6 July 2011

One of the questions that I have often discussed on the blog is complexity in public policy and practice, especially about the redistribution of public spending across England and the claims of unfairness from Cornish nationalism (and some Liberal Democrats too).

Recently the Tory Libdem government said that benefits would be capped overall at £26 000 a year. It was unfair, it said, that some recipients were receiving more in benefits than the average wage. There were accounts in the rightwing newspapers, cited by the government, of recipients receiving very much more in housing benefit for example, though it turned out that they were very few in number.

An overall cap appears to be rough fairness. It means unemployed people on benefits do not have a seriously larger income than most comparable people in work; people on housing benefits are not living in houses unaffordable to people in work.

However, the Department for communities and local government (DCLG) has thought this through and done its sums and these have led to concerns that have been revealed in a DCLG letter that has become public (see at the foot of the post). The cap is likely to have three serious consequences.

First, the overall cap is likely to lead to more public money being spent than saved. The DCLG email said: “We think it likely the policy [of the cap] will generate a net cost”.

This is because DCLG calculations, as explained in the email, suggest that some people will lose benefit income and be unable to afford their rent and thus become homeless. Homelessness will increase by 40 000 (half from the cap and half from “other changes to housing benefit”). Housing the homeless will cost money.

Additionally, a serious adverse effect of the overall cap will be a shortfall in affordable houses because developers of affordable housing must be sure of being able to charge rents of up to 80 percent of the market rents. “the overall benefit cap will prevent them from doing so in many cases” because developers will see that people cannot afford to pay the rents. The DCLG goes on to say that around half of the planned 56 000 affordable houses for rent to be built by 2014/15 will not be and family homes will be most affected.

There is also a question of whether the government has been wholly upfront about the DCLG concerns.

It is difficult to assess the likely consequences of the cap in Cornwall. I think that rents in Cornwall may well mean that homelessness and a loss of new affordable houses due to the cap will not be serious issues here. I hope that’s so; we shall see.

Fairness is difficult. Unintended consequences befoul decisions which seemed straightforward when made as I noted in the Independent England post yesterday. The government should rethink and there are suggestions from it of unspecified transitional arrangements for the most difficult instances; that might not be enough.

You can read the DCLG letter here.