Welfare Reform and Work Bill (Third sitting) Debate
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Emily Thornberry
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Welfare Reform and Work Bill (Third sitting)
Emily Thornberry Excerpts(9 years, 3 months ago)
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Emily Thornberry (Islington South and Finsbury) (Lab)
Before you go on, can I follow this up?
Mr Vara
Q 136 I note what you say about comparability, but you will be aware that between 2004 and 2014, average social rents rose by more than 60% compared with 23% in the private rented sector. Notwithstanding what you said, would you agree that the reduction in social rents will be able to bring some sort of parity between the private sector and the social sector?
Gary Porter: It is the complete reverse. If you force our rents down and allow private sector rents to go up—
Mr Vara
Q 137 Hang on; you say “allow”, but the private sector operates independently. The disparity at the moment is that one has been going up a lot more and the other less so. As I say, look at the figures: between 2004 and 2014, average social rents rose by more than 60% compared with 23% in the private rented sector. Given that this has gone in a certain direction in the past 10 years, if it were to go in the same direction in the next 10 years, clearly one will go up less than the other.
Gary Porter: Private sector rents will go up as a result of this, because there will be less public sector houses built. That will push up the demand in the private sector, which will allow private sector landlords to push their rents up more. That is the way the market works.
David Orr: Sadly, we don’t live in a world that is that simple and straightforward. Social rents going up by 60% is a specific and direct consequence of Government policy to reduce the amount of capital investment in new supply through housing associations, while still wishing to see the same level of delivery.
In the 2010 comprehensive spending review, when capital investment in new supply through housing associations was reduced by 63%, the coalition Government set us a challenge to deliver the same number of new homes or more, specifically by introducing a new rent regime called the affordable rent regime, with much higher rents. That was a Government proposition; it was not asked for or particularly supported by the sector. Having created affordable rents that are designed to be set at 80% of market rates and therefore responsive to what is happening in the market, rebased every time there is a new letting, the Government now want to reduce the rates on those. It is not consistent; that is the problem.
Housing and housing investment is a long-term business. We borrow money and organise finance on a 30-year basis, and that kind of cavalier approach—up one year, down the next; capital subsidy and then changing it to revenue subsidy—plays havoc with the ability of organisations to make the commitments they have entered into.
Emily Thornberry
Q 138 You have been asked a question about those on low incomes and the impact on them of rent going down, and I wanted to pick that up. I wonder perhaps if Councillor Porter particularly might be able to answer this. If rents go down by 1%, will that have an impact on the amount of money that local authorities have available to do repairs, and can you see that having a long-term impact on the service that is available to council tenants?
Gary Porter: Well, yes. Whatever money is taken out of the system will prevent us either, in some cases, from maintaining the homes in the way that we would like to maintain them, or—more importantly from a Government perspective, I would suggest—from building new homes to reduce the long-term housing benefit bill. It will in a few cases have an impact on the ability to maintain homes properly, but I hope that my members would find a way of prioritising making sure that people still live in fit, decent properties. We have a good track record over the past 10 years of improving the high quality of our housing stock, and I cannot see any council easily going back on that. They will make other decisions, other than reducing maintenance, but that will be investment in their value.
Emily Thornberry
Q 139 I wonder—again, Councillor Porter and perhaps Mr Orr could answer this—to what extent we think that the cut in social rents will have an impact on the overall growth in spending on housing benefit, compared with a similar policy applied to private sector rents. I think, Councillor Porter, you touched on this. We are looking at the differences between social rent and the private sector, and if the Government want to cut back on the housing benefit bill, and therefore cut social housing rents by 1%, that might have one impact, but if a similar policy were to be applied to the private sector, how much more housing benefit would be saved?
Gary Porter: Yes, but you might then end up with people in the private sector deciding that they do not want to be letting to the people you need to house in those properties. Don’t get me wrong, I fully support the idea of not spending £20 billion-plus a year on housing benefit—it is a crazy system. We should not be wasting that money that way, but the only way of sustainably stopping that money being spent is to build more homes. We need, one way or another, to build more affordable homes for people on low incomes to live in. That is the cheapest solution for the country.
