Post by Paul Hackett, the Director of the Smith Institute. Originally posted on the New Statesman blog
Housing benefit is becoming the curse of the Coalition. The Prime Minister promised to cut the benefit bill and back those who work hard. But, latest DWP data (19 July) shows that the number of housing benefit claimants continues to rise, and is now well past the 5m mark. The Housing Benefit bill is £23bn and rising, despite the welfare caps and cuts. Dig deeper on the statistics and you see that by far the largest increase is from those claiming Housing Benefit who are in work (the Smith Institute estimates that the rise of in-work poverty since the Coalition came to power will add £1bn this year to the Housing Benefit Bill).
Contrary to Tory claims, it is the under-employed and underpaid, not the unemployed, who are pushing up the cost of Housing Benefit. In-work claimants now accounts for nearly 90% of the net increase in overall Housing Benefit claims. The rise of in-work poverty belies Tory propaganda about the ‘underserving poor’ and benefit scroungers. Low growth and falling real wages are pushing more people to the margins of the labour market, where pay is not enough to live on. In London, and other high housing demand areas, the problem is exacerbated by higher private rents.
But, this is not a problem made by the recession and the Coalition’s welfare reforms. The Housing benefit Bill has been increasing since 2000, and doubled between 1997 and 2010. New Labour got hooked into a spiral of subsidising higher social rents. The number of Housing Benefit claimants stayed roughly the same between 2003-2007 at relatively lower levels, but payments to landlords rose year on year. As the recession hit, the situation got worse as the numbers of unemployed increased. Now we are in third stage, with more claimants as a result of falling real wages and under-employment.
Social and private rents are still going up (social rents have increased by a fifth over the last five years), but they will arguably have less impact on the future Housing Benefit Bill because of the benefit caps. However, they are being offset by cost pressures on Housing Benefit because more people in work are claiming. This is evidenced by the fact that the gap between pay for the bottom 10% and their rents has widened significantly.
Rising rents, falling wages and benefit caps is a triple blow for low income households, and will lead to higher levels of poverty. Labour can’t ignore the problem, which started on its watch. Part of the solution must be reversing the decline in real wages. But, a future Labour Government is also going to have to grapple with subsidies and the balance between revenue and capital subsidies for those who simply can’t afford to pay higher rents.