Monthly Archives: June 2012

It is in-work poverty, not unemployment, that is pushing the Housing Benefit bill up.

by  Paul Hackett (Director, the Smith Institute)  and Sean Kippin (Events and Communications Manager) 

The Prime Minister’s announcement, that he plans to restrict Housing Benefit to the over-25s has, understandably generated a great deal of media attention. It is a policy which delights his party’s grass roots, and dismays the British centre-left in equal measure. The proposals are being sold to the public on two grounds; the first is that it will help to end what the Prime Minister sees as an ‘entitlement culture’, which perpetuates worklessness and engrains benefit dependency. The second is on the grounds of reducing Government expenditure in a costly policy area.

But do these two claims add up? George Eaton of the New Statesman has pointed out that only one in eight claimants are actually unemployed. This ties in with research that the Smith Institute has been carrying out on the relationship between poverty, work and welfare. What is more likely to push people onto benfits is a sluggish economic recovery, when five people are chasing every vacancy (this figure is as high as 7.8: 1 in the North East).

On the second claim, our research shows that welfare changes are actually pushing the Housing Benefit bill up by an extra £1bn per year, with those in low-paid work driving the changes. A full 95% of new claimants between the period May 2010 to February 2011 are in work, with a 7500 increase in claimants (with a £34 million bill attached) February of this year alone. The upshot of this is that the Government will struggle to achieve any intended savings in this area, especially if real wages keep falling.

Our research on in-work poverty has reached some alarming conclusions. The number of households with less than 60% of the median income has risen from 2.3m in 1996/7 to 3.3m in 2009/10. This can be attributed to real-terms wages failing to rise in line with the economy’s wider productivity during the boom years. Now the economy is in recession, and more people are pushed into part-time and temporary work, things are getting tougher still for those earners at the bottom.

The Government have redesigned a welfare programme that rests on the assumption that work will be sufficient to lift people out of poverty and that people become poor because of their lifestyle choices. Our research shows that people on low incomes are finding work, but can’t earn enough to lift themselves out of poverty

Click here to see a briefing note on in-work poverty and housing benefit by the Director of the Smith Institute, Paul Hackett.