department for work and pensions: managing the impact of ... · the reforms to housing benefit are...

HC 814 Published on 26 March 2013

by authority of the House of Commons London: The Stationery Office Limited

House of Commons

Committee of Public Accounts

Department for Work and Pensions: Managing the impact of Housing Benefit reform

Thirty-eighth Report of Session 2012–13

Report, together with formal minutes, oral and written evidence

Ordered by the House of Commons to be printed 13 March 2013

£11.00

Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine ‘‘the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit’’ (Standing Order No 148). Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Stephen Barclay (Conservative, North East Cambridgeshire) Guto Bebb (Conservative, Aberconwy) Jackie Doyle-Price (Conservative, Thurrock) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Fiona Mactaggart (Labour, Slough) Austin Mitchell (Labour, Great Grimsby) Sajid Javid (Conservative, Bromsgrove) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) Justin Tomlinson (Conservative, North Swindon) The following Members were also Members of the committee during the parliament: Dr Stella Creasy (Labour/Cooperative, Walthamstow) Justine Greening (Conservative, Putney) Joseph Johnson (Conservative, Orpington) Eric Joyce (Labour, Falkirk) Rt Hon Mrs Anne McGuire (Labour, Stirling) Matthew Hancock (Conservative, West Suffolk) James Wharton (Conservative, Stockton South) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/pac. A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee is Adrian Jenner (Clerk), Sonia Draper (Senior Committee Assistant), Ian Blair and James McQuade (Committee Assistants) and Alex Paterson (Media Officer). Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5708; the Committee’s email address is [email protected]

1

Contents

Report Page

Summary 3

Conclusions and recommendations 5

1 Awareness of the reforms and their impact on claimants 7

2 Assessing the wider costs of Housing Benefit reform 10

Formal Minutes 13

Witnesses 14

List of printed written evidence 14

List of Reports from the Committee during the current Parliament 15

3

Summary

Housing Benefit helps those on a low income in social or private housing to pay all or part of their rent. It is overseen by the Department for Work and Pensions (the Department) and administered by local authorities. Housing Benefit supported some five million households in Great Britain in 2011-12 at a cost of £23.4 billion. As part of the measures announced in the Emergency Budget of June 2010 and the Spending Review of October 2010, the Government is reforming Housing Benefit to reduce annual expenditure. Changes include reductions in the rates paid for private rented sector claimants and deductions in payments to social sector tenants in under-occupied homes.

The Department is introducing these significant changes without comprehensive modelling of the likely outcome on individuals or on housing supply and with limited understanding of the costs local authorities will incur. Those individuals who receive Housing Benefit are by definition on low incomes and even small reductions in entitlement can have a significant impact on their finances. The Department believes that it is difficult to predict accurately how in practice individuals will respond to the changes it will implement; this places greater responsibility on the Department to react quickly when the changes are made.

The reforms to Housing Benefit are expected to curb Government spending by cutting benefits for two million households. The impact of these reforms on claimants’ finances may be compounded by other changes to the welfare system, notably the introduction of Universal Credit and reductions in Council Tax Benefit. The Department does not believe that it can anticipate or model the impacts of the reforms as they depend on the actions claimants take in response to changes in their individual circumstances. Instead the Department plans to adopt a reactive approach, changing rules as problems arise.

Claimants need to understand now how their benefit payments will change and what options they have to minimise the impact on their finances, for example, by taking in a lodger. It is important that strong efforts are made by the Department, local authorities and Social Housing organisations to inform claimants about the reforms; however, to date the evidence suggests that they have not been effective. We welcome the steps taken to tell claimants about changes face-to-face but gaps remain and the Department must provide sufficient information to claimants for them to plan and adapt to the consequences of reforms.

The Department is confident it will achieve savings of £6.2 billion for the four years ending 2014-15 but has failed to take into account the administrative costs of implementing the reforms. It is not clear whether the extra funds set aside for the Discretionary Housing Payments scheme to help claimants as the reforms are implemented will be sufficient. On the basis of a Report by the Comptroller and Auditor General1 we took evidence from the Department for Work and Pensions, Professor John Hills, London School of Economics, and Mike Donaldson, Group Director, Strategy and Operations, L&Q, on the Housing Benefit reforms.

1 C&AG’s Report, Managing the impact of Housing Benefit reform, Session 2012-13,HC 681

5

Conclusions and recommendations

1. The Department is relying on a ‘wait and see’ approach to identify the impact of Housing Benefit reforms, for example on homelessness. The Department does not believe that it can anticipate or model the impacts of the reforms as they depend on the actions claimants take in response to changes in their individual circumstances and local conditions. The Department plans to monitor emerging trends on homelessness, rent levels and arrears with a view to responding rapidly should the need arise, for example, by changing policy rules on rents or returning to more direct payments to landlords. The Department must monitor changes at a regional and local level and be ready to act rapidly by identifying in advance what action increases in homelessness or rents will trigger and report back to this committee on the legislative or administrative steps it will take in such circumstances.

2. At the time of the Committee’s evidence session, awareness of the reforms and their impact was worryingly low amongst those who will be directly affected. Claimants need to understand how their finances will be affected both by Housing Benefit and wider welfare changes. They also need to know what action they might take in response, for example, seeking employment or additional work or taking in lodgers in under-occupied social housing. The Department, local authorities and housing associations have been communicating changes to claimants but awareness is still far too low and the Department has not identified the impacts that the reforms will have on individuals. The Department needs a clearer understanding of how benefit entitlements will change for claimants in different circumstances. The Department should use this information to work with local authorities, housing associations and social landlords to raise awareness of the reforms and explain the impact on individuals using both face-to-face and written communication.

3. The Department does not seem to have thought through adequately the impact of its position on income from lodgers. Under housing benefit if a claimant has a bedroom allocated for a sub-tenant or boarder the rental income they receive is taken into account in the assessment. In universal credit there will be no bedroom allocation for a sub-tenant or boarder. The rental income received will be totally disregarded. The Department must monitor the impact of this change—we will re-visit this issue later in this parliament.

4. It is not clear whether the increased funding to local authorities to help claimants as the reforms are implemented through Discretionary Housing Payments will be enough. The scheme’s funding was not based on an assessment of need but on a judgement made during the Spending Review. The Department plans to monitor how local authorities use these funds on a monthly basis. The Department should work with local authorities to measure demand for funding at a local level to target the way that resources are allocated.

5. The Housing Benefit reforms are designed to save £6.2 billion by 2014-15 but the delivery of these savings is uncertain, and indeed the costs of funding Housing Benefit could increase when social rents rise. The Department saved less than expected in 2011-12 from the reforms that have been implemented so far. It does not

6

know all the administrative costs of implementing all the planned changes, which could be high for local authorities that cannot process such changes automatically. The Department has committed to fund additional costs incurred by local authorities as a result of the reforms. It should quantify the administrative costs as soon as possible, and prioritise funding to those who will struggle to meet these additional costs.

6. There is a risk that the introduction of direct payments of housing benefit to tenants living in social housing could lead to an increase in rent arrears and evictions. Housing Associations are increasing their bad debt provision and concerns are being expressed that homelessness could increase. The Department should closely monitor the impact of the changes on social housing landlords and individual families, and respond quickly if there is an unintended adverse impact on the finances of social housing landlords or local authorities.

7. Reforms to housing supply and benefits can work in opposing directions. The Affordable Homes programme allows social sector providers to charge higher rents to finance the building of new homes. Higher rents will increase the Housing Benefit bill, although more affordable homes should reduce the burden on local authorities. The Department should work with devolved administrations to monitor the net effect of policies on house building and benefit levels and include impacts on housing supply explicitly in evaluations of benefit reforms.

7

1 Awareness of the reforms and their impact on claimants 1. Housing Benefit helps those on a low income to pay all or part of their rent in both the social and private housing sector. The Department is responsible for Housing Benefit policy, setting entitlement rules and informing local authorities of these rules, while local authorities undertake the day to day administration of Housing Benefit.2 Housing Benefit supported five million households in Great Britain in May 2012 at an annual cost of £23.4 billion.

2. As part of the measures announced in the Emergency Budget of June 2010 and the Spending Review of October 2010, the Government is reforming Housing Benefit to reduce annual expenditure. Changes include reductions in the rates paid to private rented sector claimants and to social sector tenants in under-occupied homes. The reforms are part of a series of changes to the benefits system that will affect claimants including the introduction of Universal Credit and changes to Council Tax Benefit.3 In total, the reforms to Housing Benefit are expected to affect two million households and save £6.2 billion by 2014-15.4

3. Claimants may seek to respond to a lower Housing Benefit entitlement in a number of ways such as moving to cheaper accommodation or working more hours.5 The Department has not tried to model the impact of the changes on individuals. They told us that it could not model the impact as it could not predict how claimants would respond to changed circumstances and local conditions.6 Its approach would be to monitor closely data on homelessness, Discretionary Housing Payments, and whether people choose to let rooms to lodgers7 with a view to responding rapidly to negative impacts should the need arise by seeking ministerial approval to adjust existing policy.8

4. The households affected by the reforms have by definition low disposable incomes and even small changes in benefit entitlements could have a substantial effect on their finances.9 Claimants need to understand how their Housing Benefit will change to plan how they will cope.10 The Department told us it had been working closely with local authorities and housing associations to ensure claimants have enough information to respond promptly to the reforms, but to avoid providing information so far in advance that it is ignored.11 The

2 C&AG’s Report, Paras 1-4

3 C&AG’s Report, Paras 2, 6

4 C&AG’s Report, Paras 1, 1.5

5 Q 150

6 Qq 194 -198

7 Qq 61, 79, 101, 179

8 Q 198

9 Q 2

10 Q94

11 Q 148

8

Department noted that housing associations have updated their websites to warn tenants on Housing Benefit about the possible implications of under-occupation.12

5. Despite these efforts, the extent to which claimants are aware of, or understand, the changes to Housing Benefit is too low and people appear confused by the scale of the changes.13 The Department confirmed that although housing associations have written to their tenants, sent out newsletters and knocked on doors, they were still finding that many people did not “understand Housing Benefit as it is today, let alone understand the changes.”14 For example, many claimants were not aware that they could take in lodgers to fill under-occupied accommodation without losing their benefit entitlement. Almost all council tenants and most housing association tenants have the right to take in a lodger to occupy a spare room.15 The Department told us that it was in favour of allowing claimants to share accommodation to make better use of larger properties and it intended to strengthen financial incentives for people to do so under Universal Credit. In areas like inner London where rents are higher there could be unintended consequences to the Department’s policy. The Department noted that it could set out simple cases of circumstances for claimants to explain how benefit changes might affect them, including how taking in a lodger would affect their finances.16

6. The Department recognised that guidance and letters can become outdated quickly as people’s circumstances change and have a limited usefulness on their own. The Department accepted that these methods of communication are more effective when combined with a face-to-face meeting between the claimant and an adviser to identify the impact of the changes and outline the options available to claimants. The Department told us that it had encouraged staff in jobcentres to tell people about the changes and had been sending out its own officers to visit claimants who have been contacted by phone or letter but not responded to make sure they understand changes to their Housing Benefit.17

7. The Department has increased the funding available for its Discretionary Housing Payments scheme to ensure some resources are available to assist with the transition to the new Housing Benefit regime, such as help with a deposit on a new tenancy or removal expenses.18 The scheme, which has been a feature of the Housing Benefit system for many years, allows local authorities substantial discretion to provide short-term support.19 The Department told us that funding for Discretionary Housing Payments will increase from £20 million a year to £390 million over the over the four year Spending Review period.20 It is not clear, however, whether the £390 million is likely to be sufficient for local authorities to manage the impacts of the reforms.21 The increased funding was based on a judgement

12 Q 150

13 Q 16

14 Q 152

15 Qq 111 - 115

16 Qq 27-30, 91- 93

17 Qq 151 -152

18 Qq 119, 185 and C&AG’s Report, Figure 2

19 Q 185

20 C&AG’s Report, Figure 9

21 C&AG’s Report, Para 2.15

9

made during the Spending Review rather than an assessment of need. The Department told us that it had identified £6.2 billion savings in Housing Benefit expenditure and has increased the Discretionary Housing Payments scheme by an amount equivalent to six per cent of the savings.22 The Department has little existing data on the current use of Discretionary Housing Payments. However, from 2013-14 local authorities will provide the Department with more information about how the Discretionary Housing Payments scheme funding is spent, including which particular policy is triggering the payment and the nature of the support provided.23

22 Q 185

23 Q 185

10

2 Assessing the wider costs of Housing Benefit reform 8. The reforms to Housing Benefit are expected to save £2.3 billion per year and save £6.2 billion in total by 2014-15.24 The Department told us that in 2011-12 it had saved £445 million, less than its original estimate of £514 million.25 It largely attributed this to having saved £56 million less than expected from the changes to amounts deducted for non-dependent people living in a home qualifying for housing benefit and a decision to provide existing claimants with nine months transitional protection.26 However, the Department was confident it would achieve its predicted savings overall. Indeed, the target for savings has been increased to £6.7 billion to reflect the growth in the total expenditure on Housing Benefit.27

9. The changes are placing additional administrative burdens on local authorities, the costs of which have not been off-set against the Department’s estimated savings.28 The effect of the reforms on individual local authorities depend in part on the extent to which information transferred between the Department and local authorities is automated. Local authorities receive a total of some 20 million notifications of changes in claimant’s circumstances a year and the capability of local authority systems to process these notifications varies. The Department did not expect the Housing Benefit changes to increase the volume of notifications substantially but noted that the forthcoming introduction of the overall benefit cap, estimated to affect 56,000 claimants, would result in the Department sending more notifications. The Department told us that it was confident that its system of automatic transfers of information to local authorities would cope with the increased volume.29

10. The impact of the changes will vary significantly between areas, for example, the weekly cap on benefit payments is likely to restrict private rent levels in areas where a large proportion of the private rented sector has been financed by Housing Benefit. In comparison, the reforms are likely to have little or no effect on rents in areas with a vibrant private rental sector such as London.30.

11. The changes to Housing Benefit could have an adverse impact on levels of homelessness. Social landlords told us that they expected evictions to rise because some households would not make the behavioural changes needed to respond to Housing Benefit reforms.31 The number of people identified as homeless by local authorities has increased from around 10,000 per quarter to around 14,000 since 2010. The Department

24 C&AG’s Report, para 1.5

25 Qq 121 - 131

26 Ev 24

27 Qq 125 - 139

28 Q 142 and C&AG’s Report, para 17

29 Qq 144 - 147

30 Q 25

31 Q31

11

largely attributes this to the breakdown of a relationship with a partner and to relatives and friends no longer being willing to provide accommodation. The Department noted that while the number of those citing the end of a short-hold tenancy as the reason for their homelessness had increased from 1,700 to 2,800, this was a small proportion compared to the 775,000 Housing Benefit claimants with private landlords who had been affected by the reduced entitlement for Housing Benefit over the same period.32

12. From April 2013 social sector tenants who are under-occupying their homes will lose up to 25% of their Housing Benefit.33 From autumn 2013 the Department will start paying Housing Benefit directly to social sector households instead of social sector landlords.34 Social housing providers told us that they were concerned that these changes will increase arrears and bad debts because tenants will no longer be able to afford their rents or may not take responsibility for making payments themselves.

13. The Department told us that it was currently undertaking a pilot of 18,000 claimants in six areas to explore the issues posed by extending direct payment to social sector claimants.35 Initial findings indicated that in the first four months of the pilot, rent collection rates stood at 92% for the 6,220 social sector tenants participating so far. In 316 instances direct payment to the landlord had been reintroduced, either because arrears had exceeded the trigger points being tested or the tenant’s suitability had been reassessed.36 An increase in arrears could reduce the funds available for social landlords to maintain existing homes and invest in new homes.37 L&Q told us that it had doubled its provision for bad debts from 3.5% to 7% as a result of the reforms and it now expects to reduce the number of new homes its can build annually by 80 to 920.38

14. The reforms to Housing Benefit take place against the back drop of a national shortage of suitable housing.39 Witnesses told us that there have been significant increases in private sector rents in London because of restricted mortgage availability and that social housing rents have also gone up because of the scarcity of public grants.40 Since the 1980s there has been much less turnover in the social housing sector because housing has become a more precious commodity which people are unwilling to give up. There are significant barriers to moving in the social sector because exchange arrangements between social landlords are “very partial” and there is no system that allows households to decide to move out of their local area. It has also proved difficult to encourage social sector tenants to move to smaller accommodation because of both poor financial incentives and a limited supply of smaller properties.41 Some affected tenants have already indicated their wish to move to a smaller

32 Qq 86-87

33 Qq 7 - 15

34 Q 183

35 Qq 160 - 171

36 Ev 24

37 Qq 13, 14, 34

38 Qq 14, 39, 40

39 Qq 55 - 59

40 Q 6

41 Qq 54 - 59

12

home, but there were not enough one-bedroom and two-bedroom homes for claimants to move into.42

15. The availability of housing will affect the cost of Housing Benefit. The Affordable Homes Programme, which allows social sector providers to charge up to 80% of market rents to finance the building of new homes, could affect the total Housing Benefit bill in two opposing directions. A claimant paying an affordable rent rather than a lower social rent would increase the Housing Benefit bill as rents would be higher. But investing in affordable rent properties rather than social rent properties would result in more new homes being built, which could reduce the number of claimants that need to be housed in the private sector at market rents.43 The Department for Communities and Local Government, which oversees the Affordable Homes Programme, has agreed to cover the additional cost of its policy on the Housing Benefit bill.44

42 Q 12

43 Qq 6, 88, 96 – 99

44 Q 97

13

Formal Minutes

Wednesday 13 March 2013

Members present:

Mrs Margaret Hodge, in the Chair

Mr Richard Bacon Stephen Barclay Guto Bebb Jackie Doyle-Price Chris Heaton-Harris Meg Hillier

Mr Stewart JacksonFiona Mactaggart Austin Mitchell Nick Smith Justin Tomlinson

Draft Report (Department for Work and Pensions: Managing the impact of Housing Benefit reform), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 15 read and agreed to.

