HB bill will be £7bn+ MORE and the bedroom tax will COST £150m+ MORE per year

The government like to persuade the public they are cutting the welfare benefit bill when in fact it has increased by over £14bn since the election.  One of the biggest target areas for the coalition has been the ‘burgeoning’ Housing Benefit bill which the government claims it is reducing with the LHA caps to private tenants and of course the bedroom tax and the overall benefit cap.

Housing Benefit reforms were first outlined very soon after this coalition took office in May 2010. The extract below from the July 2010 Housing Benefit Digest issued by the DWP explains:

The Chancellor announced a package of Housing Benefit (HB) reforms in his Budget statement on 22 June. It is the most significant and comprehensive reform programme for HB since the scheme was introduced in the 1980s. The background is the budget deficit and the reductions in public expenditure that the Government is making to tackle it. Ministers are clear that the overall cost of HB, forecast to be around £20 billion this financial year, must be controlled and reduced. The package of reforms will save nearly £2 billion by 2014/2015. There are also important policy considerations around fairness and work incentives that lie behind the reforms”

The highlighted section in red above is unambiguous and in simple terms the government (a) directly targeted housing benefit (HB for social tenants in bedroom tax and LHA caps for private tenants) for cuts.  The government also (b) set a monetary target which is £18bn per year or so by 2014/15 – the £20bn less the ‘nearly £2 billion’ mentioned above.

So the welfare reforms were created to reduce the overall housing benefit bill to £18 bn and if this is not achieved we can reasonably argue the welfare reforms have failed.  The current housing benefit bill is £23.77 billion or £5.77 billion above target which shows, without any ambiguity whatsoever, that the welfare reform policies have failed.

Currently the official DWP figures released a couple of weeks ago which detail the position at May 2013 reveal the average weekly amount of housing benefit paid is £89.81 per week and we have 5,072,264 housing benefit claimants which equals £23,769,427,986 or £23.77bn per year.

It also means that unless the welfare reforms of bedroom tax, benefit cap and LHA cuts make collectively deliver £5.77 billion savings in the next 18 months – to the end of 2014/15 – then the welfare reform policies of the bedroom tax, benefit cap and LHA cuts have failed.  

Yet even with the highly unlikely (see below) government estimates for these policies over the next 18 months (£740m for bedroom tax; £300m for benefit cap and £340m for LHA cuts) only sees £1.38 bn of alleged ‘savings’ meaning the overall housing benefit bill will still be at least £4.4bn per year above the target this coalition government set on taking office.

In short the welfare reforms have failed and will continue to fail.

One other pertinent point is that in April 2014 the housing benefit bill will rocket as it always does when social landlords and private landlords typically increase rent levels.  If we assume that RPI inflation will be around 2.6% in September 2013 which is highly likely then in April 2014 the housing benefit bill will increase by a further £1.42 bn.

That alone would wipe out the maximum savings the government says it expects from the LHA changes, the bedroom tax and the benefit cap by April 2015 when again the housing benefit bill will increase by a further £1.61bn to reflect the new CPI+1% rent increase in social housing.

So the two rent increases due by the end of 2014/15 will see the HB bill rise by a further £3.03 bn per year and that is NOT including any increase in the claimant count which has been rising by 9000 per calendar month since the election.

So even if the number of HB claimants does not rise and with the maximum amount of savings the government expects from the welfare reforms the HB bill will be at least £7.42bn above the government target for 2014/15.  This is over 41% more than the coalition’s target .

If the HB claimant count does increase by the average 9000 per calendar month then the projected £25.42bn HB bill at 2014/2015 will be a further £1.02bn more and become £26.44bn when the government said its policies would see it being £18bn per year or 47% above the target which the welfare reforms were forecast to make!!

Also finally note that last year 2012/13 according to official HCA figures released last week social landlords brought 31,000 so-called “affordable” (sic) rent properties to market.  As I comment below this means these 31,000 new properties receive an average of £114.89 per week in HB rather than the £80.71 an ordinary social housing property receives.  As this trend (which after all is coalition policy!!) is likely to significant increase then the HB bill will again increase by hundreds of million of pounds per year!

The coalition estimated ‘savings’ and why they are nonsense

Why the government estimates on purported savings are so unlikely is easily explained.  I have estimated the benefit cap alone will INCREASE the welfare spend bill by £1.4bn per year alone and this makes a £2.1bn increase alone by the end of 2014/15.  Yet that is only an estimate and I could be wrong of course…it could cost even more!

However the bedroom tax claimed savings are very much in focus this weekend and social media is ablaze with tweets and posts that the Labour Party has said the bedroom tax will cost £1.5bn more. That is a distortion of what the Labour Party has said and in all honesty what they have said is pretty ropy to say the least and the incompetent Labour Party has not even included the added public purse costs of the benefit cap policy and I say this just to undermine how incompetent they are!

