More on self-employment and the bedroom tax – and a human rights issue?

I scribbled some notes yesterday about the suggestion that was made in the Lords, by Earl Attlee a government spokesman quoted below (a), that a room used for work by a tenant need not count as a bedroom for bedroom tax purposes.  I thought I’d pull together those points and add some more.

There have also been a flurry of comments in social media saying that this is not possible and making a couple of common points.

  • Planning consent is required to run a business from a dwelling (b)
  • Landlords won’t allow it (c)

Neither of these is entirely accurate (again spelt out below) although (c) is still too common.  Many businesses don’t require planning permission and landlords are being encouraged, by the professional bodies and government, to remove the limitations in tenancy agreements.

The Earl is a DCLG Spokesman rather than DWP but his comment still raises a couple of interesting issues.

The first is an additional facet in the ‘room’s use’ argument. If a tenant – with the landlords knowledge and any other necessary permissions – is using a room solely as a workplace then it isn’t a bedroom. If the landlord knows about this usage then it clearly can’t argue that it’s a bedroom. The landlord may though believe that the permitted business doesn’t require using the room entirely for work. In that case the argument joins the series of appeals at FTT around the usage question and may follow the line of reasoning in the Bolton and Carmarthen UT cases.

More interesting is to consider what happens if that argument loses and the benefit cut is imposed. If the tenant cannot afford to stay in the property after the ‘bedroom tax’ is applied (remembering that HB is an in-work benefit) then moving to a smaller property becomes necessary.


There will not be a room in a smaller property to carry out the self-employment; so the bedroom tax has caused the tenant to lose his livelihood. That opens up a range of issues under human rights and equalities legislation.

Article 23.1 of the Universal Declaration of Human Rights states: Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment


(a)    Hansard

“13 Mar 2014

Earl Attlee: My Lords, as I have indicated, we have put out advice to all social landlords on the need to seriously consider allowing their tenants to set up businesses. There is a misconception among social tenants that they cannot run a business from a council flat. They can, but they need to apply for permission from the landlord. This process is necessary because the landlord needs to be able to accept sensible web-based businesses while not allowing industrial processes to be carried out from the flat.

Lord McKenzie of Luton (Lab): My Lords, should a social landlord acknowledge a room as being available for home-working, would that preclude it being a spare bedroom for the purposes of the bedroom tax?

Earl Attlee: My Lords, the noble Lord has not disappointed me one little bit: I was certain that he would not be able to resist this opportunity. The spare room subsidy encourages people to make full use of their property and to consider running a small business—which I think is highly desirable.”


(b) Planning consent is required to run a business from a dwelling

From the Planning Portal which is the UK Government’s online planning and building regulations resource for England and Wales.

You do not necessarily need planning permission to work from home. The key test is whether the overall character of the dwelling will change as a result of the business.

If the answer to any of the following questions is ‘yes’, then permission will probably be needed:

  • Will your home no longer be used mainly as a private residence?
  • Will your business result in a marked rise in traffic or people calling?
  • Will your business involve any activities unusual in a residential area?
  • Will your business disturb your neighbours at unreasonable hours or create other forms of nuisance such as noise or smells?

Whatever business you carry out from your home, whether it involves using part of it as a bed-sit or for ‘bed and breakfast’ accommodation, using a room as your personal office, providing a childminding service, for hairdressing, dressmaking or music teaching, or using buildings in the garden for repairing cars or storing goods connected with a business – the key test is: is it still mainly a home or has it become business premises?


(c) Landlords won’t allow it

In late 2010 business and enterprise minister Mark Prisk and housing minister Grant Shapps wrote to England’s council and housing association landlords telling them they should encourage tenants to work from home

The letter said that just 190,000 of England’s 3.5 million self-employed live in social housing, less than in any other tenure. Of those, just 10% work from home or in the same property, compared with 24% of home-owners.

