A report from a Citizen’s Basic Income Trust working group
Introduction
Decent homes are essential, and are as integral to welfare as education, healthcare, and income. [1] Equally essential are low marginal deduction rates: that is, it is important that additional earned income should mean additional net income, and that high proportions of additional earnings should not be withdrawn through the combined effect of Income Tax, National Insurance Contributions, and benefits taper rates – including the taper rates attached to Housing Benefit [2] and Council Tax Benefit (now called Council Tax Reduction). [3]
A Citizen’s Basic Income is an unconditional, nonwithdrawable income paid to every individual as a right of citizenship. Unfortunately, at first sight, it looks as if a Citizen’s Basic Income would do nothing for the housing crisis, [4] [5] and it also looks as if the varying costs of housing across the UK would make some kinds of Citizen’s Basic Income scheme infeasible.
An ideal Citizen’s Basic Income scheme would abolish all means-tested benefits. This would deliver the lowest possible marginal deduction rates (the total rate at which additional earned income is withdrawn as tax is charged and benefits are withdrawn), because then the only income that would be withdrawn would be income withdrawn through the Income Tax and National Insurance system. However, the level of Citizen’s Basic Income is, by definition, the same for everybody of the same age, whereas housing costs vary substantially between different parts of the country. A Citizen’s Basic Income set at a sufficient level to pay for housing and other living costs in Liverpool would get nowhere close to paying for them in London. It would be prohibitively expensive to set the level of the working age adult Citizen’s Basic Income at a level sufficient to pay housing and other living expenses in London: so in the short term only a Citizen’s Basic Income scheme that retains some kind of Housing Benefit would be feasible. [6]
This article will suggest that a partial solution to this problem might be to replace our current household-based and means-tested Housing Benefit based on actual housing costs with a ‘Housing Income’ modelled on Citizen’s Basic Income. [7] A Housing Income would be non-means-tested and paid to individuals, and would be linked to the average cost of housing in the area in which the recipient lived. (Areas would need to be small enough to ensure that accommodation costs throughout each area would be fairly consistent: and the current method for calculating the Local Housing Allowance could be refined to provide the required Average Housing Cost.) It would therefore be an additional Citizen’s Basic Income in all respects except that it would vary with average housing costs.
Housing Benefit and Housing Income
Because it is households that live in houses or flats, and housing costs are normally met by a single member of the household, the household is the claimant unit for the UK’s existing Housing Benefit. Because housing costs can vary considerably within the same area, calculations of the UK’s existing Housing Benefit take into account the actual cost of a household’s housing (up to a ceiling). And because a large proportion of the population can afford their housing costs, even in expensive housing areas, the UK’s existing Housing Benefit is means-tested. But are these three characteristics of the UK’s Housing Benefit necessary ones?
- Housing Benefit calculations are complex enough without separate calculations having to be made for each member of a household on the basis of the housing costs of the household as a whole, so for the foreseeable future Housing Benefit will retain the household as its claimant unit. But if we moved to a Housing Income that was not means-tested and was related to the average cost of housing in an area then payment to individuals would be far more of an administrative possibility.
- It is difficult to see how a Housing Benefit that lost its connection with actual housing costs could be afforded, as it would need to provide sufficient money to enable a low-earning household in London to afford London prices. It would need to provide the same amount for people living in Stanley, County Durham, where the cost of a house can be one tenth of the London price. Low-earning families in Stanley would then be income rich in relation to families in London. However, if every individual were to be paid a Housing Income related to the area’s average housing costs, then, if their Housing Income was not enough to pay their current housing costs, they would have a number of options. They could move to cheaper accommodation; or they could seek additional earned income, in the knowledge that neither their Citizen’s Basic Income nor their Housing Income would be withdrawn, so they would have a predictable increased net income out of which to pay their housing costs. Or they could choose to live in a larger household and reap the benefits of the economies of scale that that would bring, in the knowledge that their Housing Income would not be reduced on account of their household structure having changed.
- If Income Tax rates were to rise in order to pay for Housing Income, then those who did not need the Housing Income would be paying back its value in higher Income Tax, and those who did need it would be receiving it.
