Welfare reform: the real iceberg

As the Welfare Reform Bill wends its way through parliament there’s been a lot of discussion, and indeed acrimonious debate, about many of the proposals that will impact on the level of benefit that numerous categories of claimant will receive in future. That’s right and proper because there are going to be, and already are, a lot of losers. Whether it’s the overall cap on benefit (most likely to affect claimants that live in the South East of England, or those with large families anywhere), or the increasing deductions for non-dependants (where the housing benefit recipient lives with a non-dependant who is working, and who is deemed to be making a contribution to the rent, whether or not they actually are, but that amount is deducted from the claimant’s HB anyway), or the “under-occupation” rules (where someone living in a property deemed larger than that which they need will only receive HB in respect of the size of property they “need” regardless of the rent on their actual property), or the sudden and radical discovery that anyone up to the age of 35 is really a child and can’t possibly need a home of their own – just in the arena of housing benefit alone, thousands of claimants will be worse off, and frequently substantially so. Add to that all the proposals for changes in incapacity benefit, unemployment benefit, and much more besides, it’s not perhaps surprising that this is where all the public disagreements are being played out. It’s certainly the area of political dispute, with Labour joining with vociferous bishops, and a few brave coalition refuseniks, to castigate the government in general and Iain Duncan-Smith in particular.

But in truth, none of these issues will wreak the havoc that will flow from another part of the reform bill – and it’s a part that everyone across the political spectrum agrees with and supports. That is the business of direct payments. At the moment the vast majority of tenants in social housing, be their landlord a housing association or a local authority, never see the housing benefit that pays their rent. It’s paid straight from the benefits system to the landlord concerned. It’s this “invisibility” of the transactions around rent for all tenants on full housing benefit (around 60% for most social landlords, and a lot higher for some in particularly deprived areas) that worries the government. To all intents and purposes for those tenants, argues the government, their housing is free. They don’t pay rent at all. The government believes that this is both an affront to “hard-working families” with mortgages or private landlords to pay and, more profoundly, a powerful incentive to remain on benefit rather than to work. The government believes that this very process is corrupting, removing independence and self-reliance from the lives of millions of citizens to their detriment, and to the detriment of society at large. Not to mention the eye-watering cost, of course. And so the government is proposing to administer a short, sharp shock of realism into these claimants’ cosy and dependent lives. They are forthwith going to join the rest of society in having to budget, to make choices between competing financial liabilities, and to get off their butts and work.

This is a powerful narrative. Who is going to say, “No, we should treat poor people like children, and do all their financial thinking for them. They can’t possibly have the intellectual capacity to deal with such decisions, to trade off paying the rent against the electricity bill, the shopping against a nice holiday in Tenerife. And in any case, they can’t be trusted – if you give them the rent money in their hands, they’ll spend it on drink, drugs or both.” Well, no-one is. Which is why there is no political or moral counter-pressure on this aspect of the government’s proposals.

Yet this seemingly unanswerable moral case for treating benefit claimants with the same respect as anyone else in society brings with it formidable and potentially chaotic consequences. The key plank is that receiving benefit should be just like receiving a wage. And indeed that in many cases benefit is simply a supplement to a wage. As claimants move into part-time work, they will receive some of their money from their employer, and some from the state. As they work more, or in better-paid employment, the supplements will fall seamlessly away. If they move in the opposite direction, benefits will equally seamlessly take up some part at least of the slack. But this can only work if benefits, including housing benefits, are administered centrally, and with access to tax, council tax, and loads of other income and benefit, data. So it’s goodbye to local authority revenue and benefits departments where claimants could go in person, and where staff might actually know them. Of course, such a complex mechanism will need a suitably complex IT system to support it, and indeed one is currently under construction. We needn’t worry about that, because the track record of large-scale IT procurements in the public sector is so wonderful. Look at the NHS patient records system. At the inland revenue system. Look at the new emergency services control centres. See? Oh.

We’re making direct payments to claimants because it’s wrong to treat them like children or, to put it another way, because they should no longer be able to dodge the responsibilities of life. They need to develop budgeting skills like the rest of us. Except that budgeting skills are required in inverse proportion to the amount of money you’ve got to budget with. It is breathtakingly arrogant for millionaire cabinet ministers to cajole the very poorest in society into obtaining budgeting skills that millionaires don’t need; and millionaires have accountants to provide such skills on their behalves anyway.

