#Budget2015 and the implications for homelessness

Thursday, 9 July 2015 - 3:44pm

Our first analysis of the emergency budget (Wednesday 8th July) in relation to the homelessness sector and the people it supports.

"We have to move Britain from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, lower-welfare economy."

After close to two months of speculation, more detail about the government’s plans for spending were announced in yesterday’s budget. As the final two substantial areas of unprotected spending left on the table, further reductions to the value of Housing Benefit and a resetting of the value of tax credits were odds on favourites to join the Conservatives’ efforts to cut £12bn from the social security bill.

That’s how it panned out, but not necessarily in the way we expected. Some of the most significant announcements included:

  • The removal of automatic entitlement to Housing Benefit for 18 to 21 year olds, although exceptions will be granted for the most vulnerable.
  • The Local Housing Allowance rate will be frozen for four years, while social rents will be reduced by 1% a year for four years.
  • The Benefit Cap will be reduced from £26,000 to £23,000 for households in London and £20,000 for those outside the capital.
  • From April 2016, the level of earnings at which a household’s working tax credits are withdrawn (known as the ‘income threshold’) will be reduced from £6,420 to £3,850.
  • Once the income threshold is reached the taper rate at which the benefit is withdrawn will be increased from 41% to 48% for every extra pound earned.
  • Support for families provided through the child element of tax credits will be limited to two children, so that any subsequent children born after April 2017 will be ineligible for support.
  • A similar change will be applied to Housing Benefit. Although the wording is not entirely clear, it appears that those families with additional children born after April 2017 will only be able to claim a maximum of the three bedroom rate, depending on the age of their children.

“The best route out of poverty is work.”

Before the budget it was reported that George Osborne and Iain Duncan Smith had been negotiating hard to formulate a package of employment and welfare reform they could both agree. As it was revealed yesterday, this means greater work incentives through an attempt to address low-pay, but a tougher environment for the unemployed and for young people.

One of the Chancellor’s most significant announcements was the introduction of a new national living wage. Starting from next year, the national living wage will be set at £7.20, rising to £9.00 by 2020 for people over the age of 25. Despite the branding, this effectively represents a mandatory increase in the national minimum wage (currently set at £6.50), rather than an effort to make the existing Living Wage (currently set at £7.85) mandatory for employers.

Whatever the name, this is welcome news. Yet, in the wake of today’s announcements regarding tax credits some serious questions remain over the kind of work people at the lower end of the labour market are expected to find.    

Given the lowering of the income threshold at which working tax credits start to be withdrawn and an increase in the rate at which the benefit is reduced, the work people secure will need to be well paid and offer consistent hours to avoid a lowering of the work incentives the policy is supposed to encourage. This could prove particularly difficult for people re-entering the labour market after a significant absence. Worryingly the policy will apply to Universal Credit, which was supposed to achieve precisely the opposite by removing benefits at a slower rate than under the current system.

The introduction of the new national living wage will hopefully counteract some of these concerns. However, as the Resolution Foundation has already pointed out, employers would be required to offer significantly higher wages than £7.20 an hour to offset the loss of tax credits. Even if employers were to pay the existing Living Wage (which can be as high as £9.15 in London) this would still not be enough. Part of the reason for this is that the Living Wage is currently calculated on the assumption that employees will also take up their full entitlement to in-work support, including tax credits and Housing Benefit.

“We are continuing to devote a greater share of state support to the most vulnerable.”

Of great concern to Homeless Link and our members is the well-publicised plan for 18-21 year olds to lose their “automatic entitlement” to Housing Benefit. There were promises to protect “vulnerable people” from this change, yet details of how this will work are yet to be given. The situation is especially worrying for those who are unable to prove the necessary level of estrangement from their families to warrant an exemption. The removal of their ability to make a claim for even the lowest rate of Housing Benefit (the Shared Accommodation Rate) will put many young people at risk of homelessness.

As the much heralded rise in the national minimum wage will not apply to those under the age of 25, it is extremely difficult to see how these same young people will come anywhere close to affording a private rented sector tenancy, unless they are fortunate enough to work for an employer that pays well above their statutory obligations.

As a counter to criticism that some of the most vulnerable young people are going to be hit hardest by these changes, the Chancellor might point to the Treasury’s efforts to increase the personal tax allowance to £12,500 by 2020. Again, questions remain over the exact benefits of this pledge to those on the lowest incomes, most of whom already pay no income tax. The fact that this tax cut extends to almost everyone, but the very highest earners, also means that valuable tax revenues are lost from across the tax base, which could otherwise have been used to fund public services and social security payments.

“This is a big Budget for a country with big ambitions.”

One sure fire way to increase wages across the board would be to implement measures aimed at boosting productivity, including housebuilding. However, with limited detail as to how the government intends to increase supply across all tenures and sectors, we remain some way from an adequate explanation of how this might be achieved.

The extension of the Right to Buy and Right to Acquire programmes, as well as the favourable changes to inheritance tax announced yesterday, will continue to boost demand for home ownership. Yet, in the absence of an increase in the supply of properties available at sub-market rates, there is little to cheer for those who have no other option but to rent.

The freezing of working-age benefits, resulting in further real term reductions in the value of Local Housing Allowance, will continue to reduce the options of those Housing Benefit claimants looking to access the private rented sector. A brief glance at the statutory homelessness figures offers a telling indicator of how the situation is playing out for some, with 29% of all homelessness applications during the first quarter of 2015 occurring due to the loss of an assured shorthold tenancy.

Social landlords have already criticised plans to lower the Benefit Cap for rendering the vast majority of affordable rents (up to 80% of market rate) unaffordable to Housing Benefit claimants in high cost areas. With a recent House of Common’s briefing paper revealing that between April 2013 and February 2015, 45% of all affected households were in London, their fears appear well founded.    

In addition, they will now have to contend with the requirement to reduce social rents by 1% for four years. Good news for tenants, but bad news for housing associations and local authorities looking to secure private investment to build more properties against the value of their existing stock. This reform is bound to restrict the efforts of a sector, which could already only raise rents by inflation, plus 1%, to increase the supply of properties available at sub-market rates.

Further developments

Further to the announcements contained within the Budget, the Chancellor took the opportunity to announce that the government’s new Full Employment and Welfare Reform Bill will be laid before the Commons today (9 July 2015). This will hopefully set out more of the detail and pace of the changes. We will produce a companion piece outlining what we think the legislation will mean for those experiencing homelessness and the agencies supporting them.

Find out more

We are hosting two webinars next week exploring the budget and ways to help your clients avoid benefit sanctions. 

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Jonathon Graham

Jonathon Graham

Jonathon was our policy officer until June 2016.