Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Category: housing benefit

Scottish Welfare Benefit: Using the New Powers

The Scottish Government last week announced the first use of its new devolved powers over welfare benefits. The 2016 constitutional legislation gave Scotland power over specific benefits amounting to around 15% of all benefit spend in Scotland as well as powers to top up and create new benefits in most areas (though not pensions) which would be funded from within Scotland, as well as discretion to amend specific benefit rules in certain ways as they apply to the application of Universal Credit. 

While not underestimating in any way the importance of the devolved benefits to their recipients, it is in truth the medium term development of top-up, new benefits and the use of these discretionary rules that will mark out Scotland’s own path on welfare benefits mostly distinctively. And of course this will also be where the political debate will be most intense.
A strand of the party political discourse in recent months has been the Government’s reluctance to take on the new financial powers and use spending, tax and benefit powers to pursue a range of home-grown policies. In truth, there are plenty of reasons not to alter radically income tax rates, contemplate fundamental reform of council tax or spend block grant at the margin on extra benefit spending. The overall budget is undoubtedly under pressure which makes extra spending more difficult. Equally there is caution over raising taxes or being seen to threaten property owners via local tax reform. Third, Scotland has a minority government where tight votes over budget issues and their implications have to be carefully thought through. Fourth, the new benefit powers require new local policy and service delivery infrastructure that cannot be rushed – delay to the full devolution of benefits is inevitable and should not be surprising.
It was in this somewhat risk-averse context that it was encouraging to see the Scottish Government last week announce that it would (a) look at moving the frequency of Universal Credit payments to be shortened to fortnightly rather than monthly (with scope to consider who receives the payment too) and (b) that the rental element of Universal Credit could be paid direct to landlords, both social and private rental providers. These are low hanging fruit in the sense that they are relatively simple and low cost but they are important to the people affected, symbolic of what is possible and in the current circumstances, offer sensible policy development.
The direct payment issue is an interesting topic. Private landlords have longer experience of tenant responsibility for making rent payments but both social and private will undoubtedly welcome the security of payment offered by rent paid direct. It was always apparent that vulnerable households and people already in arrears should be exempt but that begs further questions about definitions of such categories and the opportunity cost of setting up systems to manage them and to prepare social tenants for payment responsibility. One might in principle want to shift over time cautiously  to a system of tenant payment responsibility but this is simply not realistic at present or in the foreseeable future. The benefits of direct payments to landlords far outweigh the cost.
The big challenges remain – in particular, for housing costs, removing the ‘bedroom tax’ and contemplating increasing the levels of housing costs covered by Universal Credit. These will have direct spending implications (though will be offset in the case of the bedroom tax by reducing the need for discretionary housing payments to go to help tenants meet the spare room charge as well as other contributions from the Scottish Government). But we do have a start in the announcements made last week. And, as Frank Herbert once said ‘a beginning is a difficult thing’.

Welfare Reform and Devolution

 

I was part of a panel at the Social Security Committee of the Scottish Parliament today talking about their work programme priorities for the next five years. It was particularly attractive as a session because Steve Fothergill from Sheffield Hallam was first presenting new evidence  on the impacts of the post Coalition Government welfare reforms on Scotland. However, train problems on the way to Edinburgh meant I only heard his discussion session with the MSPs. In this  post I am going to go over his and Christina Beatty’s findings and then move on to the discussion we had about the committee future priorities.

Beatty and Fothergill’s analysis is a model of clarity, it builds on an established body of work, it makes clear where the data and evidence shortcomings are and it implies where new research is needed. Fothergill was refreshingly straightforward and more than willing to point to the political dimensions of welfare reform. The main findings suggest that, first, there will be big financial losses to households as a result of the additional post-2015 election welfare cuts in Scotland. These will be of the order of £1 billion a year as a result primarily of – the four year freeze on many working-age benefits and reductions in the work allowances within Universal credit (i.e. the point where benefit withdrawal tapers kick in). Cuts arising from the move to PIPs from DLA will also be important, as will planned reductions in tax credits.