And for very many housing benefit claimants at the moment, life is already an intolerable struggle. They are having to juggle so many things, and it’s no argument to say that they have brought some of those things on themselves. Many have drug or alcohol problems to contend with. Many are victims of domestic violence. Many have little or no parenting skills because they themselves were never effectively parented. Many have genuine and debilitating health, or mental health, problems. Many struggle with language. Many have never had as much cash as a month’s rent in their hands in their entire lives before. Many haven’t got, and can’t get, bank accounts. Many are already living in fear of loan sharks or pay-day loan exploiters.

But at the moment there is one thing they often don’t have to worry about. Keeping a roof over their heads, and over their children’s heads. Now, in the name of a pious and seemingly so right and reasonable desire to increase their independence, the government proposes to wrest even that small certainty from their lives.


Big society: tiny content

I was at a conference this week, in which John Humphrys of Radio 4’s Today programme and Mastermind fame chaired a Question Time style discussion on, inter alia, the state of public expenditure and the Big Society, that much-vaunted vanity-project of the Prime Minister’s. The panel was distinguished: Michael Portillo, Lord Ashdown, along with economists Frances Cairncross and Dennis Turner.

At one point in the discussion, John Humphrys asked the assembled 600 delegates from local authorities up and down the country to put up their hands if they had the faintest idea what Big Society meant. No-one did. Actually, I should have put up my hand, and had I not been suffering from stage-fright I probably would have done. Because I know exactly what the Big Society idea means. It’s a romantic, wistful nostalgia for a golden age that probably never existed at all, a time when working-class people could leave their front doors unlocked in the secure knowledge that their property would be safe. It was also a time when working class people probably had nothing worth nicking, but let that pass. If one wanted to uncover the epistemology of the Big Society, one would I suspect need to study all the scripts of Dads’ Army, deconstruct the Hovis adverts, and listen to Vera Lynn’s sentimental evocation of the bluebirds over the white cliffs of Dover. Michael Portillo got closest to enunciating just this perspective during the Question Time discussion. He bemoaned the break down in a sense of community; he talked with a mixture of sentiment and irritation about the way in which modern society looks to the state to answer every social difficulty, and contrasted this with the self-reliance that he believed was necessary to social cohesion, and which had been lost via the ministrations of an over-bearing and patronising public sector. The familiar equation of Big Society and small state.

By now, I’d overcome my stage fright, helped in no small part by a mounting frustration with this kind of vacuous talk. So in my question to the panel, I contrasted the easy talk at a vague philosophical level about small states, and the macro-economics of deficits and growth, with the real-scale dilemmas facing those of us in the public sector now being asked to implement the outcomes of such big ideas in small communities. I work for a housing provider. We have a proud record of dealing with anti-social behaviour, whether expressed in neighbour nuisance or in domestic violence. That record has been achieved because we’ve thrown a great deal of money at the problem. We have uniformed wardens patrolling our estates, we have staff dedicated to building up community through involving residents, especially young ones, in things more creative than smashing windows or daubing graffiti. We have used the Future Jobs Fund to try and help some of our many unemployed residents back into work, or more often, into work for the first time. But none of this is the core business of a housing provider. Our core business is collecting rents, dealing with arrears, repairing properties, investing in new ones and the improvement of old ones. Now that we are faced with making enormous cuts it will be all the added extras – those wardens, those youth employment programmes, those arbitration sessions between warring residents – that will go. We cannot stop collecting rent. We cannot stop dealing with repairs.

So how, Mr Portillo, and the other distinguished panellists, will the Big Society step in and pick up what our small state no longer thinks is necessary? How will volunteers, the charitable sector, squeezed as it is by cuts in grant funding, ride like the cavalry to the rescue? You may be surprised to learn that no answers were forthcoming. Well, not quite no answers. Frances Cairncross suggested that perhaps, instead of trying to debate with a tenant who had, for example, terrorised their neighbours with an out-of-control dog, it would be simpler and cheaper just to go out with a shotgun and shoot the offending animal, no questions asked. I suspect that Ms Cairncross was not being entirely serious. But she also produced the only practical example I’ve ever heard of how the Big Society might operate on a large, northern council estate. The other panellists had only platitudes to offer. So there you have it. The Big Society means shooting dogs, or waffling on about how the state has stifled self-reliance. Neither seems entirely helpful.

Is security of tenure the enemy of justice?

