Housing and welfare reform

Speech by Lord David Freud.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon Lord Freud

Over the past four years I have been struck time and time again by the sheer scale of the welfare system and the fine balance that needs to be struck between supporting people in a way that is fair and affordable and yet which still encourages work and self-dependency. Achieving that balance should be, I believe, a priority for all of us here.

The numbers are huge. In 2009-10 the Government spent £192 billion on welfare and pension payments, compared to £35 billion on defence, £50 billion on education and £98 billion on health.

Housing Benefit is a significant part of this expenditure. Over the last 10 years Housing Benefit has roughly doubled in cash terms from £11 billion to nearly £22 billion from 2000-01 to 2010-11. Without reform it is forecast to reach nearly £25 billion by 2014-15.

The number of people involved is also very large. There are currently five million people claiming out of work benefits and of those over one million have spent the last ten years on benefits.

New analysis into Jobseeker’s Allowance claimants has revealed that many people cycle through the system several times. So, over 190,000 jobseekers have been claiming Jobseeker’s Allowance for three out of the past five years.

Behind these numbers there is a story of individual lives perhaps unfulfilled because that person is trapped in a benefit system that:

  • discourages them from working,
  • discourages them from taking responsibility for themselves ,
  • discourages them from breaking the cycle of poverty that blights so many of our poorest areas.

Public investment in tackling poverty must be about more than a straight income transfer. Welfare spending over the years has got out of control. Yet despite this - and despite a booming economy - the numbers on inactive benefits remained broadly static.

A situation has developed whereby generations of the same family have never worked, people exist outside the normal day to day of working life and poverty deepens - both in financial terms but also in hopes and expectations.

That’s what is really at the heart of this issue - the lost human potential.

Lives blighted by poverty, poor educational achievement, addiction, debt, family breakdown and unemployment.

And for all of the initiatives launched by the Government the gap between rich and poor has widened and social mobility remains at a shamefully low level.

The really galling thing about this is that it is the very system intended to provide support that has created this situation.

As it stands the benefits system is costly, ferociously complex, and rife with disincentives to work. This is unfair to those claiming benefits and even more unfair to the taxpayers who have to fund the system.

Housing Benefit is a case in point. In some situations the State was supporting people to live in homes with such high rents that they had no realistic chance of earning enough to cover the rent independently and to escape benefit dependency. And in many cases those homes were more desirable than those afforded by low income non benefit claimants.

The same applies more generally. As a result of the way the system is structured too many people find that they are better off unemployed than in work. For them, regardless of how well we could support them back to work, it would be completely irrational to take a job.

Faced with this rather bleak outlook the DWP Ministerial team and I were keen to get started on reform.

And we have not wasted any time, the Welfare Reform Bill has now been considered by the House of Commons and received its first reading in the House of Lords just last week.

The revolutionary new Work Programme, which will provide tailored back to work support for the unemployed, was launched the week before that.

We’ve moved quickly.

And we were able to do so because we were all guided by the same three principles:

Fairness - the new system has to be fair to both benefit recipients and to taxpayers

Affordability - in difficult fiscal times we have to keep an eye on our budget, but more than that, the Government proved that throwing money at this problem won’t fix it. We have to spend smarter and ensure the investment we make creates a real change for the unemployed and inactive.

Finally ending benefit dependency - this is not just about the soaring benefits bill, it’s about people, families, children. Everybody deserves a decent chance at improving their lot. Welfare reform is about empowering people to make a change for themselves.

So, what does this mean in practice? Well we’ve launched a two-pronged attack; a total overhaul of the benefits and tax credits system and an effective, personalised back to work programme.

I’d like to talk a bit about both.

Firstly, reforming the benefits system.

Consecutive governments have grappled with the benefits system, often adding layer upon layer of complexity in their attempts to make improvements.

I’m sure many of you here today have struggled at times to explain the array of different benefits - and the way they interact - whether you’re a Housing Association trying to support your tenants or a Local Authority helping the people in your area. No one could claim it’s straightforward.

We have needed to rethink this system from the ground up.

Our plans will simplify the benefits system, creating a single income-replacement benefit for working age adults - the Universal Credit.

At the heart of Universal Credit is the simple goal that work should always pay.

The key features of Universal Credit are:

It is simple to understand and access.

By bringing together both in and out of work benefits people will continue to receive the right level of support when they move into work, without the risk of losing one award and having to apply for another.

Withdrawing support gradually at a single rate means that many people will be able to work more hours and keep more of their pay, ensuring work pays, even for those at the bottom end of the pay scale looking to take on extra hours or a modestly paid job.

Universal Credit is there to support people when they need a safety net - but in return claimants will be expected to take their responsibilities seriously. And because the system is simple to use there will be no excuse for cheating.

The real time link between earnings and benefits information provides immediacy for people. Benefit support comes when it’s needed. Earnings from work boost income straightaway. People immediately start to see the difference to their income when they do work.

By basing support on financial need, not crude measures of employment status, we remove barriers to work.

Under the old system some people on Housing Benefit and Council Tax Benefit could lose as much as 96 pence for every extra pound they earned.

Universal Credit reduces this to around 76 pence for modest earners and 65 pence for low earners improving the work incentives of 700,000 people. It is also designed to encourage people into the world of work by leaving benefit levels untouched at very low earning levels.

