Devolving Housing Benefit?

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?

Reference

Gibb, K and Stephens, M (2012) Devolving Housing Benefit to Scotland – Discussion Paper. Chartered Institute of Housing (Scotland): Edinburgh

 

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Policy Scotland’s Contribution to the Smith Commission Debate

 The remarkable upsurge in political engagement during the referendum has been followed by a phase in which organisations and individuals across Scotland are preparing submissions to the Smith Commission. Smith is currently engaging in a wide consultation about what powers should be transferred to the Scottish Parliament, with the aim of obtaining a political consensus across all the main parties.

 Policy Scotland’s submission to Lord Smith raises a number of areas where more information and more thought is needed on the implications of changing tax raising and transferring welfare powers. Without this, the rush for a political fix for Scotland might result in an uneasy compromise that leads to instability. As we move forward to a devo-max or quasi federal solution for Scotland, the implications for the functioning of the Union as well as for the economic and social possibilities for communities, towns and cities, regions and nations across all of the UK need to be explored, bringing together the best research and leading thinkers.

 Our argument can be summarised as follows. In the past, ad hoc and asymmetric efforts at constitutional/structural reform have left the Westminster system largely intact, even as powers have been transferred. Despite devolution, the Union of Great Britain and Northern Ireland is one of the most centralised systems amongst western democracies, with unresolved tensions between levels of government and an unwieldy system of making public choices that many people in Scotland and increasingly in other parts of the UK regard as lacking accountability.

 Arguments about ‘devolution’, ‘localism’ and ‘subsidiarity’ may have different origins and levels of support in different parts of the UK. But underlying them are the same imperatives: downward shifts of autonomy away from Whitehall and calls for a new governance of Britain focused not just on the devolved nations but also on local authorities, especially in the city-regions. The implications of the transfer of powers following the Scottish referendum are not confined to Scotland. The question for the UK as well as for Scotland is how can relations between different levels of government be shaped in a way that addresses economic and social objectives such as improving competitiveness and increasing fairness, both real and perceived, in a Union that works.

 We have submitted a working paper to the Smith Commission http://policyscotland.gla.ac.uk/new-ideas-new-time-scotlands-place-new-union/

written by Duncan Maclennan, Des McNulty and myself. We propose a programme of events and debates which will we hope produce something greater than the sum of its individual parts – a structured ideas network that will provide the space to start thinking coherently about a range of devolution and decentralisation issues that go well beyond the additional funding and spending powers of the Scottish Parliament but rather addresses the fiscal systems, decision-making and substantive choices that could operate in a more coherent decentralised and quasi-federal system of nations, regions and local government in the UK. 

This debate is about mechanisms for pooling and sharing, equalisation and autonomy; it is about recognising the responsibilities of greater financial autonomy and the consequences and choices that go with that. We live in austere times; more powers don’t necessarily mean a net increase in resources but they could deliver better processes for making choices and improving competitiveness, provided that the right choices are made and the system of distributing responsibilities between different levels of government is coherent. 

The timetable and the political focus of Smith might not give adequate time for a full investigation of the issues we think are central to this debate about greater real autonomy. But we would hope to inform Smith and what comes after – the legislative process for Scotland, the thinking about city deals and how to reform the Union by bringing together expertise from the University of Glasgow, from civic and academic Scotland, and from strong international connections to federal and decentralised governance and fiscal systems elsewhere in the world. 

We do not pretend we have the answers to all the questions about institutional design, fiscal structures and how to best promote the economic and social justice improvements we are raising. But what we will do is develop a series of debates focused on the key questions and we will publish the main findings in specific papers, audio-visual materials and in a final report in February 2015 setting a road map for further work and engaging directly with the Smith Commission outcomes. 

We will be working on a programme of events of different sizes and types. Some of these we will run ourselves and others we will co-badge with partners. We will embrace local community levels of interest, as well as local government and metropolitan regions (and we hope talking directly to the concerns of Strengthening Local Democracy), as well as the Scottish and UK nations. We will avowedly take an internationalist and evidence-based approach, building on academic and policy links to countries like Australia, Canada, the United States but also important federal models in places like India and Nigeria and decentralising initiatives underway in France. Reflecting on this evidence, setting it in context and learning lessons will be essential to the work we will undertake. 

We will publish on our Policy Scotland website details and dates for our programme of events as they emerge. If any of these discussions interest you, please do get in touch. We will also publish outcomes and other materials from each event as we go along. 

During the Referendum, Policy Scotland played a neutral role enabling debate and providing a platform for the campaigns and other voices to contribute to the independence debate. In this critical post referendum period where time is at a premium and there is so little space officially for a more thorough-going consideration of devo-max, federalism and decentralisation, especially in terms of its economic, financial design and governance implications, we believe we have the opportunity to facilitate and support such a process of knowledge sharing and development. But this will be a genuine ideas network – we do not know where the debate will take us or what the answers might be. All we are doing is honestly framing what we think are the key questions and facilitating debate with leading thinkers from civic and academic society. We think it will be both important to the future but also a rewarding experience.

Note: this post was also published on the Policy Scotland website.

Housing Benefit: The Devil in the Devolution Detail

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.