Earlier in the year, David Cameron did a bit of “thinking aloud” on social housing and set the cat among the pigeons by questioning the security of tenure that social housing tenants currently enjoy. Using the kind of populist rhetoric that the coalition has become so adept at, Cameron’s idea was couched in terms of “fairness”, and security of tenure was recast as “homes for life”. It’s a clever technique. Ask Mr and Mrs Bloggs if they think we should make tenure less secure, they will probably say no. But ask them if it’s fair for people to be given a home for life at the taxpayer’s expense, and they’ll almost certainly say no to that as well. Today, Grant Shapps was airing his boss’s ideas once again, and putting a bit of flesh on the bones. New social tenancies are to be offered for an initial 2-year period, after which time an assessment is to be undertaken by their landlord to see if their circumstances after the two years would still qualify them for social housing. If not, they’ll be given 6 months to find other accommodation.

When the Prime Minister first floated his ideas on tenure, I cautioned against a knee-jerk response from the left, or from the champions and bureaucrats of social housing generally. The housing crisis in England is so severe, and its problems so intractable, that just going ahead with business as usual is no more socially responsible, or self-evidently morally superior, than the loosening of security of tenure. In that previous post, I argued that one of the most fundamental problems with housing in this country is that the private market of home ownership, and the publicly-funded market of social housing operate on different financial planets, and that the flow between them is virtually non-existent. Measures such as the right-to-buy and intermediate products such as the various flavours of shared-ownership have had marginal consequences at best in terms of increasing this flow between public and private housing.

I won’t repeat my argument for imposing a steeply tapered capital gains tax on the excessive and socially divisive profits that accrue from home ownership. I maintain that something along these lines is necessary if we are at all serious about making housing in this country operate as a single multi-tiered market in which the public and private sectors play complementary roles, and in which movement between them is possible. Until something is done to tackle house prices, we will continue to maintain a sharp division in our society between the housing haves and have-nots. Not that that’s the only miserable consequence. The whole financial crisis which continues to buffet us via austerity budgets and banking bail-outs is intimately connected with the South-Sea bubble in housing that we have conspired to create with our fetish for home ownership and our love affair with this one specific form of inflation.

We know that as in every market, unless we can create a more sustainable balance between supply and demand, then prices will continue to be driven up. We have to increase supply. But the Irish experience, with their 300,000 empty and unsaleable properties, should teach us that supply of bricks and mortar is not the only lever on the market. The supply of fantasy money has a role to play as well. So it is plain to see that if we really want to address our housing market dysfunction we have to build more houses, and lend more responsibly. This latter is not what we’re currently doing. Throwing the pendulum abruptly from ridiculous laxity in lending to ridiculous restriction on lending is not “lending more responsibly”.

But back to security of tenure. Whilst we have 1.8 million families (5 million individuals) on the social housing waiting list, and no immediate prospect of building our way out of the problem, then I do not see how turning an ideologically blind eye to the nature of tenure is a justifiable way of proceeding. Don’t think about this in the deceitful rhetoric of houses for life, or nebulous notions of fairness. Think about it in terms of the classic socialist values of need. If the needs of those waiting in desperation for social housing that never comes are greater than the needs of some of those already in social housing, in which version of socialism is it OK to say to the former, “Tough!”?

It’s important that I emphasise that I am not supporting the coalition’s policy initiative as it stands, because they are refusing to attack this problem from both ends. They are happy to do the bit that puts relatively poorer people in jeopardy, but they are not willing to tackle the bit that might jeopardise the interests of those who’ve made a killing out of an insane private housing market. But if they were, then I genuinely think that some kind of review of tenure is justifiable. The objective here is to try and arrive at a seamless housing market that encompasses public and private renting, as well as all the shades of outright and partial home ownership. Reducing security of tenure in social housing must be balanced by increased security of tenure in private renting. Moving from public renting to private renting should be an economic issue, not an issue of security. Finally, we need to do more to encourage and to create mixed communities. Moving on from social renting to private renting might be less daunting if it means only moving around the corner, and at the same time mixed communities work against the creation of ghettos of worklessness, impoverishment, and social pathology.

What is clear is that the housing market – as a whole, not just social renting – is broken and dysfunctional. Housing is not a means to fantasy wealth, but a means to a sustainable, decent home. If your interest is in making money, please find another way of doing it. But I do believe that the current system of absolute security of tenure in the social sector is an affront to justice. However, the coalition will not get my support for changing this until it presents it as part of an overall package for the housing problems that afflict our society so badly. There’s absolutely no sign of them doing that, unfortunately.

