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London’s Welfare Ticking Time Bomb

I’ve been to six welfare reform presentations in different boroughs across London and the picture is extremely worrying. Major changes in benefits regimes are all being brought in on 1 April 2013.  These are on top of changes brought in over the last 12 months.  These changes are beginning to impact landlords and tenants in the private sector.  But the area worst hit will be London and we are going to see unprecedented housing problems.

Let me start by bringing you up to date with changes so far.  Local Housing Allowance – which replaced housing benefit – is paid to claimants at fixed rates depending on their entitlement and the area where they live.  These rates used to be updated monthly using local rental market figures and claimants were paid according to the 50th percentile.  So if you listed all one bedroom flats in an area from most expensive to cheapest, the rate was set at the rent of the 50th in the list.  This was reduced to the 30th percentile in October 2011 – so rates were set at the 30th cheapest meaning a substantial cut in benefit rates.  Then in April 2012, rates were frozen and from April 2013, LHA will increase annually by the CPI inflation rate.  So the benefit will lose its link with actual rental prices in the local area.  But the most important change was the introduction of LHA caps in April 2011 for new claimants, so the most you could receive in LHA is £250 for a 1 bed property, £290 for 2 beds, £340 for 3 beds and £400 for 4 beds or more.  In London – where rents are 90% higher than the rest of the country, these caps rule out renting  in significant swathes of the capital. What happens if you are made redundant – you suddenly find yourself unable to pay your rent and have to uproot yourself?  And what if you’re already living on benefits?  Well you had until the anniversary of your claim and then a nine month transitional period before the cut was applied to you.  Most claimants closed and reopened their claims in March 2011, the anniversary of their claim was March 2012, so their nine month transitionary period will end this Christmas.

It gets much worse.  In April 2013, a total welfare cap of £500 for families and £350 for individuals will apply to most people (with some complicated exceptions).  At a recent landlords’ forum in Tower Hamlets, the benefits officer advised that a two parent family with two children will get £240 in LHA.  But if they had three children they will get £175, £110 if they have four children, £45 with five children and 50p with six.  The policy will really penalise larger families.  So what does the government expect these people to do?  Either get a job, move or renegotiate their rent with the landlord: all three options present an insurmountable predicament.  Many London landlords have agreed to lower rents to the cap where the gap is a matter of £30 or £40, particularly where boroughs have offered the incentive of direct payments of LHA to the landlord.  But direct payments will not be allowed once the total cap comes in.  This is a precursor to Universal Credit which will pay one monthly sum, akin to a monthly wage, into the claimants account.  This ‘responsibility agenda’ is aimed at encouraging claimants to budget, but many are concerned that vulnerable people with very limited resources will struggle to stretch their benefits across the whole month.  As we know, housing is the only service you can enjoy for  five months or so without paying for it and sadly it is quite likely that rent will become a low priority for many.

At Tower Hamlets, some landlords pointed out that they might regrettably have to evict tenants if they simply were unable to pay, pointing out they would then become homeless and the council would have to house them in temporary accommodation – probably with the same landlord.  Council officers admitted that because rents in the borough are high, all claimants will be affected by the cap – so their benefits will not be sufficient to cover their rent.  And if landlords can’t lower rents, claimants will have to get a job or move.

The government argues that the £500 cap – at £25,000 net or £33,000 gross  and close to the national average wage – is necessary because it traps claimants on benefits.  Many are unable to find a job that will earn £33,000 so there is no incentive for them to work.  But this also means that London will be cleared of thousands of households, changing our city’s demography forever.  Do you remember the story about Newham decanting people to Stoke on Trent? Well that was just the beginning.  Tower Hamlets has already placed people in Newham and Barking and Dagenham.  But these boroughs,  with problems of their own, have limited availability and are putting up a fight with Article 4 directions banning shared housing and increased landlord regulation.

So the final solution is getting a job.  Unemployment stands at 7.9% nationally, higher in some parts of London.  Many claimants will have been on benefits long term and will not make it into the labour market at such short notice.  And how likely are they to earn enough to rent a 3 or 4 bedroom property in inner London?

What does this all mean for landlords?  Well would you rent to LHA claimants having read this article?  Of course not.  However compassionate, we are running businesses and renting to LHA claimants in London will simply become unviable as a business model.  Landlords will leave the LHA sector in droves.  The PRS is the fastest growing housing tenure in the UK currently at around 17%.  Local authorities desperately need us to provide housing.  So an exodus is the last thing they need.  I just hope the media doesn’t roll out the anti-Landlords stereotypes “brutally evicting tenants” and blame us for not lowering rents.

Council tax benefit is also being abolished in April 2013 and being replaced by Local Council Tax Support.  It will be different in every borough, but all boroughs will receive 10% less grant from the government and must protect pensioners.  So the effect is a 15% cut in benefit for other claimants.  Some boroughs like Tower Hamlets are protecting all claimants by injecting extra funding, but Barking and Dagenham in contrast are applying a 15% cut to most claimants.  That means 16,000 people who have never received a council tax bill will get one for the first time and will be expected to pay.  Many of these will also see their benefits cut because of the total welfare cap, so they are expected to find council tax from a dwindling pot of money.  Even if you think it’s right that everyone should pay some council tax, the maths of this scenario makes no sense whatsoever.  How practical will it be for local authorities to chase these small sums of money?  When you consider the cost of this to the public purse, this change is nothing more than pointless dogma.

We need to help people back into work.  Living on benefits shouldn’t be a lifestyle choice and the current regime does lock people into claiming, poverty and a lack of aspiration.  Of the 50,000 families affected by the total cap across the UK, 56% are in London.   The government’s solution is punitive and impractical and will create havoc in our city.  We are on the brink of a national disaster in housing policy.

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