Ed Miliband is right: Housing Benefit should be localised

Yesterday the Labour Party leader Ed Miliband suggested that spending on Housing Benefit could be reduced by giving local councils an incentive to negotiate lower rents.

Mr Miliband said:

At the moment, we expect individual families to negotiate with their landlords.

In these circumstances, it is almost inevitable that tenants end up paying over the odds.

And so does the taxpayer, in the housing benefit bill.

It’s time to tackle this problem at source.

So a Labour government would seek a radical devolution to local authorities.

And Labour councils in Lewisham, Liverpool, Leeds, Manchester, Sheffield and Birmingham have all come to us and said that if they had power to negotiate on behalf of tenants on housing benefit, they could get far greater savings than the individual on their own.

So a Labour government would give councils this power.

Bringing the cost of housing benefit down.

I was amused by this as councils (such as mine) have been responding to the £26,000 cap on Housing Benefit by negotiating (or requiring tenants to negotiate) a lower rent and overwhelmingly this has been agreed or alternative accomadation has been found in the local borough within the cap.

Even in the City of Westminster City the task has been met. There were 8,000 affected by the Housing Benefit cap, total benefit cap or the cut in the spare room subsidy. Only 100 of these households have had to move out of London due to these changes - and those were usually people with no connection to Westminster.

Yet it had been the Labour Party who claimed that such a negotiation would not be possible and that all those restictions would mean social cleansing resulting in huge number being forced out of London.

However so far only a relatively small number of claimants have been affected. Westminster City Council is not typical. In most of the country the Housing Benefit is well below the cap. However Mr Miliband is on to something when he suggests that the rents being paid are higher than they need be. That they are above the true market rent that would be reached if it was to be proeprly thrashed out.

The problem is that at present councils have no incentive to haggle. They just find a landlord willing to take a homeless family - then they send the bill to the Department of Work and Pensions who pay whatever the Housing Benefit demanded. The taxpayer nationally, not locally pays.

The American writer PJ O'Rourke says there are four ways to spend money:

1. You spend your money on yourself. You're motivated to get the thing you want most at the best price. This is the way middle-aged men haggle with Porsche dealers.

2. You spend your money on other people. You still want a bargain, but you're less interested in pleasing the recipient of your largesse.This is why children get underwear at Christmas.

3. You spend other people's money on yourself. You get what you want but price no longer matters. The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Neiman Marcus.

4. You spend other people's money on other people. And in this case, who gives a s**t?

Most government spending falls into category four.

What is even worse is when local government is spending central government's money - which is the current arrangement for Housing Benefit. "Who gives a s**t?" as Mr O'Rourke asks.

Why don't we apply the same principle of localising Housing Benefit as has been done for Council Tax Benefit (or Council Tax Support as it is now called)?

The Government devolves it to local councils to find savings. They are given 90% (or 85% or 80%) of the existing budget. If they save more they can keep the savings. If they save less they have to make good the shortfall from their own budget. The incentive would not just be to negotiate lower rents but also to reduce fraud and error.

Reducing the Housing Benefit bill by 20% would save £4.4 billion. That would be a tough challenge for local authorities.

But if there is consensus support for it then what is the Government waiting for?