Local Housing Allowance (Highlands)

– in Westminster Hall at 4:15 pm on 16th July 2008.

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Photo of Danny Alexander Danny Alexander Shadow Minister without Portfolio 4:15 pm, 16th July 2008

I am grateful to Mr. Speaker for allowing this short debate, and I am pleased to see the Minister in his place. In my past role of shadowing his Department I had the privilege on a number of occasions of debating a number of issues with him, including local housing allowance. I look forward to discussing the matter in the spirit of combative co-operation that characterised past debates.

I shall say a few words to put the debate into context. The Minister knows—I have mentioned this before when debating local housing allowance in Committee and so on—that there are particular problems in the highlands with the availability of affordable housing and social housing. The Highland council area has a housing waiting list of at least 10,000, and the shortage of housing that local people on low wages and benefits can afford is probably the major social problem afflicting the area. That may surprise some people, but I am sure that the problem is equally considerable in the Minister's constituency.

In the city of Inverness, as well as in rural towns and villages, people's ability to live in the communities where they were born and grew up, even when they have access to employment, is constrained in the social housing sector by the low rates of pay in the highlands, so the role of housing benefit in providing support for people on low incomes who want to live in the private rented sector is particularly important to make such housing tenure more affordable. I am sure that the Minister is also aware of the report by the Chartered Institute of Housing in Scotland, which shows that in the current financial year the Scottish Government are planning a 25 per cent. cut in funding for affordable housing in the highlands. That is not the direction in which policy should be going.

On local housing allowance, the Minister knows that I have always taken the view that in principle the reforms to the housing benefit system that led to local housing allowance are good in principle, and a number of its features offer advantages over the previous housing benefit system. One, which the Minister has talked about, is what is known as the shopping-around benefit. The rate is set and if people can find a cheaper property, they can keep some of the difference. That is an incentive, partly to keep rents down and partly for people to shop around. The other side of the equation means that people whose rent is higher must pay the difference. The LHA system makes that clear, and I have no problem with the way in which it is made clear. The purpose of this debate is not to challenge the basis of the system, but to draw to the Minister's attention some questions about how it operates in the highland context.

The first issue that I want to draw to the Minister's attention concerns the shopping-around benefit. I know that there are plans to introduce a further welfare reform Bill and I understand that details will be announced in a couple of weeks. This area is one that may be considered again, and I hope that it will be useful if I inject a couple of ideas for the Minister's consideration at this late stage.

I want to draw hon. Members' attention to two issues that are causing problems in the highlands. One problem is the absolute level of local housing allowance payable in the highland area; the second is the constraints of the local housing allowance in terms of incentives to work, which, in fairness, is in common with the problems of the previous housing benefit system. Both issues have been drawn to my attention by individual constituents affected by them, and by the local authority and other organisations that work in the area and support people—particularly the homeless—during their transition into work.

First, on the absolute level of LHA that is payable, the Minister will know that the Highland council is treated as one broad rental market area for the purposes of setting housing benefit rates. Certainly, from the local authority's point of view, there is no problem with having a single rental area. The question is what assessment has been made of the appropriate level of rent to be paid within that area and the effect it is having, particularly in the city of Inverness. The Minister will know that, for example, the LHA rate in the highland area for one-bedroom accommodation with shared facilities is £69.09 a week and that that increases to £170.53 a week for a four-bedroom property. Obviously, there are a range of options in between.

I want to draw the Minister's attention to the significant shortfalls in the rental market in Inverness. In the context of people who are on low incomes, the significant rises that have recently taken place in rent levels in the private sector in Inverness have meant that, depending on the size of the property, there are shortfalls ranging from about £50 to £100 during the course of a month. Of course, that adds up to a significant amount of money during a year—perhaps £600 to £1,200. For those who are entitled to the maximum LHA, having to find that money on top of the benefit that they receive is a significant problem. However, a taper to the benefit means that the benefit is withdrawn at a sharp rate when someone's income rises—I think 65p in the pound is the figure, but the Minister will correct me if that is wrong. In particular, those in low-income jobs are experiencing a dramatic shortfall.

