The systemic flaw in overall benefit cap will destroy social housing

Today sees the release of the September inflation figures the ones ordinarily used to increase welfare benefit rates and social rent levels from next April.  Welfare benefits increase by CPI which is 2.2% and social housing rents by a formula using the RPI figure of 2.6%.

In April 2013 we see the Tories welfare reform policy of the overall benefit cap (OBC) introduced at £500 per week for families and this is set at, and presumably increased by, wage inflation which stands at 1.5%.

So why are these figures above a much bigger problem for tenants and social landlords than the bedroom tax or direct HB payment to tenants?  – It is called the systemic flaw.

The systemic flaw in the OBC I first developed a few months back and with the release of the September inflation figures today we can see what this will mean in figures for tenants and landlords and they make scary reading.

If we assume that all the above inflation figures remain constant until the end of the next parliament then we can see how the overall benefit cap will operate in the table below using the example of the Smith family.  Mr & Mrs Smith live with their 4 children in a 3 bed flat they rent from their local London social landlord and receive welfare benefits of £392 per week and their rent is £126 per week.  Currently they receive a total of £518 pw in welfare and housing benefits yet this will reduce in April down to the maximum of £500 per week with the OBC.

The £18 per week deduction will be taken off their HB as that is how the OBC operates.  The £500pw cap takes off the welfare benefit amount of £392 thus leaving a maximum of £108 pw that can be paid in HB towards their £126pw rent.

Table 1 – The OBC in operation (without rent figures)

                 YEAR         OBC CAP        WELFARE BENEFIT     MAXIMUM HB
           2013           £500                     £392           £108
           2014           £507                     £400           £107
           2015           £515                     £409           £106
           2016           £523                     £418           £105
           2017           £531                     £428           £103
           2018           £539                     £437           £102
           2019           £547                     £446           £101
           2020           £557                     £456           £101
   Diff 2013-2020           +£57                     +£64           -£7

As you can see above the OBC increasing by 1.5% per year and welfare benefits increasing by 2.2% doesn’t make a lot of difference.  The cap increases by £57pw over that time and welfare benefits by £64 and this £7 difference means £7 less per week is given towards HB thus appearing broadly neutral.  So watch what happens when we add in rent levels and the systemic flaw appears!!

Table 2 – The OBC in operation (with rent figures)

2013  £500          £392      £108       £126           £18
2014  £507          £400      £107       £132           £25
2015  £515           £409      £106       £138           £32
2016  £523           £418      £105       £144           £39
2017  £531           £428      £103       £150           £47
2018  £539           £437      £102       £157           £55
2019  £547           £446      £101       £164           £63
2020  £557           £456      £101       £171           £70

Note: The rent figure is increased using the normal formula of [(RPI+0.5%) + £2]

The Smith family who suddenly find in April 2013 that they will have to pay £18pw towards their rent because of the cap will see this rise dramatically to become £70pw by 2020.

This is the systemic flaw explained and it occurs when different inflation or uprating figures are applied to the 3 variables of the cap, welfare benefits and rent.  In the above example it means the Smiths will have to pay £939 per year towards their rent from their welfare benefits in 2013 which rises to £3,652 per year by 2020. 

And this is in a 3 bed property so there is no downsizing element to this and the Smiths could not reduce their rent by moving to a 2 bed property.  They could move out of London, uprooting the family, social networks, change the schools of their children, etc yet would still have to contribute towards their rent even if they moved to the provinces.  They would have no rent make-up in 2013 but this rises to £33 per week in 2020 – a harsh choice indeed!

Social landlords who have focussed on the bedroom tax and direct payment of HB to tenant rather than to landlord fear the impact on arrears these two matters will have.  Many social landlords have doubled their provision for bad debt in response to these arrears threats and social landlords will increase their rents by the maximum formula allowed because of the risk of arrears as they have no choice but to do so.

Yet while increasing rents by 3.1% plus £2 per week (the maximum allowed next April) to mitigate the risk of arrears caused by the bedroom tax and direct payments – as social landlords have little choice but to do – brings the systemic flaw to the fore.

