A leaked letter has emerged, sent from the DCLG to the office of the Prime Minister. The full text of the letter is here. Written by Eric Pickles’ private secretary, apparently at Pickles behest, the letter sets out the DCLG’s concerns at the effects of the Government policy to cap total welfare benefit payments to any one household at £500 per week. The letter is quite shocking. The shock is not so much in the results that it sets out (and those of some of the other policies being pursued), as these are pretty much in line with what everyone else has been telling them, but in the fact that the letter was written 6 months ago and made no difference whatsoever to the Govt’s determination to bring in the policy.

The headlines are these:

The DCLG warned that the policy would result in 20,000 families becoming homeless from private sector accommodation. An additional 20,000 homeless families are expected to result from the separate limits on housing benefit.

The pressure on local authorities, already seeing increased demand, will be substantial and the additional costs to the public purse will exceed the £270 million pa from 2013/4 that the policy is projected to save (again, this is distinct from the caps on housing benefit). The policy will therefore cost more than it saves and possibly by a substantial amount.

The knock-on effect on the projections for ‘affordable housing’, as being brought in the Localism Bill, are substantial. The stated aim of ‘affordable housing’ was for 56,000 new homes to be built on the basis of rent of 80% of market rent and short term tenure. The letter sets out the DCLG analysis that only 50% of those would be built if the benefits cap went through, with the most drastic effect on the very badly needed 4 bedroom family homes. These would quite simply not be supportable under the £500 per week cap.

The DCLG suggestion – subsequently ignored by Cameron and by the DWP – is that Child Benefit should be exempted from the £500 per week cap. The alternative proposal being floated by ‘some people’, that families be required to divert a proportion of their non-housing benefit income to housing costs, was rejected by the DCLG as “it is important not to underestimate the level of controversy this would generate”.

The letter notes that just removing Child Benefit from the income cap would ‘substantially reduce the negative impacts’ as it would mean that:

families with 4 children would be able to live in most parts of the country outside London and the South East.

The Govt and DCLG’s public comments have always been that the limit on benefits would have little effect on homelessness and child poverty.

In addition, there has been a repeated rejection of the view that the separate cap on housing benefit would have much of an effect on homelessness, instead we have been told repeatedly by Grant Shapps and others, that private landlords would reduce rents accordingly. The fears of increased homelessness raised by London Local Authorities were dismissed.

Here is Grant Shapps in an interview with the Guardian in October 2010, a couple of months before this letter was written:

“People like me – who set up a homelessness foundation, worked with all the homeless charities, authored probably six of seven homelessness papers – don’t make changes without thinking through the impact of them on the homeless, […] It is ludicrous to suggest that we would ever do things that would end with people living on our streets.”

At the time Shapps was saying this, it turns out that the DCLG was internally estimating 20,000 households would become homeless as a result of the housing benefit caps. (Meanwhile, Westminster Council alone estimated, as of May 2011, that 5,000 households in the borough will ‘need to move’, with most leaving the borough, once the cap comes in. Only 6% of landlords in the borough are considering reducing rents. Despite this, the wonderful Philippa Roe, Cabinet member for housing, proclaimed that HB caps would reduce rents in June this year!)

Further, Grant Shapps and others have stated that caps on benefits would have little or no effect on the affordability of ‘affordable housing’.  Here is Mr Shapps in a parliamentary answer in December 2010:

Alison Seabeck: To ask the Secretary of State for Communities and Local Government whether a social rented home under his proposed affordable rent model would be classified as affordable if the rent were in excess of the housing benefit cap.

Grant Shapps: Affordable rent levels can be up to maximum of 80% of local open market rents. Our expectation is that providers will want to take into account housing benefit caps when setting rents.

Which is a non-answer. Or in a Ministerial Statement by Shapps also from December 2010:

Being able to offer a fixed-term Affordable Rent option will mean housing associations become even more effective in helping people get back on their feet, and ensure more affordable homes are built for every pound of taxpayers’ money that is spent

This was at the same time as the DCLG was privately estimating that benefit caps would make 4 bed properties uneconomic as ‘affordable tenancies’ and that no-one would build them in consequence, and, of course, that 50% reduction in the number of affordable tenancy properties that would be built. The means that the stated purpose of the ‘Affordable tenancy’ flagship element of the Localism Bill has, by and large, disintegrated. The 80% market rent and the short term tenure would not produce more housing of the kind actually (and desperately) needed.

And there is that chilling comment at the end of the letter, that effectively states that even if the Goverment changed policy and Child Benefit was taken out of the overall benefit cap equation, no family with 4 children that was reliant on welfare benefits could afford to live in London or the South East.

One expects spin, one expects ministers to avoid difficult questions, but where the DCLG on its own assessment knows that as a result of the benefits policy, a slow motion housing catastrophe is imminent and that its own flagship housing policy is pretty much dead in the water, the statements made by ministers amount to dissimulation at best.

[Edit – update. And there have duly been accusations that Ministers, including Grant Shapps, have misled parliament. After January 2011, the date of the letter, Grant Shapps replied to a direct question from an MP on whether he had an estimate of the number of households likely to become homeless as a result of the overall benefit cap by citing a DWP impact assessment from February 2011 which said “that it was “not possible to quantify” the cost to local councils generated by the welfare cap and the likelihood that it will require councils to house some families made homeless”.  This might take some explaining.]

Whether there will be some form of Government response to this is anyone’s guess. Given the current direction of travel, it will probably take the form of Ken Clarke taking Homelessness out of scope for legal aid.

[Update. A ‘source’ for the DWP has now responded in the following terms:

“You know what councils are like – when they have concerns, they are very vocal about it […] The cap only comes in at £26,000 and that’s equivalent to a gross income of £35,000 for a family that’s working. And the minute someone enters into part-time work, they are exempted from the cap […] There might be some people who have to move to a less expensive area. But that doesn’t mean they won’t have anywhere to live. We are very optimistic about the behavioural change that this will bring about. We have already started to change housing benefit. And have you seen droves of homeless people? No, you have not.”

Well, homeless applications in the first quarter of 2011 were up 23% against the same period in 2010. The HB changes only came in in April 2011 (and the 30th percentile cap not until October). We haven’t had the homeless figures for the second quarter of 2011 yet, so the answer to the DWP ‘source’ is how could you possibly know about any current impact on homelessness’. But then making things up without any recourse to evidence now appears to be second nature to those in charge of the DWP.]