Welfare reform - housing and social security: second follow-up paper

2. Update since 2018 report

As mentioned in the previous housing report, the Scottish Government has limited powers in relation to housing and social security, but the majority of the policy responsibility and spending remain reserved to the UK Government.

As before, the impact of the benefit cap, benefit freeze, and the LHA cap on the private rented sector remain important issues. We are now in the fourth and final year of the freeze but the future of LHA rates is as yet unknown. The majority of tenants affected by welfare reform are in the social sector, and so the impact of UC there also remains a concern - an updated discussion is provided on that.

Housing policy is devolved to Scotland, but these areas demonstrate that reserved welfare policy continues to have an impact on the Scottish Government’s ability to deliver on its housing priorities and can work against tackling homelessness.

Since the last report, the Scottish Government has given renewed impetus to its work to tackle and prevent homelessness. The Homelessness and Rough Sleeping Action Group’s (HARSAG) final recommendations report was published in June 2018, and it made explicit reference to the impact of welfare reform on homelessness:

“Decisions about social security have a direct impact on homelessness. The poverty resulting from benefit caps and freezes, the impact of sanctions on people who are homeless or at risk of homelessness, the limits on the housing element of benefits, and waiting times for Universal Credit, and other aspects of welfare reform all act to increase the pressure on people living on the edge of homelessness.”^[7]

While some of the areas covered in this report are relevant to the HARSAG recommendations, further analysis is required to explore more fully the interactions between welfare reform and homelessness. This will be published at a later date looking more closely at tackling and preventing homelessness, and the ways in which the social security system impacts on that work.

The main focus of this paper is on the changes to support for housing costs, and the impact on the ability of households to meet their rent due to UK Government welfare changes. The way individual households respond to the impacts of welfare reform varies depending on their circumstances. Cuts to aspects of social security provision that are nominally not explicitly about supporting housing can still lead to households struggling to pay rent. Therefore it is worth considering the wider context of benefit cuts and freezes, as well as subsequent steps announced by the UK Government.

Wider context

The overall welfare spending context was described in previous annual reports, with the 2018 Welfare Reform Report estimating an overall reduction of £3.7 billion in welfare spending in Scotland in 2020/21.^[8]

In Scotland there were around 2.48m households in 2018.^[9] People in receipt of support for housing costs through Housing Benefit, or an award of UC which includes the Housing Element, represent around 19%^[10] of that figure, or around 460,000 households. In Scotland in 2018/19, total spending on Housing Benefit and UC (for household with a Housing Element on their award) was around £2.4 billion.^[11] Universal Credit is now rolled out across Scotland for new claimants and households that experience a change of circumstances, but as of May 2019 76% of households receiving housing support continued to receive the legacy housing benefit, with 24% receiving support through UC. This will increase over time as working age households are moved over to UC, a process which the UK Government intends to have completed by December 2023.

In addition some households will receive a Discretionary Housing Payment (DHP). The majority of support for housing costs is available for those who rent their homes, although some loan support is available for those with a mortgage. As with the previous report we again focus on the impact of welfare reform on tenants, as well as their landlords, especially social sector landlords.

Housing costs have a substantial impact on levels of poverty, and in turn levels of poverty vary substantially between sectors and groups. Poverty levels are higher after housing costs for all groups except pension age households. Pension age households are more likely to be owner occupiers, and have been protected from many aspects of welfare reform, (for instance the bedroom tax only applies to working age households). The most recent poverty statistics show that relative poverty rates in the social sector are higher after housing costs (40%) than those in the private sector (34%).^[12]

Changes since the publication of the previous report

During 2018 and 2019, a number of changes to UC have been announced. The most significant change, announced in the 2018 Autumn Budget, was the increase of UC work allowances for claimants with responsibility for a child or limited capability for work, by an additional £1,000 per year. Further analysis of this is contained in the annual report, but it is worth noting that according to the Office for Budget Responsibility, the 2018 increase only restores around half of the 2015 cuts.

The Annual Report sets out information on a number of Universal Credit transition related changes. The following are of particular relevance on the housing context.

Two week run-on payments

Claimants moving onto UC, as part of the managed migration rather than a change in circumstances, from Income Support, income-related Jobseeker’s Allowance and Employment and Support Allowance will continue to receive payments from these legacy benefits for the first fortnight of their UC claim. Claimants of Housing Benefit already receive this run-on payment now, while claimants of the other legacy benefits will benefit from this change from July 2020 although run-ons of tax credits are not included in this reform. This will ease the five-week wait for UC payments for households with a pre-existing claim to these benefits. This is important in the housing context as the wait has been seen as one of the key aspects of the design of Universal Credit having an immediate impact on rental arrears. However newly entitled households making a fresh claim will not benefit from this policy.

Mixed age couples and Universal Credit

From 15 May 2019, couples with one partner over pension age and one working-age partner (referred to by DWP as mixed age couples) can no longer make new claims to Pension Credit (or pension-age Housing Benefit) and must claim UC instead. This could reduce the income of an estimated 1,400 Scottish households in 2019/20, rising to an estimated 5,600 in 2023/24.^[13] Because Pension Credit Guarantee Credit tops up a couple’s income to £12,940 per year, while the UC Standard Allowance only entitles couples to just under £5,990 per year, each household could lose up to £7,000 per year. This could also have an impact on the Scottish Government’s continuing commitment to mitigate the bedroom tax in full. Under UK rules, pension age households are exempt from the bedroom tax, therefore this change could increase the number of households affected.

Benefits Freeze

The UK Government has announced that the four year benefits freeze for working age benefits, including Jobseeker’s Allowance (JSA), Employment and Support

Allowance (ESA), Income Support, Housing Benefit and Universal Credit will come to an end in 2020, with benefits to be uprated in line with inflation starting in the financial year 2020/21. It is expected that the UK Government’s budget for 2020/21 will set out further information on the uprating of benefits including LHA rates.

However, as the previous housing paper outlined there is a difficult climate for tenants and landlords alike and this continues to be the case with UK welfare policy continuing to squeeze the incomes. The value of benefits has eroded significantly over the past two years as CPI inflation exceeded the Bank of England’s 2% target throughout 2017/18, hitting 3% in September 2017 and therefore reducing 2018/19 benefit entitlements further than expected. Our modelling indicates that the benefit freeze could reduce annual benefit spending in Scotland by around £300 million^[14].

The last time many working-age benefits were up-rated fully by inflation was 2012. Since 2015 the Benefit Freeze has kept most working-age benefit rates completely frozen. Each year that benefits are uprated by less than inflation reduces the ability of households on benefits to pay for goods and services, including their rent. This means that even with a return to uprating by inflation the frozen benefits will still only be worth around 93% of their 2015 value.^[15] The 2019 Welfare Reform Report estimated that, once UC is fully rolled out in 2023/24, the benefit freeze alone could reduce Scottish welfare spending by £300 million per year. The majority of the 460,000 Scottish households currently claiming Housing Benefit or the Housing Element of UC will experience the effects of this freeze.