(It would be important to move to an individual claimant unit at the same time as moving to an ‘average housing cost basis’. Basing a household-based Housing Benefit on ‘average housing cost’ would involve considerable complexity. Simply taking the average would provide too large a Housing Benefit for single people living alone, and too little for a large household: but to calculate an average housing cost for each different household type would be administratively complex, and would require investigation of household size. This problem would disappear with an individual-based Housing Income, because then a household’s Housing Income would automatically adjust for household size.)
A number of advantages would follow from moving from household-based and means-tested Housing Benefit based on actual housing costs to a non-means-tested and individual-based Housing Income based on an area’s average housing costs.
Because Housing Income would be pegged to an area’s average housing costs, and would not rise or fall as a household’s housing costs rose or fell, it would encourage households to move to cheaper accommodation if that was a possibility for them – which would require Local Authorities and Housing Associations to ensure that the required smaller accommodation was available. If this worked, then Housing Income would ensure that accommodation was more efficiently used and would constitute a partial solution to the housing crisis.
Household-based Housing Benefit pays less to two people living together than to two individuals living separately, so individuals never experience economies of scale in relation to accommodation costs when they move in together. An individual-based Housing Income would leave economies of scale with the individuals, and so would encourage people to form larger households. This would represent another partial solution to the housing crisis.
A third mechanism by which a Housing Income would constitute a partial solution to the housing crisis is that it would be a static rather than a dynamic housing subsidy. At the moment, if a landlord raises the rent paid by someone on Housing Benefit, then provided the rent remains below the level permitted in that area, and the household is not subject to a benefit cap, the household’s Housing Benefit will be adjusted upwards. This ‘dynamic subsidy’ mechanism functions as an incentive to raise rent levels. [8] A Housing Income would function as a static subsidy: that is, it would not adjust upwards if an individual household’s rent was adjusted upwards – although it would, of course, adjust upwards if the average rent level in an area were to increase. This means that any rent rise would need to be met out of a household’s existing income, and landlords would need to take this into account, as would any future rent control legislation. Dynamic subsidies constitute greater upward pressure on prices than static subsidies, so to replace Housing Benefit’s dynamic subsidy with Housing Income’s static subsidy would dampen the current tendency for rents to rise. (At the moment, landlords in areas of high demand are turning away Housing Benefit recipients. If everyone received a Housing Income then such categorisation would no longer be possible: which does not mean, of course, that rents would necessarily be affordable. Only an increase in supply will achieve affordable rents.)
A fourth way in which a Citizen’s Basic Income would improve households’ housing security would be the security of the income. At the moment, apart from Child Benefit and the state pension, every part of a household’s net income is at risk – from job loss, benefits administrative mistakes, reassessments for benefits related to sickness and disability, and benefits sanctions. Citizen’s Basic Income would increase the amount of everyone’s net income that would never be at risk, thus providing a firmer financial foundation and a greater ability to avoid falling behind with rent or mortgage payments.
A further possible effect of implementing a Citizen’s Basic Income scheme might be to reduce the pressure on London and other areas of high demand for accommodation. Any Citizen’s Basic Income scheme would increase the security of people’s net incomes, and would therefore encourage spending rather than saving, and any Citizen’s Basic Income scheme that redistributed from people with higher incomes to people with lower incomes [9] would increase the spending power of those currently with low net incomes, which would boost local economies, especially in areas with high proportions of their populations with low net incomes. This might reduce the tendency of people living in poorer areas to relocate to London, and might therefore reduce demand for housing.
These five partial solutions to the housing crisis could create a substantial combined effect.
However, a Housing Income would be unable to cover the accommodation costs of people with specialist housing needs because of disability or other circumstances. Once everyone had a Citizen’s Basic Income and a Housing Income, there would be an argument for making local authorities responsible for the costs of specialist housing, on the basis that they are already responsible for many of the other services and costs related to disability and other needs. Sufficient funding would of course need to be provided.