Second, there are significant variations across Scotland with older ex-industrial and more deprived areas tending to fare more badly on a per capita basis (although the Scottish average is close to the GB average as a whole). Third, the expected figure of an annual additional financial loss of a £1b per annum for the post 2015 period needs to be added to the 2010-15 welfare changes which themselves imposed a financial loss of £1.1b (admittedly a lower figure than was anticipated because of the challenge in bringing down spending on ESA).

The report is thought-provoking stuff and it is great to see this analysis done at a Scottish level. I was struck by some of the housing-related evidence implied by their research.  Some of the housing information included:

  • The lower benefit cap (£20,000 p.a.) will impact on 11,000 Scottish households and cost £25m a year compared to just 900 under the previous regime.
  • Mortgage interest support, converted into a repayable loan (on entering work or on sale), affects 17,000 Scottish households and costs £25m a year.
  • 1,500 people are set to lose out because of the exemption of Housing Benefit for those aged 18-21 (and not deemed vulnerable – existing an estimated £4m a year.
  • The LHA cap extension to the social sector is estimated to affect 55,000 Scottish households and to cost £40m a year (not clear how this disaggregates between general needs and supported housing, the latter of which is expected to be particularly problematic though it will not be initially affected). Also it was not clear from the report whether this 55,000 sum explicitly includes the under 35 single person households who are treated as if they are sharing housing (ie receive benefit up to the shared accommodation rate).

While the report is about welfare cuts post 2015 in Scotland, it does allude to possible offsetting effects – higher personal tax allowance, enhanced child care, and the minimum wage. But more could have been done to bottom these figures out and and quantify the balance between winners and losers in net terms. In the discussion with the MSPs Fothergill argued strongly that there was no evidence that employment growth follows from sharper benefit incentives as experience din recent economic cycles. He also argued that the long term growth, for instance, in levels of ESA are about lack of jobs. The demand-side explanation is strengthened by the evidence that in high demand labour markets in southern regions people with disability or illness are more likely to get work and can find jobs – but this is more difficult in low demand areas. Supply does not create its own demand.

Turning to the priorities for the committee in the coming Parliament, I recognise that the housing end of social security does not always come top of the bill and today we focused much more on disability, employment support allowance, work assessments and broader system level questions associated with the devolution of social security powers. Consequently, my contributions were modest.

It was not long when despite the conclusion from Beatty and Fothergill that we should not overstate the Importance of devolution of social security powers to the Scottish Parliament, we nonetheless agreed that this was in fact the priority, but also a huge challenge and an opportunity wrapped up in one.  Despite the fact that the Scottish Government does not intend to fully take on the powers till 2020 as one MSP said, the time is now to start planning, and also to ensure the infrastructure and systems are established, and to build the necessary policy and delivery capacity.

My view was that the 15% figure (the proportion of social security spending to be devolved) is a bit of a red herring (though Kirstein Rummery made the good point that it us like being given a block of cash that, now devolved, the Scottish Parliament can design it and use it as it thinks best – there are therefore many opportunities). This is because it is the additional powers to top up, create new benefits and change the rules applying to things like Universal Credit and its housing cost elements that create open-ended flexibilities and choices for Government. However, they all have to be paid for out of the Block and this means Scotland has to consider both its revenue-raising capacity and economic growth (including its new tax powers) to fund expansion and also whether there are choices between spending headings that could change to meet the social objectives of new and better social security benefits. There are opportunity costs from constrained political choice but there are also genuine opportunities.

Much of the discussion was about work assessment, disability benefits and also of course conditionality and sanctions. I was struck by the fact my colleagues around the table had so much relevant evidence to bring especially on their own direct projects and in relation to reviews of international studies. There does seem to be, as was true also in the last parliament, that committees do genuinely want to work from a proper evidence base. This has to be a positive sign in these otherwise concerning times.