Summary agreed to.

Conclusions and Recommendations agreed to.

Resolved, That the Report be the Thirty-eighth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Written evidence was ordered to be reported to the House for printing with the Report (in addition to that ordered to be reported for publishing on 17 December.

[Adjourned till Monday 18 March at 3.00 pm

14

Witnesses

Monday 17 December 2012 Page

Professor John Hills, London School Economics and Mike Donaldson, Group Director, Strategy and Operations, L&Q Ev 1

Robert Devereux, Permanent Secretary, and Andrew Parfitt, Head of Housing Policy Division, Department for Work and Pensions Ev 8

List of printed written evidence

1 Department for Work and Pensions Ev 24;27

2 L&Q Ev 25

15

List of Reports from the Committee during the current Parliament

The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.

Session 2012–13

First Report The Government Procurement Card HC 1915 Second Report Third Report Fourth Report Fifth Report Sixth Report Seventh Report Eighth Report Ninth Report Tenth Report Eleventh Report Twelfth Report Thirteenth Report Fourteenth Report Fifteenth Report Sixteenth Report Seventeenth Report Eighteenth Report Nineteenth Report Twentieth Report Twenty-first Report Twenty-Second Report

Mobile Technology in Policing Efficiency and reform in government corporate functions through shared service centres The completion and sale of High Speed 1 The Regional Growth Fund HM Revenue & Customs: Renewed Alcohol Strategy Immigration: The Points Based System – Student Routes Managing early departures in central government Preparations for the London 2012 Olympic and Paralympic Games Implementing the transparency agenda Improving the efficiency of central government office property Off-payroll arrangements in the public sector Financial viability of the social housing sector: introducing the Affordable Homes Programme Assurance for major projects Preventing fraud in contracted employment programmes Department of Health: Securing the future financial sustainability of the NHS Department of Health: The management of adult diabetes services in the NHS HM Treasury: The creation and sale of Northern Rock plc HM Revenue & Customs: Annual Report and Accounts 2011-12 Department for Energy and Climate Change: Offshore electricity transmission—a new model for infrastructure The Ministry of Justice’s language service contract British Broadcasting Corporation: Off-payroll contracting and severance package for the Director General

HC 1863 HC 463 HC 464 HC 104 HC 504 HC 101 HC 503 HC 526 HC 102 HC 288 HC 532 HC 388 HC 384 HC 103 HC 389 HC 289 HC 552 HC 716 HC 621 HC 620 HC 774

16

Twenty-Third Report

Department for Work and Pensions: Contract management of medical services

HC 744

Twenty-Fourth Report Twenty-Fifth Report

Nuclear Decommissioning Authority: Managing risk at Sellafield Funding for local transport: an overview

HC 746 HC 747

Twenty-Sixth Report The Department for International Development: The

multilateral aid review HC 660

cobber Pack: U PL: COE1 [SO] Processed: [21-03-2013 09:35] Job: 027235 Unit: PG01Source: /MILES/PKU/INPUT/027235/027235_w003_MP Supplementary DWP evidence.xml

Committee of Public Accounts: Evidence Ev 1

Oral evidenceTaken before the Committee of Public Accounts

on Monday 17 December 2012

Members present:

Margaret Hodge (Chair)

Mr Richard BaconStephen BarclayGuto BebbJackie Doyle-PriceChris Heaton-HarrisMeg Hillier

________________

Amyas Morse, Comptroller and Auditor General, National Audit Office, Gabrielle Cohen, Assistant AuditorGeneral, NAO, Max Tse, Director, NAO, David Clarke, Director, NAO, and Marius Gallaher, AlternateTreasury Officer of Accounts, were in attendance.

REPORTS BY THE COMPTROLLER AND AUDITOR GENERAL

Managing the impact of Housing Benefit reform (HC 681)

Examination of Witnesses

Witnesses: Professor John Hills, London School of Economics, and Mike Donaldson, Group Director,Strategy and Operations, L&Q, gave evidence.

Q1 Chair: Welcome, and thanks to both of you. Ithink you have both been here before for these earlysessions. Have you, Mike?Mike Donaldson: No.

Q2 Chair: You haven’t. We will try to keep this toabout half an hour. The idea is to hear from youguys—you are much more engaged on the front linethan we are—about the key issues you think we oughtto interrogate when we come to the full hearing later.I should say that we are doing two hearings today:we are going to do a hearing on this issue, followedimmediately by a hearing on the Work programmestatistics.John, you have been here before. Reading the Report,the thing that hits me is the lack of understandingabout the potential impact of these changes in thehousing benefit rules. Based on all your experience,where do you think we ought to focus our mindstoday?Professor Hills: There are two different sides to this.One is that the reforms are part of a landscape of quitedramatic change that is happening to the benefitssystem and other aspects of people’s lives, which willbe hitting—we are thinking about tenants in particularthis afternoon—from a large variety of differentdirections at once. One issue is the extent to whichpeople are keeping track, or are able to keep track, ofthe combined effect of all those changes. We are notjust talking about the effects of the rent caps onhousing benefit for private tenants, or the so-calledbedroom tax for social tenants; we are talking aboutthose things happening in a context where council taxbenefit is being reformed, with cuts being made that,from what one can see from the early evidence ofwhat councils are consulting on, will hit some

Mr Stewart JacksonAustin MitchellNick SmithIan SwalesJustin Tomlinson

working-age, low-income households really quitehard. There are also the reforms to the social fund,and the proposals that were made in the autumnstatement for the long-run cash level of benefits to riseby only 1%, whatever the rate of inflation is, for thethree years after next year.All of that is happening at once, and it means that,when one is trying to interpret what the range of lossesmeans for different kinds of tenant households, andthinking about the simple loss in terms of thepercentage of rent that will no longer be covered byhousing benefit if people stay put, one should maybealso be thinking about what income people will be leftwith after they have paid their rent—if they do stayput—to pay for everything else and about how that ischanging. Making some of these changes in thecontext where the only thing that was happening wasthat somebody was being asked to contribute an extra£10 a week might be one thing, but if that £10 a weekis seen in the context of an income of only £150 or£120 a week for all the rest of a household’s needs,and if it comes on top of all those other changes, itmay be the thing that pushes people over the edge,into hardship or into having to move. It is thecumulative effects that people need to be thinkingabout.The second side is probably the knock-on effects,which go beyond things that are just pure housing. Ifpeople stay put and get into increasing hardship, theobvious housing point is that there are possiblyincreasing rent arrears, and there are also issues aboutdebt. But if people do move, other public authoritiesare going to be affected. I chaired the national equalitypanel a couple of years ago, and one piece of evidenceI was struck by was from the Department forEducation, as it is now called. Looking at children’s

cobber Pack: U PL: COE1 [E] Processed: [21-03-2013 09:35] Job: 027235 Unit: PG01Source: /MILES/PKU/INPUT/027235/027235_w003_MP Supplementary DWP evidence.xml

Ev 2 Committee of Public Accounts: Evidence

17 December 2012 London School of Economics and L&Q

performance at the age of 16, and at what thepredictors of that were from what you knew aboutwhere those children had been earlier in theirchildhoods, the most important factors were whetherthe child was a boy or a girl; whether their firstlanguage was not English and, therefore, whetherthere was quite a lot of catch-up; and how they hadperformed at the age of 11. But the next mostimportant factor was whether the household hadmoved recently—whether it was having to move. Ifhouseholds are having to take children out of school,that is going to have probable effects on the receivingschools and on the education of the children, andwider effects of that kind. Similarly, with other publicservices, such as GPs’ surgeries, there will be an issueabout continuity of care. There will be an issue aboutwhat will happen when people who have been relyingon child care from relatives locally have to movesome distance away.One can look at this as a narrow housing problem ora narrow social security problem—even that brings inCommunities and Local Government, and Work andPensions—but I suspect some of the possiblemigration effects that one would expect to see, giventhe changes, may be much wider.

Q3 Chair: Thank you. Mike, you kindly did a note.Do you want to talk through the main points, just toemphasise them?Mike Donaldson: Our particular concern is that theestimates around savings, which were highlighted inthe Report, do not really touch on what is happeningin the real world. We are concerned that because thereis housing scarcity and more people are findingaccommodation in the private-rented sector—theprivate-rented sector in London is as large as thesocial housing sector and has risen dramatically in thepast 10 years—the rents are going up dramatically,too.

Q4 Chair: Is there availability in the private-rentedsector?Mike Donaldson: There is supply.

Q5 Chair: Where? All I can say is that I representan outer London borough where everyone said thatpeople would want to move to. Some are movingthere—I have had my first Kensington and Chelseatenants in my surgery—and the private-rented sectoris just chock-a-block, so they are displacing goodnessknows how many other people.Mike Donaldson: And Savills keeps saying that thereis not enough supply for investors.

Q6 Chair: So I am not sure where the supply is.Mike Donaldson: There is supply. There is turnover,and that is where the supply comes from—peoplemoving. Churn creates supply, but increasing volumeof supply is very limited, yes. As a result, prices goup, because there is limited supply. In the past fewyears, we have seen rents going up significantly in theprivate sector in London because there is notmortgage availability. In the social housing sector,rents are also going up, because there is a scarcity ofpublic grant. The affordable rent programme is based

on the assumption that rents can go up to 80% of themarket rent. Traditionally, it has been about 45% or50%. The affordable rent programme, which beganlast year, will see rents double in London and in manyareas. They will certainly go up significantly in thecentral London prime areas. That means that thehousing benefit bill will go up significantly, too. Weestimate that the housing benefit bill will, as a resultof this, go up by £4.5 million or £5 million, simplybecause we are now charging higher rents. When youmultiply that across the country and add in the private-rented figures as well, we cannot understand how thefigures that the DWP produced about the savings canbe achieved. Rents are only going in one direction—obviously I am talking about London. Our concern isthat there will be more cuts over and above the figuresthat we have seen so far to achieve the level of savingsthat the Department has targeted, and they will not bepart of any impact assessment or any approach interms of trying to understand what is going on. It willhave to happen rather late on in the programmebecause the cuts need to be made. They will not beworked through in a systematic review of the process.

Q7 Meg Hillier: Can I ask what L&Q has done—L&Q is a large landlord in my constituency ofHackney South and Shoreditch—to identify thefamilies that will be affected by the bedroom tax?Mike Donaldson: We get information from localauthorities about the people affected by this measure,because it is a rather complex computation that theyhave to do. As of today, three months before thechanges take place, we have information on about68% of our residents. Local authorities are strugglingto make those—

Q8 Meg Hillier: Other than knocking on everyone’sdoors, you are reliant on their data.Mike Donaldson: We know of some people, becausethey have already told us that they need to move tosmaller accommodation.

Q9 Meg Hillier: How many of your tenants—I donot know whether you can give a percentage—areaware that the changes are coming?Mike Donaldson: Very few.Meg Hillier: Can you give a rough percentage?Mike Donaldson: Of the people affected, which isabout 3,500, I would imagine about 2,800. I am notreally cognisant of the fact—

Q10 Meg Hillier: That is 3,500. Can you remind uswhat your total housing stock is?Mike Donaldson: Rented stock is 52,000.Meg Hillier: So, quite a chunk. I know that in myconstituency, another housing association has 250families identified, and that is just in Hackney.

Q11 Chair: Why have you not informed them?Mike Donaldson: We have informed them. As wefound from the pilot project being done in Southwark,12% of the residents in that project, which has beenundertaken by the DWP, have not engaged in theproject at all. The local authority and the housing

cobber Pack: U PL: COE1 [O] Processed: [21-03-2013 09:35] Job: 027235 Unit: PG01Source: /MILES/PKU/INPUT/027235/027235_w003_MP Supplementary DWP evidence.xml



association do not know what the situation of thosepeople is.

Q12 Meg Hillier: That brings me on to what theimpact is likely to be. You are here representing L&Q and, I guess, the sector. Let us say there is a 14%cut in benefit for someone with two boys of 15 and12 who would qualify for the third bedroom when the15-year-old gets to 16. Have you had any engagementwith people about how they will fill that gap and theimpact on your rental income as a result?Mike Donaldson: We have contacted all the peopleaffected. We have written to them and phoned themto offer to match them with people who want largeraccommodation, because, of course, we have lots ofpeople in London who are overcrowded. But in fact,there are not enough overcrowded people who needthat accommodation, and there are simply not enoughone-beds and two-beds to move people to. We areencouraged to build family housing in London. TheMayor wants us to do that, so that is what we havebeen doing. As a result, there simply is not enoughsupply to go around. We estimate that there are about1,000 people who we simply will not be able to helpto move.

Q13 Meg Hillier: So what is the impact going to beon your rental income? Are you AA rated? I do notknow what your rating is for borrowing.Mike Donaldson: We are AAA rated. We effectivelymade allowance in our accounts and projections forour rent arrears to double.

Q14 Meg Hillier: Double? So what is the rate now,and what is it going to be?Mike Donaldson: It is 3.5% at the moment, and weexpect it to go over 7%. We do not plan to allow thatto happen, but in terms of our accounts and our baddebt provision that is what we are providing for. Wehave told our lenders that.In terms of individuals, the difficulty we face is thatour general approach is to say that if someone is notmeeting their current rent arrears, we will try to getthem to a position where they can pay their currentrent and then pay a very small amount off theirhistorical debt. We prefer for them to stay in the home,rather than to evict them because they have rentarrears. In future, with the bedroom tax, they will nothave enough money every week to pay the ongoingrent, so they will just carry on building up arrears. Wehave created a hardship fund, but that obviously willnot be there every week for everybody. We are tryingto get people to move to smaller accommodationthrough mutual exchange. We will try to do thatthrough our own voids, but the reality is that we dothink there will be a group of people who will fallthrough the cracks.

Q15 Meg Hillier: What about people with a childaged between 12 and 15? If you have six monthsbefore your 15-year-old turns 16, when you willqualify for the extra bedroom, is the hardship funddesigned to bridge that gap, or will you be going tothe housing discretionary fund? How will they worktogether?

Mike Donaldson: I suppose the first port of call wouldbe the discretionary fund, but that is going to have alot of people queuing up, including council taxbenefit recipients.

Q16 Mr Jackson: I am slightly perturbed when yousay that you are not cascading this information outto your tenants and that you think that they do notunderstand. Certainly my local housing association,Cross Keys Homes in Peterborough, has been doingsurgeries, newspapers and meetings with tenants, andobviously people do know what is going on. If youare looking at 80% of your tenants not knowing, thereis something going badly wrong and perhaps you needto revisit your communication strategy. Have I got itright from the paper you put forward that you aretalking about only your particular area? Or are yousaying that the phenomena that you make clear in thispaper apply to the whole country? I am slightlyconcerned because it is quite a downbeat document,and my understanding is that the point of theaffordable rent programme is that you can charge upto 80% and that local factors will be taken intoaccount by registered providers in each locality.Obviously, the east midlands and the north-west willbe completely different to Greater London. I wouldlike you to address that.The paper is also a bit negative because it does nottake into account the fact that we all want to see newbuild and that the affordable rent programme willfacilitate new affordable rent properties in the absenceof a registered provider being a constituent participantof the affordable homes programme. That is anotherway of ring-fencing money to create new housing inareas of need. You seem to imply that it is a zerosum game—affordable rent is unaffordable for people,housing benefit will go up and it is all bad news—but,actually, it is another way to access important capitalmoney, rather than just a block grant from the DCLGor other Government agencies, is it not?Chair: That was three questions.Mike Donaldson: First, on the information, all I amsaying is that the feedback we are getting fromresidents is that, although we have contacted them—we have written to them, sent out newsletters andknocked on doors—a lot of people do not get thechanges. The information from the DWP’s own pilotsbacks that up. It is not just an L&Q experience; it ismore wide than that. There is simply so much of it,as John alluded to, and it is coming from differentangles. I think people are confused. It is not a lack ofeffort on our part, or on any other landlord’s part.On affordable rent, what we are saying is thataffordable rent works because rents are going up.Rents going up will be a burden on the housing benefitbill. The housing benefit bill is not going to go down;it is going to go up. You are transferring it from acapital sum to a revenue sum, and because people areentitled to housing benefit, that revenue sum will bepaid for from the housing benefit bill.We are not downbeat about the affordable rentprogramme. We applauded it when it was introduced,and we think it is a good thing, but in the currentcontext of benefit cuts, there is a consequence, whichis that the bill is going to go up. If there is a cap on




the overall amount that the Government want toachieve in terms of HB expenditure, our argument isthat that will be exceeded, and there will be furthercuts somewhere else.

