Briefing Paper on the impact of changes to Housing Benefit and Local Housing Allowance in the budget

July 2010

Introduction

In the emergency budget on 22 June 2010 the government announced significant changes to housing benefit and local housing allowance. The changes will mean an annual reduction of £1,765 million of government help with housing costs.

The impact of the proposed changes to housing benefit and local housing allowance will affect social and private landlords, tenants, and strategic housing authorities in the UK.

This briefing is designed to help you to plan how to assess and mitigate the impact of the changes for your own business and local area. Since the budget announcement CIH has been carrying out modelling and analysis on the potential impacts on your business - here are the findings.

The CIH position

CIH has been making the case for housing benefit reform since the publication of the 2008 Welfare Reform Green Paper. Our focus has been on developing ideas for reform that could control rising expenditure and make housing benefit more effective in achieving its policy objectives. We published our proposals for short-term and long-term reform in response to the 2009 Housing Benefit Green Paper. Whilst we accept the need to control expenditure we do not support the proposals announced in the Emergency Budget as being the right approach because they will hit low income households hard during the recession precisely when they are most in need of support and when adverse consequences are likely to be most damaging.

We recognise the need to make savings across all departments but we believe that these particular budget proposals mean that low income households disproportionately shoulder the burden. Tens of thousands of households will be hit hard in the pocket or could be completely priced out of the communities where they are currently living and working. And all this is without consideration of the overall effect of these changes will have when combined with the sharp reductions in expenditure for social housing programmes across the UK.

The CIH is working with government, the media, and a variety of stakeholders to raise the awareness of the potential impact of the changes. We want housing benefit to be high on the agenda for politicians across the political spectrum as the regulations and laws to implement these changes are developed and debated. We want to ensure that any changes are fair to consumers, help support sustainable communities and are practicable and achievable.

Download this Member briefing (PDF: 84 kb)

Summary of the main changes

There are eight primary changes to housing benefit, identified in the two tables below. Six of the changes result in government savings (table 1) and two involve new expenditure (table 2). The saving proposals outweigh the expenditure proposals by a factor of 33.

Change	Date introduced	Directly affects	Annual saving to government
Capping the maximum LHA payable for each property size, and applying a four-bed limit: £250 for one-bed £290 for two-bed £340 for three-bed £400 for four-bed and larger properties	April 2011	Private rented sector DWP expects it to affect just over 14,000 households¹. The vast majority of are expected to be within London	£65m by 2014/15
Increasing deductions for non-dependents: they will no longer be frozen at £7.40 per week for non-earners and will be linked to prices	April 2011	Social and private rented sector	£340m by 2014/15
Calculating Local Housing Allowance (LHA) rates using the 30th percentile of market rents rather than the 50th percentile	October 2011	Private rented sector	£425m by 2014/15
Linking LHA increases to the consumer prices index (CPI) which does not include housing costs rather than the higher retail prices index (RPI)	April 2013	Private rented sector	£390m by 2014/15
Time limiting full HB & LHA payable to people on Job Seekers' Allowance (JSA) so that after 12 months HB is reduced by 10%	April 2013	Social and private rented sector	£110m by 2014/15
Limiting housing benefit for working age tenants so that it only covers the size of property they are judged to need	April 2013	Social rented sector	£490m by 2014/15
		Total	£1,820m by 2014/15

¹ Hansard 28 June 2010 Col 389W

Change	Date introduced	Directly affects	Annual expenditure to government
Increased discretionary housing payments	October 2010	Social and private rented sector	£40m by 2014/15
Additional bedroom for carers	April 2011		£15m by 2014/15
		Total	£55m by 2014/15

The Department's impact assessment for the first set of changes (i.e. those that can be implemented by regulations without the need for primary legislation) is expected to be published on the 23 July 2010. The impact assessment will be published on the Social Security Advisory Committee website http://www.ssac.org.uk/.

The likely implications of the changes

1. Caps on the maximum LHA payable by property size

This change means that tenants in the private rented sector and in receipt of LHA will be able to claim a maximum amount for each property size, with an overall limit set at the cap for four-bedroom property. Previously there were no caps on properties with up to four bedrooms; instead housing benefit was payable up to the LHA rate for appropriate sized accommodation and capped at the rate for five bedroom property. The initial DWP estimate is that 14,000 households will be affected.
The caps largely affect London only but there may be some impact on the other more expensive areas in the South East. It is unclear at this stage whether the caps will be up-rated over time. If the caps are not up-rated or the index used fails to reflect rent increases then the number of housing markets affected will increase. The caps apply over and above the 30th percentile limit so within the broad market areas over which the LHA applies, in which the cap takes effect, claimants will have less than 30% of the market available even by Government's own definition.
The published rent officer figures for the 30th percentile show that if applied immediately the caps will already restrict the availability of accommodation to less than 30% for some property types in 17 out of the 33 London boroughs. The affected boroughs are concentrated in the centre, North and West and have the greatest impact on larger properties. In many neighbourhoods within the affected boroughs there will be no properties that are affordable.

