OBC – the arrears risk is higher than the bedroom tax.

Last week I spoke at a social housing conference about the OBC.  My presentation began with the view that social landlords needs their bumps read as they have concentrated on the bedroom tax and they have ignored the overall benefit cap. Not the easiest sell as you can imagine telling a group of social housing professionals that they havent been doing their job which was one way of looking at my view!

Over the past 18 months or so barely a week has gone by without a new piece of research about the bedroom tax emanating from one social housing body or another.  Ask yourself how many reports or articles you have read or seen about the impact on social housing of the OBC?  Very few have ever emerged.

How many social housing professionals read the leaked Pickles letter in July 2011?  You really should read it again and it is here. The letter from Eric Pickles private secretary Nico Heslop to the private secretary to Cameron, Matthew Styles concerned the overall benefit cap then estimated to affect 56,000 families.  The latest DWP estimate is it will affect 171,000 families or more than 3 times that number and see here for a full breakdown of that 171,000 figure

Heres the letter:

Matthew Style

Private Secretary to the Prime Minister

Dear Matthew,


As we discussed, I am writing in advance on the meeting of the Quad tomorrow covering the issue of the Overall Benefits Cap. My Secretary of State is attending the meeting taking place on Council Tax Benefit and is also likely to raise these issues given the implications it has for DCLG policies.

As you know we support the principle of the Overall Benefits Cap on the grounds of fairness. It is not right that a household on benefit should receive more than the average working household. However the specific implementation of the Overall Benefits Cap could cause some very serious practical issues for DCLG priorities.

(So no doubt we are talking about the same issue the OBC!)

Firstly we are concerned that the savings from this measure, currently estimated at £270m savings p.a from 2014-2015 does not take account of the additional costs to local authorities (through homelessness and temporary accommodation). In fact we think it is likely that the policy as it stands will generate a net cost. In addition Local Authorities will have to calculate and administer reduced Housing Benefit to keep within the cap and this will mean both demands on resource and difficult handling locally.

I have emphasised “we are concerned that the savings from this measure, currently estimated at £270m savings p.a” That is a HB cut of £270m but based on 56,000 families.  Yet it is now triple that number or £810m pa savings.

Further to come back to my initial point as why social landlords have been inept to concentrate on the bedroom tax and ignore the OBC, the bedroom tax is expected to catch 660,000 families at £16pw or a £551m HB cut each year.  So the OBC cuts HB more than the Bedroom Tax from year 2 and increases each and every year thereafter!

I also emphasised  “In fact we think it is likely that the policy as it stands will generate a net cost” in the above paragraph.  The cuts generated from the OBC will be more than outweighed by the added cost of homelessness.  Or to put it bluntly the OBC will not save a penny and will cost the public purse more!

So what we can see to date is that the OBC will cost more than it saves and it will displace a city the size of Liverpool and will hit social landlords more than the bedroom tax in the risk to arrears. To do that it attacks social landlords by reducing their HB income (and £800m is a 5.5% reduction in social landlords HB income of the £14.6bn they receive!) and instead the public purse has to pay out more in providing temporary accommodation. It’s a transfer of HB income from RPs to Local Authorities.

“Secondly, we are worried about the impact of this measure on our ability to build social housing for families through the new affordable rent product. To fund new affordable housing development providers need to be able to charge rents of up to 80% of the market levels but the impact of the Overall Benefit Cap will prevent them from doing so in many areas greatly reducing their financial capacity. Initial analysis suggests that of the 56,000 new affordable rent units up to 23,000 could be lost. And reductions would disproportionately affect family homes rather than small flats. For example it would be extremely difficult to fund any 4 bed properties, so desperately needed, anywhere in the country – disproportionately impacting on families and therefore children.”

So the OBC makes affordable (sic) rent model particularly prone to be hit by the OBC given its much higher rent levels, some of which are twice the level of social housing rents.

Finally, our modelling indicates that we could see an additional 20,000 homelessness acceptances as a result of the total benefit cap. This on top of the of the 20,000 additional acceptances already anticipated as a result of other changes to Housing Benefit. We are already seeing increased pressures on homelessness services. I understand that there may be a suggestion around requiring families to divert a percentage of their non-housing (benefit) income to cover housing costs. It is important not to underestimate the level of controversy that this would generate (likely to dwarf anything already seen on the HB only caps) and the difficulty of justifying this in policy terms as well as implementation.

