How the bedroom tax will transfer housing stock from taxpayers to banks
In this interesting article from Open Democracy, Mel Kelly explains how the bedroom tax is not only socially destructive but, intentionally or otherwise, long term it is likely to have the effect of transferring large amounts of housing stock from taxpayers to banks.
There are 3.8 million social landlord controlled rental properties in the UK. The Policy Exchange think tank, set up by Tory MPs Michael Gove, Francis Maude and Nick Boles, estimates the value of just 800,000 of these social landlord properties at £159 Billion and wants them sold.
But you cannot sell a house (never mind 800,000) with sitting tenants who have a secure tenancy agreement.
So how can these tenants be forced out of their home to allow the privatisation of taxpayers social housing stock?
In the 60s, notorious private landlord Peter Rachman was accused of driving Londoners from their rented homes for his financial benefit.
Today Ian Duncan Smith not only stands accused of driving tenants from their homes but of also driving tenants to suicide as, from April 2013, hundreds of thousands of British families had the “bedroom tax” imposed on them if they rent their home.
Is the bedroom tax about cutting the benefits bill or government implemented “Rachmanism” (which is defined in the Oxford English dictionary as “the exploitation and intimidation of tenants by unscrupulous landlords”)?
There are 3 distinct housing sectors in Britain receiving benefit payments from the DWP, mortgaged properties, properties rented out by private landlords and properties rented out by social landlords.
If a family has a £200,000 interest only mortgage over 30 years , with a 3% interest rate , they get charged £500 interest each month by the bank. Ian Duncan’s Smith’s reforms actually force the DWP to pay £605 (3.63%) directly to the bank each month (£105 more than the bank is due). When questioned about these mortgage interest over-payments made by the DWP to banks, in a reply dated 8 May 2013, unelected Minister for Welfare Reform, Lord Freud, was forced to admit the welfare reforms do not affect bankers, as they will continue to benefit from being paid more from the DWP than they are actually due each month.
The minister was also forced to admit that these benefit payments to the bank are “not currently included as income when calculating the benefit cap”. As well as these benefit claimants not having the benefits cap imposed on them, just because they have a mortgage, they will also not have the “bedroom tax” imposed on them either. In practice this means if you have a mortgage you are entitled to £756.25 a month more benefits than the same size family renting the house next door if you both have 2 bedrooms “under occupied” - despite the fact both families pay the same rate of National Insurance.
Private landlords, like the banks, will also continue to claim large sums from the DWP, via their tenants, as in Westminster they can charge taxpayers £1505.75 per month for a 3 bedroom house. If the private landlord tenants get 25% bedroom tax imposed on them, private landlords can still claim £1129.31 from taxpayers while a social landlord's income plummets to just £441.77 per month, as they only charge the taxpayer £589.03 for a 3 bedroom house in Westminster.
If a private landlord invests just £50,000 for the deposit on a £200,000 3 bedroom house, as he can demand £1505.75 every month from the DWP – this ensures not only do taxpayers cover the £605 mortgage (at 5% interest) but the private landlord makes a healthy profit of £900 a month over and above as well - giving private landlords an annual return of 20% on their £50,000 investment from taxpayers pockets.
The only housing sector to actually suffer massive losses to their income under Ian Duncan Smith's benefit reforms are social landlords.
As well as this bedroom tax attack on the social rental income, social landlord’s cash flow is threatened further by Ian Duncan Smith as he has instructed the DWP to no longer pay landlords their housing benefit payments direct from the DWP (unlike the banks).
The trials of this change proved this reform actually increased rent arrears to around double the normal figure, with one trial in Wales showing arrears increased sevenfold. Despite the obvious loss of vital income to social landlords, Baron David Freud, minister for welfare reform, claimed “direct payments of benefits (to benefit claimants rather than landlords) will help people to step into the workplace without the many institutional barriers that now exists”.
By this logic if social landlords have no longer to receive direct payments from the DWP then bankers should no longer receive direct payments either – to ensure benefit claimants with mortgages are not held back by these institutional barriers as well.
Far from being designed to remove barriers, Ian Duncan Smith's reforms are obviously designed to install barriers – not on bankers, nor on private landlords but on one housing sector only: social landlords.
Combine this with a report on the Inside Housing website stating “Bankers putting housing associations at risk”, as the head of the Nation Housing Federation claims “Bankers are using any opportunity to push up the price of existing housing association loans”, and taxpayers will find not only are tenants being driven from their homes but social landlord's will be driven out of business.
This combined banker and government attack on social landlords will mean they will not be able to afford to pay their bills and bankruptcy may soon follow. Private landlords don’t face this threat of bankruptcy from Ian Duncan Smith’s reforms as the DWP ensures them healthy returns on their investment. Banks won’t go bankrupt due to DWP reforms as they will continue to get paid up to 20% more than they are due every month (with payments direct from the DWP and no cap on the benefits) – only social landlords face financial ruin under Ian Duncan Smith’s reforms. And as each social landlord goes bankrupt their creditors get to grab the assets. And who do social landlords borrow from under reforms by successive governments? Banks.
So the Policy Exchange call to sell just 800,000 social landlord homes (taxpayers assets) for £159 billion will be a moot point as Ian Duncan Smith’s carefully crafted benefit reforms would allow banks to grab the social housing stock without paying one penny, using bankruptcy as his chosen privatisation method (just as his government is doing with foundation hospitals).
And once banks control the social housing stock, they stand to benefit further from Tory/Liberal reforms as they can take advantage of planning law changes to turn the former social housing stock of Britain into Rachman like units, where they convert homes into single rooms to let – allowing banks to charge taxpayers £102.20 per tenant per room per week. So if the banks convert 3 bedroom homes into 6 room Rachman-like units, the banks can charge the DWP not the £589.03 rent per month currently charged by social landlords but £2657.20 per month instead, which will increase the current housing benefit bill nearly 5-fold for the same houses.
Social landlords give the best value for money for tenants and for the taxpayer in Britain and ensure the taxpayer’s housing stock is affordable to the vast majority of the nation and that this £trillion worth of assets are kept in safe hands. The Social Housing Sector is the only thing that stops banks having a complete monopoly on all housing access in the UK.
Already, just 52 days after the bedroom tax was imposed, social landlord tenants with secure tenancies are being served with eviction notices and due to be driven out of their homes, just as happened under notorious private landlord Rachman in the 60’s, only this time it is the government rather than a private landlord forcing this exodus.
Will Ian Duncan Smith’s benefit reforms ensure the definition of “Rachmanism” is redefined to “the exploitation and intimidation of tenants and social landlords to ensure the full privatisation of all social housing stock in the UK, without a penny being paid to the taxpayer, for the benefit of bankers”?
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