True Grit – Ken Loach and the reality of welfare conditionality

 It has been quite a week. I saw ‘I, Daniel Blake’ in the cinema, there has been considerable media scrutiny of the new lower benefit caps and their impact, the DWP has produced a controversial green paper on the future of Employment Support Allowance and the Scottish Parliament debated the effects of sanctions and welfare conditionality, in part as a result of the ongoing ESRC programme which includes the excellent work of my colleague Sharon Wright.

The new lower benefit cap moves the likely burden from very large working age households or people often only in high cost housing reliant on benefits to many more households and often with children right across the UK. From 7th November 2016, the lower benefit cap begins to be rolled out. For couples and single parents, it will fall from £500 per week to £384.62 outside of London and for single people it falls from £350 to £257.69 outside of London (higher costs in the capital mean the reduction in the cap is less there). The benefits primarily affected are housing benefit, universal credit (and its components) and other working age benefits but also things like child tax credits and child benefit. The Guardian reported that 116,000 households would be materially affected.

The Green Paper (Improving Lives) is focused on increasing economic activity among the sick and vulnerable.  It is critically summarised by Paul Spicker in a blog this week who said: “It proposes to extend to those for whom working is least viable the kind of regime that has so signally failed for people in the ‘work related activity group’. If people who are sick cannot find ways to engage with the labour market, why should we imagine that people who are  sick and vulnerable should fare any better?”

The conditionality debate in Parliament highlighted the strength of feeling among our politicians about the impacts of sanctions and the problems they pose for welfare policy and people affected. In a piece for the Daily Record Sharon Wright summarised the key difficulties evidenced in her research:

  • Sanctions led to short term crises and long term debt repayment problems.
  • They were associated with rent arrears, the threat of eviction and possibly homelessness.
  • Sanctions often come without warning – and if people don’t know about the sanction how can it effect the DWP’s desired behavioural change?
  • Sanctions had profound negative wellbeing effects on those directly affected and in the end it was support to help people into work that mattered not sanctions – carrots not sticks.

And what about the film? ‘I, Daniel Blake’ was highly-charged and emotional. I will long remember the complete silence in the cinema when the credits abruptly come up. People looked stunned and many were upset. The film uses highly plausible scenarios to document the descent into poverty of normal people who are dealing with  common human circumstances like sudden ill health or family break-up. Engaging with benefits and systems like Employment Support Allowance and ultimately conditionality, is overwhelming for those less skilled in the world of digital by default and coping with the abrupt shifts into conditionality, as also reported by Sharon in her research. Vulnerable people can be forced to turn to food banks for resources and the black market and illegality for income. There is a strong Kafka-like feeling in the film as Job Centre Plus officers repeatedly use the ‘decision maker’ as the disembodied arbiter of whether or not one gets the benefit they are applying for.

It is a great piece of fiction but one that has a real sense of authenticity. It is well acted and brilliantly made. I did however think the Job Centre Plus staff were with one or two exceptions a little two dimensional, especially the nurse ratchet character and the general demeanour of the staff who were ‘just following orders’.

Thinking on the big themes of the film, I think a complete overhaul of the employment support allowance is needed and the DWP has to end the byzantine and often impossible choices created by the system facing the lead character who was turned down for ESA and can only apply for JSA when he is patently not fit for work. Paul Spicker’s views about these matters as suggested in the new Green Paper seem to be a good place to start. Second, there can be no basis or situation where individuals and especially children in families face destitution as a result of sanctions. This has to end. Third,  the film stressed the confusion and lack of help available to vulnerable people so that they have some chance to navigate (consistently) the arcane complexities of this obtuse and often dehumanising system. There must be a clearly stated rapid assistance system 24/7 on the end of a phone or for working hours  in a town centre office that offers clear and independent advice across all of the UK. Or if it already exists, people must be clearly directed towards such support and this should be done at the earliest possible point in the journey.

