Could the OBC cost a net £500m MORE in HB?

Last week I said that the OBC would create 130,000 homeless families in 2013/14 and today I began to think how much MORE in HB this will cost the public purse.

This is a surprising area to consider even for my obtuse brain as surely the OBC in the way it works ONLY cuts Housing Benefit.

The process starts with the cap then takes away welfare benefit payments and leaves a residual amount TOWARDS the payment of rent. So if a 2 child 2 parent family in London gets £256 in welfare benefits this leaves £244 to pay towards rent and with PRS 2 bedroom rents averaging £321pw in London according to VOA figures then we see a huge and unaffordable cut of £77pw and then eviction.

The DWP original ‘final’ estimate in July 2012 was that the OBC will save £270m per year in HB yet that ignores any additional cost of homelessness it creates which last week I argued would directly cause 130,000 additional homeless families next year alone and was for two-parent families with two or more children from the private rented sector in London (and nearby areas).

If we take the cost of temporary accommodation at the equivalent of a room in a cheap london B&B hotel we see this is £483 per week or £69 per night and bear in mind most will require more than 1 room and it means circa £193pw additional HB per case (over the 2 bed £290pw LHA rate) and 130,000 of those becomes an additional £1.3bn per year!

So the OBC could see an additional £1.3bn cost to the HB bill and £2.6bn cost if these families need 2 rooms at B&B hotels. The coalition impact assessment on the OBC takes no account of this additional homelessness and its cost and simply maintains it will save money.  It said in July 2012:

“The above are the most recent, updated costs which take account of the transfer of benefits away from households affected in Great Britain. At the outset, it is estimated that 56,000 households will have their benefits reduced by the policy, losing on average around £93 per week.”

Extrapolate that and we see a £272m yearly saving [(56000 x £93) x (365.25/7)]

Then last week the DWP issued a revised figure saying this would affect almost 120,000 families which I commented upon here as you would expect given the figure the DWP estimate at September 2013 is more than twice the figure of just 3 months ago and by end of March 2014 rises to 172,000 more than 3 times the figure of 3 months ago and 172,000 losing £93 per week is a HB cut and reduction of £835m per year.

So the OBC will save 3 times as much in HB spend as it will affect 3 times the number of people and this is £835m on last weeks DWP figures.  Yet the additional homeless bill at a conservative estimate will be £1.3bn more in HB.

So making a net ADDITIONAL COST of at least £0.5bn to the HB budget.

I have deliberately underestimated the cost of temporary accommodation B&Bs in the above.  The 130,000 homeless families are those in the PRS with 2 children or 3 children or 4 or 5 children.  Such families will cost far more than an average of £69 per night to accommodate and tha figure could easily double even for a family with 2 children taking up two rooms at  B&B hotel.  That would put the extra cost at £2.6bn per year not £1.3bn.

One final point.  An article earlier this year looked at the LHA rent cap and its impact.  This reveals in simple terms what is to come with the OBC.    A two-parent family with 4 kids evicted for arrears as the LHA cap at £400pw wasnt enough to pay the £450pw PRS rent.  The family was evicted made priority need homeless and put up in two rooms at a Premier Inn at £69 each per night – £966pw in TA cost.

That article is the simplest way to understand why the OBC will directly lead to huge increases in homeless families.  A £50pw shortfall in HB meant eviction for arrears as this was too much to make up out of welfare benefits.  The OBC average shortfall is £93pw almost twice that amount and so mass homelessness will be created by the OBC when it comes online in April 2013. The above example I give for a 2 bed property in London sees a £77pw cut.

The added cost of homelessness just in HB terms more than outweighs any HB savings from the OBC cap. This flagship Tory policy revels in the spin of ‘we are cutting back on welfare benefits and reforming benefit’ is here is exposed as a charade and a fiction.


3 thoughts on “Could the OBC cost a net £500m MORE in HB?

  1. Hello, you still have not answered my question. What is wrong with families on benefit using some of the rest of their benefit money to pay towards housing? This is what all families have to do if they have a shortfall isn’t it? If they are getting £256 per week in other benefits why can’t they pay £77 out of this if they have a shortfall? Those in the PRS who are not reliant on benefits have to find the money out of their salary if their rent rises (even if their salary has not) and means they have to prioritise paying the rent/mortgage before other things. I don’t get your logic.

  2. Siobhan, some quick reasons.

    Firstly, welfare benefits are set at a subsistence level so any additional or unplanned or ad hoc expenditure is always difficult. When it is £77pw or £4000 per year then it is unrealistic.

    Secondly, the £77pw is currently paid until March 2013 before the OBC comes in and so the OBC is a blunt overnight instrument.

    Thirdly, this is not a rent rise situation, but an income cut and an overnight one. Ask yourself could you survive with a £4k per annum overnight cut? Very few could.

    Can I suggest you read the Guardian piece above which split up a 4 child family and cost the taxpayer / public purse and additional £600pw – all for the sake of £50pw. If £50pw is unaffordable for 4 child family then £77pw for a 2 child one is far less affordable. Both come about through a blunt overnight instrument with no pre-thought and both significantly add to the public purse cost and so every taxpayer pays MORE.

    My argument above is not about the morality of the cap it is about the ADDITIONAL COST of it and that it doesnt do what is set out to do and reduce benefit spend, it increases it.

  3. Joe, I understand what you are saying but yes, our income has dropped by at least £4k in the last year because our rent has gone up and salaries have gone down. All our bills have risen enormously. As a family we have had to weigh up our priorities (which is for our kids to have a roof over the head) and so we have cut down some of the other things we would previously have spent that money on because housing is a priority and our responsibility as adult parents to make sure our children have a roof over their head. Perhaps it has not happened overnight but the OBC was announced months ago so all these families are well aware that their income will be capped come April and if they don’t then it is their responsibility as adults to find out these things, not for the state to nanny them like little kids with no responsibilities. Everyone is suffering because of the economic crisis, not just those on benefits!

    What is your alternative? To keep paying ever more housing benefit, bankrupting the country so that already rich landlords can keep getting richer and pricing those that pay their own way out of the PRS who already have to compete with those have their rent paid?

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