What can you expect?

Local Authorities with a strategic housing role may see:

Movement of tenants from Central London to outer and eastern boroughs
Changes in demand for services including schools and health
Increased levels of overcrowding
Increased demand for cheaper properties
Increased applications for discretionary housing payments.

Social landlords may see:

Higher demand for social housing from tenants who currently live or intended to live in private rented accommodation.

2. Increasing non-dependent deductions

Deductions from the claimant's eligible rent where other adults live with claimant who are not part their family for benefit purposes (typically the claimant's own adult children who are either working or claiming in their own right) are set to increase dramatically. The previous Government's policy was to freeze the level of deductions at their 1999 level. These freezes are to be reversed and in future years increase in line with prices.
Reversing these freezes will result in an increase in the charge rates by between one third and one half their current rate and maybe even higher depending on the method of indexation used. In order to achieve the projected level of savings it also seems likely that there will be some restructuring of the rules which determine the charge band to be applied.
Tenants sharing their home with other adult(s) will need to collect more money from the other adult(s) to contribute towards the rent, or make up the difference from their own money. The rates of deduction are particularly severe where the adult occupier earns more than £200 per week (nearly everyone in full time work). In many cases the deduction level will be such that it will disqualify the tenant from housing benefit altogether even where the tenant is on a qualifying passport benefit (e.g. income support, pension credit).
These changes will be an incentive for tenants to encourage their children to leave home and a disincentive to voluntary sharing. They will hinder tenants' own ability to deal with under-occupation and will result in a particularly harsh dilemma: if the tenant allows the occupier to stay they could lose all of their housing benefit, but if they ask them to leave then they could get hit with a reduction because they are under occupying.

What can you expect?

Social landlords may see:

Increased demand for independent housing from people who previously shared
Higher incidence of adult children falling out with their parents and being asked to leave the family home
Tenants being less willing to care for their elderly parents in their own home
Increased risk and incidence of slowly increasing arrears
Need for additional staff and communication resources to collect shortfall from tenants
Increased pressure from HB departments on landlords to conduct tenancy audits and notify of changes

Local Authorities with a strategic housing role may see:

Higher demand for debt counselling services
Higher demand on homelessness and housing options services
Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless
Increased applications and demand from young people
Increased transfer applications and bidding via choice based lettings
Private landlords becoming more reluctant to let to families with older children who are approaching age 18
Increased applications for discretionary housing payments.

3. Change from 50th percentile to 30th percentile

This change will mean that Local Housing Allowance (LHA) rates will be calculated on the 30th percentile of local market rents rather than the mid point. This means that in each market area if there were 100 properties available for letting of the appropriate size, the LHA will be based on the 30th lowest rent of those 100 properties. In other words they have (in theory) access to the bottom 30% of the market instead of the bottom 50% at present.
Tenants in private rented housing who can claim LHA will have access to fewer properties in their area where their full rent could be covered by their benefit.
Tenants who cannot find a property priced in the first 30th percentile will have to make up the difference in rent. CIH has estimated that the average additional cost for a family in a 3-bed house in England is £475 per year. CIH summary table (MS Excel: 117 kb) by region and broad rental market area

What to expect?

Local Authorities with a strategic housing role may see:

Movement of low income tenants from more expensive rental market areas to cheaper ones
Households struggling to access private rented accommodation
Increased hardship, shown by greater demand for debt and counselling services, and rising arrears
Concentration of tenants in receipt of LHA in cheaper, poorer quality private rented housing
Greater demand on homelessness and housing options services
Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless
Greater levels of overcrowding
Increased number of applications to the housing register
Landlords becoming less prepared to let to known benefit claimants
Landlords making more stringent income checks on potential tenants
Increased applications for discretionary housing payments.

Social landlords may see:

Higher demand for social housing from tenants who currently live or intended to live in private rented accommodation.

4. Change to using CPI to up-rate benefits rather than RPI

From April 2013 onwards the 30th percentile LHA rate will be based on the LHA rates from April 2012 - up-rated using CPI rather than being based on actual rents in local rental market area.
Over the period 1991-2009 rents have risen at an average of 2.57 per centage points per year above CPI. If this continues, the change will mean that LHA will not keep pace with rental inflation. The effect will be to shrink the 30% of the market that is at least theoretically available to tenants. In the long term there will come a point at which the cheapest property which is available in a given market area is more expensive than the full LHA rate.
Within a generation there will be towns and cities all over the country where there is no accommodation with a rent within the reach of people whose income is supported by benefits. The impact is not restricted to expensive rental markets.
The picture is different for different sizes of property - and is particularly acute for 1-room properties, where in some areas within two years of the change coming into force there are projected to be no properties available that can be fully paid for with LHA. CIH analysis (MS Excel: 333 kb) by property size and rental market area.
Tenants who do not move to a cheaper home will gradually have to make up more of the rent from other sources of income.

