HC Deb 01 July 1998 vol 315 cc495-502

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pope.]

12.9 am

Mr. David Kidney (Stafford)

I am pleased to start this short debate on housing costs and the reform of welfare benefits. The Government's review of housing benefit has been on-going for some time, and I want tonight to tease out of the Minister some suggestion of the review's likely conclusions.

My starting point is the Treasury Select Committee's report into this year's Budget. It said: We are concerned about the number of families remaining on a high marginal rate of tax, and hope that reviews of housing benefit and Council Tax benefit will contribute to a reduction in the incidence of high marginal rates. That was said in the context of the new working families tax credit, which makes a significant contribution to the Budget's redistributive nature. It is a far superior benefit to the existing family credit, as it gives a greater allowance—£2.50 more than currently—for children under 11, it generously helps with child care costs and credit begins to be withdrawn at £90 rather than £79. Moreover, the rate of withdrawal of the credit for every extra £1 of net income—the so-called taper—is at 55p, rather than 70p, in the pound.

Those on housing benefit still have an overlap, whereby they face an effective rate of tax of 89 per cent. If they also receive council tax benefit, the rate is as high as 95.3 per cent. Some 260,000 families still face marginal rates of tax of more than 70 per cent., and more than 1 million families face a marginal rate of more than 60 per cent.

I welcome the Government's response—published today—to the Select Committee report. It said: The Government will continue to take work incentives into account in the comprehensive spending and welfare reform reviews. It has taken the Labour Government to end marginal rates of tax of more than 100 per cent., which were shameful and endured for far too long.

I recognise that the review of housing benefit, the new working families tax credit and the comprehensive spending review will have to interact to reach a whole and satisfactory outcome. I am hopeful that, when the results of the comprehensive spending review are announced, housing will be a major beneficiary, and that there will be a welcome boost to investment in the building of more social housing and the renovation of housing of all tenures.

This debate on housing benefit reform is timely, as it falls in the shadow of the announcement of the review's results. Moreover, two significant reports have been issued this week: first, Steve Wilcox's report for the National Housing Federation, whose title is, I believe, "Unfinished Business"; and secondly, Peter Kemp's report for the Joseph Rowntree Foundation, which is called "Housing Benefit: Time for Reform".

I believe that the key objectives in housing benefit reform should be: first, to reinforce the Government's message that work pays; secondly, to support the excellent new working families tax credit; and thirdly, to avoid unrealistic demands on public spending. On the first objective, 50,000 families will be floated off housing benefit altogether through the very generous working families tax credit, which will remove them from the pernicious poverty trap—indeed, 70,000 people will also be floated off council tax benefit. Working families tax credit will help low-paid owner-occupiers as well as tenants. However, for tenants, the overlap of housing benefit still means that families are caught by high marginal tax rates—the generosity of the working families tax credit means that it will catch more people higher up the income scale. It could be said that the poverty trap becomes slightly less deep but much wider.

Working families tax credit is an exciting new support for working families, but if changes are not made to housing benefit, the two systems will continue to overlap, with high marginal tax rates well up the income scale. That confusing overlap and the high marginal rates will distort the Government's message that work pays. A harmonised system offers opportunities to deliver that message clearly, and could create savings in administration costs and reduce the scope for fraud.

Housing benefit already costs this country £12 billion a year; within a budget of that size there is scope for radical reform without extra expenditure. Helping people back to work means fewer benefit claimants and greater income tax and national insurance receipts. Helping people in work to earn higher wages means lower benefit payments and, again, greater income tax and national insurance receipts. It would be a tremendous additional benefit if a new scheme could bring help across housing tenures and end the system of poor council tenants paying what is now a total of £1.3 billion a year to help the poorest tenants with their rents.

The previous Government's shift in support from bricks and mortar to personal benefit payments went too far: so far that cuts had to be made. The local reference rent was introduced, restricting the amount of rent that was eligible for housing benefit support, as were the single room rent for under-25s, and a tight means test that hit pensioners with modest savings.

The local reference rent has already caused a 12 per cent. reduction in the number of housing benefit claimants: 130,000 people and their families with private sector tenancies no longer claim. Without reform, there is a danger that more and more people will be let down, with social exclusion increasing instead of decreasing.

There is scope for action to stem the steep rise in rents that has gone alongside the increase in the use of housing benefit to take the strain. Social housing grant rates for housing associations could be used, there could be better support for local authorities, and we could rein in the private sector consumption of public money, especially in the area of fraudulent claims.