‘There appears to be a common misperception among social tenants that there is a blanket ban on working from home or that it is only allowed in specific and often very restricted circumstances,’ the ministers said.

The letter was endorsed by the chief executives of the National Housing Federation and Chartered Institute of Housing and coincided with the launch of a guide from the chartered institute explaining how social landlords can promote home-working.

The guide says social landlords can promote home-working as part of their efforts to tackle worklessness. It also says tenancy agreements should be revised so that tenants no longer need permission to set up their own home-based business.

There was an estimate of 22, 000 businesses operating from social housing at the time of this letter.

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Self-employed can escape the bedroom tax?

“13 Mar 2014

Earl Attlee: My Lords, as I have indicated, we have put out advice to all social landlords on the need to seriously consider allowing their tenants to set up businesses. There is a misconception among social tenants that they cannot run a business from a council flat. They can, but they need to apply for permission from the landlord. This process is necessary because the landlord needs to be able to accept sensible web-based businesses while not allowing industrial processes to be carried out from the flat.

Lord McKenzie of Luton (Lab): My Lords, should a social landlord acknowledge a room as being available for home-working, would that preclude it being a spare bedroom for the purposes of the bedroom tax?

Earl Attlee: My Lords, the noble Lord has not disappointed me one little bit: I was certain that he would not be able to resist this opportunity. The spare room subsidy encourages people to make full use of their property and to consider running a small business—which I think is highly desirable.”

The extract above from Hansard seems to say, if not clearly, that using a room in your social rented property will stop it being considered a bedroom and remove it from an under occupation calculation.

The tenant will need the permission of the landlord to use the room in this way but the government has encouraged landlords to grant this normally.

Visit for personal consultation.

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The Benefits Cap and Real Income Levels

Many commentators have pointed out the misleading justifications often made for the introduction of the benefits cap. The government has said that it is unfair that people dependant on benefits should receive more than those in work at the average wage. This message ignores the fact that most workers earning the average wage will still qualify for benefits which top up their earnings.

Although this point has been made frequently, there has been little quantification of the amounts involved. I’ve used the April 2014 edition of Ferret’s Future Benefits Model (FFBM) to generate a set of tables to quantify the amounts of benefit and tax credit applicable to different types of families in differently priced rented accommodation.  The modelling assumes that gross earnings are at the cap level for both single people and for one earner in a couple.  There are figures for the current benefits schemes and for Universal Credit.

Thr chart below shows an example of this for a single person with for 0 to 6 children.  Without children the cap level is £350 a week, with children it’s £500 a week.

Single Cap Earnings

The other chart below is the same calculation, but for couples.  The cap level is £500 for them, with or without children.

Couple Cap Earnings


The full tables show the benefits entitlements and total net incomes of single people and couples, with from 0 to 6 children in a number of different housing circumstances. The model assumes 35 hours of work; at these hours of work, or earnings levels for Universal Credit, no capping is applied.
There are two sets of tables

Standard rent – illustrates what additional benefits are payable for different compositions of families with full-time gross earnings at the cap level. In these examples there is a single rent level for all households in social and private housing. This shows, as might be expected,

• Only childless families receive no additional benefits with earnings at the cap level.
• Additional children receive extra support from the benefits system for working people.
• The benefits cap takes no account of the greater needs of families with more children.

Varied rents in 7 different areas – where the rent levels are set in two different ways.
• Within each area, the social rent levels and private sector levels are set by reference to the appropriate housing size for each family.
• Areas use increasing levels of rent set in bands from the lowest average social rents in Britain and the lowest LHA levels, in a local authority or Broad Rental Market Area, to the highest.

A simple message is clear from these examples.
• The Housing Benefit and Universal Credit schemes take account of higher rents for larger families who are not subject to the cap.
• The benefits cap takes no account of the higher rent amounts typically needed for bigger properties needed for larger families.

One must always go with the hmrc compliant umbrella companies to help with their internal accounting as they follow all the procedures and ensure accuracy in the quality of work they provide.