What can you expect?

Local Authorities with a strategic housing role may see:

Movement of low income tenants from more expensive rental market areas to cheaper ones
Households struggling to access private rented accommodation
Increased hardship, shown by greater demand for debt and counselling services, and rising arrears
Concentration of tenants in receipt of LHA in cheaper, poorer quality private rented housing
Greater demand on homelessness and housing options services
Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless
Greater levels of overcrowding
Increased number of applications to the housing register
Landlords becoming less prepared to let to known benefit claimants
Landlords making more stringent income checks on potential tenants
Increased applications for discretionary housing payments.

Social landlords may see:

Higher demand for social housing from tenants who currently live or intended to live in private rented accommodation.

5. Reduction in housing benefit to tenants in receipt of Job Seekers' Allowance for more than a year

This change means that tenants who have claimed Job Seekers' Allowance for 12 months or more will see their housing benefit or Local Housing Allowance reduced by 10 per cent.
Tenants who are unable to find work will have to make up the difference from their Job Seekers' Allowance. At current average awards this would amount to around £6.70 per week for local authority tenants, £7.70 for housing association tenants and £11.20 for private tenants on the LHA. The amount would vary and be greater the higher the rent and so would be bigger for large families or those living in the more expensive areas.
Based on current levels of JSA claims CIH estimates that this could affect as many as 100,000 claims per year and this is likely to rise because the number of long-term JSA claimants is not expected peak until around 2012 and will remain a significant proportion of the caseload for a further three to four years after.
Based on current caseloads of long-term JSA claims the area of the UK most affected by this change are the midlands (being particularly severe in Birmingham), London and Northern Ireland. CIH analysis (MS Excel: 333 kb) by parliamentary constituency.
It is expected that more people will move onto JSA in future years as eligibility for Employment and Support Allowance (ESA) and Incapacity Benefit is restricted.
A system to ensure HB teams had accurate information from Jobcentre Plus would be required

What can you expect?

Social landlords may see:

Increasing financial pressure on tenants, especially in areas where long-term unemployment is higher (Birmingham, parts of London and Northern Ireland)
Increased risk and incidence of slowly increasing arrears
Need for additional staff and communication resources to collect shortfall from tenants
Higher levels of vacancies due to planned moves and abandonment
Increased incidences of non-dependent deductions and overcrowding as households give up their own tenancy and move in with friends and family
Increased requests for transfer as households seek cheaper properties

Local Authorities with a strategic housing role may see:

Higher demand for debt counselling services
Higher demand placed on Jobcentre Plus services
Higher demand on homelessness services
Potential impact on temporary and bed and breakfast accommodation if tenants evicted are considered intentionally homeless
Increased overcrowding as households give up their own tenancy and move in with friends and family
Private sector landlords becoming unwilling to let to people on benefits because of fears of high levels of arrears
Increased applications for discretionary housing payments.

6. Limiting housing benefit payable to working age tenants, by property size

This change will restrict housing benefit for working age tenants who are occupying a larger social rented property than required for their household size (size restrictions already apply to private sector tenants claiming housing benefit).
Based on the English Housing Survey 2008-09 the DWP estimates that around 430,000² social rented tenants currently under occupy their accommodation as defined by the bedroom standard. This does not break down by age so, given that a significant proportion of those under occupying are elderly, the numbers affected are likely to be somewhat less. The scale of this change is likely to be very significant, not least because it results in the biggest saving of all the HB measures announced in the budget.
It also seems likely that this measure will have a significant regional impact because under-occupation rates are likely to be higher in the midlands and the north.
It may increase the number of larger homes available to let to people on housing registers
Tenants may be unable to move to smaller social rented properties if the stock is not available - even if they are willing to - and will be penalised for it.
Tenants will be expected to notify changes within the year as household members move out. This is likely to result in an increase in verification checks and housing benefit overpayments.

What can you expect?

Social landlords may see:

Higher demand from existing tenants for smaller properties - increased transfer applications and bidding via choice based lettings
Increased risk and incidence of slowly increasing arrears
Need for additional staff and communication resources to collect shortfall from tenants
Increased pressure from HB departments for landlords to conduct tenancy audits and notify of changes
Housing associations' income streams become vulnerable and ability to borrow money cheaply is affected - less funding for development, financial inclusion schemes, employment schemes

Hansard 6 July 2010 Col 214W

Local Authorities with a strategic housing role may see:

Higher demand for debt counselling services
Higher demand on homelessness services
Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless
Increased transfer applications and bidding via CBL
Increased applications for discretionary housing payments.