An £18pw HB deduction on a rent of £126pw in 2013 is a 14.3% reduction and broadly similar to the bedroom tax reduction of 14% for underoccupying by 1 bedroom.  It is lower than the £31.50 25% reduction the bedroom tax would have for underoccupying by 2 bedrooms.

Yet by 2020 the £70pw reduction on a rent of £171 is a 41% reduction in HB and much higher than the 25% bedroom tax reduction.  This is why social landlords have much more to be worried about with the systemic flaw than the bedroom tax.

Yet the systemic flaw is NOT recognised in that way and it needs to be and this is why the overall benefit cap is a much more punitive policy than the bedroom tax for both social tenant and social landlord.

IF social landlords do not inform tenants of this NOW then they run the risk of tenants blaming social landlords for their rent increases over the next few years, increases which I have said are necessary and an obvious reaction to the bedroom tax and direct payments issues.  Whereas if tenants are not informed of this now they will merely see social rent increases as a double whammy by the landlord on top of all the welfare ‘reform’ issues.

The social landlord will get blamed for this by tenants yet it is not social landlords fault and NOT informing social tenants of this NOW will massively damage the social tenant social landlord relationship.

Note well that above example is (a) a 3 bed property and (b) is for a 4 child family.  The impact is much worse if using a 4 bed property or a 5+ child family.  In that circumstance (4 bed house 5 child family) the tenant make-up goes from £100 pw in April 13 to £169pw in April 2020.  The £169 per week tenant make-up on a £184pw rent is a 92% HB cut and the bedroom tax pales into insignificance by comparison!

As I have said before larger families become a risk too far even for social housing as the likelihood of significant arrears is huge.  This I have called the fundamental flaw in the overall benefit cap and begs the question where the hell will large families live?  The OBC is a crude cap that creates the problem of the fundamental flaw yet has no answer to that pertinent question. That is another reason why the OBC with the systemic and fundamental flaw is a much bigger issue for social landlords than the bedroom tax or direct payment.

The 5 child family living in a 4 bed social housing property will get £464 per week in welfare benefits and £136 per week in HB, a total of £600pw up to March 13, yet the next month will get £464 pw in welfare benefit and just £36 pw in HB – a HB cut of 74% yet social landlords still focus on the ‘outrageous’ 25% maximum cut in HB the bedroom tax holds!

Let’s reduce the variables and see what happens to a 3 child family in a 3 bed social housing property in London.  In April 2013, this gives £324 in welfare benefits and £126 in rent, a total of £460 therefore full HB is paid.  By 2020 this becomes a cap of £555, welfare benefits of £377 and a rent of £171 a total of £548 pw and still below the cap.  Yet by the end of the next parliament in 2025 these become a cap of £597, welfare benefits of £421 and a rent of £210 – a shortfall of £34 per week which increases year on year.

By 2020/21 no 3 child family will get full rent paid by HB

By 2024/25 no 5 child family will get a penny in HB towards rent

By 2027/28 no 4 child family will get a penny in HB towards rent 

….all because of the OBC and the systemic flaw  

You still think the bedroom tax and direct payment are the biggest risk to rent arrears?

How many of the ‘welfare reform calculators’ you pat yourself on the back for developing and showing to tenants include the systemic flaw and the fundamental flaw?  You know the ones YOU are going to be blamed for by your tenant customers?  I haven’t seen one!

Does it need me to add 2 minutes to my workload so I can tell social landlords how long it will be before 3 child families wont get a penny in HB, or 2 child families for that matter.  As I have said before its a spreadsheet a 7 year old can create and work on in minutes.  So why havent social landlords seen this?  Why haven’t opposition MPs seen this?  Why is the CIH and NHF and other housing lobbies silent on the issue?  What about the CABx? Why haven’t tenants seen this and of course why hasnt central government seen this ….if indeed it hasnt already?  After all they are the ones that have developed this unbeliveably crude cap figure that will see families have nowhere to afford to live if on welfare benefits.

The OBC destroys social housing yet we dilly dally over the bedroom tax and direct payment!