You can download the tables and charts here.

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Upper Tribunal define ‘Bedroom’

I understand that the UT has set down in CH/140/2013 (a LHA case) that a “bedroom” has a plain dictionary meaning…a room for sleeping / a room with a bed in it.

“19. The word “bedroom” is not defined in the legislation. It is an ordinary English word and should be construed as such. According to the dictionary definition in the Shorter Oxford English Dictionary a bedroom is “a room containing a bed”, whilst in the Collins Dictionary it is
“a room furnished with beds or used for sleeping”. In the Merriam Webster Dictionary it is
“a room used for sleeping””

This is a precedent setting decision which must be followed by first tier tribunals (although not – yet – reported). There are other decisions which have looked, inter alia, at this point. In particular CH/1940/2012 which said:

“The argument on behalf of the claimant … requires the word ‘bedroom’ in the amendment to the 2006 Regulations to be read as extending to any room occupied by a carer providing night time care to a recipient of housing benefit, or the partner of such a person, whether or not the room contains a bed or is used for sleeping in. Such a departure from the plain and ordinary meaning of the word ‘bedroom’, if it were ever permissible, could only be justified if it was necessary to give effect to legislation implementing a provision of EU law, or to achieve compatibility with a right conferred by the European Convention on Human Rights.”

In that case the appelant was arguing that a room which was not used as a bedroom could qualify as one for the purposes of an overnight carer; thus allowing the LHA figure to be a two bedroom rate.

Read together, I think that we have a Gertrude Stein ‘Rose’ in place. A bedroom is a bedroom is a bedroom.

That may mean that only the practical use of the room matters and not any specification of the property by the landlord – or others.

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Couples benefits cap for Universal Credit – an error!

DWP have now told us that the lowering of the benefits cap for childless couples, getting Universal Credit, was ‘an error’ and not a change in policy.

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No Housing Benefit for unemployed EU migrants from April – simple? … and what about the ‘lobster pot’?

The announcement by the government in the Daily Mail here (didn’t there use to be Parliament and Hansard?) talks only about JSA and Housing Benefit. 

This proposal will, presumably, need to be carried into Universal Credit as well.  That should help with the increasing simplicity of the scheme.  There are a few questions about the way in which that will affect the Universal Credit system. Perhaps it will be simple enough to remove the housing element from the needs calculation but that will trigger the higher band of ‘work allowances’, the equivalent of the current higher earnings disregard.  The two bands of work allowances mean that people who have no housing costs in their Universal Credit calculation are allowed to keep more of their earnings before their Universal Credit is reduced.

The two bands are the same for people without children or disabilities, so the initial single childless claims for Universal Credit won’t be affected, but, under the ‘lobster pot’ policy, people whose circumstances change, such as having a child, will remain on Universal Credit and then the effects will kick-in. How long before the Daily Mail starts pointing out that immigrants are getting more than UK citizens?

There are though mutterings about the ‘lobster pot’ at the moment. Given the problems with the IT and manual systems for Universal Credit, there is a circle to be squared. If the IT can’t cope with the more complex sets of circumstances, that will inevitably develop from the original simple claims, then those will have to be dealt with manually. Clerically administering increasing numbers of increasingly complex cases introduces huge problems given reducing numbers of staff in the DWP and all the training and support needs that would arise (although we’re happy to sell them calculation and review systems). The alternative seems to be emptying out the lobster pot and moving people back onto the current benefits that can cater for those circumstances… but that introduces a huge new set of administrative, and legal, problems and what does that do for simplification?

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Sneaky, Sneaky, Sneaky.

Firstly, apologies for the long delays in posting things here.  It’s being a busy time, as you’d expect around welfare reform.  I’ve been particularly busy updating our Future Benefits Model (FFBM) with the April 2014 benefit rates and rules and getting the known changes and indexations for the next five years plugged in.  Now done thankfully, despite a major problem with Excel 2013 and an add-in, which took a long time to track down.

