Devolving Housing Benefit would change Universal Credit

According to today’s Scotland on Sunday, the Conservatives are considering devolving responsibility for Housing Benefit, partly as a means of defusing the ‘toxic’ issue of the bedroom tax.  There are some good arguments.  The first is that Housing Benefit depends on local housing markets.   The second is that local authorities have a long track record of operating Housing Benefit; they have the people and the organisation to do it.  Third, rent policies are different in Scotland from England.  The underoccupancy penalty in Scotland is not removing a ‘spare room subsidy’ – it’s a penalty, taking somewhat more from Housing Benefit than the cost of the rooms in dispute.  Fourth, the flexibility of devolution could make it possible to get around some of the problems that have emerged in the pilots through not paying social landlords direct.

If Housing Benefit was to be devolved,  however, part of the plan for Universal Credit would unravel.  Universal Credit was supposed to produce a unified taper, or ‘marginal rate of deduction’ – the speed at which benefit is withdrawn as income increases.  It is going to be set at 65%.  The figures never quite come out looking like that, because UC will be calculated on net income, after tax, national insurance and some other benefits which are not being integrated in the system.  If a person is paying tax and National Insurance at 32% – there are several variations and possible permutations – UC will take away 65% of the remainder; that comes to 76.2% in total.

At current rates, Housing Benefit is withdrawn at 65% and Council Tax Reduction is withdrawn at 20%.  If tax, NI and UC take away 76% of additional net income and CTR and HB together take away 85% of what’s left,  the combined deduction  would be over 96%.   Even without tax, it’s 95%.  (I’m assuming here that HB and CTR would be calculated after UC, and that income from HB and CTR would be disregarded for UC purposes.  If they weren’t, and  if there were different time frames, the calculations could be bewildering.)    To avoid these problems, either the tapers would have to change, or UC  would have to be calculated differently,  with different rules where Housing Benefit is not part of the scheme.

If Universal Credit was to go forward without Housing Benefit, it would be a move toward a  different model – tying Tax Credits to something that looks a lot like Supplementary Benefit.  I’m not sure that this combination makes any more sense than the rest, but the smaller the pretensions of the scheme, the less scope there is for catastrophe.

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