The quiet man loudly leaves 

Last night we heard that Ian Duncan Smith has resigned as Secretary of State for work and pensions, apparently in response to the Chancellor’s budget this week which had sought further large cuts in welfare benefits, this time targeting the disabled through Personal Independence Payments. This was deemed  unfair in IDS’ resigination letter contrasting low income working households facing cuts while higher income groups benefited from proposed tax cuts. Others have attributed the departure from his post in part at least to the growing divisions over the Brexit referendum.

As the dust settles, how should we assess the IDS tenure in DWP?

While in opposition, IDS laid the groundwork for his subsequent policies via his Centre for Social Justice. The welfare reforms that followed were in part a strongly held set of convictions developed by the politician but they were also an opportunistic response to the Government’s narrative around the deficit and the chance to clobber the poorly designed and high cost housing benefit system. So, from the very beginning in 2010, we have had two forces operating broadly together: the desire to make comprehensive reforms and a new settlement for working age households across the means-tested benefits regime, and, at the same time, a Treasury-led (but DWP supporting) downward squeeze on spend either directly or through increased conditionality. 

It is difficult to see the process of reform and cuts as anything but the two departments working closely together and apparently broadly as one.

In previous posts I have been I think consistently critical of the welfare reforms since 2010. But to be clear, there is a case in principle for a single or greatly simplified means-tested system of support for working age households. But it was always going to be difficult to achieve and made much worse by the climate of deficit reduction and cuts. I have also many times written about the structural problems with housing benefit that predate IDS and in many ways are still with us. But that is not an argument for  the reforms we have actually seen.

There are many concerns, for example:  the exclusive focus on working age households and the difference in treatment between old and young (remarkably raised in the IDS resignation letter); the aforementioned conditionality/sanctions regimes; the massive challenges to make universal credit the comprehensive benefit it is supposed to provide; the management of live updates to the UC system; the treatment of housing costs in the UC system; the ideological disinterest with evidence on impacts and behaviour (and actual outcomes); the spare room subsidy or bedroom tax. One could go on or simply look at the back file of Paul Spicker’s blogs.

Even if you were a fan of the reforms, it would be hard to say that independently they have made the sort of progress hoped for; only that it costs a lot to make change and that UC has a long way to go. Cutting spending on social security is hard and you are not of course fully in control of it. Moreover, it should take time to design and launch and then transition the system. It is not going to win short to medium run political plaudits. 

What happens next? Will the new Secretary of State change things? I can’t imagine a big shift in direction any time soon but there will be smaller scale opportunties to make eye-catching announcements and reforms. Perhaps these will be progressive and coherent but I am not hugely optimistic. Meanwhile HM Treasury must be under real pressure over the PPP proposals. Whatever else, the resignation and the problems between IDS and the Chancellor demonstrate the internal divisions in parts of the present Government, especially with the backdrop of the EU referendum. And it is only March.

Towards a New Social Security System in Scotland

A lot of my research these days is about public policy failure, what doesn’t work and why, as much as what does work. It is in this sobering context that I read and found much sense in the Welfare Reform Committee of the Scottish Parliament’s new report, ‘The Future Delivery of Social Security in Scotland’.

Welfare reform is the defining pinch point for the post Smith constitutional battle between the Scottish and UK Governments as they come to terms with what the new developed powers mean (and wrestle over the fiscal framework) and in particular try to make the new welfare powers and specifically the required integrated systems work properly from day one. Of course this is all happening in the middle of the DWP’s (contested) welfare reform project. But in addition to that there are quite fundamental policy implementation challenges ahead of whoever runs the Scottish Government after the election.