That gave me time to watch yesterday’s perfomance by Iain Duncan-Smith when, again, the possibility of lowering the amount of the cap was raised (cough!).  I”ve already looked at this  back in September and modelled a lot of the impact here.

What doesn’t seem to have been noticed is that they’ve already done this.  When I was updating the benefits rates in the FFBM something odd appeared in the uprating circular.

Benefit Cap uprating 2014

The current cap, which only applies to Housing Benefit is set at £500 a week for couples and lone parents and £350 a week for single people. The new rate, shown above, for Universal Credit keeps the effective £500 a week for those with children (the Universal Credit rates are shown monthly) but couples without children are moved from the £500 rate to the lower £350 figure.

That means their cap level goes from £26,004 a year to £18,204. That should satisfy some of those baying for the lower cap yesterday.

Is it likely to be a drafting error as the text is very specific in describing who it applies to and must have been positively changed to the new wording?  It appears in the same way in the written ministerial statement of December 9th by Steve Webb MP and in the downloadable tables on the website.  No correction has been made to these.

It would be a change to the existing regulations for Universal Credit which, as shown below, apply the higher cap to couples.

Universal Credit cap regulations

If it’s intentional we may expect an amendmendment to this effect unless a deal of fuss arises. It would apply to few people, even when couples begin to appear in Universal Credit, because without children there will normally be a limit to lower one-bedroom rates of benefit. The weekly amount of benefit for a couple in 2014 / 2015 is £113.70 for current benefits and only a few pence different for Universal Credit. That leaves £236.30 of benefit before capping applies.

Most of those getting higher rates of benefit are likely to escape the cap because of the disability exclusions.

Housing will be the main contributor to extra support needs. From our Housing Affordability Tables (which you can download from the link at the top of the page) it will be seen that only three areas have a private tenancy LHA limit higher than £236.30 for one bedroom – Central London, Inner North London and Inner East London on the 2013 / 2014 rates. The highest mean social rents by authority for one bedroom properties are just under £100.

It’s also worth noticing that none of the cap levels have increased this year so the real value of benefits for those capped goes down again and more people will be caught by the cap.

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Council Tax arrears see hundreds of thousands in court – and it’s going to get much, much worse with Universal Credit

There’s been a lot of publicity over the past week about the numbers of people who have fallen into arrears with their Council Tax and who are being taken to court by local authorities.   I’m very afraid that it will get much worse in the future.

Up to 450,000 face court over council tax arrears

156,500 people in England have received summonses in response to the changes to benefits six months ago

The Independent. October 11th 2013

From April this year, the responsibility for helping people with their Council Tax bills has been removed from Westminster and become the responsibility of local councils in England and the Welsh and Scottish governments. At the same time over 10% was removed from the budget for help overall.  As older people were given some protection that meant that much less was available to support working age people.  Many local authorities in England have introduced schemes that limit the maximum amount of help with Council Tax or have introduced rules that mean that everybody has to pay something towards their Council Tax.

This has meant that people who previously had all their council tax supported are now meant to pay something – and many aren’t.

It can be difficult to find the extra needed when other benefits are being cut in real terms and inflation is outstripping rises in income,  but at least some support is still available for most people who were getting help under the previous Council Tax Benefit scheme (CTB).

In the new system, most councils are using, or basing their scheme on, the default rules from the Department for Communities and Local Government (DCLG).  Those rules are pretty similar, in many ways, to the previous CTB scheme in the way in which they calculate how much people need and how much they already have.  Those figures are then used to work out how much help people qualify for,

… but Universal Credit credit is coming.

… and the DCLG rules for assessing Council Tax Support for people getting Universal Credit are very different.

Very different; they use the income figures that Universal Credit uses – and then they add on the Universal Credit entitlement on top. They use the needs figure that Universal Credit uses.  Then they reduce  the maximum help with Council Tax by 20% of the difference where the income figure is higher than the needs … and that produces some very different results.

