Cuts to housing benefit – now seen as the Treasury’s preferred alternative to cutting tax credits – are likely to damage similar groups of in-work poor claimants by depriving them of more than £500 a year, suggests fresh research by the Institute for Public Policy Research.



The thinktank’s research indicates if the chancellor makes all housing benefit claimants pay the first 10% of their rent from their own funds, he will save around £2.4bn a year, but hit 4.8 million households. The housing benefit budget has risen in recent years and now costs the Treasury £25bn.

Their analysis comes as George Osborne has been forced by a Conservative backbench rebellion to backtrack on his plan, first set out in his summer budget, to cut tax credits. Cutting housing benefit entitlement could help make up the shortfall.

Osborne may be able to argue that housing benefit could be presented as an effort to incentivise households to look for cheaper properties. But the IPPR says the cuts will mean an average loss of £570 a year for households living in the private rented sector, while social housing tenants would lose £460 a year. The impact would be particularly hard on those living in high cost housing markets such as London, Cambridge, York and Oxford.



Nick Pearce, director of IPPR, said: “Like the planned cuts to tax credits, our analysis shows the other welfare cuts that the chancellor is probably considering could have a serious impact on the pockets of working families, people who need help to pay their rent or are genuinely unable to work.”

The chancellor announced on Tuesday that he has reached an agreement with the work and pensions secretary, Iain Duncan Smith, over the department’s budget before the autumn statement on Wednesday. It will set out departmental cuts for the rest of the parliament as well as provide an update of the Office of Budget Responsibility’s forecasts for public finances.



Osborne is still determined to meet his goal of achieving a surplusin the national budget by the end of the parliament, and will find some savings from better than expected forecasts due to low interest rates.

A proposed raid on Uuniversal Credit by increasing the amount of benefit that is withdrawn for every pound earned – the taper rate – has been rejected by the DWP.



The IPPR added that if Osborne is due to reach his £4.4bn in savings, any cuts to housing benefit will have to fall between 2016/17 and 2019/20, rather than exclusively at the end of the parliament, when universal credit is fully rolled out .

The taper rate is currently at 65%, but there are suggestions it could increase to 75 %. Doing that would bring in £2.6bn in 2020. This compares to £3.3bn raised by work allowance cuts in 2020, as announced in the summer budget.

The IPPR says another way to cut the housing benefit budget would be to cut the local housing allowance; the housing benefit subsidy in the private rented sector. Rent subsidies currently fund rents corresponding to 30% of the market level and reducing that to 20% would save £400m a year.

The IPPR says evidence shows that this does not generally reduce market rents – rather tenants end up paying more for where they live. This would be particularly damaging in high-cost housing markets where, due to successive freezes to LHA rates coupled with rent rises, fewer and fewer properties are available at the bottom 20% of the market, let alone 30%. Another option would be to further reduce the welfare cap, which would essentially act as a further housing benefit cut.

Pearce said: “The government faces the same charge which stirred such a strong opposition to the tax credit changes: that they are hitting vulnerable people, but in different areas of the welfare budget. The chancellor is backed into a corner and cannot find an easy way out.”