What does the report say? First of all it talks about the culture shift required within a new Scottish system of social security to move beyond the current stereotypes of skivers and attitudes of suspicion and mistrust that seems to pervade the present arrangements. Instead, the new system, drawing on both DWP and Scottish administration, requires to be grounded in principles of dignity, person-centredness, respect for claimants, and that the system be non-punitive (accepting the need for conditionality but only using sanctions as a genuine last resort). Person-centred means not running the social security system for the ‘convenience of the bureaucracy’. They point out the growth in advocacy services for claimants, which is of course itself a failing of the system to use plain language, simplicity and transparency in its dealings with citizens. The system should also at heart be responsive, fair, consistent, helpful and supportive. The report also nicely points out that while signing up to and legislating for such principles is fine itself, achieving and implementing such principles in practice will be a ‘substantial task’.

The report identifies a list of ‘big issues and tough choices’.  First of all, the new system has to be coherent. The new proposals in the Scotland bill create a dual and therefore much more complex social security system for Scotland. This will require commitment, consistency and genuine inter-governmental working of a standard and level not really attempted since devolution. Second and related, there is a fundamental choice to be made between contracting DWP versus setting up a new Scottish agency to deliver social security. Neither option is without its problems. Third, there is the question of how much of the Scottish system ought to be devolved locally – again there are arguments in both directions. Fourth, although it will be fundamentally shaped by the ultimate fiscal framework deal, the Scottish government will have powers over topping up existing benefits but the Committee Report argues that this can readily have big funding implications and will require national debate before it can move forward on any major reform proposal. In the report they stick to more modest funding recommendations.

The report also makes a number of specific recommendations, which include:

  • Introducing a long term DLA/PiP scheme for those with severe long term conditions, thereby doing away with multiple re-assessments. They also support the planned increase in carer allowances to JSA levels.
  • The housing element of Universal Credit should be paid fortnightly directly to landlords and allow more than one payment per household, where necessary. They also advocate the immediate abolition of the ‘bedroom tax’, which would allow returning discretionary housing payments back to their original wider purpose.
  • They also make proposals about widening the provision of ‘welfare to work’ programmes to promote more local operators and that the devolution of the Work Programme does offer the chance for the Scottish Government  to influence how sanctions are used – and this could be a genuinely progressive development (though would not remove all tensions over sanctions between respective Governments).

There is a lot to like here. The ideas about using the powers to impact on the conditionality regime in at least two areas (DLA/PiP and the Work programme) are constructive, the recognition of the administrative complexities of a dual system with different benefit regimes is welcome on this side of the Border, as is the implicit sense that top-up and real discretionary power has a cost attached to it which is part of the political choice associated with greater devolution. But this is happening in a context of austerity and further cuts to (unprotected) budgets. So, it is really important, it seems to me, that the political elites fully understand the difficulties and tough choices that lie ahead. This may be one of the biggest of these emerging tricky policy implementation areas in the devolution sphere, but it suggests that we need a political culture change as well as in the social security system. Hopefully, the Welfare Reform Committee have started that process.

 

 

Analysis and Housing Benefit

Last night there was an impressive episode of Analysis on Radio 4 with Paul Johnson of the Institute of Fiscal Studies asking ‘What’s Housing Benefit for’? It was hard to disagree with the basic tenets of the argument, be it the diagnosis of why HB is so large (now £25b per annum), the mixed impacts of welfare reform or the programme’s conclusions about what is to be done. While I suspect a little more could have been said explicitly about the design of HB, the key point – that HB is in part the consequence of wider housing policy failure over generations (especially in the owner-occupied sector) – needs to be stressed and reiterated as widely and as often as is possible.

The programme reminded us that Beveridge would rather have established a fixed rate housing subsidy but that the ‘problem of rent’ – its massive variation even within regions let alone across the country, made this (and it remains) completely impractical. For this reason HB has been based on actual costs rather than a fixed allowance (though this has been lessened by the design of the local housing allowance in the private rented sector).