Q17 Mr Jackson: But cumulatively, in terms ofproviding what we all want, which is better-qualitysocial housing for people in need, it might be acatalyst for delivering that in straitened financialcircumstances where we do not have the capitalavailable from central Government.Mike Donaldson: We are not saying it is a bad thing.All we are saying is that there is a consequence.

Q18 Mr Jackson: My final question: are youopposed in principle to the benefit cap that we are toldwill necessitate the movement of people into differentboroughs, particularly in Greater London? Do you nothave a collective view of it, as a registered provider?Mike Donaldson: Our view is that while there is anargument for people being encouraged to go to work,and a lot of the people that we are talking aboutactually do. The benefit cap will affect people whowork as well as people who do not. The idea thatsomeone is sitting at home watching other people goto work sometimes is not true. People going out towork will be affected by the benefit cap. Theconsequences are that people will have to move outof central London areas, and not just central Londonareas. It will also affect Hackney. Hackney has highrents, and I do not think it has ever been regarded ascentral London.

Q19 Mr Jackson: But you can see the argument thatthere are people in Jackie Doyle-Price’s constituencyearning less than £26,000 who get up very earlymorning and have to travel into the city on crowdedtrains. They are doing the right thing, and there is anissue about fairness and equity in Governmentexpenditure. You can see that, surely.Mike Donaldson: I sign off on the fairness argumentcompletely, yes, across the board.

Q20 Chair: Do you want to add anything to that,John?Professor Hills: The point that I would like to bringup in particular is about the knock-on effects of someof this that either are unintended or will just be takenon the chin. One example is that as rents rise withinthe social sector, whether or not they go all the wayup to the maximum, the effect is to extend the povertytrap. Whether it is under the current housing benefitsystem or universal credit, the income range overwhich people are affected by benefit withdrawal—either some of the very sharpest rates in the currentsystem or the general taper under universal credit—will affect people further and further into work andwill mean that there is less of a net return from theextra £10, £50 or £100 a week they earn. That is aninevitable effect.

Q21 Chris Heaton-Harris: That is a function ofgeography rather than economics, is it not? It is whereyou work, the salary you earn and how much your

expenditure is rather than the generic policy across thecountry. It is a London-centric factor.Professor Hills: No, I think it is to some extent amatter of arithmetic. If you move from a systemwhere you have deeper subsidies to keep rents down,which is not affected by means-testing, to a systemwhere you are shifting your assistance for people onvery low incomes to a means-tested system, thatinevitably means that the withdrawal part—the pointup to which housing benefit or its equivalent underuniversal credit extends—must go up the incomescale. Therefore, more people must be affected bythose marginal tax rates. That happens, whatever partof the country you are in, if rents rise.

Q22 Chris Heaton-Harris: Really? So it is going tohappen in Daventry, where the average salary isbeneath what the housing benefit cap will be?Professor Hills: No, I think we are talking about whatis happening with the shift to social sector rents rising.

Q23 Chris Heaton-Harris: In London.Mr Jackson: In inner London actually.Chair: Well, it is affecting me in outer London.

Q24 Stephen Barclay: A quick point aboutparagraph 12: the Report does not evaluate the meritsof the reforms themselves. We are not a policyCommittee; it is about the value for money of theproposals, not the general policy itself.Professor Hills: My point was about theconsequences in other parts of policy. A change inhousing policy and the level of subsidy to the socialsector has consequences for work incentives inanother direction.

Q25 Ian Swales: I would like to extend the pointabout the not-London part of the country. My part ofthe world does not have a housing problem; thepopulation has gone down by 3% in the past 10 years,and I just wonder what effect you saw these policieshaving on parts of the country like that—in particular,how the housing benefit tends to fix the rent levels inareas like mine. Have you studied that at all?Professor Hills: I have not personally studied it indetail, but a point that comes out of the NAO Reportwhich will be very important to watch is that theDepartment is intending to monitor what is happeningfor rental markets over the country, because onewould expect very different effects in—sorry, I do notknow your constituency—Morecambe from innerLondon. So part of the intention of the policy—general restrictions in housing benefit—is the worrythat rent levels have been sustained by housing benefitbeing an open cheque. There are local authoritieswhere a large proportion of the private rented sectorhas been financed by housing benefit, and one wouldexpect caps of different kinds to start biting in thesector, with the 1% increase per year and so on. Thereare other parts of the country where you have a vibrantprivate rented sector, with demand from other places,where you might not see any effect on rents at all. Sopart of the point of the reforms is to change landlordbehaviour, if you like, and I think it is going to bevery important to monitor how landlords do change




that behaviour. One would expect that precisely to bevery different in different parts of the country.

Q26 Ian Swales: My other question is, have either ofyou looked at the question of shared tenancies on thisunder-occupancy rule? Certainly in my area, like somany, there is not a shortage of accommodation, butthere is a shortage of smaller accommodation. I havenow got people coming to me and saying that theywant to share, but there is a concern about what theimpact will be on their benefits and on the landlords,because they are not allowed to sub-let to each otherunder their rental agreements usually. Have either ofyou considered that, in terms of making better useof this?Mike Donaldson: Most social landlords tenancies willallow people to have lodgers. They may not allowsub-letting it—or, without permission, they do notallow sub-letting, but they do allow lodgers. In thatcircumstance, it sounds more like having a lodger in,but there is an impact on your benefits. If you aretaking in a lodger, you do not get the full benefit ofwhatever that charge you make is, so there is awithdrawal of benefit.

Q27 Ian Swales: What if someone came to you abouta two-bedroom flat and said, “We want two rentalagreements, two separate agreements,” would you dothat?Mike Donaldson: No, we would not. We would onlyallow someone to have a lodger, but we would notcreate a separate tenancy in that property.

Q28 Ian Swales: It is something we can pick up withthe next witnesses; but, obviously, if people do thatthen there are probably unpredictable effects on theirbenefits. Therefore, they are unlikely to do it. Is thatsomething you would consider if you thought it wouldhelp to resolve some of the issues?Mike Donaldson: Creating houses in multipleoccupation—to be honest with you, if someone wantsto take in a lodger, that is up to them and a deal theycan make separately, but we would not get into thegame of overcrowding our properties from day one.

Q29 Ian Swales: I am not talking aboutovercrowding; I am talking about properties that are,by definition, under-crowded. That is what the rulesare about.Mike Donaldson: But if you have two familiesoccupying the same property—we have this now withthe sharing of students in accommodation that weown, but that is regulated, because they all have theirown bedroom. If the situation is that they all havetheir own bedroom, that is—

Q30 Ian Swales: Two single people, a two-bedroomflat—would you do it then?Mike Donaldson: We would not give separateagreements, no.

Q31 Nick Smith: Mr Donaldson, you talked aboutrent arrears being likely to double to 7%. You talkedabout trying hard for some tenants to pay back theirarrears but the difficulty of that as the overall amount

goes up. What is that going to lead to with evictions?Do you have an estimate for how many evictions youwill have?Mike Donaldson: The estimate about arrears, just tomake it clear, is about us making allowance for baddebt. We are not expecting that to happen, and wehope it does not happen, but the assumption is thatevictions will go up as a result of this. We have notmade an estimate in terms of overall numbers. Ourevictions in the last five years have come down yearon year. Eviction is not something that we want tohappen, but we expect that it will happen, becausesome people simply will not respond in a sort ofbehavioural sense, which I know is part of the thrusthere. They will not respond to the stimuli, and theywill more than likely breach their tenancy agreementssufficiently for us to get a court order.

Q32 Nick Smith: Do you have any back of theenvelope analysis on what will happen with evictions?Mike Donaldson: We have not done that, no.

Q33 Nick Smith: What will be the effect on yourcash flow, and how will that affect your borrowing topay back any investment that you made inrefurbishing or building new flats or houses?Mike Donaldson: At the moment, we have put moremoney aside to account for bad debt in recognition ofthe fact that we are going to suffer some increase innon-payment, but it does not affect our cash flow tothe extent that you are driving at.

Q34 Chair: What would you be doing with thatmoney otherwise?Mike Donaldson: Otherwise it would go into themaintenance of homes or into investment in newhomes. We are talking in terms of millions of poundshere.

Q35 Chair: You are just setting that aside until yousee the impacts on the number of new homes ormaintenance of existing homes.Mike Donaldson: Yes, it is coming away from thingsthat we would normally do.

Q36 Nick Smith: So you are not building new homesand you are not maintaining your present stock.

Q37 Chair: Well, they will build some, but they arebuilding less than they otherwise would.Mike Donaldson: It reduces the overall resourcesavailable to do the things that we are here to do, whichis to build and maintain homes.

Q38 Mr Bacon: Can you put a number on it? Yousaid you had 52,000 properties. In a normal year,absent this, how many new dwellings would youcreate?Mike Donaldson: For rent?Mr Bacon: Yes.Mike Donaldson: Something in the region of 1,000.

Q39 Mr Bacon: And because of this pressure thatyou are describing, how many fewer than 1,000 doyou think it would be?




Mike Donaldson: Perhaps 80.

Q40 Mr Bacon: So 920 instead of 1,000. Youmentioned that you have told your lenders that it willhave this effect, although you are hoping you will dosomething about it. What effect is that having on whatyour lenders are asking in terms of interest rates? Isthere a perceivable affect?Mike Donaldson: It has had no effect so far. To behonest with you, we have tried to create confidence inthat sector to carry on lending to the overall sector, soit is not something that we have been banging a drumabout in terms of depressing everybody.

Q41 Nick Smith: Have there been any pilots by thesocial landlords for collecting rents in other parts ofthe country, and what is the result of those?Mike Donaldson: None recently. We did one 10 or soyears ago. We did find that rent arrears went up.

Q42 Nick Smith: But no pilots for what is occurringat the moment.Mike Donaldson: The pilots being run at the momentare operating until next June. There is one in Londonand another six across the country.

Q43 Nick Smith: What is the early feedback fromthose?Mike Donaldson: It is not well known. I understandthat the rent arrears have gone up. I understand thatgetting hold of people, contacting them and tellingthem what is happening has been difficult, and it hastaken some time. This is voluntary, so some of thebehavioural stuff, of course, is difficult to estimate,because it is a voluntary arrangement.

Q44 Nick Smith: You do not know because it hasnot been published?Mike Donaldson: I think it was due to be publishedaround now by the Department, so maybe that issomething you ought to ask the Department about.

Q45 Chris Heaton-Harris: You are obviously waryof the changes, but you are obviously aware of thegeneral feel of public opinion on this issue, especiallythe further away you get from London. If you had anideal solution to this—the £23.4 billion spending in2011–12—knowing the Government finances as theyare, if this is not the right way to do it, what is?Mike Donaldson: Most of the increase in housingbenefit over the last 10 years has come from theprivate sector, so it is private sector rents. The privatesector is housing more of the country’s families, andthey are charging more for those tenancies. That is thereason why housing benefit has gone up, largely, andthe Report points that out. We have no problem withthe changes. They are political decisions. We are nota political organisation. However, there areconsequences, and obviously we have to face thoseconsequences.We did argue one thing at the beginning. When localhousing allowances were introduced, they werepiloted for a long time. There was lots of behaviouralwork, which was studied. It was six years effectivelybetween the pilots beginning and the roll-outs across

the country. This has been done incredibly quickly andon a much broader scale. On the consequences, I thinkto a certain extent that the Department is flying blind,and we will not know the consequences until it is fartoo late.

Q46 Chris Heaton-Harris: Has the sector any ideason how the Department can reduce this increasingamount of money spent on housing benefit other thantipping more money in?Mike Donaldson: The commitment has been made bypoliticians, not by the housing sector.

Q47 Stephen Barclay: Mr Donaldson, your evidenceis very much against change. However, if you look atthe figures, over the 10 years to April 2011 the amountof money going in increased by 54%—that was theincrease in real expenditure—yet the total stock ofsocial housing decreased by 6%. Almost half as muchmoney again is going in, and yet the number of socialhouses is coming down. That suggests the policy isnot sustainable, surely?Mike Donaldson: First, the majority of the increasewas in the private rented sector. Stock leaves thesocial housing sector because of right to buy, not justbecause of housing associations—

Q48 Stephen Barclay: But that reduces demand. Itis still providing accommodation to people.Mike Donaldson: Yes, but it is not new demandbecause it goes to sitting tenants. No new person hasa house because of right to buy. In reality, it has leftthe sector and is not available to anyone else in thefuture. The supply of new housing has not been there.At the heart of this issue is that not enough housingis being built, either for social housing or for theprivate rented sector. Certainly in London, that is thecase. There is not enough supply, which is why peopleare having to move into the private sector. Thealternative would be to go into the social housingsector. That is also pushing up prices, particularly inLondon. So more social housing and more subsidymight be one solution.

Q49 Mr Jackson: Housing associations haveaccessed huge amounts of capital via stock transfersin a way that local authorities would never have beenable to envisage. I think Mr Barclay has a fair point.In terms of absolute cash you have had for capitalexpenditure over the past 10 years, you can talk aboutplanning, but the issue is why registered providershave not built more homes to meet the demand overthe past 10 to 12 years.Mike Donaldson: We have built the homes that publicsubsidy was there to ask us to build. An amount ofmoney available from what was the HousingCorporation and is now the HCA for a finite amountof housing based upon an agreement amount ofsubsidy. We have built what we were asked to do.

Q50 Chair: John, do you want to come in on thisargument? I am dying to hear from you. My first lovewas housing policy, rather than how much money—Professor Hills: We are dealing with an incrediblydifficult situation. I do not think there are any easy




answers to it. To go back a bit, we are celebratingthe 70th anniversary of the Beveridge report. There iswhole chapter in the Beveridge report about theproblem of rent. He could not solve the problem ofhow to set a level of benefit to cope with the variationsin rent at that time. He was dealing with a situationwhere rents were 22% of other substance needs. As aresult of what has happened to house prices and thecost of housing, we are dealing with a problem that iseffectively three to four times as big as that. This is areally tough issue.The tenant sitting in the same property with thehousing market rising around them—the boom inwhich house prices doubled was financed by peoplewhose incomes were rising and who benefitted fromthe capital gains—is facing the effects of that. To anextent, the housing benefit bill was where that balloonpushed out. With rising rent levels, that was where themoney was paid out. The alternative is to depressfurther the incomes people have for other parts of theirsubsistence. As the whole range of restrictions we aretalking about come in, that is the inevitableconsequence, unless there are large-scale moves tocheaper parts of the country, or to small property.However, in some parts of the country, that smallproperty does not exist.Chair: I’ve got another answer.

Q51 Guto Bebb: I have just a quick question to MrDonaldson in relation to the point you made aboutyour rent arrears going up from 3.5% to 7%. You alsosaid that that did not create any immediate problemsfor you with your bankers. A number of housingassociations I have met in north Wales indicatedbanking covenants of 5% of turnover. How commonis that within the sector?Mike Donaldson: It depends on how long you havebeen borrowing. Some of the old covenants have veryrestrictive terms. That well could be what that appliesto. Most developing associations have renegotiatedthose covenants over a number of years, and so wehave got out of those restrictive arrangements.

Q52 Guto Bebb: So it would be a minority ofhousing associations with those covenants?Mike Donaldson: That is the view, although therecould still be some old loans hanging around, whichcould give organisations a problem.

Q53 Guto Bebb: Secondly, in terms of north Wales,I have four or five housing associations in myconstituency, and it appears that this looming policychange has led to co-operation and joint workingamong them. Are you seeing any evidence of that interms of the shortage of one-bedroom flats? Forexample, flats being allocated from one housingassociation to a tenant of another; is that happeningacross the country?Mike Donaldson: We have certainly seen it in termsof organisations outside London. Most of the bedroomtax problem is outside London, in reality. We havecertainly been working with one or two associationsin Kent to try to assist people. In London, we haveseen that in terms of assisting people through mutualexchange, because the only answer we have is people

mutually exchanging because there simply is not theright match of properties. There is a lot morecollaboration going on, yes.

Q54 Jackie Doyle-Price: I have a quick question forProfessor Hills. I am interested in turnover of stockand the degree to which people move around. Is thereany evidence that suggests that tenants of socialhousing are less likely to move than those in privatehousing or any other tenure?Professor Hills: There certainly was evidence at thatkind. Sorry, I have not looked at it recently, but thatmight be a good question for officials.Chair: He shook his head behind you.Professor Hills: There are two different issues. Oneis the relative level of moves between the social sectorand the private sector. Clearly, there are just hugebarriers to moving in the social sector, becauseexchange arrangements between social landlords arevery partial and there is no system that allows you todecide, for different reasons, that you want to movefrom Manchester to London.

