Social housing crackdown could cost taxpayers billions

By Savi Hensman

July 6, 2015

Hundreds of thousands of council and housing association tenants in England could face rocketing rents or eviction unless they buy their homes. Though supposedly this will save £250 million a year, it may actually cost billions.

George Osborne, the UK chancellor, wrote in the Sun on Sunday that “it’s time to act on the higher earners who use taxpayer-funded subsidies to live in council and housing association homes when they could afford the market rent others on their pay.

“Those earning £40,000 a year in London and £30,000 a year in other parts of the country will have to pay the market rent, or at least something close to it, if they want to stay in their homes.”

This is due to take effect from 2017-18 and may hit 340,000 tenants.

This claim of “taxpayer-funded subsidies” is deeply misleading. In reality rent from social housing tenants more than covers the costs of maintaining their homes, as the government is well aware.

In theory rent paid by council tenants into the Housing Revenue Account is ring-fenced and should not be used to subsidise other council services or vice versa. But some cash-strapped local authorities have been raiding rent income.

“It has been brought to the Department’s attention that a number of authorities may have sought to transfer funds from their ring-fenced Housing Revenue Account to the General Fund,” stated a stiff note from the Department for Communities and Local Government in November 2013.

“Funds held within the Housing Revenue Account should not be used to cover the costs of other council services.” However the practice appears to have continued.

It is sometimes suggested that social tenants are subsidised because they pay less than councils could receive by renting out buildings for profit. Indeed private rents – where ordinary families must compete with tycoons and property investors – are absurdly high in many areas.

Similarly it could be said that libraries are extremely expensive, since local authorities could make a tidy sum by using the premises as casinos instead. But public bodies are expected to meet social goals, not line their own pockets – and if they can do so in a cost-neutral way, as with social housing, this is good value.

Nor are most of those affected higher earners. Full-time median gross pay in April 2014 was nearly £27,000 a year, so that most households are well above the limit. But this does not mean that all can afford market rents, especially after tax. In Oxford, for instance, the median rent is £16800 per annum. But moving to a cheaper area might mean losing one’s job or the help with childcare from relatives that makes it possible to work.

The chancellor claims that his budget will “be one that rewards work over welfare and allows people to keep more of the money they’ve earned”. But he plans to punish not only those needing social security (often after contributing for decades) but also “working people” who are not on the lowest incomes.

While social housing is not subsidised, selling it off under “right to buy” schemes is. A discount of up to £103,900 is available for each property removed from the social housing stock under this policy, depending on the area and length of tenancy.

One consequence of the threat to take away affordable housing from all but the poorest social tenants is that some of those affected may feel driven to buy, rather than lose, their homes. These might previously have not wanted to take the risk of being repossessed if their income fell or may have objected in principle.

Supposing one-quarter of those affected did so, at an average discount of £70,000 (though some will receive substantially more and others less), the total cost to the public would be about £6 billion.

Others might manage to pay the extra rent, or be forced out, leaving homes free for low-income households on social housing waiting lists, which might save some money. But this might be more than offset by the fall in social housing stock and costs when some of those previously in this accommodation ended up homeless. Jobs and incomes tend to be insecure except for the richest.

In addition, tenants fearing eviction may not seek better-paid jobs or promotion or may work fewer hours, hence paying less in income tax and national insurance. There would also be a financial as well as human cost when carers ended up many miles from the sick or disabled people they had supported, and children in social housing were deprived of role models in regular jobs. Young people might also receive the impression that, if they studied and worked hard, they might risk being cut down to size by those in power. There could also be problems if many key workers such as nurses and firefighters were pushed out of certain areas.

I live in social housing myself (though lucky enough not to be under immediate threat) and am highly conscious of its value to local communities. Osborne, the son of a baronet, son-in-law of a baron and privately educated, undoubtedly has a different perspective.

The austerity agenda is driven by ideology, not economic prudence. The willingness of the government to squander huge sums on such a socially destructive policy is yet another example of this fact.

The notion of housing being there primarily to live in, rather than as a commodity and preferably an opportunity for private landlords to make money, may seem odd, even offensive to the chancellor and his associates. But not everything in life can be bought and sold. It is likely that this, along with other policies that target social housing and public services, will meet strong resistance.

* Full 2015 budget coverage and commentary from Ekklesia at: http://www.ekklesia.co.uk/budget2015

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© Savitri Hensman is a widely-published Christian commentator of politics, religion, welfare and allied topics. An Ekklesia associate, she works in the care and equalities sector.