Here are a couple of worked examples:

Example 1 – with Jobseekers Allowance being received.

Single Parent, 1 child, working 10 hours a week for £4,000 per annum (£76.92 per week), paying a social rent of £90 a week. Council Tax of £1,250 per annum.

A)     Current benefits system entitlement:

Income Based JSA                                                                                           £14.78

Passported to maximum Housing Benefit and CTS.

CTS entitlement                                                                                               £24.04.

B)      Universal Credit based entitlement

Maximum Universal Credit (converted to weekly equivalent):

Adult                                                                                     £71.70

Child                                                                                      £62.62

Rent                                                                                       £90.00


Maximum Credit                                                                £224.31


Income (converted to Weekly equivalent)

Income assessed for Universal Credit (under chapters 2 to 4 of part 6 of the Universal Credit regulations 2013)                                                £66.92

Universal Credit Award                                                 £213.80


CTS Income                                                                      £290.72


Excess income £76.41, tapered by 20% to reduce maximum Council Tax Support by £13.28

Council Tax Support                                                        £10.76

CTS under Universal Credit is £13.28 less a week.


Example 2 – without Jobseekers Allowance being received.

Single Parent, 1 child, working 10 hours a week for £5,000 per annum (£96.15 per week), paying a social rent of £90 a week. Council Tax of £1,250 per annum.

A)     Current benefits system entitlement:

Income Based JSA – no entitlement as income too high                         £0.00

CTS Means-tested.

Applicable amount for CTS                                                                           £154.72

Net Income for CTS (earnings after disregard plus child tax credit)


No excess income – so no taper reduction

CTS entitlement                                                                                               £24.04.


B)      Universal Credit based entitlement

Maximum Universal Credit (converted to weekly equivalent):

Adult                                                                                     £71.70

Child                                                                                     £62.62

Rent                                                                                      £90.00


Maximum Credit                                                              £224.31


Income (converted to Weekly equivalent)

Income assessed for Universal Credit (under chapters 2 to 4 of part 6 of the Universal Credit regulations 2013)                                                £96.15

Universal Credit Award                                                 £201.30


Income                                                                               £297.46


Excess income £73.14, tapered by 20% to reduce maximum Council Tax Support by £14.63

 Council Tax Support                                                       £9.41

CTS under Universal Credit is £14.63 less a week.

It should be noted that even though the two calculations under the current scheme produce a full Council Tax rebate, many local authorities will have a minimum amount of Council Tax that must be paid or a maximum amount of rebate that can be received.  Those minimum amounts are already seen as frequent contributors to arrears.

Such large differences between the current scheme and the amounts demanded from those who will get Universal Credit in future can only increase the arrears problem substantially.

My colleague David Palmer, a mathematician by background, has carried out a detailed analysis of the DCLG’s rules for CTS under Universal Credit.

The analysis of the Universal Credit assessment for Council Tax Support shows that it reduces to just two factors and that the tapered amount for Council Tax reduction purposes is simply:

(7% of the earnings for UC purposes) + (13% of the UC earnings disregard)

or in situations where UC earnings are less than the UC earnings disregard figure, just:

20% of the earnings for UC purposes

This is independent of the housing costs element and of anything else, as all other factors (that appear to be present in the rules) cancel out.

For any household, as earnings increase from zero, 20% of those earnings (after tax/NI and pension contributions) will reduce CTS payable from the maximum amount, until earnings reach the UC disregard figure at which point the taper becomes 7% (assuming the rebate has not already been tapered away entirely).

Because of a peculiarity in Universal Credit, where people paying rent have a lower disregard of their earnings than working owner-occupiers in otherwise identical circumstances, owner occupiers may see an even worse situation than in the above examples.

