Making work pointless

This Tory government seems to have missed the fact that their new ‘affordable’ rent regime creates massive disincentives for work and pushes people into the benefits system. For a government that considers people being helped and supported by the government as suffering from ‘dependency’, they’ve missed the fact that they’ve made the problem a lot worse for working tenants.

They are forcing people into claiming benefits by charging rents they can’t afford. That means they severely penalise people for working more, getting higher paid work, or someone else in the household finding a job. They’ve created a new benefits’ trap with very steep sides.

Since we had Cllr James Murray blogging for us a few days ago, let’s take what would happen to a modest earning Islington tenant as an example.

80% of the average Islington rent for a 2-bed place is £396 a week. If you earn say £20,000, that’s already more in rent per week than the £306 you earn. So, you get housing benefit and as a working household, there is no benefits cap, so you can claim what you need to cover the cost.  

All well and good isn’t it?

But what if you begin to earn more? For every extra pound you or your household earns, 65p of your housing benefit (as part of the new Universal Credit) gets withdrawn. Every new pound earned is actually worth 35p. 

So, get a promotion and take home £2k more? You’ll actually get £700. Do a week’s worth of overtime for £380, you’ll see £135. And if you have a partner out of work and they move into a job, bringing home say £8,000, you’ll effectively have only £2,800 extra, until you escape entirely from the benefits trap.

For comparison, average Islington social rents are about £85 – affordable within a weekly budget of £306. And every extra pound you earn you keep. Doing overtime, winning promotion or having someone else in the house get a job are all 100% worthwhile financially.

The point is that social housing doesn’t need to be a form of ‘dependency’. Low rents in secure homes can be the platform which allow people to earn modest salaries and stand on their own two feet without state benefits.

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3 Responses to Making work pointless

  1. Pingback: Is Social Housing Welfare? | Red Brick

  2. Eleanor Young says:

    Well said. This is exactly right. The answer of course is to stop fiddling around with the tax and benefits systems and just build more genuinely affordable homes.

  3. Dan Filson says:

    And if the family is also liable to income tax, the effective marginal rate is at or over 85%, and more still if there’s national insurance. It is one of Labour’s failures that the issue of the effective marginal rate for those on council tax and housing benefits was not sorted comprehensively, and this has opened the door for IDS and his magic wand, though we should all note he does not bring it into effect until the year following the next General Election.

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