The real way to look at the bedroom tax purported savings that the coalition claim it will is directly at the DWP’s estimate of this found in the June 2012 impact assessment.  DWP said the bedroom tax will save the public purse £480m in its first year and that has to be a joke.  It is calculated on the 660,000 bedroom tax affected households having an average £14 per week cut in HB.  If you multiply this that becomes £482,130,000 or £482m,

Yet that figure assumes the bedroom tax will not create any public purse costs which of course it does and it does very significantly as I explain just some of them but far from all in outline terms below.

Firstly, the government gave local councils £25m in bedroom tax DHPs which takes the maximum saving down to £457m.

Secondly, the government after the bedroom tax judicial reviews a few weeks back then announced a further £35m this year in bedroom tax DHPs.  This takes the purported saving down to £422m.

Thirdly, we are informed that local councils received 25,000+ DHP applications in April 2013 alone and per year about 300,000 assessments and the cost of these additional claims needs to be taken away from the purported public purse savings.  If the cost of each is £75  a low estimate which broadly equates to around 2.5 hours each for receipt of DHP, checking each claim, deciding each claim, informing claimants and any reviews or reconsiderations and further writing back to claimant is not a high figure at all. then these  300,000 DHP claims at £75 each is a further £22.5m public purse cost taking the government purported savings figure down to £399.5m so far

Fourthly, we are fairly reliably informed that about 3% of bedroom tax households have downsized and so the £482m original figures needs to be reduced by 3% which is a further £14.5m or so which takes the purported saving down to £385m this year.

Fifthly, the Office of Budget Responsibility (OBR) report on the governments Autumn Statement said that this year (2013/2014) that local councils would incur additional HB costs (over and above what they receive back from central government) of £0.4bn – or £400m if you prefer.

This then takes the bedroom tax ‘saving’ down to an increase of £15m per year – a far cry from the £480m reduction the government claim you will agree!

Sixthly, note well that what is NOT included in the above is the cost to the public purse of each local council dealing with bedroom tax requests for further information, reviews and appeals against the decisions.  If just 5% of bedroom tax affected households appeal, or 33,000, and each appeal costs a conservative £1500 each as I outline many months ago, then this adds a further £49.5m cost to the public purse and so this takes the bedroom tax policy so far to an increase of £64.5m to the public purse – a huge difference compared to the governments Goebbels-like view that it will save £482m per year!

Seventh – lets estimate that 5% of bedroom tax households are evicted for arrears – the same 33,000 families – who are deemed unintentionally homeless and give local councils a full homeless duty and/or are deemed intentionally homeless and social services have to step in and rehouse these 33,000 families with high cost temporary accommodation.

Temporary accommodation costs for homeless families are high.  Let me be very conservative and say these are £340 per week – broadly in line with Shelters 2011 figures here – and as such are £250 per week more per week than the average housing benefit payment of £89.81 per week.  Lets also be incredibly conservative (ie naive and living in cloud cuckoo land) and say all local councils can miraculously keep this additional £250 per week added HB cost down to just 6 weeks which is the government target.  That is £1500 per evicted family more in HB and with 33,000 families that is another £49.5m added cost of the bedroom tax to the public purse.

If you are still following the maths reader that makes an overall increase to the public purse from the bedroom tax policy of £114m per year – Again a long way from the overall saving the government want Joe Public to believe…well when I say a long way I mean £596m per year away from the governments ridiculous and knowingly false £482m per year saving.

There are so many other directly created or causal costs which are difficult to quantify. For example this week has seen the release of the Homes and Community Agency, or HCA official figures on social landlord rents.  The HCA is the social housing regulator and this reveals that social landlords created a further 31,000 so-called “affordable rent” products and in HB cost terms these are where social landlords set an AR rent which receives on average £114.89 per week in HB compared to the social housing average HB level of £80.71 to use the correct 2012 comparison figure.  Or in simple terms social landlords brought to market 31,000 AR tenancies each of which adds £34.18 per week to the overall HB bill.  So yearly for each one this is £1783 more in HB paid out, or at least for the approximate 70% in which HB will be claimed adds a further £40m or so to the HB bill.

Thus far from just these few examples the bedroom tax will cost the public purse £154m or so more each year and not the £482m saving the government estimate.

The issue with the above is that the bedroom tax losses incurred by social landlords and the higher cost of collecting rent will see more and more of new tenancies being let and the “affordable” (sic) rent level.

In summary and being blunt the welfare reform policies of this government haven’t worked, cant work and wont work and the coalition’s ignorance in devising and implementing the welfare reform policies shows when it comes to Housing Benefit and the rented housing market that the government do not know their humerus from their rectum.  Yet as long as Joe Public think the bedroom tax and the benefit cap will cut housing benefit spending and while we have a spineless Labour Party who are petrified to even say the word “welfare” let alone oppose the welfare reforms on economic grounds (and I only raise some of these above in a very simplistic way) as they should then the housing benefit and overall welfare benefit bill will rocket and not be challenged.