UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 469

House of Commons

Oral Evidence

Taken before the

Work and Pensions Committee

Changes to Housing Benefit Announced in the June 2010 Budget

Wednesday 20 October 2010

CLLR LIB PECK, NIGEL MINTO and CLLR MIKE HAINES

ROGER HARDING, ALEX FENTON, SAM LISTER and RICHARD CAPIE

CHRIS TOWN, RICHARD JONES and IAN FLETCHER

Evidence heard in Public Questions 1 - 97

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Work and Pensions Committee

on Wednesday 20 October 2010

Members present

Miss Anne Begg (Chair)

Harriet Baldwin

Karen Bradley

Richard Graham

Kate Green

Mr Oliver Heald

Sajid Javid

Stephen Lloyd

Shabana Mahmood

________________

Memorandum submitted by the Local Government Association

Examination of Witnesses

Witnesses: Cllr Lib Peck, Lambeth Housing Lead Member, London Councils, Nigel Minto, Head of Sustainable Communities, London Councils, and Cllr Mike Haines, Teignbridge District Council, Deputy Chairman of LGA’s Environment and Housing Board, Local Government Association, gave evidence.

Q1 Chair: Thank you very much for coming along this morning. May I begin by asking you to introduce yourselves for the record, please?

Mike Haines: I am Cllr Mike Haines, Deputy Chair of the Local Government Association’s Environment and Housing Programme Board, and I am a district council executive member at Teignbridge District Council, which is in south Devon. The main settlement is Newton Abbot.

Lib Peck: I am Lib Peck. I am a Labour councillor in Lambeth and have been since 2001. For the past two and a half years I have been the lead for housing there. Today, I am speaking on behalf of London Councils.

Nigel Minto: My name is Nigel Minto. I am Head of Sustainable Communities at London Councils. I am an officer and work very closely with all 33 boroughs. That includes the housing directors but also the members in those boroughs.

Chair: Thank you very much for coming along. This is the first formal evidence session of our inquiry into the proposed changes in Housing Benefit, and we have a number of questions for you. First, Harriett Baldwin will ask you some questions.

Q2 Harriett Baldwin: Do you agree that there is an issue with the rising cost of Housing Benefit? The Government stated that one of their objectives in reforming Housing Benefit was to tackle the fact that costs had been growing fast. If you agree, do you think that the changes announced will help tackle that?

Mike Haines: We would all wish to see benefit costs being affordable. The problem we see is the net effect it will have on the public purse in terms of more homelessness costs. Potentially it will increase the other social costs in terms of mental and physical healthcare, childcare and across those sorts of areas. The fact that it will cause problems for people in these circumstances is exacerbated at this time because of the whole situation of social housing. The number of houses coming into the RSL sector is very low at the present time. There have been problems with that, albeit my own authority has managed significantly to boost the number in the past couple of years; it is up to about 150 compared with only 50 to 80 in previous years. Obviously, we see that coming to a halt because of the grant situation hereafter and no market housing being built, of which social housing would be a proportion. The problem is that while this attempts to tackle the whole issue of benefit cost, it comes at a time of shrinkage in available alternative housing for people to move into if they cannot afford rent because they receive less benefit. Therefore, the two major concerns are: the wider public purse and the whole situation in the housing market.

Lib Peck: We appreciate there is a clear issue about the financial backdrop with which all of us are grappling and the increase in the Housing Benefit budget, but that is made up of two factors: the private rental cost, so the charge by some of the landlords, but also increasing numbers of people who access that benefit. Sometimes that need is not played out perhaps as fully as it should be. Therefore, we recognise there is a problem, but the concern stems from the rather fast introduction of some of these changes and the compound effect of both the cap and the reduction from the 50th percentile to the 30th percentile and its impact in London where, obviously, market rents are very different from those in the rest of the country. Therefore, the impact on the supply of private sector accommodation for people who are homeless, or those we try to divert from homelessness, may well be affected. Clearly, there will be lots of individuals accessing that benefit who will not be able to live where they do now. Therefore, the most pressing concern for us is the potential number of people who will be made homeless as a result of these changes, which we estimate at around 83,000. That is a big figure. I appreciate the context in which these changes are being made, but the proposals are being brought forward very fast and could have disproportionate effects.

Q3 Harriett Baldwin: You referred to 83,000 people being made homeless. Does that describe the process when someone has to move from perhaps a two to a one-bedroom property on a lower rent or the fact you do not believe that £250 a week for a one-bedroom property will be adequate to find anywhere?

Lib Peck: We are talking here about two things. I was not talking about 83,000 people but 83,000 households, so in terms of people we are talking of lot more. In terms of people being made homeless, the statistic derives from the figures DWP put out for the number of people who would be affected by both the cap and the percentile change, but it was also in a sense put through the filter of a study done by London Councils with landlords, the landlord accreditation scheme. They spoke to over 250 landlords and asked them what they would do in certain instances. If people stopped paying rent and were unable to meet a £20 shortfall would they evict them? How many of those are likely to withdraw from the market? The cumulative effect, and therefore the answer that came back in terms of statistics, was a figure in the region of 82,000 homes and families, and therefore potentially up to 250,00 people-a quarter of a million-would be affected. Therefore, they would be looking for alternative accommodation. For those people there might not be alternative accommodation available, certainly not in the central London area.

Q4 Harriett Baldwin: So, the phrase "being made homeless" could also mean the need to move to somewhere less expensive in perhaps the outer reaches boroughs of London as you say?

Lib Peck: Yes, but in the first place it would mean having to move out of the place they were occupying and, we think it very likely, not being able to find, if this was somebody affected in central London, a property for the right amount of rent they would be able to afford, so there would be an initial problem with supply in the immediate area. If you move that into the outer boroughs you might also have tension around availability of stock. For example, if someone was made homeless in the central area of London and came to Lambeth, which is the borough I represent-I do not represent it today-we have 22,000 people on our waiting list who are looking for a change in their properties. There is no opportunity for us to be able to house a substantial increase in homeless people. That is a big contrast. At the moment, potentially it could affect 250,000 people. I am trying not to sound alarmist. These figures were drawn from the DWP projections and based on research done by London Councils around the landlord survey. That is set against last year’s homeless figure of 950,000.

Q5 Harriett Baldwin: Perhaps I may drill down a little. You keep using the phrase "being made homeless" which for me has the emotional connotation that you will have to be in a cardboard box under a bridge. You are using that interchangeably with being required to leave the current accommodation or finding that the current accommodation is not affordable under the new limits and having to move to somewhere at a lower rent. Are you using those as equivalents?

Nigel Minto: Shall I put this into context? The 82,000 to 83,000 figure is clearly an estimate, but it is one that we have arrived at independently. We arrived at that figure partly in order to prep the boroughs.

Q6 Harriett Baldwin: I am not questioning the figure; I am trying to understand your definition of "being made homeless".

Nigel Minto: The people who will have to move from the central broad market rental area comprise a significant number of people who have been placed in the private rented sector by the local authority, but there will also be households that have approached a local authority and said, "Look, we think we might be homeless." The local authority has worked with that household and found that it is not statutorily homeless at that time and has directed it into the private rented sector to provide accommodation.

A good way to look at it is to consider the overall number of people in temporary accommodation in London compared with four or five years ago when it was about 70,000. It is now down to 35,000 because local authorities work very closely with the private rented sector. The private rented sector has been a key aspect in reducing homelessness in London in terms of placing people who are homeless or on the verge of being homeless. That is where we are coming from with that figure in terms of the number of people who are in that accommodation. There will be a significant number who will be physically homeless.

Q7 Harriett Baldwin: But is that number 83,000?

Nigel Minto: The simple answer is that we do not know at the moment. We are working closely with the directors of housing and the boroughs to get a handle on that figure. It is fair to say that is our working assumption at the moment, and that figure will become clearer as we move down the track in terms of time.

Q8 Harriett Baldwin: Is there another number greater than 83,000 for those people who will move into less expensive accommodation, or does that figure encompass everyone who will move into less expensive accommodation and those who may not be able to find accommodation at that level?

Nigel Minto: We have not sized it up in that way because as an organisation we represent the boroughs that manage policy changes, and look at the likely movement of households and the impact on local authorities in outer London.

Q9 Harriett Baldwin: So, the 83,000 includes the movement of households and potentially homeless people?

Nigel Minto: Yes.

Q10 Harriett Baldwin: But the 83,000 is the umbrella number for that, as opposed to the description of "being made homeless"?

Lib Peck: But it is not the total number of people affected. Over 160,000 households will be affected by the changes, and it includes what we think will be the severest impact that could result in people thinking they are about to be made homeless and therefore presenting themselves as potentially homeless, or those people being homeless. It is quite difficult to chart the start and end of a person’s journey, but there is a sophistication in that 160,000 will be affected and we think half of them will be affected very profoundly.

Q11 Harriett Baldwin: One of the other objectives of the Government is to try to create a more level playing field between someone who is in low-paid work and someone who is not working at the moment and in receipt of Housing Benefit. I find it much easier to work with particular examples. Let us take as an example someone who is working in a nursery near Waterloo station in London. Yesterday the Committee made a very useful visit to the Citizens Advice Bureau where we met specific individuals, all of whom were currently in private rented accommodation, who would be affected by these changes. One of the people we met was single, with grown-up children who had moved away and were working. That person, in two-bedroom accommodation in central London with a weekly rent of £400, had been offered nursery work but found that, obviously, the net impact on the household would have been such that it would not have been attractive. It was much more attractive to stay in the current two-bedroom accommodation at £400 a week and not work than to take that low-paid work. One of the things the Government is looking at is the person who has taken that nursery job and whose taxes effectively go to pay for someone in two-bedroom accommodation in central London who is not working. Do you think the changes potentially could make a more level playing field between those two individuals?

Nigel Minto: Quite possibly. We are mixing up a number of things here. The first is the current Housing Benefit system, its transparency and the ability to understand it, but also the disincentives built into it, particularly in terms of the Housing Benefit thresholds. Very often they will disincentivise a householder from returning back to work because of the amount of money that is lost. As an organisation we have been campaigning on the need to remove those disincentives. If any reform of Housing Benefit system made it more transparent and removed those disincentives, we would support it, I imagine.

The second issue is the perception that the majority of people who are on Housing Benefit are not in work. That is not the case. There are significant numbers of households with families, particularly in central London, on very low incomes. Our concern is that they need to be near to their area of work, particularly because they will not be able readily to afford transport costs. Essentially, the households that need to be near their work will have to move further away from it. Quite possibly, they might lose their work, but if they have to move away from work they will need to find alternative accommodation with all those costs. Essentially, what you are saying is that potentially nobody on a low income will be able to afford anything in the private rented sector in central London. We are talking here of seven boroughs, not just all of Westminster and Kensington and Chelsea but parts of Camden, Hackney, Islington, Brent and Tower Hamlets. It is of that significance.

