I estimate the reduction in the overall benefit cap to £23,000 per year will save central government a median figure of £0.63 billion per year. Yet I also estimate it will cost local government £2.68 billion a year more in new homeless costs.
This means that the reduced cap will cost the public purse over £2 billion per year more and the reduced cap policy is a major transfer of cost and risk from central government to local government. I also estimate the same policy will also see 720,000 additional children made homeless directly due to the reduction.
A £2 billion per year increase is the same as taking an additional £80 per year in tax from every single taxpayer in the UK and that in a nutshell encapsulates the economical madness (fiscal myopia?) of the ‘Austerity Offensive’ of this government.
These are staggering cost figures which give no economic rationale to the policy and truly offensive figures given the projected increase in children made homeless.
The estimates are speculative and, in reliability and confidence terms, maybe as wide as plus or minus 20% because there are so many unknowns and assumptions in the high degree of number crunching involved.
Yet even if the central government savings are 20% higher and local government costs 20% lower this would see a central government saving of £0.756 bn and an additional cost to local government of £2.23 bn which still leaves an overall public purse increase of £1.48 billion.
That is a hugely significant increase in overall cost of this cap reduction policy and I am calling for the government to produce a very detailed impact assessment of the cap reduction before they implement the reduction in the cap.
Last week a DWP Minister Justin Tomlinson in a written answer (1561 on 16 June) said the DWP will be producing an impact assessment on the reduced cap policy as Hansard records:
I have crunched numbers upon numbers on known pieces of data and overlaid them in minute levels of detail (see below) and each and every time and every which way the same result emerges – a greater cost to local government in homeless terms than the savings to the DWP on the reduced housing benefit bill, or central government cost.
To demand a full detailed impact assessment on the reduced cap policy as it costs more and to have this completed before any such reduction takes place is a reasonable suggestion in each and every case. Yet when it involves the outrageous numbers of children that will inevitably become homeless given the benefit cap directly targets larger families it becomes an absolute necessity.
In that respect the appointment of Frank Field MP as the chair of Work and Pensions Committee is to be welcomed given his outspoken views on the welfare reform policies and in his former role as a Director of Child Poverty Action Group (CPAG).
This is a matter of the highest urgency given the additional cost to the public purse of the policy and especially the inevitable huge increase it will have on the numbers of homeless children. My estimate above of 720,000 additional children becoming homeless is stark in comparison to the campaign run by Shelter just 6 months ago which said it was a scandal there were 93,000 children homeless at Christmas 2014. That number could increase 8-fold by Christmas 2015.
The detail is extraordinarily complex and below I give a flavour of that so that, hopefully, any reader can understand.
How does this transfer cost and added cost to local government?
Take the example of the couple with 4 children on benefit the 2 Parent 4 Child household 2P4C.
They receive the same amount of welfare benefit, child benefit and child tax credits wherever they live and this comes to £401.72 per week. The reduced benefit cap is £23,000 or £442 or so per week.
This means the 2P4C household can only receive circa £40 per week in housing benefit whether this is HB in social housing or LHA in privately rented housing. Even in the cheapest rent area this means they will need to make a rent top-up of £50 per week on a social rent and nearer £90 per week on a cheap privately rented 3 bed property and of course more in a 4 bed.
They will be evicted and present as homeless which given the children they must be accommodated by the local council and even if the homeless department finds them intentionally homeless the council social services department will have to pay the cost of this.
If it costs say £200 per week to accommodate the 2P4C household who previously received £90 per week in HB in their Housing Association 3 bed then the council will have to pay this £200 per week and will get back £40 of this from central government in HB
The added cost to the council of the homeless accommodation is £160 per week.
Yet the DWP will save a net £50 per week if the property the 2P4C family is evicted from does not see the new family there get HB and this is the £40 cost when before they were paying £90 per week – or
- will pay out £130 per week in £90 to the new family and £40 to the old family which could be an increase in the DWP cost – or
- the SRS property is now taken by a former PRS family who received £150 in LHA before and now cost the DWP £60 less per week and with the £40 paid to the evicted family a net saving of £20 per week
Either way the cost to the local council of having to provide homeless accommodation is far more than any saving the DWP makes and so there is an increased overall public purse cost.
The reduction in the cap figure will create a huge surge in homelessness and a huge transfer of additional cost to local councils.
How is the overall figure estimated?
This is extremely complex and will vary significantly.
For example a household as small as 1 parent 1 child will receive a maximum of £282 per week in London yet a 2 bed private rent can be way in excess of £350 per week there and the 2 bed LHA cap is £302 per week.
The further £20 per week cut there may affect a tiny number of tenants who are already paying a top up to their rent and who are not in any of the exempt categories such as receipt of Working Tax Credit, or of DLA / PIP or ESA if in the support group.
Note however that 72% of ESA recipients are in the working group (WRAG) and are not exempt from the benefit cap. This is another known variable from 2012 DWP figures which has been factored in.
So just to arrive at the smallest family household size that will be affected by the reduced cap figure requires a complex array of data calculations.
Note too that the single person on just JSA of £73.10 per week may have to pay £24.45 of that in a 1 bed flat in parts of London too with the reduced cap and assuming the single persons rate remains at 70% of the family cap figure of £16,100 per year. My figures here do not include any single persons being made homeless.
The couple with 5 or more children will not get a penny in housing benefit and will have to pay all of their rent out of their welfare benefit and child tax credit at the other extreme. In between that we have the couple with 2 children in London and even in Bristol with a £18 or so weekly reduction in a PRS 3 bed property and more generally any household with 4 children in every social housing property and all with 3 or more children in a low rent PRS area.
