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.

Is the Coalition crumbling?

Despite the brave face Clegg is showing, things are not good in the Coalition and each day more rifts are starting to show.

Already in Scotland the leader of the Scottish Lib Dems has argued with the Tories about their policies on justice and their manifesto for the Assembly is clearly at odds with Coalition policy. Take some of their key points:

1. Create conditions for 100,000 new jobs, supported by at least £1.5 billion of investment freed up by reform to Scottish Water.
2. Cut energy bills and boost green economy with new help to pay for insulation and new investment in renewable energy.
3. Give head teachers more power.
4. Give every child a fair start in life with an Early Intervention Revolution
5. Keep higher education free – no fees and no graduate contribution
6. Improve out-of-hours healthcare across Scotland.

Not exactly in-line with the Tory position of cuts, cuts, and more cuts.

Meanwhile back in England, one of Nick Clegg's closest advisers has threatened to quit unless ministers make changes to a proposed overhaul of the NHS. Lib Dem MP Norman Lamb said the plans posed a major "financial risk" to the NHS, and patient care could suffer. He said he would quit as Mr Clegg's chief political adviser unless NHS professionals were "on board".

While supporting the general direction of government proposals, he feared there was "no evidence" how the new GP-led system would operate.
Also speaking on Sunday, Treasury Chief Secretary Danny Alexander acknowledged there were "issues" in the way GP-led commissioning consortia would operate and be regulated.

More recently, an interim report by a five-member banking commission, headed by Sir John Vickers, is expected to recommend a series of measures to protect banks’ key functions at times of crisis. The moves are likely to cost banks an extra £5billion but are set to be supported by George Osborne, the Chancellor. However, the recommendations will be contested by Liberal Democrat cabinet ministers including Vince Cable, the Business Secretary, exposing a clear fault line at the top of the government. Cable has in the past called for the big banks such as HSBC, Barclays and Royal Bank of Scotland to be completely split up into retail and investment arms- and Sir John’s report does not go as far as this. A senior Lib Dem source attempted to distance his party from the findings ahead of today’s publication of the commission’s interim report.

Is this an ideological shift? Hardly – it has more to do with May 5th and the Lib Dems playing a sneaky move to try and distance themselves from the Tories. They know they will be trounced at the election if they continue to suck up to the Tories, so they are trying to show they are independent.

We are unconvinced.

The evidence has shown they are so close to Tory policy it is untrue. They supported the increase in tuition fees; they were all set to endorse changes in the NHS and only bailed out when RCN and the BMA voiced their opposition. In addition they have gone along with Tory plans to scrap EMA and the Flexible Jobs Fund. The Lib Dems have even nodded through substantial changes to welfare reform that will cause unnecessary stress to thousands of sick and disabled people.

The Lib Dems committed political suicide when they formed a coalition with the Tories after May 6th and now they are trying to squirm out of their commitment. Well the electorate may not have long memories, but they have a long enough one to remember all the lies and deceptions Clegg has offered the people over the last year.

On May 5th they will pay the price – and the devastation is likely to be near nuclear. The party leadership will have a hard time justifying their alliance with the Tories once the votes are counted.