Q12 Mr Heald: For example, one of the points made to us by Westminster Citizens Advice Bureau is that the effect of putting a cap on rents may well be that rents in central London reduce, which is something Westminster Council has also said. The British Property Federation has also suggested there is evidence that private sector landlords have increased rents with the introduction of the LHA; that the average Housing Benefit reward is £9 a week higher than previously, and so on. There is a lot of evidence that a substantial number of landlords will reduce rents as a result of this change. If that happens is it an assumption you have made in the comments you have just put forward?

Lib Peck: I just wonder whether it is worth going back to the landlord survey that London Councils did with the accreditation scheme, just to confuse the picture slightly. At the moment about 260 landlords are involved in private rented accommodation, and some clearly have more than one property. There is a whole range of different property sizes. When questioned, a fairly significant proportion of them were looking at withdrawing from the private rented market for people in receipt of Housing Benefits. Certainly, 90% of those questioned said that if there was a disparity of £20 or more in the rent per week they would look elsewhere. I think 60% were talking about £10 or more.

When you look at the impact of that percentile reduction from 50 to 30 in central London you begin to see, therefore, that there is a real problem of availability of accommodation. I suppose part of the argument of London Councils is that not only is there an issue about some of the people in this accommodation being unable to afford properties and being moved out but also a potential issue about the availability of private rented sector accommodation on which we have relied over a long period of time because of the shortage in the capital.

Q13 Mr Heald: But that was not the question, which was about the effect of the something like 29% of residential landlords-I think the figure from the Cambridge study done by Shelter suggested something like 31%-who would either reduce or accept lower rent. What is the effect of that likely to be on the rental market? Surely, it will have an impact.

Nigel Minto: We cannot assume that all landlords will reduce their rents; some landlords will reduce their rent. Our survey indicated that 60% of the landlords we surveyed would not reduce their rent within the central broad market rental area for the reason that it is a very buoyant market. You only need to reference the Evening Standard last week, which said that the whole issue about younger people being unable to access owner-occupation was pushing up rental prices in London. That is very clear evidence.

Q14 Mr Heald: Let’s just look at it from the other end of the telescope. If 40% reduce their rents, if that is what you say, do you say that will not have an overall effect on the market? Surely, it will.

Nigel Minto: Quite possibly it will have some effect on the market, but at this stage we cannot accurately predict in what area and what size it will be.

Chair: We have the landlords coming in as well. I am conscious of the time. I will take Kate and Richard, but keep your questions short, please.

Q15 Kate Green: I just wonder whether you can say anything about the different kinds of accommodation we are discussing here. My reading of some of the evidence we have received is that landlords might reduce rent at around the £10 to £20 mark, but that was much less likely for large properties. Picking up Nigel’s point about the fact we have a cadre of young professional people who are also in the market for smaller properties in central London, can you expand on what you think will be the differential impact on family homes and smaller homes in the capital?

Nigel Minto: To start with family homes, probably family size homes are the ones about which we are most concerned because they are in shortest supply in London both within the private rented sector but also the social sector. Future changes proposed by the Government in terms of Housing Benefit will provide an incentive for people to over-occupy properties when they need larger ones. The abolition of the five- and six-bedroom rate, with a cap at the four-bedroom rate, will mean that larger households will need to overcrowd in smaller sized accommodation. This is inextricably linked with the level of child poverty in London particularly in terms of larger households. Those households will be the most vulnerable in terms of moving from central to outer London.

Lib Peck: To add to that, one of the things about which we are particularly concerned is, obviously, the impact in London. I think a quarter of the homes that will be affected because of the cap on four-bedrooms and the abolition of five-bedrooms are in London, which is quite a lot compared with the rest of the country. Potentially, the unintended consequence of that is to push families outside the centre of London. We are already experiencing pressures on primary school places in boroughs like Lambeth and other areas of the South that are ill-equipped to deal with them. I suppose it then becomes a bit more of a cost-shunting exercise rather than necessarily a financial saving, if it is viewed in the longer term.

Mike Haines: Can I come back to areas outside London? In trying to answer the question earlier on, I recognise that London will be perhaps the worst affected area, but we have evidence from places like Brighton and Hove, for example, where, to come back to your earlier point, 35% of the LHA claimants are from working households. The problem for Brighton and Hove is that about 43% of the total private rented sector are people in the benefits section, so with a 30th percentile a lot of them would still be above that and just could not afford it. There are problems elsewhere, not just in London, that need to be examined. To come back to the "young professionals" point, Oxford is a good example of that. We have evidence that in Oxford itself prices will be a lot higher and people on benefits cannot afford that; they have to go to the rural surrounds. If they are to work they have to bear the transport costs to commute in because young professionals and others are able to afford higher rents. There is always a differential in the level of rents within the broad rental market area because of where the jobs are and people wish to be. That forces the people on benefits out into the margins and they have to come in. I want to make sure you are not focusing just on London, although I recognise that is a big problem.

Chair: We did have later questions about London, and we have probably answered them now.

Q16 Harriett Baldwin: I go back to the example I gave earlier about someone living on their own in SW1 who pays a rent of £400 a week. That is accommodation someone on low-paid work simply cannot afford, and it is considerably above what MPs are allowed to claim for a second home in SW1. Do you think it is right that the Government is trying to create a more level playing field for someone in low-paid work who would never be able to afford that kind of accommodation?

Mike Haines: As Nigel says, it is part of the overall package, and I think that 21st Century Welfare reform needs to look at this as a whole and not necessarily approach it by this particular route.

Q17 Harriett Baldwin: What would you do?

Lib Peck: You are recognising that there is a problem, and that’s fine, but I think the solution that has been identified is being introduced very quickly and gives us a lot of concern about the unintended consequences, both financial in terms of cost-shunting and social in terms of moving people around and the pressures that might put on other local authorities.

Q18 Harriett Baldwin: But what would you do differently?

Nigel Minto: To reiterate some of the lobbying points we put in our evidence, one is to focus on the Discretionary Housing pot; the other is to give boroughs discretion when they award Local Housing Allowance to negotiate with landlords to try to drive down their rates, because it is not the applicants who get this money but the landlords. That discretion, which could be used as a stick to drive down the rates, could be available to local authorities to pay landlords rent direct, so it is a bit of a two-way process.

Q19 Harriett Baldwin: So, the preference or default option is that the money goes straight to the landlord?

Nigel Minto: Yes, but it is conditional. Nobody disagrees that we need to drive down some of those higher rent levels. The issue is: what can we do in a negotiating position from the local authority perspective to negotiate with those landlords and get them to drive down their rates? Clearly, there needs to be something in it for the landlords. Rent paid direct does save the landlord money in terms of managing the risk of collecting the rent from the tenant etc, but it can also be used as part of a wider procurement strategy by the local authority when it procures private sector rental stock from landlords. It is a matter of having the stick and the carrot but using it in a more managed, progressive way over a longer period of time so you can begin to get to the state where I sense your question is directing it towards.

Chair: Richard, do you want to ask your question or has it already been answered? I am conscious of the time; we might want to move on.

Q20 Richard Graham: Yes. I just wanted to come in fairly quickly, if I might, on two or three very quick specific things. Firstly, in terms of surveying local landlords and asking them whether they would reduce their rental charges or not, I think you mentioned 60% said they would not. Isn’t there an element here of, "Well, they would say that, wouldn’t they?" When we saw the RICS yesterday it was pretty clear that, interviewing people close up, if they are asked that in a survey, that is what they are going to say. So would you agree that is not evidence; it is just how they would reply if you asked them that question?

Nigel Minto: Let me give you some evidence. I accept that point; "Well, they would say that, wouldn’t they?"

Richard Graham: Do you accept the general point that a survey of future intentions is not evidence? If you do a consumer confidence survey and 60% of the people tell you that they are not confident of the direction an economy is going, that does not mean an economy is going up, down or sideways; it just tells you how they are feeling on that particular day.

Nigel Minto: No, not wholly, because you need to see the survey in the wider context. I referenced the Evening Standard report, which I think was based on the regular monitoring of rents in London; it said that rents were going up, number one. I would also reference it against-

Q21 Richard Graham: Sorry, excuse me. That is not the same point at all. Whether the rents are going up in London at the moment factually is not the same as asking a landlord whether he would reduce his rents if the housing allowance went down.

Nigel Minto : Let me move on to my second point.

Q22 Richard Graham: But do you accept that?

Nigel Minto: Well, let me move on to my second point, in terms of referencing it to feedback we are getting back from Directors of Housing from the 33 London boroughs. The 33 London boroughs are working with private landlords on a daily basis, and the feedback we have been getting from them since July and August-and this is increasing now as landlords are becoming more and more aware of the changes-is that landlords are beginning to move tenants out and are saying to local authorities, "We will not reduce our rents."

Q23 Richard Graham: Okay.

Lib Peck : Can I just add to that, sorry?

Richard Graham: Well I don’t think you have really answered that question, so let’s move on to the next one; we’ll have another go at something else. In terms of surveys, have any of you surveyed residents in London boroughs to ask them whether they think it is reasonable that an absolute cap is imposed on some of the higher-bedroom properties, or whether they believe, the majority of residents in these areas, that it is right and proper that people who are unemployed, who are on benefits, should have no cap on the size of house and the value of that rental property? Has anyone done any survey of that sort?

Lib Peck: No.

Q24 Richard Graham: Okay. Lastly, I think there was a suggestion from Mike that some of these things are being moved too fast. As I understand it, the Housing Benefit award reduced to 90% of the initial award will come in in April 2013. That is two and two-thirds years from now. Would you not agree that that is quite a long time to prepare for that change?

Mike Haines: That is for the Jobseeker’s Allowance reduction.

Richard Graham: Yes.

Mike Haines: Yes. That is a long time, but we are talking about other things coming in in April of 2011.

Q25 Richard Graham: So you don’t have a problem with that one; it is the stuff that comes in in April next year?

Mike Haines: Well, given that there is the 21st Century Welfare review going on, it just seems that if that is all being looked at then this could be considered as part of that and it would allow the whole issue to be considered without doing part of it and having to perhaps come back and revisit that.