Emily Thornberry
Q 140 You are here speaking on behalf of the Local Government Association, which obviously is a cross-party organisation, and I believe that you are Conservative councillor.
Gary Porter indicated assent.
Emily Thornberry
Q 141 I will choose one more question to ask. I think, Mr Orr, you touched on the effect of the cut to social rents—or the Government enforcing a cut—of 1%. You said that housing associations have been pushed into the 80% affordable rent bracket. I wondered what the effect of the 1% cut would be on housing associations’ ability to build, versus pushing your tenants into 80% affordable rent, or 80% rent, instead.
David Orr: Our initial calculation was that in the absence of other mitigating action, the impact of the 1% cut would be a minimum of 27,000 homes lost—
Emily Thornberry
Q 142 So that is 15,000 with local authorities and 27,000 with housing associations per year.
David Orr: Yes. It could be more than that, but what is happening is that the housing associations are looking all the way through their business plans and making decisions, trying to prioritise how they deal with the cut. The truth is that some housing associations have already started the process of making members of staff redundant, and often these are people who are doing the work to support people’s tenancies, such as financial inclusion staff or neighbourhood support staff. So it is difficult at this stage to be absolutely clear, but certainly the options that people are exploring include doing more under the affordable rent regime, with more conversions to affordable rent, or more new homes for shared ownership, rather than for social rent. That will play out over the next year, while people come to terms with the impact and recalibrate their thinking about the future.
Some housing associations in high-value markets are increasingly building for market sale and market rent, partly because that is a useful product in the market and partly to generate profit so that they can create their own cross-subsidy for affordable and social rent, and for shared ownership. But that does not work in low-value markets in the north of England and elsewhere.
Emily Thornberry
Q 143 So they are building for private sale in London and building for social rent outside London.
Kate Green
Q 157 And that, of course, will be exacerbated for those families by the child tax credit measures.
May I ask one final question on this point? What might be the impact on personal household housing debts? Will we see households going into debt to meet their rent as a result of the freeze and the cap?
David Orr: We already know that there are some households who have had to do that. I was in Cornwall yesterday, which is an area that has been particularly badly hit by the bedroom tax because there are very few alternative places with smaller accommodation for people to move to. We know that some people there have really struggled to pay the rent and some of them have gone into debt to pay the rent.
Emily Thornberry
Q 158 I believe that 70% of households in social housing in some London boroughs are affected by the cap. The benefit cap has particular implications for London councils, so it would be interesting to have some additional evidence on that.
Can we also hear from housing associations about the benefit cap’s effect and what the future for housing associations in London is, given the level of the cap? Are we looking at a future where housing associations will only be able to risk renting out to young professionals without children and will not be able to build accommodation appropriate for families?
Mike Donaldson: We are already seeing the impact of the previous benefit cap in terms of the households we can house in larger accommodation, so it is obviously going to get worse as it reduces to £23,000. The other thing we are concerned about is that there is an assumption that rents drop dramatically once you leave the Greater London area, and that is not true. The area around London has equally high rents, because there is a lot of commuting and so on. So there is a real concern that the £20,000 cap also has a detrimental impact on our residents.
Although we do not know for sure, because obviously we have not got all the information from the DWP, we estimate that another 300 of our residents will be affected by the benefit cap when it is introduced. The history so far has been that we have had to engage heavily with those individuals to ensure that they do not face losing their homes. The extra costs that we incur to employ staff, to get people jobs—we employ staff to give financial advice—is money that we have had to find from elsewhere in the past four years. Going forward, of course we will not have so much money, because we will be facing reduced income from rents, so there is a bind. Most of these people have never worked or have not got an engagement with the jobs market—they are starting from scratch. You have to do an awful lot of work with them to get them into paid employment.
Emily Thornberry
Q 159 Can I talk about another situation? Let’s say a family living in Berkshire might want to move into housing association accommodation. Under the benefit cap, would the housing associations want to take the risk of building accommodation for a family in case the family fell out of work and then needed to depend on benefits, because those benefits would not pay sufficiently high rent even to pay for building the property in the first place? How many housing associations are following the example of Moat, which says that it cannot afford to build two and three-bedroom houses any more because of fear of the benefit cap?
