Low pay and high benefit costs a feature of the 2010s

Apparently, there was a report out on the rise of in-work housing benefit earlier this week. The Labour Party, which commissioned the research by the House of Commons Library, has not published the figures, which is a shame, because all sorts of numbers were flying around in the media.

The housing benefit bill will balloon to £12.9 billion by 2018-19. But hang on, it’s already around £24 billion.

Ah, wait a minute, I think £12.9 billion is figure for in-work claims. The overall amount is £27 billion by 2018. But we knew that already because it’s in the OBR report and, in any case, that’s a cash not a real-terms figure.

Screen Shot 2014-03-20 at 16.30.55

Or is the in-work figure set to increase to £6 billion in 2018/19? Not £12.9 billion?

As ever, it was left to the bloggers to make sense of things.

Firstly, as Michael said, the big rise in housing benefit spending is old news.


It began to increase gradually before the recession and then sharply afterwards. More interesting is what the DWP think will happen afterwards. The cost will fall slightly as the economy improves, only to rise again towards the end of the decade. Nowhere near as spectacular a jump as the one after the crash but, in many ways, a more worrying one, given that the economy and employment are supposed to be growing steadily by then.

Michael looked at the DWP’s caseload forecasts too.


It expects fewer unemployed and pension age claimants but more of those it categorises as ‘others’ – which includes those in-work.


Declan also dug into the DWP figures and found that it predicts the caseload for its main benefits to fall, except for housing benefit.


This suggests that, if the overall housing benefit spend stays more or less the same but caseload shifts away from out-of-work benefits, some people will simply be transferring from unemployment or incapacity benefits into jobs that don’t pay enough to cover their housing costs.

To complete the picture, the predictions from the most recent House of Commons Library briefing on social security add the HMRC benefits to the DWP figures.

Screen Shot 2014-01-06 at 17.25.38

This shows the overall social security bill falling and then rising back to 2012/13 levels. This expected rise is largely due to pension payments but the lack of much reduction in other benefit costs doesn’t help. Tax credits are forecast to remain high, implying a steady number of in-work benefit claimants for the next few years. This is consistent with the housing benefit forecasts, suggesting people coming off out-of-work benefits into state-supported low-paid work.

If Labour’s £6 billion claim is right, it will mean that in-work housing benefit claimants will account for around 23 percent of the housing benefit costs by 2018. That’s not a lot different from the proportion now, depending on how you define it

That probably wouldn’t have made a great headline, though, which is why all sorts of shouty numbers appeared in the papers. This doesn’t mean there isn’t a story though. The numbers suggest that, even after half a decade of economic growth, we will still have a lot of people in work that cannot pay enough to cover their housing costs. The low pay and underemployment that have been features of the recession look set to continue for some time.

That said, in-work poverty, benefit dependency, low pay and underemployment all started rising before the recession. Perhaps this is another reason Labour didn’t publish its full report. It’s by no means clear from the figures that these things can be blamed on the Coalition or even, fully, on the financial crisis. Some of the things we associate with the downturn actually started before it. That, too, is an even more worrying story because it implies that simply changing the government might not make a whole lot of difference.

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5 Responses to Low pay and high benefit costs a feature of the 2010s

  1. sdbast says:

    Reblogged this on sdbast.

  2. SK says:

    But is this due to wages being too low or due to housing costs being too high?
    And how does this excuses the BoE/Gov policy to subsidise high house prices/rents?

  3. I’m not sure how useful these graphs are without having access to the underlying models.

    I think it’s pretty likely that the tailing off of housing benefit rises noted by Michael ‘O’ Connor is due to cuts in benefit payable more than a decline in need.

    In particular, maximum housing benefit for private sector tenants is no longer indexed in line with real rents – with some exceptions it’s pegged to a maximum annual rise of one percent- at least for the next two years (and is then expected to rise by CPI).. No-one knows what effect this will have on rents – the market has proved resilient to earlier cuts, given people’s stubborn propensity to want a roof over their heads. On the other hand, social sector “Affordable” rents set at 80% of market levels will transfer social housing costs into housing benefit. And as rents rise, more claims will come under the benefit cap – currently applied by reducing housing benefit.

  4. This is simplistic but – population increases, rents go up. Population increases, wages go down. Govt/taxpayer ends up with the bill subsidising housing costs because of the resultant gap. Has the govt factored this cost into the economic advantages of mass immigration?

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