Lib Peck: I think it is the double whammy of changes coming in in April 2011 and then in October 2011-so the caps and then the percentile decrease from 50% to 30%-that we are very concerned about, and that is what we are saying impacts on 16,000 households in London, and the fact that both of those are within a six-month period. There obviously are other things further on down the line that could be of equal concern, but it is just that is a very short period of time. Can I just very quickly come back to your first point around the landlords survey?

Richard Graham: Yes.

Lib Peck : In Lambeth at the moment, for the first time in 15 months we have seen 11 families go into bed and breakfasts for the last two weeks, and that is primarily because of private landlords withdrawing their stock from the market. That is a genuine concern for us; about them abandoning-

Richard Graham: So let me put the question back to you-

Chair: Richard, I am going to stop you there, because we have 10 minutes left and we have two more sections to go with this set of witnesses. So I am going to move to Sajid. I think some of the questions have been asked, but I am sure in the questions about the shortfalls and his questions on the system might pick up on what has been said.

Q26 Sajid Javid: Thank you, Chair and thank you all for coming in. Some of these points you have already raised, so I won’t go through all the questions we intended, because you have mentioned some of the points, but it has come back to this issue of shortfalls, evictions and homelessness. Certainly I have sensed in the panel a liberal use of these terms so far, because to me homelessness is someone who hasn’t got a roof over their head. Right? Homelessness is not someone who may have to move their house; they may even get evicted from their house and they may prefer a larger roof over their head, but they still have a roof over their head. So I would like to split it into two parts. One is-to the extent that you can speak about it, Mr Haines-about outside London, and one in London. If we just start with outside London. In your area, what do you think the impact would be of these changes that would come in both in April and October on homelessness and evictions?

Mike Haines: Right. Well I have the breakdown of the figures of how it is going to affect people in my district and I do not want to burden you with those.

Sajid Javid: Yes; just more general.

Mike Haines : Yes. At the moment we have a budget of I think £194,000 for the temporary accommodation we have to find during the course of the year, so inevitably when families find themselves homeless then it is the local authority’s job to find them accommodation in the short term and then the longer term, and that has a cost to it. I have just given you the budget figure we have in my authority for the year on that; between £300 and £400 a week is what we pay to keep a family in a bed and breakfast. I think inevitably, looking at the figures-which can be given for any authority but I can quote my own-you are looking at £500 per household average losing the £15 and then a similar sort of amount when you go to the 30th percentile. So that sort of amount, inevitably the figures are going to show that more households are going to be looking for other accommodation. I do not want to rehearse the arguments again, but it is going to add a cost to local authorities. This comes back to my original point, that it is all part of the public purse, and while money might be saved by not paying the level of Housing Benefit in the first place, there will be an extra cost and just part of that will be the inevitable need to increase that figure of £194,000 to find homeless accommodation.

Q27 Sajid Javid: Do you not think that it will only be in exceptional cases that people can’t find an alternative home that has a cheaper rent, so that an increase in homelessness would be only in exceptional cases? Even in that case, the Government has proposed an increase in Discretionary Housing Payments as well to try to help with something like that.

Mike Haines: I think we get about £40,000 a year of discretionary in my own authority, but I understand that the large bulk of what you are proposing will go to the London authorities; I think I have seen that in writing somewhere. While local authorities themselves can put money towards that in the ratio of three to two, because as one will hear shortly, our budgets are being reduced anyway, then we just will not have the money to back that up ourselves as well. So I think that is what we see as happening; that we will have higher costs and the overall cost to the public purse will be greater.

Q28 Kate Green: Would you answer Sajid’s first point? Will people be able to find lower cost accommodation without going down the route of this extra cost to the local authority?

Mike Haines: Well again, it may be that private landlords will go to more homes in multiple occupation to get smaller units. That may happen; we certainly do have old hotels in my authority that they might decide to do that with. However, because we are not having the building taking place and we do not have the RSLs coming along and the population is actually getting higher and housing density is gradually reducing, then inevitably there is going to be a lack of accommodation for people to go to. They may have to move to neighbouring authorities where there might be housing available.

Q29 Sajid Javid: They may have to. There may well be plenty of people who will have to move, and they may have to leave their area, but that is not going to create homelessness and it is not going to increase costs for the Council.

Mike Haines: No, that would not, but that may cause other social impacts in terms of communities and families. In terms of homelessness, we will have to see what happens. We believe that it will increase our costs in terms of having to spend on homelessness.

Q30 Sajid Javid: Okay. Can we just turn to the London area? You used the figure of 82,000 before. Did you mean homelessness, or did you mean something else?

Lib Peck: Well I think we went through this particular argument. I think we were talking about people who would have to move who we would classify at the first point as being homeless. Obviously, from the implication of your question, you think that they might be able to find alternative accommodation easily. I think I would be less reassured by that, to be honest. One of the things I would want to highlight is the shortage in the central London boroughs then of accommodation that people could afford. One of the searches that London Councils did was, looking at those central seven boroughs that we talked about previously, how many of those properties between two and four bedrooms would be available for people. They came up with a figure of 261 would be available. There is a caseload at the moment of around 9,000. So people inevitably will be moved out of those central London boroughs. Whether then all of them become homeless for any given period of time none of us know, but there is certainly that potential.

What that then does is push costs and push social pressure into areas where it has not previously been recognised. If it comes into boroughs such as Lambeth, where there are already problems with primary school places, there is already a very high social need and there is already very reduced supply of affordable accommodation, that brings some problems; if it goes to the outer boroughs as well, where I think they are probably even less geared up for dealing with that kind of influx of people, I think that brings further pressure. That is social pressure, but it is also financial, and therefore I think there is a real issue about the savings that we might see up front disappearing when you look at the impact of it overall.

Nigel Minto: I think the other issue with respect to homelessness is that borough officers working with the members have to see six to nine months into the future and they need to prepare for any eventuality in their role as prudent officers. Boroughs have been tooling up since the summer in terms of procuring bed and breakfast accommodation and some of the central London boroughs have been doing block bookings in outer London, because they know they will not have the accommodation available in central London in the private rented sector that they would normally lease and in which they would normally place people. So number one is that they have to get some property. Bed and breakfast is only used in extremis in terms of an overnight stay because of all the issues with respect to social cohesion and families and doctors. So number one, we are seeing a move into bed and breakfast on a longer term. The second issue is that boroughs have been procuring private rented stock outside of London because they cannot procure it in London. We are looking at Luton, we are looking at Watford, we are looking at Slough, we are looking at Reading-somebody mentioned Hastings, an area that boroughs have used in the past-because there will not be that availability of private rented stock in London that they can use.

Q31 Kate Green: And what is the problem with that?

Nigel Minto: What, with placing households outside of London?

Kate Green: Yes.

Nigel Minto : Well, there is the whole disruption in terms of children’s education; there is a whole disruption in terms of people potentially losing their job; there is a whole issue in terms of the extra stress and the extra cost that would be placed on boroughs outside of London that would not be expecting an influx of people.

Richard Graham: Is there-as you say, you have to-

Chair: Can I just bring Karen in, because she has a question on that particular point, about what is happening, and then I will come back to you?

Richard Graham: Okay.

Q32 Karen Bradley: I think all this has been very useful and interesting, but looking to you for suggestions now, what could the Government do to help support those local authorities in the areas that you think the Housing Benefit claimants may end up moving to, to support them with things like local schools, hospitals and other public services?

Nigel Minto: There are two sides to this. One is an increase in the Discretionary Housing pot. We have been advocating that as a way of better managing this process. We are not advocating an increase in the Discretionary Housing pot to supplant a significant reduction in Local Housing Allowance on a long-term basis. The reason we have been arguing that is: one, to try to keep households in an area on a short-term basis-it might be three to six months, where you have kids in a particular school, you have support from particular social services in an area, somebody has a job in that area-in order that they can make arrangements to move to another area of London.

The second issue is about resources for the local authorities in terms of staff to facilitate that process. Because there is an issue with respect to the-I don’t like the term "exporting borough"-but the borough where the officers are looking at households that will need to move, in terms of providing support for those households in a structured and ordered way and then the support for authorities that might very well be receiving people moving across London. Particularly in terms of working with them to find accommodation in the private rented sector, working with them to support them on rent deposit schemes and suchlike.

Q33 Karen Bradley: Okay. So you feel that it is the Discretionary Housing pot that would be the most useful. One of the suggestions the Citizens Advice have given is to effectively grandfather existing rental contracts so that the impact of the changes does not come in until there is a break clause at a reasonable point in time beyond the date of the changes for new leases. Do you think that that would be an effective way to solve the issue?

Nigel Minto: I think it would be one of the effective ways, yes. It has to be part of a portfolio of solutions.

Lib Peck: I think Nigel referred earlier to some of the other measures, talking about obviously borough discretion not to pay some exorbitant rents would be one key thing; making sure that in some cases direct payments to landlords are also made to give them some incentive to keep in the private sector market for people in receipt of HB; obviously the Discretionary Housing Payments pot. While welcoming the £10 million increase this year, I do not think that is going to touch the sides in terms of the problem we are going to have in London; we are looking much more realistically at £18 million absolute minimum and possibly up to £38 million being important. I think those would be the key things.

Mike Haines: The LGA is considering making a case for new burdens funding, which we would obviously then present to CLG, because of the extra costs we see falling on us. Clearly, if that is demonstrated to be the case then there would have to be more monies found for the new burdens. So that is a way in which it will be addressed in addition to what is being suggested.

Nigel Minto: We are in the process of surveying borough Housing Directors at the moment in terms of what would be the expected additional staffing costs for the inner London and outer London boroughs and what would be the expected cost of additional rent deposits in terms of relocating people. I think we have had about 13 responses in from the boroughs and at the moment, we are just over £10 million. Now, I am not saying the figure would be £20 million or £25 million for London, but it is a substantial amount of money just in terms of the borough staffing costs to try to keep people within a particular area on a short-term basis, and resettle people in the private rented sector, be it in other parts of London or outside of London.

Chair: Thank you very much for that. Obviously solutions are good for us as well, so thank you for that. We will move on to the next set of witnesses, but thank you very much for coming this morning.

Examination of Witnesses

Witnesses: Mr Richard Capie, Director of Policy and Practice, Chartered Institute of Housing, Mr Sam Lister, Policy and Practice Officer, Chartered Institute of Housing, Mr Roger Harding, Head of Policy, Research and Public Affairs, Shelter, and Mr Alex Fenton, Research Associate, Cambridge Centre for Housing and Planning Research, University of Cambridge, gave evidence.

Q34 Chair: We have three sets of witnesses this morning and there is something called the Comprehensive Spending Review later on-I am not quite sure why people are in a hurry to get to that-but obviously we do not have a lot of time and I am sure, if the first set of witnesses is anything to go by, we could have spent at least twice the length of time that we have today. May I begin by asking you to introduce yourselves for the record? We’ll start with you, Roger.

