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Spare room subsidy cut is saving far more than thought as many come off benefits altogether

BarnetlogoThe TUC funded group False Economy has discovered that the cut in spare room subsidy has caused an increase in rent arrears. This is unfortunate but not surprising. The change will be difficult in the short term while the tenants affected make adjustments in their arrangements. Whether taking in a lodger, getting a job, or moving to a smaller property, there will be a period of time before matters are sorted out.

Of course many started planning before April when the changes came in but it is human nature that others delay making changes as long as possible. It is right to offer transitional help.

Labour seems to have shifted towards calling for the spare room subsidy to be restored. The Shadow Work and Pensions Secretary Liam Byrne says: "This is the final proof, as if we needed it, that the hated tax must be dropped and dropped now."

I suppose at the next election Labour could say: "Yes we did want it dropped in 2013 but it is now 2015 and so it should be kept - the time to drop it has passed." I think that would be a difficult message. Probably we have that rare sighting: a Labour policy.

So how would Labour pay for reinstatement of the spare room subsidy? The Government modestly estimated that it would save about £540 million a year. That assumes that 660,000 households stay where they are, don't change their behaviour, but simply find the extra £15 a week in rent (on average) by cutting their spending on other things.

Yet in reality many will change their arrangements. Those who swap with a family in overcrowded conditions won't cause a saving in Housing Benefit (although, of course, such a change is greatly to be welcomed by all fair minded people.) On the other hand, those who take a job as a result of the change and come off benefits altogether save the taxpayer much more.

Some figures I have seen from Barnet Council suggest the impact of the policy in causing people to switch from welfare to work has already been very significant. On the National Housing Federation's estimate there are 2,000 households in that borough affected. Barnet Council tells me that "the number of cases that were affected by the under occupancy charge as at 01 April 13 and who are not now in receipt of Housing Benefit is 228 cases."

It is reasonable to say that there would have been some fall anyway. Unemployment generally has fallen in Barnet since April. But at less than half that rate. It is also true that some of those on Housing Benefit will have been on part time work and will have increased the numbers of hours.  However, it is also reasonable to believe that more of the 2,000 affected were prompted to seek work as a result of this change, than otherwise might have done so.

If only 10 per cent of the overall 660,000 households affected have someone who switches into work as a result of this change, then the savings for the taxpayer become much greater than the £540 million estimated. Housing Benefit averages around £75 a week, JSA is another £71.70 a week. If 66,000 people are off these benefits then the taxpayer saves another half billion or so. Then there is the tax revenue that is being paid as a result of them working.

It's early days. It's only Barnet. Perhaps the figure will end up being below 10 per cent nationally - I suspect it will be higher.

The difficulty for Mr Byrne is that by the time of the 2015 General Election it will be much clearer. By then we will be better able to estimate just how effective the spare room subsidy cut has been in rewarding work and thus providing a saving for the taxpayer.

Mr Byrne has said "there is no money". So where would the extra billion come from? Also why spend a billion pounds to restore an arrangement which meant more families in overcrowded conditions and more under-occupiers better off on welfare than work?


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