The rabbit out of the hat in yesterday’s budget was the 1% rent cut per year in social housing which nobody had predicted. Here I look at what it means.
First. this only applies to social landlords in England and does NOT apply to Scotland or to Wales where housing policy is devolved to the Scottish Parliament and the Welsh Assembly.
The budget red book confirms this:
UPDATE – inserted Friday 10 July 2015 after publication of the Welfare Reform and Work Bill which says:
(An IDS cock-up as housing matters in Wales are the responsibility of the Welsh Assembly)
Secondly, this is for 5 years not 4 years. This is due to the fact that rent changes, increases usually but now decreases, occur in April of each year and so the 2020/21 reduction of 1% occurs before the next election in May 2020 and applies until end of March 2021.
This policy therefore applies from April 2016 to the end of March 2021 and is 5 years not 4 years
Third, this is a very clever policy as 1% does not sound much does it? Yet English social landlords had planned on the basis of the previous rent increase system of [CPI+1%] and therefore anticipated that their rental income would rise by CPI+1% for ALL tenants and each and every year.
English social landlords receive £13.3 billion in housing benefit per year and the official HB data shows this and Housing Benefit is received by 64% of all social tenants according to the Family Resource Survey of two weeks ago meaning this £13.3 billion of HB is 64% of all English social landlord rental income. The total income of English social landlords is thus £20.78 billion this year.
This £20.78 billion per year using the [CPI+1%] formula and using the OBR official CPI estimates used in the budget would have meant English social landlords would have anticipated and planned on the £20.78 billion per year being £23.28 billion in 2020/21.
Yet it will only be ceteris paribus (all things being equal) £19.76 billion and in that final year alone some £3.52 billion less than the expected £23.28 billion
The cumulative impact is a £6.2 billion cut in housing benefit and a £3.49 billion cut in income from non housing benefit tenants making a total cut to English social landlords of £9.7 billion over 5 years.
This averages out at a £1.94 billion per year cut to English social landlords and is a £1.94 billion per year added financial risk from yesterdays budget from the seemingly innocuous 1% rent decrease per year. By way of comparison the bedroom tax is a £300.9 million per year cut to the tenants of English social landlords this year and so ….
The 1% rent cut equates to 6.5 times the risk of every bedroom tax household not paying a penny. Put another way if 50% of the bedroom tax is paid this 1% actual rent cut equates to 13 times as bad as the bedroom tax for English social landlords.
£9.7 billion is a lot of money. Social landlords are presenting the budget in totality along the lines of x number of social houses will now not be built and basing that on a £20,000 cut equating to 1 less new property being built and using that £20,000 figure this means the 1% rent cut per year equals 485,000 FEWER social housing properties being built over 5 years – or 97,000 fewer per year.
Remember that is just from the 1% rent cut.
When you add in the financial risks and actual income cuts from the benefit cap reduction, the pay MORE to stay, the tax credit changes and so on and so forth it is not hard to make an argument that yesterdays budget will see half a million fewer social housing properties being built as a direct consequence of the budget measures.
I will leave it there for the landlords reader except to say please please please and pretty please with cherries on the top, can we stop saying “Pay to Stay?” Every tenant now pays to stay else they are evicted for arrears. This rehashed foolhardy and unworkable policy which originated under Shapps is correctly termed Pay MORE to Stay.
By all means calls it PMS for short…oh and as that too is a housing policy it also does not apply to Scotland or Wales either and neither will the right to buy (also a devolved issue) and if the devolved authorities are clever they will abolish it and the Welsh Assembly has already cut the old maximum RTB discount down to £8,000 from £16,000 so at least getting there.
I am sure English social tenants will be jumping for joy at a 1% rent reduction!! That is a whopping 15 pence per week less in bedroom tax you will have to pay on average though in 2 years will be just a 14 pence per week reduction!
Yet what about Scottish and Welsh social tenants? The powers to insist on a 1% rent reduction in social housing each year reside with the Scottish Government (SNP controlled) and The Welsh Assembly (Labour controlled) and not with Westminster.
