Special Report: (3) The Institute of Fiscal Studies

Green Budget: February 2013 –
“The Bedroom Tax”

From April 2013, working-age Housing Benefit (HB) claimants in social housing who are deemed to be under occupying their homes will have their maximum HB awards reduced. Bedroom needs will be assessed as a function of family type, in exactly the same way as already happens for Local Housing Association (LHA) claimants in the private rented sector. The stated rationales for the policy are to reduce expenditure, to encourage more efficient use of the social housing stock and to treat private renters (whose HB entitlements are already linked to family size) and social renters more equitably. It is expected to affect about 660,000 families in 2013–14, which is about one-third of working-age social-renting Housing Benefit claimants. The 81% of affected families who have one more bedroom than they are deemed to need will have awards cut by 14%; the other 19% of those affected, who have at least two more bedrooms than they are deemed to need, will have awards cut by 25%. The affected families stand to lose an average of about £14 per week, and this is expected to cut the Housing Benefit budget by about £490 million per year.

Who ‘under occupies’ social housing? In the East midlands based on DWP’s Impact Assessment, 40,000 people will be affected who stand to lose on average £12 per week.

Social landlords may respond to the policy by allocating families to properties using different criteria; increasing efforts to identify overcrowding and under occupying tenants and encourage them to exchange homes; and building more smaller (particularly one-bedroom) properties. Affected tenants will have somewhat strengthened work incentives (there will be less Housing Benefit to lose if they enter work or increase their earnings) and there may therefore be employment responses on their part. If they are unable to find an appropriately sized socially rented property, they may respond by moving to a private rental property and claim LHA (this could, in principle, end up as more or less expensive to the taxpayer than the original Housing Benefit claim). Another possible behavioural response, which illustrates the sorts of trade-offs one always has to bear in mind in designing benefit policies, is in fertility rates. One way for an under occupying family to avoid an increased rent shortfall without having to move home is to have an additional child or, perhaps more plausibly, bring forward the birth of an additional child that they would have had anyway. About 42% of Housing Benefit claimants affected by the reform are aged under 45 (roughly childbearing age).

It is worth noting that the greater the extent to which the policy encourages more efficient usage of social housing, the less it will reduce expenditure on Housing Benefit. If under occupying and overcrowding households effectively swap homes in response, then both groups of households will be able to cover all their rent through HB claims, just as they could before the policy was implemented.