Does UC really "make work pay"? Flickr/DWP. Some rights reserved.

I've been moseying around the housing element of Universal Credit. What will it mean for people needing to claim for rent or mortgage interest? What does it say about government policy?

Both are worth thought. The more that commentators concentrate on “benefit” claimants, the happier government and its Siamese-twin financial interests will be. (Owen Jones' “The Establishment and how they get away with it”, provides a useful background here).

The “benefit” system isn't primarily about turning scroungers into strivers. It isn't even about being a safety-net; if it were, it would indeed be a failure. It's about the shape of our economy and the interests of those who run it. Not a “benefit” system, but an economic tool used in the interest of the few.

The theory

Coalition welfare reform, notably Universal Credit, aims to reduce benefit dependency, make work pay and simplify the benefit system.

On the first, it depends what you mean. UC cannot help people escape the need of “benefit” top-ups. Even if the Work Programme were much more effective than it is, that would ask too much: only a wider reshaping of our economic/industrial/social policies can bring such employment, housing, health, education and access thereto.

UC does eradicate much of the craziness of the old system that deters/prevents people from taking a job because it would cost more than it pays. But work by no means always pays under UC, as we'll see.

In another sense it is more effective in reducing dependency. UC is part of a core policy: cut entitlements so that, whether or not earnings are enough to live on, people must depend less on state payments.

The holy grail of “simplification” is hard to find in the UC maze. The basic calculations are indeed simpler, but few human lives stay basic. The regulations are as convoluted as ever they were, growing more so as further tweaks appear.

Housing costs for rent: what's the policy?

Universal Credit tends to be friendlier to people who don't need help with their rent than to those who do. I won't spell out how the calculations work; it has to do with how much of their earnings claimants can keep before UC starts to be reduced (at a uniform rate of 65p for every £1 earned). Households with children can keep more earnings before losing UC if they aren't claiming for rent or mortgage interest.

For people on low earnings, there will be only a small incentive to increase their earnings since they will lose so much of them. A singleton with a child going from £20 per week to £300 gross (£260.72 net) will only be £110.70 better off if she's claiming for rent. She'll be £181.35 better off if she has no rent.

So what's this all about? Partly, it saves money, shifting more of the financial burden on to claimants. They mustn't do too well from the state.

More specifically, it reduces the housing part of the bill. Housing benefit is the costliest single “benefit”, second only to the runaway biggest, state retirement pension. Unsurprising then that government should aim to reduce it. In 2008 Labour restricted the amount payable to private tenants through the local housing allowance, a maximum that's been quietly reduced by a series of further cuts. The bedroom tax did a similar job for social tenants. The overall “benefit” cap restricts costs for larger households in high-rent areas, targeting housing benefit first.

The “benefit” system is used to encourage more behavioural changes than just willingness to work. Low-income households wanting to increase their income should avoid setting up separate households until their incomes go beyond needing state support. A singleton or couple with a child will ideally live with parents or friends, forming joint households where they can minimise what they have to pay for their roof. For single, childless under-35-year-olds, the same incentive is provided by the local housing allowance cap restricting them to housing benefit calculated on a single room in a shared house.

CAB advisers already see a gentle flow of clients from households under strain, financial and emotional, from such family arrangements. Financially, despite UC's intended simplicity, we are back to the world of complex better-off calculations.

That's rent. What about people with mortgages?

Time-limiting Support for Mortgage Interest

Since the 1980s, governments have encouraged the “property-owning democracy”, the 1980 Housing Act introducing Right to Buy. From 1988, Income Support paid 50% of mortgage interest for the first 15 weeks and 100% thereafter.

In 1993 state generosity went down, with upper limits on mortgage size. In 1995 came waiting periods before Support for Mortgage Interest (SMI) could be paid: people with mortgages were expected to maintain enough savings to carry them through brief hard times. SMI can't be claimed by people who take out a mortgage when already on “benefits”. The crisis faced by homeowners following the credit crunch led to a 2009 reduction in the waiting time from 39 to 13 weeks and there it remains.