The Labour Party in Wales could insist on this and as Welsh social landlords receive about £760 million per year in HB and extrapolated £1.18 billion per year this would be an £11.85 million cut in revenue to Welsh social landlords per year.
The bedroom tax in Wales is currently £22.46 million per year would be cut by 1% or £225,000 per year cut for tenants and Wales is one of the hardest hit areas in the UK for bedroom tax which Labour opposed and said they would abolish.
Note here the bedroom tax is welfare benefit policy (housing benefit) which is NOT devolved to Wales or Scotland.
The situation in Scotland is very interesting politically with the SNP vowing to fight for Scottish people and challenge Westminster at every turn. Scottish social landlords would lose circa £26.78 million per year with a 1% rent cut in social housing imposed by the SNP and the Scottish Government would reduce the bedroom tax in Scotland by 1% of the current £45.15 million it costs Scottish tenants – some £451,500 per year.
This would also reduce the amount of DHP that the Scottish Government guarantee and pay on top of the DHP allocation they receive from Westminster so it is a transfer of cost from the SNP run Scottish Government to Scottish social landlords. So while in the scheme of things this is a tiny reduction for the SNP run Scottish Government it clearly has wider political appeal.
That is a really interesting issue as if the Scottish Government run by the SNP impose say a 2% social rent cut and save themselves £900k per year it is still insignificant in savings terms yet they are simply transferring cost from central government in Edinburgh to social landlords in Scotland and Scotland very interestingly still has many local council landlords.
Of the 32 Scottish Councils the SNP is only in control of 2 and so the SNP at the Scottish Government imposing reduced social rents across Scotland could well be seen as a political vote winner and see them gain control over many Scottish local councils at the next local elections…hmm!!
Oh dear – I wrote yesterday that social landlords – who are rapidly restructuring their business plans after the budget – would be idiotic if they believed the budget data as the figures are incredulous as their revised business plan would be built on sand, the same applies to the dahlings of the think tank world in the IFS. I have just seen this:
As you can see I have highlighted the mistakes in red.
1. For 4 years – No it is 5 as I explain above so you are just 25% out there and hugely understate the cut to landlords. The cut is for 2016/17; 2017/18; 2018/19; 2019/20 and 2020/21 – a Bowie as it is known…
oh a Bowie knife to cut…Nah that would only see IDS dressing as Davy Crockett – God forbid!
2. The 1.2 million English social tenant not on HB will be £700 per year better off by a 1% reduction in rent. Wow please advise which English social landlords charge £70,000 per year in rent as that would be the rent if the 1% saving was £700!
3. Net gain (ie saving) of £1.4 billion per year through reduced HB – The budget predicts a £1.445 billion HB I agree and tables the same saving and details this …in year FIVE (2020/21) and a year IFS seems to not see!?
4. £2.5bn in today’s prices – No as I have explained above the average (nominal) cost over the 5 years is £1.94 billion per year so it cannot be higher than that at £2.5 billion in today’s prices and must be lower than £1.94 billion.
Of course both analyses involve accepting the inflation assumptions of the OBR as used in the budget at 0.1% today rising up to 1.9% CPI in 2019/20 which GREXIT may alter and BREXIT undoubtedly will whichever way the EU Referendum goes as the financial turmoil of the referendum itself will inevitably hit UK inflation.
On a more detailed social housing level IF English social landlords evict the 3 – 4% of benefit tenants caught by reducing benefit cap and replace with working self-payers
OR decide that it is better financially to under occupy properties as the bedroom tax is a lower cost risk than the benefit cap if fully occupied (Yes just one perverse incentive from the budget)
OR if the perverse pay MORE to stay can be made to work that would see a couple both earning £7.38 per hour or just 18p per hour above the new “living wage” and working 39 hours each would mean that they go over the £30k household (benefit unit) income and so have to pay circa £70 more per week in rent (yes another perverse incentive of the budget)
Or ..any of dozens of other perverse incentives in this panoply of porcine faeces…..