I have a suspicion that this result is not what the DCLG intended and they may have thought that this was a simple way of getting DWP to do all the difficult sums. They are not, to be fair, experienced with running complex benefit schemes and may well have preferred the earlier proposal to include Council Tax support within Universal Credit.  The localisation argument won over the simplification argument however and they’ve got the responsibility.  Now they’ll need to find a way to change their rules to make this fairer,

… or local authorities, and their Council Tax payers, will face the consequences.

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Shared ownership and Universal Credit – Problems ahead

(including ‘teaching me not to make assumptions – a lesson in fallibility’)

“Shared ownership is an antidote to many of the problems in today’s housing market.
It is a long-standing, affordable and sustainable option – and an ideal way of helping
people realise their home ownership dreams.

People can buy an initial share of between 25% and 75% in their home, using a deposit
and mortgage, then pay a reduced rent to a housing association on the remainder.
It is primarily aimed at first-time buyers, who can afford to sustain home ownership
but are unable to afford a suitable home on the open market. It has successfully helped
almost 200,000 households into home ownership.”

“Shared owners are typically aspirational, working households on
low-to-middle incomes, who are unable to buy a suitable home on the open market
without assistance”
, Shared ownership – meeting aspiration, National Housing Federation, 2013

Shared ownership is recognised, and encouraged, as a route to home-ownership especially for younger, lower-earning families.

The important point is, that it is exactly that – a route to ownership. Even though there is a capital sum paid by the occupant, usually by way of a mortgage, they aren’t acquiring any interest in the home at that point. They’re getting an assured tenancy with a lower rent because of the money they’ve paid up-front. Until they ‘staircase’ themselves to full ownership, by paying the rest of the value in, they remain tenants.

Even worse, if they fail to pay their rent the landlord can take possession of the house and there’s normally no legal right to get the capital paid back (see the case of Richardson v Midland Heart Limited 2007).

Fortunately that’s rare

The repossession rate for shared owners in 2008/09 was 0.38%, compared to repossession rates in 2009 of 0.46% for Buy-to-Let owners and 0.42% for all home owners (1)

but it will happen if occupants don’t pay their rent or mortgage.

Over 44% of shared ownership buyers in 2008/09 had incomes below £25,000 and nearly a quarter had incomes below £20,000. Only 13% had an income of £40,000 or more (1)

As would be expected, many shared-owners get support towards their housing costs from the benefits system. In the current system help with the rental element of their payments comes from Housing Benefit (HB) and those working less than 16 hours a week, or not working at all, can get help from Job Seekers Allowance (JSA) or other means-tested benefits with their mortgage interest element as well. This means that those on low-pay, in part-time work in particular, are, to an extent, protected from the risk of repossession.

This will not be the case for many with Universal Credit (UC).

While the rental part of payments will be supported by UC the situation is very different for mortgage help. UC will not help people with mortgages at all if they have *any* earnings. This can be offset by the way in which the amount of earnings disregarded for UC is worked out.

For most families with mortgages the amount of their net earnings that will be disregarded, not used in the UC assessment, will be substantially higher than the amount disregarded by those paying rent. A single parent paying rent will have £60.69 of their earnings ignored for the UC assessment while one with a mortgage will have £169.34 a week disregarded. For a single parent, earning enough to make use of all the extra £108.65 disregard, that means that their UC will be £70.62 a week higher than their rent paying equivalent, ignoring housing costs.

In comparison to the current schemes’ mortgage interest support, people with no or low mortgages and higher earnings may gain from the change. Those with lower earnings, who can’t make use of the full, higher, disregard or with larger mortgages, may be worse off.

Shared owners get the worst of the change.

They will not get any help with their mortgage interest.

They will not get the higher earnings disregard.

The higher earnings disregard is given to those who have no housing costs in their UC assessment, people with earnings with only mortgages will have no housing costs, as they can get no help, but that’s not true for shared owners. Because they have a rent to pay, low though it sometimes is, they have housing costs and so will only get the lowest amount of their earnings ignored.

What will this actually mean?