Roger Harding: Roger Harding, Head of Policy Research and Public Affairs at Shelter, the national housing and homelessness charity.

Alex Fenton: I am Alex Fenton from the University of Cambridge Centre for Housing and Planning Research.

Sam Lister: I am Sam Lister, Policy and Practice Officer at the Chartered Institute of Housing.

Richard Capie: I am Richard Capie. I am Director of Policy and Practice at the Chartered Institute of Housing. We are the professional body for people working in housing, so both landlords and the local authority and housing association sector, but also, importantly in relation to this inquiry, local authority members who are involved in the administration of Housing Benefit.

Chair: Thank you very much. Shabana.

Q35 Shabana Mahmood: It is a question we put to the previous set of witnesses, so the same one to you. One of the Government’s objectives for reform to Housing Benefit is to create a level playing field between people who receive the benefit and those who are on low incomes. Do you accept that objective?

Roger Harding: I accept the objective, but I just do not agree that there is an unlevel playing field at the moment. First of all, that is often couched in terms of people who are employed and people who are unemployed, and it is important to recognise there are a lot of claimants of LHA who are pensioners or people with disabilities who are unable to work. So it is not necessarily a likeforlike comparison. Taking that question straight on, it is not a level playing field at the moment because although theoretically rents allow people to access up to the 50th percentile of rent, we find that landlord supply is quite restricted because of the administrative burden and risk that often goes with renting to claimants. We often find because of that as well that the quality of accommodation that LHA claimants get for the same price is lower than nonclaimants. By the DWP’s own estimates, there are potentially up to 590,000 working households who could claim LHA but do not, suggesting therefore that it is not currently an unequal playing field in favour of claimants, otherwise there would be a large number of people who would be claiming.

Sam Lister: Roger makes an important point there, that the assumption behind the level playing field is-and they have created this idea of people on £26,000, which is the average income-that people on those kinds of levels of income do not get any access to benefits. Now, if the cap comes in, it will start to bite for large families, so families with five children will be affected and probably as low down as four or five children. Now, if you are earning £26,000 and you have five children, you would be entitled to tax credits of £9,000 a year; you would also be entitled to Child Benefit of £3,482 a year. If your rent was more than £68 a week, then in theory you would get help through Housing Benefit; and if your Council Tax was more than £1,100 you would be entitled to Council Tax benefit too.

Harriett Baldwin: Can I just clarify? My understanding is that it is £26,000 net, so £35,000 gross, approximately.

Sam Lister : Well, the point I am making is that those people on those kinds of levels of income are entitled to benefits as well. It is nonsense to say that people have an unequal playing field in terms of what access they have to accommodation, because Housing Benefit is an inwork benefit as well, so you should be able to access it. That comes to Roger’s point, that only about 40% of those who are entitled, who are in work, actually claim it. Those are the DWP’s own figures.

Q36 Shabana Mahmood: Do any of the rest of you have anything to add?

Alex Fenton: No.

Richard Capie: No.

Q37 Shabana Mahmood: Okay. The Government is proposing to reduce Housing Benefit by 10% for JSA claimants who are getting that benefit but have been getting JSA for a year. Do you think that cutting entitlement to Housing Benefit like this is an effective way of improving incentives to work?

Alex Fenton: I suppose it presupposes that the main reason that people are claiming JSA for a long time is that they are unwilling to work rather than unable to find work. If you look at the figures for people who have been claiming JSA for over a year, they have more than doubled since 2008 to 2010; from September of those two years. In some regions they have more than tripled. So I think I would suggest that that is not to do with decreasing incentives to work, but rather the obvious effects of the economic recession.

Similarly, the rates of people that are claiming long-term-12 months plus-JSA vary very widely between regions. That is very strongly correlated with the availability of jobs in different regions, so in regions like the North East, Wales and Yorkshire and Humber, for example, a lot more people are chasing a lot fewer jobs because of those regions having lower economic growth compared with places like the South East and London.

What I would suggest is that a lot of the reason that people are claiming JSA over the long term is not that they are unwilling to work, but that there are structural and cyclical factors like the economic downturn that explain why they are doing that. So if the reason is not that they are unwilling to work, then it is not going to act as much of an incentive; it is going to be more punitive to the majority of those who are genuinely seeking work but are not able to find it.

Richard Capie: Part of what we talked about in our submission was the cumulative impact of these changes. So on the one hand you are in effect saying to people, "You are going to have to move into cheaper housing market areas." There is a correlation between those cheaper housing market areas and the employment opportunities that are available, so on the one had you are saying, "We are going to actually cut the amount of benefit you are going to receive if you can’t find work"; on the other hand, we have an imperative which is saying, "You must move into those areas where jobs don’t exist." I think that is something that is a grave concern in some of these proposals.

Roger Harding: If I could just finally add as well, it is a slightly odd thing to use Housing Benefit for that reason rather than using JSA itself. There is a lot of work that has been done by the previous Government on JSA to put sanctions in place and incentives for people to work. Obviously your need for housing does not change if you are employed or unemployed to that degree, so it is a very odd lever to use, given that it is related to housing and not employment.

Sam Lister: I think the problem is that it is indiscriminate. It takes no account of the efforts that people are making to get into work and, as has been pointed out, there is a strong correlation between economic performance and the numbers of people who have been out of work for 12 months. Looking at just the JSA figures, for example, you must be very concerned about this, because your constituency comes out by far the worst-

Shabana Mahmood: Yes, absolutely. We’re one of the-

Sam Lister: -at 2,460 long-term JSA claimants, whereas compared with Anne Begg’s it is 105. So if the implication is that longtermness on benefit is an indication of how hard people are trying, that means that people in Birmingham are 23 times lazier than they are in Aberdeen. I find that pretty implausible, frankly.

Q38 Shabana Mahmood: So do I. That is what I was really driving at, in the sense of the labour market in Birmingham Ladywood does not offer the opportunities to my constituents to be able to find work and that has nothing to do with their Housing Benefit levels. I think there are also obviously practical problems with this proposal. If you are moving further away in order to access your work, then that has an impact on childcare and so on as well, and travel costs, which are a real problem for people in my constituency as well. Would you agree, just looking at Housing Benefit specifically, that it has to be reformed in order to improve work incentive?

Richard Capie: Absolutely. I do not think anybody has an issue with that. Certainly, a lot of work that has been done in recent years by our respective organisations has advocated change. Some of the changes I think advocated in 21st Century Welfare, for example, would be beneficial in supporting that. I think everybody is quite enthusiastic about some of those measures and indeed some of the proposals that were considered by the previous administration around extended payments; there are some very, very good ideas out there, which I think would be very, very constructive in supporting people to secure employment.

After all, going back to that original question, I think the best way to drive down the benefit bill is actually to get people into work that is sustainable. I think what is concerning about this is that we are moving the support that we pay families and individuals for their housing costs into a very, very different realm. As you said, that means you could have a wide range of impacts, in particular at the community level. For example, I think one of the things that we are aware that the Government is very enthusiastic about is building social capital: taking greater advantage of things like local networks around childcare, about supporting children to be able to do very well in their local schools. A pupil premium is not much help if you are forcing people to leave the area halfway through their school year. We need to look at this quite realistically in terms of what some of the societal impacts will be.

Roger Harding: If I could just add to that as well, we would support some of the suggestions made in 21st Century Welfare about improving work incentives as they are currently laid out, such as unifying and improving the taper of when benefit is withdrawn when people increase their income. As Richard says, one of the biggest concerns about the measures from the emergency budget is that what you will see is people moving into poorer areas and areas away from employment opportunities. So while the potential benefit incentives may improve, the geographical ability for people to gain employment reduces quite considerably.

Richard Capie: I would say that you could say that the proposals that came through in June-and I suspect we are going to see more of that this afternoon in terms of additional cuts-run contrary to what 21st Century Welfare is trying to achieve. There is a contradiction there, and the measures from June, for example, will undermine some of the very bold ambitions that the Government wishes to take forward around wider welfare reform.

Sam Lister: I just want to add: on the JSA figures, if you look just at the numbers as they are, in some areas they don’t look too bad at all, and I think some people have been quite surprised by the number of long-term claimants, in that it looks quite low. What we don’t know at the moment is how people are going to be treated who are moved off in the migration process from Incapacity Benefit and Severe Disablement Allowance on to Jobseekers Allowance. So, there will be some who fall through the net there.

Also, the previous administration has this plan, which I assume is still going ahead, to end Income Support and move the rest of those groups off, so lone parents, other long-term sick and carers. Now, the plan was to put those people on what was called Modified JSA, which is basically Jobseekers Allowance without the full labour market conditions. What we don’t know at this stage is what the Government’s decision is going to be in terms of how those claimants will be treated. Will they be treated in exactly the same way as those who are subject to the full labour market conditions? The numbers of people on Incapacity Benefit, when you look at those against some of the areas where the long-term JSA figures don’t look so bad, start to look pretty bad as well.

So, for example, in your constituency, Anne, there are 2,860 who are on Incapacity Benefit; in Shabana’s, there are 5,840. Lone parents, another 3,140. Obviously, a proportion of those won’t be Housing Benefit claimants-broadly probably about 40%, taking a guess-so some of them will be owner-occupiers, I guess, but those numbers, which don’t look too bad at the moment, could still change quite dramatically, depending on what the decisions are made about those particular claimants.

Q39 Shabana Mahmood: Just in conclusion, in terms of Housing Benefit very specifically, what would your reform of choice be to reform it in order to address barriers to work? To each of you.

Roger Harding: Specifically on LHA barriers, we would like to see the redrawing of the broad rental market areas to align them more to local authority areas, to mean that people get benefit payments that more directly align to the local rental area that they live in and, therefore, increase their ability to commute to areas of work within that. As I say, we support some of the proposals put forward in 21st Century Welfare. The trouble is if you just cut payments to move people out, you will move people into poorer areas, and that will run counter to those economic incentives.

Alex Fenton: It would be withdrawal rates, as colleagues here have already mentioned.

Sam Lister: The answer is the advantage of the measures in 21st Century Welfare, in particular the one that identified a single income taper, which is the best way to attack marginal withdrawal rates. I think we are all agreed about that. It also implies that there will be a substantial uplift in the earned income disregard, so again that would be most welcome. So, if those measures come through, then, obviously, that would be a big help.

