Housing Benefit

In spite of general affluence, it is important to recognise that low-income households are a significant proportion of the population. The statistic of "average wage" is heavily weighted towards high-income earners. If nine people earn £100/wk and one person earns £1100/week, then the average wage is £200/wk but nine out the ten people wouldn't think so! The meridian wage, which marks the boundary for 50% of the population is much less, but is rarely quoted.

In 1988, 62% of households earned below average income and 22% earned less than half the average income.

The Poverty Trap

When low-income households in receipt of housing benefit attempt to improve their income by change of job or by working longer hours, then 65p of every additional £1 they earn is withdrawn from their housing benefit. In other words they gain only 35p from each £1 increase in their earnings, unless they can earn enough to make a life-changing escape from dependency on housing benefit.

The first five columns of Table 1 show the Income Boundaries, below which the household will experience the Poverty Trap. The last but one column show the Rent Boundary below which a household with an income of £210/week would have to pay the full amount without the help of Housing Benefit.

Bear in mind that around one fifth of all households earn less than half the national average wage. The Data is for the year 2000.


Table 1. Ref: Restructuring Housing Systems [1]

The Income Boundaries for Housing Benefit - Gross weekly earnings at which household is not entitled to housing benefit.

  

The Rent Boundary - For a household with £210 Gross Earnings

Ref. Ch.12 p120

Gross weekly income

  

No HB for rents

Less than:

Equivalent

Loan/Income multiplier

Household

£40 rent

£50 rent

£60 rent

£70 rent

  

Single adult

Couple

Couple 1 Child

Single parent 1 Child

Couple 2 Child

Single parent 2 Child

Couple 3 Child

Single parent 3 Child

130

185

120

95

95

75

75

55

155

205

170

140

140

115

115

90

180

230

220

190

190

165

165

135

200

250

270

245

240

215

215

185

  

75.35

52.70

58.20

64.00

64.00

69.75

69.80

75.00

3.63

2.54

2.82

3.09

3.09

3.37

3.37

3.62

Deep as a Mortgage

The last column in Table 1 examines this Rent Boundary more closely. For households with an annual income of £210/wk, it shows the ratio of rent against income that the households would be expected to pay without the help of Housing Benefit. The ratio is an equivalent to be compared with the maximum ratio of 2.5 recommended for a home purchase loan against income.

It is clear from this, that the Housing Benefit system requires households to pay more in rent than would be considered a prudent mortgage by a commercial lender.

'Social housing needs to consider not only affordability in rent setting, but also the wider impact of the welfare benefit system in opening up real choices in the housing market for low-income working households.' - Michael Jones