There are however two specific areas worth discussing in detail – housing benefits and tax credits. Why has the housing benefits bill broken through the £20 billion ceiling? Is this really down to families living in palatial residences as the tabloids would have us believe? David Cameron reiterates that the problem is not the housing market. Ministers talks about the soaring housing bill as if it has spiralled out of control implausibly. Have a look at reports by those in the know, such as Shelter or Crisis, and a different picture emerges. Thatcher’s Right to Buy scheme for council homes – an apparent democratic act of empowering home-ownership – contributed to the decline in social housing stock. House prices have stratospherically risen pricing out first-time buyers. As Polly Toynbee points out, Shelter’s startling comparisons say it all: a chicken would cost £51.18 if its price had risen at the same rate as housing in the past 40 years. The number of years required for low to middle income households to save for typical first time buyer deposit has jumped from 3 years in 1983 to 22 years in 2012. For the first time, the majority of under 35s in the low to middle income group now live in the private rented sector. But rents have escalated in the private housing sector after they were deregulated in the 1980s. Rents in the private rented sector rose by 70 per cent between 1997–98 and 2007–08 compared to CPI inflation of 20 per cent.
This toxic combination of a lack of supply together with rocketing house prices and rents is at the heart of the problem. As the London Review of Books put it, ‘What characterises the welfare state, in fact, is the increasing dependence of working households on child and housing benefit. In December 2011, for instance, a quarter of in-work households in rented accommodation were dependent on housing benefit. That figure will almost certainly continue to rise.’ According to Shelter, it is estimated that the rising caseload from the private rented sector is responsible for more than half of the recent increase in housing benefit expenditure. Housing benefits thus prop up a dysfunctional housing system.
What are the Coalition’s answers? Local housing allowance (LHA) caps and the now infamous bedroom tax. However LHA caps will not solve the root causes of unaffordable private rents and limited access to affordable housing. Around 1.8 million households are now on council waiting lists. The Bureau of Investigative Journalism has revealed that £1.88bn has been spent on renting temporary accommodation in 12 of Britain’s biggest cities over the past four years. As for the bedroom tax, two thirds of those affected will be disabled. As Polly Toynbee points out, ‘promised housing benefit savings of £465m are only realised if tenants don’t move out but take the £700 a year hit to their meagre living standards. If they do move, they go into the private sector where a smaller home costs the housing benefit budget more.’ Recent data from 107 local authorities shows 86,000 households have been forced to look for one-bedroom homes, of which only 33,000 have become available in the past year. The government’s impact assessment warned that 35% of claimants affected “would be quite or very likely to fall into arrears if their housing benefit were to be reduced”. The real solutions are to build more social housing and introduce Northern European style regulation of rents in the private sector. Recently, the UN’s Special Rapporteur Raquel Rolnik caused a furore amongst Cabinet ministers for simply pointing out that Britain was now exhibiting all the signs of a full-scale housing crisis with limited access to social housing as well as problems of affordability not only for low-income but also middle-income citizens. She also labelled recent housing policy as retrogressive given how Britain’s previously high numbers of social housing stock have dwindled. 5
The second area of interest is tax credits. Why is the amount spent on tax credits nudging £30 billion? Britain has one of the largest low wage economies in the developed world. Only the US has a greater share of low paid workers. While only 2.6% of the benefits budget is actually spent on the able-bodied unemployed, over 20% subsidises those on low wages. As the New Economics Foundation put it:- “For the first time ever, in-work poverty has overtaken workless poverty. One in five people employed in Britain are on low pay. There are 6.1 million people in working households living in poverty”.
Typical wages stagnated from 2003 and then fell in the downturn. In fact, wage stagnation is a phenomenon across major capitalist economies including Germany and Canada and has been the case for a generation in the US. In the US, government subsidies to low-income workers averaged $243 billion each year between 2007-2011. 6 According to the IFS, wage contraction during this recession is unprecedented. The TUC found pay in some parts of the UK had fallen by more than 10% since the start of the downturn in 2007. Figures from the Resolution Foundation show the widening income gap: 1% of people now take 10% of all income while the entire bottom half receives only 18% of national earnings. Wages are falling and wealth is siphoned upwards. As Seumas Milne puts it, ‘welfare has become a prop for the failure of neoliberal capitalism to deliver jobs or decent wages’. In essence, much in the same way as housing benefits subsidise landlords, tax credits subsidise employers. A living wage across the economy would go a long way to cutting the tax credits bill.