The second pivotal design feature is that the broader social security system is premised on a minimum level of income (varied by household type and need) after housing costs. This in turn allowed the unusual circumstances that UK social security could pay all of someone’s housing costs and moreover, HB would rise one for one with housing costs (and fall back too). Again, this principle was attenuated by the introduction of a local housing allowance setting a ceiling on support based originally on the median of local market rents.

There was an interesting digression in the programme when David Willets, then in Mrs Thatcher’s policy unit, was involved in the decision to explicitly shift subsidy from things (i.e. new homes) to (poor) people. Implicitly, this was an assertion of consumerist welfare economics ideas that promoted cash transfer over in-kind subsidy as welfare improving for the individual. But note that HB was never a cash transfer in the pure sense.

Inevitably, and rightly, the programme also focused on the welfare reform programme that was significantly aimed at HB (the second largest working age benefit). However, rather than the usual debate over the bedroom tax, the stress was on the deep cuts to private renting HB (the local housing allowance). Moreover, it was recognised that in some places such as coastal towns, the majority of private renting tenants rely on benefits and in that sense HB literally leads the market.

There was also an interesting side debate regarding whether these cuts to the local housing allowance would reduce mixing of communities and reduce social cohesion. Proponents of welfare reform argued on the one hand that housing costs and income differentials had already created this spatial segregation and that implicitly HB reform would be a relatively marginal impact on this process. On the other hand, there was no cross referral to the recent proposals to fund replacement social housing for housing associations under the RTB proposals (i.e. funded from high value council housing sales) which will only reinforce these problems.

Finally, there was much talk of the ‘surprising’ 2015 Budget decision to cut social rents by 1% in each if the next four years. Those interviewed agreed that this looked like a non strategic cost-cutting wheeze and showed little awareness of the impacts on social providers, not just in terms of reduced development but on wider operational budgets as well.

What’s to be done? There was unanimity around building more homes in both the social and private sectors but more than that there was recognition that the root causes of the increasing HB bill is that rents rise in part because underlying housing and land costs have been inflating for so long. It is the wider failure of housing policy, of falling to join up the dots, that is what really matters. The large scale of home ownership premised on rising asset values and under-taxing capital growth indirectly also means higher rents and HB costs. Part of the price we pay for our unaffordable and exclusionary home ownership model is higher rents, more scarcity and yes higher HB.

The solution (or part if it) stares us in the face. We can reduce HB if we are willing to countenance lower housing costs systematically and lower land values across the board and stop chasing the illusion of rising housing and land asset values. The other thing that no-one is talking about is that regardless of the changes made to HB since 2010 – its design was flawed and remains so. There is still a second longer term agenda item to try to design a more feasible, efficient and cost-effective low income housing allowance system. A topic for another day.

Housing Policy and the Election ‘Unpacked’

I have put a link here to a podcast I did yesterday with Alex Marsh while at the Housing Studies Association conference in York. It is a tour through the pre-manifesto proposals and pledges by the main parties with regular digressions into Scotland. We also talked about housing supply, property taxation, social housing, private renting, welfare benefits and demand-side home ownership policies. Hope you find it interesting. You will also find the podcast at Alex’s Archives.

Private Renting, Poverty and Social Exclusion in Scotland

I have been meaning to write something in response to the excellent Joseph Rowntree Foundation Report published last week (Monitoring Poverty and Social Exclusion in Scotland 2015) but I have only now found the time.

Peter Kenway and colleagues point to successes like the steep fall in pensioner poverty and the smaller but still important fall in child poverty since the late 1990s, as well as the benefit of lower housing costs and a larger social rented sector in Scotland. Against that however, working age benefit levels are low relative to minimum income standards. And, there has been a large, sustained increase in JSA claimants being sanctioned or referred for sanctions.

As a result of low income and disparities created by area deprivation, Scotland still performs poorly in respect of big structural inequalities such as premature mortality, the slow rate of progress addressing the educational attainment gap, and in terms of insecurity and low pay at work. The authors also report little progress in terms of the Scottish Government’s wider solidarity target of increasing the share of income going to the poorest 30% of the population.