The purpose of the taper is to ensure that people who are in work make a contribution to their rent, and, of course, that is right. However, the point I am making is that particularly in Inverness there is a significant shortfall in the availability of accommodation in the private rental sector. From the research I have done and the comments made to me by constituents, the maximum LHA appears to be lower that the average rental level. When we debated this in the Committee on the Welfare Reform Bill, I understood that the intention was to try to find an average level, so that there would be some levels above and some below. I think the word "median" was used by Ministers in the Bill Committee.

Particularly in Inverness, it seems that the rental market is significantly below that level. In principle, from the Government's point of view, that has one cost: the shopping-around benefit is not as freely available as Ministers intended it to be when we started dealing with the matter. Secondly, from my constituents' point of view, a large number of people are facing shortfalls, even when they are on the maximum level of local housing allowance. That is causing serious financial hardship at a time when, as hon. Members know, people are under a huge range of other financial pressures in their lives—for example, rising energy bills and so on. We do not need to go into the detail of that, but it does provide an important element of backdrop and context to the issue.

During the past year or so, we have seen—and I am sure we will continue to see as the effect of the credit crunch begins to bite—significant rises in rental levels. There are also constraints on supply in the private rental sector. I would be interested to hear from the Minister how the rate is set and how often the rent officers responsible for establishing the rate in the highlands, who are based in Dundee—[Interruption.] I have nothing against Dundee; I say that because I see that Mr. McGovern is here. I am delighted to see him. I would be interested to know how often rent officers travel to Inverness to spend time in the city and look at rent levels to ensure that the local housing allowance is consistent with the objectives of Government policy. At the moment, the rate paid in the highlands is not meeting the objectives that the Minister has set out. In the context of rising levels of rents in the private sector, what instructions has he given to rent officers about the frequency with which local housing allowance rates should be updated?

Of course, there are also questions about the nature of the broad rental market area itself in the highlands. Any broad market area should be appropriate and a judgment has been made by the Government—and the council agree with this—that the highland area should be treated as one broad rental market area. I do not wish to challenge that decision, but I want to say to the Minister that the highlands is a large area that has a significant city—Inverness—and lots of rural areas. The local allowance level within such a diverse broad rental market area has to be set at a level that is fair throughout—it has to be fair to the city and to the rural areas.

The Minister will know that in addition to Inverness there are a number of areas outside Inverness where significant pressures on the private rental sector have pushed rents up—I draw his attention to some of the towns in Nairn, Badenoch and Strathspey in my constituency. I know other MPs in the region have similar experiences in other places where the housing market is under particular pressure. The anecdotal evidence I have had from constituents is that the problems of shortfalls in local housing allowance that I am describing also apply in those places.

The issue of work incentives has, again, been drawn to my attention by constituents who feel that the tapering of withdrawal rates of the local housing allowance acts as a disincentive to work. A particular problem for some of the most vulnerable people in our society has been drawn to my attention by those working in the homeless sector. People with serious drug or alcohol problems who are in the initial phase of recovery base themselves in a hostel or other supported environments where the amount of state supported rent payable is particularly high. Examples have been drawn to my attention where getting back into work would be of significant benefit to individuals; yet, the way in which the system is set up and the speed with which benefit is withdrawn once an individual starts work disincentivises at least some of those people to the point that they decide not to take appropriate work.

I will not give the names of people involved in cases, but a case has been drawn to my attention of two twins who were recently started on methadone as a way of recovering from their drug addictions. They were told by advisers at Job Centre Plus that it would be better if they stayed on income support and housing benefit because it would not be financially viable for them to start work while they are in temporary bed- and-breakfast accommodation. Both were well enough trained to get a job and, in the opinion of the people who were advising and supporting them to get into work, doing so would be of significant benefit to them. There are a number of other similar examples.

Of course, that is a problem in the highlands and other areas where there is an accommodation shortage. People tend to spend more time in expensive bed-and-breakfast accommodation and the steepness of the taper means that people who get into work have to rapidly spend a large sum of money to meet the cost of accommodation or be homeless. Alternatively, the choice is not to go into work and face that dilemma.

