The cost of benefit reform: 40,000 homeless

By Ian Dunt

An estimated 40,000 people will be made homeless by government plans for benefit reform, according to a leaked letter intended for Downing Street.

The policy is likely to see a net loss to the Treasury as it provides temporary accommodation and homelessness services and seriously hinder the ability of the government to provide new social houses.

The letter, leaked to the Observer, from local government secretary Eric Pickles' private secretary and sent to Downing Street, warned that "very serious practical issues" were raised by the decision to cap benefit payments.

"Our modelling indicates that we could see an additional 20,000 homelessness acceptances as a result of the total benefit cap," it reads.

"This on top of the 20,000 additional acceptances already anticipated as a result of other changes to housing benefit."

"We think it is likely that the policy as it stands will generate a net cost," the letter adds.

Commenting on the suggestion that families could be required to divert non-housing benefit to their rent, the letter warns No 10 not to underestimate the level of controversy that this would generate and the difficulty of justifying this in policy terms as well as implementation".

By reducing the payment abilities of families on benefits, the government system for funding new social housing would also be adversely affected, the letter reads.

"To fund new affordable housing development providers need to be able to charge rents of up to 80% of the market levels but the impact of the overall benefit cap will prevent them from doing so in many areas greatly reducing their financial capacity," it says.

"Initial analysis suggests that of the 56,000 new affordable rent units up to 23,000 could be lost."

Shadow work and spensions secretary said the letter proved the government was in chaos and that  "one half of government does not know what the other half of government is doing".

He added: "I'm afraid the picture that we’ve got today is of a pretty chaotic and pretty careless government that is potentially putting 40,000 families out of a home and actually putting up the bill to taxpayers."

Labour is expected to table an urgent question on the issue tomorrow in the Commons. 

The proposal to cap benefits is one of the government's most popular policies, with focus group research and polling showing it to be widely supported across all sections of society.

Analysis has shown several adverse effects, however, particularly in housing. Opponents warn that it will drive poorer families from city centres, with some suggesting it would turn London into Paris, where the centre of the city is populated predominantly by white, middle-class families.