How much rent is paid? The amount of rent that a shared-owner pays depends on the value of the property and the share that you buy. As a rough guide, for each £1000 of property you rent, the charge would be about £1 per week. So, for example, if you bought the property at £120,000 on a 50% share, the amount you would rent would be 50% at a value of £60,000. The rent would therefore be around £60 per week., Paradigm Housing

A £60,000 mortgage qualifies for Support with Mortgage Interest (SMI) in both the current benefits system and UC at 3.63% or £41.88 a week.

That’s £41.88 a week that won’t go into the UC assessment if there are any earnings but does go into the JSA calculation.

(This is where it gets embarrassing) Given that, and without doing any sums I assumed that shared-owners would find themselves hit badly by the change to SMI and the UC disregard rules; and I’ve been saying that publicly too. In writing this piece I thought I’d better produce some hard figures so I fired up the Future Benefits Model (FFBM), plugged in some figures and pulled the lever …. and found out I was wrong.

… or at least partially wrong.

They will be worse off, in terms of disposable income than people in the same circumstances, paying the same mortgage but not paying rent would be (after allowing for the rental support). A single parent earning £10,000 a year with a mortgage of £60,000 would get £124.20 a week Universal Credit. Add £1 a week rent to that and the UC falls to £54.58.

The same single parent with no mortgage but paying £60 a week rent gets £113.58 UC. Our shared owner, adding £41.88 a week mortgage interest to their outgoings will get £113.58 in UC.

Let’s put that into a table, so that we can show how simple it is. I’ve arranged it in increasing amounts of housing cost.

This is a splendid example of the simplicity of the new benefits system and a demonstration of the way in which people will be able to work out their own entitlement without the need for any troublesome benefits advisors.

I’ll rearrange the table by increasing levels of Universal Credit and note the housing type.

The winner here is the mortgage only claimant because the value of the extra disregarded income is greater than the mortgage interest they pay. If their mortgage interest had been more than £70.62 they would start to lose out and if their net earnings fell below £169.34 (£8,805 per annum) they would lose some of the benefit of the higher disregard.

In this example, the shared owner loses out by comparison with both the renter and the owner. The figures for other cases will vary greatly because of the combination of factors including, rent, mortgage, earnings and family composition. It is, however, a fair example and demonstrates the broad situation for shared-owners.

The very real practical issue here is how do we assess affordability for shared ownership in future?  Remember that the comparison with current schemes has focussed on part-time workers but the earnings disregard complexities will also apply to those working full-time on Universal Credit.

Shared ownership will still be affordable for those getting help from the benefits system


  • Current owners will face a very real problem if they staircase down because of the earnings disregard changes.
  • landlords and potential shared-owners will need to understand the mortgage interest issue.
  • There are interesting detailed points that need to be considered , see the later mention of non-dependants for example.

Back to embarrassment, so where did I go wrong with my Cassandra impression?

I assumed that shared-owners would be worse off than under the current system.

This group of shared owners, the part-time workers who lose mortgage interest support they currently get, won’t be, in the main.

The reason for this, to be fair to Universal Credit, is that part-time workers are also the group who gain most generally from the new system. They don’t have any current entitlement to Working Tax Credit and they have much lower earnings disregards in current means tested benefits than even the lower of the UC disregards.

Try as hard as I could, and I did, I couldn’t generate in the generality of cases any substantial drop in entitlement under UC and a good number of examples would have gained a reasonable amount of overall income were it not for the way in which Universal Credit and Council Tax Support interact (that’s another issue for a future blog – it’s a whopper).

I’m reminded strongly of a phrase once used by a very senior DHSS official (that dates me) when I gave an example of a poverty trap situation to her; “Gareth, they’re not worse off they’re just not as better-off”. It actually fits this case better.

So as my old partner in Ferret, Philip Boyd now a tribunal judge, used to say ‘Mea Culpa, mea maxima culpa’ for any misleading impression I’ve given about the future situation of shared-ownership under Universal Credit.

