What is Housing Benefit?
Housing Benefit (HB) is an income-related social security welfare scheme to help people pay their rent. It is also sometimes referred to as Rent Allowance or Rent Rebate. The scheme is only open to people living in rented accommodation (including council and social housing) and on low incomes.
The maximum a claimant could be entitled to is the whole of the rent they pay for their accommodation. This rent, however, must be "reasonable" for the type of home in the area, and the accommodation must be "reasonable" in terms of the claimant and his or her dependents' needs. The definition of the latter was changed dramatically in 1996 for single people aged under 25, with the introduction of the "Single Room Rent" (SRR) concept.
As such, because HB is so sensitive to local and individual conditions, unlike most social security benefits, it is administered by local authorities.
The determination of "reasonableness" is carried out by council Rent Officers, who also apply a complex set of deductions and premiums to calculate individual entitlements. The formulae are similar to those used for Income Support and income-related Jobseekers Allowance. HB does not cover charges for heating, water and energy, and deductions will be made where a property's rent includes those costs.
HB is paid by local authorities either directly to individuals or to private landlords on their behalf. If HB is being paid to assist a council tenant, it is directly deducted from the sum owed by the tenant to the local authority.
HB has its roots in the "national assistance scheme" of 1948. Throughout the post-war period, successive governments' approaches to the problem of housing for people on low incomes fluctuated between building more social housing and providing support for rent.
As such, the arrangements grew to be highly complex, and were consolidated for council tenants in 1972 under the National Rent Rebate Scheme, and for private and housing association tenants in 1973 under the parallel Rent Allowance Scheme. Both were introduced at a time when local authority housing finance was being overhauled, with the effect that council rents rose sharply.
The introduction of these arrangements did not stem the growing complexity of the system, and generated a "better-off" problem, where payments differed under each scheme. HB was introduced under the Social Security and Housing Benefit Act 1982 to replace them. It was not until 1988, however, that HB was in full operation, with the integration of in-work and out-of-work HB systems, by which time it had already begun to be amended.
The Housing Act 1988 produced massive upheaval for the HB system. The Act began the deregulation of private sector rents, reduced protection for tenants and removed the right to independent assessment of "Fair Rents". In addition, the eligibility of students aged under 25 for HB was substantially cut.
This deregulation, alongside rising council and housing association rents, declining investment in social housing meant that HB expenditure tripled from £3.8 billion in 1986-1987 to £12.2 billion in 1997-1998. During the same period, claimant numbers fell from 7 million to 5.5 million.
Attempts were made through the Housing Act 1996 to bring HB spending under control, through the introduction of "Local Reference Rents" (determinations of average market rents for dwellings of the same size in an area) and the further restriction of eligibility for under 25s through SRR. This cut the entitlement of young people to the equivalent of a room in shared housing. According to the homelessness charity Shelter, the result of these changes is that private sector tenants today bear 70 per cent of the cost of their rents.
By the late 1990s, it was clear that HB was in need of sweeping reform, as it was costing too much, it was suffering from high levels of fraud, and it was exercising perverse incentives with regard to people moving into work. The Labour Government launched a major review in 2000 in the wake of the Housing Green Paper, "Quality and Choice: A Decent Home for All". The key aims of the reform in relation to HB were to improve customer service; reduce fraud and error; improve work incentives; and, for the future, explore other options to support housing policy.
In 2002 the Department for Work and Pensions published detailed proposals of future HB in "Building Choice and Responsibility: A Radical Agenda for Housing Benefit". Central to the new system was the introduction of a flat rate payment system for private sector tenants in receipt of benefits. The DWP argued that this would simplify administration and make the system more comprehensible to claimants. Pilot schemes were launched in 2003 and 2004 to test this. New Local Standard Housing Allowances would also cut out the need for every case to be referred to Rent Officers, reducing bureaucracy in the system and the new system would also reduce the need for fresh claims when a claimant's working situation changes.
In January 2006 the Government published a welfare reform Green Paper entitled 'A New Deal for Welfare: Empowering People to Work' which included further proposals for reforming Housing Benefit, in particular rolling out an adjusted version of the Local Housing Allowance (LHA) to the deregulated private rented sector.
The Welfare Reform Act 2007 introduced changes to the administration of Housing Benefit (HB) with the national roll-out of LHA to the private rented sector, and an HB sanction for people who refused to engage in rehabilitation following eviction for anti-social behaviour.
The new Coalition Government elected in May 2010 stated that welfare reform was "very much a priority" for them and that Housing Benefit reform would be considered in the context of wider welfare reform objectives.
In the following month's Emergency Budget, Chancellor George Osborne stated that Housing Benefit costs had become "completely out of control" having risen from £14 billion to £21 billion within the last decade and that the system was "in dire need of reform".
Consequently a number of measures would be introduced including: Re-setting and restricting Local Housing Allowances; up-rating deductions; reducing certain awards; re-adjusting Support for Mortgage Interest payments; limiting social tenants' entitlement to appropriately sized homes; and the introduction of maximum limits on housing benefit - from £250 a week for a one-bedroom property to £400 a week for a four-bedroom or larger.