Q55 Jackie Doyle-Price: I am also interested indownsizing. We are moving to a system in which thereis a big stick to encourage you to move, because itis difficult to give the carrots when, ultimately, andparticularly if tenants rely on housing benefit, thereis no incentive to downsize. Does that hamper sociallandlords from efficiently managing their stock?Professor Hills: I think it does, although some sociallandlords—you might well have details—have in thepast given incentives for people to move and free upstock where possible, but with relatively low take-up.That has worked, but the scope for doing it is reallyquite limited. That is against the context nationally oflower levels of mobility overall and much lessflexibility in the system. A thing that changed fromthe 1980s to the 2000s was that there was much lessturnover in social housing and much less ability totake in new tenants, which just means that the wholesystem is much more gummed up than it used to be.Mike Donaldson: That is definitely the case. Theturnover in numbers has dropped like a stone in thepast 10 years. It is a precious commodity and sopeople will not give it up. That is why it has led to aconcern over the years that we cannot encouragepeople enough to move to smaller accommodation.They just simply will not give it up.

Q56 Jackie Doyle-Price: I give the example of my86-year-old grandmother—God bless her—who israttling around in a three-bedroom council house. Shehas no incentive to downsize from her home becauseher rent is paid whatever she does. You are criticisingthe stick, but how else can you incentivise somebodywho has no financial incentive to move?Mike Donaldson: Don’t worry; she is safe now,because the proposals do not touch her.

Q57 Jackie Doyle-Price: I know she is safe, butthere is a weakness in the system, which needs to beaddressed, and needed to be addressed.Professor Hills: It is a more general issue. Obviously,it is an issue for owner-occupation as well. More of




the people who are rattling around in large houses willbe owner-occupiers, and as far as they areconcerned—

Q58 Jackie Doyle-Price: But they have a financialincentive to downsize.Professor Hills: They have some financial incentive;they do not have very strong council tax incentives,but they might have some. They could theoreticallymake a gain, but by the time you have taken accountof the costs of moving and buying and selling, thereare people who clearly gain from downsizing, but itis happening in all tenures, not just in social housing.

Examination of Witnesses

Witnesses: Robert Devereux, Permanent Secretary, Department for Work and Pensions, and Andrew Parfitt,Head of Housing Policy Division, Department for Work and Pensions, gave evidence.

Q60 Chair: Good afternoon, both of you. We aregoing to start with the housing benefit and then moveto the Work programme. Is that all right with you?What is clear to me, and really from the early sessionit came out: there are huge variations in attitudes,depending on where you live—Robert Devereux: In attitudes?

Q61 Chair: In attitudes to the changes, from us asrepresentatives. If you look at it, the way we think itwill impact locally, and the value that it will havelocally, is very much a function of where you live. IfI look at the Report, just looking at one aspect of it—the supply and demand, which is pretty important inthe discussion we had: on page 12 it says: “TheDepartments have compared supply and demand ofdifferent property sizes to identify imbalances at thenational level but not at regional levels.” I read thatand I thought, “That completely misses the point,because we do not have a national market in housing.”We do not even really have a regional market. Wehave a local market, and the impact of these changeswill be very different if you go round this table ineach and every one of our constituencies. I am slightlyconcerned that the Department has chosen not to beaware of that, from that paragraph, which I assumeyou accepted.Robert Devereux: Okay, I agree with you. Later on,we are going to come on to some of the projectionsthat the NAO have done. They have largely based thaton allocating regional data to local authority level, andyou simply cannot do that; so I entirely agree withyou. This is an incredibly diverse market. It varies bythe mile, round where I live, and certainlyelsewhere—Chris Heaton-Harris: By the street.Robert Devereux: By the street, exactly. So I think,consistently, we are going to be talking this afternoonabout setting in train a set of changes where theprincipal intent, basically, is behaviour change. It is avery difficult thing to predict. The only way toactually engage with that is to be very careful to watchthe data as it moves along—to look at what hashappened to homelessness, what has happened to theuse of discretionary housing payments; to look at the

Q59 Jackie Doyle-Price: But the taxpayer is notsubsidising that. That is the issue.Professor Hills: The issue is overall that we have ageneral, national shortage of housing space. We aretrying to grapple with ways that across the board makebetter use of that housing space. I think that issomething that is cross-tenure, rather than just in therented sector.Chair: Good. That was very informative. Thank youvery much indeed. We will now move to the mainsession.

way in which people are occupying their properties,and actually watch what happens in practice—becauseI am afraid all the evidence suggests that revealedpreference is a rather more impressive thing to lookat than stated preference, and actually that is the onlyway we are going to get through this.

Q62 Ian Swales: Can I just build on that point? Oneof things I often say in my local area is that we sufferfrom what I call M25 policies—policies formedwithin the M25 that make sense within the M25,whether it is choice of schools, or whatever, but don’tmake sense when you are 200 or 300 miles away. Thisdecision to average—was that part of your input tothe policy makers at the time?Robert Devereux: To average what?Ian Swales: This point the Chair made about thecomment in the Report about assessing housing stockacross the whole country.Chair: It does say there that you looked at the demandand supply of housing—let me get it up on my newsystem: page 12.

Q63 Ian Swales: I just make the point because underthe previous Government my area was asked to build3,000 extra houses in an area of declining population,because it was just an allocation nationally, and madeno sense locally.Robert Devereux: Let’s have a think about what thesepolicies are. The policy that has probably the biggestimpact on most people in the private rented sector isthe one about changing the local housing allowanceto the 30th percentile. The 30th centile is in eachbroad market region, so I have brought with me,because it is an incredibly long table—Chair: Can you speak up a bit?Robert Devereux: I have brought with me, because Ihave no idea which one you were asking about, theindividual rents at the 30th percentile, for every singleone of those broad market areas. So this is not anational policy. The national policy is to make itaffordable at the 30th percentile level, which is areduction from the median, but it is not a standardnumber, and it varies by every bedroom.



17 December 2012 Department for Work and Pensions

Q64 Chair: Okay. I have found it now: “TheDepartments”—I assume that that is you and DCLG—“have compared supply and demand of differentproperty sizes to identify imbalances at the nationallevel but not at regional levels.” You will accept thatthey are very different. I am beginning to see theimpact. I represent an outer London borough—I amsure you will hear a lot of this today—and, for thefirst time ever, we are seeing a growth inhomelessness. For the first time in a decade, we have150 families in bed and breakfast. For the first timeever, I have had two cases in my surgery of peoplewho have been placed in Barking and Dagenham byKensington and Chelsea because of the changes inrent levels, so the impact is beginning to be felt.One family came to see me because it had split upfollowing a divorce and had lost its home, so theywere forced into accommodation. Of course, thechildren go to school—these are all with children—inKensington and Chelsea. One woman works, and shecannot get the children to school and get to work in asensible way. She just cannot manage it on her own.There is an impact on her, on the children’seducation—we heard about this from John Hills—andon the woman’s ability to work. All those things areimpacted.The other thing is that my borough is placing peopleI dread to think where, but probably Stoke, if one ishonest. It is certainly placing people outside borough,and when I asked why on earth it was doing that, itsaid that private rents in the borough had gone up, andwere it not to do that, it would cost an extra £5million—that is the estimate from the housing officialin charge—on council expenditure. With the cuts itmust find, that is just a silly way of spending itsmoney. It is taking in people from Kensington andChelsea, putting Barking and Dagenham peoplegoodness knows where in the country, homeless isrising, and we are beginning to see the impact.I understand that it will be very different throughoutthe country and in other people’s constituencies, butthat cannot be the intended impact of the policy, so Ido not know how you will cope with it, apart fromthe fact that you have told us you will be sensitive, butI am telling you that it is out there and it is happening.Robert Devereux: Okay. I listened to Professor Hillssaying what needed to be said, which is fundamentallythat there is a housing problem. Against thatbackground, we have put in place a number of reformsto save money, because the Government’s view wasthat public spending needed to be reduced verysharply, and housing benefit is part of that. Thereductions that we have made have essentially tried todo two things. One is to try to get better use of thestock and the contributions that people in that stockare paying, which is all the stuff to do with the sizecriteria, the benefit reductions and the reduction of the£15 excess. The other is to try to encourage people tobe in cheaper accommodation. The fact that there havebeen some movements of 1,000 or so—of the orderof 10% or 13%—out of the Westminsters andKensington and Chelseas into some of the boroughsyou are describing is, in one sense, the effect of thepolicy. The policy is indeed—

Q65 Chair: May I take that in terms of value formoney? The main change will come in April. The firsttwo cases I have had are the start of the changes. Interms of Government expenditure, there will beexpenditure around the children’s schools and welfareexpenditure, because in one of my cases the womanis in work and will probably have to leave her jobbecause she cannot get the kids to school and get toher job. Looking at the impact of these policies, Icompletely understand that it will be different—Chris Heaton-Harris: Chair, how many of thesecases have you got?Chair: These are the first two, that’s what I amsaying.Chris Heaton-Harris: Because I have people comingto my constituency surgery moaning that we are notdoing enough on this issue.Chair: I accept that it is very different in differentareas, but this cannot be a value-for-money impact.Robert Devereux: The first thing to say is thateveryone will have a story of one individual family,and there is no point in—

Q66 Chair: It is very important to have those casesto give you a feel for what is happening—not justfigures, but people, Mr Devereux.Robert Devereux: I thought you would say that, so Ibrought with me some people stories. One of thepolicies that we have introduced, as you know, is thecap on benefits, and the NAO is very complimentaryabout the preparation—

Q67 Chair: Can you deal with my issue? I am notagainst the cap on benefits—I am not arguing aboutthat. I am just saying that this is the beginning of whatis happening in one borough.Robert Devereux: With respect, you are giving me anexample of where the behaviour change is preciselyzero, as far as I can see—where nothing has changedbehaviour-wise. All you have done is to observe thatthat person has less income and all of a sudden theyhave to move.

Q68 Chair: And I am also observing that myborough is having to place people very far from theircommunities, jobs and everything, because it cannotafford the increase in homelessness. My official hasgiven me a figure of £5 million.Robert Devereux: I have heard those anecdotes, too,but I am not sure what the evidence is for massmigration out of borough—I would quite like to seethat.

Q69 Chair: Well, if I show it to you, how will itinfluence you? All I am saying is that these are thebeginnings of impacts, although I accept that it isgeographically very different.Robert Devereux: Some of the people we have beenresearching who have gone to Walsall have found it alot better, actually. They have managed to get workup there and found that rents are cheaper.There are two ways of looking at this. Undoubtedly,these are policies to save money, because publicspending needs to be reduced. I do not believe that itis necessarily the case that the consequence of saving




money is that more expenditure will turn upsomewhere else in the way that you have justdescribed.If I may, I will give some examples. With the benefitcap, which on the face of it is an even more intrusivechange to the benefits system, we have been writingto individuals to say, “Look, something is comingyour way. Would you like to engage with us face toface?” Let me take an example at random. In thenorth-west, a 31-year-old lone parent with eightchildren who had never worked and was about to lose£235 a week was invited to the jobcentre. They werehelped to get into work and started work as a kitchenassistant for 16 hours a week, and they are out of thebenefit cap altogether as a consequence. That is thesort of work that happens on an individual basis whenmy Department and good local authorities get togetheron the benefit cap, make actual contact with peopleand start to engage with how they might change thedisposition of their rent and work.This is about getting people into cheaperaccommodation because, as we just observed, thenation cannot afford the amounts we are paying onaccommodation at the moment, and also about gettingpeople to do more work and to get more money forthat, all of which seems to me to be a credible way oftrying to make savings.

Q70 Chair: I will have one more go. I accept that formany people around the table, the situation is differentfrom the London one, but—this comes out in theReport—this is not just Barking and Dagenham; it isall the London councils. If you look at the page in theReport where concerns are mentioned, Westminster isjust as concerned. I cannot remember what page it is.Robert Devereux: It is page 20.Chair: Thank you. No, it is not that one; it is anotherpage with all the concerns being raised by variousbodies. Maybe you do not take Shelter and those sortsof bodies seriously. Is that the case?Max Tse: It is page 20.Robert Devereux: It is page 20. The very last bulletpoint talks about Westminster. It says that Westminsteris struggling to find enough temporaryaccommodation.Chair: Oh, yes, I’m really sorry; you are absolutelyright.Robert Devereux: One of the important changes thatthe Government have just made is to relax how a localauthority can meet its duty under homelessness. Inparticular, it can make an appropriate offer to ahomeless person of accommodation in the privaterented sector.

Q71 Chair: Which costs more. Rents in the privaterented sector are higher than social rents. That willadd more to the benefit bill.Robert Devereux: Okay, let me just try one problemat a time—

Q72 Chair: But you gave me an answer that doesnot hold true in terms of value for money, because thecost goes up. One of the reasons why the benefits billhas gone up is costs.

Robert Devereux: I am sorry but, with respect, ifmore people are occupying cheaper accommodationat the end of these policies, that is a fantastic value-for-money proposition, and I have heard nothing fromyou that suggests that that is not true.Chair: Pardon.Robert Devereux: The effect of these policies is toend up with cheaper accommodation being occupiedand with less spend.

Q73 Chair: But this is the private rented sector. Am Ireading this completely crazily? One of the reasons—Robert Devereux: It is way cheaper than temporaryaccommodation.

Q74 Chair: It is cheaper than bed and breakfast, butwe have been out of bed and breakfast for years. Weare now going back into it.Max Tse: It depends where people go. If the privaterented sector is the alternative to temporaryaccommodation, it is probably better, but if it is analternative to social sector accommodation, it wouldbe more expensive.

Q75 Chair: If you look at the reason why thehousing benefit bill went up so massively, it wasbecause of the increased use of the private rentedsector, I thought.Robert Devereux: The private rented sector is moreexpensive than the social sector, yes. We subsidise oneand we do not subsidise the other.

Q76 Nick Smith: But Mr Donaldson, our previouswitness, said that they would be forced out of socialhousing and into the private sector and, because therewas increased demand for private sectoraccommodation, the rents in the private sector wouldgo up.Robert Devereux: So again, going back to the pointwe have made already, there are a number of verysmall markets here, and the effect that there will be inany one area depends on the supply and demand inthat area, so it is not necessarily the case that all thesethings are relevant. In some cases, we are absolutelythe dominant purchaser of private sector rents, so itwould be a surprise, if we start capping what we areprepared to pay, if rents don’t adjust. In other areas—let’s take Westminster and Kensington and Chelsea—we are clearly not. We are a very small part of it, inwhich case it is not obvious that the demand fromhousing benefit claimants is itself going to changethe price.

Q77 Nick Smith: In Blaenau Gwent, we have mostlypost-war three-bedroom housing. There is very littleprivate sector housing with one or two bedrooms, andthere is no alternative accommodation for people togo to. If you are going to push people in that direction,the private sector, because it has less supply, is likelyto see its prices go up.Robert Devereux: We are jumping from different sortsof things here. The particular reform you are talkingabout is the social sector size one, is it?Nick Smith: Yes.




Robert Devereux: Okay. With that one—MrDonaldson sitting here said this just a moment ago—the thing we most need is to get people to beaccommodated in the right sized property. Theconversation you were having earlier about, “Whatabout all these properties that are occupied or under-occupied?”—[Interruption.] I am sorry, but this isimportant because, in the end, although you are allbound to come back to me to say that there is ashortage of one-bedrooms in the social sector, I canassure you—Nick Smith: In the private sector.Robert Devereux: I can assure you that it is cheaperto have one person in a one-bedroom private sectorthing than to have a four-bedroom house in the privatesector that could be in the social sector. The wholepoint of properly occupying this sector is to make surethat all the bedrooms are properly used. At themoment, we have lots of bedrooms in the socialsector, subsidised, and not actually being used.

Q78 Chair: Can I just hog five minutes, because Iwant to get a clear answer? Then I have Ian, Meg andStewart. Who else?Mr Jackson: I just wanted to ask a helpful question.

Q79 Chair: Did you? I just wanted to get a straightanswer.Are you looking at the impact? Do you care about theimpact? I understand that it’s a London-centric issue.Robert Devereux: It is not a London-centric issue, andit is not your borough either. What I am saying is thatyou need to put these reforms in place, and you needthen to understand and watch what is going on.

Q80 Chair: So what are you going to do when I amtelling you that these things are going on?Robert Devereux: Let’s wait. For the moment, theLHA changes are essentially all now in the system.Even with the generous grace period that theGovernment gave, it is all finished by December 2012.If you look at the homelessness statistics, they havenot shot up by 775,000, and they have not shot up bythe 80,000 that some researchers have said.

Q81 Chair: How much have they gone up by?Robert Devereux: How much do you think they havegone up by?Chair: I don’t know. You tell me. You’re the expert;I’m not.Robert Devereux: For the end of shorthold tenancyacross the country—Chair: The end of what? How are you defining it? Ibet it’s behind your definition. I know you, MrDevereux.Robert Devereux: Okay, shall we have a quiz?