Another problem to be solved would be that posed by lone parent households, which would need just as much accommodation as two-parent households, but would receive less Housing Income in total. One response to this would be to increase the Housing Income paid for the first child in a household and to reduce the amounts paid to adults. This might appear to compromise the unconditionality of Housing Income, but in practice it would not. [10]
As we have seen, a move from a means-tested Housing Benefit based on actual housing costs with the household as the claimant unit to a non-means-tested Housing Income based on average housing costs and with the individual as the claimant unit would constitute three partial solutions to the housing crisis. The current benefits system contributes nothing to the solution of the crisis, so a Housing Income, modelled as far as possible on a Citizen’s Basic Income, would be an improvement on that. It is of course no criticism of either Citizen’s Basic Income or Housing Income that they would not solve the housing crisis entirely.
Taking London as an example: There is already a serious housing shortage. By 2024 London’s population is projected to grow to nearly ten million: an increase of 13.7% on 2014. [11] The housing shortage in London will be acute. Massive expansion of residential developments within and beyond the Green Belt will be required, not of luxury flats for people who have homes elsewhere, but of reasonably priced accommodation for households of all sizes. In the context of today’s legislation, expansion of buy to let will exacerbate housing insecurity. An increase in the minimum tenancy term would drive some landlords out of the private rental market, would provide more houses and flats for sale, and would lower the average price of a house or flat. This would be beneficial. It would also mean a shortage of rental accommodation, and only rapid expansion of local authority, housing association, and co-operative housing schemes would be able to fill the gap and ensure that there was sufficient housing for everyone who needed it. [12] This is a perfectly feasible strategy, as the high proportion of social housing in the Netherlands shows. [13] Diversity in the housing field is to be encouraged, so it would be useful to see Local Authorities able to play a larger role. This would require Local Authorities to be able to recycle sales receipts into building new homes, and to be able to borrow in order to build, with loans secured on the expected rent stream. As some new housing schemes are showing, new residential accommodation does not need to be expensive, [14] so meaningful change in housing supply levels is at least a possibility. Changes to tenure arrangements, reductions in the discounts on right to buy properties, rent controls, [15] changes to planning law, amended stamp duty regulations, a reformed inheritance tax, and housing taxation, and enabling such regional authorities as the Mayor of London to require higher levels of social housing in new developments, could be additional contributions to a solution to the problem. [16]
Council Tax Benefit
This paper has not so far tackled Council Tax Benefit (now called Council Tax Reduction), [17] because that is designed to help households to pay a local property tax rather than to enable it to pay for housing. Council Tax is a local property tax, paid by each household, with a 25% discount for single occupants, and calculated on the basis of the value of the household’s accommodation. Council Tax Benefit helps low income households to pay their Council Tax. Like Housing Benefit, Council Tax Benefit is administered by Local Authorities: but whereas Housing Benefit regulations are set nationally, Council Tax Benefit regulations are now set locally. This means that Council Tax Benefit recipients’ marginal deduction rates (total withdrawal rates as earnings rise) can depend on the borough in which they live. While Council Tax Benefit is not the subject of this paper, a few comments might be made:
The property valuations on the basis of which Council Tax is paid are seriously out of date, and the top band of property values is very broad, which means that someone with a high income and a valuable home can be paying little more Council Tax than someone on a moderate income and with a far less valuable home. To add new valuation bands at the top of the range would result in wealthier households paying more Council Tax, in households in the lower bands paying less Council Tax, and in less Council Tax Benefit being paid out, thus reducing the number of households on Council Tax Benefit. It would therefore reduce marginal deduction rates, and by these means increase employment incentives. Council Tax Benefit reformed in this way would not conflict with Citizen’s Basic Income’s ability to reduce marginal deduction rates in the way in which Council Tax Benefit does now.
Three stages
The position that we have reached is this: a Citizen’s Basic Income scheme would not solve London’s, or any other, housing crisis; and the differences in accommodation costs between different places, largely generated by shortages in some places and surpluses in others, pose a problem which no Citizen’s Basic Income scheme would be able to solve. A Housing Income, modelled as far as possible on a Citizen’s Basic Income ( – the only difference being the connection between the level of Housing Income and the average cost of accommodation in an area), would constitute three partial solutions to the linked crises of housing availability and costs, which between them might make a substantial difference. But no change to the benefits system will solve the housing crisis, particularly in places like London. Only attention to housing supply and tenure would offer the possibility of real solutions to accommodation availability and costs in London and in other places experiencing shortages and therefore escalating costs.
