Bedroom Tax – Is the gain really worth the pain?

It seems that tackling overcrowding and the shortage of social housing are just a smokescreen for using bedroom tax as a way of reducing the welfare budget. If the Government do not have a radical re-think (and quickly), then this is something they could live to regret

Source:http://www.coalitionwatch.info

The much publicized ‘Bedroom Tax, was introduced on 1^st April 2013 under the Welfare Reform Act 2012. The new rules restrict the amount of benefit a claimant can make for each bedroom, if they are renting their home, and is based upon the number of people in the household. A reduction of 14% of the rent is applied for one ‘spare’ bedroom and a higher reduction of 24% of the rent is applied for two or more spare rooms. The ‘under occupancy’ changes mean that housing benefit can only be claimed for one bedroom for each person or couple living as part of the household, with a number of exceptions: Children under 16 of same gender are expected to share; children under 10 are expected to share regardless of gender; a disabled tenant or partner who needs a non resident overnight carer will be allowed an extra bedroom. The Joseph Rowntree Housing Trust, provide the following examples in their Welfare Reform Information Sheet:

Stuart and Isobel live in a four bedroomed property and have three children – Jenny who is 12, Max who is 9 and Alice who is 6. Under the rules, the parents (Stuart and Isobel) would be entitled to Housing Benefit for a three bedroomed property (one room for Stuart and  Isobel, one room for Jenny and just one room for Max and Alice to share). 

Sonia is a single parent and lives in three bedroomed property with two children, Rachel who is 11 and Peter who is 9. Under the rules, Sonia would be entitled to Housing Benefit for a three bedroomed property (one room for Sonia, one room for Rachel and one room for Peter. As Rachel is over 10, she would not be expected to share with Peter).

In July 2012 Minister for Welfare Reform, Lord Freud claimed that bedroom tax will ease overcrowding and help tackle the shortage of social housing. The article makes interesting reading (Extract):

‘The policy is estimated to affect 660,000 households, who will lose £14 a week on average.  Lord Freud said: ‘Nearly a third of working-age social housing tenants on housing benefit are living in accommodation which is too big for their needs, in spite of the fact of severe overcrowding…..We are stopping the practice of the state paying for rooms beyond claimant needs, and that should go in some way to help tackle the social housing shortage that has been blighting too many lives.’  

Source: http://www.taxresearch.org.uk/

Sometimes you look at something and wonder what on earth was in the minds of the people who thought it up.  Based upon Lord Freud’s statement above, the government think that bedroom tax is something that will relieve overcrowding and tackle the social housing shortage! Last week I watched an interesting interview on BBC news with a Chief Executive of a North West Housing Association who was being asked about the introduction of Bedroom Tax.  He questioned the government’s motives for its introduction and went onto to say; ‘people’s lives cannot be managed by what appears at the bottom of a column on a spreadsheet’.  This demonstrates well how detached politicians often are when they pay little regard to the reality of their decisions.

It is no secret that the UK welfare bill is haemorrhaging money at an alarming rate and this a particular burden to the treasury.  The government expect annual savings of nearly half a billion pounds as a result of welfare reforms from a current annual cost of £200 billion pounds a year, of which £48 Billion is spent on benefit payments to unemployed and low income claimants (link). Even though we need to significantly reduce benefit payments, the savings made as a result of bedroom tax are a mere drop in the ocean.

Therefore, is the introduction of bedroom tax a way of tackling overcrowding and the social housing shortage as Lord Freud suggests or is it a pitiful attempt to save money?  Well, let’s look at overcrowding.  For this to reduce it would obviously require larger families to live in larger accommodation.  For this to happen it would need those who are 'over occupying' to move into smaller accommodation, thereby freeing up this larger accommodation. The problem with this is that even if over occupiers wanted to move social housing providers do not have a ready made supply of smaller accommodation for them to move into.  Construction output is currently low so we are not building new accommodation in any volume. While supply remains low with high demand, there will be limited new additional social housing to be of any help to the overcrowding problem.  Therefore bedroom tax will have limited to no impact on overcrowding.



Barclay’s, UK Social Housing Sector third quarter review for 2012 (link), identifies that demand for social housing continues to grow with over 1.8 million households in the UK currently on social housing waiting lists. It also makes reference to the fact that the social housing budget was cut by more than 50% in the Comprehensive Spending Review in 2010 which was a key factor in the fall in social housing provider’s new developments.  It seems a little contradictory that Lord Freud suggests that bedroom tax can help to tackle the social housing shortage when he is part of a government that have pulled the rug from under the feet of social housing developers by halving their budget.  Will bedroom tax have any positive impact on the social housing shortage?  I cannot see how, can you?

The conclusion therefore has to be that the introduction of bedroom tax will result in unnecessary hardship for many who are currently on welfare benefits, which is completely disproportionate to the savings/benefits that will be made.  In real terms what is likely to happen is an increase in rent arrears, particularly when housing benefit is paid directly to the tenants when Universal Credit is introduced later this year in October.  This will ultimately result in an increase in evictions and undoubtedly also increase homelessness. 

