Independent Advisor on Poverty and Inequality: shifting the curve - a report for the First Minister

2. Housing Affordability

"There's people that are on the housing list for years sometimes. I had a house … it was a two bedroom but there was four of us so we had to move … we finally got the house and it's a four bedroom but we waited a year …"

"Do I buy my kids breakfast tomorrow, or do I put £5 in the gas meter so we can have heating tonight?"

Housing costs push many in Scotland into poverty. This is clear from the gap between poverty measured before and after housing costs. Around 290,000 people (working age adults and children) were in in-work poverty before housing costs, but around 420,000 people after housing costs were taken into account.

This means that any attempt to tackle in-work poverty also needs to consider housing-related costs. The focus of this needs to be on core costs like rent and local property-related taxes, and home energy costs, and these are the focuses of my recommendations here.

RECOMMENDATION 7 - Build more social housing

Stakeholders repeatedly raised affordable housing with me as a key issue and it's apparent that the Scottish Government has been taking positive action to increase affordable housing supply on a number of fronts. For example, the ending of Right to Buy sends a strong signal of intent about the importance of local authority housing and the social sector. If, as government estimates suggest, the policy will lead to 15,500 social homes being retained over a 10-year period, then this is a very positive development - and a profoundly different picture from England.

The target of the Affordable Housing Supply Programme is to provide 30,000 affordable homes over this parliament, including 20,000 for social rent. It has now been announced that this target has in fact been met, several months before the deadline. The programme's allocation formula, which takes into account factors such as deprivation and homelessness, is also positive. However, some stakeholders told me that the current target is insufficient and that more social housing, in particular, is needed.

Therefore, the recent commitment by the First Minister to increase the target for social housing to 35,000 homes over the next parliament, as part of a broader affordable homes target of 50,000, is very welcome. This would appear to match the suggestion by the Commission on Housing and Wellbeing for an additional 7,000 social homes for rent per year, which was specifically raised with me by academics from Glasgow and Heriot Watt Universities. The challenge is now to build the social homes in the numbers promised and to make sure that the social infrastructure to build successful communities is also adequately funded.

RECOMMENDATION 8 - Ensure fuel poverty programmes are focused to support those on low incomes, and do more to tackle the poverty premium in home energy costs

Another major investment by the Scottish Government is the Home Energy Efficiency Programmes for Scotland ( HEEPS): which installed over 34,000 energy efficiency measures in 2013/14. This is obviously welcome as part of a strategy to address fuel poverty, as domestic energy costs are still a considerable part of household expenditure and anything that lowers bills is welcome.

However, questions have been raised about whether the definition of fuel poverty is helpful in terms of targeting this spend at the poorest. I have seen analysis that indicates that over half of all 'fuel poor' households probably wouldn't be classified as 'income poor' in terms of relative poverty measures ^[11] . This suggests to me that the fuel poverty definition needs to be looked at again - so that future programmes focus more specifically on helping those in fuel poverty who are also in income poverty.

Many stakeholders, particularly people with experience of poverty, told me that there was a 'poverty premium' in domestic energy costs (space and water heating): people on low incomes are paying more for their home energy simply because they are poor. Expensive pre-pay meters, reluctance to switch from their current supplier in case the next supplier was more unhelpful, difficulties getting the best deal because of problems associated with direct debit - these barriers all contribute to the difficulty of meeting energy costs. I realise that the Scottish Government has limited powers here, but lower energy costs seem to me crucial to reducing deprivation, and more could be done in some areas - for instance, on encouraging people to switch energy providers.

RECOMMENDATION 9 - Be bold on local tax reform

The SNP Government has been signalling changes to the council tax since its first term in office. The current policy platform includes a council tax freeze and council tax reduction, interventions which jointly protect all households from increasing council tax bills, but at a cost, and with disagreements about the equality and poverty impacts of the freeze. Stakeholders pointed out to me that the cumulative cost of the freeze in 2015/16 is £560 million; and that over the period 2008/09 to 2015/16, the freeze has cost £2.5 billion. The Scottish Government's recent Draft Budget proposed continuing with the freeze for 2016/17, but there is a real opportunity in the next parliamentary term, because of last month's report by the Commission on Local Tax Reform, to do things differently.

The Commission recommended that there should be reform to the current system of council tax. This is very welcome - the council tax is widely viewed as no longer fit for purpose. I do not have a clearly worked out position on what the new system should look like. But I do recognise that this is a central moment of political decision, an opportunity to introduce a much more progressive system, one that will have important implications, particularly for working households at or just above the poverty line.

Many stakeholders told me that the Scottish Government's commitment to plug the 10% funding gap for council tax reduction has been vital in protecting the incomes of poor households - and, of course, these households must continue to be protected in any new system. But it is those on low incomes at or above the poverty threshold, who may not be covered by full council tax reduction, who should be the main beneficiaries of any change in approach. The OECD has stressed the importance of supporting the incomes of the bottom 40% of the income distribution in order to tackle income inequality effectively ^[12] . So local tax reform is a real opportunity to protect the incomes of both the working poor and those at risk of in-work poverty. But it will require boldness and vision.

Of course, any reform of council tax is likely to take some time - and it's worth taking time to make sure the system is going to be genuinely progressive and effective. In the meantime, the Scottish Government should consider ending the council tax freeze from 2017/18 onwards. Many stakeholders told me that this would make a contribution to protecting the public services that are particularly supportive of families in poverty.

In closing this section, I should also say that stakeholders had praise for a range of community and housing-related interventions that the Scottish Government has introduced. Welfare reform mitigation was seen as particularly important - for example, I heard that the Scottish Welfare Fund is performing much better than local equivalents in England at helping people in crisis and/or in need of support locally. This fund provides crucial practical support, enabling people in crisis to buy essential items for running a home. Approaches to homelessness at national and local levels were also seen as more person-centred and holistic than elsewhere. In other words, the action the Scottish Government has already taken provides a firm basis for tackling poverty effectively.