Housing Benefit Reform: Next Steps, by Peter Kemp, Steve Wilcox and David Rhodes

Joseph Rowntree Foundation, 2002. Paper Back. Order this book

Our first issue for this year was on housing costs, and we particularly noted the Pivot Initiative’s proposals for Housing Benefit reform. The Joseph Rowntree Foundation has now issued its own report on the subject, in which Kemp, Wilcox and Rhodes concentrate on two particular problems: the effects of rent restrictions and the relationship between Housing Benefit and tax credits.
The Local Reference Rent and the Single Room Rent (which restrict the level of rent on which Housing Benefit is calculated) are aptly described as ‘trip wires’, because their effects are often unknown until the tenancy agreement has been signed and Housing Benefit applied for. The Foundation suggests that a more transparent system which would at the same time provide a ‘shopping incentive’ (an incentive for someone to seek cheaper accommodation) would be to increase social security benefit levels by 25% of the local average housing cost and then calculate Housing Benefit on 80% of actual rent rather than on 100% of the restricted rent as at present. (The Pivot Initiative suggest a similar solution). The researchers model three schemes and conclude that there would be less shortfall and thus increased cost.
The second major problem the report tackles is the fact that families can suffer a 95% maximum marginal benefit deduction as Working Families Tax Credit, Housing Benefit and Council Tax Benefit are all reduced as income rises. Two solutions are offered: 1) A housing tax credit which would taper out first, followed by the tapering of other tax credits. (A housing tax credit, and tapering Housing Benefit and Council Tax Benefit one after the other, are Pivot Initiative solutions). This would reduce the maximum marginal benefit deduction but would move the taper further up the income scale. 2) A flat rate housing costs contribution (a partial tax credit) could be added to existing tax credits to complement rather than replace Housing Benefit. Again, 25% of average local rent is suggested. With both solutions, of course, a new complexity is added to an already complex situation, as regional variations in housing costs would make tax credits in one area different from those in another. The administrative problems which would result are not fully explored.
Like the Pivot Initiative’s report, Hope for Housing Benefit: A Strategy for Housing Benefit Reform (Pivot Initiative, 2001), this report also suggests bringing low income home-owners into the Housing Benefit / housing tax credit system, and it also tackles the issue of payment periods.
Kemp, Wilcox and Rhodes had the benefit of the Pivot Initiative’s report during the latter part of their work, which might be one cause of the considerable unanimity between the two reports. Another cause must be that the problems encountered with Housing Benefit have some pretty obvious solutions. We would merely add, as we did in issue 1 for this year, that to pay a locally-agreed nonwithdrawable Housing Benefit to everyone would provide the greatest possible shopping incentive and would remove the taper completely and thus provide a far greater incentive to seek employment: something which people living in London and who are unemployed and on Housing Benefit are understandably hesitant to do.
An issue which does not appear with anything like the frequency or the emphasis it should have in such reports as this is the issue of administrative complexity, both of the present system and of any proposed replacement or revision. Perhaps teams of Housing Benefit researchers should contain at least one member currently working in a Local Authority Housing Benefit department.