How to reform housing benefit

Housing benefit at £24 billion a year is one of the costliest chunks of the social security bill. As the graph below (taken from this Declan Gaffney article) shows, it has risen 3.5 times relative to GDP since Thatcher was first elected in 1979.

Writing an excellent article for Labourlist, Labour London Assembly member Tom Copley points out that the bulk of this increase occurred under the Thatcher government. In fact under Thatcher, the housing benefit bill rose by a colossal 450%. Since then the cost of housing benefit has actually been pretty stable - so to address the mountains of moolah spent on housing benefit we have to understand why it shot up under the Thatcher government.

This happened for some very clear reasons that were deliberate policy:

1. Over 1.7 million council homes were sold off between 1979 and 1992 - diminishing the stock of council homes and pushing more and more tenants into the hands of housing associations and - more expensively - private landlords
2. In 1989, her government abolished rent controls - which had existed to give local authorities the power to limit rents. With controls removed, landlords could charge what they wanted, regardless of the social impact
3. Her government liberalised credit and gave tax breaks to buy-to-let merchants, which vastly increased the size of the private rented sector, as right-to-buy and stock transfers were depleting the social sector. 

Those policies also had the consequence of massively inflating house prices (and therefore rents) - which the constrained supply due to the absence of new building by successive governments, including the current one, has only intensified.

Today 33% of just over 5 million housing benefit claimants live in private rented sector - i.e. not the social rented sector (councils and housing associations). And yet if we look at the largest claims - those over £200 per week (so over £10,000 a year) - we find that 68% of those claims are made from the private rented sector. These cases are only 3.3% of all cases, yet they account for over 10% of total housing benefit expenditure.

Private landlords are guzzling from the housing benefit pipe because of structural reforms brought in by Thatcher. Measures such as the benefit cap will lead to councils deporting their own citizens, increased homelessness and poverty, but they will do little to tackle the rising cost of housing benefit - even if one could ignore their inherent injustice.

To tackle the housing benefit bill, and to do so in a just way, a Labour government would have to build homes and cap rents - as Copley spells out for Labourlist. But he also makes the important point that the housing benefit bill would be reduced by tackling unemployment (something this government has failed to do), and by increasing wages through living wage campaigns.

The latter is particularly important, since 93% of new housing benefit claims in the last two years have been from households in which at least one person works. That fact should also silence the 'better off on benefits' brigade, as so many people in work are dependent on benefits just to keep a roof over their heads.

It's also imporant to note that money spent on housing benefit to council tenants is effectively just an administrative cost - from central government to local government and then back to central government.

The next Labour government has a choice: invest in public housing and cap rents or keep shovelling taxpayers money into the expanding property portfolios of private landlords.

But Labour can also be populist about this - pledge to cut the welfare bill at the same time. Here's more on how.

Unemployment - a price worth paying again ...

It seems a fitting tribute that on the day of Margaret Thatcher's funeral (sponsored by the society she denied existed) that grim unemployment figures emerged.

Despite her election campaign prominently featuring that famous Saatchi poster 'Labour isn't Working', deploring unemployment breaching 1 million under Callaghan's Labour, she oversaw unemployment rise for her first seven consecutive years in office, and breaching 3 million.

But back to today's figures: in the last 3 months, an extra 70,000 have joined the massed ranks of the unemployed (now at 2.56 million - higher than at any point under the last Labour government). Long-term unemployment (those without work for over 12 months) hit 900,000 - the highest level for 17 years. It's even worse for the young, the number of long-term unemployed 18-24 year olds (unemployed for over 12 months) is the highest since 1993.

Overall, since this government was elected, UK unemployment is up 88,000, youth unemployment is up 56,000, and long-term unemployment is up 101,000. Expect a further rise in unemployment next month too ...

Poorest hit hardest by Thatcher's legacy

A few weeks ago I cut out an interesting table from the Metro newspaper - showing how the cost of essential items had risen in the past five years.

The table to the left shows quite clearly how the unavoidable cost of several essential items has risen well in advance of inflation.

Nearly four years ago, LEAP published some ground-breaking research on how inflation affected different income groups. The report Why Inflation is a class issue was published in conjunction the then newly formed Trade Union Co-ordinating Group. One of that group's unions - the PCS - has been on strike this week, with the decline in living standards one of the main issues in the dispute. Their general secretary, Mark Serwotka, told the media that his members had seen their incomes fall by 20% in the last five years - due to a combination of below inflation pay rises (including two years of pay freeze) and increased pension contributions (for a smaller pension at a later date).