Since 1990, the grant to housing associations for new build has reduced from 75 per cent. to 54 per cent. Rents have, of course, risen in consequence. Three quarters of all new housing association lettings of two-bedroom properties in England are at rents of more than £50 a week, and 45 per cent. are at more than £60. Seven out of every eight lettings of three-bedroom houses are at rents of more than £50 a week, and 70 per cent. at more than £60.

The Minister for Local Government and Housing wrote to the Housing Corporation in August 1997: I am looking for a reduction in the average level of rent charged over a 3 year period of about 4% in real terms. Rents on new schemes have now reached a level where it is questionable whether they are affordable to those in low-paid employment without assistance from HB. The Government will have to contribute to such a commendable strategy through their decisions on social housing grant rate. If they hold it at the present 54 per cent., it could benefit tenants by £5 a week. They should especially bear in mind the argument about interest rates, which have risen over the past year, whereas they argued that the last reduction in housing association grant was partly because the rates had fallen.

An answer to a parliamentary question earlier this Session showed that the net cost of a 10 per cent. reduction in council rents was estimated at £100 million a year. That is surely a modest cost for a rent restraint that would bear directly on family concerns about moving from benefit to work. There might also be a case for trying over time to achieve a more coherent structure for council and housing association rents.

As for private lettings, I accept that there is no prospect of direct rent controls in the future, but the Government are spending a good deal of public money on buying private rented accommodation for families. Surely there ought to be some scope for using that buying power to secure localised standards in such areas as health and safety, safeguards against fraud and, perhaps, rent levels that housing benefit will support.

There are currently some good examples of public-private partnerships in housing, partly owing to the good work done by the Empty Homes Agency in prompting councils and private landlords to work together. Stafford borough council, for instance, now has very good arrangements for co-operation with all housing stakeholders. That council, along with the university accommodation office and private landlords, has a scheme for agreed standards on safety, energy efficiency and inspections of properties. For tenants who cannot afford to pay deposits, there is a rent assistance scheme, as well as fast-tracking of housing benefit applications.

Important decisions are about to be made about housing benefit. I hope that we can remove the messy overlap of scheme tapers that currently produces the worst-case poverty trap. There is a strong case for combining policies on rent restraint and benefit harmonisation. I believe that any changes should ensure that the system of support with housing costs helps those in need, eliminates fraud as far as possible, makes work pay, and supports the Government's new working families tax credit.

I hope that I have contributed to an important debate about housing costs and welfare benefit in the future.

12.21 am
Mr. Steve Webb (Northavon)

I congratulate the hon. Member for Stafford (Mr. Kidney) on obtaining the debate, and thank him for allowing me to speak briefly.

So far, housing has not been integrated into the new working families tax credit. The hon. Gentleman made a number of sensible and perceptive points about rent levels, and about the importance of such integration. I think that part of the reason why the tax and benefit system for low-paid workers is in such a mess is that it has developed in a piecemeal way over decades. It would be regrettable if the Government made the same mistake—if they introduced a tax credit, and then dealt with housing quite separately.

In the spirit of what the hon. Gentleman said, the Liberal Democrats—and I personally—would welcome the inclusion of rent in the working families tax credit system. For example, a £20 credit would knock £20 off the amount of rent giving eligibility for housing benefit, would reduce the number of people on housing benefit and would reduce the overlapping tapers to which the hon. Gentleman referred. It would be interesting to hear from the Minister whether the Government are thinking of such action.

The hon. Gentleman rightly said that low-paid owner-occupiers would benefit from the tax credit, but nothing in the tax credit relates explicitly to their mortgage interest costs. Earlier this week, I heard the Minister for Local Government and Housing say on the radio that she wanted building societies to provide mortgage insurance for times when such people are unemployed. That may well be laudable, and appropriate for some; but it underlines the fact that such people, when they take a job, should not suddenly lose all assistance with their mortgage costs.

If the Housing Minister is successful and unemployed people's mortgage costs are paid in full, they could amount to £400 or £500 a month. If those people then benefited from a tax credit that involves no allowance—because they are buying, and buying is the majority tenure—that would constitute a serious gap in the benefits system, and one that survey evidence suggests is a barrier to moving out of welfare and into work.

I would be grateful if the Minister could tell us whether a rental credit is likely to be included in the working families tax credit, and, more important, whether he would consider introducing an owner-occupiers' mortgage interest credit.

