Switching from benefits to building

The welfare reform debate inside the Labour Party appears to have reached a crossroads ….. again. There are 3 basic positions vying for attention: those that think some cuts and reform are justified because of the deficit; those that think welfare reform is popular with the public therefore Labour should go along with it in order to win; and those that think the current scale of cuts are not justified economically and that, even if they were, they should not be targeted on the poorest.

I am in the third camp, but it does not mean that I am not in favour of major reform. And I am strongly in favour of Labour winning Elections. But the debate needs to go a lot deeper than the ‘how to deal with the deficit’ and ‘strivers versus scroungers’ arguments that Labour constantly gets pushed in to.

The welfare debate cannot be removed from the wider context of society. Income inequality has been rising since around 1980, according to figures produced by the Resolution Foundation’s Commission on Living Standards. In 1977, of every £100 value generated by the economy, £16 went to the bottom half of workers in wages. By 2010 this had declined to £12, down 26%. Annie Quick in the New Statesman this week comments that the bottom fifth would be £2000 a year better off – their incomes would have been 18% higher – if the income distribution had stayed the same.

The decisive shift towards greater inequality came in the 1980s under Thatcher; the trend continued under Labour and there can be no doubt it has accelerated again under Cameron. The prevalence of sub-minimum-wage jobs (where there is a scandalous lack of enforcement), devices like zero hours contracts, self-employment and labour casualisation, and pay cuts, mean that there has been a substantial squeeze on wages at the lower end of the scale. This squeeze on wages is now in turn being used to drive the case for cutting benefits: the Tory line that people should not get more out of work than in work (they don’t but that’s a different point) has gained a lot of traction. The Tories have engineered the position where the in-work poor and the out-of-work poor are racing each other towards penury.

In housing, there is a strong case for reform of the housing benefit system but it is nowhere near the argument that Iain Duncan Smith puts. We should start by repudiating the Tory narrative that HB is ‘out of control’. The size of the HB bill is the direct and predictable consequence of rising unemployment and policy decisions taken over many years – the failure to build in response to the collapse in affordability of home ownership; the minimal building of benefit-light homes for social rent; the sale of council houses which become privately rented at twice the rent or more; the policy of pushing more poor people into private renting generally; demographic change. The most rapid increase in HB claims has been from people who are in work: it must annoy the Tories to realise that the more they complain about HB the more working people realise that they can claim it – and the higher the bill goes.

That we have ended up in a bad place is undoubtedly true – 95% of the money going into housing goes to help people pay the rent rather than building homes – but we are here as a consequence of deliberate policy. Governments have wanted to marketise housing, increase rents and, in the words of former Tory Housing Minister Sir George Young, ‘let housing benefit take the strain’.

This week’s statement by Labour’s shadow work and pensions secretary Liam Byrne that the way to get the housing benefit bill down is to build more affordable homes is therefore very welcome. This is a genuinely radical shift in thinking and emphasis and leads to potential reforms that deserve strong support. Byrne told the Evening Standard that the initial step must be to get people into work through the jobs guarantee and ‘to show how savings can be made on housing benefit by increasing the amount of homes there are for people to go to.’ He said: ‘Billions are spent with private landlords yet we ask nothing in return. We are spending £24 billion on housing but hardly building any houses. No wonder rents are soaring. We simply cannot go on like this.’

Labour should put its energy into thinking through practical policies that achieve a switch from benefits to building. A coherent switching policy would work in tandem with principled opposition to the appalling bedroom tax and the clearance of poor people from more affluent areas. The Tories are offering punishment of the poor, Labour could offer a genuine alternative – cutting benefits by putting people back to work and building homes that people can live in with much smaller benefit support.

We should not pretend it is easy. In 2012 the IPPR report Together at Home recommended a radical shift in public spending away from benefits and back towards bricks and mortar. Finding the precise mechanisms for achieving this has its difficulties because the investment has to be made before the savings in benefit can be realised. In my view, IPPR went down the wrong path by suggesting that this could be achieved by what they called ‘progressive localism’, rolling all housing budgets together and then localising them, leaving it to local discretion what the balance between benefits and investment should be in any particular area. As with council tax benefit, this would lead to an entirely unhelpful postcode lottery and potentially bizarre conflicting policies within the same housing market areas.

The answer lies in matching our housing aims closely to our aims to achieve growth in the economy. The collapse in construction activity was central to the second dip of the recession and almost caused the third. The sector continues to decline despite all the talk and Government meddling with planning and the rest. Labour has to be even bolder in its commitment to affordable housebuilding. A modest increase in investment subsidies, say back to 2008 levels, could generate a large council housebuilding programme and help housing associations to build many more genuinely affordable homes at social rents. The multiplier effects would give the economy a major boost in the right way: creating lots of jobs without generating inflation and without sucking in imports. By rehousing people in receipt of housing benefit (in work or not) currently living in expensive private rented homes (and in particular temporary accommodation), the benefit bill would start to come down.

Housing investment could be the way out of Labour’s welfare reform dilemma. We could achieve cuts in the cost of benefits. We could have an attractive policy based on getting people off the dole into real jobs. And we could shift decisively away from policies that punish people for being poor.

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3 Responses to Switching from benefits to building

  1. Anon says:

    “We are spending £24 billion on housing but hardly building any houses.”

    If we build houses, then the state needs to maintain them. The public sector is hugely inefficient at maintaining houses. It is not a production line and you don’t always get economies of scale.

    The Decent Homes programme (maintenance) cost £40billion alone. It is a never ending maintenance programme. The current social housing stock is largely undersirable residences such as tower blocks. Whilst the private sector has the oldest stock, it is still a more desirable place to live.

    If the state decided to build more new homes it would cost at least of £600 billion (I have used the housing benefit figure to get a guidance on the cost of new home). Plus, these new homes will always be a drain on public finances as they have to be maintained and that includes the salaries of housing ‘managers’. They also need to at least £30 billion for the interest.

    Currently the private landlord, are managing their own rental property. So there is no management cost. Most landlord have a full-time job, and this is something they do. They dont’ need offices etc..

    The £24billion does not always end up with the landlord , as tenants often don’t pay their rent. Perhaps, the missing billions can be claimed back from tenants, who spend their housing benefit on other things.

  2. I have been saying this about housing for some time so it’s gratifying that Labour are going to
    make it happen.But don’t pussy foot around,build enough social housing to make a real
    difference and cap social and private rents.Also end the right to buy so the housing stock is
    preserved for future tenants.

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