  1. Will social landlords become more risk averse on allocating to larger families?
  2. If Yes (which seems inevitable) what is the purpose of social housing if it cant accommodate?
  3. Where will the evicted larger families go after temporary accommodation B&Bs?
  4. As such families cant afford any accommodation will they have to remain in temporary accommodation perpetually?
  5. If direct payment of HB to tenant adds a 5% risk of arrears, the bedroom tax 14% – 25% risk of arrears then what risk of arrears does the OBC give? [Clue: pick a number between 99 and 101]
  6. Does the OBC create perpetual homelessness? [Rhetorical as answer is Yes!]

A social landlord will know that a family with 5 children will get no benefit (HB or its replacement housing payment in Universal Credit) in a few years time.  Both existing and new tenants are at high risk of arrears and arrears at a level that compel eviction and make it inevitable.  The social landlord also knows this will apply to 4 child families soon and shortly thereafter to 3 child families.

The PRS landlord now knows that larger families cannot afford to live in the PRS as even if they are working should they lose employment they simply cannot afford to remain and arrears will accrue rapidly.  NB: The VOA official stdy of 500,000 PRS rent levels in-payment last month found the average 3 bed PRS rent to be £176.67 per week.  The Smith family above (4 children) have a maximum HB / LHA benefit payment of £108pw meaning a £68 per week shortfall, or £612 by the time a S21 notice has expired and almost £900 by the time enforced and so the PRS landlord will serve such an eviction notice. A 3 child family may just have enough residual from the OBC to afford PRS accommodation in 2013, yet this becomes too much of a risk of arrears withing a couple of years and so the PRS stops accommodating 3 child families due to risk of arrears and so social housing becomes the only option thus increasing demand there.

Yet the same families increasingly become a risk of arrears option for social landlords, so where will they live?  The PRS housed 4 child and above families will be moved to TA B&Bs yet where is the move-on route from here? If they are too much a risk to be rehoused in the cheapest and most-affordable form of social housing just where will they go?  The same TA B&Bs will soon be joined by 3 child families from the PRS too, and just what is the capacity of TA B&Bs?  Or simply how soon will they be full?  Will this mean more intentionality ddecisions being made by councils to avoid TA huge cost is another factor at play too!

Look at this another way, just who can afford to live in a larger social housing property than a 3 bed?  So the OBC has a huge impact not only on allocations and nomination agreements with local councils but also on homeless legislation interpretation and of course development of new social housing.

Yet that still does not answer the question of where 4+ child families will live!

The ONLY option I can see is the take-up of national minimum wage or similar low-paid employment which then sees working tax credit kick in and thus exempt the family from the OBC.  In short work or dont have a roof over your head is the OBC message to families.  Yet even if they do work they still carry a huge risk of arrears and thus eviction and thus TA B&Bs again should they lose their employment.  The risk of arrears and perpetual homelessness with its unsuitable conditions, its added cost to the public purse and the highly damaging health aspects (and costs) never goes away for a large family.  The OBC permanently and perpetually punishes large families and pretty soon the systemic flaw in the OBC sees ‘large’ family by definition becoming a 3 child family in social housing – hardly ‘large!’

As I keep saying the OBC will have a far greater impact on social housing than the bedroom tax or direct payment to tenant of HB, yet both the fundamental flaw and the systemic flaw receive scant attention.  Why?

The impact the OBC will have on development or the interpretation of how a family is assessed as homeless (intentional or not?) each justify a full-length blog alone as do all the other impacts such as allocation, nomination agreements and the undoubtedly more risk-averse that social landlords will generally become.  The figures I have used above dont lie, yes they include assumptions on the varying inflation rates but rents (RPI) are always higher then welfare benefit increases at CPI, which in turn has increased higher than wage inflation over the last decade and looks set to continue given the parlous state of the economy with negative or zero growth.  The figures could be an underestimate too if wage inflation falls and RPI increases more, yet even if they do the systemic and fundamental flaws still remain in the back of a fag packet OBC policy.

I could be really cynical and say that as the social housing sector has fallen from delivering 3 in every 4 rented homes down to less than 1 in 2 over the last 30 years despite having the best product and best service at the best price so it is no surprise it hasnt seen the impact the OBC will have or the flaws within it.   Yet the OBC WILL have the biggest impact of any of the coalition welfare reforms on social housing and far more than the bedroom tax upon which the sector has stuck to like a limpet almost exclusively in ‘seeing’ the impact of all the welfare reforms on themselves and their tenants.  It’s time they took another look!



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