Out of control? Something is, but it isn’t the Housing Benefit bill

It’s time that the coalition’s rhetoric on housing benefit was challenged. They continually repeat that the housing benefit bill is out of control, and use the anecdotal evidence of Mayfair residents (usually immigrants to boot) receiving more in housing benefit alone than most people earn altogether as some sort of “proof”. That proves only that the government would rather pander to popular prejudices than deal in the facts. And the facts are a lot less sensational, a lot more troubling, and very much less easy to deal with than the “how unfair is that?” justifications would imply.

So, the facts. In the period 1996-2010, the cost of housing benefit grew on average by 4.8% per year. Of that total figure, 2.8% was a result of inflation, so the real terms increase was 2%. The actual number of claimants rose by only 0.7% per year. If that is out of control, then a lot of other things are out of control as well. A major contribution to increasing housing benefit costs is made by rent increases. Another myth is that private landlords have been profiteering out of the system. Unfortunately once again, the facts do not paint so simple a picture. Across the same period, council rents increased on average at 5.1% per year, housing association rents by 3.2%, and private rents by 4.2%. The increases in the first two categories were directly the result of government policy as all social housing rents are regulated. The Labour government wanted council rents to rise more quickly than housing association ones because housing association rents were generally higher and they wanted to close the gap.

Thus a rising housing benefit bill was actually a deliberate part of government policy, both Labour and Conservative, over a quarter of a century. Sir George Young, who now pops up again as Leader of the Commons and a member of a cabinet fixated on the “out of control” benefits bill, presided in the early 1990s over a deliberate policy of encouraging housing associations to manage property on behalf of private landlords (a policy called HAMA) in order to compensate for the lack of progress on building new properties for social rent to make up for the losses arising from his own government’s right to buy policy. Housing benefit was intentionally used as a way of funding the problems arising from increasing homelessness. In other words, this is not about a system out of control, but rather a system that has been used as a deliberate arm of government policy, but which is now deemed to be too expensive. Sir George of course knows a lot about how expensive it is to maintain a property in London: he claimed expenses of £127,159 between 2001 and 2008 to cover the £1,400 a month interest charges on his mortgage. Quite a bit more than the average wage, don’t you think?

But in truth, individual cases of excess, whether they are of politicians milking the expenses system, or a few large families living in swanky areas on housing benefit, are not a good guide to policy-making. What is important is the impact on average claimants in average places. Many of the changes being proposed are in fact not to housing benefit (paid to social housing tenants) but to the local housing allowance (paid to tenants renting in the private sector). To give a typical example: a single unemployed person on job-seekers’ allowance, paying a private sector rent of £100 per week in an area where the local housing allowance (LHA) is £109. Under current rules the LHA is set at the median rent, and if that is higher than the actual rent the claimant may keep the difference (this was introduced as an incentive for claimants to find lower rented properties). So in this case the person is keeping £9 per week to help pay for other living expenses. Next year that will go, so that person will only get benefit for housing of the actual rent. In 2012, the LHA will be based on the 30th percentile, which in this area is set at £98, thus losing the claimant a further £2 per week. If in 2013 that person is still unemployed, their LHA payment will be reduced by a further 10%, losing them another £9.80. This is what the benefit reforms mean in practice. This individual will lose over £20 per week in benefits, and will most likely eventually be evicted. If that job-seeker is under 35 years old, they will also be hit by the imposition of the shared room rate, and will lose a whopping £40 per week. It is poor people losing what might seem like small absolute sums (but for them huge relative sums) and tipping them from just about surviving to plain destitution and potential homelessness. It is hardly much comfort to say to such people, “Well, find a job then” at a time when jobs are almost impossible to find.

The changes to housing benefit and local housing allowances are going to hit lots of people who are already at the margins of our society. It’s not housing benefits that are out of control – rather it’s politicians’ cavalier disregard for the consequences of their policies which needs controlling.

After blue-sky thinking, a bit of red sky

Cameron Direct. What a deliciously apposite name for the Prime Minister’s roadshows, conjuring as it does images of cut-price insurance salesmen and ambulance-chasing “real” lawyers. Well, the “real” politician decided yesterday to divest himself of some blue-sky thinking on social housing. And the bluest and most skyward of this thinking was all about revoking the security of tenure (not for existing tenants, but for new tenants of new provision) that council and housing association tenants currently enjoy.

