The Tories have failed to cut the housing benefit bill – Labour should commit to doing so

26th April, 2013 3:27 pm

As Liam Byrne has pointed out, we need to build more houses. It would be fair to say that the last Labour government was at best ambivalent towards house building. Yet in Byrne’s interview with the Evening Standard about the housing benefit bill he rightly bemoans us “spending £24 billion on housing but hardly building any houses. No wonder rents are soaring. We simply cannot go on like this.”

This is a significant intervention on the subject from a former New Labour minister. The Labour Housing Group has long been campaigning for a significant programme of house building, and new members are always welcome.

You’d think, wouldn’t you, that Labour was responsible for a ballooning housing benefit bill? After all, we’ve heard the quote lifted from a hundred CCHQ press releases that housing benefit was “out of control” under Labour.

Housing benefit did indeed rise under Labour. Between Tony Blair walking through the front door of Downing Street up until the recession hit in 2009 (at which point you’d expect a big spike due to increased unemployment) spending on housing benefit rose by 13%. Not brilliant, it could be argued, but hardly an unmitigated disaster, especially given the housing bubble at the time. Higher unemployment caused by the recession boosted the figure by a further 22% by the time Labour left office in 2010.

In order to assess whether or not this increase qualifies as “out of control” a little bit of context is required. When Margaret Thatcher came to power in 1979 spending on housing benefit stood at £2.9bn in today’s money. Under the premierships of her and John Major that figure reached £15.8bn by 1997.

That’s an increase of nearly 450% in real terms.

If housing benefit was out of control under Labour, it was positively wild under the Tories.

Labour is far from blameless when it comes to the housing crisis this country’s in. The reason the bill soared under the Thatcher and Major governments was that a political decision was made to switch from subsiding building new homes to subsidising rents, a policy New Labour continued whilst in government. The failure of this policy is perhaps the single biggest lesson that the next Labour government must learn.

Labour should be bold at the next election: we should make an explicit pledge to cut the housing benefit bill. However, we must do it on our terms, recognising that housing benefit subsidises landlords not tenants.

The Tory plan to cut housing benefit by capping it has failed. Spending on housing benefit has continued to climb since the Tories limited Local Housing Allowance (LHA) claims at 30% of local market rates and introduced caps on the total amount people can claim for each property size.

So how can Labour cut the bill? First of all we need a massive programme of social house building. The biggest failure of the last Labour government was to ignore the consistent calls from Labour members for councils to be given the power to build again. The private sector and housing associations alone have never been able to deliver the number of new homes required to keep pace with demand. Councils have to play a major role if we are to see the scale of house building required to make up for a generation of failure.

There is cross-party consensus in local government for the “borrowing cap” placed on councils to be lifted, allowing them to borrow to build new homes. London Councils and even Boris Johnson have called on the government to lift the cap. The next Labour government must heed these calls.

Borrowing to build housing should also be removed from the Public Sector Borrowing Requirement, as is the case in all other EU countries. This would allow local authorities to borrow to build without adding to the national debt. Tory-run Westminster Council has led the charge on this.

The second thing Labour must to do to cut the housing benefit bill is take action on high rents in the private sector. We need a system that guarantees longer tenancies with predictable rent increases, along the lines of the system of rent regulation that works in Germany. This sort of system will not only hold rents down, but also provide stability to those living in the private rented sector, especially the increasing number of families.

Finally, Labour must make a bold pledge on wages and tackling unemployment. Many people who claim housing benefit are in work doing low paid jobs. They claim housing benefit because their wages are too low and their rents too high. By moving towards a living wage we can radically reduce the sum we spend on subsidising rents. Labour should also commit itself to a goal of full employment.

Everyone agrees that spending £24bn a year on housing benefit, a large chunk of which ends up in the pockets of private landlords, is madness. The question for Labour is, are we willing to take the bold steps necessary to shift spending away from subsiding rents and back to subsidising house building? Correcting a generation of policy failure will not be easy, but we cannot afford to fail.

Tom Copley AM is the London Assembly Labour Group Housing Spokesperson

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  • Sal

    It’s completely wrong to say that ‘action on wages’ is the answer to the housing benefit bill in London. At the moment Local housing allowance in london pays vast sums, far in excess of what those who fund their own housing can afford to spend. Wages will never reach levels to fund these vast amounts (and of course would just drive inflation if they did). The truth lies in accepting that not everyone can live in central London. Labour chose to privilege the poor and rich to access this rare resource when in office. Their current Policy proposes to continue with this approach. It’s a position, but to me its a case of defend the indefensible to say that those who take out of the system should be able to access housing that those who pay in couldnt dream of affording.

    • You don’t seem to know that local housing allowance is available to people who work as well as those who don’t. The impact on both is the same: in fact the fastest increase in LHA spending in the past few years has been amongst people who work. That’s why action on wages is indeed a key issue.
      Central London has been and still is a mixed communtiy but it is disappearing fast. Poorer people (in work or not working) are being pushed out by the global super-rich who see London property as a safe bet for their money, pushing up prices and therefore rents. Nor is it just central London, most outer London boroughs are also looking to rehouse people outside the capital of in the north and midlands. The Tories try to make this an argument between workers and non-workers; divide and rule as always.