Mike Donaldson: Well, the original benefit cap mainly affected larger families and it was four-beds that were mainly affected, so we have had difficulty letting some of those properties because the people who we would normally house cannot afford the rents. It is not a significant issue, but it has begun to be an issue, and it will just get worse because we are now talking about the smaller bed sizes—not two-bedrooms, but three-bedrooms. In London, they are going to be much more difficult to let at the rents that we are talking about. So it will just get worse, and by year four of this regime I think we will have a substantial issue.
Emily Thornberry
Q 160 I was talking not just about renting, but about housing associations not being prepared to build family accommodation in the south-east because of a fear of their tenants becoming unemployed.
Mike Donaldson: I think you will see people developing smaller homes, because people can afford them. I accept that it may lead to overcrowding down the line, but that is where the pressure is.
The Chair
Q 161 Colleagues, we are approaching the end of this witness session. Does anyone have a final, burning question that they would like to put to our very expert and concise panel? David, would you like to add something for the record?
David Orr: May I say two things? One is a very specific plea on behalf of large-scale voluntary transfer organisations that have rents way below target. Under the existing arrangements, they are allowed to re-let at the target rent, rather than at their existing rent; as currently drafted, the Bill will not allow that to happen. Please could we put that back in? It would make a substantial difference to those organisations and would cost almost nothing.
Secondly, on the previous conversation, housing associations are trying to make sense of that issue. There is a huge commitment to continue to deliver the mission. Housing associations are mission-driven organisations and want to be able to provide good-quality accommodation for people right across the income spectrum. I think we will see some two, three and four-bedroom homes being built, although I also think the incidence will diminish, but we have to think strategically and long-term about the consequences. One of my profound anxieties about the change in the Bill is that it feels short-term and that the long-term consequences have not been properly calculated.
The Chair
I am sorry. You’re nodding, you’re happy, I have to conclude this in five minutes’ time under Standing Orders and I must give Emily Thornberry the last couple of questions.
Emily Thornberry
Q 193 I only have one question. In my opinion, we cannot have the chief executive of the Child Poverty Action Group and others in front of us on such major changes to the welfare Bill without asking not only about measuring child poverty but about whether the Bill will increase child poverty. If it does increase child poverty, how will we know and how will we hold the Government to account if they stop measuring it?
Professor Gordon: Since two thirds of children who are poor are in working families, and a lot of those families are dependent on child tax credits, if there is a large cut to that and other tax credits, other things being equal it will inevitably increase child poverty. I do not think that there is the slightest doubt about that.
Dr Callan: If we are talking about “ambition”—someone mentioned it earlier, but I think they have walked out—if we have an ambition to do all that we can to tackle the root causes of poverty, my hope is that the Bill would lay the foundations for reducing the number of children growing up in poor circumstances, which includes low income.
Alison Garnham: The Institute for Fiscal Studies has projected what existing policies will mean for child poverty. It projected that child poverty would rise by 700,000 by 2020. That did not take into account the recent announcements, so obviously that is an underestimate, and there will be more. We do not know the extent yet, but we know that some of the proposals modelled by the IFS would increase child poverty by 300,000, for example. So we are looking at something over 1 million.
Matt Padley: As David has said, there is little doubt that much in the Bill will increase child poverty. Going back to the importance of measuring it, it is really important that we know what is happening, so that we can hold the Government to account and ensure that we do not have such a high proportion of children growing up in income poverty, which has damaging consequences on their lives.
The Chair
Thank you very much indeed. I am so sorry, we could have gone on longer; it has been a fascinating session. Thank you for your helpful expertise. Professor Gordon, Dr Callan, Alison Garnham and Matt Padley, thank you so much for coming and being with us this morning.
Examination of Witnesses
Dr Kristian Niemietz and Julia Unwin gave evidence.
Hannah Bardell
Q 204 Do you really, truly believe that if we have more people and children in poverty —let us not forget that the research suggests that we are going to have 200,000 children in poverty, versus 80,000 adults—the public are going to welcome that?