12.23 am
The Parliamentary Under-Secretary of State for Social Security (Mr. Keith Bradley)

I congratulate my hon. Friend the Member for Stafford (Mr. Kidney) on obtaining the debate. It is clear from his speech that he takes a keen interest in the issues, and his speech raised a number of important matters—as did that of the hon. Member for Northavon (Mr. Webb).

The easy response to the rapidly escalating housing benefit bill of recent years would be to embark on a series of piecemeal cuts, as did the last Administration. My hon. Friend clearly identified those cuts.

That has not been our response. Instead, we have recognised the need for joined-up solutions to joined-up problems. We recognise the key interrelationship between housing benefit and the housing policy that it underpins. That is why we have embarked on a joint review with the Department of the Environment, Transport and the Regions. The first stage of that review was to put the existing scheme under the microscope to identify where the faults lay. In fact, the microscope analogy is not a good one as many of the problems are all too clear to the naked eye.

I shall concentrate my response on four main problems, but I shall carefully consider other points raised in the debate and shall respond more fully if I do not cover them tonight. First, instead of easing the transition from welfare into work, housing benefit frequently acts as an insurmountable barrier to people taking up job opportunities. Secondly, benefit recipients rarely have any shopping incentive to choose the most appropriately sized property, or to find better value housing. Thirdly, there are stark inequalities between the treatment of private and social tenants. In recent years, private sector recipients have borne the brunt of measures introduced to make savings in the escalating housing benefit bill. Finally, while some local authorities administer the benefit well, others perform badly. The resulting inconsistencies and delays compound the work incentive problem, and cause difficulties for tenants and landlords alike.

I described those as the main problems, which implies that there are others. I want to mention two: the estimated £1 billion of housing benefit lost to fraudsters every year, and widespread misunderstanding of the housing benefit system.

First, widespread fraud deflects money from the people who really need it and contributes towards the poor image that most people associate with the scheme. There can be no doubt that the present hotch-potch of rules, combined with inefficient links between the Benefits Agency and local authorities, provides a fertile breeding ground for fraud.

Secondly, the widespread misunderstanding surrounding the details of the benefit means that many claimants are simply unaware that housing benefit is payable to people in low-paid work, and that contributes to the work incentive problem that so many commentators have highlighted.

These problems are not new, but it would be wrong to continue our analysis without pausing to reflect on the good points of housing benefit. It offers a high degree of security for individuals and families. Although the British scheme has operated primarily as an instrument of income maintenance, it also enables most people to afford acceptable accommodation. Overall, however, it is easier to criticise the current scheme than to find ways of overcoming all its difficulties while still retaining the good points.

I attended the launch yesterday of "Housing Benefit: Time for Reform", a report written by Professor Peter Kemp, and of Steve Wilcox's report "Unfinished Business", both of which were mentioned by my hon. Friend the Member for Stafford. I was particularly impressed by Professor Kemp's exploration not just of the problems of the current scheme but of a comprehensive range of possible solutions. His analysis of alternatives to the current scheme ranged refreshingly wide, and went beyond the deceptively simple solution of simply reducing rents.

My hon. Friend drew attention to the importance of work incentives and the part that housing benefit can play in improving them. This must be a linchpin for any reforms. We have already begun the task of changing expectations, to make sure that a welfare pension for life is not an option for those who can work.

Secondly, we have started to address the ignorance of housing benefit that prevents some people from taking up work because they are unaware of the in-work help that is available. One of the speakers at yesterday's conference highlighted the need to give tailored advice if we are ever to deal with ignorance.

The new deal has replaced the old, mass-produced benefit delivery with a more flexible, personally tailored service. Participants are given help and advice on the full range of benefits that they could claim and how much they will get when they move into employment. We have recently launched a comprehensive advertising campaign targeted at lone parents and other low-income families to highlight the full range of benefits and assistance available to people in work.

My hon. Friend the Member for Stafford is right to draw attention to the importance of the new working families tax credit, which was also mentioned by the hon. Member for Northavon. This, combined with other measures announced in the Budget, will increase the rewards of work. The changes already announced mean that the number of people on deduction rates of more than 90 per cent. will reduce from 130,000 to 26,000. However, a small number of tenants in receipt of housing benefit, council tax benefit and the new tax credit could still lose up to 95p in the pound of any additional earnings. There is clearly scope for improving the part that housing benefit plays in supporting low-income workers.