Q82 Chair: How many local authority acceptanceson homelessness? That’s the real issue.Robert Devereux: In the last quarter, it was 13,890.

Q83 Chair: How does that compare with a year ago?Robert Devereux: Well, that’s interesting, isn’t it,because a year ago, it was actually 12,510. Howeveryou look at it, these are not numbers with hundreds

of thousands against them, which is what the Reportmight encourage you to think about, given thisconversation. Don’t get me wrong; every single oneof those homeless acceptances is a bad news story forthe individual involved. However, the numbers thatwe are currently seeing for homeless acceptances areof the order of half what they were three, four or fiveyears ago. We are much better at this now than weused to be.Chair: I’m not sure.Robert Devereux: These are the published statistics.

Q84 Chair: Well, all I can tell you is that Barkingand Dagenham didn’t have people in—[Interruption.]I don’t believe that it is that exceptional, and I don’tbelieve that it is a bad housing authority.Robert Devereux: We have had this problem beforeabout whether it is anecdote or statistic. This time, Iam actually going to go with the statistics.

Q85 Chair: Yes, but I am giving you the Barking andDagenham statistics.Robert Devereux: These are possibly quite true,because I think you also mentioned a figure of four orfive people you have seen. Even four or five isconsistent with 1,000 or so. You may have just fivethousandths of the total. That is perfectly possible.

Q86 Chair: So is Shelter’s figure that homelessnessis up a third since the election wrong?Robert Devereux: Homeless acceptances at the pointof the election were around 10,000, and they are nowaround 13,000 or 14,000, so up—

Q87 Chair: So it is about a third.Robert Devereux: Okay, but before you look toosmug—Chair: No, I’m not getting smug; I just want to getunderneath this.Robert Devereux: The main reasons why those havegone up are to do with the fact that relatives andfriends are no longer willing to provideaccommodation, or there has been a relationshipbreakdown with a partner. When you look at thepeople who actually say that the reason they arehomeless is the end of a shorthold tenancy, they havegone up by 1,000 since the election—from 1,700 to2,800. For the 1,000 people in that situation, that isbad news, but in the grand scheme of things, where775,000 people are affected by the LHA contraction,I would be perfectly happy to argue that actually thisis a reasonable set of reforms. We need to be verycareful that local authorities continue to manage thisoutcome well, but the evidence is they are managingit well.Chair: Okay, I’ve heard enough; I’ll come back a bitlater. Ian, Meg and then Stewart.

Q88 Ian Swales: Just to redress the balance slightly,a family with three children who came to see me twoweeks ago were absolutely delighted that they weregetting a three-bedroom house because the couplewho had it were moving out due to these benefitreforms, so I have actually had one of thosestories—[Interruption.]




Mr Jackson: We like that anecdote.Ian Swales: And a sense of balance.Chair: The coalition is working in this Committee.Nick Smith: They’re still not voting for you.Ian Swales: Yet—no, they do.Can I come back to a point that was made by one ofthe previous witnesses? This was about the reformthat said that housing providers could move uptowards market rents. I did not specialise in thesereforms as a parliamentarian, but I understood that tobe where people could afford it, yet the previouswitness suggested that this was actually increasing thehousing benefit bill. Is that something that yourecognise and was it an intended consequence of thatchange?Robert Devereux: As I understand it, the Governmenthave indeed allowed housing associations to chargecloser to the market rent than previously, and a largepart of that comes our way in the housing benefit bill.I think from memory that affordable rents are pitchedat up to 80% of the market rent.Andrew Parfitt: Absolutely. It was a joint endeavourbetween the DWP and the DCLG. We worked jointlyon the assessment of the affordable rent policy, and ithas two effects, which pull in different directions. Asone of the earlier witnesses said, if you haveunchanged supply, having affordable rent at up to 80%of market levels, rather than social rents at about 50%or 60% of market levels, will tend to increase yourbenefit bill. However, the affordable rents allow youto increase your supply of sub-market property, so inthat instance you have savings going in the otherdirection. You have savings from having a greatersupply of sub-market rent property than you wouldhave done had you had the social rents, and this is allin the context of getting the best value for money outof a fixed capital grant.

Q89 Ian Swales: As Mr Barclay said earlier, sincethe whole stock transfer episode, there is no evidencethat the supply of social housing is going up. Are youpolicing whether allowing them to charge thosemarket rents is resulting in greater supply? Are youactually tracking the public pound, as it were?Andrew Parfitt: Yes, that is vital. The DCLG has letthe contracts to deliver this increased supply ofaffordable rents, and those contracts are starting tocome through. It takes a while to build a house, but ifyou look at the DCLG’s plans, they are for the supplyof several tens of thousands of these homes.

Q90 Ian Swales: Is the money ring-fenced—thedifference?Andrew Parfitt: In relation to the providers, Iunderstand that the DCLG has contracts that say, “Youwill deliver these outputs of affordable rent tenure andyou will charge these rents,” so there is a biddingprocess.

Q91 Ian Swales: My other question—this point ismentioned in the Report in terms of homelessness,particularly for under-35s—relates to the question Iasked the previous witnesses. People are coming tome saying, rather like in Blaenau Gwent, “There area lot of three-bedroom properties with single people

in them. Why can’t we have two tenancies for thisplace?” As the previous witness said, social housingorganisations do not typically do that. They mightallow lodgers, but then I think the DWP would treatsuch an arrangement as probably adversely affectingthe benefits of whoever was the prime tenant with thelodger. Am I right?Robert Devereux: I think not, but Andrew will correctme if I say this wrong. This is quite an interestingarea. If we end up with a whole load of places withtoo many bedrooms, but on the face of it a wholeload of people looking for bedrooms and somebodyto share, then actually the smart thing to do would beto allow that to happen.The way the housing benefit regulations work, if Ichoose to occupy a property with somebody else noteven in my family, then the way in which you dothe housing benefit calculations with allow the extrabedroom—all right?—so the bedroom will beprovided for. We would then regard that individual asbeing a non-dependant in the area and we wouldexpect some income back from them. But we certainlyare not precluding people using some imagination andsaying, “Okay, I’ve got a three-bedroom place. I onlyoccupy one of the bedrooms. I’ve got two sparebedrooms. I wonder whether I might let that and dosomething with it.” Actually, the benefits system doesnot disadvantage those people that take in lodgers inthat way.

Q92 Ian Swales: So that would not be regarded asincome, which is then deducted from other aspects oftheir benefits, would it?Andrew Parfitt: It is relatively generous in housingbenefit. You get the first £20 of income disregardedwhen you take in a boarder or lodger, and then youhave relatively generous rules for income on top ofthat £20 disregard. In universal credit, because wehave the opportunity of designing afresh, it is betterstill: we ignore all income from boarders and lodgers.We do not give them a room, mind, in the calculation,but it is really simple from the claimant, so if theyhave a spare room and take in a boarder and lodger,keeping all the income.

Q93 Ian Swales: One theme from the Report, andgenerally, is communication. In that case, it would begood if you were able to set out one of these simplecases of circumstances, because if the policy objectiveis to get more people into the existingaccommodation, then clearly that would be one wayof doing it. At the moment, I think people are nervousabout heading down that road, and the social providersthemselves do not seem to be encouraging it, either.Robert Devereux: These particular constraints—theone on the way in which social science criteria weset—are for next April. We have been working closelywith local government and housing associations towork out the right time to say what to people aboutthat. If, actually, you think that would be helpful, wecan easily do that.

Q94 Ian Swales: There is a planning element to this.People cannot act instantly on the day it changes, so




the sooner they know what the regime is, the morethey can make plans.Chair: Chris wanted to ask a question of Andrew,then I am going to Meg.

Q95 Chris Heaton-Harris: I did not understand aword of your first answer, and I was hoping that youcould rephrase it in layman’s terms so I can vaguelyunderstand the way the markets interact.Andrew Parfitt: The affordable rent?

Q96 Chris Heaton-Harris: Yes.Andrew Parfitt: Okay. Before affordable rent wasinvented you had social rents, which were about halfof private rents. Right? With affordable rents, whatyou have is the ability of landlords to charge up to80% of market rents on that property. So you havemoved from 50 to 80, say. There are two effects,which go in different directions. The witness earliertalked about one of them, which is that if you have atenant who is paying an affordable rent rather than asocial rent and they are on housing benefit, thehousing benefit bill will be greater. However, DCLG,from their capital expenditure—from their grant forsub-market housing—had a choice of either producingx amount of social rents, which would be relativelysmall, or, because housing associations can get moreborrowing and require fewer levels of grants, they canget a higher volume of affordable rent properties. Sothat means that—

Q97 Mr Bacon: They can create a higher volume ofnew ones.Andrew Parfitt: A higher volume of new build. If youlook at the impact assessment, which we jointlyproduced—it is a not a riveting read, but it does set itall out—it shows that you have these two effects. Oneincreases housing benefit expenditure and the supplyeffect reduces housing benefit expenditure, with thenet effect being a very small increase in housingbenefit expenditure, which DCLG agreed withourselves and Treasury colleagues, and there has beena small budget transfer to the Department byrecognition of that.

Q98 Chair: Let’s just get that clear. Is that becauseyou are assuming that the increased number of homesdepresses rents in the private sector?Robert Devereux: I think you can do it even moresimply than that. If at the margin we have one personin the private sector today who is at market rents, whotomorrow could be in a place charging 80% of themarket with some CLG subsidy, the housing benefitbill will be lower.

Q99 Chair: I see. So you are assuming that you willtake more people out of the privately rented sectorinto the affordable rents homes?Andrew Parfitt: It is a volume effect. I haven’t gotthe figures at the tip of my fingers, but instead ofproducing, say, 20,000 hypothetical units of socialhomes, you are producing 60,000 units of affordablehomes, so you get that supply effect. You are able tobring more people out of the private sector.

Amyas Morse: We had a hearing on this in thesummer, actually.

Q100 Meg Hillier: I need to comment in passing thatin Hackney South and Shoreditch 80% of private rentsis by no means affordable. I was surprised that MrParfitt talked about when affordable rents wereinvented. There has been a debate about this since the’70s at least, when the housing association movementgot going.Andrew Parfitt: By way of clarification, it was whenit was badged affordable rent tenure at DCLG. That iswhat I meant by that.

Q101 Meg Hillier: Right. Good, I am glad you areclear on that because I think it was between 25% and30% of income depending on how you measured it.That is going to be a big issue.Briefly on Hackney, as everyone has mentioned theirconstituencies, so it is important that I mention mine,there are serious issues in my constituency: to buy orrent in the private sector means you have to a verygood income. A high percentage—about half—of myconstituents live currently in the social rented sector.You can talk about many examples, but people whoare on low incomes who need to be near to workbecause it would be ridiculous for them to travel longdistances, for instance to work in a hospital, will notbe able to afford to live in my constituency in future.It is already difficult under the current system, butthe bedroom tax will make it very difficult for manyfamilies. I wonder whether you have thought aboutand worked out the other costs to society of having ashortage of key workers, effectively, in places likemine where rents in the private sector are high, andtherefore the 80% rent will also be very high.Robert Devereux: The only way to answer that is, asI said earlier, to keep very close to the data as theymove along. It is very easy to make sweepingstatements and say that all key workers will be pricedout of central London and they won’t be able to affordthe travel, but I am not sure that is a sound basis formaking policy. You know I have come from theDepartment for Transport: we put £2 billion a yearinto subsidising transport in London. There aredifferent ways in which this calculation works. Toassume that because we are in central London all of asudden it is going to be on wasteland, that is not whatthe data show at the moment.As I was trying to say earlier, when you look at theways in which housing benefit caseload is changing,it is measured in 10% here, 15% there down, evenat the most extreme, in your Westminsters and yourKensington and Chelseas. It is measured at plus 10%in some other places. These are not “shock, horror”,nobody—

Q102 Meg Hillier: Okay. Can I tell you partly thereason for that? We are talking statistics, statistics. Iappreciate we are looking at value for money and weneed to look at the data. In the real world out there,my borough has grown by 30,000 between censuses.That is made up predominantly of under-5s, so that isthe birth rate, and people in their 20s and 30s who areyoung professionals or young people starting out. The




churn with both those groups is pretty high. It is notjust about the cost of whether people can live, but ofhow long they can stay living there and keep holdingon. We have a middle-management issue. People aremoving and you are losing experience in London.Robert Devereux: That is true of—The median tenurein the private sector is one year. It is the case thatpeople are turning over in the private sector quitequickly. It has always been the case and will alwaysbe the case. In Hackney—

Q103 Meg Hillier: I’m sorry, I need to correct you.I have got private estates that have long-standingtenants because of the old tenancy rules. The reasonfor the churn is because—Robert Devereux: The median is one year. In otherwords, there are a lot of people who are churningquickly and a lot of people who stay a long time.

Q104 Meg Hillier: Sorry, no, there are not manystaying. The old tenancies are running out as peopleget older and die. The new tenancies are all assuredshortholds, so that will reduce the—Andrew Parfitt: They often get rolled over, don’tthey?

Q105 Meg Hillier: Not that many in parts ofHackney, to be honest. There is a real issue. Youngsharers often can’t afford to rent on their own becausecosts are so high.Robert Devereux: Let me just bring you back tohousing benefit, then. Private rented in Hackney,March 2011, before we started the reforms: 10,070claimants; August 2012, the latest data: 10,360. Thatis a 2.8% increase, so it doesn’t feel to me as if someseismic event has occurred in Hackney.

Q106 Meg Hillier: But my point, Mr Devereux, isthat this is not just about money. Of course there is amoney issue. It was the current Chief Whip whotalked about letting housing benefit take the strain,back in the ’90s, I think, or maybe the late ’80s. Sohousing benefit has been a running sore for a longtime across Governments, hasn’t it, but there is ahuman cost to this churn that seems not to come intoyour calculations. It is a cost for every hospital thatloses an experienced nurse, or every school that losesan experienced head of department or senior teacher,because those people decide to up sticks and moveout of the area because it is expensive and they canget a better lifestyle in Teesside than they can inHackney. I have to say that I could not see whyanyone would move to Teesside compared withHackney, but some people choose to do such things.My serious point, however, is that there is that churn.This has been looked at back in 2000, when I was inthe London assembly. These are costs, too.Robert Devereux: Okay. So I guess that all I amarguing is that I have now been in London for 35years, and the people around me are moving all thetime; they have done every single year. It has alwaysbeen thus; I quite agree. In a world in which there wasno churn, there may be some advantages.It seems to me that these reforms have not acceleratedthat churn. I don’t know what data I would be looking

at to demonstrate that, but it doesn’t look to me as ifthere are lots more people moving around here, andthat is despite the fact that the local housing allowancereforms are largely complete now. We are now settingrents at the 30th percentile, not the 50th percentile, forvirtually everybody in Hackney.

Q107 Meg Hillier: Well, we have had LHA for awhile, and people move because they know that theyare not going to be able to settle in Hackney. Many ofthose 20-year-olds would not have a hope of beingable to settle, buy, or rent—Robert Devereux: I am not sure which particularpolicy—

Q108 Meg Hillier: They are not necessarily claiminghousing benefit, but soon they might be refused it ifyou ban it for under-25s, I have to say; the Ministerhas assured me that might not happen.Robert Devereux: I am not too sure quite which partof the Government’s policy I am being invited todefend.

Q109 Meg Hillier: Can I just move on to the bigissue that you have just raised about lodgers? Thisis very important. You said, Mr Parfitt, that you arechanging the rules—I just need to get this absolutelyclear—so that if a constituent of mine has a three-bedroom property that they are under-occupying, asthey have two spare bedrooms, they can keep all theincome that get from a lodger.Andrew Parfitt: From a lodger, under universal credit.

Q110 Meg Hillier: So, in my constituency, whereyou could typically pay £250 a week—certainly inShoreditch easily, and in Hoxton or Dalston—for aroom, you could have a tenant living in social housingand earning £500 a week as a quasi-private landlord,keeping all of that money and presumably then payingtax on it and so on. Maybe they lose their benefit—soit reduces your benefit bill—but you actually have thebricks and mortar subsidy effectively allowing peopleto become private landlords. Have I misunderstood,or is that what you were saying?Robert Devereux: This conversation has very quicklygone from, “Shock, horror, drama, there is nowhere tostay,” through to, “Hang on a minute, there are toomany incentives for somewhere to stay.” I am not surewhich one—

Q111 Meg Hillier: That, Mr Devereux, is a completemisrepresentation of what I said. I was changingsubject, yes, to this issue that was raised by Mr Parfitt,which I was not aware of, that constituents can takelodgers in at whatever rent they choose. I am justasking. I am not suggesting that there are a lot ofpeople in that situation, but I want to know what theissue is for people in that situation. I was making nocomment about the numbers and the relative numberof rooms available. I just want to know this, becauseI have a very high level of over-crowding in myconstituency. We are in a very young borough, with athird of people under the age of 24, and a fifth ofpeople under the age of 16, so I know that there is alot of squeeze on housing space and a lot of




overcrowding. So that was not the point that I wasmaking—at all.I am asking about the simple factual issue aboutlodgers. I don’t understand. Maybe I do understandthe point. If I do, perhaps you could explain to me ifI have got it right in my description of it.Andrew Parfitt: There is a wider point. First, I willanswer your question. Almost all council tenants andmost housing association tenants have got the right totake in a lodger, to occupy a spare room, which mustbe a good use of the stock.