When thinking through his plans for the next phase of welfare reform, will the Minister give particular consideration to the needs of people who are vulnerable? Both he and Liberal Democrat Members want to see such people get back into work. Will he particularly consider the incentives that the housing benefits system offers to people in that category and whether the costs of temporary accommodation mean that the disincentive to work is very strong indeed? The shortage of housing means that people spend a much longer period in temporary accommodation than they would normally be expected to. The current system might harm someone's ability to recover from their condition and get their life back on track, which is an objective that we all share.

I look forward to hearing the Minister's response and I hope my comments will be useful to him in planning the next phase of welfare reform. In particular, I hope that he will encourage the rent service to take another look at the way in which LHA levels are set in the highlands and that he will ensure that the level is appropriate for all parts of such a large area.

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions 4:29 pm, 16th July 2008

I thank Danny Alexander—on this occasion, I have listed all the places that he represents, because it is appropriate to do so—for raising an important issue, and I congratulate him on the way in which he presented his case. I know how closely involved he is with the wider welfare reform agenda. As he said, he and I have debated it before, and I am pleased that we can continue to do so. I welcome his statement on the record, again supporting the broad principles of the reform relating to local housing allowance. I am grateful to him for making clear his position on that.

It may be helpful if I set out some of the background to the locality reviews that have taken place as part of the introduction of the measure. First and foremost, I want it to be clear that keeping localities under review has always been the responsibility of rent officers. There is nothing new in making changes to boundaries. I welcome what the hon. Gentleman said in support of the new boundaries in his area. Those decisions are considered independently by professional rent officers in the three national services. However, it is true that a fundamental review of localities was undertaken partly in anticipation of the introduction of LHA. It was essential that we delivered on the key aims of LHA, which I know the hon. Gentleman supports. Those aims were to provide greater simplicity in the system and to give customers more choice.

The localities, or broad rental market areas, on which LHA rates are based need to be large enough to reflect the generality of the local housing market. There is no point in telling our customers that they can make choices about their accommodation, and then restricting localities to areas consisting of just a small neighbourhood or even a few streets. I recognise that there has been a significant reduction in the total number of localities, but that simply reflects the changes in the way in which people access health, education and recreational services.

It is just three months since LHA began to be applied nationally. So far, all reports that we are receiving indicate that the allowance is working well and that its introduction is going smoothly. That is a triumph for closer working between central and local government. The substantial levels of financial and practical support that the Department for Work and Pensions provided in the run-up to the introduction of the allowance have gone hand in hand with the drive and determination of our local authority colleagues to implement the new allowance at local level.

We recognise that the introduction of the allowance is a big change for tenants, local authorities and landlords alike. That was a key part of our decision to introduce it on the basis of new claims and changes of address only. I am grateful to the nine original pathfinder authorities and the second wave group of local authorities which worked so hard to test the LHA scheme for us, through both the formal evaluation process and the work that they have done subsequently to support the introduction of the allowance. LHA was perhaps the most comprehensively evaluated reform ever introduced in respect of housing benefit.

The advantage is not only that LHA will make demonstrable improvements to the housing benefit system. There is also the contribution that I am convinced it will make to our wider objectives for welfare reform, about which the hon. Gentleman spoke. Central to that is the role that LHA will play in promoting personal responsibility. Five years ago, when we first promoted the idea of direct payments to customers, there was a stack of concerns from many of our stakeholders, but the financial inclusion agenda has moved on since then, and there is no logical or any other argument that should prevent housing benefit tenants from taking responsibility for paying their own rent. On the contrary, the evaluation evidence from the pathfinders clearly shows that the vast majority of our customers can and do make paying their rent their utmost priority.

We have also given a clear message that we want the housing benefit system to do more to help to support incentives to work. Improving the speed at which housing benefit claims are assessed should help to give people the security that they need and reassure them that their benefit claim will be assessed quickly when they take a job. It is worth reiterating that housing benefit is also an in-work benefit. That point is often not understood, but the benefit can carry on providing support to someone when they move from unemployment into work, notwithstanding the taper point as income levels rise. Furthermore, LHA can play an important role in encouraging people to use bank accounts and become financially independent. I am delighted with the positive feedback that we have had so far from many local authorities on the work that they have been doing with local banks to promote the use of accounts and direct payment.