The report team note important changes to the problems that characterise poverty in Scotland: a rising share of those who are poor being younger adults; a larger proportion living in the private rented sector; and, a rising share of those on low pay having higher education qualifications.

The most recent data for 2012-13 shows an increase in child and working age poverty. The authors state it may only be one year’s data but it may ‘mark the start of a turn for the worse which, if left unchecked, would squander the gains Scotland has made over 15 years’.

The report goes on to identify a number of initiatives and remaining challenges about poverty and exclusion in Scotland. Here I am going to focus on what they have to say about housing and I want to focus on that one aspect of poverty and exclusion, though I could have just as easily concentrated on in-work poverty, health inequalities or sanctions – all of which feature prominently.

One indicator is the changing number of children, working age people and pensioners by housing tenure. A comparison is made for these figures between the three years 2000-01 to 2002-03 as against 2010-11 to 2012-13. Overall, the numbers fell by 230,000 with big falls in social renting (280,000) and home ownership (90,000) but a steep rise in private renting poverty (140,000). The rise in PRS poverty was largely explained by people of working age, whereas where it fell it was more split across the different categories (working age, children and pensioners).

A second indicator looks at housing cost as a percentage of income by tenure and contrasts the same time periods as above (and compares Scotland with England in the latter 2010-11 to 2012-13 period). Social renting costs remained broadly unchanged in Scotland (though were significantly higher in England – 18% versus 24%); home ownership costs fell from 13% to 11% (and remained a little higher in England); private renting rose from 20% to 24% (but still lagged well behind England at 29%). The authors also report that difference between the average private and social rent is larger in Scotland than in any English region outside of London.

Third, the analysis looked at households who report they are cold in winter by tenure and by working age versus pensioner households (all as a percentage of all households). Thus, 18% of pensioners and 22% of non-pensioners said that their heating sometimes failed to keep them warm in winter. By tenure, 19% of homeowners, 32% in social renting and 37% in the private rented sector. This is a different calculation to the official fuel poverty measure but the authors argue that a self-reported subjective measure captures the reality of heating cold homes better.

What are we to make of this? First, I think these indicators really do nail the fact that the private rented sector, albeit a diverse and in places functional part of the housing system, is also the locus for emerging and disproportionate poverty problems in Scotland. And this is despite the several years of good work to improve the sector and the ongoing private rental strategy.

Second, one cannot understate the importance of the interaction of low wages and take-up of in-work housing benefit. The increased flexibility of working arrangements in a context of employer power and declining skill levels of jobs creates further complications. One problem concerns the burden placed by rising private rents but also the importance of transport and childcare costs. A second is the risk of proposed further sanctions under Universal Credit for people in work receiving UC and deemed not to be seeking more hours’ work. This exemplifies the case of the left hand not knowing what the right hand is doing. It will force further conditionality on workers receiving benefits when many have increasingly little control over their hours.

Third, the poverty monitor is challenging for the Scottish Government. While they can rightly point to the areas where wider structural factors prevail (UK markets, globalisation or UK Government policy), several of the pinch points are areas of devolved policy like education, health and, to an extent, housing. The new JRF report presents a mixed picture and poses difficult questions both for Scottish and UK Governments. And right now, as Kenway and colleagues argue, public agencies have to do their best to support those confronting the consequences of the present UK conditionality system.

 

 

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

 

The OBR and Welfare and Housing Benefit Spending Trends

The intrinsic difficulties facing agencies tasked to produce reliable forecasts for future years spend and caseload across different policies, are well known and understood. In the present debate over how future cuts in welfare spending will be achieved and the all too frequent implementation gap between planned savings and actual outturn spend, a degree of skepticism about deliverability is appropriate (before we get to questions of desirability or otherwise).