For the poorest in society - those on low incomes or surviving on social security - increases in the essentials hit hardest. Our 2009 research found that the poorest 10% spend 67% of their income on essentials, compared to the richest 10% who spent only 29% on essential items. This massive differential is the legacy of the Thatcher years when inequality grew, reversing the equalising post-war consensus.

Many of the essentials - formerly publicly owned utilities - were privatised under Thatcher and now operate for the benefit of private shareholders, with only the lightest of regulatory touches. Their profiteering is evident in the table above, as households are hit by the rising costs of essentials like electricity, water, gas and telecommunications. The table above shows the reality for those facing a 1% cap on their benefits.

Likewise the spiralling costs of rents and house prices are rooted in the selling off and failure to replace council housing, the abolition of rent controls and tax breaks for buy-to-let merchants.

Whatever the origins though, the reality is that the poorer you are the harder you are hit by the seemingly unending rise in the cost of essential goods. In 2009 we called for a new measure of inflation - Essential Inflation - it is needed more now than ever, because the poorest are still being clobbered in a way that the headline CPI and RPI figures fail to reflect.

In a society as grossly unequal as ours, no single inflation measure can reflect the true picture for UK households.

Unemployment stats: then and now

Despite welcoming her to 10 Downing Street within a few weeks of becoming Prime Minister, Gordon Brown (as an opposition MP) once railed against Thatcher's "dishonesty" over unemployment figures.

Looking at comparative statistics though between the ILO unemployment measure and the claimant count (those actually receiving jobseeker's allowance or unemployment benefit as it was) in the mid-80s, early 90s and now reveals how much New Labour's 'welfare reforms' have kept people from successfully claiming.

While it is true that unemployment (on the ILO measure) is currently about half a million lower than in the previous two recessions (2.5m rather than 3m) it is revealing to know what percentage of those deemed unemployed under the ILO measure are receiving unemployment benefits.

In the mid-80s it was 94%, in the early 90s it was 97%, today it is just 65%. So in effect there are today over 800,000 who are unemployed who - for whatever reason - are not claiming jobseeker's allowance.

While New Labour should be pleased that unemployment has not (yet) hit the heights it did in previous recessions, it should be intensely concerned at the missing 800,000.

Is the recession over in time for the election?

Andrew Fisher, LEAP Co-ordinator, assesses the economic picture in 2010.

By the time this issue of Labour Briefing adorns your doormat, Alistair Darling and Gordon Brown may be basking in the reflection of newspaper headlines declaring the recession over.

The figures released at the end of January 2010 are expected to show a moderate level of economic growth in the final quarter of 2009. If so, it will bring to an end to six quarters of decline (the longest UK recession on record) during which UK GDP shrunk by 6.1%.

As LEAP has regularly pointed out, the definition of a recession is woefully inadequate – especially for those on the left. But leaving aside the politics (very briefly), does 0.1% or even 0.5% growth really mean salvation if preceded by 6% of decline?

For those of us on the left however, the fact of more economic activity (i.e. the economy is growing) is not a central question. We are rightly more concerned about what is happening to poverty levels, inequality, and unemployment.

As we know, unemployment growth often lags a year to eighteen months behind the return of GDP growth – as it did in the recessions of the 1980s and early 1990s – and if the ‘recovery’ stutters or is slow then unemployment is likely to remain high for some time.

Unemployment is a central concern since both major parties are advocating programmes of sweeping cuts across the public sector. These cuts would be accompanied by a pay freeze, and a decline in public sector capital investment.

We have been here before and we know to what such measures lead. In the late 1970s, the Callaghan Government chose this path – they ultimately failed on all fronts: they froze pay, privatised and cut. The economy didn’t improve and Callaghan’s policies lost the election.

Nevertheless Brown – now apparently being pushed further by Darling – is going full throttle down the Callaghan route. Then, in 1979, the Tories took over, implemented a package of cuts, privatisation and anti-union laws, which is precisely what they are offering today – and with precisely the same economic misery in store: unemployment, inequality and further recession.

There is no doubt the Tory prescription for the economy and for working people is worse, but the problem for Labour is to the electorate it sounds like being asked whether they’d preferr to be stabbed or shot. Neither is palatable so the plurality of the electorate will no doubt do what it did in the last two elections: vote for neither.