So based on 56,000 families affected the view of Pickles pps was that the OBC would create an additional 20,000 homeless families.  Hence based on 171,000 affected this rises proportionately to 60,000 additional homeless families! The letter continues by suggesting taking Child Benefit out of the OBC to avoid to “ substantially reduce the negative impacts. The homelessness and child poverty risks set out above would be reduced – for example families with 4 children would be able to live in most parts of the country outside London and the South East. And it would also decrease the knock-on costs and impact on local authorities, and reduce the number of new affordable rent properties lost. I should also mention that there are other measures which could reduce negative impacts, including calculating the median earning for families rather than households (which include single people) and an allowing a grace period before the Cap applies. We are also supportive of these.” 

Nico Heslop

Private Secretary to Eric Pickles


My own view is that even this extrapolation underestimates the impact.  The 171,000 affected in 2013/14 by the OBC includes 96,000 in the private rented sector with an average shortfall of £93pw.  If the NHF are concerned that an average £16pw bedroom tax cut will mean arrears and evictions in social housing (and they are right to be concerned) then what impact will an average £93pw cut have in the private sector where landlords can and do evict speedily on arrears cases

Of the 75000 in the SRS again with an average £93pw cut then an arrears eviction is also an inevitability.  It will take longer than in the PRS and it may only affect 20% in the first year for example – yet 20% is still a further 15000 families evicted on top of the 96,000 in the PRS

The OBC in year one will add 110,000 homeless families to the caseload of about 51000 or so we already have or in simple terms triple homeless families. Note well also that the DWP envisage 8500 per month or an additional 102,000 families per year to this total and this is every year

Financial risk to social landlords?

75,000 lots of £93pw or £364m per year is the level of the HB cut to social landlords.  By contrast the National Housing Federation estimates the bedroom tax will see an average £16pw cut to 660,000 social tenants and this equates to £551m in the first year.

So the bedroom tax in those simple terms represents a bigger financial risk to social landlords in the first year. Yet in the second year over 120,000 social tenants will be hit be the cap making this financial risk to arrears £583m and more than the bedroom tax of £551m.  In the third year this OBC financial risk to arrears becomes £800m: In year 4 £1.02bn and year 5 £1.24bn. So in the first five years the bedroom tax hold a £551 x 5 risk to arrears or a £2.76bn risk whereas the OBC sees a £364m / £583m / £800m / £1.02bn / £1.24bn risk totalling a £4.01bn risk to arrears.

We can see from the above that the ‘risk to arrears’ figures show a much greater risk to social landlord’s finances from the OBC than from the bedroom tax.

In the first 5 years and by 2018/19 the arrears risk is 45% greater from the OBC than from the bedroom tax!

I cant see why anyone could still think the bedroom tax is the biggest risk to social landlords finances as the risk to arrears from the OBC increases every year and overtakes the arrears risk from the bedroom tax in 2014 and doubles that risk by 2017.

Moreover we need to put in the context of the systemic flaw in which rents rise faster than the cap figure and I note today the National Housing Federation in their submission to the Chancellor have asked for him to confirm that welfare benefits rise by CPI and that rents continue to rise with RPI thus confirming and exacerbating the systemic flaw.  This will see more and more smaller families being hit by the OBC cap and further increase the risk to arrears.

That will also see the tenant profiles of social landlords change markedly over the next decade or so and again something social landlords have not factored into their projections.  What would be the point of social landlords developing 3 bedroom properties if in 20 years no tenant on benefit can afford to live there becomes a key question. Social landlords…out of financial necessity…will have to refuse to accommodate large families and increasingly smaller families over time as the risk to arrears is simply too high.

The OBC has a huge number of impacts aside from being a far greater risk to arrears than the bedroom tax.  Even Pickles pps knew this about ‘affordable rent’ being well unaffordable 16 months ago and saw the link between the two. Yet until social landlords wake up to the impacts of the OBC and stop focusing on the bedroom tax. bedroom tax, bedroom tax then many more stupid financial decisions such as affordable rent will be made.

The elephant in the room is getting bigger by the day!


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