The broader impacts of introducing Universal Credit make the argument for reform even more compelling.

Around 2.7 million households will have higher entitlements - for over one million this will amount to more than £25 a week.

We anticipate more people will take up benefits once the system is simplified, potentially lifting 600,000 adults and 350,000 children out of poverty.

And the combined effects of welfare reform could lead to 300,000 fewer workless households.

We are currently designing and building Universal Credit.

It is structured around the claimant’s end to end experience, not just through the benefit system but into sustainable work. We’re working with claimants to test the new system as we go.

We are making good progress and have already completed the first stage of detailed design. Delivery is running on time and on budget.

We expect the first new claims for Universal Credit to start in October 2013 with all existing customers moved to the new system by 2017.

Alongside this radical welfare overhaul we are revolutionising employment support with the launch of the Work Programme.

And it truly is a revolution.

Contractors are paid almost entirely on results and success is measured over a long period - up to two years for those who are hardest to help.

The payment structure recognises that some people need more support and payments are higher for the harder to help groups. Some of the savings from the benefits bill will go towards paying for the success of providers.

This varied payment structure combined with longer contracts has encouraged the private and voluntary sector to invest up to £580 million in the first year.

We’re also trusting the professionals - the so-called black box approach. We want organisations to be free to do what they know works and so beyond a few basic requirements we will not dictate how this support should be delivered.

The Work Programme will replace the failing employment support programmes and deliver effective back to work provision for the first time.

Together Universal Credit and the Work Programme will ensure people get the help they need to leave benefits and return to work.

So, you may well be wondering where Housing Associations and Local Authorities are in this picture.

Well first off, there are opportunities for all kinds of organisations to get involved in the Work Programme and I know a handful of Housing Associations have already arranged to get involved in supply chains.

But returning to Universal Credit we have already made clear that an element will be added to the Universal Credit award to help meet the cost of rent and mortgage interest.

For those who rent their accommodation, this amount will be similar to the support currently provided through Housing Benefit once we take account of recent and imminent reforms.

To further simplify the system for pensioners Housing Benefit will be combined with Pension Credit.

I know many of you may be interested in what will happen to direct payments to landlords under the new system.

Welfare reform is about empowerment.

We want to ensure that the experience of Universal Credit claimants mirrors that of other low income families who are in work as far as possible - to make the move off benefits and into work as smooth as possible.

For this reason our starting position is that people should manage their own budgets, including paying rent or mortgage, in the same way as other households do in work.

However, we recognise the importance of stable rental incomes for social sector landlords.

And we said in the Welfare Reform White Paper to develop Universal Credit in a way that protects the financial position of social sector landlords and keeps a facility to pay landlords directly.

We are still working through the detail of this and will continue to work with benefit claimants and the housing sector.

Local Authorities will have an important role in the transition to Universal Credit.

Until Universal Credit is fully rolled out, Local Authorities will continue to administer Housing Benefit as well as Council Tax support.

Beyond that there may still be a role for Local Authorities in face to face delivery of Universal Credit.

In the meantime we are reforming Housing Benefit.

In some cases people were living in homes that other low income households could simply not afford. And with rents so high that they had no realistic chance of ever earning enough to escape benefit dependency.

And more generally people on Housing Benefit were paying more rent for their homes than low income households not on Housing Benefit.

By exercising tighter control over the Housing Benefit budget, we aim to moderate the upward growth in private rents.

So, we are reforming Housing Benefit to make it fairer to both those claiming benefits and the taxpayers who support them.

From April this year we changed the way Local Housing Allowance rates are set and imposed an overall weekly cap so that the highest rate is now £400 per week - still no small sum - more than £20,000 per year in total.

Measures included in the Welfare Reform Bill will also ensure that people in both the private and social sector continue to act responsibly and make choices about the size and location of their accommodation based on what they could afford if in work and not on benefits.

Our assessment is that the vast majority of Housing Benefit claimants will remain in their homes.

However, we accept there may have to be some adjustments and have made transitional support through sharply increased discretionary housing payments available to Local Authorities to help people make the necessary changes.

For the minority who will have to move, there will be support to help them find more suitable, sustainable accommodation.

These reforms are guided by the principles of fairness, affordability and achieving an end to benefit dependency.

But the Government knows it cannot do this alone.

There are real opportunities for the organisations represented here today.

I know many of you are already getting involved. For example the Housing Associations I mentioned earlier who are already becoming part of the Work Programme supply chain.

As the Work Programme contracts bed in, partnership working will be a firm feature of delivery and I expect supply chains and networks will grow and evolve over the lifetime of the contracts, advancing on experience of what works and bringing in others to maximise success.

I know many of you will already be working with your tenants or the people in your local area to do more than just provide housing.

Some of the Housing Plus activities I have seen are no less impressive, no less innovative than our best bids for Work Programme provision - and provides much food for thought as we consider how to support claimants in future. I am very conscious that the State must find a way of helping the most vulnerable families on a holistic and cost efficient basis. There is no reason why you cannot build on what you are doing to help us get to grips with this fundamental imperative - and expand your partnership working to increase the impact of the work you do even further.

We are poised and ready to deliver real change for benefit claimants. I am looking to you to help us with this social transformation.

Thanks very much.

Published 22 June 2011