Q112 Meg Hillier: But you said that they can keep£20 of that, and that is disregarded against anybenefits. But when universal credit comes in, they cantake as much rent as they want?Andrew Parfitt: I believe that the idea is to disregardthe income from boarders and lodgers.

Q113 Chair: When is that change coming in?Meg Hillier: So, completely disregard the income?Andrew Parfitt: It will come in gradually, fromOctober 2013.

Q114 Meg Hillier: Would there be a cap on thatincome?Robert Devereux: I see exactly why you areinterested. Let us check. The regulations on universalcredit, as you know, were laid last week, so they aresomewhere in the House. Let us go and look upexactly that point and let you know.

Q115 Nick Smith: Mr Parfitt was quite clear, so ifyou can get £250 a week for renting out a bedroom inHackney, does that mean that you could make £1,000profit over a month, and it would not apply to youruniversal credit benefits?Andrew Parfitt: I think we should probably doublecheck on that.Nick Smith: I bet you will.Robert Devereux: This is what he said, and we willcheck.Andrew Parfitt: There are strong incentives inuniversal credit, quite rightly, to encourage people tolet out their spare rooms. Whether there are some capson it for the reasons that you are suggesting—Mr Bacon: If there aren’t at the moment, there soonwill be.

Q116 Mr Jackson: Obviously, the role of anyMember of Parliament is to represent theirconstituency, but a national policy should not bepredicated on what is happening in London. That is ageneral point, and I am not criticising other Members,but we have had this debate over the last year aboutthe impact on, basically, six London boroughs—Camden, Kensington, Westminster, Brent and a fewothers—although, obviously, we have to look at thefigures.Are you saying that the changes will bring greaterflexibility and therefore have a lower cumulative costto the public purse? If you just take, for instance,Westminster city council, I got the impression that thechanges are cheaper for the council, and possiblybetter for the individual family. If a family presented

themselves as statutorily homeless under the HousingAct 1996, Westminster would, hitherto, have had tofind them accommodation in Westminster, althoughhopefully not bed and breakfast. Now, the council canput them in bed and breakfast, but they could findthem cheaper accommodation in the private sector, in,say, Cheshunt, Harlow, Slough or Crawley. Are yousaying you have evidence that that will work for themin terms of having paid work, and, hopefully, movingoff welfare? Are you also saying that only a smallnumber of people are affected by the change? That isimportant in terms of looking at the numbers, ratherthan at anecdotes.Robert Devereux: The thing I came back to the Chairon was the claims that people were being repatriatedhundreds of miles up the country. I would like to seethe evidence of that. Within London, the way it worksfrom a value-for-money perspective is that if I havea family who need two bedrooms occupying a veryexpensive property in Westminster, and they then findthemselves living in a slightly cheaper place south ofthe river—not even as far out as you suggested,because the rents are so wildly different—that savesmoney straight out from the housing benefit bill. Youwould have to check that it was not having second-round effects, which is the thing the Chair keepscoming back on, but it is not self-evident that that isgoing to be particularly affecting lots of people.As I said earlier, some of this is also to do with whatpeople’s attitudes to work are in all this. We are quiteinterested in making sure the stock is well used—thatis all the stuff to do with bedroom occupancy. Weare also quite interested in making sure that peoplerecognise that there is not a free lunch here, and ifsome of this pressure, as in the story I gave you, turnsinto people finding work and being exempt from this,that is good news.

Q117 Mr Jackson: There is even a sub-boroughmarket, isn’t there? If you want to live in the centreof Greenwich, you are going to pay a lot more thanif you lived in Plumstead or Woolwich, so there aredifferences even within one borough. It is notapocalyptic; it is not as if people are trekking acrossdeserts because they are not living in Kensingtonany more.Robert Devereux: To be fair, there are indeed thoseranges. For any one broad market rental area, we lookat the range of prices, from the expensive to the verycheap, and we are now drawing the line at the 30thcentile, whereas, previously, we drew it at the median.In principle, 30 properties in 100 are below that level.

Q118 Mr Jackson: I have one more generalquestion. I know this is slightly away from value formoney, but it is important. There are lots of debatesabout the impact on people of in-work and out-of-work benefits. I know you do not want to get into thatbigger issue, but is there a rough estimate of thenumber of working-age people in social housing whowere in work, say, 30 years ago, compared to now?There is a perception, rightly or wrongly, that therehas been a quite substantial growth in the number ofpeople in social housing who are not in paid work—a big social change—because it would have been quite




normal in Barking and Dagenham 30 years ago forpeople to work at Ford and live in a council house.Now, there is a perception that if you are in a housingassociation property, you are on benefits and welfare.You may not be able to give us that figure now, but itwould help to inform the debate about where we are.Robert Devereux: I have figures with me that sort ofget to that. There are in the order of 3.5 million peoplein the social-rented sector on housing benefit at themoment, and about two thirds of them are onpassported benefits, so we may assume that they areprobably out of work, and about a third are notpassported, which probably means they are in work—they are earning something, albeit low enough toreceive entitlement.Mr Jackson: It was probably as recently as 1970 thatonly a fifth were not in work. In other words, it hasnow switched around. In those days, the bulk ofpeople in social housing were in work.Chair: I dare say that is true, Stewart, but the reasonis that many of those in work bought their houses.Mr Jackson: Especially in Barking and Dagenham.Chair: Yes, especially in Barking and Dagenham. Thebetter off, who were in work but might have beenin social housing a generation ago, are now owner-occupiers, which is a good thing. I am not against that,but it means that the nature of the social-rented sectorhas changed.

Q119 Chris Heaton-Harris: On page 18 of theReport there is a paragraph that states that, essentially,in your savings you do not take into account theadministrative costs of making the changes at localauthority level. So how much do you think it willcost? Coupled with that, looking at paragraph 8 onpage 6, what incentive is there for local authoritiesto implement these reforms to housing benefit whenuniversal credit will take those things away fromthem? Why don’t they just let it wither for a bit, andthen you take it all over?Robert Devereux: The answer to your last question isthat they have a statutory responsibility to run housingbenefit, on which they do not have a choice. I amafraid that they cannot not do that, because they areconstitutionally required to do so.On the first question, there is quite a lot in theReport—paragraph 1.17 talks about the automatictransfer of data and the like—and some of the reformswill require further information to flash backwardsand forwards to local authorities, particularly on thebenefit cap. There is clearly going to be exactly thesort of face-to-face work you have described, whichwill be necessary to make the transition. The firstthing we have done to try to get this away is toincrease substantially the money we have allowed fordiscretionary housing payments to ensure that there issome money in the system to help facilitate some ofthe transfers that are needed. As a general rule, asyou will all be well aware, for anything that centralGovernment does that creates a new burden on localgovernment, we have to sit down and have a day ofreckoning with them to settle up. We will do the samefor this.

Q120 Chris Heaton-Harris: We are expecting greatsavings from this, so how are the savings running atthe moment?Robert Devereux: Great savings from what?Chris Heaton-Harris: From the changes we aremaking to housing benefit.Robert Devereux: Okay.

Q121 Meg Hillier: You predicted £514 million forthis year.Robert Devereux: I am just wondering whether I havethat figure with me. You have a table that says thatthe savings in 2011–12 would be £514 million, and Iwill have to write you a note on that because I donot know.

Q122 Mr Bacon: You don’t know whether youachieved that?Robert Devereux: I don’t know. I have a bit of paperthat tells me what I have done.

Q123 Mr Bacon: What have you done? Have yougot your final reporting year?Robert Devereux: Hang on. I can do better than this.I thought to myself that, as you see in the footnote,this is the table that the NAO produced pretty muchat the same time as the initial reforms, so I asked forthe table to be updated with our latest information. Inthe figures for Budget 2012 we estimated that in2011–12 we had saved £450 million, which is at oraround the number we were thinking of.Chair: What is the figure we have in the Report?Meg Hillier: £514 million.

Q124 Chair: What did you save?Robert Devereux: Well—

Q125 Chair: You estimated. You said that youestimated at the time of the Budget that you had saved£450 million, which is a bit from £500 million. Whatdid you actually achieve?Robert Devereux: Before you say, “That is all a bitshort,” the estimate for the budget for the entire fouryears is £6.7 billion real, against £6.2 billion at thespending review.

Q126 Mr Bacon: Your estimate is that there is asaving of £6.7 billion?Chair: No, that is across all benefits.Mr Bacon: Let me be clear.Robert Devereux: Just try the question and I will seeif I can answer it.

Q127 Mr Bacon: It sounds to me like you have justsaid that the amount that you have saved, which for2011–12 was expected to be £514 million, has nowgone down to £450 million. But the amount that youare expecting to save over the whole period has goneup from £6.2 billion to £6.7 billion.Robert Devereux: That is correct.

Q128 Mr Bacon: So, you have not only to regainwhat you did not achieve, but to achieve even more.Is that right?




Robert Devereux: That is correct. But remember,between summer 2010—

Q129 Mr Bacon: I am not saying that you will notachieve it.Robert Devereux: I know, but there is a rather moreimportant thing. Between summer 2010 and March2012, the economy has changed its shape relative towhat we were expecting. So these assumptions arebased on the projections for inflation in the June 2010budget. We are now using the latest ones.

Q130 Chair: Did you achieve £450 million in2011–12?Robert Devereux: Yes.

Q131 Chair: You actually achieved that.Robert Devereux: So the table I have in front of me,which has come out of the Budget presentation, saidthat—or was it £445 million.Chair: £445 million.

Q132 Mr Bacon: Is it the same table that says thatyou will have £6.7 billion of savings by the end of theperiod in 2014–15? Is that right?Robert Devereux: It is exactly the same table.

Q133 Mr Bacon: It sounds counter-intuitive that atthe same time as you are not quite achieving what youoriginally expected, the total amount you will savewill be higher—just because of inflation.Robert Devereux: No. The economy is in a differentplace. The projections of what housing benefit willcost us in the first place and then the projection ofwhat it will cost with these reforms—

Q134 Mr Bacon: By the way, be very careful whatyou are doing with your hands—Nick Smith: It’s like watching Ed Balls.Robert Devereux: I am sorry. In order to work outwhat we have saved, you have to project what weactually spent and what we think we are going tospend under the current economic circumstances,which are different from those in summer 2010, andthen you have to take account of changes in policy.One of those is a rephasing, which Mr Parfitt isquickly going to explain.

Q135 Chair: Can we just get some figures fromMax?

Q136 Mr Bacon: Did you say rebasing?Chair: Rephasing.Andrew Parfitt: Rephasing.Max Tse: The move from 6.2 to 6.7 is basicallybecause the base has got bigger. If you take a savingoff a big base, you get a bigger saving.Mr Bacon: It is a rebase.Amyas Morse: More claimants, is it?Andrew Parfitt: More claimants, yes.Amyas Morse: You are expecting more claimants?

Q137 Mr Bacon: And therefore more saving?Amyas Morse: And therefore more savings.

Q138 Chair: And more spending?Andrew Parfitt: That’s right.

Q139 Chair: So housing benefit will go up. Thesavings will go up.Mr Bacon: The savings will be bigger because thetotal number will be higher.Robert Devereux: Yes.

Q140 Mr Bacon: It is all smoke and mirrors, isn’t it?Chair: Quite. Chris, you were interrupted. Do youwant to carry on?Chris Heaton-Harris: If I had seen the figures.Andrew Parfitt: I just want to make a point about thephasing. It is an important to explain why the figurefor 2011–12 has gone down from the figures in theoriginal June impact assessment to the figures thatRobert has just given you. That is because there wasa policy change to phase in the introduction of theLocal Housing Allowance (LHA). We have had thisperiod, which now expires in December 2012, whenexisting LHA claimants—you are nodding, Max, asyou recall this—were given nine months extra.Max Tse: Figure 7 on page 23 of the Report explainssome of the phasing changes.Andrew Parfitt: That is why it went down in the firstyear, but, paradoxically and partly because we have ahigher case load, we get greater savings overall.Robert Devereux: That was in response to peoplesaying that the policy should be adjusted, so weadjusted it.

Q141 Mr Bacon: May I just say that you were veryunfair when you said—I am changing the subjectslightly and going back to what we were talking aboutearlier—that the document about 80% affordable rentswas not riveting. The chief executive of my localhousing trust was quite riveted by it. In fact he gotquite excited by it. He said, “I could do somethingwith 80% of market rent.” You have a fan somewhere.In the same breath, the same trust, Saffron HousingTrust, which is referred to in the Report on page 20,talks about the fact that the cost of chasing arrears andnon-payments could be high. Indeed, paragraph 17 ofthe Report said, “Reforms are placing additionaladministrative burdens on local authorities and couldlead to risks for effective implementation.” Yoursavings so far do not take account of theseadministrative costs, do they? That is what it says inparagraph 1.17.Robert Devereux: We were asked to prepare, becausethey are very large numbers, the savings to the benefitbudget, and that is what the aim of the savings is.

Q142 Mr Bacon: But there will be a hit, because ofthe administrative costs?Robert Devereux: There will be some hit, but as Ihave tried to explain, it is not self-evident that that isgoing to be a very large number. Local authorities areadministering housing benefit as we speak. Paragraph17, which you were talking about, is on the volumeof transfers of material between the Department andlocal government. There are 20 million notifications ayear going automatically between us and localgovernment at large to make sure that they know




when somebody has started work, when they have anew child and all the sorts of things that you arepleased to see when we have a conversation abouterror in the benefit system. With 20 million passingbetween us every year, these changes will not changethe price of fish.

Q143 Mr Bacon: But the Report says that thenumber of notifications is going to increasesubstantially.Robert Devereux: Yes, it will, but does it say“substantially”?

Q144 Mr Bacon: I am just curious. Is the ATLASsystem of automatic transfers to local authorities readyto cope with the increased volume?Robert Devereux: I don’t think it says “substantially”,does it? It says that volumes will increase.

Q145 Mr Bacon: Did I say “substantially”?Robert Devereux: You said “substantially”.

Q146 Mr Bacon: Volumes are likely to increasefurther. I am afraid it was a rhetorical gesture.Robert Devereux: Okay, sorry to be dull with thefacts, but there are 20 million a year. The main thingon which we will have to send more information isthe benefit cap, estimated to affect 56,000 people. Itis true that it will increase, which is why I did notcorrect the Report, but—

Q147 Mr Bacon: You do not have a concern that thesystem will not be able to cope?Robert Devereux: No. The most important thingabout this paragraph is the extent to which, havingprovided a system which automatically announces tolocal government that things have changed, manyauthorities have fully automated that, so that mynotification automatically changes their system. Notall authorities have done that, and not all theirsoftware suppliers have done it. One in particular hasnot yet done it, but they are just about to do it. Thebusiness of how much swishes between us is only asinteresting as whether or not, at the other end, localgovernment process it automatically. For the mostpart, they do.

Q148 Nick Smith: Mr Hills talked about thecumulative effects of all these changes. He talkedabout bedroom tax, housing benefit, direct paymentsand cash levels of benefits in the recent autumnstatement and about the effect of all those cumulativechanges. Do you think the Department has done agood job of telling social tenants about the manychanges coming their way?Robert Devereux: As I explained to one of the earlierquestions—I was asked whether local government canbunk off duty, and I said no—we have been workingclosely with local authorities to make sure that theyhave the right information, and we have been meetingwith their so-called operational practitioner group,which is, as you can imagine, a hands-on group, towork through exactly what the right point is to makecommunications with tenants, so they have enoughinformation to act promptly on it but are not told so

far in advance that it will just go into the bin. We haveagreed those timings with them, and thecommunications are going out now. You onlycompleted the social sector size criteria debate acouple of weeks back. It is now unequivocally in law,and the system is preparing to roll to get us throughto April. We have sought to support local governmentin fulfilling its statutory obligations in good time.

Q149 Nick Smith: So you are sort of implying, “Notyet.” Is that what you are saying? Do you plan to doit at a particular time?Robert Devereux: What I am saying is that the localauthorities who have to deal with those tenantsbecause they are their statutory duty made a choiceabout the best time to deal with them in order to makesure that they take action promptly.

