Tuesday 9 November 2010

Finally – redressing the housing benefit imbalance

The most intriguing aspect of the coalition government’s attempt to tackle the deficit so far has certainly been the proposed cut to housing benefit. The child benefit ‘episode’ merely allowed hysterical right wing hacks to complain about “an assault on the middle classes”; well this move should placate them as it does much to redress the inequitable and unaffordable situation in the social housing market.

You can currently claim housing benefit if you earn less than £16,000 a year, and this can cover up to the average market rent in the area. The reforms would see the level of support capped within the bottom 30% of the market average, and would also see a maximum of £290 per week paid out for a two bedroom flat. Needless to say the hyperbole has been nothing short of apocalyptic, with the only surprise being that not all of it has come from the red faction on the left.

For the Mayor of London, Boris Johnson, to compare the cuts to “Kosovo-style social cleansing” was ill-judged and potentially offensive to many. It was a shameless pitch for Londoners’ votes with a Mayoral election looming on the horizon, and he seemed unfazed that the attack has certainly damaged his party’s credibility to govern on this issue. Predictably there have been shrieks from the left about a form of class apartheid being put into place by stealth, and even more facile comments that the Lib Dems have sold themselves out. The overblown nature of the debate so far doesn’t really do it justice.

A reduction of housing benefit to £290 per week (approaching £1,200 per month) for a two bedroom flat is not savage by any stretch of a reasonable person’s imagination. To put things into perspective my flatmates and I pay £1,800 per month in rent for a three bedroom flat in West Kensington. To live in a two-bed property in this area costs a little more than the newly proposed cap in housing benefit payments. If you move two streets over, the cost of rent falls to below these proposed levels. So why the storm of righteous indignation?

The simple, unarguable fact is that when the state pays for somebody to live beyond their essential means, this is in fact being subsidised by everybody who earns over that benefit’s threshold. In this case the vast majority of taxpayers sit in the bracket between the £16k minimum and around £30k a year, and are therefore ineligible to receive housing benefit. This leads to the anomaly where those who earn the least, or even the unemployed, enjoy markedly better living conditions than the contributors for little or no tangible effort. This removes the incentive for those in the slightly higher bracket to earn above the benefit threshold, and is counterproductive in an era where wealth creation among the population is essential to economic recovery. Aside from the economic aspect, it is simply unfair that the section of society funding these benefit payments has little hope of experiencing the living conditions it subsidises.

Another key fact missed is that rents have inflated in no small part due to the Labour government’s insistence on subsidising the bubble. Housing benefit payments are currently around £21bn per year, which is more than we spend on the police and higher education combined. It is unsurprising that landlords are grumbling about these proposals as they stand to be some of the biggest losers here. When benefit payments are cut, landlords will have little choice but to lower their rates and face economic reality with the rest of the country. Theoretically the fears that “82,000 families will be made homeless in London” (as suggested by Mr. Johnson) are unfounded. This is because the reduction in demand for these higher rates will lead to a fall in prices, and this in turn should allow the same people to live in the same, or similar properties but for less money.

To argue that cutting housing benefit will create a Paris-style ‘banlieue’ system, where the poorest are marginalised, is partisan bile. It is nothing more than irresponsible scare mongering designed to generate ideological resistance to a part of the welfare state that urgently needs reform. If any government fails to address the concerns of those who are called upon to contribute the most, they can expect popular support for the whole welfare system to wane. This can never be truer than during hard times, when self-interest is bound to take hold. Those in opposition, and indeed sitting at the most inflated end of the housing benefit ladder, would do very well to take heed.