2011 Housing benefit reform was a false economy

Research from the University of Warwick has found that the 2011 Housing benefit reform was a false economy, and simply shifted burdens to local councils.

From April 2011 onwards, the Local Housing Allowance – the reference point for the calculation of housing benefit - was cut from covering the median of rents within a local housing market to only cover the 30th percentile. In addition, any excess payments were immediately cut. Throughout the UK, this cut affected nearly one million households in the private rented sector – constituting around 5.1 percent of all households or 25 per cent of all households in the private rented sector.

The University of Warwick economists found that, far from saving money, for every pound central government saved in housing benefit, local authority spending on temporary housing costs went up by 53p. The study highlights that, on average, households in the private rented sector lost £600 per year, but in parts of the UK with high housing costs the cut was significantly more. As a result of the cut, forced evictions and repossessions in the private rented sector rose sharply by 22 per cent after the cuts were implemented,

The Housing insecurity, homelessness and populism report also showed that the cuts had substantial human costs, causing a significant increase in evictions, individual bankruptcies, a temporary increase in property crimes and a persistent increase in households living in insecure temporary accommodation, statutory homelessness and actual rough sleeping.

Thiemo Fetzer, who led the research, said: “Our study shows that this has been a very costly social policy choice both in the short term and in the long term. In the short term councils have had to increase spending to meet their statutory obligations in addressing and preventing homelessness. As councils have limited means of raising revenues, let alone issue debt, they are left with cutting services elsewhere to pay for these extra costs.

“The reform’s intention was to protect public welfare budgets from the spiralling cost of private sector rents in much of the UK. This was done by lowering and ultimately decoupling local housing allowance from local rental markets. This shifted the burden on to local councils, that, in order to meet their statutory obligations for homelessness prevention, in many cases, had to end up renting private owned accommodation at market rents to house benefit claimants -- an increasing share of which is in paid employment but can’t make ends meet.

“In the long term housing insecurity has pervasive effects on the achievement of children, it is a harbinger of poor health, and it increases the chances of being laid off from work. But we also found a negative effect on democratic participation. We found that electoral registration rates declined sharply in the wake of the changes - if you hardly can make ends meet and live in insecure accommodation, making sure your details on the electoral roll are up to date are unlikely to be a priority.”