Q150 Nick Smith: I was with the Waundeg Warriorson a council estate in the north of Tredegar last week.The women there are what I think of as very strongvalley mams. They are very good at looking after theirfamily budgets. They told me that, from running theirlocal neighbourhood centre, they have some sort ofunderstanding about this, but their community reallydoes not. They are very afraid that a lot of people willbe shocked by all the changes and their cumulativeeffect. They do not think you are telling people inenough time for them to make decisions about familybudgeting, because they do budget for their families.Andrew Parfitt: There has been a lot ofcommunication activity going on. We have beenworking with the Chartered Institute of Housing andits affiliates in Scotland and Wales to develop goodpractice guides. Landlords have been sharing goodpractice.About the range of options available to the working-age tenants affected by the under-occupationpenalties, they will typically be households withgrown-up children, so they did have a house that wasthe right size, but the children have moved out. Theytend not to be the households with large families,because, almost by definition, they are not likely to beunder-occupied if they have lots of children.In this good practice, there are actions on the tenants’side. What choices are open to the tenants? Can theyget into a job, increase their hours or—dare I mentionit?—take in a boarder or lodger? And there are actionson the landlord’s side—to share good practicebetween landlords, and more specifically to pauseallocations and look at the interaction with the private-rented sector. One option that some tenants may wantto consider is to accept a smaller property of thecorrect size in the private-rented sector for a shortperiod, but in return go to the top of the queue forwhen a suitably sized social sector property becomesavailable. There is a whole panoply of advice there.As Robert was saying, there is a question about theright time to get the communications in. If you look atany of the websites of housing associations, the under-occupation penalty is up there in lights to warntenants. Housing associations and local authorities aredoing other actions to make their tenants aware. It isa progressive set of measures. You just need to avoiddoing your comms so early that tenants forget about




it, but do repeated comms, so that they have it in theirminds and now is really the time they are hotting up.Lots is going on—Nick Smith: Okay, I would say that your goodpractice guides are going to have to work very hardat getting these messages over, particularly in an areawith 25% worklessness and very few one or two-bedroom properties.

Q151 Chair: Do Jobcentre Plus staff—the peoplewho see them on benefits every couple of weeks—tellpeople about these changes, for example?Robert Devereux: The examples I read—and I said Ihave pages of these—are from the job centres who areengaging with individuals—

Q152 Chair: So they are telling them.Robert Devereux: Yes. The effect of working closelywith local government is that people are encouragedto make contact with the job centre. We send in ourown visiting officers. In Ealing, we sent out our ownvisiting officers—typically to elderly pensioners—tomake sure that everybody who has been phoned andhad a letter but has not responded gets somebody onthe doorstep to try to explain this to them, in order tomake sure face-to-face that people actually understandit. There is a lot of evidence that very few housingbenefit claimants understand housing benefit as it istoday, let alone understand the changes.

Q153 Nick Smith: Absolutely; you said it. I need torepeat this: in Blaenau Gwent, we have 25%worklessness and 11 people chasing every vacancy,alternative employment is going to be hard and thereis very little alternative accommodation, so best ofluck to Mr Parfitt with his good practice guide, but itis a tough call. As someone who spends a lot of timeknocking on doors, I know that you get a lot of peoplewho are out or not around. There will be those peopleon benefits and lots of people who you want tocontact, but you just find it really hard. I think youneed to work much harder at all of this.Robert Devereux: Why don’t I make sure that thedistrict manager in Blaenau Gwent actually goes andmeets your—

Q154 Nick Smith: I would really appreciate thatbecause people have to work together to get some ofthese best results and to get this awareness ratingmuch higher than it presently is.Robert Devereux: I would be delighted to do that.Meg Hillier: Even in inner London, I find that when Ispeak to an audience and mention it coming, so manypeople do not know. Maybe it is a bit head-in-sandsometimes, and maybe they just have not had to thinkabout it before. It is a real worry. There is a real worryabout how they can up their hours as well, becausethat is a big issue with worklessness.Chair: Right. Nick, what do you want?

Q155 Nick Smith: I have two more questions. I willbe very quick.Mr Parfitt, you talked about going through otherinstitutions—local authorities and housingassociations—to get these changes introduced and

awareness raised. What are you doing with the privatesector, given that it is much more atomised and muchmore difficult to communicate there?Andrew Parfitt: With respect to which changes?

Q156 Nick Smith: The bedroom tax or other housingbenefit changes affecting tenants in the private sector.Andrew Parfitt: Most of the private sector changeshave now gone through, and there was a commsstrategy, which has been pretty effective, I would say.The Department has been working with the benefit-capped households and writing to them all.Robert Devereux: I am not quite following thequestion. The so-called bedroom tax is about thesocial sector.Nick Smith: I misunderstood that point. Pleaseexcuse me.Robert Devereux: The thing that says we would likeyou to properly occupy a property of about the rightsize is all about the social sector. In the private sector,it is already the case that if I look at your family anddecide you need two bedrooms, I only give you thetwo-bedroom rate.

Q157 Nick Smith: I have misunderstood that. I haveone other question. What is happening to the directpayment pilots in terms of rent arrears and thepossibility of evictions?Robert Devereux: The rent payment pilots areimportant. When I said earlier that very few peopleunderstand housing benefit, this is in part because sofew people ever see it. It is a fundamental part of thedesign of the universal credit to say that we want morepeople to have to participate in this, even if it is justto put a direct debit in. We know there is concernabout it, so we are running pilots. I think there areeight around the country. We are trying to work outwhat would happen in practice if this was the case. Itis still early days in the pilot, because the universalcredit does not start yet anyway. Two things arecoming out. On the plus side, many more people havegot bank accounts in these areas that we are going tolook at for direct payment than previously had beenimagined.Nick Smith: What is the figure? In Blaenau Gwent, Iam told it is 70%.Robert Devereux: Sorry, I do not have the numberswith me. On the flip side, the other thing that we arelearning very clearly is that writing letters gets younowhere. You have to sit down and eyeball people andexplain it in words of one syllable. What is happeningis that, by actually going out to particular landlordsand social landlords and sitting down and working thisthrough, it does look as if it will be possible to movequite a lot of people to direct payment relativelysafely, but you have to do a lot of work to do it.Unsurprisingly, that is what we are going to have tocue up to get done.

Q158 Chair: In fact, you are going to maintain a lotof direct payments to both the social and—Robert Devereux: No, that is not what I said. I saidthat a lot of people have got the apparatus to make adirect payment, but are not currently making a directpayment. The question then is how can we make sure




that they can, for example, construct a direct debit ontheir account if they have an account? As I said, moreof them have accounts—

Q159 Chair: So you are encouraging greater use ofdirect payments.Robert Devereux: Direct payments from the tenant.But at the moment, the tenant knows nothing about it.It goes from A to B—

Q160 Chair: I think this is a really important issue,having been around this—as I said in our pre-meeting—for years and years. If we switch fromdirect payments from DWP or the local authority tothe housing provider, whether it is a social housingprovider or private, you will probably find that arrearswill increase. I do not know whether you are findingthat yet. Have you looked at that?Robert Devereux: We are seeking to establishevidence by running pilots in eight parts of thecountry. I think it is eight.

Q161 Chair: What is the evidence?Mr Bacon: Where are those eight?Andrew Parfitt: It is six.

Q162 Chair: Is this on the administration or theimpact on arrears?Robert Devereux: What we are doing is going out toindividual landlords in groups of properties andworking with them and their tenants one at a time towork out what in practice would be the case if wepaid the money to the tenant for the tenant to pay iton to the landlord, and we are exploring what has gotto happen to make that real and make it work for mostpeople. As I said, the suggestion so far is that this willbe possible to do, but it will require quite a lot ofwork to educate and persuade and all the rest of it,which is what we are going to do. One of the reasonsfor doing this is that when people have got no ideawhat money is passing on their account, they will notunderstand changes and they will not make the rightdecisions.

Q163 Chair: In your pilots, have you stopped payingdirectly to the social landlord or to the privatelandlord? Have you stopped that? Except in the termswhere there is an agreement from the tenant to do adirect payment—Robert Devereux: What we are seeking to do is tofind out how we can encourage—

Q164 Chair: But have you stopped? Can you answerthe question?Robert Devereux: I think the answer is yes, with theconsent of the individual. But can I check that? Thewhole point is to try to make sure that—

Q165 Mr Bacon: Where are the six pilots? Paragraph1.23 states that there are pilots in six areas to trial thedirect payments process.Andrew Parfitt: I did think of bringing a note on this,but I have not got it with me.Max Tse: Here we are.

Andrew Parfitt: Thank you, Max. So we have Oxford,Southwark, Shropshire, Torfaen, Wakefield, and thereis also one in the Edinburgh area of Scotland.

Q166 Mr Bacon: What volume is involved in thesepilots? Is it everybody in that area or is it just a samplein that area?Andrew Parfitt: It is basically about 3,0001 tenantsin each area, both housing association and counciltenants, and—

Q167 Chair: And private tenants?Andrew Parfitt: No. For private tenants already thedefault is that private tenants on housing benefit willpay their own rent, but they will—

Q168 Chair: At the moment, for a third, the rent getspaid directly.Andrew Parfitt: Absolutely. The default is that thetenant pays their own rent. However, there areprotections for two circumstances. One is if arrearsstart to build up above a certain threshold, which Ibelieve is eight weeks, then the housing benefit revertsdirect to the private landlord. Secondly, if the initialassessment of a new claim suggests that a tenant hasbehavioural difficulty or mental health difficulty thatmakes it unlikely that they will be able to managetheir own rent, the payment goes direct to the landlordfrom the start. So that is why you have this situationwhere about 500,000 private tenants have rent goingto the landlords.

Q169 Mr Bacon: These 18,000 in the six areas thatyou are doing the pilots—Andrew Parfitt: 30,000.

Q170 Mr Bacon: I thought you said 3,000 in sixareas.Andrew Parfitt: Oh, so it is 3,000 in six areas, yes,sorry.

Q171 Mr Bacon: With these 18,000, as it were, youtest bed and you are experimenting with what works.Once you have identified what is good and bad, youthen have to roll it out across the whole country.Presumably, unless you are equally careful in each andevery bit that you do across the whole country, youare not going to get the same level of performance.Andrew Parfitt: Correct.

Q172 Mr Bacon: So it is going to be a quite slowand costly process.Robert Devereux: It is going to be a process in whicheach individual landlord and set of tenants is going tohave to work their way through. But, as I said, thishas got in the figures I am quoting, and 90% of thepeople that we have been sampling have a bankaccount, 81% of them already use it for direct debitand 80% of them think that they agree with thestatement, “I am very well organised when it comesto managing my own money day to day.”

Q173 Mr Bacon: 80%.1 Note by witness: Mr Parfitt subsequently clarified that the

actual figure was about 2,000 tenants in each area.




Robert Devereux: Yes.

Q174 Mr Bacon: Isn’t that one of those cases wherestated preference is not revealed preference? Thatmight tell us something.

Q175 Chair: I have not got a clear answer. You arepiloting this system and trying to encourageindividuals to do direct debits to their landlord. Myexperience tells me that some will chose not to,whether it is your 20%. Are arrears in your pilotsgoing up? Is there any trend around arrears in thosepilots?Robert Devereux: I believe that I cannot give you ananswer yet, but once we have enough of a range oftime series to get arrears information which isavailable, we will be putting it out as part of theevaluation that is—

Q176 Chair: And what will you do if arrears, as Iguess they will, go up in areas like Southwark?Robert Devereux: We would have to understand why,Chair, and whether—

Q177 Chair: Because when people are tight onmoney and are facing a range of constraints aroundtheir lives, and higher prices, they will not—if the rentdoes not automatically go to the landlord, they do notpay their rent; the people who are in huge difficulties.That is what history tells us, Mr Devereux.Robert Devereux: Okay. Maybe. Let me just try thisthought. One of the reasons the Government want todo this is because at the moment we assume that, evenif you put your hand up, we will pay it direct to yourlandlord. It is simply not obvious from this sort ofdata that that is necessary for the great majority ofpeople. I am not going to disagree with you that somepeople will find this difficult. That is why Andrew hasexplained that there will be safeguards in the system.

Q178 Chair: Have you got no data on arrears so far?Robert Devereux: We have only just done thefieldwork—and get people on to direct payments. Itwill take a while, obviously, to find out whether theycollapse and—

Q179 Chair: A lot of what you are saying is, “Waitand see,” which is a good thing, right? You areobserving what is happening, which is a good thing,but I want to know how quickly you will respond andhow. If you find, for example, in this instance, thatarrears go up—my guess is that you will—what willyou do and how quickly will you be able to react?Robert Devereux: It will depend on what data weseek. I am not going to speculate, because—

Q180 Chair: But how quickly can you react? Thepolicy says, “Do this.” Right the way through thispolicy, if there is an impact that maybe was notintended, how quickly will you react, either with yourdiscretionary payments or the money that you gotunder the autumn statement, or on this issue of directpayments?Robert Devereux: If the way to override whatever isthe default system is to allow the landlord to approach

the housing benefit department to do something else,there must be a clear set of rules about thecircumstances in which that may trump what theclaimant wants to do. At the moment, it is set at onelevel and it is very low. We sought to set it slightlyhigher, but if it turns out that it is slightly too high,and with some finer words we can better identify thepeople we find actually have got into arrears—

Q181 Chair: Does that mean coming back toParliament every time?Robert Devereux: I do not know whether it is aregulatory question or a guidance question. That is asubtlety, and I do not know the difference.Andrew Parfitt: We have designed the system—theuniversal credit—so that you can do it with theoperational guidance, and you have the ability to havedifferent arrears triggers in universal credit. That iswhat the pilots—the demonstration projects—aretesting. There are different arrears triggers in thedifferent co-study areas, so in one area I think it isfour weeks and then the rent automatically reverts tothe landlord. In other areas it is eight weeks, and inone area it is 12 weeks, so you will get informationabout that aspect of the design of the project onarrears, which will then feed into what the policydecision is, and what is the operational guidance onuniversal credit.Robert Devereux: It seems to me like quite goodwork.

Q182 Nick Smith: Professor Hills talked about lotsof cumulative changes, and it is good that you aredoing this testing, but I understand that the directpayment changes will be introduced in relatively shortorder. Do you think you will have the informationback in time to have confidence that your roll-out ofthe direct payment processes will work well?Robert Devereux: Direct payments are beingintroduced only with the roll-out of universal credit.This is not the hearing for universal credit, but weintend to start a pathfinder for that in Manchester inApril. The particular class of people that we are tryingto engage with universal credit at that point arerelatively straightforward claimants to make sure thatthey are easy to process, and few of them will havehousing costs. By October, we shall start on morecomplicated claimants, including some with housingclaims, and that will still be pathfinding.

Q183 Nick Smith: So you are testing now, and youare doing a pathfinder in March. Did you say it willbe rolled out next autumn?Robert Devereux: No, no. There will be a pathfinderfor, let’s say, single, relatively young JSA claimantsin Manchester. We will then pathfind what it is toprocess a couple with more complicatedcircumstances from October. When we know how thatworks during the course of October to the turn of theyear, we will then seek to replicate that right acrossthe country, so the expansion across the country willbe into the early part of 2014.

Q184 Nick Smith: So this time next year, you willbe rolling out direct payments.




Robert Devereux: Around that time, yes.

Q185 Guto Bebb: A quick observation to start withis that, in terms of your communication strategy, itseems to be working fairly well in north Wales—indeed to the extent that it seems to be working toowell. It seems to be quite politicised in that peopleare being sent to me about, for example, the under-occupancy rules. They are pensioners, but they aresent to my office because I am responsible for welfarereform, and they will be affected because of thechanges. I guess we will park that one.What I really want to ask about is the discretionaryhousing payments, for which the Department has putaside £390 million. How did you arrive at that figure,and what is it aimed at providing? It seems to be theanswer to many of the problems that are beingdiscussed in relation to some of the changes.Robert Devereux: Discretionary housing paymentshave been a feature of the housing benefit system formany years, but not at very high levels. It was runningat about £20 million for many years. We haveincreased it substantially, and during this Parliament,it has increased to £390 million. Its purpose isbasically to enable local authorities to assist with thetransition, so it could be for short-term regularsupport, such as help with a deposit or removalexpenses, or it could be used pretty broadly. We havegiven substantial discretion to local government todecide how best to spend it and so that there are fewconstraints on it.Starting in the new year, when we will go beyondhaving just LHA reforms—the private sector reformswe have been talking about—we will get into thebenefit cap and the social size criteria. We have askedlocal authorities specifically to report to us eachmonth on which particular policy is triggering thepayment, and we have also asked them to report eachmonth what sort of thing they are purchasing with it,so whether it is a removal, a deposit, or whatever itmight be. So it is a flow of information to tell us howpeople are using the additional money that we funded.To answer why it was £390 million, it was a judgmentmade at the point that we did the spending review,along with lots of other things. You will recall that theemergency Budget was an emergency Budget—it wasdone in something like seven weeks from flash tobang. We signed up to these savings, and we putaround 6% back into the DHP.

Q186 Guto Bebb: In terms of discretionarypayments, just out of interest, one of the issues thathas come up in my constituency surgeries is fromparents with two children, one of nine and one ofsix—a boy and a girl. By the time the boy is 10, theywill not have to share rooms. Would discretionarypayments be allowed in order to allow that shortfallto be met over a short period of time?Robert Devereux: Yes. One of the things that I saidat the start was short-term rental support. I do notwant local government to be subsidising anybodyindefinitely, but if the answer was that, within a year,they were going to require the property they are in,that would be quite a good use of the money.

