Cuts to social rents will benefit exchequer more than tenants, but will strengthen work incentives.
Reductions in social rents announced in the July Budget will be of little or no direct benefit to most of the 3.9 million households in England living in social housing. Most of those renting their home from councils or housing associations have low incomes and hence receive housing benefit to cover all or part of their rent. Entitlement to housing benefit will typically be reduced pound-for-pound as their rent falls.
The reduction in housing benefit will save the exchequer money, and will strengthen tenants’ work incentives as they have less means-tested support to lose by entering work or increasing their earnings. Social landlords – housing associations and local authorities – will lose money.
These are among the conclusions of a new report on social rent policy, published today by the Institute for Fiscal Studies (IFS) and funded by Trust for London.
After many years of real increases in social rents, the July Budget announced a 1% annual reduction in social rents in England for the next four years. Given that previous policy was to raise rents by CPI inflation + 1% each year, this means that social rents are expected to be 12% lower than they would otherwise have been by 2019–20.
"Recent policy on social rents displays a worrying lack of consistency. The government had committed to increasing social rents for ten years; but after just one of those ten years, it announced that rents will instead fall for the next four years. This instability could damage the ability of social landlords to plan and finance new house-building."
Robert Joyce, Senior Research Economist at the IFS and author of the report
"There are trade-offs between the targeting of support and tenants’ incentives to increase their incomes. Pay to Stay will target the rent subsidy more closely on those in current need, but at the expense of weakening tenants’ work incentives."
Andrew Hood, Research Economist at the IFS and another author of the report