Long argued for by Jack Dromy
Billions of pounds paid in housing benefit could be handed to England’s councils to shift spending from subsidising high rents to building homes, under proposals to be studied by Labour‘s Treasury team.
The plan could mean the transfer in a five-year budget of almost £1.5bn for west Yorkshire, more than £1.4bn for Greater Manchester and Liverpool, just under £1bn for south Yorkshire and just under £700m for the north-east.
The proposals would be a large shift in the architecture of British welfare, reversing a 30-year trend of subsidising high rents rather than housebuilding. They would also transfer power from Whitehall to England’s regions.
The plan has been drawn up by the centre-left Institute for Public Policy Research, which warns of the consequences for welfare spending if housing benefit is not reformed. The plan comes as Sir Michael Lyons is examining reforms for Labour to boost housebuilding.
During this parliament, 95% of government spending on housing will go through the benefit system, with just 5% invested in new homes, reversing the balance of spending in the late 1970s.
Although the government has sought to constrain benefit through the bedroom tax, the housing benefit caseload is expected to rise by 150,000 by 2019, with more recipients in work unable to pay their rent without a subsidy. The bill is projected to rise in real terms in the next five years, reaching £25.4bn by 2019, settling around £8bn a year higher in real terms than before the recession.
The rises have been triggered by a combination of above-inflation rent increases in the private and housing association sectors, as well as a growing share of claimants in the private sector. Nearly 40% of housing benefit spending – over £9bn a year – is going to private sector landlords, many of whom charge more than £50 a week more than council housing.
The IPPR says the current “distribution of power and incentives means that local government is left administering a rigid system over which it has little control, while gaining no rewards and facing no penalties for its performance”.
The thinktank proposes a phased transfer of control to local authorities that would firstly give councils greater scope to borrow against their housing assets, to provide an injection of additional local housing investment to reduce the pressure on housing benefit in their area. Estimates suggest this could support the construction of between 12,000 and 17,000 new affordable homes a year.
In a second transfer it suggests councils be entitled to set rent subsidy levels in their local private sector. Sheffield council alone believes it could reduce its housing benefit deal by £300,000 a year through this reform.
In a third phase councils would be given control over central government capital housing budgets, and also empowered to set higher rent levels for richer tenants. It has been estimated, for example, that if a premium was charged on 115,000 higher income tenants in London, nearly £300m would be raised.
In the final phase of the reform, big councils and combined authorities would be given multi-year budgets to oversee affordable housing expenditure earmarked for their area.