The misconception that those on benefits are scroungers belies the fact that the majority of people receiving benefits are in work. This misconstrual has been carried into the Coalition’s welfare reforms. Hence, the new benefits and tax credits cap will actually hit strivers – more than 60% of those who will lose out are in work according to the government’s own impact assessment. The same document reveals that the hardest hit will be the poorest and more likely to be disabled with the poorest tenth of households seeing the biggest income drop in real terms and the second poorest tenth seeing the biggest fall in cash terms.
As a result of the Coalition’s austerity policies, the poorest will be hit the hardest. According to work by the IFS, incomes for the poorest tenth of the population will drop 4.5% leaving these households with £224 a week to live on by April 2016. By contrast, the richest 10% will see their weekly incomes rise by 1% to £920. The Coalition has decided to uprate most social security benefits and tax credits by a sub-inflation 1% for 3 years and to decouple benefits from the higher Retail Prices Index (RPI) and peg them to the lower Consumer Price Index (CPI). These decisions have been justified on the basis of frozen public sector salaries and wages declining in real terms. According to the IFS, the latter will have the single biggest impact out of all the reforms.
Low-income households are more likely to spend their money on commodities (food, fuel etc), which are rising faster than average prices as represented by the CPI – what is termed an “inflation premium”. The Joseph Rowntree Foundation (JRF) finds that families are facing an “unprecedented erosion of household living standards”. The JRF have developed an annual Minimum Income Standard (MIS) based on the goods and services members of the public think people need in order to have a minimum acceptable standard of living. The cost of the MIS basket has increased by 25 per cent since 2008 compared with 17 per cent for CPI. According to the JRF, a single person earning £13,000 would have reached the minimum in 2008. If their wage had risen in line with average wage increases, they would now earn £14,000 – well short of the £17,000 salary needed to cover higher living costs in 2013. Childcare costs have risen over twice as fast as inflation at 37%, rent in social housing has gone up by 26%, food costs have increased by 24%, energy costs are 39% more and public transport is up by 30%. With prices growing faster than wages, the median wage fell by £3,200 since 2009 to £21,700 according to the Resolution Foundation. So it is not surprising that the Trussell trust reveals a million Britons have turned to food banks.
The Social Policy research Unit at the University of York points out that whilst pensions have more than doubled in real terms since 1948, unemployment benefits have fallen from 20% of average earnings in the late 1960s to 11% in 2011. Thus benefits have already been eroded in real terms for many years. Not only this but in the 2013 Spending Review, Osborne moved towards capping annually managed expenditure by putting controls on housing benefit, disability allowance and tax credits although this would not include state pensions. Presumably this will mean that regardless of demand, there will be a finite pot to go round. Again such punitive measures deal in the irrational rather than remedying the root causes for rising welfare budgets.
All in all, these are poverty-inducing measures. The IFS predicts an increase in poverty of the order of 2.3 million by 2020. They also predict that the number of children living in absolute poverty is set to increase by 500,000 by the end of the current Parliament. A recent report from Sheffield Hallam University documents how the poorest places in Britain will be hit hardest. Condensing their findings to a few key bullet points, they surmise that when the welfare reforms have come into effect, they will suck over £18 billion a year out of the economy
– equivalent to around £470 a year for every adult of working age in the country.
– The worst-hit local authority areas lose around four times as much as the authorities least affected by the reforms.
– Britain’s older industrial areas, a number of seaside towns and some London boroughs are hit hardest. Much of the south and east of England outside London escapes comparatively lightly.
– Blackpool, in North West England, is hit worst of all – an estimated loss of more than £900 a year for every adult of working age in the town.
– The three regions of northern England alone can expect to lose around £5.2bn a year in benefit income.
– As a general rule, the more deprived the local authority, the greater the financial hit.
Individuals adversely affected by incapacity benefit reforms can expect to lose an average of £3,500 a year and those losing out as a result of the changeover from Disability Living Allowance to Personal Independence Payments by an average of £3,000 a year. In fact, by 2016, an estimated 500,000 will lose out in this switch, squeezing an estimated £1bn a year out of the incomes of disabled people. The losses for households affected by reductions in housing benefits – often £1,000 a year – are also large. In their concluding remarks, the Sheffield Hallam group point out that this economic geography overlaps strongly with Britain’s political geography; in other words the Coalition is presiding over welfare reforms that will impact principally on those regions outside their heartlands.
5) UK’s bedroom tax and housing crisis threaten human rights, says UN expert Guardian 11/9/13