BBC Question Time on St George’s Day (23 April 2015) featured an announcement by panellist William Hague for the Conservatives about the future of the benefit cap. Welfare and benefits are not Hague’s strong points, though the same can be said of many other people these days – the sheer complexity of the regulations and regulation-making powers has put paid to that. Side-stepping a question about numbers of people visiting food banks from a member of the audience, he announced a new benefit cap of £23,000 (replacing the £26,000) for any household if the Conservatives are returned with a majority after 7 May.
£26,000 or £23,000 from benefits a year will sound a lot, but the key thing is follow the money… If you do, you will realise that the bulk of this benefit bill doesn’t go to the named recipients, but as housing benefit that is paid to the landlord (who, in London, may well not be resident in the UK and is often in Cape Town, Lagos, Rome, Dublin etc.) Effectively, our housing benefit exports welfare money to wealthy individuals overseas. Even UKIP don’t seem to have spotted this. Housing benefit is a welfare state for landlords: cap rents and you can have a much lower benefit cap.
Yet this one step that would reduce the welfare bill – curbing rents and thus the monstrous housing benefit bill – has been resolutely avoided. Some politicians don’t understand the connection; others resolutely shut their eyes to it; and some depend on rental from their own properties, so have a vested interest in the existing state of affairs and pocketing housing benefit in rental income.
The failure to address this is interesting because Hague sees himself as a free marketer. But as was pointed out to Tony Blair by the late Professor Peter Ambrose in 2005, there isn’t anything free market with billions (currently £22bn a year) going into the housing market from public coffers to prop up landlords and inflating house prices.  Mind you, every small landlord has horror stories about local authorities’ maladministration of housing benefit – the complexity of those regulations again! – and many LAs are over-extended financially. No one has produced any evidence of rents going down or house prices falling significantly in the last couple of years since the introduction of the benefit cap, and an even greater squeeze is being put upon those in the rented sector or struggling with mortgages
William Hague claims that inroads are being made on the national deficit, but many of the British population are over-extended – hence the continuing reliance on food banks or spending on credit cards. The impoverished are also failing to pay council tax where indebtness is increasing. In theory, this may mean more money for debt collectors and bailiffs but since billions in poll tax (the nearest analogous system) were never paid, there is no reason to believe council tax debts will ever be paid.
What it has meant is a continuing rise in personal indebtness in local taxation, with the wholly predictable failure of the poorest not meeting council tax liabilities since April 2013 (note to politicians and would-be politicians – Council Tax Benefit was abolished on 1 April 2013).
As ever, Question Time panellists were keen to punch holes in the others’ economic visions, accuse each other of not living in the real financial world, believing that money grew on trees and so on. Yet the current welfare caps are a sign of magical thinking, the belief that somehow things will get paid by people using food banks who have had benefits cut or who are on minimum wage or zero-hours contracts. Magical thinking involves a belief that things get better by just saying so without any connection with reality, and somehow those on squeezed incomes will still be able to pay dues or pay for anything when they have no assets and no disposable income.
Some encouragement might be that in some areas such as central London bankruptcies have fallen. However, this is due to a rise in insolvency fees and the parlous state of civil justice system – since 22 April 2014, courts have been turned into ‘hearing centres’ but their administration has gone to pot with centralisation. Legal aid cuts have made involvement in litigation impossible for many.
This unrecognised housing-driven impoverishment will soon spread more widely to increasingly affect debt collecting as a whole – a lot of the alleged debts in all areas that are owed and supposed to be recovered never will be. Consequently, anyone holding debt as an asset needs to worry. Good times may even be over for bailiffs, who until recently have been enjoying unparalleled wealth, with top bailiffs being paid more than Britain’s top judges. Now re-named as enforcement agents, many of their alleged debts to recover are just never going to be paid.
The national deficit is supposedly going to be paid in the future – 2018 or 2020? In the meantime, the rising generation in the UK face increasing impoverishment with individual debt – not being faced at all except by millions of individuals facing the situation alone.
1 Professor Ambrose predicted that that house prices would fall if the state subsidy was removed – returning to pre-1989 levels perhaps reaching an average of £60,000.See Memorandum to the Prime Minister, Zacchaeus 2000 Trust, London 2005. [Back]