We can envisage three stages:
- A Citizen’s Basic Income scheme that pays a genuine Citizen’s Basic Income and at the same time leaves in place a means-tested Housing Benefit based on actual housing costs and a household claimant unit;
- A Housing Income, modelled on Citizen’s Basic Income, but related to each area’s average accommodation costs;
- Alongside both stages 1 and 2: a rapid increase in housing supply in London and in other places experiencing housing shortages, facilitated by changes to Local Authorities’ ability to build new homes, changes to right to buy, changes in the minimum length of tenancies, rent controls, and changes in taxation policy.
The Citizen’s Basic Income Trust is grateful to Jake Eliot, Jay Ginn and Geoffrey Torry for forming the working group that gave birth to this article.
Opinions expressed are not necessarily those of the Citizen’s Basic Income Trust
[1] Stuart Lowe, The Housing Debate (Bristol: Policy Press, 2011); Jake Eliot, ‘Review: Stuart Lowe, The Housing Debate’, Citizen’s Income Newsletter’, issue 1 for 2012, pp 13-14:
[2] In this paper references to Housing Benefit should be taken to include the Housing Costs Element of Universal Credit.
[3] Jake Eliot, ‘Where does housing fit in?’ (Citizen’s Income Trust, 2011):
[4] Jules Birch, ‘Is universal basic income too simplistic to meet housing need?’ The Guardian, 26th April 2016:
[5] Mark Wadsworth suggests that the current housing situation could have been foreseen, and ought not therefore to be regarded as a ‘crisis’: . There is some justice in this view. For the purposes of this article we shall employ common parlance and call the situation a crisis.
[6] Kate Webb, ‘What could a Citizen’s Income do for the housing crisis’ (Shelter, 2016):
[7] The Royal Society of Arts’ similar ‘Basic Rental Income’ comes with a variety of other conditionalities: Anthony Painter and Chris Thoung, Creative citizen, creative state: the principled and pragmatic case for a Universal Basic Income (London: Royal Society of Arts, 2015), pp 33-5
[8] Jake Eliot, ‘Where does housing fit in?’ (Citizen’s Income Trust, 2011):
[9] For instance, the scheme researched in Malcolm Torry, A variety of indicators evaluated for two implementation methods for a Citizen’s Basic Income, Institute to Social and Economic Research Working Paper EM12/17, Institute for Social and Economic Research, University of Essex, Colchester, May 2017
[10] Malcolm Torry, A variety of indicators evaluated for two implementation methods for a Citizen’s Basic Income, Institute to Social and Economic Research Working Paper EM12/17, Institute for Social and Economic Research, University of Essex, Colchester, May 2017, p. 4.
[11] Office for National Statistics, ‘Statistical bulletin:Subnational population projections for England: 2014-based projections’,
[12] Duncan Bowie, Radical Solutions to the Housing Supply Crisis (Bristol: Policy Press, 2017), pp 121-7.
[13] Elizabeth Austerberry, ‘Netherlands follows British lead on social housing’, The Guardian, 21st June 2013: . But things have not been plain sailing for Housing Associations in the Netherlands: Kate Allen, ‘Dutch home rental market rocked to foundations’, Financial Times, 30th November 2014:
[14] YMCA London South West, ‘Y:Cube’; Hilary Osborne and Sophie Morris, ‘Pop-up village in south-east London to house homeless families’, The Guardian, 18th March 2016,
[15] Mark Wadsworth, ‘Housing crisis? What housing crisis?‘
[16] Duncan Bowie, Radical Solutions to the Housing Supply Crisis (Bristol: Policy Press, 2017), pp 128-65
[17] http://www.if.org.uk/2014/07/01/housing-crisis-what-housing-crisis/; www.gov.uk/apply-council-tax-reduction