Then, also in 2009, government introduced two other measures. First, it limited SMI for job-seekers to two years. This unwillingness to support the mortgages of long-term unemployed people reversed the original policy of increasing the proportion of mortgage interest covered as time passed.

Secondly, it introduced the Flexible New Deal, a two-year work programme for jobseekers. Together, it's a package: if people haven't found full-time work in this time, they aren't in a position to maintain a mortgage. Two years of hope, then accept you've slipped down the ladder.

With much fanfare, the Coalition introduced the Work Programme in 2011, giving people a longer period of “support”: up to a year with JobCentre Plus followed by two years on the Programme. The limit on SMI remained two years. If hope were thus extended by the Programme it would be logical to extend SMI likewise, but government seems to lack the courage of its convictions. Or it's more concerned to limit payments than to be consistent.

Despite such hiccups, there is a tough logic. If people can't expect to repay their mortgage capital, they must acknowledge that grim truth. The system demands that they sell, release the equity and live on it rather than on the state. There can be a six-month window when their capital can be “disregarded” if they have a realistic hope of buying again. This allows them to claim means-tested benefits for that time. After that, they will receive no such benefits, under old system or UC, until they have used up all but a maximum of £16,000 of their capital. Barring major windfalls (inheritance? lottery?), it is goodbye to the housing ladder. These people are no longer part of aspirational, property-owning society.

It is coherent. It also presupposes a great deal, going way beyond the welfare system. Why is our economy so structured that growing numbers of people have no hope of incomes that are high and secure enough to maintain mortgages? For the first time since the 1980s homeownership revolution, more households own outright than have mortgages. Numbers renting are also rising while mortgagees fall.

It is a sheep-and-goat division quietly supported by “benefit” policy.

Low pay and Support for Mortgage Interest

Mortgage support is limited too for people caught in the trap of part-time, low-income work. The limits are tightening.

Under the old legacy system, anyone on means-tested JobSeekers Allowance, Employment & Support Allowance, Income Support or Pension Credit can get SMI (working-age people after the 13-week waiting period). These can only be claimed by people working under 16 hours.

Claiming as a part-timer is complicated, particularly for JSA. It means combining work with job-search and/or other requirements at JCPlus or the Work Programme, and paying the travel to sign on fortnightly. For people not claiming SMI, in practice it generally doesn't pay. But the possibility is there: part-time workers are not ruled out from mortgage-interest help while they look for more or better-paid work. 

UC's “zero earnings rule” shifts the division between sheep and goats.

This provides that when someone earns even for one hour at the minimum wage, no Support for Mortgage Interest is payable. This though UC aims to incentivise people to take micro-jobs as a way back into the workplace.

The impact varies: loss of SMI makes the income of a single childless person plummet if s/he starts earning minimally – say £64pw; a childless couple starting to earn at this rate is also worse off, though not so dramatically; a singleton with a child would be about £8pw better off. As earnings rise, the loss is eroded until it disappears on higher incomes.

What's the rationale?

Government's position is straightforward, given in DWP's response to a Commons Work & Pensions Committee report and repeated in Commons Library Note SN06618. The argument doesn't make much sense alone, only in the context of wider goals.  

“Having a mortgage to pay provides a strong incentive for moving into full-time employment. Part time earnings cannot sustain mortgages in the long term, so those who would be worse off need to re-consider their position with regard to the amount of work they do or the level of their housing costs.”

It isn't obvious why help with mortgage interest undermines an incentive to find full-time work more than help with rent. On the contrary, the need to pay off capital should remain an incentive.

Nor indeed is it a choice between unaffordable mortgages and affordable rent. In December 2014, the National Landlords Association launched their “Rent Risk Resolve” campaign, highlighting “four of the biggest risks facing landlords”, the first of which was rent arrears: “Our research shows a third of landlords (32 per cent) say they have experienced rent arrears in the last 12 months.”