Some commentators suggest that integrating housing support with the new housing tax credit would create clear water between benefit and work. They also point out the danger of making it harder for claimants to leap between the worlds of welfare and work. It is certainly a very interesting proposal and one that has already been put to the review team, but we must strike a note of caution about creating different systems of support for tenants in and out of work. Even if a housing credit was anchored to both tenure and place of residence, it might still make life on benefits seem more secure compared with a credit that cannot be guaranteed to meet individual rent liabilities.

Giving tenants a direct stake in the cost of their housing, either through a gap scheme such as those operated in many other countries or through a notional rent contribution for council tenants, could be one way to tackle the gulf between welfare and work. As my hon. Friend the Member for Stafford made clear, the key message must be that work pays. All those matters will be given careful consideration.

There are finely balanced sets of pros and cons for the different schemes, and we must consider them as our reforms come forward, but reform aimed at giving tenants an interest in their rent would not take place in a vacuum. One aspect of the background canvas painted by Professor Kemp in his report is that basic social security benefits are unusual internationally in making no provision for housing cost. That is a problem that we have to continue to grapple with. We must also recognise that some vulnerable tenants may be unable to shop around or haggle with their landlords. Alternatively, the costs of giving tenants some slack to make up any rent shortfall could be substantial. There is also the danger that a gap scheme would prove to be equally complicated to run and even more opaque for claimants to understand than the current system.

That brings me to improved administration. There can be no doubt that standards of administration are patchy across local authorities. Numerous changes have been bolted on to the original scheme, leaving us with a benefit confusing even for the best local authorities to administer, let alone for claimants to understand. As my hon. Friend the Member for Stafford rightly said, the Public Accounts Committee report majored on the complexity of housing benefit, referring several times to the 60 deductions, premiums, allowances and disregards involved in calculating entitlement. They relate largely to the structure that housing benefit shares with income support and overlook probably the biggest headache in housing benefit administration—the way that rent is assessed.

Again there is no easy solution; the complexity in the system has mostly been built in to save money, to protect tenants in vulnerable circumstances, such as young people who have been in care, or to prevent fraud and abuse. Nevertheless, the case for reducing some of the worst complexities is extremely robust. We will also continue to build on the verification framework and the findings of the benefit fraud inspectorate to disseminate good practice and to raise standards.

I should also like to address the issue of cost. Many commentators assume a backdrop of cost-cutting or restraint. If savings are to be squeezed out of the social security budget, housing benefit initially looks like a prime candidate. After all, it has shown the second fastest rate of growth after sickness and disability benefits in recent years.

Despite spending on housing remaining broadly constant, benefit spending has rocketed, from around £5.3 billion in 1988 to around £11.4 billion today. While we are aiming to restrain growth in the longer term, the review is not a cost-driven exercise. I made the same point yesterday morning at the launch of Professor Kemp's report, and a number of people in the audience immediately assumed that that was a politician's doublespeak and that I was actually on the verge of announcing cuts in housing benefit. Let me reiterate that the review is not about cuts. For the immediate future, we are more interested in streamlining the rules and in making the benefit more work-friendly.

Finally, my hon. Friend mentioned the balance between bricks and mortar and personal subsidy. I can see that this approach has its attractions, but lowering rents in the social housing sector is no panacea in itself. Rent reductions do not, for instance, increase the supply of accommodation or improve the quality and maintenance of the existing stock.

In conclusion, some of the general points are worth reiterating. There are features of the current system that go against the grain of the Government's determination to refashion a modern welfare state. In particular, housing benefit can undermine work incentives and prevent tenants from taking responsibility for housing consumption. Any changes must be designed to simplify the benefit rules, to ensure that the benefit acts in concert with other in-work support and to design out fraud wherever possible. We must always remember that many people rely on benefit for their security, and that any change will not be brought in without sensitivity, in order to ensure that existing claimants have what I call a soft landing.

I warmly congratulate my hon. Friend and the hon. Member for Northavon again on their contributions to the debate. The points raised will be considered carefully as the review progresses. I hope that we can build support both for the principles of general welfare reform and for tackling the specific design faults of the housing benefit system that have been so clearly identified tonight. I am sure that, if we work together in that way, we can produce a better housing support system than the one with which we are currently grappling.

Question put and agreed to.

Adjourned accordingly at twenty-three minutes to One o'clock.