UK Poverty Post

Budget 2010: Cutting Benefits by Stealth

The headline announcements were bad enough. Largely due to the increase in the highly regressive VAT, it is, as the IFS put it, ‘likely that the overall impact of [the Budget’s taxation] measures was regressive’. George Osborne’s claims that this was a progressive Budget were only possible because of measures already announced by the previous government.

The VAT increase alone will cost the poorest tenth of families 2% of their income, compared to only 0.8% for the richest tenth. Then there are further bitter pills, also announced in Osborne’s speech, such as changes to benefit uprating (linking most to the historically-lower CPI rather than RPI), freezing of Child Benefit, and a new testing regime for Disability Living Allowance – all of which will hit the poor and vulnerable hardest.

These measures were presented as alternatives to benefit cuts. Yet, slipping under the radar, are a series of changes to Housing Benefit that give the lie to the claim of protecting the poorest. Announced in the speech itself was a reduction in the maximum rents payable to claimants (albeit the figures Osborne gave didn’t match those in the Budget report). In London especially, these are likely to create housing ghettoes – risking Parisian style banlieues on the outskirts of the city, while the centre becomes a wealthy ghetto.

Yet, in the small print of the Budget report, but unmentioned by Osborne, lie two further pernicious, and potentially far wider-reaching changes. First, there will be a reduction in the proportion of properties in any given area that can be paid for with Housing Benefit. At present, Local Housing Allowance (LHA) – the maximum figure that Housing Benefit will pay – is set at the median of local rents. In effect, this means that people on Housing Benefit can afford to rent half of properties of an appropriate size in their local area. That is now being cut to the 30th percentile – or, in other words, more than two-thirds of housing will now be out of reach of benefit claimants. For the true effect of this, it’s worth thinking about what Shelter have to say: ‘nearly half of claimants are already making up a shortfall of almost £100 a month to meet their rent’. This number can only go up as the pool of housing available to claimants is reduced still further – and the shortfall will need to be made up from their already very low incomes.

The second other major change is that there will be a 10% cut in Housing Benefit for anyone who has been unemployed for a year or more. The effect of this is unambiguous: unemployed people will have to move house, become homeless, or make up the difference from an already pitifully-low £65.45 a week (or £51.85 a week for under-25s). This is nothing less than a stealth cut in benefits.

The Housing Benefit budget has risen by 50% over the past decade, but this is in large part due to a house price ‘boom’, the benefits of which people living in poverty have not shared. Rather than tackle the problem at source – the National Housing Federation estimates that government action could see the number of new social homes built this year slump by 65% – the poorest and most vulnerable are being made to pay. The change in uprating of Local Housing Allowance from RPI (which includes rising housing costs) to CPI (which doesn’t) – also announced yesterday – is particularly cruel, as it ensures that any future house price growth will not be reflected in increases in Housing Benefit. In other words, further stealth cuts in benefits have been built in systematically, and will happen year in, year out.

In summary, these measures, taken as a whole, amount to a stealth cut in benefits – at a time when they are at already historically low levels. Likely effects include an increased ghettoisation of people living in poverty; greater levels of eviction, debt and homelessness; and severe poverty and hardship for millions of people who will be forced to go without essentials to pay for a roof over their heads

There is a limited window of time to fight these changes. Reduced caps on Housing Benefit are due to be enacted in April 2011; reduction in Local Housing Allowance in October 2011; the 10% cut in Housing Benefit to long-term unemployed people in April 2013; and the change in uprating of LHA in 2013-14. Decent housing is a basic human right, and it is under threat as never before in the post-War era. Civil society and fair-minded politicians must fight to ensure that these changes are not allowed to stand.