Welfare Benefits and the Scottish Referendum

This morning the Institute of Fiscal Studies published an ESRC-funded study on the level and implications of Scottish welfare benefit spending, as well as the Coalition welfare reforms and the issues that would confront an independent Scotland (Phillips, 2013).  It is an excellent report and raises many important points in a studiously neutral way. Not surprisingly, both campaigns spun it their way. Interestingly, I have also been reading the new book on the economics of the referendum by Gavin McCrone. His lean text is a clearly argued and balanced assessment of the major issues, including welfare benefits. There is considerable common ground between the two authors, even if the campaigns appear to have been reading completely different IFS documents.

What are the main points? First, benefits account for about 30% of all government spend in Scotland and a little over 11% of GDP. State pensions are the biggest contributor followed by child and working tax credits and then disability living allowance/attendance allowance (i.e. in Scotland Housing Benefit is only the fourth largest benefit).

Second, benefit spend per head is higher in Scotland than Great Britain but the difference is shrinking (now only 2% more). However, IFS think that specific trends in ageing and disability are likely in time to increase once more the relative welfare spend per head in Scotland relative to GB. Expenditure on disability benefits per person is 22% higher in Scotland.

So, what explains these differences? IFS point to:

• An age profile that has more older people and fewer children in Scotland
• A higher level of disability benefit claims at all working ages in Scotland as well as the larger proportion of older households (who are more likely to be claiming disability-related benefits)
• Housing benefit costs less in Scotland because the private rented sector is smaller (where HB costs are typically much higher) and the larger social sector in Scotland has lower rents than in GB.

A further consequence is that Scotland has been marginally less affected by the welfare reforms underway and anticipated out to 2015 (a 1.6% fall in household incomes compared to 1.7% in GB). This is again due to lower rents but also the income distribution in Scotland which lessened tax changes, and also because of the larger share of pensioners (who are generally less affected by the changes compared to working age households).

Finally the IFS considers SNP reform proposals should there be independence and argues that reversing the bedroom tax changes would cost about £50 million a year and while that might be ok, they argue that keeping the triple lock for basic pensions would become very expensive in the long term, as it would tend to push the basic pension up relative to average earnings.  They also point out that independence would create the opportunity to improve on some of the less well designed reforms e.g. the benefit cap, uprating local housing allowances capped at CPI and separating council tax benefit from the rest of the Universal Credit. The yes campaign made much of this in the media today but it is important to note that the IFS argue that there are better ways of making the same savings in each case – not reversing them. The IFS are also skeptical about the feasibility of having more radical reform of welfare benefits based on an enhanced contributory principle.

McCrone makes several additional points. First, it is important to recognise the broader need to reform the welfare benefits system to remove anomalies, simplify and reduce poverty traps, but he notes that this is a very difficult context within which to undertake it, one likely to worsen the position of many of the worst off in society. The underlying need for reform is often lost in the heat of the battle over the shape the cuts and reform are presently taking. McCrone notes the large number of losers even within the DWP impact assessment – which has a small net benefit overall. Like many others he is concerned second with the reforms to disability benefits and the hardship they cause to so many of their client group.

Second, he argues that even without independence there is a case for devolving certain benefits, such as: Housing Benefit (since the rest of social housing policy is devolved), maternity allowances, TV licenses for the over 75s, industrial injuries benefits, attendance allowance, widows’ benefits and carers’ allowance (a case can even be made for the new personal independent payment replacing DLA, and severe disablement allowance).

I have argued elsewhere (with Mark Stephens) that HB should not be devolved unless as part of a wider set of income-related benefits. Moreover, McCrone himself acknowledges that long term demographic trends will increase the cost of these benefits and that will have to be paid for out of higher taxes or cuts elsewhere (or economic growth). If Scotland is independent this will have to happen to a large extent (depending one presumes on the exact parameters of any post-yes vote negotiations over basic pensions), as it would with a pure form of fiscal autonomy. McCrone argues that if there is a no vote, there is a case for something akin to Purviss’ devolution-plus – increasing the taxes raised in Scotland beyond that proposed by the 2012 Act, including a share of other taxes via assigned revenues – to increase accountability and reduce the dependence on the block grant from Whitehall. If so, the increasing cost of local management of devolved benefits would be more transparent, localised and credible to the rest of the UK[1].

Welfare benefits will be one of the touchstone issues for the referendum – and it is one which the yes campaign thinks they can make effective progress with (as they will also do regarding the growing English Euro-scepticism and the prospect of a vote to leave the EU after the UK general election). What the IFS report shows, as does Gavin McCrone’s book, is that welfare reform is a thorny complex multi-faceted area, beset by issues including long term demographic patterns and connections to other areas of social policy like housing, disability and ageing. Whatever happens in the referendum, it will, as with so many other issues, remain highly problematic and no constitutional solution will remedy it of itself. Far from it. As with other economic and financial policy areas – the resourcing trade-offs between taxes, spending cuts elsewhere and economic growth will shape what is possible if, as seems likely, there will be a natural growth in welfare spending.

References

McCrone, Gavin (2013) Scottish Independence: Weighing up the Economics. Birlinn: Edinburgh.

Phillips, David (2013) Government spending on benefits and state pensions in Scotland: current patterns and future issues. IFS Briefing Note BF139.

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[1] Alongside a needs assessment for relative spend for every devolved country and English planning regions to replace Barnett.