The Conservative party wants to talk more about the poverty
and welfare, this began with Government proposals to redefine poverty (which my
colleague Paul talked about here)
and has continued with David Cameron giving an interview with the Mail On Sunday,
a speech on Monday and in a host of other media appearances by senior members of the party. Whilst
there are no concrete proposals there have been some rough ideas which have
been floated in the press. Today I’m going to focus on the proposal to cut
housing benefit for those under 25. Tomorrow I’ll look at some of the ideas
raised about perverse incentives. These initiatives may have public support due
to a majority of people believing that less should be spent on welfare, but the
consequences will be less popular.
The idea of removing housing benefit from people under 25
was first floated in April and has now reappeared. Attempts were made to
justify the cut by stating that it was unfair that some had to live at home and
save for their first home, whilst others went out and got it from the council.
As soon as it was mentioned in April Shelter and a host of other charities
pointed out the obvious flaw in the idea. Many young people simply don’t have a
home to go back to. This morning senior Conservatives were making it clear that
there would be exemptions from this cut for people leaving the care system and
possibly others. How far these exemptions stretch will be one breaking point
for this proposal. Does it include young people whose parent’s home is too
small? If it doesn’t then it could lead to the family being forced to move into
a larger home and the government having to pay increased housing benefit to the
parents, therefore saving no money at all. It could also lead to increased
numbers of young people being declared homeless and the government having to
spend even more money on temporary accommodation and expensive homelessness
services. Does it include young people who are no longer in touch with their
parents or were forced out of their family home? If not there will be more
homelessness and more young people left without support.
The other problem with removing housing benefit form people
under 25 is that it will force many of them out of work. Housing benefit is not
an out of work benefit and the majority of new claimants are in employment. For
those under 25 housing benefit often is used as support for those moving away
from home to get a job. A young person who moves to a different area to get a
job for four days a week may still need housing benefit in order to pay their
rent. If that support of housing benefit is removed, then they may not take the
job. This has three potential negative effects. Firstly there is the obvious
economic loss of the activity from that job and taxes paid from those earnings.
Second, that job could provide the young person with experience which may help
them to get a higher paying job in the future. Third, when people are
unemployed at a young age there can be a “scarring” effect. This means for the
rest of that person’s life they become less strongly attached to the labour
market. They are less likely to find a job and more likely to only stay in that
job for a short amount of time. Exempting only those currently employed from
this cut would not eliminate these effects. Much of the employment market for
low paid individuals (in which the under 25s are disproportionately
represented) is in temporary work. If an individual moves work but then finds
themselves temporarily out of work housing benefit can provide a stop gap
between different jobs.
Analysis from the Institute of Fiscal Studies has shown that
over the last fifteen years poverty rates among young people have risen and
since the recession employment rates for young people have plummeted. If this
policy was introduced it would simply present a further barrier between young
people and work, forcing them into poverty. As the government has repeatedly
said work is the best way of people getting out of poverty, but cutting
benefits is not the best way to get people into work.
