The bedroom tax costs more and in real like for like terms

Does the Bedroom Tax save money?

The coalition state the bedroom tax policy saves £500m per year and to date has saved £830m since it began on 1 April 2013. This was stated again this week in the Opposition Day debate in Parliament and, critically, was not challenged.

I say that this claimed saving is untrue and cannot be true and my view comes from a very simple hypothesis being: If the bedroom tax saved money as the government claim then the overall HB bill would have fallen all other things being equal.

All other things being equal or ceteris paribus or a like-for-like basis, whatever term you prefer is not as complex an issue as it may appear. There are only three key variables to consider with these being (a) the period under comparison; (b) the numbers receiving Housing Benefit (the claimant count.), and (c) inflation, and specifically Housing Benefit inflation not rent inflation.

(a) The periods under comparison

The official Housing Benefit data records the position each month at the second Thursday of each month. I have chosen the April 2013 figure which was the position at 11 April 2013 when the bedroom tax began on 1 April 2013 and so this first figure includes the bedroom tax and also includes most yearly rent increases which occur from 1 April 2013 the first Monday and definitively included at 8 April 2013 at worst.

The comparator with 11 April 2013 is the latest official HB Data which is for 14 August 2014 and is the best “to date” figure available to investigate the coalition savings claim.

(b) The claimant count

The HB Data reveals how many claimants received HB and at what average amount they received and is then broken down by tenure by those in work by age and so on. The main argument here only needs to consider the main aggregate figures.[1]

(c) Housing Benefit inflation

It does NOT follow that if your rent increases by 20% that the HB payment will increase by 20%; rent inflation and HB inflation are very separate issues. The HB data records the average HB payment on a monthly basis and gives specific HB inflation. So for example the average HB in payment at 11 April 2013 was £89.72 and on 14 August 2014 this became £93.05, an increase of 3.71% which becomes HB inflation over this period.

The Factual HB Data

April 2013 saw a claimant count of 5,062,172.
In August 2014 it was 4,930,162.
The claimant count fell by 132,010 in number over the 16 month period
The average HB weekly amount in April 2013 was £89.72
The average HB weekly amount in August 2014 was £93.05
The HB inflation over this 16-month period was 3.71% (2.78% p.a.)

Method adopted

In order to keep things as easily explainable as possible I first computed the actual overall HB cost on 11 April 2013 to be £23,698,362,963 calculated by the claimant count (1) multiplied by average HB in payment (4) and then this weekly figure into a yearly figure by multiplying it by 365.25 divided by 7.

That same process is adopted throughout.

The simplest way to account for HB inflation is to first ignore it and instead compute what the overall HB cost would have been at August 2014 from the reduced claimant count and then apply inflation.

Ignoring inflation the 4.930162m claimant count at (2) multiplied by average HB in payment (4) would have given an overall HB cost of £23,080,363,239.50p at 14 August 2014.

On a like for like basis ignoring inflation and any bedroom tax impact the HB overall bill at 14 August 2014 would have fallen some £618m due to the reduced claimant count and be £23.08 billion in shorthand.

Now we apply inflation to that like for like figure. This is simply multiplying the £23.08 bn figure by 1.0371 to become £23,936,644,715.60p or in shorthand £23.936 billion.

Then we look at the actual figure at 14 August 2014 which was the 4.93m figure multiplied by the £93.05 HB in payment figure and yearly to become £23,937,001,777.45p or £23.937 billion in shorthand.

What that reveals is taking inflation into consideration and taking the relative claimant counts into consideration the ACTUAL like for like overall HB bill has increased by an exact amount of £357,061.45p between 11 April 2013 and 14 August 2014.

£357k is not a lot of money, yet it is an INCREASE

Summary

The period the above covers is the period the bedroom tax policy has been in operation. Also in that time the other 3 welfare reform policies aimed at reducing the HB bill of the benefit cap, the LHA cap and the SAR cap have also been in operation, the last two from January 2012.

Hence collectively the 4 welfare reform policies have had the impact of INCREASING the overall Housing Benefit bill and NOT REDUCING IT.

There is no specific reliable data available to say the bedroom tax increased the bill and the other three policies reduced it or any such combination.

Yet there is no need to do that for the purposes of this argument which using the official HB data above reveals the overall HB bill on a like for like basis and after accounting for specific HB inflation has INCREASED and not reduced or produced any savings at all.

____________________________________________________________

[1] The in-work claimant figure may have a notional part to play here but only if assuming the increase in the period of in-work claimants previously did not claim HB which is highly unlikely