Dr Niemietz: Not if conditionality works properly. If it gives incentives—a carrot and stick approach—to getting back into work, why would it increase poverty? It has not done that in Wisconsin.
Julia Unwin: The evidence shows that conditionality can work for some people and the global evidence suggests that, for some people, it provides the spur back into work, but far more often it drives people into making the wrong work choice, accepting a job they cannot possibly fulfil and therefore falling back into benefits. In Wisconsin and other parts of the United States, there is clear evidence that people are coming off benefits completely but not going into work. We are concerned about what the implications of that will be, because you end up with people making short-term choices that keep them going in the short term but can cost the state very much more in the longer term. Conditionality applies to all public services and all people. There is a contract in place, and we need to understand how it works. But if the current method of sanctioning creates destitution by design, we have created a real, expensive problem for the long term.
Emily Thornberry
Q 205 The four-year freeze on working-age benefits, the limit of tax credits to two children and, in particular, the lowering of the benefit cap continue the disconnect between the amount of benefit that is paid to people because of their need and the simple sum they are given. It is not done on the basis of needing more; it seems to be that people will be given an absolute sum, and that is that. Clearly, that will have an impact on poverty and on particular groups—I wonder which groups. Is it right that the group affected most might be single parents, when it comes to child poverty?
Julia Unwin: Is it correct? Yes. Is it right? No. Single parents and disabled people in different categories will be particularly affected, but in terms of this Committee’s concerns, single parents will be affected most.
Emily Thornberry
Q 206 So, in your view, is the Bill likely to increase child poverty or help tackle it?
Julia Unwin: We were talking earlier today, and certainly earlier in this session, about looking at the package changes together. I agree with the Institute for Fiscal Studies, with which we work closely, as we do with the IEA. The IFS has predicted an increase in child poverty as a result of this suite of measures, not just the ones in this Bill.
Dr Niemietz: On relative poverty, probably yes. On the others, it remains to be seen how other factors, especially wage rates at the lower end of the distribution, will work out over the coming years.
Julia Unwin: That is why I describe it as a risk and a gamble. Clearly, the health of the economy and what that does to the labour market will make an enormous difference to the outcomes that we could predict.
Emily Thornberry
Q 207 But employment within the Bill is defined as 20 minutes every three weeks, as far as I can see. That is not necessarily going to help tackle child poverty.
Julia Unwin: High levels of underemployment, which is what we witness now at this end of the labour market, will do nothing to help child poverty or to reduce the benefits bill in the way that the Government intend.
Emily Thornberry
Q 208 Could you also address your comments particularly to what impact the benefit cap is likely to have on child poverty?
Julia Unwin: The benefit cap, in the way that I described earlier?
Emily Thornberry
In the way that it is being introduced.
Julia Unwin: The way that the benefit cap is being introduced has huge implications for childcare costs, and we know that reliable childcare is the only way for parents to get back into sustainable work. It also has huge implications for housing costs, which will make some parts of the country uninhabitable for people on benefits.
Dr Niemietz: This links back to what I said earlier. It seems to me that the benefit cap is really just a clumsy way of capping housing benefit. There is actually no way in which someone could substantially exceed that cap unless they are in receipt of housing benefit, and probably in receipt of fairly large sums. This is a roundabout way of capping housing benefit, whereas, as I said before, I would have started at the other end. Build enough houses, and you will not need a cap of that kind any more, because rents will fall automatically and housing benefit rates will fall with them.
Damian Hinds
Q 209 I want to ask Julia a quick question for clarification. We were talking earlier about single parents, and we have talked about the importance to tackling poverty of being in work and having access to enough hours. Obviously, a big part of that is ensuring that childcare support is there. You talked about the childcare allowance in tax credits. Can you talk us through your understanding of the full set of childcare changes to come?
Julia Unwin: As I understand it, by introducing a childcare allowance, the Government made big steps to enable people to go back into work. However, by making that part of the cap, we have reduced its value. In some parts of the country, and in London specifically, the costs of childcare have gone way above what can be covered by that allowance.