Devolving Housing Benefit?
by Ken Gibb
Yesterday, finally, we published a report that has been evolving (or devolving) for the last 7 or 8 months. The paper, written with Mark Stephens and Janice Blenkinsopp, was for Shelter Scotland and concerned itself with the devolution of Housing Benefit (HB) and the long term rebalancing of housing subsidy. It built on Gibb and Stephens (2012) paper on the future of Housing Benefit after the 2012 Act (following the Calman Commission). We started the work before the referendum and had subsequently to cope with both the Smith Commission proposals and the Draft Clauses of the post-election bill on constitutional change, each of which had direct relevance to the substance of our think-piece. It has not been easy to keep up.
What does the paper say? First, it points to the long term shift that meant that while housing supply-side subsidies to the social sector amounted to 80% of all housing subsidy in the 1970s; today, around 80% goes to housing benefit. This does little to support the supply of new housing. Second, the paper lays out the well-known problems and conflicting objectives of what is both an income maintenance (residual income) policy for the DWP but also at the same time an important engine of housing policy. We set out the weaknesses with the existing system in terms of disincentives to work, the blunting of housing choices and the tendency for its costs to rise with rising rents and lower wages. Much of this has been brought into sharp focus by welfare reform but the underlying structural problems remain.
There are therefore two questions to think about. First, how do we improve the design of Housing Benefit and help shift subsidy more to supply-side assistance? Second, do the opportunities presented by further devolution post-referendum offer new opportunities to devolve HB and take control of it in order to achieve better outcomes for low income households? Devolving HB would mean separating it from Universal Credit (UC) when it is fully introduced but actually doing something progressive with it will require more resources. These would need to come from more taxation either from economic growth or new taxes, greater borrowing or shifting priorities within the existing programmes of devolved spending.
This would also be advanced if the Scottish Government had control over a wider set of means-tested benefits in order to over time move towards a more coherent housing benefit system. However, a progressive shift will require a sustainable financial settlement and wider devolution of benefits – neither are arguably on offer as a result of where we currently stand in terms of the powers implied by the Draft clauses.
The paper recommends that in the short run, HB should be excluded from Universal Credit. Second, we should build up over time a general housing element with the mainstream cash benefit (UC or its successor) with a view to add a separate smaller housing allowance to help with affordability pressures. This will require a wider devolution of means-tested benefits. We recognise the need for careful lengthy transition to protect losers from this process of change. But it can be done if there is a will. We recognise also that Scotland will have a wide range of taxes under its control and this may be widened subject to the outcome of the local tax commission and we would recommend that there is wider shift towards taxing land and property and, to the extent it is sustainable, reducing tax rates on the productive economy.
These proposals are not without their difficulties. Yesterday, Shelter Scotland hosted a roundtable to discuss the implications of this report. Several points were made that struck me as important or at least worthy of further discussion.
First of all, housing Benefit will not be devolved as a result of Smith and subsequent draft legislation. Rather, the Scottish Government is given the power to amend aspects of the housing cost element of Universal Credit – the latter remains reserved. Furthermore, making key changes like abolishing the bedroom tax, which is explicitly identified as a possible power, will still have to be paid for. That is not to say that there are not important powers. There are but these are more about the ability to maintain direct payment of HB to landlords. Moreover, Paul Spicker made the important point that the Draft Clauses significantly weakened Smith by removing the ability of the Scottish Parliament to top up reserved benefits or to create new benefits.
Second, why do we want to devolve HB? Is it devolution for a purpose? The momentum for this policy was the bedroom tax but, despite its justified unpopularity, it is hardly the basis for such devolution. And to reiterate: devolving HB by itself will not produce a radical progressive alternative, let alone a well-designed incentive-compatible one. Should we not be thinking more about the social security system as a whole (including the social union arguments about pooling risks) and where we want to get to with the housing system as a whole? The argument is often made that housing policy is ostensibly devolved and this should be matched with the key source of funding and income to make housing policy work. I think it is more complicated than that but more widely the case for devolving must be to actually significantly and sustainably improve the housing system as a whole. That case, ironically, has not really been made by the constitutional protagonists.
Third, rebalancing housing subsidy is worthy but difficult – it needs long term consensus (my regular refrain) and a willingness to run a policy that will have transitional damping of the losses many might face. This is precisely why we need a wider long term strategy for the housing system as a whole – it cannot be done piecemeal.
Fourth, doing research in real time can be a little bewildering in the context of devolving social security. What is more, we are now in a general election period and even after that we will then run into the Scottish election next year. It is certainly a lively and engaged time in terms of policy aims and the political discourse but this does not unfortunately equate to better long term coherency of policy making. It just might be a necessary condition for better policy to the extent that it helps create an environment where people are more willing to think about policy more creatively. Perhaps? Similarly, as a result of the income tax and VAT proposals, Scotland will be fiscally highly-decentralised – who knows how these powers will actually change the policy positioning of those soon to be responsible for revenue as well as spending?
Gibb, K and Stephens, M (2012) Devolving Housing Benefit to Scotland – Discussion Paper. Chartered Institute of Housing (Scotland): Edinburgh