I come now to the points raised about the highlands area and especially the changes to locality boundaries. As with all the locality reviews, rent officers consulted at local level on the proposed changes. In this case, as the hon. Gentleman said, all five local authorities affected agreed to the proposal in advance. I recognise that the locality that we are discussing covers a large geographical area, but that merely reflects the rural nature of the highlands area and, in particular, the fact that the majority of services that people take advantage of in that area are centred on Inverness.

From a practical perspective, we anticipate that virtually every customer in the highlands area will see no change or will gain when their cases are reviewed by rent officers after 52 weeks. Specifically, the indicative figures that we have available suggest that in relation to the five local authorities, we can anticipate the following impact. The largest local authority caseload is that of the highlands. There, 87 per cent. of people are likely to see virtually no change in their entitlement, and the remainder, 13 per cent., are expected to gain from the change.

The second largest caseload is that of Moray. There, no one should lose out at all and about 11 per cent. should be gainers. In the Shetlands, about one third of customers could gain and the rest will see no change. In Orkney, about 18 per cent. should gain and no one should lose. In Eilean Siar, 6 per cent. may gain and less than 1 per cent. could lose out if they are still claiming after 52 weeks. We believe that, collectively, well over 99 per cent. of existing customers within the locality will see either an increase or no change in their housing benefit as a result of the locality review.

I understand the point that the hon. Gentleman makes about the shortfall that may exist between the level of the allowance and the rents that people face, but that was true also under housing benefit. It is important to stress that the move to LHA will not, with the exception of a very small number of customers, make that situation worse for any of his constituents. For a significant number, it will make the situation better. It will narrow the shortfall, because they will gain under LHA as opposed to what they receive under housing benefit.

A key advantage of the transparency of LHA is that customers who make a new claim or change their address in the private rented sector now know in advance how much benefit they will receive. That is a marked improvement on the old arrangements under housing benefit. It will enable them to make the right accommodation choices for themselves and their families.

Photo of Danny Alexander Danny Alexander Shadow Minister without Portfolio

The Minister makes the point that shortfalls occurred under the old system, too, and he is right about that. What assessment has he made of the numbers of people—I am particularly interested in the Highland council area, but perhaps he has considered a wider area—who will make gains on the basis of the shopping around benefit, which was another of the Government's selling points in relation to personal responsibility, under the new system?

Photo of James Plaskitt James Plaskitt Parliamentary Under-Secretary, Department for Work and Pensions

That is down to choices that people will make as individuals. It is difficult for me to anticipate that. The hon. Gentleman is asking me to anticipate circumstances in which families or individuals seek to move, and then to second-guess what choice they might make about the accommodation that they go to. The whole point of LHA is to hand that choice back to individuals and to give them the foreknowledge of how much support they can receive under LHA for whatever type of accommodation they are considering, in order to enable them to make the choice themselves. It is not possible to guess what they will do. Giving people the freedom to choose is exactly that.

Another important point is that we have, quite rightly, reflected the market definitions in the way in which LHA rates are set. I am referring to their being based on the number of bedrooms in a property, rather than the number of habitable rooms. That is an important part of promoting the transparency of the scheme, for the customers and other stakeholders. After all, no one would advertise a property, for example, as a five-room house. It would be advertised as a three or four-bedroom house. It is essential to note that, as a result of the important change that we have made, local rent review and local housing allowance rates cannot be directly compared in the way that some have suggested.

More importantly, however, I stress that we have never said that we intend to move existing customers from the present scheme to the new LHA rules. Those concerns are unfounded, and we have undertaken to review the first two years of the scheme before making decisions on whether, and if so how, we might migrate existing customers.

I appreciate that there are concerns about the availability of rented housing in the Highlands area—and in my constituency, too—but given the current position, I do not accept that the introduction of LHA will adversely impact on a customer's ability to find suitable accommodation. Indeed, for a significant number it will help.

There is no doubt that housing benefit plays a vital role in supporting people on low incomes. In many cases, those customers would simply have nowhere to live without such support. It is therefore imperative not only to provide an excellent service to our customers, but to continue to put housing benefit at the heart of the social security reform agenda. We know that housing benefit can play a key role in helping people back into work, in securing decent accommodation and in keeping pensioners out of poverty. I am convinced that the introduction of LHA can only help us to meet these objectives.