipients. I would have thought the experience post 2010 of attempting to implement redistributional welfare reform should be a cautionary tale.

Third, we need a different big picture or vision about benefits – and I think that requires a  radically recast HB and would be done so in order to overcome its remaining major structural problems that were there before IDS and are still there now. My own end point for welfare benefits would be a more generous general cash benefit and a much more constrained housing allowance. But that is about a radical change in direction. Ironically, UC could be the precursor to the cash element. I do not, however, for a moment think that my proposal could or should be rapidly introduced. It needs to be phased in, transitional effects damped, and would emerge after a consensual political process designed to develop a comprehensive approach to the relationship between general cash benefits and specific housing support. We presently rely on housing benefit to do two things that seem increasingly problematic: allowing for a miserly cash benefit by meeting all eligible housing costs for the poorest and, increasingly, playing a role compensating for low wages for the poor in work. Neither of these outcomes makes for a better housing system or ‘make work pay’. A substantially larger cash allowance and a more targeted tenure neutral housing allowance aimed at affordability considerations would be a better goal.

Finally, I should declare an interest. After the 2011 Scottish election, Mark Stephens and I wrote a short paper on devolving HB for CIH/SFHA as a result of the SNP’s election manifesto pledge. We argued that it is not sufficient to simply move the responsibility of a welfare benefit, the point is to actually develop a more efficient and progressive form of income-related housing subsidy. We argued that simply working with the same level of HB funds in a context of austerity greatly reduces the scope to do something worthwhile with these new powers; otherwise, there will be an invidious combination of winners and losers. Clearly, IPPR have considered this via their proposed supplement but it is not for me really enough. Instead, Mark and I argued that rather than seek to use such an opportunity to ameliorate the bedroom tax or otherwise tinker with benefit levels at the margins of budgetary discretion, we should consider what is required to make a systematic step change.

The IPPR report is a thoughtful and considered contribution from the devo-plus perspective. I think it moves us forward even if I have specific issues with key aspects of what they propose. While I might not agree with the specific housing subsidy proposal I do think we should be thinking more boldly and debating wider reform as a result of both the DWP reform programme and the opportunities created by the constitutional debate. Yesterday, Vince Cable gave a lecture on the economics of the independence vote at the University. I asked him what he made of the IPPR proposal and he indicated in principle support for devolving tax and benefits subject to  proper assessments of their individual impacts and a sense of thinking though their unintended consequences.