7. Increasing amounts available for discretionary housing payments

More money available to offset impact, but equates to about £8.30 per year per case. In England this would support around 60,000 who face the maximum loss from the 30th percentile change for one year (leaving nothing for social sector claimants) this is equivalent to just 1.5% of the entire caseload. The total increase in spending is less than 2.5% of the total package of housing benefit cuts.
Tenants increasingly relying on a discretionary system to meet housing costs - loss of certainty around income
Tenants being disempowered around access to support to meet housing costs - claiming discretionary payments is usually done with the help of an advisor

What can you expect?

Local Authorities with a strategic housing role may see:

Increased number of applications for discretionary payments
More demand on the funding pot than is available
Increased levels of disputes around the use of discretion with pressure to make awards for 'deserving' cases
Increased numbers with time limited awards to help make the budget spread further
Increased demand on advice services to help with such applications

Social landlords may see:

Increased number of tenants seeking support with applications for discretionary payments
Less certainty around how much of a tenant's rent will be supported by housing benefit

Next steps for social landlords

Think about how the reforms could impact on your business and your tenants, and plan accordingly

Do you know who your tenants are and their current circumstances?
How can you use tenancy audits to build up a clearer picture of your tenants and offer proactive support?
How many tenants do you have who have been claiming JSA for more than 12 months?
How many are likely to be by April 2013?
How many tenants of working age are under-occupying?
How many tenants already have non-dependent deductions from their benefit?
What is the potential level and likelihood of increased arrears?
Are your procedures and resources for rent collection able to cope with more people with small shortfalls on their rent?
Does your transfer procedure / choice bsed lettings system give sufficient priority to households wanting to downsize?
How are you going to communicate the changes to your tenants?
How can you develop and extend support and advice services to help people get back to work?
Will your front-line staff be fully trained and conversant with changes and geared up to deal with potential problems with emphasis on preventative work, for example financial inclusion, financial capacity building and measures to prevent households from falling into poverty?
Do you have links to specialist debt advice as well as to credit unions and community banking?
Management and repairs services will be required to be efficient and to turn voids around quickly to improve movement and transfer of households into appropriate sized properties;
Consider proactive measures to deal with ‘under-occupation’ perhaps through preferential measures for down-sizing transfers within the allocations scheme.

Next steps for strategic housing authorities

Think about how the reforms could impact on your business and your housing market, and plan accordingly

Sub-regional and regional housing market analysis is needed to examine the effects of potential migration of people to less expensive areas.
How many people claim LHA in the PRS in your area?
How will the changes affect claimants in the PRS
- Will the property caps affect your area? How many properties?
- How different is the 30th to 50th percentile? How many properties are now out of reach
- Is there a big spread of rents? If so, the impact of the move to CPI will be greater
- What is the cumulative impact of all these changes?
What do private landlords in your area think about the changes, and how might their letting behaviour change?
Does your transfer procedure / CBL system give sufficient priority to households wanting to downsize?
What additional resources might your housing options service need to deal with projected increased demand?
Are your procedures for discretionary housing payments appropriate?

CIH - working for you

CIH will work with other partners in the sector, with government and politicians to continue to raise the profile of the impact of this change on tenants and housing organisations. There is potential to secure changes to these proposals as regulations and laws to enforce them are developed and debated. We will actively seek changes to mitigate the impact. We will also continue to seek better alignment of different strands of housing policy.

In the longer term we will seek to influence the direction of longer term reforms to housing benefit, through the review announced by Iain Duncan Smith. Our ideas for fundamental reform of housing benefit have been developed with members over several years and are available here.

CIH can help housing organisations and strategic housing authorities to model the detailed impact of the changes on their business and implement strategic planning.

We have been working to raise the profile of the impact of these changes in the media with coverage in the Times, the BBC Daily Politics Show, the Daily Telegraph and the London Evening Standard.

Since the budget we have been working closely with others who have an interest and concern about these reforms. We will continue to share our analysis with others who have an interest in highlighting the risks to poorer people of these changes.

CIH's briefing on the budget can be found here.

Get involved

We are keen to hear your thoughts. We are particularly interested in your views on longer term reform and would like you to share your observations on the impact of the changes in your area, on your tenants and your business. CIH members who have done their own modelling and calculations of the impact on housing businesses and tenants are invited to share this information with CIH in order to help us build up a fuller picture.

If you would like to comment please visit www.housingfutures.cih.co.uk or call the CIH Policy and Practice team on 02476 851777.