The DWP’s own Stat-Xplore data feature tells us how many housing benefit recipients of working age there are broken down by the number of children in each household:
The graph above shows a very simple starting point for any estimate of figures yet this is not as simplistic as saying 4% of all households have 4 or more children and all 4+ child households in social housing will be affected, or indeed that 12% of all households have 3 or more children so 12% of the PRS housing benefit recipients will be affected.
A detailed complex set of overlaid calculations exploring what % are in work and what % of working age tenants receiving ESA have to be calculated and then extrapolated based on at least 5 broad categories of rent areas from very low to very high and within the private and social rented sectors.
ESA is a working age only benefit s is relatively simple to overlay as over 1.114 million ESA claimants are passported onto housing benefit by its receipt. Yet DLA / PIP is paid to children, to those of working age and to exempt pensioners and is much more complex to estimate before it is overlaid with tenant claimants in each of the 5 rent areas and then by PRS and then by SRS.
There are many more complex calculations too numerous to detail here as it would only serve to confuse and the purpose of this blog is simply to show that the reduction in the benefit cap will lead to a much greater increase in homeless costs fo local government than central government can save – and both are public purse costs.
The call for a very detailed and thorough impact assessment BEFORE the reduced benefit cap is introduced is also to prevent IDS and the DWP saying the reduced cap has cut the (central government) housing benefit bill and therefore works. The reduced cap will reduce the headline DWP and central government spend yet it will mask a much higher increased cost and increased cost directly because of the reduced cap to local government.
The 2P4c is again used to illustrate a key point. That household can only escape the reduced benefit cap if they take up employment and the local council can only escape the huge increased homeless bill if the household secures employment – both assuming the benefit cap policy keeps the same exemptions as now and they are not reduced. That is a much easier task in London than in Hull for one example. Yet the bigger issue is that homeless families will have to live in high cost and high local council cost temporary homeless accommodation for a much longer duration.
If the lone parent with 4 children has children of pre-school age difficulties emerge straight away with securing employment. And please set aside any superficial morality in the mention of lone parents as it easily be hubby, the former sole wage earner has run off with his secretary in a mid-life crisis thinking the grass is greener. The policy like all welfare benefit policies do not have a moralistic dimension and the above is just one example of how there are constraints to finding employment.
Another highly likely constraint would be that the household were evicted for arrears and no other landlord will touch them because of those arrears. Many social landlords will not take a new tenant even if working if they have over £250 of arrears to a former social landlord and so getting a job and becoming exempt from the benefit cap could still leave these households with nowhere to live except the temporary homeless accommodation which they cannot afford in a perverse Catch 22 situation.
And the longer the homeless accommodation scenario continues the greater the damage to the children in the household as if they are in a B&B for example there is invariably nowhere to cook and nowhere to do any homework, and that would be homework in a new school as the family evicted because of the benefit cap will likely see the children have to change schools, meaning new school uniform costs too and I could go on and on about children’s life chances and increased costs and seen all of this first-hand many years ago when managing homeless families units.
The reduced benefit cap could blight the lives and life chances of 720,000 children as I say above and even accepting the possible 20% plus or minus figure there this is still a minimum of 576,000 children when damaging just 1 child’s life chances is bad enough.
I could easily make cheap political points at the Conservatives over this and also to Labour who also support the benefit cap and indeed they included this in their manifesto. Yet the issue is far more important than that and quite simply the Conservatives and Labour are incompetent buffoons over the benefit cap as they both fail to see the economic and social consequences of this truly offensive policy.
In summary there is an immediate urgent need for a full and detailed impact assessment to be completed on the proposed reduced benefit cap before any implementation of such a policy. When that is done then I do not see a way that this reduction can be made operational. The DWP has said above in the written answer that an impact assessment will be done in due course. That is simply not good enough it has to be before the policy is made operational and that is an extremely reasonable request.
I hope Frank Field MP takes up tomorrow to lobby the government for in his capacity as Chair of the Works & Pensions Committee. He should not need reminding that his constituency local council MBC Wirral has 45.19% of all housing benefit recipients in the PRS compared to the national average 32.47% and so MBC Wirral will have much higher local council costs of homelessness than the average council
I also hope that the Labour Party also realises that being Her Majesty’s Official Opposition carrying a duty to scrutinise government policy and that in Leeds which is the constituency council of Rachel Reeves Labour’s Shadow DWP Minister that my estimates show a £16 million increased yearly homeless cost of this to Leeds City Council along with at least 6,000 additional children made homeless there.
I hope to God I have made an obvious statistical error in my figures. Yet I know I haven’t and it now falls to the elected representatives of all parties to lobby for a full and detailed impact assessment of the proposed reduction in the overall (housing) benefit cap policy.
UPDATE 19 June 2015 20:00
Numbers and scale – I say from the outset given how complex this calculation and estimate is that it could be 20% either way and I stick to that. Yet – for the sake of argument – let’s suppose I am 50% out and the DWP savings were 50% more and the LA costs 50% less and 50% less children were homeless
- This would give the DWP saving at £0.945 billion per year
- The additional LA cost of £1.34 billion per year
- And 360,000 children made homeless
Those are still horrendous figures and figures that would necessitate a very full and very detailed impact assessment before the cap figure was reduced.
Last week (see here) three independent estimates from three social landlords gave the number affected by the reduced cap when extrapolated at 144,000 SRS households and extrapolated again a further 169,000 PRS ones making 313,000 households in total.
My figures suggest that is 50% too high and a range of 164,000 to 246,000 with a median point of 205,000 is more likely.