Richard Capie: I think one of the things that is really clear from the research is that the income component is important for claimants, but equally important is certainty-the ability to make long-term decisions around budgeting. People are wary of and, rightly, risk-averse about moving and changing their circumstances in a way that could backfire, as people have seen. People have found themselves in positions where they have had considerable repayments to make. I think one of the things that looks quite favourable in some of these proposals is that degree of certainty: that ability for households who, rightly I think, are looking to say, "How can I plan to be able to best meet my housing costs over a longer period of time?" I think that is a very helpful step.

Q40 Sajid Javid: I just wanted to come back to this point I think Mr Capie made: if someone moves from inner London to another area, rents might be lower but there is less employment. I think that is a generalisation, because if you just take the example that Mr Lister gave earlier, in Birmingham rents are high, unemployment is high, and there are certainly a lot of unemployment hotspots, but around Birmingham itself, within striking distance, maybe within a 20-mile radius, there are plenty of places where rents are far lower and employment rates are far higher. So, I think it is a bit of a generalisation just to say that that is not the case. Clearly, there will be pockets around the country where it is, but there are areas where people could move to if their housing benefits were cut that are maybe not too far from where they currently live, but where not just rents are lower but employment rates are higher.

Richard Capie: I think one of the risks that exists is I guess what you would call displacement, which is if you, in effect, create a system which encourages or forces people to move from one particular market to another. The dynamics of the market that all of these people are moving to change pretty rapidly, so you might have an area where there is, for example, cheaper rates, but if you have an influx of people into that area who are seeking to actually occupy the same part of that housing market, that market is not going to stay the same for very long. There is a kind of dynamic there.

I think, again, there are these socioeconomic issues as well about things like the roots that families put down in communities. I think we all understand that there is a concern about families who are in work, who are making decisions about having to go and live in communities where they have not grown up, having to go and move, for example, out into commuter areas in order to access work. I think we appreciate that that is a situation in which many people are finding themselves-having to make that choice-and are wondering, "Why am I in a different position from benefit recipients who are able to stay in areas where I can’t afford to live?" I think there are some genuine concerns there.

I think what we’ve got to look at in the broader sense is, "Why are we in that situation for everybody? Why have we ended up with polarised communities? What is the best way to address that?" That suddenly gets you into the area of the wider concerns about supply, the different levels of rents that are available in markets. It takes you into the whole realm of why our housing markets are as dysfunctional as they are in some communities.

Q41 Richard Graham: Can I just come in with some fairly short, sharp questions to each of you, and lovely short, sharp answers would be great. Roger, first of all, your definition of homelessness: does that include people who are moving from one property to another or from one area to another?

Roger Harding: I was going to come back to that, given the discussion in the previous session. It is important to state that homelessness goes well beyond rooflessness, and, therefore, it is about people having an adequate home, which means that, for example, they are not overcrowded or that it is of a decent standard, so-

Q42 Richard Graham: Right. Okay, pause there. So, homelessness, in your view, includes people who are living in a home which you define as inadequate. Let us get on to what the definition of inadequate is. If you have four children, do you believe that each of those children is entitled, in a welfare state, to a separate bedroom?

Roger Harding: No, and that is not currently included within the Local Housing Allowance either.

Q43 Richard Graham: Would you accept that, for many people, the idea that homelessness means having a house which somebody else would describe as inadequate is a curious phenomenon?

Roger Harding: Well, what we are talking about here, though, is things like there being a million children living in overcrowded accommodation.

Q44 Richard Graham: What is the definition of overcrowding?

Kate Green: It is a separate bedroom, isn’t it, for every child over the age of-

Roger Harding: Up to 12.

Kate Green: Of different sexes.

Roger Harding: Of different sexes.

Q45 Richard Graham: So, in that situation, my family would actually be described as having been homeless for quite a long time, because we had two sons who shared a bedroom when they were both-

Roger Harding: No, they are of the same sex and it is up to a certain age.

Q46 Richard Graham: That would be overcrowded, inadequate or-

Roger Harding: No, it wouldn’t be.

Q47 Mr Heald: Can I just have one on that point, Richard? I think it is right that Shelter was against the five-bedroom cap and is against the four-bedroom cap, because your view is that however large the family is, it should not be overcrowded.

Roger Harding: Well, I think there is an over-focus on larger families in this debate. The people claiming the five-bed rate make up 0.01% of LHA claimants-

Q48 Mr Heald: But I am right, aren’t I? You are against that.

Roger Harding: We want to see children adequately housed, yes. I am upfront about that.

Mr Heald: I just thought it came on the point Richard was making.

Richard Graham: No, that is very helpful. Thank you.

Q49 Sajid Javid: Can I just add to that point? I was brought up in a house with five children and both my parents in two bedrooms. Is that homelessness?

Roger Harding: Yes, that would be in the broad definition, because it is overcrowded and, therefore, inadequate for the family.

Q50 Sajid Javid: I know many people like that and they paid for it themselves, but they coped with it perfectly adequately. Do you really believe the state should be paying for much larger houses in situations like that for people?

Alex Fenton: It is a legislatively defined standard that we are using.

Q51 Sajid Javid: No, but Shelter is not run by legislative standards. These are your standards, aren’t they?

Alex Fenton: Yes, it is statutorily defined, the standard that we are using.

Q52 Sajid Javid: I thought I was talking about Shelter’s standard.

Roger Harding: Shelter, along with other charities, has a broader definition that does include other people-for example, people who are sofa-surfing and other such things-but there is a statutory definition as well, which means that, if you qualify for that, you get extra priority.

Sajid Javid: Okay, but I didn’t feel homeless.

Q53 Richard Graham: I think we have satisfactorily established that a number of this Committee were formally homeless at one or other point in their lives. Let’s move fairly swiftly on. Richard, a number of things you have been saying-and, indeed, others before you-suggest that there is, possibly in your mind, a philosophical objection to the idea of families moving to places where there is work, that a child moving from one school to another is going to go through incredible stress as a result of doing that, and that not being able to work very close to where you live is, somehow, extraordinary. Would you accept that everybody in the armed forces who moves around the world and moves from school to school and house to house and so on would be, by that definition, really almost incapable of working, because they would be going through so much stress, and that there are vast numbers of people all over the world-and especially in continental Europe-for whom it is perfectly normal to move from rented accommodation in one place to another fairly regularly in order to pursue work opportunities? Yes or no?

Richard Capie: I think you have talked about a number of different issues in there. I don’t think anybody has any philosophical objection or problem with the idea of people being mobile in their housing in order to seek or obtain work or, indeed, to move for other reasons. That is generally why we look at social mobility and housing and are very concerned about some of the blockages that exist in, for example, the current social housing system around that-something I know the Government has been actively working on. I think that we are concerned also about some of the dips that are happening in the housing market, and people being locked into home ownership because they are caught in an equity trap. I think that idea of mobility is something that people are very enthusiastic about.

I think one of the things that we can accept is that there can be consequences if we are looking to uproot people. I think one of the things we also have to accept is, if the housing market that you have lived in all of your life changes around you and you have been living, for example, in social housing in that area-so, for example, in London, look at somewhere like Shoreditch-we have communities that have been there for decades, that have established roots in those areas, and it has suddenly become a very popular, fashionable part of London. Part of the reason for that is, arguably, because those communities have been there. I think we have to acknowledge the contribution that those people have made to those communities, and that is one of the things that we try to achieve with social housing.

Q54 Richard Graham: But you do accept that mobility is a normal feature of life in a free market as people move around to chase job opportunities and all the rest of it.

Richard Capie: As I said, I don’t know any organisation that is actively opposed to mobility in housing.

Q55 Richard Graham: Sam, can I just ask you: you talk quite a lot about employment, unemployment and so on. Do you accept the concept that the Government is advancing that it is abnormal for the UK to have 2.9 million people on Incapacity Benefit? This is a form of benefit that does not exist anywhere else in continental Europe and this figure has grown exponentially quickly. There are large numbers of people there who, if given the incentives to work-and I think you have all expressed enthusiasm for the idea of getting rid of the disincentives through the universal benefit in the taper-that could bring that figure down quite sharply, and that, in turn, would have a knock-on effect in terms of the numbers of people who would need the sort of housing support that they currently do?

Sam Lister: Well, we agree that the best way for people to get out of poverty is to get into work. The problem is those 2.1 million who are on Incapacity Benefit are people who are some of the furthest distance from the labour market, and they have to compete with other people who are looking for jobs. So, what is needed is a good system of support for helping people back into work. Now, Employment and Support Allowance is kind of one part of the process in doing that, but we agree with the principles that were set out in the Gregg report, that distance from the labour market should be proportional to the amount of support that you receive in terms of getting back into work.

Q56 Richard Graham: Okay, thanks for that. Lastly, Alex, in terms of what you were saying about the longer-term unemployed and so on, are you aware of some of the experiments going on in Jobcentre Pluses around the country, some of which are beginning to show, over a short space of time-so, no long-term trend can be proved-that additional help in terms of the amount of contact between people at the Jobcentre Plus with the unemployed is proving very successful in getting people back into jobs really quite fast? Is that something that you are aware of, and do you agree that that is-more or less in line with what Sam was saying-a trend which could prove extremely useful to the Government’s efforts of getting down the numbers of unemployed?

Alex Fenton: Absolutely. The Department of Land Economy has done several evaluations on things like the Working Neighbourhoods Fund, which was introduced by the previous administration, and that did lots of different projects that provided the sort of intensive support that you are talking about, and there are promising results from quite a lot of those pilots. They are commendable and I would like to see more of them, but the concern we are raising is that the measures that we are discussing here today are being introduced in isolation, without that package of support, and that is why we said in my study that we published that we didn’t really feel it would, in itself, have any effect on labour market incentives or labour market behaviour. So, great, we would like to see more support, but it is not there in this package that we are discussing today.

Q57 Richard Graham: But you recognise it might be coming quite soon if these experiments-

Alex Fenton: I hope so-I look forward to it, yes.

Richard Graham : Good. Thank you very much.

Q58 Karen Bradley: I just want to build on that. The 10% reduction in Housing Benefit is not coming in till 2013. Do you feel that if the work programme that will be starting in March 2011 after two years has demonstrated that it can help to get people back into work within 12 months of starting to claim Jobseekers Allowance, that this reform to the Housing Benefit system is, in many ways, irrelevant; that it will only affect those people who are not being successful on the work programme?