      • Sal

        I made no mention of those who work vs those who don’t work, I referred to those who put in vs those who take out. Central London housing benefit affords a single person a £13,000 spend on housing (even if they work and pay part of this) . This is equivalent to a £15,000 salary to spendon housing alone). If someone on full time median income (remember half of us earn less) was to spend this amount on housing they’d be left with just £7k a year. Even the measly jsa pays you half of this. Of course amounts for families are far in excess of this, reaching way above median income in housing support alone. So those who pay for their own housing clearly don’t pay these sums, and instead live within their means. This is such a straightforward unfairness that it’s amazing it’s persisted for this length of time. Saying that the state tops up some workers to be able to spend these disproportionate amounts is by no means an argument in their favour, and as my example shows wages cannot dream of competing with the state largess in this area.

        • Anon 5

          YOu have a valid point, I can’t afford to live in Kensington, Camden etc.. but I don’t understand why my taxes should pay for a poor or low-income person to lilve in such expensive Boroughs. When houses costs a million pound in those wealthy places, is it right to build new homes for the poor in those Boroughs?

          London has 32 Boroughs and people should be not be restricted. The richer Borough should pay to house poorer residents and help regenerate the poorer parts of London….

  • Demotivatrix

    You also need to scale back hard on Right to Buy. There’s going to be no point building a load of new council properties if in five years time the tenants buy them at a huge discount, then flog them off to private landlords who start renting them out at extortionate rents again. Eligibility needs to be upped to tenants who’ve been resident at least 10 years, discounts reduced, and covenants put on leases so that homes sold under right to buy can only be owner occupied, they can’t be sublet (I appreciate this probably won’t work for houses where you sell the freehold rather than the leasehold, but it’d be a start).

  • Mike Harris

    Brilliant piece – I totally agree.

  • Steve Buckingham

    You should only be allowed to argue for more council housing if you’ve lived on an estate like the Aylesbury. I’m very much in favour of more social housing and secure tenure but the idea that councils have a proud record of building and managing desirable housing stock doesn’t stack up. We can make sure more social housing is built without having it managed by councils who have little record of success.

    • aracataca

      Correct Steve. Maybe co-operatively owned housing could be the answer?

      • Steve Buckingham

        I could be persuaded on cooperative housing.

      • There are plenty of potential ownership schemes that could be tried. Co-operatives sound attractive and are a great way of securing democratic common ownership. Perhaps there is also room for national government owned stock if built as part of an economic strategy for particular areas – ownership could then be transfered at a later date.

    • AlanGiles

      Not since the late 70s – Mrs Thatcher’s Right To Buy scheme depleted stocks of council houses dramatically, and worse, local authorities were expressly forbidden to build new stock with the receipts of the houses sold.

      As Hazel Blears once mentioned New Labour were not interested in council house building.

      But that is all history. More recent history gave us the “Decent Homes Programme” (Prescott) and the solution many local authorities adopted was to either transfer their stock to ALMOs or housing associations. Many of these HAs were incompetent and dictatorial, and less understanding and compassionate than the local authorities

      I know of some cases where former council stock was taken over by an HA and the tenants were told they would have to get rid of their pets (dogs usually) many of which the tenant had had for many years, with no complaints from neighbours. If you don’t believe me, just contact the Dogs Trust, for one example, who would be able to enlighten you.

      LA bad, HA good is another vast over-simplification along the lines of the public bad private good mantra which so many Tories and New Labourites (who, let’s face it are Tories in all but name), like to repeat, to try to convince themselves if nobody else.

      For the record I was born in a council house, and lived in one for many years.

  • AB

    Building more social housing may be a good idea but not if it is done while retaining the current concept of social tenancies being for life. That places us on a path of perpetually needing to build more social housing, particularly as people live longer. Given the angst about encouraging or forcing people to downsize when they might arguably only need smaller social homes, a programme of continual building combined with life tenancies would lead to us eventually having an oversupply of over-large properties.

    Building new social homes while accepting that today social housing allocation should be on the basis of present need rather than a lifetime entitlement should be the starting point. This could be facilitated by measures to smooth the transition between social tenancy, private tenancy and private purchase. This would also reduce the appeal of and need for right to buy schemes as there would be an alternative, unsubsidised route for social tenants to move on without loss of security.

    http://botzarelli.wordpress.com/2011/11/22/middlehold-how-to-make-the-housing-market-work-better/

  • Edward Carlsson Browne

    Giving councils more powers to build housing is important, but not sufficient. A fair amount of urban local authorities have tightly drawn boundaries and limited space to build new housing. It’s not desirable to force them to build on green spaces or flood plains, or to stick up extremely high-density housing which will overburden traffic networks and store up social problems for the future.

    But neighbouring, largely rural, authorities will not always be keen to see major new developments, particularly where the involve large quantities of social housing. I’ve seen the housing plan for the rural authority that I grew up in, which is keen to rip up planning rules to allow the construction of ‘aspirational homes’, by which they mean houses with at least four bedrooms that most local people can’t afford but will attract wealthy commuters. On the other hand they want to see only a small proportion of social housing and are actively discouraging the construction of cheap housing that might be affordable for young people on low incomes.