The point of all this is to say that whatever the 2009 Q4 GDP figures bring, they will probably only be a false dawn, since the economic policy of all major parties seems determined to exacerbate the crisis.
But even without the economic incompetence of the political elite damaging the economy, UK capitalism is very much at risk due to its own internal problems.

The UK banks remain the most exposed in the world to US liabilities. Many US banks remain are vulnerable to the ongoing housing crisis, with delinquencies rising to unprecedented levels – one in eight US householders were either in arrears or being foreclosed at the end of 2009. This is driven by the high levels of unemployment in the States, with the U6 rate (which also includes involuntary part-time workers and marginally attached workers) still above 17%. Long-term unemployment is also at a record high with 4% of the US workforce out of work for more than 6 months.

If a further downturn in the US occurs then the risk of further UK banking collapse could not be excluded – and could any future Government possibly afford the sort of bailout needed? Politically, could it survive while cutting public expenditure?

But the housing crisis is not just of concern across the Atlantic. Here in the UK the chronic housing shortage has meant that prices have not declined as far as some predicted and many first time buyers might have hoped. Meanwhile all political parties are keen to freeze public sector wages, in a year when inflation is likely to top 4%. This contradiction cannot be sustained, and there will inevitably be calls for industrial action as living costs shoot ahead of pay settlements.

Whichever Government is elected will defend this madness in the name of cutting the deficit. By attempting to defend pay and jobs, workers and unions will be labelled unrealistic, and even greedy.

Yet the reality is the deficit is not actually a problem . . . relatively. Despite the fact that the Tory press screams ‘crisis’ preceded by ‘deficit’ on a regular basis, a massively unreported fact is that the UK has the smallest deficit of any G7 nation.

This is because New Labour has sought to fund so much of its public sector investment off the books – through PFI schemes and the like. The problem of New Labour’s economic alchemy – investment with no debt – is that, like regular alchemy, it doesn’t work.

When the PFI company collapses, all that debt suddenly transfers to the public finances, as happened with Brown’s PPP on the London Underground. As the last 12 years of PFI unravel so the UK debt will balloon or deep cuts will have to be made.

So what is a socialist response to the deficit? Firstly there is the £125bn of tax going uncollected through non-collection, evasion and avoidance. If only the Government would invest in HM Revenue & Customs, and legislate to close the loopholes then a fair chunk of this annual loss could be reclaimed.

If only one-sixth of this total could be reclaimed each year then that would halve the deficit within four years – without a single job or programme cut or a single salary frozen.

If a socialist government then wanted to make investments then some simple reprioritisation would free billions: cutting Trident, ID cards, ending the inefficiency of rail franchising, and scrapping the FireControl Project. It would also use public ownership of banking and other industries to generate a surplus to the Exchequer.

Since there is no short-term prospect of such a Government, this crisis is only going to deepen. The probably temporary emergence from recession will be a false dawn before a renewed and deep economic and political crisis takes hold.

*This article appears in the February 2010 issue of Labour Briefing

Salute the miners’ strike for jobs

This week marks the 25th anniversary of the start of the great miners’ strike in defence of jobs and communities. Their year-long confrontation with the state and the Tory government remains an outstanding example of the determination of ordinary working people to fight for their rights.

By the time of the strike, officially, unemployment in Britain had risen to around 3.25 million – although the real total was nearer 4 million – and the privatisation of all the great state industries, starting with British Telecom, was underway. It was the miners alone who answered the call of history, and challenged the right of the state and governments to put people out of work and into poverty.

The strike was provoked by the Conservative government of Margaret Thatcher when the state-controlled National Coal Board (NCB) on 1 March 1984 announced plans for the closure of 20 pits in Yorkshire with the loss of 20,000 jobs. The government was in fact secretly planning for the closure of 70 pits throughout the country and the virtual destruction of the industry.
The 600 miners at Cortonwood colliery in South Yorkshire met on Sunday 4 March and voted to strike, calling on the Yorkshire Area of the National Union of Miners for support, which was duly given a few days later. The miners of Scotland, Wales, the North-East, Kent and North Derbyshire came out on March 12.

So began one of the longest, most decisive, most determined and extraordinary strikes of all time. The government had prepared very carefully for this showdown, building up stocks of coal at the power stations, while at the same time switching some of them to burn oil.....................................


read more of this account by photographer P J Arkell with some of his photos at http://www.aworldtowin.net/blog/salute-miners-strike-for-jobs.html