Alex Fenton: There are two sides of it. So, there is the labour supply side-the people who are claiming benefit and seeking work: are they doing enough, do they have enough support and do they have sufficient skills? The other side of that is, of course, the demand for labour-are there the jobs out there and the employers seeking to take people on? Most of the projections are that, at least for the next three or four years, we will see fairly minimal falls, if at all, to claimant unemployment and to the unemployment rate. There is, in many places, in some regions more than others, an imbalance between the amount of labour that is being demanded, the amount of jobs that are available, and the number of people that are seeking work. There are more people seeking work than there are jobs. So, that is why, I think, there remain concerns about the 10% cut, because that will not necessarily go away by the time that the measure is introduced in 2013.

Q59 Richard Graham: Do you accept that the whole business, though, of anticipating forward the supply of new jobs is a virtually impossible one to guess? I wonder, for example, if any of you had anticipated that 280,000 new jobs would have been created in the last quarter-the largest increase for 20 years. Did any of you anticipate that?

Roger Harding: Well, in our submission, we have been using the data from the OBR on levels of unemployment going forward to look at the potential impact that the LHA changes will have, and that is why we have based our assessment that, in of themselves, they don’t seem to indicate that they would massively increase employment. I should add, those pilots that you mentioned, and the degree to which they have been successful, have been done in the absence of a 10% cut to people’s Housing Benefit.

Richard Graham : Yes, which, as Karen points out, comes in 2013.

Q60 Mr Heald: Of course, we are in a period where there is a major economic problem in the country, and the sort of measures you welcomed, like the Universal Credit, which I think we would all applaud, cost money. So, would you agree it is important to ensure that we get value for money out of the Housing Benefit budget?

Richard Capie: Absolutely. I don’t think anybody has an issue with that, and I think one of the things that we have been encouraged by has been the Government’s willingness to invest in 21st Century Welfare. I think everybody in the housing sector appreciates that there is a cost attached to that, and that that investment is being put in. I think what we have to accept about 21st Century Welfare is that the housing component is part of that. The objectives of that programme are much wider. I think one of the things that we have to be careful of doing, though, is that we, in effect, undermine what that programme is trying to achieve by making sweeping cuts to other areas of the budget in the meantime.

Q61 Mr Heald: Yes. However, if you look at it, there is quite a bit of evidence that we are not getting value for money in all places out of the Housing Benefit budget. Do you agree with that?

Richard Capie: I think it is important to put this in a non-welfare context but in the housing context itself, which is that we do have a fundamental problem with the supply of housing relative to the demand, and that is what is driving up prices and rents, and that is having a bearing on the Housing Benefit bill overall, inevitably. It is important to note that three-quarters of claimants of Housing Benefit are already in poverty, regardless of these changes, and up to half of LHA claimants are paying a shortfall already, before these changes. So, it is very hard to cut Housing Benefit as it currently stands, without, basically, taking money away from more vulnerable claimants.

Q62 Mr Heald: But don’t you accept, for example, that Westminster CAB told us they understand the need to place a cap on rents paid by the taxpayer, and believe rents in central London may drop as a result? Westminster Council-same area-are concerned that the current system contributes to inflation of rental costs. British Property Federation cites rents in some areas have adjusted towards the LHA allowance rates and are seen as the going rate, and there is evidence to suggest private-sector landlords increased rents with the introduction of the LHA, and so on. There is a concern, isn’t there, that value for money is not being achieved everywhere with Housing Benefit?

Richard Capie: There are number of different elements to unpick in that. One of the value for money equations around Housing Benefit is also looking at the contribution it makes to the net new supply of social housing, so it has been part of the way that we have supported the construction of new social rented housing going forward. Two-thirds of Housing Benefit payments are to the social housing sector. That has helped to pay and bring in, importantly, private finance; so finance that is off the public balance sheet, that is not public debt, in order to build new homes. I think that is an important part of the value for money equation and I think that is part of the nervousness that has existed, in particular from landlords, from providers, about some of these changes. As you will have seen, some of the credit ratings have been very overt in their statements about the links between changes to regulation, changes to the capital supply, and changes to Housing Benefit, in terms of how they would be prepared to treat new investment into our sector at a time when we need it most. So, that is an important part of the VFM equation.

The other part, I think, is that question about: has recent Housing Benefit policy, in particular LHA, had an inflationary impact on the private rented market. Certainly in the evidence that we gave to a previous DWP Select Committee, looking at the pathfinders, looking at LHA, we were not clear that that was the case. Certainly, there was an assumption being made that if you cap the benefits, landlords will adjust their rents. Obviously, you have heard earlier today that some people believe that is starting to take place, but when this announcement was made, we were not aware of any firm evidence that would suggest that that would be the case. I think, if you look at markets like Westminster, you obviously have to appreciate that that is a very different housing market from somewhere like Hull. There is a lot further distance to travel in relation to that.

Roger Harding: Just adding to that as well. I mean as Richard says, obviously Westminster is quiet an atypical example in this regard. The Government has put a lot behind this argument that rents will drop if benefit levels drop. I am afraid at the moment there is not the evidence to suggest that that is necessarily the case. As I say, by the Department’s own estimations almost 50% of claimants make up a shortfall between what they get in payments and what they pay in rent, suggesting that, at least in 50% of cases, rents will not drop. In only 5% of cases what claimants receive is at market level. As I say, currently, the Department has not really put forward any detailed research or evidence to suggest that rents will drop.

Q63 Mr Heald: I have got one or two detailed questions for Alex, because he has prepared this Cambridge centre report and I wanted to ask him a little bit about that. Looking at it on the basis of what happened with the pathfinders, I think your view, Alex, is that about 16% of landlords would reduce their rents if this went ahead, and that about half of 29% would be likely not to enforce in circumstances where the tenant paid a lower rent. So overall about 30%, the way I calculate it, would either have their rent reduced by agreement or would not be enforced and there would be a reduction in effect. Now the residential landlords have done some survey work that shows about 29% of landlords would be prepared to reduce their rent. We heard earlier on from the London evidence that it might be as high as 40%; British Property Federation came in with 29%. So do you agree there is a picture of something less than a third of landlords in the subsidised sector reducing their rents?

Alex Fenton: Yes, well 16% in the LHA pathfinders explicitly agreed a rent reduction with their tenants. Of the remainder where the tenant did not pay the difference, about half did not take it. Obviously that leaves the tenants in a vulnerable position vis-à-vis the landlord. I think you are right: there is a picture of maybe about 30% overall where there will be some explicit or de facto reduction in the rent. That picture will vary very considerably from place to place, but also whether there are alternative sources of demand. In London obviously there is a very buoyant market. In many big cities there is a student market who are competing for the same sort of slightly cheaper and maybe larger properties that many claimants are taking. It also depends a bit on the economic circumstances. So finance has become extremely difficult, but you have a panel on that afterwards.

Q64 Mr Heald: What I cannot entirely work out is, if a third or just under of third of landlords in this sector who have subsidised rents reduce their rents, what would the effect be on the overall market because that is quite a big change isn’t it?

Alex Fenton: About 20% of private tenancies are supported by LHA. So if we took 16% of those where the public rent was reduced by that, that is about 3% or 4% of rents are going down. That to me does not sound like that would have a broader market effect. So 20% of private tenancies, overall, are supported by LHA or HB. If we are talking about 16% of those where the landlord is accepting an explicitly contractually agreed reduction in the price, rather than something like an informal, "We are not to take it up right now. We might pick it up later." The 16% where they agree a-

Q65 Mr Heald: But if you just stick with the general consensus that it is around 29%-something like that-you are saying that would not have an effect on the overall market.

Alex Fenton: We are talking about 6%, 7%, 8% of the market is going down very considerably between areas.

Q66 Mr Heald: That is a lot.

Alex Fenton: That’s a fair chunk in one segment of the market.

Q67 Mr Heald: Do you think it is unreasonable for the Government to say, "Look, if 8% of the market or whatever the figure is-7% or 8%-sees rents fall, the overall effect may be that the market generally, certainly in a lot of places, will fall and the effect of that will be we will get better value for money out of Housing Benefit budget."

Alex Fenton: No, because all the projections are that the private rented sector will continue to increase because all the other sources of demand in the private rented sector-the frustrated owner-occupiers, because they cannot get mortgage finance, students-are all projected to continue be the same size or to increase. So there is enough demand out there in the private rented sector that landlords need not accept a cut in their rent.

Sam Lister: On a technical point, the Local Housing Allowance is set by non-housing benefit rents. So in theory all the Housing Benefit rents could lower down and that would not necessarily affect the Local Housing Allowance rate at all. Obviously it is going depend on what the particular composition of the market is, because the effect will be greater if you have got a market that is dominated by the Housing Benefit sector. Whereas if you have a market where Housing Benefit is just a small proportion of the overall rental market, then the effect is likely to be considerably smaller.

Q68 Mr Heald: Just going back to Alex again for a second. In your report you said you thought that the households who might have to move, or the ones in severe difficulty, would be between £68,000 and £134,000; that is table 12 on page 20. You also thought the annual cost of making good the losses for those in severe difficulties would be between £42 million and £82 million.

Alex Fenton: That’s right.

Q69 Mr Heald: Were you thinking there that that would be part of this discretionary housing payment scheme, is that your assessment of how much money needs to go into that or is it a separate calculation?

Alex Fenton: It was a separate calculation. The calculation is those who find themselves in real problems one way or another with their money and their housing, and they can’t get an agreement from their landlord, the landlord then takes it further, and therefore they face moving or eviction. We think it is somewhere near the upper estimate of £134,000, but possibly as low as £68,000. What I wanted to show there was the amount of savings from those households and, of course, what we do not know and what local authorities will not be able to do, is to know whose housing is really at risk, because if they could do that then they could allocate that money perfectly. The reason we compared it with the discretionary housing payments was that the Discretionary Housing Payments were intended to soften the blow, as it were, and to mitigate the consequence of this. We wanted to give a sense of the relative scale of households who might be in severe difficulty and facing eviction relative to the mooted increase.

Mr Heald: I was just really trying to work out if it was a bid for an extra £ 22 million or not.

Chair: Oliver, I am very conscious of time.

Mr Heald: Yes, sorry. I have had a good go.

Chair: Kate.

Q70 Kate Green: Sorry, I was getting so interested in this discussion. I wanted to ask particularly about the impact on some of the more vulnerable groups and particularly, perhaps, starting with disabled people. Can I ask what your assessment is overall of the impact of the reforms on disabled people and where you see people who may be winners but also people who may be particularly adversely affected?

Alex Fenton: The study that we published was based on survey data so we were not very good at picking up the numbers of disabled households. I just note that probably the largest group that is picked up in the impact assessment is those claiming IB or Severe Disability Allowance, so there is certainly a big chunk among those who will be feeling the losses and a pinch on their budgets, but we were not able necessarily to disaggregate to see how many of those might be made homeless.

