CPI and housing: The deeper implications of the Welfare Reform Bill

Hidden in Clause 68 of the Welfare Reform Bill are proposals that will have a profound impact on housing in this country.

The Clause itself is deliberately vague, talking of ‘liabilities’ and ‘rent officer determinations’. It is only by close examination of parliamentary questions and references in the emergency budget that it becomes clear that Clause 68 will be used to introduce the Consumer Price Index (CPI) as the means by which Local Housing Allowance (LHA) is adjusted from 2013.

Much has been made of the impact that switching to CPI will have on benefits such as disability living allowance and job seekers allowance, which until this month were calculated using the more relevant Retail Price Index. But less recognised is the unique impact that linking to CPI will have on Local Housing Allowance.
Currently supporting over a million households to live in the private rented sector, LHA is a specific benefit to cover a specific cost – the roof over people’s heads. For this reason, it is linked not to RPI or any other fixed measure of inflation, but to the cost of local rents to ensure that the housing support people receive is based on the housing costs they actually pay.

Removing this link means that from 2013 housing support will be adjusted based on the changing cost of a random basket of consumer goods like washing machines and the cost of an average meal out – pretty much everything apart from the real cost of rents.

Between 1997 and 2007, average rents increased by 70%, while the CPI rose by just 20%, illustrating just how quickly housing costs will outstrip LHA under the new system. Over time, the amount people receive will cover less and less of their housing costs.

Shelter joined up with the Chartered Institute of Housing to measure the impact this will have. Our research showed that by 2023, just ten years after the change comes in, 34% of local authorities outside of London will be unaffordable for people on LHA. Areas worst affected are concentrated in the East of England, East Midlands and the South West where rents have been rising fastest over recent years. In effect, claimants will find themselves priced out of huge swathes of the country.

What’s more, further analysis shows a pattern between the areas with the highest proportion of claimants in work and the highest rates of employment. Meanwhile, regions that will remain affordable in 2023 – the North East, North West and Yorkshire and Humber – are those with above average rates of economic inactivity and unemployment. In other words, people claiming LHA will be forced to live in places with fewer employment opportunities.

These findings are a serious challenge to the government’s key aim in reforming the welfare system – getting more people back into work – and are surely grounds for an urgent rethink before it’s too late. Shelter is urging MPs and Peers to support amendments to the Welfare Reform Bill that will ensure the rate of LHA remains linked to housing costs and accurately reflects rent rises.

But there is also a wider point to be made about the way these changes are being introduced. If Clause 68 is unclear on its intentions to reduce housing benefit, Clause 11 of the same Bill gives carte blanche to the Secretary of State to bring in further changes to the way housing support is calculated through secondary legislation. This opens the door for more cuts to housing benefit to be introduced without proper parliamentary scrutiny. This should be a serious cause for concern for anyone committed to accountability and the democratic process.