Q187 Austin Mitchell: It’s nice to see you are socheerful.Robert Devereux: It is Christmas; I am hoping thatthe Chair is going to buy me a drink.Austin Mitchell: In fact, I do not think I have everseen two officials look so happy in the face of whatall London MPs I have talked to have told me is alooming disaster, but it is nice.I think I heard you say at the start, Mr Devereux, thatat the end of the day we shall see more people incheaper accommodation—paying less rent for theiraccommodation. If that is the case, how will that beachieved and when?Robert Devereux: Let’s take the private rented sector.I explained earlier that in every single part of thecountry, as we have observed right from the firstmoments, there is a broad range of rents available—from something that is very cheap to something thatis very expensive. It was the policy of the previousGovernment to set the housing benefit cap at the 50thcentile—halfway up the distribution. We have nowpretty much completed—this is all over now—andannounced capping that at the 30th centile. The wayit saves money is because it restricts the proportion ofproperties in any one area—

Q188 Austin Mitchell: So it will bring private sectorrents down—is that right?Robert Devereux: It does not have to, but it might. Iam not going to overclaim for it, but it clearly has theeffect that for every claimant who only wants to takea property that is fully covered by the LHA, they willbe fishing in a smaller pond of properties than theywould have done previously. That will effectivelymean that there is less money being spent onhousing benefit.

Q189 Austin Mitchell: Will it see more affordablehouses built?Robert Devereux: That is an entirely separate issue.

Q190 Austin Mitchell: No, but will it? This problemis caused by the fact that we have not built enoughsocial and council housing, isn’t it? If we had builtenough, we would not have to be spending so muchon housing benefit.Robert Devereux: It is a much broader conversation,which the professor was getting into, about the totalstock of properties in the country—full stop—andhow they are all owned.

Q191 Austin Mitchell: Have you done anycalculations of the effect of these measures on childpoverty, and of any increase in child poverty that wewill then see?Robert Devereux: The Report carefully explains thatwhen you are dealing with something that is a bigbehavioural change, it is quite difficult to project whatit will be. I might imagine that if I had read out mycase study earlier on and said to you, “What is goingto happen?”, many of you would have said—

Q192 Austin Mitchell: But there will be someincrease in child poverty—there must be.Robert Devereux: Because?




Q193 Austin Mitchell: Because people are forced tomove into lower-rent accommodation or pay higherrents, and therefore there is less discretionaryspending to spend on the kids.Robert Devereux: Okay, you have answered your ownquestion. It depends what people do by way ofbehaviour. If we have pitched the 30th centile as theplace where people can find properties—

Q194 Austin Mitchell: But if they sit it out and paythe room tax or whatever—pay higher rents—therewill be less money left for the kids.Robert Devereux: We are switching from the privatesector now to the social sector. In the social sector, ifyou are sitting on a property that has more bedroomsthan you currently need, we are going to ask you for£14, if you are one bedroom over the limit, per week.In response to that, either £14 comes out of thehousehold, in which case there may well be less tospend, or actually—this is what we are trying toencourage, and I hope that the landlords willencourage it—people will have a response to that.They might, for example, let that room. They mightdo two hours at the national minimum wage to earnsome money. They could do a range of things, so allthe calculations about what might happen to childpoverty depend critically on what the parents of thosechildren choose to do when confronted with thechanges.

Q195 Austin Mitchell: Well, that’s true—and pigsmight fly.Robert Devereux: Pigs did not fly for the 31-year-old.

Q196 Austin Mitchell: I take it from previousconversations that you have not done any calculationson the amount of debt owing to social landlords. Ourhousing association in Grimsby—Shoreline—tells methat it is afraid that there will be a big increase in debtbecause people will not pay the rent, and the councilis afraid that people will not be paying council taxeither, because that is the kind of thing that theyeconomise on to exist.Robert Devereux: It is undoubtedly the case that thereis a lot of fear about how this system will operate, butI know no way of modelling whether or not arrearswill go up when that actually depends on what peopledo when confronted with changed circumstances.

Q197 Austin Mitchell: We are flying by the seat ofour pants, aren’t we, into something that may be adisaster or may not.Robert Devereux: No, with respect, we would getnowhere if I were to come up with some elaboratemodel that said that I have made the guess that thishalf of the population will waste all the cash and thishalf will not.

Q198 Austin Mitchell: But I would expect aresponsible Department to make these kind of

calculations, because they affect the interests, healthand well-being of people.Robert Devereux: Except that I am trying to explainthat I simply do not know where any of us—the goodprofessor included—would go to try to do thatcalculation.Chair: Can we have one final thing, and then we mustmove on?Robert Devereux: May I finish my answer? Let us notbuild models which we know to be wrong and whichare based on huge studies of behaviour in a verycomplex and dynamic market. Let us instead keepvery close to the data—that is why I keep comingback to what has been published—so that we knowwhat is going on and then, in the light of thatevidence, Ministers can decide whether their policyneeds to be adjusted. Let’s not do it on the basis ofspeculation and expectation.

Q199 Austin Mitchell: I have one final question. Ifpeople are going to have to move, it is a fairlymomentous decision, if you have to take the kids outof school and move somewhere cheaper—even comenorth to Grimsby or somewhere, where life is cheaper.These are momentous decisions, so would it not bebetter if the people who are forced to make thesedecisions, many of whom we are told do not evenknow that this is going to happen—that amazes me,because fear seems to be stalking the streets, certainlyin London—were told in advance what the extra costswere going to be and what the effect of the singlebenefit system would be? They cannot make an honestand momentous decision in the light of veryinadequate information at this stage.Robert Devereux: I have tried to explain several timesnow that we will write as much guidance and as manyletters as you like but, at the end of the day, this worksreally well at the point at which individual claimantsare sat down with an adviser to go through theiroptions. In the case that I read you about the 31-year-old lone parent who had never worked, she is in worktoday not because she got a letter, but because one ofmy staff sat down with her, went through what wasthe art of the possible and sorted out the child care,and then—hey presto—she is in work.I am not sure that letters to people will get youanywhere. As the Report says, people’s circumstanceschange all the time, so the chances are that the letterwill be slightly out, incorrect or misleading, whichwill not help. The right thing to do is to make surethat those closer to the individuals—whether theirlandlord, the housing authority or, indeed, ourjobcentres—are working with these people to helpthem. The evidence here is that when we do that, goodthings happen.Austin Mitchell: Keep smiling through.Chair: Neatly, you take us on from this woman whoappears to have been helped by Jobcentre Plus to ourconsideration of the Work programme.



Written evidence from Department for Work and Pensions

Meg Hillier: You predicted £514 million for this year.

Robert Devereux: I am just wondering whether I have that figure with me. You have a table that says thatthe savings in 2011–12 would be £514 million, and I will have to write you a note on that because I donot know.

Response

The estimates shown in Figure 2 of the NAO report were taken from the documents in which those reformswere first announced. The Department has since updated its estimates of the savings from these measures andthe latest available estimates (consistent with Budget 2012 assumptions) are shown below, in the format usedin the NAO report. The revised estimates reflect a number of changes, including revisions to economic andforecasting assumptions, refinements in methodology, and changes in the proposed implementation of thereforms (such as the subsequent decisions to provide existing claimants with nine months transitionalprotection, and to freeze LHA rates from April 2012 before limiting uprating to the CPI from April 2013).

Estimated Savings from HB Reforms (2011–12):

NAO Report Latest DWP estimates£m, 2012–13 prices Figure 2 (Budget 2012 basis)

LHA reforms 385 372Social sector size criteria − −Non-dependant deductions 129 73Overall benefit cap − −Total 514 445

Q157 Nick Smith: I have misunderstood that. I have one other question. What is happening to the directpayment pilots in terms of rent arrears and the possibility of evictions?

Robert Devereux: The rent payment pilots are important. When I said earlier that very few people understandhousing benefit, this is in part because so few people ever see it. It is a fundamental part of the design of theuniversal credit to say that we want more people to have to participate in this, even if it is just to put a directdebit in. We know there is concern about it, so we are running pilots. I think there are eight around the country.We are trying to work out what would happen in practice if this was the case. It is still early days in the pilot,because the universal credit does not start yet anyway. Two things are coming out. On the plus side, manymore people have got bank accounts in these areas that we are going to look at for direct payment thanpreviously had been imagined.

Nick Smith: What is the figure? In Blaenau Gwent, I am told it is 70%.

Robert Devereux: Sorry, I do not have the numbers with me. On the flip side, the other thing that we arelearning very clearly is that writing letters gets you nowhere. You have to sit down and eyeball people andexplain it in words of one syllable. What is happening is that, by actually going out to particular landlords andsocial landlords and sitting down and working this through, it does look as if it will be possible to move quitea lot of people to direct payment relatively safely, but you have to do a lot of work to do it. Unsurprisingly,that is what we are going to have to cue up to get done.

Response

Payment figures for the first four payments made to tenants taking part in the Direct Payment DemonstrationProjects were published in a media release on 17 December.

Over the first four months, 6,220 social tenants were paid their housing benefit directly. Of a total level ofrent charged of £7,692,844 over the period, rent collection rates stood at 92%.

Across the different areas, levels of payments by tenants on the projects varied from 88% to 97%—demonstrating the different conditions and approaches being tested in each area

A total of 316 tenants have been switched back to payments to their landlords—either because they havereached triggers for switch back or have been switched back due to early invention.

In terms of arrears, the six project Areas are operating their business as usual process to recover any arrearsthat build up. To date, there have been no evictions of tenants taking part in the projects and it is unlikely thatany of the tenants would be evicted solely as a result of their participation in the projects.

Robert DevereuxPermanent Secretary

7 January 2013



Written evidence from L&Q

Introduction

This submission is being made to raise a concern that government housing policy and benefits policy is atodds leading to rents to rise which will increase the benefit bill.

Context

The government has committed to saving £18 billion from the welfare bill by 2014–15 (£1.9 billion of whichwill come from housing benefit) and prevent the £23 billion spent on housing benefit from rising further. Thiswill require careful management of both the number and value of housing benefit claims. To achieve this, theDWP has developed a package of welfare reforms which cut, cap and squeeze benefit entitlement, in particularhousing benefit.

When set against the chronic shortage of affordable homes, however, the government’s identified benefitsavings appear increasingly unachievable as high demand pushes up private rents and social landlords rely onrents of up to 80% of market rent to fund development.

The recent National Housing Federation report, Home Truths 2012, sets out the scale of the housing shortage.Last year, although 111,250 new homes were built, 390,000 new households were formed. With homeownership beyond the reach of many, and the cost of renting privately rising by 37% over the past five years,it is unsurprising that one in 12 families is now on a social housing waiting list and homelessness is 26%higher than two years ago.

In just three years, this pressure has resulted in an 86% increase in working people claiming housingbenefit.1 The solution is to build more affordable homes and social landlords have two main tools to achievethis; the blended capital/revenue subsidy through the Affordable Homes Programme and borrowing/fundingfrom alternative sources, though each is not without problems. If capital investment in new social homes is toremain low, with the affordable rent regime in its place, the £23 billion housing benefit bill will continue torise as residents rely more heavily on housing benefit to cover their housing costs. Yet our ability to utiliseother sources of funding for development is comprised by welfare reform changes. Direct payment, the sizecriteria and benefit cap will all contribute increased arrears, transactions costs and bad debt, thereby weakeningour financial stability and reducing lender confidence.

These tensions in housing and welfare policy are becoming more evident. The following sections seek toprovide specific evidence to support our case that the policy of DWP and DCLG need to be realigned.

The Affordable Homes Programme

The Affordable Homes Programme Framework2 recognises the need for more affordable housing; it arguesthe system of capital grant funding is unsustainable in the current climate and unable to deliver the homes weneed. Through the new delivery model, social landlords can use a combination of Homes and CommunitiesAgency (HCA) funding and existing assets to deliver new supply. The key to this delivery model is theaffordable rent product, which allows landlords to charge up to a maximum 80% of market rent for both newhomes and conversions. Affordable rent homes will be allocated in the same way as target rent social housing;where tenants are eligible for Housing Benefit it will continue to be paid in full in the same way as for socialrented properties.

Affordable Homes at L&Q

Under the Affordable Homes Framework Delivery Agreement (FDA) signed with the HCA L&Q securedsome £35.8 million of funding to support the delivery of 1,800 new rental and low cost home ownership units.The conversion of approximately 2,184 0–2 bedroom properties will generate a further £89 million of additionalrevenue to meet the commitments we have made under this agreement.

Between April and mid-September we converted a total of 486 tenancies, with the average affordable rentwe are charging currently at 70% of the local market rent overall. Our initial research shows there to be littledifference between the household characteristics of those moving into homes affordable or target rent homes.However, in terms of the economic profile, those moving into affordable rent homes have lower incomes, areless likely to be in work and have higher welfare benefit dependency than those paying a target rent. Around82% claim housing benefit, compared to 75% of those moving into target rent homes and more of thosenominated by local authorities for affordable rent are economically inactive, a feature reported by otherregistered providers across London.1 Home Truths 2012, National Housing Federation2 2011–15 Affordable Homes Programme Framework February 2011



The cost of affordable rent

The discrepancy between housing benefit payments for residents in target and affordable rent homes issignificant. The below tables set out the difference in housing benefit entitlement for a single person (over 25)living in a one bedroom flat in Hackney, a borough with relatively high rents.3

NO INCOME

HB ResidentRent type Income £ Rent £ entitlement £ contribution £

Target rent 0 88.48 88.48 0Affordable rent 0 165.67 165.67 0

LOW INCOME


Target rent 210 88.48 0 88.48Affordable rent 210 165.67 75.32 90.35

MEDIUM INCOME


Target rent 326 88.48 0 88.48Affordable rent 326 165.67 0 165.67

As illustrated in the above tables, affordable rent increases the housing benefit entitlement for residents onfull housing benefit (no income). It can also result in residents who have previously been able to cover all theirrent (as shown in the low income example) being reliant on partial housing benefit to meet their housing costs.This may in part, explain why residents moving into affordable rent properties are more likely to be in receiptof housing benefit. These tables also highlight potential disincentives to work for residents on partial housingbenefit. A resident moving from low income to medium income would contribute an additional £75.32 to theirrent, out of an additional £116 income, and amount equivalent to almost 70%.

When this picture is considered across L&Q, the results demonstrate the full cost of the revenue subsidy.Assuming no change in income, residents who require full or partial housing benefit to cover the cost of theirrent will have any additional cost from target to affordable rent met by housing benefit.

The average difference in red between target and affordable rent properties by bedsize is shown in thetable below.

Number of Number of AdditionalAverage rent AR AR new Total AR annual rent

Bedsize difference £ conversions builds homes costs £

1 32.15 1,026 214 1,240 2,407,3922 44.31 1,158 414 1572 3,640,5103 60.03 0 422 422 443,2614 94.97 0 142 142 19,7545 94.97 0 4 4 0Totals 2,184 1,196 3,380 6,510,917

The additional rental income from 3,380 properties (made up of 2,184 conversions and 1,196 new homes)let at affordable rent over target rent is £6.5 million annually. Assuming 75% of this cost is met throughhousing benefit, this equates to an annual increase in housing benefit of £4.9m. These figures are conservativeestimates which do not take account of any higher levels of benefit dependency on affordable rent. It shouldalso be noted that L&Q are currently operating on an average of 64% of market rent in Hackney, and anaverage of 60% of market rent across our stock. These figures would increase further if L&Q were to setaffordable rents at up to 80% of market rent as is permitted.3 Figures are based on average target rent and affordable rent for a one bedroom property Hackney (2012).



The falling off of new housing supply combined with the increase in rents in both the private rented sectorand the affordable rent regime generates pressure on the housing benefit budget, bringing more households intodependence on it, including those in work. This will only continue and will lead to the savings indentified byDWP being missed. This conflict in government policy needs addressing.

7 December 2012

Supplementary Written Evidence from DWP

In housing benefit a claimant has a bedroom allocated for a sub-tenant or boarder but the rental income theyreceive is taken into account in the assessment. There is a £20 disregard on income from a sub-let. For boardersthe disregard is £20 plus 50% of the balance.

In universal credit there will be no bedroom allocation for a sub-tenant or boarder. The rental incomereceived will be totally disregarded.

The rationale for this approach is:

— it is significantly simpler—no need to gather information, to determine status, verify amountsreceived or apply differential disregards;

— it provides an incentive for the more efficient use of housing stock, reducing the upward pressure onrents caused by supply shortages; and

— it provides an additional means of mitigating the effect of the under-occupancy charge for tenantswho are unable or unwilling to move.

27 February

Printed in the United Kingdom by The Stationery Office Limited03/2013 027235 19585

department for work and pensions: managing the impact of ... · the reforms to housing benefit are...

Documents