Q71 Kate Green: Anyone else want to come in? I suppose I am interested particularly in whether there are any particular housing needs or mobility issues for disabled people if they see a reduction in their Local Housing Allowance that would mean that they would have to move?

Alex Fenton: This was a comment that was made in the study with regard to families and to older people, but I think it applies equally to disabled people: that their housing choices are somewhat more specialised. They need particular forms of housing more so than a younger, single person who can adapt perhaps much more easily by moving from a onebedroom house to a shared house, if they are 25 and fit and single. The transaction costs and difficulty of moving are consequently quite a lot greater for some kinds of households than others, and I think disabled households and disabled persons would feature very highly among those. So the assumption that has gone through both this discussion and the previous discussion is that in some senses it is tough luck-you just have to move sometimes. I think that ignores that it is quite expensive monetarily: you have to pay someone to move your stuff; you have got to find a deposit for your next place, when you perhaps have not recouped the deposit on the last place, which is difficult for lowincome households. There is also the physical and mental stress of moving and that may bear particularly heavily on some vulnerable groups like disabled people, as you are asking about.

Roger Harding: Particularly as well where they have accommodation-if they have a physical disability-that they have had adapted, and now will need to move and go through a process of finding an appropriate property and then having that adapted sufficiently and claiming state subsidies for that.

Richard Capie: Perhaps another point that I would reinforce is that we invest in adapting those private properties to make those properties suitable for disabled people, and then we would be requiring those people to move from those properties, even though we have invested public money to adapt those properties in the first place. I am not sure that makes sense.

Q72 Kate Green: Can you think of any mitigation then that might be sensible or policy approaches that might specifically address that?

Richard Capie: I think you would find yourself in a situation where you would have to reinvest in aids and adaptations elsewhere, if you were requiring that person to move.

Q73 Kate Green: Okay. There is nothing else that can be done?

Richard Capie: Unless you are prepared to adjust the policies.

Q74 Kate Green: I beg your pardon, Richard?

Richard Graham: The welfare state must march on regardless, is that broadly what your message is?

Richard Capie : Well I think if you have requirements for disabled people to have aids and support in their homes, and there is a need for that support to be provided, then I think if we are requiring somebody to leave a property where those facilities exist and move to a property where they do not, then there is a requirement to provide that support.

Q75 Chair: Yes, if you are going to be sending people back to work they have to be actually physically able to get out of the house and it is amazing how many disabled people can’t get out of their own houses. Can I just ask, on that, whether you have done any work on how much it costs people to move? Because that certainly came through in our visit to CAB yesterday, that the biggest barrier of all to moving-maybe a slight answer to Sajid’s point-was the cost and upfront cost: they needed a deposit, which they did not get back from the previous landlord and the first one, sometimes even two, month’s rent. They said they just do not have that money; no matter how cheap the accommodation is, they cannot get that money together.

Roger Harding: There is a gap currently in the transitional funding to deal with that as well, because there has been or will be increases in Discretionary Housing Payments and that will help with some of these elements but it won’t help with all. So it won’t help with direct moving costs, for example. It won’t be able to help with other things such as purchasing new school new uniforms if people have to move out of the catchment area of schools. So, currently we have not seen any concrete proposal from the Department that suggests how they are going to fill that gap.

Q76 Kate Green: Can I also ask about nondependant deductions, which are now to be increased after a long period when they have been left untouched. Do you agree that there is a case for increasing nondependant deductions in line with some or other form of innovation-and I think it is actually CPI that has been selected by the Government-and can you see any consequences of that that we should be aware of?

Roger Harding: Perhaps if I can answer just on a quick broader point, which is the more general link to CPI, which doesn’t tend to be touched on in some of these debates on Housing Benefit. Probably over the long term the most damaging of all the changes proposed in the emergency budget is that it will decouple how LHA payments go up, so that rather than going up relative to housing costs, they will now go up from 2013 relative to CPI. Over the last decade rents have significantly outstripped CPI, so we will see payments relative to rents go down substantially after 2013 and that will bar people from living from quite huge swathes of the country in time. On nondependant deductions, there is some worrying knockon effects that could happen from increasing them. One, it would potentially discourage intergenerational households. Another is that it potentially provides a work disincentive for the non-dependant, potentially because there are varying rates whether they are employed or claiming JSA as a nondependant. Also, you could see in some of these instances-as would affect the impact on larger families-that there might be an economic incentive for the household unit to split up and mount separate claims. I am not proposing that that is going to be a widespread trend, but that is, economically at least, an incentive that the system could put in place.

Richard Capie: I was going to say, just to echo that point about CPI, that probably the major concern that exists in the proposals is it would delink the support for housing from the housing costs, and certainly the evidence over the past couple of decades would suggest we would have a massive shortfall. It would suggest that that 30th percentile would be a lot smaller than that 30th percentile, and in some areas that percentile would be zero. So that is-

Q77 Kate Green: I just noticed you are all nodding at that. What would you do instead then in terms of ensuring that there is a link between Housing Benefit and do you feel that the current LHA system adequately reflects an accurate cost for housing?

Roger Harding: Not perfectly, but it is at least linked to local relative costs, whereas rents are included in the CPI measure, but they make up about 5% to 6% of the CPI measure. To give a comparison with that, I think restaurant and café costs make up a bigger proportion of CPI costings than housing. Alex’s research highlights that over a decade, given the scale at which rents tend to go up and the low scale at which CPI tends to up, there will be very few properties left for people in certain areas. So, for example, in projections Alex has done, by 2018 there will be less than 5% of twobed properties available in Manchester for claimants if the link to CPI goes ahead.

Q78 Richard Graham: So is your policy recommendation there that the DWP look at increasing the weighting given to rentals in the composition of CPI?

Roger Harding: It is not, no. I think that is an issue for the Bank of England, in terms of how they manage inflation. It is basically to maintain the principle that if you have a benefit to pay for housing costs that it is linked to housing costs. That decoupling of that link to CPI is a fundamental change in the benefit.

Q79 Richard Graham: But follow the logic: if rentals are included in CPI there is a link. The only question is whether the link is adequate and strong enough. If your recommendation is that rental should be a higher part of the weighting, then that is something that we can take note of but-

Alex Fenton: The link reflects the amount that the average householder across the whole of Britain spends on rents, so since the vast majority of those households spend nothing on rent, because they are owner-occupiers, that is why the weighting is so small. What you might consider would be an index that reflected the amount that low-income households spend on rent, in which case it might be 30% or 40% for the private tenants that we are talking about and that might be an adequate reflection. All I would say is it makes sense-why not just link it to real rents? If there are concerns about the kind of market-shaping behaviour, because landlords then set it to that, then have the power for, as the previous panel suggested, local authorities to review and punish in some way landlords who appear to be setting to those rents without reflecting the value of the property itself, what its real market value is.

Q80 Kate Green: So is your response here is that linking uplifting of Housing Benefit, Local Housing Allowance, to CPI is an extremely unhelpful step in ensuring that people are supported financially to meet real housing costs?

Sam Lister: We are all agreed here that if there was one measure that we would pick as one that we would get rid of, that would be the one.

Q81 Kate Green: And find other ways to control excess rents, as we were discussing earlier on this morning?

Sam Lister: It is because the problem, which Beveridge identified all those years back, has been that rent is the most variable amount of the household budget across the country and there was not any way of dealing with it, which is why we have a benefit which is linked to real housing costs at the moment.

Roger Harding: I have a comparison as well. I think it is comparable if not worse than the decoupling of the basic state pension from earnings, an impact that is not dramatic in the first year or two, but when spread over a decade or two really devalues the benefit, as the relative benefit of the basic state pension has dropped and hence the current Government has now re-linked it to earnings. We could see something similar if not substantially worse if Housing Benefit is decoupled from housing costs.

Kate Green: Thank you. That is very helpful.

Chair: Thank you. Thank you very much. I realise that we have run over by about 20 minutes. I am sorry about that, but thank you very much for coming along and thanks for your evidence. It has been very useful.

Examination of Witnesses

Witnesses: Mr Ian Fletcher, Director of Policy (Real Estate), British Property Federation, Mr Chris Town, Director, Residential Landlords Association, and Mr Richard Jones, Policy Director, Residential Landlords Association.

Q82 Chair: Sorry, we were slightly denuded, but we are still quorate and we will be until about 25 past 11 . So I am sorry for keeping you waiting and sorry that you have sort of got squeezed in at the end, but it was always going be a packed evidence session. Can I ask you first of all to introduce yourselves for the record?

Chris Town: Chris Town, I am a director of the Residential Landlord’s Association. I also declare an interest in that I am a landlord and I do have some LHA tenancies.

Richard Jones: Richard Jones, Policy Director for the Residential Landlord’s Association.

Ian Fletcher: Ian Fletcher, I am a Director of Policy at the British Property Federation.

Q83 Chair: Can I just pick up on some issues. I think you have all been sitting in, so you have heard the previous evidence sessions and many of the points that Oliver Heald has been making with regard to the inflated rents. The reason that the Government is looking at this is that the landlords have been inflating their rents in order to come up to the levels of the Local Housing Allowance, and in fact it is perfectly reasonable for the Government to try and drive down those rents, and therefore drive down Housing Benefit costs.

Ian Fletcher: Shall I take that first? I would make about six issues in response to that. The first one would be the point that the growth in the Housing Benefit bill is significantly caused by the additional claimants and because the LHA part of the benefit bill is the flexible part, the bit that is going to expand. Obviously the costs of the private rented sector are going to look disproportionate to other parts of the Housing Benefit bill.

I think, secondly, obviously in our evidence we had said, yes, that there is some migration of rents towards the LHA rate, and it is worth very much stressing that that is no sort of deep, deep secret. That was something that came out of the pathfinder research. It was not something that was particularly debated when the Welfare Reform Bill went through even though it was apparent, and as far as I have seen, the twoyear review of the LHA has not shown that this is an epidemic in that respect.

I think that the third thing would be to say that while landlords have gained from the current system, others have lost out. Direct payment has meant that in terms of bad debts there is something like £400 million among private landlords that they have felt. The lack of sophistication in the current system also means that we have a twobedroom rate, but in the market the twobedroom rate can mean anything from a twobedroom basement flat to a twobedroom bungalow, and the market would value those different kinds of property differently.

I think it is also important to stress where we have come from and to remember the old system and the processing times of 70 days-more than 100 days even in some local authorities-because of this calculation of the individual rents. People were waiting for three to four months, with all the stress that that entailed in terms of whether they would get the money that they were expecting. From landlords’ perspective they were in effect providing interest-free credit to the state for about four months while that cheque came through.