Chief Executive of the National Housing Federation, David Orr, provides an appropriate conclusion for this article:

“The bedroom tax is an ill-conceived policy which will hurt the most vulnerable people in our society. It will cause financial hardship for hundreds of thousands of families and cause huge upheaval around the country........The government’s assumed savings are questionable and this policy could ultimately cost the taxpayer more in the long term. It takes no account of the fact that there are not enough smaller homes in the social sector available for people who are under-occupying to move into. For them, the only options will be to take the financial hit or to move into a smaller home in the private sector, which could lead to higher housing benefit claims. The real solution to the housing crisis is to build more homes and bring down the cost of housing to reduce the benefits bill”

No-one will really know the true motives of those who came up with the idea of bedroom tax. It seems however that tackling overcrowding and the shortage of social housing are just a smokescreen for reducing the welfare budget. I am sure that if the Government do not have a radical re-think (and quickly), that this is something they could live to regret.

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Bedroom Tax - Penalty or Profit?

It is hard to believe that the introduction of bedroom tax will have any impact on overcrowding as the government does not expect people to downsize.  If people do not move, all that will be achieved will be further hardship for the genuinely needy and vulnerable in our society who will have their benefits reduced.

Most people would probably agree that there is a need to radically review the social welfare system to try to address issues such as fraud, difficulty in administration and enforcement and to try to plug the financial burden on the UK by making it pay to work.  Over the years there has been a lot of media publicity with stories of those claiming benefits being better off not working than actually taking a paid job.  In their manifesto, prior to the last general election the Conservative Party were very bold in their plans for the future of the welfare system, and now in government, as part of a coalition we are about to see some of these plans coming into force under the Welfare Reform Act 2012.

In addition to unemployment the welfare reforms are also trying to address issues such as overcrowding and will penalise those on benefits who are deemed to not be using their rented accommodation to its full capacity by reducing benefits for under occupancy.  This is something that is commonly being referred to as 'bedroom tax'. Presumably the idea is that social housing providers will be required to match the needs of their tenants with the size of property they actually need, and no bigger!  In an article in Inside Housing on 23rd July 2012 the welfare reform minister Lord Freud claimed that bedroom tax will ease overcrowding and help tackle the shortage of social housing. The article makes interesting reading (Extract):

'Speaking at a Local Government Association conference this morning, the welfare reform minister defended the controversial policy, which will see social housing tenants of working age docked benefit for having a spare room. The policy is estimated to affect 660,000 households, who will lose £14 a week on average. 

Lord Freud said: ‘Nearly a third of working-age social housing tenants on housing benefit are living in accommodation which is too big for their needs, in spite of the fact of severe overcrowding. 

‘We are stopping the practice of the state paying for rooms beyond claimant needs, and that should go in some way to help tackle the social housing shortage that has been blighting too many lives.’ 

The policy is controversial as the £430 million of savings expected by the government is based on an assumption of ‘little tenant mobility’ – suggesting the government does not expect people to downsize'

Source: http://www.gentoogroup.com

It is hard to believe that the introduction of bedroom tax will have any impact on overcrowding and Lord Freud openly admits that the government does not expect people to downsize.  If people do not move, all that will be achieved will be further hardship for the genuinely needy and vulnerable in our society who will have their benefits reduced. This makes one question if overcrowding is just a smokescreen and the main motive is a stealth reduction in benefits.

In any event, if those affected were willing to move, where would they go? Have the government forgotten that there is a shortage of housing in the UK particularly in the social housing sector. In my local area the Coventry Telegraph recently reported a chronic shortage of social housing with almost 20,000 families on the homefinder waiting list – with 10 per cent deemed in urgent or extremely urgent need. This situation is typical to varying degrees across the UK.   As there is already a major shortfall in available housing, social housing providers will not have the opportunity (nor the time) to play 'match the property' if approached by a tenant who wanted to move to avoid falling foul of bedroom tax, as their more immediate priorities will be trying to address their ever increasing waiting lists and also homelessness. 

Bedroom tax is proposed for introduction in April 2013 under the Welfare Reform Act 2012. As it is mandatory to comply with legislation then there can be no question about its legality from the moment it is introduced.  A key point however is that in most cases the legislation (once introduced), will apply retrospectively and will affect many tenants claiming benefit who have been in residence in their homes for many years. It will be interesting to see if any legal challenges are made any tenants who claim that they are being penalised for something that they were not aware of at the start of their tenancy, and if they had been they may have opted for a smaller property.  Also, as there may be no suitable smaller properties available a tenant may argue that they are willing to move, but through no fault of their own they cannot.  

Lord Freud also suggested that taking in lodgers could be a solution for tenants hit by the tax!  An earlier article in Inside Housing on the 20th July claims that tenants will be able to keep rental income from lodgers without affecting their benefits!

'The major impact of the move, which the Department for Work and Pensions described as a ‘positive side effect’, is that it will help under-occupying tenants pay the bedroom tax. The change was made possible because the government has amended what counts as income in its draft regulations for universal credit.  

Currently, claimants must declare income from lodgers. This can affect their entitlement to housing benefit, jobseekers’ allowance and income support.  

Under the new regulations, from October 2013 tenants will be able to keep income from lodgers and retain full entitlement to benefit. The room let to a lodger will, however, be classed as a spare room and fall under the bedroom tax, which will be £14 per week on average'.

How ridiculous is this? This is suggesting that someone claiming benefit can now make an income by letting any spare rooms and best of all this will not impact on their benefits!.  How exactly is this going to encourage people into work, when they can have a nice little rental income sideline?  Will they pay tax on this income? Does the letting of a spare room need to be to someone who is working or will they also be claiming benefit? 

Whichever way you look at bedroom tax it is easy to foresee the fiasco that is waiting just around the corner when it is introduced.  This is undoubtably going to prove to be an administrative nightmare and it is difficult to see how it will achieve the purposes for which it will be introduced.

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.