The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
“The DWP says it can’t accurately predict the effects of its housing benefit changes either on individuals or on the housing supply. Instead it will rely on a ‘wait and see’ approach and monitor changes in homelessness, rent levels and arrears so that, where there is a need, it can intervene and respond.
“But even small reductions in housing benefit can have a severe impact on the finances of the poorest people. The Department must decide in advance exactly what actions it will take in response to increases in homelessness or rents.
“It is not clear whether the additional £390 million which the DWP has set aside to fund Discretionary Housing Payments over four years will be enough for local authorities to manage the impacts of the changes. This figure was not based on any rational assessment of need.
“At the time of our hearing, far too many of those who stand to be directly affected were worryingly unaware of the reforms and what they will mean for their finances.
“Claimants need to understand how their finances will be affected both by Housing Benefit and wider welfare changes. They also need to know what action they might take in response, for example, working extra hours or taking in lodgers.
“The Department expects its reforms to deliver savings of £6.2 billion by 2014-15 but it has failed to take into account the administrative costs of implementing the changes and the potential knock-on costs to other services, for example if homelessness does rise. These costs could be high for local authorities as they come at the same time as changes to council tax.
“Experience from the past suggests that stopping direct payments to social landlords will simply lead to an increase in arrears and evictions. At the same time some tenants will face higher rents under the Affordable Homes programme, which will also increase the housing benefit bill, offsetting some of the savings intended by housing benefit changes.”
Margaret Hodge was speaking as the Committee published its 38th Report of this Session which, on the basis of evidence from the Department for Work and Pensions, Professor John Hills, London School of Economics, and Mike Donaldson, Group Director, Strategy and Operations, L&Q, examined the Housing Benefit reforms.
Housing Benefit helps those on a low income in social or private housing to pay all or part of their rent. It is overseen by the Department for Work and Pensions (the Department) and administered by local authorities. Housing Benefit supported some five million households in Great Britain in 2011-12 at a cost of £23.4 billion.
As part of the measures announced in the Emergency Budget of June 2010 and the Spending Review of October 2010, the Government is reforming Housing Benefit to reduce annual expenditure. Changes include reductions in the rates paid for private rented sector claimants and deductions in payments to social sector tenants in under-occupied homes.
The Department is introducing these significant changes without comprehensive modelling of the likely outcome on individuals or on housing supply and with limited understanding of the costs local authorities will incur. Those individuals who receive Housing Benefit are by definition on low incomes and even small reductions in entitlement can have a significant impact on their finances.
The Department believes that it is difficult to predict accurately how in practice individuals will respond to the changes it will implement; this places greater responsibility on the Department to react quickly when the changes are made.
The reforms to Housing Benefit are expected to curb Government spending by cutting benefits for two million households. The impact of these reforms on claimants’ finances may be compounded by other changes to the welfare system, notably the introduction of Universal Credit and reductions in Council Tax Benefit.
The Department does not believe that it can anticipate or model the impacts of the reforms as they depend on the actions claimants take in response to changes in their individual circumstances. Instead the Department plans to adopt a reactive approach, changing rules as problems arise.
Claimants need to understand now how their benefit payments will change and what options they have to minimise the impact on their finances, for example, by taking in a lodger. It is important that strong efforts are made by the Department, local authorities and Social Housing organisations to inform claimants about the reforms; however, to date the evidence suggests that they have not been effective.
We welcome the steps taken to tell claimants about changes face-to-face but gaps remain and the Department must provide sufficient information to claimants for them to plan and adapt to the consequences of reforms.
The Department is confident it will achieve savings of £6.2 billion for the four years ending 2014-15 but has failed to take into account the administrative costs of implementing the reforms. It is not clear whether the extra funds set aside for the Discretionary Housing Payments scheme to help claimants as the reforms are implemented will be sufficient.