Housing benefit cuts and the impact on working families

By Declan Gaffney

New figures in an answer to a Parliamentary Question by Karen Buck reveal a hitherto unrecognised problem with the coalition’s cuts to housing benefit. While government’s presentation of the cuts has been shamelessly geared to stoking up grievances against out-of-work families supposedly living in expensive properties, as in George Osborne’s budget statement, some 26% of those who will be affected by the cuts are in employment. In London, where 159,000 households face average losses of £22 a week and thousands will lose much more, a third of those affected are working. In all 273,000 of the households nationally affected have someone in employment.

The cuts, which will be imposed from 2011/12, are directed at tenants in receipt of the Local Housing Allowance (LHA), the new housing benefit for private rented tenants introduced by the previous government. The chart shows the local authorities with the largest numbers of in-work households affected (this reflects the size of authorities as well as the local housing benefit caseload, of course). It also shows (the red line) the percentage of LHA recipients in the area who are in employment. As can be seen, large numbers and shares are not confined to London. DWP estimates that nearly every LHA household will lose out under one or other of the changes being introduced (some will lose out under more than one change).

These figures dispose of the notion, basic to the government’s presentation of the policy, that the cuts would be confined to those who could be made to fit the stereotype of the ‘undeserving poor’ and bring out the lack of realism of much of what has been said about welfare over recent months. The rhetoric of benefit cuts demands that claimants and taxpayers be seen as mutually exclusive groups. Since taking office, coalition ministers have consistently tried to open a gulf in public perception between those in receipt of welfare payments and the rest of society. The in-work families who will be hit by the cuts to housing benefits are just the most striking counter-example to this artificial dichotomy.

These figures also point to the crucial role of in-work support during periods of rising unemployment. The recession didn’t just increase the number of households reliant on out-of-work benefits. As hours were cut back and as more families had to rely on a single earner, in-work housing benefit became an essential lifeline for thousands of households.

Since the financial markets crisis, housing benefit expenditure has increased by about £4bn per annum in nominal terms, mainly reflecting a growth in the housing benefit caseload of nearly 600,000. It would be natural to assume that the bulk of the new claims came from those who had lost their jobs during the recession: in fact, some 40% of the growth in caseload was accounted for by people who were still in employment, 234,000 claims in total. This was in addition to the 430,000 working people claiming HB before the big employment impacts of the recession. Nearly a third of housing benefit expenditure growth since November 2008 is on working households.

This is not the only form of in-work support which grew rapidly in response to the recession. In April 2010 there were 414,000 more in-work families in receipt of working and/or child tax credits than two years previously (this does not include families only receiving the quasi-universal ‘family’ element). Between 2007/8 and 2008/9 tax credit entitlements increased by three and a half billion pounds, 65% of which went to working families. Lest this be seen as supporting the coalition’s attacks on ‘middle class’ benefits, these increases were in the highly targeted working tax credit and ‘child’ elements, where 75% of in-work recipient families have incomes below £20,000.

Further growth in the tax credits caseload since 2008/9 would indicate that in-work support has increased by a further billion pounds. Taking into account the rise in in-work housing benefit, we are spending in the region of £5bn more on in-work support just on these two programmes than two years ago. Estimates of these changes are shown in the table below (tax credit figures for 2008/9 to 2009/10 are projections rolling forward average expenditures from the previous period).

Although welfare expenditure remained stable over most of Labour’s period in office, there were major changes in expenditure patterns, with in-work support playing a much bigger role than previously. While many feel that there was a negative side to this in the form of a lack of focus on stagnating wage rates at the lower end of the distribution, there can be little doubt that this support has cushioned the impact of the recession for hundreds of thousands of families. It may also have had an impact on employment, making part-time work a realistic option for many people otherwise facing unemployment: a striking aspect of this recession has been the limited impact on employment among households with children, with lone parent employment even showing a slight increase since 2008.

The coalition has attempted to co-opt the language of work incentives to justify its cuts to welfare – as if any reduction in entitlements automatically improved incentives. The experience with improved in-work support over the last ten years, including during the recession, shows how limited this perspective is. At the same time, maintaining and improving the sustainability of employment for those on low incomes should be a priority. Forcing low income working families out of their homes is the last thing you would do to further that objective.