The Treasury manages public spending within two ‘control totals’ of about equal size:

  • departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
  • annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.

Social security and tax credits together are the biggest source of AME spending. Housing benefit is one of the bigger elements of welfare spending. It is an income-related benefit to help households pay their rent. It is available to people on low incomes – from benefits or work – who rent their homes in the private- or social-rented sectors. Unlike many benefits, there is no set amount paid to an individual for housing benefit. The amount received depends on a measure of ‘eligible’ rent – local housing allowance rates in the private sector – and other household circumstances. These include household income, whether there are any non-dependants, whether there is a spare room in the home, and the age and disability status of those in the household.

Housing benefit is one of the elements of welfare spending that will be replaced by universal credit over the coming years. Since universal credit is currently at an early stage of its rollout, we currently produce our forecasts by assuming that housing benefit and the other legacy benefits continue being paid as before, then we add or subtract an amount to reflect the difference between universal credit and the six benefits and tax credits that will be replaced.

In our latest forecast, we expect housing benefit spending in 2016-17 to total £23.0 billion, with 5.0 million recipients paid an average of £4,700 each. That would represent 3.0 per cent of total public spending, and is equivalent to £800 per household and 1.2 per cent of national income.

This can be split into spending inside and outside the welfare cap – only spending associated with people in receipt of jobseeker’s allowance is outside the cap. In our latest forecast we expect housing benefit spending inside the welfare cap to total £21.4 billion and spending outside the welfare cap to total £1.6 billion in 2016-17.

  • Recent trends

  • Latest forecast

    Housing benefit spending inside the welfare cap is forecast to rise very slightly in cash terms – by just 0.8 per cent – between 2016-17 and 2021-22. As this is considerably less than our forecast for nominal GDP growth during this time, this represents a fall of around 0.2 per cent of GDP. This fall is almost entirely driven by a reduction in average awards relative to average earnings. This largely reflects the freeze in working-age benefit uprating and policies that place additional burdens on social sector landlords.

    Housing benefit spending outside the welfare cap is set to rise by over a third in cash terms. As this is slightly higher than our forecast for nominal GDP growth, this represents a rise of 0.02 per cent of GDP. This rise is driven by an increase in the caseload, reflecting an increase in the jobseeker’s allowance caseload in the near term due to the lone parents’ obligation (one effect of which is to move some claimants from income support to jobseeker’s allowance). This more than offsets the falls in average awards discussed above.

    Our March 2017 forecast revised up spending on housing benefit inside the welfare cap by just £0.1 billion in 2021-22 relative to our November forecast. On average over the whole forecast period, spending increased by £0.1 billion.

    Housing benefit (inside the welfare cap): changes since previous forecast

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    Our March 2017 forecast for housing benefit outside the welfare cap was broadly unchanged from our November forecast.

    Housing benefit (outside the welfare cap): changes since previous forecast

    housing-2

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  • Previous forecasts

    Our forecast for housing benefit spending are sensitive to changes in our economy forecast and to policy changes. For example, the large downward shift in our spending forecast in July 2015 reflected the announcement of policy measures that are expected to reduce spending on housing benefit, some of which are discussed in the policy costing section. The upward shifts in housing benefit spending outside the welfare cap in November 2016 were partly a knock-on consequence of the upward revision to our unemployment forecast.

    Our June 2015 Welfare Trends Report explained some of the factors behind previous errors in our housing benefit forecasts:

    The errors here had been associated with three inter-related developments in the economy:

    • the share of the population renting has continued to rise faster than forecast. This may be associated with house prices remaining high relative to incomes and reduced post-crisis supply of high loan-to-value and loan-to-income mortgages;

    • employment growth has been much stronger than expected, but earnings growth has been much weaker. As a result, the number of people in-work but earning sums that would leave them eligible for housing benefit has been higher than expected. (It is also possible that take-up could have risen); and

    • rent inflation, as measured in housing benefit administrative data, has been higher than expected – partly driven by compositional changes. This interacts with subdued earnings to increase the eligible population further.

     

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  • Policy measures

    Since our first forecast in June 2010, the Coalition and Conservative governments have announced over 35 policy measures affecting our forecast for housing benefit spending. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

    Most measures have reduced housing benefit awards. Some of the largest include:

    • Switching to CPI indexation for Local Housing Allowance from 2013-14 (June Budget 2010).
    • Setting Local Housing Allowance at the 30th percentile of local rents from 2011-12 (June Budget 2010).
    • Increasing Local Housing Allowance by 1% for two years from 2014-15 with provision for high rent areas (Autumn Statement 2012).
    • Reducing social sector rents by 1% each year for 4 years from 2016-17 (July Budget 2015).
    • Freezing Local Housing Allowances for 4 years from 2016-17 (July Budget 2015).

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