While scanning through the Budget’s supporting documents, I happened upon the OBR’s Welfare Trends Report, published in the Autumn of 2014. Of course, this turns out to be part of the immediate political narrative about welfare spending cuts following from the Chancellor’s statement, but I am actually interested here more in what it says about underlying factors and expected trends in welfare spending and their ‘forecast-ability’. In particular I want to look at the figures for Housing Benefit. I may be rather late to reading this report but I thought it was still worth exploring a little.

OBR argues that past data on a small number of drivers explain long-term trends in welfare spending (and implicitly will continue to do so in the future). The main candidates are: demographic trends, labour market trends, inflation & earnings growth, and, housing market trends. We can also point to successive incremental and then non-marginal policy changes especially after 2010. How policy change impacts on spend and caseload is of course far from straightforward, particularly in terms of assumptions made about second round behavioural changes conditional on benefit policy changes e.g. on labour supply or landlord behaviour. We return to this below.

Future welfare spending trends are forecast of the period 2013-14 to 2018-19. OBR expects welfare spending to rise in cash terms by 12.5%. However, this is less than the forecast growth in the economy. Thus, as a percentage of GDP, welfare spend will fall from 12.8% to 11.6%.

The forecasts are of course subject to risk. The chief risks are seen to be, first,  the uncertainty associated with the future of Housing Benefit, which may vary as a result of how the economy performs (jobs, wages and rents are the key variables). Second, policy change associated with disability and incapacity benefit is also viewed as an important source of risk to the forecast. Third, and believed to be less significant than the first two, the introduction of universal credit is also identified as a risk to the accuracy of future welfare spending forecasts.

Chapter 9 is the Housing Benefit (HB) chapter. Spending on HB in 2013-14 was £23.9 billion (more than £20 billion of which counted within the benefit cap). The OBR forecast that HB will rise in cash terms to £27.4 billion by 2018-19 but that because of forecast larger economic growth this will constitute a falling share of GDP – from 1.5% to 1.3% between 2013-14 and 2018-19.

There are some striking facts in this chapter. The remarkable rise, for instance, in those in employment on HB. This was 0.4 million in 2008 but had risen to 1.1 million in the middle of 2014 (i.e. 3.5% of all employed adults). Second, the important drivers of trend growth in HB has been real rent increases over time, the shifting caseload by tenure into the private rented sector (with its average higher rents) and also the impact of being the recipient of other benefits associated with HB. In this case the forecasts also assume an impact from the cumulative effects of welfare reform and that includes the retention of the bedroom tax.

OBR disaggregates the source of the increase in HB spend up to 2018-19 and much of it is the result of what they call HB only cases – almost entirely, renters in employment. They also point to the importance of the expected growth in Incapacity Benefit caseload linked to higher HB average awards. The growth is offset by expected falls in JSA through anticipated falls in unemployment, and also as a result of a decline to come in the pensioner HB caseload as a result of shifts in their treatment via benefits like pensioner credit.

However, OBR recognises that they have systematically underestimated the growth in HB spending in the (recent) past, and, while they think they have corrected for this, we should be cautious. It turns out that much of the risk or uncertainty in their forecasts will depend on the future pattern of tenure change and in particular how much home ownership grows relative to renting.

The home ownership tenure change  outcome is construed as the net effect of different policy impacts on home ownership rates: between help to buy schemes like the new ISA package versus the restrictive impact of the Mortgage Market Review condition.  I think there are several other tenure choice variables and market processes, not least likely rising future mortgage rates, that will shape this home ownership figure and perhaps, in the end, housing policy is actually less important to that change than the commentariat believe but that is another story. OBR also recognise that the future path of rents and the way the labour market evolves (in terms of wages and employment) will also matter. It would be helpful and very interesting to see how the model builders at OBR conceive of and operationalise the underlying housing and mortgage market within the wider models they use to construct these key parameters for welfare spend forecasts.