There are actually some other issues for shared-owners that I’d better bring in here for completeness.

They win a little because there will be no bedroom tax applied to their rental element, regardless of the number of bedrooms they’re using.

Non-dependants though may create some complexity and, perhaps more impact. Under UC the Housing Cost Contribution (HCC) is going to be a flat sum of about £15.70 a week for each non-dependant. There are not going to be any HCCs applied to mortgage support payments. The impact of a HCC may be bigger for shared owners because their rent will be proportionally smaller.

To finish off with another demonstration of how simple the new system is going to be (and to subtly get in an advert for Ferret’s benefit calculators) the HCCs will introduce an interesting better-off calculation.

If the rental element of a shared-owner is low enough that one non-dependant’s HCC, or two HCCs for a couple, would add up to more than the rent, then there would be no housing costs in the Universal Credit amount. That would mean that the earnings disregard would increase to the higher level. Depending on the level of earnings, rental amount, family type etc. that may easily increase UC by more than the HCC applied. What are the penalties for inventing a non-dependant so that the DWP can make a deduction?

(1) SHARED OWNERSHIP Facts & Figures, Produced by the Promoting Shared Ownership group of 21 housing associations, September 2010

Posted in Welfare Reform | 16 Comments

The Impact of a £20,000 Benefit Cap

“George Osborne is considering a further lowering of the amount households can receive in benefits as Tory MPs press him to reduce a newly-imposed cap by another £6,000.
A limit of £26,000 a year was imposed on claimants yesterday, but the Chancellor is facing calls to take a harder line from backbenchers who want it cut to £20,000 as part of a post-election assault on welfare spending.”

The Times, July 16th 2013

“Chancellor George Osborne is considering lowering the benefits cap by a further £6,000, one of his aides confirmed to Inside Housing today.
The Treasury will base a decision on whether to make the further cut depending on the effectiveness of the current benefit cap, which began its national roll-out on Monday, in reducing the welfare bill.”

Inside Housing July 17th 2013

I was surprised by how little reaction there was to the floating of this idea when it emerged in the summer. The existing cap will have caused distress to those 40,000, according to government estimates, households affected by it; many many more would be affected by such a reduction in the maximum amount of benefit, if this suggestion went ahead.

For the existing cap, I have modelled the effect on housing affordability of its introduction for every area in Great Britain, looking at a range of family sizes for zero to six children and using local rent figures for social and private housing in appropriate sized homes in each area. I did this for both the current benefit system and Universal Credit (Northern Ireland isn’t included in the tables as details of the Universal Credit scheme introduction there are still uncertain). You can download those tables from this site.

With that work as a basis, I have repeated the exercise to see what the effect of a £20,000 cap would be; and they would be devastating.

Firstly, let’s look at the current cap. Table 1 shows the effect of the current cap on different family types.

This table shows how much benefit without housing costs differently composed families are entitled to. You can see that as families grow larger they qualify, unsurprisingly, for more benefit. That means, assuming that they need this money entirely for all their non-housing related expenses, there is less potential benefit left for paying rent. Indeed a couple with 6 children is already capped, with £24.49 taken off their benefit before any rent is taken into account. A couple with 5 children will have a maximum of £41.53 from Housing Benefit, or £41.22 from Universal Credit, help towards their rent.

Table 2 shows what would happen with a £20,000 cap.

With this cap, a couple with 4 children will be over £8 a week short before they pay one penny in housing costs. The detailed tables show that a couple with 3 children, who will have just over £57 a week maximum help with their housing costs will not be able to find a 3 bedroom property anywhere in Great Britain for that amount, at LHA level or local social rent. A couple with 6 children would already be capped by almost £140 a week before they try to pay any rent.

I hope that if this outrageous suggestion reappears, and it may as party conference season starts this week, that the detailed tables, which map actual local housing costs for every local authority and LHA area, may help those who will be opposing it.

You can download the full document here

Posted in Welfare Reform | 3 Comments