Low-paid and part-time work often can't sustain either rents or mortgages. According to the Institute for Fiscal Studies, “On average, real costs for owner-occupiers with a mortgage fell by 38% between 2007-2008 and 2012-13, taking the proportion of their income spent on housing costs from 16% to 10%. Of course, renters have not experienced the same scale of relief and the proportion of their income spent on housing costs rose from 25% to 27% over the same period.”

Interest rates cannot remain at their current low rate indefinitely, with heavy implications for stretched mortgagees. Nevertheless, mortgages are not necessarily more unaffordable than rent.

Sheep and goats

Why then UC's policy on Support for Mortgage Interest? It links to a more fundamental division between the sheep and the goats.

In this UC world, no-one without substantial savings and/or the capacity to get quickly back into well-paid work should remain a property-owner. Remember that we are not talking about new mortgagees, but about people who already had a mortgage when they lost their job for whatever reason.

This includes people leaving work through sickness or caring responsibilities, whom the “benefit” system is supposed to help return to self-sufficiency. One imaginative element of the old Incapacity Benefit, retained by Employment & Support Allowance and, in another shape, by UC, is “permitted work”. This allows sick or disabled people to work a few hours for up to a year without losing benefit. By returning gently to work, they can sustainably re-enter the workplace. Under UC, however, they will not meanwhile get help with their mortgages. Take a low-wage micro-job and payments plummet. The notion of easing back is destroyed.

There are clear advantages for government in not paying SMI to working people.

It saves money. Those at the bottom can never save more than minimally, in cash or bricks and mortar, while claiming “benefits”; they must instead use their savings. It shifts the risks of taking out a mortgage in an insecure employment market to those most vulnerable to its vagaries.

And it “incentivises” such people to take work or increase their hours by rendering them so poor that the notion of choice or of control over their lives is stripped away.

A flexible labour-force

That is the point. DWP's “Universal Credit works for employers” tells them that:

"Universal Credit will have a positive effect on your business as you will:

find it easier to fill any job as more jobseekers will be willing to consider short term or irregular work; be able to identify opportunities for flexible working using your existing part time employees for overtime and extra shifts at peak times, without the overheads associated with recruiting and training new staff; have access to a wider pool of applicants for your jobs, many of whom are registered on our Universal Jobmatch service, to help you fill your job vacancies more quickly."  

UC is integral to the flexible workforce that is in turn integral to our economy as currently shaped. There are two basic categories of citizen. First, those for whom work is a safeguard from poverty and who have a right to aspire to homeownership and some measure of future security. Then there are those whose role is to provide cheap flexible labour.

In 2014, the Joseph Rowntree Foundation suggested four measures necessary for tackling in-work poverty: “change the benefits and tax systems to make it more worthwhile for second earners to work more hours; reduce childcare and housing costs; improve the quality of part-time jobs; create better progression routes for low-paid workers to higher-paid and more stable jobs.”

UC disincentivises low-paid second earners; it increases both childcare and housing costs for many. Work Programme providers are interested only in claimants getting and keeping jobs, not in their progress in hours or pay, while UC is sold to employers as helping provide further pools of workers able, willing (and obliged) to take low-paid flexible work.

Universal Credit's housing policy is but one small straw in the wind, but it is a telling one. Its priority is to reduce the “benefit” bill and reduce welfare dependence, then to lift people out of poverty. Those aims are not the same.

Those with the skills, confidence, health or family support can use it as a ladder. Those without reduce their dependency only by means of losing entitlements. They may be forced into work, but only in the shape of endless churn of part-time, temporary and/or self-employed jobs. They are the goats, with no right to stay on the property ladder.

The “benefit” system is not about benefit. It's not about aspiration or hope. It's about making sure people play the part allotted to them, and minimising the cost. The cost, that is, to those who really benefit.