Major changes were subsequently introduced to Local Housing Allowance arrangements to take effect from 1 April 2011.
As an integral part of the housing system, many of the problems relating to HB are tied up with wider issues of the availability and cost of housing and local government finance in general. Nonetheless, it is almost universally accepted that HB is in dire need of reform.
At the heart of many of the problems surrounding HB is the complexity of the system and the difficulties many local authorities experience in administering it. In 2002-2003, the average time taken to process a new claim was 48 days. The government target was 14 days, but the worst performing councils were sometimes taking as long as 150 days.
The fight against benefit fraud has contributed to this complexity and poor local administration, with the Verification Framework identified as particularly complicating. Under this, all new claimants had to be investigated, rather than just those who posed the greatest risk. Local authorities claimed that funding provided to implement the Framework by the DWP was inadequate.
At the same time, it was suggested that the demands put upon claimants by local authorities deterred many who should be receiving HB from doing so. Shelter claimed that 680,000 people were missing out on HB worth £1 billion per year as a result of this and poor administration. Improving "customer service" was stressed by government as an area for improvement in both the Green and White Papers.
Nonetheless, fraud remains an enormous problem for HB. Complexity and bureaucratic inefficiency are widely acknowledged as causes of fraud and error. Income Support and JSA fraud are also seen as providing a "gateway" to HB fraud. The anti-fraud measures put in place to date are widely criticised as exacerbating the complexity problem. Another cause of fraud is the historic lack of central support and monitoring exercised by government over local administrations. In some areas, poor administration became so bad that the Government removed the council's responsibility and passed it to private contractors (eg the London Borough of Hackney).
HB has often been blamed for causing unemployment: firstly, through its steep deductions taper, making paid work uneconomical; and secondly, through the requirement to reclaim when employment circumstances change. HB has also been accused of causing homelessness: non-payment of HB by councils is identified as a major cause of rent arrears and even eviction.
The proposed Housing Benefit reforms announced by the new Coalition Government elected in May 2010 aroused enormous controversy. Labour leader Ed Miliband described the Government's Housing Benefit policy as "a complete shambles" and said London councils were warning that 82,000 people would lose their homes as a result of the changes.
But Prime Minister David Cameron insisted the changes were necessary, pointing out that Housing Benefit for working-age people had increased by 50% over the previous five years. And he defended one of the key reforms, a £20,000 cap on maximum Housing Benefit claims, by saying: "If we are prepared to pay - as we are - £20,000 in housing benefit, there is no reason why anyone should be left without a home."
However, the homelessness charity Shelter warned that the Government would face costs of up to £120 million per year due to the surge in homelessness caused by cuts to Local Housing Allowance and that councils would incur additional administrative costs in processing the resultant thousands of homelessness applications. Shelter chief executive Campbell Robb called on the Government to "urgently re-think" the reforms and develop an alternative to protect the most vulnerable.
Nevertheless, reforms to Local Housing Allowance (LHA) rates, which are used by both private landlords and local authorities to calculate Housing Benefit, were introduced in April 2011, resulting in further warnings from Shelter that, "the dangerous cocktail of cuts to housing benefit and spiralling rents is making finding a decent home increasingly unaffordable for families across the country."
The Welfare Reform Act passed in March 2012 provided for Housing Benefit to be abolished, along with several other benefits, and for these to be replaced by a new single streamlined benefit - the Universal Credit. Within this new benefit an appropriate amount will be allocated to help meet the costs of household rent or mortgage interest.
From 1 April 2011, we are making major changes to the LHA arrangements, including how the LHA rates are worked out. The main changes are:
Setting rates at the 30th percentile in each area, a reduction from the 50th percentile currently used. This means about three in ten properties for rent in the area should be affordable to people on HB rather than five in ten properties as now.
Making the four bedroom property rate the maximum payable.
No longer allowing customers to keep the difference between their rent and the LHA rate.
Disabled customers who need overnight care may be able to claim for an extra room for a non-resident carer.
Introducing a maximum weekly rate.
The maximum weekly rates will be:
£250 for a one bedroom property
£290 for a two bedroom property
£340 for a three bedroom property
£400 for a four bedroom property
People making new claims from 1 April 2011 will be affected straight away. Existing customers will normally be affected from the anniversary of their claim. They may be affected sooner if there is a change in the size of their household that affects the size of dwelling they are entitled to, or if they move.
Existing customers can get transitional protection for a further nine months from the date that that the changes apply to them. This transitional protection means that many existing customers will not be affected until January 2012 and some will see no change until March 2012.
Source: DWP - 2011
"Housing benefit is vital in supporting people with their housing costs and in ensuring people's housing stability. Crisis has long called for reform of housing benefit to better support housing stability and to remove barriers to work. However, the cuts proposed……. will adversely affect some of the most disadvantaged in society and are likely to lead to an increase in homelessness."
Crisis homelessness charity - 2012