I think finally, and perhaps the most important point in reacting to Oliver Heald’s remarks, is to look at the maths. If there was to be an adjustment of the kind that he was intimating in terms of-let’s say that 50% of landlords did reduce their rents and they reduced them by £10 a week, and you multiply that by the million claimants that there are and 52 weeks, you get to a figure of around £.25 billion. That has to be seen against the context of a private rental sector rent role per annum of something in excess of £100 billion a year. So, it would simply be a small stone in-I don’t think the metaphor would be right-the Atlantic in terms of the ripples it would cause within the greater private rented sector. So, you also have to bear in mind that obviously that-continuing the metaphor- there is this huge tsunami of different people trying to get into the private rented sector at the moment. I have seen figures out today from Countrywide saying, I think, 43% increase in tenants trying to get into the rented sector over the year; I think something like 19% over the last quarter.

Richard Jones: Could I just make one short additional point as well? The great advantage of the current system is that it is transparent and a point was made earlier on about the certainty of planning finances on behalf of tenants, and the published rate does make that a lot easier. The old system came in for an awful lot of criticism because nobody, especially the tenants, knew where they stood.

Q84 Chair: Do you have any sense that the Government’s purpose is to squeeze the private rented sector out of the Housing Benefit sector completely? In other words, anyone who is on Housing Benefit will not be able to afford any property in the private rented sector and they are going to have to be housed in the social rented sector?

Chris Town: I think there is a danger that there is a race to the bottom here, whereby landlords will exit the market once they have reached the cut-off point. Certainly in my particular area in Leeds, we were part of the pathfinder and there was quite a flight of landlords from the sector when LHA was introduced because of the insecurity of receiving or hoping to receive the rent. So the overriding factor that landlords dial into this is the security of receiving the rent. There is some flexibility around the rent level, as has been illustrated by the survey results, but that is weighed against the actual security of receiving the rent in the first place and that is an important factor.

Chair: I was going to bring Stephen in here.

Q85 Stephen Lloyd: In a way that tails in with precisely what I want to ask. We have not got a lot of time, so I am really cutting to the chase with what I think is the most important issue. I would be interested to hear what you have to say. What difference would it make to the rented sector if we went back to direct payments to landlords?

Chris Town: I think it would bring more security and there would be less inclination for people to exit the sector, but there has always been a resistance to rent to Local Housing Allowance tenants or Housing Benefit tenants on the basis that those tenancies take much more management effort; there are more losses involved. Even with direct payment there is a risk that the tenant is receiving benefit that he is not entitled to and the landlord will then have to, if he is on direct payment, pay that benefit back with no hope of receiving any rent support from the tenant, because clearly he does not have the means. So it has never been a great business proposition to be involved in that market.

Q86 Stephen Lloyd: No, I can appreciate that, so that is why I am coming back to the point of direct payments. I see a lot of landlords in my constituency; I have had numerous discussions on this. If we remove some of the reasons why we moved away from direct payment for the minute and just come back to where we are today, which is that there is going to be an area of substantial change around Housing Benefit, we all understand that-we heard it often in the last hour and a half-from your perspective what difference with your clients, customers, members, would it make if it went back to direct payments straight to landlords?

Richard Jones: I think it would help greatly. It would allow some people to say in the market. Probably a considerable number of landlords would reconsider their positions, because obviously they are looking at the real return and if they have an assurance of payment-in our evidence we likened it to secured and unsecured lending-through direct payments then I am sure that a number would then agree to remain in the market. Without that, I think there is going to be a huge flight from the market and, as I think other witnesses have agreed, there are many alternative markets for them to look at.

Stephen Lloyd: You are both in the same body, and you’re in a different one, but broadly you would agree with that statement?

Ian Fletcher: Yes.

Q87 Sajid Javid: Just to clarify something there, Mr Town, is it currently the case that if a landlord receives rent from Housing Benefit but it turns out later that that recipient of Housing Benefit was not entitled to the benefit, is the landlord legally liable to pay that back?

Chris Town: He is requested to repay that benefit.

Q88 Sajid Javid: Is there an actual liability?

Richard Jones: Can I come in? Yes, there is and I think one can broadly say nowadays under the current regulations, if it is in some way the landlord’s fault that there has been no repayment, the local authority will look to the landlord-for example, if there is a failure to notify that the tenant has left the property. On the other hand if it is the tenant who has been working on the side and not declaring the earnings, the local authority are more likely to after the tenant rather than the landlord.

Q89 Sajid Javid: As you describe it, that sounds quite reasonable. Is there any change there that you are advocating that would help?

Chris Town: In practice that varies between local authorities and how they apply the regulation, and the first principle is that it is the person who has received the benefit who they would pursue in the first instance in most cases. The landlord would then have to argue his case that he would not have the knowledge that the tenant had been working, for instance, and not declaring that income. So it is not a certainty that it would always be pursued from the tenant.

Richard Jones: That is why I used the word "broadly" when I made my statement.

Ian Fletcher: I would just add to the direct payment point. There are two aspects of the current system that lead, almost inevitably, to bad debts for landlords. First, the landlords are paid in arrears, whereas most other tenants are paying in advance, so there is never that cushion should the tenants run off without paying; and secondly, in comparison with social landlords where the occupier will tend to stay in occupation even if they have not paid and the social landlord is allowed to attach some sort of repayment plan against their income, that is not the case in the private rented sector. If the person runs off with the money, you cannot attach any sort of income repayment plan through the courts to repay that rent.

Q90 Sajid Javid: Okay. So is there any reason to think that if rent was paid upfront for a number of months by the councils directly to the landlords-so, say six months’ rent in one whack-do you think that would encourage landlords to reduce their rents, in exchange for upfront payment?

Chris Town: Yes, I think it would broadly it would give landlords confidence that they have a rental stream that they can rely on.

Q91 Sajid Javid: Any estimate that landlords might cut by 5%, 10% or something, or any estimate on that?

Chris Town: I think it depends on the area and it depends on what other tenancies are available in that area. I think that is the problem: it is a dynamic business and it does vary quite largely. We have heard a lot of comment on the London market, which is completely different from the rest of the country, and there are differences within the country as well.

Ian Fletcher: To some extent it already happens in the temporary accommodation market, where the local authorities do do deals with agents and landlords to procure property.

Q92 Chair: We’ll leave the direct payments because already there are people who are making up the shortfall between what they can get in Housing Benefit and the actual rent. If these changes go in, your estimate is that that shortfall will be greater and it will be a lot more than £10 a week. So even the direct payments do not necessarily solve that problem if the tenant is still having to find money from their own benefits or their own income if they are in work.

Chris Town: No, it wouldn’t do. If there is flexibility in the market and, for instance, speaking from my own experience, I have a number of tenants who are on LHA and I broadly would not want to lose them; they are good tenants. So there is some wriggle-room there, if you like. Clearly, that is my own personal experience and not generally the experience of everyone. Ultimately, there are other pressures on landlords, from lenders, for instance; if there is a change to the lending criteria, then the landlord has no option but to seek a higher rent because ultimately he has to manage his business financially.

Q93 Chair: You talk about the shortfalls in rent perhaps leading to increased poverty and ghettoisation, and we also have the CPI uprating as opposed to RPI. When you take all of those changes together, what do you think is the future for the private rented sector providing sufficient houses for people who are dependent on Housing Benefit or a LHA? Or are we just going to see more and more landlords just get out of that sector completely?

Richard Jones: I think that is the risk. That was your earlier question, which I think we never properly answered: are LHA claimants going to be squeezed out of the market? I think that the answer is yes. By very definition they are not owner-occupiers; as we have seen in the press, there are likely to be major cuts in social housing and building new social housing is going to come to a standstill; that sector is declining. So it is the private rented sector that has made up the shortfall. I have had a number of individual conversations with local authorities under their various housing option schemes where they have looked increasingly to the sector to provide additional accommodation for those who then receive support through LHA. Landlords are going to look elsewhere if they can find the tenants elsewhere and, from the evidence we heard earlier today, the owner-occupier sector-or those who would otherwise be the owner-occupier sector, should I say-will look towards the private rented sector, and therefore the LHA customer is inevitably going to be squeezed out.

Ian Fletcher: On the ghettoisation point, as somebody whose wife has just had a young son recently in Kingston Upon Thames Hospital, the major concern I would have is that without the Housing Benefit supporting low-paid incomes, there will be an impact on the delivery of public services. I know that the Coalition has policies that will ameliorate some of that in terms of moving to local pay bargaining vis-à-vis central pay bargaining, but that huge issue will take, I would imagine, several years to deliver. In the meantime, these impacts are going to be felt. I think on the CPI point, the previous witnesses articulated our concerns very well in terms of it being no index on which to base a person’s housing costs. I have done some calculations; I have taken the threebedroom rate in Basingstoke just as being something reasonably typical: at the moment it is £170 and if it had been indexed to CPI over the past 10 years, rather than to rents, the difference would be £13 per week. After five years it would be £25; after 10 years it would be £57. So there is significant difference between rental growth and CPI growth, and that would be felt in terms of major shortfalls that people would be facing.

Q94 Chair: So the sense I am getting from you is that people are going to move out of the sector rather than perhaps what Oliver is suggesting, that rents will be driven down by this and, in fact, from your point of view you would try and rent elsewhere rather than to people with Local Housing Allowance.

Ian Fletcher: It is difficult to see where they are going to move to in terms of the announcements yesterday and today on social housing and how to support that. It is difficult to see that the social housing sector is going to deliver those units that have previously been provided in the private rented sector.

Q95 Chair: Is there some scope for local authorities to negotiate with groups of landlords? In other words, by doing that they can fix a rent that is much lower than the going rate in order to place their tenants-the tenants that they have got a statutory obligation for?

Ian Fletcher: There is; we have a largish member called Orchard & Shipman that does just that in Edinburgh. Edinburgh city council are, I think, a very good exemplar of how to pay Housing Benefit. They process claims very quickly. If people do not pay, they enact the vulnerability provisions very quickly, so the bad debts don’t run up. As a result, they have a very good relationship with companies of that kind, who are prepared to take slightly lower rent for the assurances that that sort of system gives them.

Q96 Mr Heald: Just coming in on this, so really the overall weight of your evidence is that it is possible to get better value out of the system, but you need to give better security for landlords in exchange?

Ian Fletcher: Yes

Richard Jones: Yes

Chris Town: Yes, in a nutshell.

Chair: Thank you very much. Thanks for coming in and thanks for your time this morning, and your evidence will be very useful for us when we come to write our Report. Thank you.