One of the most tedious aspects of political debate in this country is the immediate, knee-jerk, ideological response that political opponents are always dishing out to one another. So it wasn’t many minutes before the end of civilisation as we know it was being trumpeted from the bastions of the left, just as similar dire warnings about the end of civilisation as we then knew it were immediately given by the right when the minimum wage was introduced. Last time I checked, that didn’t seem to have happened, and I doubt it will if security of tenure were to be abandoned. Grant Shapps is right to point to the 1.8 million people in dire need of housing that are currently unable to get onto the social housing ladder, and unless we do something to loosen the relationships between tenants and their social housing home most of those 1.8 million will never step onto that first rung. It is breathtaking complacence for the left simply to say, “OK, just build 1.8 million new homes, and the problem’s sorted.” Even if that were a likely or possible solution, it is not going to deal with the problem in the lifetime of a good number of those 1.8 million on housing waiting lists, and in the meantime they are suffering appalling conditions, and we are damaging the life chances of countless thousands of our children. So I for one welcome the airing of this problem, even if I do not agree that ending security of tenure is necessarily the best or right solution.

Mr Cameron said he recognised that his idea was going to generate a “big argument”, and he’s not wrong there. But arguments are never universal, and what Cameron meant was that there’d be a big argument with Guardian readers, left-leaning liberals, and red-blooded socialists. That of course is the problem with big arguments set off by the Tories – they are always around ideas that seem to be derived from an analysis that locates social problems in the lives and communities of poorer, rather than richer, people.

But no problem. Mr Shapps told us on Radio 4’s Today programme this morning that his boss was only “opening up a debate”, and this wasn’t policy, at least not yet. So let me open up a different debate, this time one that’s going to cause a big argument, not with Guardian readers (although lots of them won’t like it either, since they’re nearly all middle-class, property-owning sorts with bigger consciences than are perhaps reflected in their generosity when it comes to wealth) but with Mail readers.

So, here goes. The biggest problem with housing in this country, apart from the hopeless imbalance between supply and demand, is that there are two pretty much hermetically sealed housing streams. In the private market we have, over the long term, ever-increasing inflation, and a bottom rung ever more inaccessible to new entrants. Those already in the market are insulated of course, because they can sell their properties for huge sums, and thus are able to afford the even huger sums required for their upgrade. This market is being disturbed by the massive difficulty in the first-time buyer segment, but this is being overcome by what is in effect a new class of hereditary wealth. Children of property-rich parents are being given a slice of their parents’ accumulated wealth to use as deposits, and so in a way first-time buyers are increasingly using recycled receipts from within the market. And then there is the social housing sector that Mr Cameron was waxing eloquent about yesterday. Mostly, right-to-buy apart, never will the twain of these housing streams meet.

So rather than look at the social housing stream, I’m going to look at the private stream. If we don’t do something, I can see no end to the long-term upward spiral of prices, never mind the short-term crises that assault the market from time to time. The underlying logic of supply and demand will have its way. OK. Take a deep breath. Daily Mail readers, prepare your shrillest hysteria. I propose that capital gains tax be imposed on all property, yes, including main or only residences. And I propose that it be fiercely tapered so that as capital gains escalate, the proportion taxed becomes steeply higher. It always used to be broadly accepted that unearned income be taxed more severely than earned income. And if buying a house at age 25 for £50,000, doing bugger all but routine maintenance, and then selling at age 45 for £500,000 isn’t unearned wealth, what the fuck is? A big tax bill at that point would surely concentrate minds. It would have a sharp downward pressure on prices since it would no longer be a simple case of buying an even more expensive house with a massive deposit “earned” from the inflation on the previous property. And it would be better to accept a lower price in order to avoid the steep taper that I’ve proposed.

Of course, I realise that this will be the end of civilisation as we know it. I’m sure that there would be consequences that I don’t intend, and haven’t thought of. But there would also be the consequences I do intend and have thought of. If we bring the two streams of housing closer together, then the Tories’ beloved mobility might just be possible as people move more easily from the social housing stream to the private stream. We will stop turbo-charging the private market that surely needs no such added inflation when the supply and demand position is already stoking it up quite enough.

But before apoplexy takes you over completely, don’t forget that I’m just opening up a debate. It just happens to be a debate that has consequences for rich people, rather than the usual Tory kind that only has consequences for the poor.