You thought the bedroom tax was bad! The much worse benefit cap starts in 4 weeks!!

A maximum of £500 per week in total or overall benefit payments sounds a lot. It is a lot. Yet this overall benefit cap won’t save the public purse money at all, in fact it will cost much more and as much as £1 BILLION per year more and the policy should be abandoned for the sake of the country’s finances!

In 4 short weeks time this overall benefit cap begins and this is not only bad for tenants and housing like the bedroom tax it will cost the taxpayer more. It is a stupid and reckless policy based on political dogma with no economic rationale at all.

First to note is that we already have a national welfare benefit cap. JSA is £71.70 wherever you live. The overall benefit cap includes Housing Benefit however and rents vary dramatically across the country and so the overall benefit cap is a policy to reduce Housing Benefit, and indeed that is how it will work.

Second to note is how it operates. The £500 per week is the starting point from which welfare benefits are deducted and this leaves a maximum amount of benefit which becomes the maximum housing benefit to be paid. So if a family gets £300 per week in welfare benefits the maximum it can receive is £200 per week in housing benefit. The table below shows how much welfare benefits a family receive and also how much they will be left towards their rent.

Thirdly, the DWP has sent letters out to 88,840 families between May and October 2012 stating they will get hit by the overall benefit cap. The same DWP state the average reduction in weekly benefit is £93 per week at 2012 figures. The bedroom tax average by comparison is £14 per week. The benefit cap thus presents a seven times greater likelihood of non-payment of rent and a seven times higher risk of the tenant being evicted and becoming a homeless family. In fact homelessness through eviction for arrears is inevitable with the overall benefit cap whether the tenant family lives in social housing or private housing.

Fourthly, the DWP say 46% of these families hit by the overall benefit cap (OBC) live in social housing so about 41,000 live in council or housing association properties and 48,000 live in the private rented sector or PRS. This is not a high private rent issue that only affects London!

The OBC will have a devastating impact and a far greater one for the tenant, for the landlord and for the taxpayer than the bedroom tax. It will see far more evictions for arrears and will see a huge increase in families made homeless and these families will in turn create a huge taxpayer and public purse cost for the homelessness the OBC creates.

The general public who have been so outspoken against the bedroom tax policy which has seen this remain in the news month after month know little about the OBC and its impacts and I begin to address the impacts here. 

As I state above we already have a national welfare benefit cap and the amount of welfare benefit a family receives is the same national and depends on thee make up of the family. Table 1 below shows these amounts and also shows how much the OBC leaves to pay for rent through Housing Benefit (HB) in social housing or through Local Housing Allowance (LHA) for a private tenant.

Table 1 – Welfare benefits and HB/LHA under the overall benefit cap

1P2C household – A single parent with 2 children will have a maximum payment of £279.80 per week towards rent. More than enough to cover rent in the vast majority of the country. Yet if this household sees a mum and a teenage boy and girl in London living in a 3 bed flat with a typical weekly rent of £350 per week plus with a private landlord can they afford to find over £70 per week from welfare benefit to make up the shortfall in rent? The obvious answer is no so they will be evicted for arrears and the local council will then have to place then in temporary accommodation costing £600 – £3000 per week.

The same will apply for any larger family and so we see that a family with 2 children or more living in a PRS property in London will be evicted for arrears and cost the taxpayer so much more.

It also has the following general impacts: -

- A family on welfare benefits will not be able to afford a private rented property in the capital and so PRS landlords will not accommodate a family on welfare benefits.

- As PRS landlords will not accommodate these families will either have to leave London and/or increased demand on social housing there.

- If such a family is accommodated in high cost temporary homeless accommodation by a London council then they can only leave there to go to social housing in the capital

Also note well that the OBC creates a very perverse incentive to family life. If you are a 2 parent household it is better in financial terms to ditch your spouse or partner as you then receive £41 per week less in welfare benefits yet a £41 per week better chance of keeping the roof over the head of you and your children!

Outside of London and in the PRS we see that the 2 parent and 3 child family will only receive a maximum of £172.95 per week or just under £750 per calendar month to pay towards rent. The national average 3 bed PRS rent level is closer to £800 per month and the average 4 bed PRS rent level is £309 per week or £1340 per calendar month. Even a low-rent area such as Liverpool has an average 4 bed PRS rent level of £235 per week according to 2012 official VOA figures. Can such a family afford a £61 per week rent shortfall? The answer is no the 2P3C family cannot afford this figure which is over four times the average bedroom tax shortfall in Liverpool.

A general point is that PRS landlords can evict quickly and without any reason and a judge has no discretion in this. So with an average shortfall of £93 per week nationally then a very high percentage of the 48,000 PRS families affected will be evicted for arrears and fall on the local council to place in temporary accommodation – at a hugely increased cost to the public purse. Note too that  before the OBC commences we have about 53,000 homeless families nationally so the homeless figures will double with the benefit cap. These families currently cost about £500m per year to the public purse and the OBC is expected to save £270m per year. Go figure!!

Yet these numbers and huge public purse costs have yet to consider the social tenant affected and almost 41,000 have been given letters by the DWP to say they will be affected. The same will happen to them as I outline will happen to the PRS tenants above which will add to the homeless numbers and to the public purse cost. The ONLY difference is that it will be larger sized families.

