Ljs: Housing benefit cuts will hit economic growth, says OECD

Thursday, January 20, 2011

Housing benefit cuts will hit economic growth, says OECD

Housing benefit should be maintained to help unemployed and low paid search further afield for work, says OECD

The cuts to housing benefit proposed by the Tory-led coalition government will limit economic growth and cost more than they save, according to a report on housing by the OECD.

The Paris-based thinktank said housing benefit should be maintained to support low paid workers as they search for jobs further afield. Without a guaranteed rent subsidy, low paid workers will be restricted to poorer areas with few jobs and become locked in a cycle of worklessness.

OECD economist Dan Andrews said the government was concerned that rising rents had pushed up the cost of housing benefit in recent years, but the answer was to increase the supply of housing and not to limit the level of subsidy.

He said housing benefit acted like a voucher that can be used anywhere to obtain housing while workers are on low incomes.

"The UK government is cutting housing benefit, but there is an important implication for labour mobility. A housing voucher is a more efficient way to provide housing than directly building more social housing," he said.

"But you must expand the housing stock or it just goes to increase prices and the amount spent on housing benefit."

The OECD wants Britain to switch away from income taxes on workers and corporations to wealth taxes and consumption taxes like VAT. It argues that stamp duty on property transactions should be abolished and replaced with a higher annual tax on land and property valuations. It criticised Britain, along with many other OECD member countries, for maintaining taxes on property transactions, discouraging mobility among homeowners by raising the cost of moving.

Britain has a large stock of social housing compared to many other richer nations and a smaller private rented sector. Andrews said housing benefit was useful in encouraging low income workers to leave social housing for private rented accommodation in areas where there is demand for more staff.

The government plans to cap housing benefit for tenants in private rented housing from January 2012.

Work and pensions secretary Iain Duncan Smith hopes to cut �2bn off the annual �21bn housing benefit bill by 2014-5, with a series of reforms to the payments including new weekly caps of between �250 for a one-bedroom property and �400 for a four-bedroom property.

Phillip Inman

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