    To some extent, you could probably solve these problems by moving local authority boundaries, but that’s a long and complicated process that would open who knows how many other cans of worms. In the meantime, you need measures to make sure that all authorities pull their weight, not just those that have the highest waiting lists and the densest populations.

  • pete

    maybe tenants in the private sector should have an option to buy too. Longer tenancies are one thing, and would encourage tenants to invest a bit in the property; but the right to first option to buy a share or whole ownership where Landlords are willing would be a positive thing.

    As for new build housing, multiple small developments scattered around the district are better than one or two massive developments.

  • charles.ward

    “Labour should be bold at the next election: we should make an explicit
    pledge to cut the housing benefit bill. However, we must do it on our
    terms, recognising that housing benefit subsidises landlords not
    tenants.”

    How does housing benefit not “subsidise” tenants?

    “Everyone agrees that spending £24bn a year on housing benefit, a large
    chunk of which ends up in the pockets of private landlords, is madness.
    The question for Labour is, are we willing to take the bold steps
    necessary to shift spending away from subsiding rents and back to
    subsidising house building”

    So you’ll be putting money in the pockets of private builders instead?

  • Quiet_Sceptic

    I certainly support the call for more house building but the fundamental issue isn’t who builds them, it’s why are they not getting built? Why isn’t the private sector building enough homes – there’s plenty of labour and materials available, all too much labour looking for work!

    This idea that the private sector can only manage to build X homes per year just doesn’t stack up. We’re all the private sector, anyone reading this is a potential house builder, when you were looking for a home why didn’t you self-build?

    I know why I didn’t, I wouldn’t get planning permission to build on land I could afford and the plots of land with planning permission are so expensive it makes it completely unaffordable.

    At root our housing problems are problems of land and planning. By all means build more social housing but while we’re at it we need to fundamentally change our planning system to make the private housing market work and break the control of land-banking builders and a planning system which throttles supply.

  • robertcp

    I agree with the proposals in this article and that they should result in cutting the bill for Housing Benefit. However, I would not be comfortable with the pledge to cut Housing Benefit. It just sounds like New Labour triangulation.

  • JC

    I’m trying to get 100 houses built. It’s taken nearly 4 years so for and still no sign of planning permission. Could be something to do with it!

  • Pingback: The Tories have failed to cut the housing benefit bill – Labour should commit to doing so | Tom Copley AM - Labour London Assembly Member()

  • I agree with this article. Something is also needed to make home ownership more affordable especially for young people – a stamp duty holiday or reintroduction of MIRAS?

    • Anon 5

      Why don’t they offer Capital Gains tax relief for private landlords selling up?

      If a home owners sells, they don’t pay any tax.

      Even when businesses sell premises they get tax relief, but private landlords don’t get any tax relief.

  • Anon 5

    According to Tom Copley’s article “this country is spending £24billion on housing benefit.”

    There are a number of points which Tom Copley has ignored. Such as how much money would be needed to build these new houses?. According to my calculations this would be £600billion. Where would this £600 billion come from? How much would the government have to pay in interest alone? (May be at 5%, the interest alone would be £30billion). Even on that basis, the £600billion cost of building those houses would be a debt on government books and never be paid off.

    These new homes will always be a drain on public finances as they have to be maintained and that includes of housing staff. Every few years, kitchen and bathroom would need to be upgraded. The Decent Homes Programme cost £40billion.

    Private landlord manage their own rental property. There is low management cost. Most landlord have a full-time job, and this is something they do on the side. They dont need office or huge overheads. If they need a cash injection, they will put if from their savings or their main job. They also pay tax on rental income, which housing associations don’t.

    There is a sense of hatred for landlords among Labour. I put it to Tom Copley, who are these landlord he dislikes?. He forgets Landlords are private citizens from all walks of life. What is wrong with the state buying housing service from its own citizens?.

    Then in the article it goes on to say “Housing Benefit is soaring”. Now this is a “naughty” statement. Since the banking crisis in 2007, the LHA rate has been largely unchanged for past 6 years. In other words, the a single mother and child who rented a home in 2007 on housing benefit, will be paying largely the same rent in 2013. That is almost 6 years of no rent increases. The LHA rate is not tracking market rents, in future it is going up by 1%. So is it fair to ridicule landlords and spread vile rumours of rents soaring? The ‘market rent’ has gone up, but you a landlord with a sitting housing benefit tenant is not getting benefit from market rents. Unless a landlord decides to evict a housing benefit tenants and put a private tenant in their place. If this was happening, then this country’s housing benefit bill would be nil. So instead of thanking ‘private ’ landlord who have housing benefit tenants and are accepting a reduced rent. All I can read about it ‘greedy landlords’ and ‘rent going up’. It is not entirely a fair picture?

    Whilst, the overall bill for housing benefit is going up, but that is to be expected in a recession….

  • markfergusonuk

    How on earth did you calculate £600 billion?

    • Anon5+1

      Most rental makes 5% (on the value of the property). Most new builds, cost more then current properties. That is how I came to £600 billion.

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