Take the couple with 5 children (2P5C) who in just 4 weeks time will receive a maximum of £41.53 in Housing Benefit per week. A 4 bed SRS property will have a rent level of £110+ even in a low rent area such as Liverpool. Will such a family be able to find £70 per week or over £300 per month from their welfare benefits to make up the rent shortfall? Of course not and so they will also be evicted and quickly by a social landlord. They then add to the homelessness numbers and to the burgeoning public purse cost.

Yet there is one hugely significant additional consequence here with the ‘large’ family – Where the hell are they going to live?

To explain if the ‘large’ family in the cheapest form of rented housing cannot afford to live in the cheapest rented housing then they will remain in temporary costly homeless accommodation permanently! There is nowhere for them to go as the council cannot place them in a council house as the same series of events, from arrears to eviction to homelessness, happens again. So where the hell are such families to live?

The options they have are stay in unsuitably temporary accommodation with all their children or (a) one parent gets a 30 hour per week job on the minimum wage or (b) the 2 parent 5 child family splits up into to households of 1P3C and 1P2C.

The latter point is yet another perverse incentive of the OBC. If a large family household splits to form two smaller ones then they can avoid the cap.

Logically a council would rehouse them in two 3 bed properties next door to one another and so avoid the much higher temporary homeless cost. Yet of course no council could advise a family to split up and even if this happens we see a doubling of the HB claims as they are now on 2 properties whereas before they were on one. The public purse cost increases yet again!!

The former and only viable solution according to the coalition is for one of the parents to take on a job and that is a key ‘nudge’ of the policy to change the behaviour of the benefit claimant. A low paid job would see receipt of working tax credit that exempts them from the OBC.

Take the 2 parent 5 child household as an example. Instead of having their overall benefits capped at £500 one of the parents takes a 30 hour per week job at £6.40 per hour (£192 per week gross) and they receive £524.09 in benefits plus the £184.66 wages for a total of £708.75 per week. This is based on a rent of £120 per week and so previously this 2P5C family would have received £678.47 per week made up of £458.47 in welfare benefits and £120 per week in Housing Benefit. So they are £30.28 per week better off.  However, working they have to pay £8.11 per week in Council Tax whereas before they paid £2.12 and so they are better off by £25.29 per week…for working 30 hours!

If the travel to and other work costs exceeds £25.29 per week or just over £5 per day then the family is worse off financially and one partner is working 30 hours per week in a mundane job simply to stay in their accommodation, their family home.

I suspect not many families will see this as an incentive!!!

Of course the last possibility is that one of the parents finds a job paying £53,000 per year gross which will see the family break even with their benefit payments of £678.47 per week plus £10 per day for work costs…not the jobs which grow on trees! Then again if by some miracle such a family found a job paying £53k per annum then Tory run Hammersmith & Fulham (zealous adherents of welfare reform who don’t think Coalition goes far enough) is proposing to charge more rent to social tenants earning over £40,200 per year and so such families would be worse off financially by getting such a job at this £53k salary. These families would then likely be evicted for rent arrears for taking a £53k per year job!!  Yes reader this clearly is thought through and the Hammersmith & Fulham policy is called pay to stay (more correctly pay MORE to stay) and came from… yes you’ve guessed it .the coalition who first mooted this 18 months ago and who want to introduce this as yet another of their hare-brained housing policies on a national scale!!

So in summary the overall benefit cap will cost the public purse about £1bn more each year and this gets worse each year as rents rise by more than the benefit cap figure. What was that reader? You thought a benefit cap reduced the welfare bill… Come on keep up!! Just because the coalition dream such policies up on the back of a fag packet doesn’t mean you have to have the same lazy superficial thinking!! What about all those homeless families exported from London? How about the more than doubling of the number of homeless families? Numbers – well 89,000 or so families made homeless is about half a million men women and children or more than the population of say Liverpool… Yes that’s each and every year!

You begin to get a picture of why the overall benefit cap is much worse than the bedroom tax now? Good that’s the idea. So all those activist techniques of keeping the horrors of the bedroom tax in the news will be honed and sharpened then? Yes you have 4 weeks and that’s an age with social media. You have some idea of why councils need to spend a hell of a lot more on benefit cap DHPs now than bedroom tax DHPs? You see why councils spend a hell of a lot more DHPs on private tenants?

What was that again? You thought the bedroom tax was bad? It is but nowhere near as bad as the overall benefit cap as you now see. Perhaps all the social landlords that are so blasé about it and were all of 2012 when I wrote repeatedly the benefit cap will see more evictions than the bedroom tax and it hits landlords finances even more than it? Worse than that is the LGA, the umbrella body for all local councils. The huge transfer of costs the benefit cap gives from central to local government has seen a LGA response deafening in its silence. They didn’t even pick up that local councils will have to spend at least £400m more in HB as their proportion of the added costs of coalition welfare reforms this year that is hidden away here in the Autumn Statement of 2012 and I discussed in December 2012.

That’s £400m per year on top of the extra costs that central government will have to give local government for the higher HB costs of temporary homeless accommodation by the way – yes additional to!!

Anyone left out there with an IQ of higher than minus 12 who thinks the benefit cap will cut the welfare bill? If so the coalition are looking for new welfare policy workers!

Courtesy of Joe Halewood at SPeye