Why Housing Benefit should be paid from locally raised taxes

Even if the debate about Housing Benefit has gone wrong in many ways, it is a good thing that it is being held at all, if only to raise awareness about the issue. The HB bill is running at about £20bn per year. In a country with 30.5m income-tax payers, that makes £650 each, never mind the cost of social housing and other forms of rent subsidies. Moreover, it is not a secret anymore that a major cost driver is the heavy concentration of HB recipients in high-rent areas. There is not a single borough in Inner London where the prevalence of HB dependency is not above the national average; and in some boroughs it is more than twice that average.   

No problem at all, says Angela Phillips in the Guardian. According to her, HB is a bargain. It is a small price to pay for the joy of living in a diverse area:

“As a hard-working Londoner, I have always been delighted that housing subsidies ensured I didn’t have to live next door to people like George Osborne and David Cameron.”


Phillips then goes on to boast about her actual neighbours, the Campbells, because they are “a Caribbean Catholic family with 10 children […] just the kind Jeremy Hunt had in his sights when he said that the state shouldn’t subsidise large families.”

The author does mention that the HB bill is inflated, which she blames on private landlords who cash in the benefit, and on Margaret Thatcher for having sold off council housing. But the bottom line is: “I want to share my streets with the likes of the Campbells. I think good communities are mixed communities, and I don’t mind paying for that.”

Fair enough. The problem is that everyone else is compelled to pay for it as well, regardless of whether or not they share Phillips’s personal preferences. But the author raises an important issue. Let’s pretend that the scale of the HB cuts really was as large as it is often portrayed to be. Conceivably, London would then become a socially and ethnically less heterogeneous place. Some would feel relieved about this, but others would feel aggrieved. Can there be a solution?

In an ideal world, yes: there would be a range of proprietary communities, with their owners deciding on access and composition as they see fit. Some of them would be very homogeneous; others would arrange cross-subsidisation schemes between wealthier and poorer residents, and reserve quotas for cherished minorities. If you want to cross-subsidise your neighbours on the basis of selected characteristics you consider morally desirable, and then boast about it, you should have every right to do so.

Obviously, we are very far away from such an arrangement, and we will not get there anytime soon. However, we would be several steps closer if the decision-making and funding of Housing Benefit and social housing was devolved to the local level. We could then have much more informed debates, because we could establish relationships like “an HB rate of X corresponds to a council tax rate, or local income tax rate, of Y”. As beneficial side-effects, we might then get a little less self-righteous journalism, and Boris Johnson would probably be a bit less keen on playing Arthur Scargill.

8 thoughts on “Why Housing Benefit should be paid from locally raised taxes”

  1. Posted 09/11/2010 at 16:18 | Permalink

    Funding HB locally is possibly the only equitable means of dealing with the problem of London’s high housing costs. If we could separate out London many of the problems of housing and planning policy could be dealt with relatively easily.

  2. Posted 09/11/2010 at 16:43 | Permalink

    “that makes £650 each, never mind the cost of social housing and other forms of rent subsidies”??

    Aren’t you double counting here? The average cash rent paid by council house tenants (net of HB, CTB) = the cash cost of running council housing*.

    So the two-thirds of HB paid to councils is actually just a transfer between government departments, the same as teh ‘block grant’ or anything else.

    It’s only the one-third of HB payments used to subsidise private landlords that is a real cash cost to the taxpayer!

    * Sure, you can point out that the cash cost does not include the notional subsidy, because councils do not collect the location rent, but hey, owner-occupiers get 10x as much.

  3. Posted 09/11/2010 at 17:39 | Permalink

    Mark – As well as the failure to charge anywhere close to market rents in high-cost areas (which I think you mention), what about government grants to build affordable housing, subsidised loans to housing associations, support for shared-ownership schemes etc?

  4. Posted 09/11/2010 at 18:28 | Permalink

    Mark, the rent collected by LAs is far in excess of the cost of running social housing and has been since the mid 1990s.

    In any case this only constitutes a minority of HB claimants. The big problem is in the private rented sector where rents have grown very quickly as a result of how the HB system operates.

  5. Posted 09/11/2010 at 23:53 | Permalink

    Richard Wellings: “what about government grants to build affordable housing, subsidised loans to housing associations, support for shared-ownership schemes etc?”

    That’s quite a different issue, and has nothing to do with ‘making sure that low income people have a roof over their heads’. Call me a softy, but I don’t like the thought of the supply of housing being restricted to such an extent that people become homeless in their own country.

    All these things are purely down to the previous government’s determination to prop up house prices as far as possible, including enticing people (who should have stayed tenants0 to desperately try to scramble on to the ‘property ladder’.

  6. Posted 09/11/2010 at 23:57 | Permalink

    Peter: “The big problem is in the private rented sector where rents have grown very quickly as a result of how the HB system operates.”

    Correct. This was all part of Thatcher’s cunning plan (as merrily perpetuated by Tony & Gordon). Flog off the nicest council housing to the ‘better off poor’ (a massive loss to the taxpayer), and then double up the loss to the taxpayer by hurling their money at ‘private’ landlords (half of whom are renting out ex-council houses) rather than building more council housing (or not selling it off in the first place) which is much, much cheaper.

    And if you’re a private tenant, you’re paying the extra tax to subsidise, and hence increase, your own rent!

  7. Posted 21/11/2010 at 02:07 | Permalink

    Edward Heath stopped paying a subsidy to councils to build new council houses,changed the law in 1972 to enable ‘economic rents’ of £60 a week to be charged instead of £6 charged to cover building maintenance This policy encourages property speculation Our taxes will be transferred as profits to offshore accounts to the benefit of the speculators rather than the community. If people are left to live with overcrowding and insanitary conditions, society will soon find out what it was like in this country before the provision of adequate social housing, with outbreaks of transmittable diseases and infections, and a shortening of life expectancy which will impact on us all

  8. Posted 10/03/2012 at 18:20 | Permalink

    Housing benefit is in fact an exemplary case of something for which the revenue should be raised nationally. If the benefit cap (which I support) has the effect of emptying boroughs like Westminster and Chelsea of net housing benefit recipients, we will have boroughs like Newham massively overcrowded, with hardly anybody paying tax. Wealthier areas will be able to give their residents a tax cut and less desirable ones will have their local authorities practically bankrupted. Oddly this isn’t being discussed as part of the national debate, very possibly because the Conservatives have no swing voters in these less salubrious areas anyway.

    Mr Neimeitz’s notion of enabling local communities to pick and choose the number and type of neighbours whom they wish to “cross-subsidise” is childishness. Nobody will elect to pay higher taxes to “reserve quotas for cherished minorities” or any other reason, given the choice. That is why money for this sort of thing is gathered using this compulsory thing we call “taxes”. And it would be much fairer if it was done on a national rather than local authority level.

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