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Analysis: why has the impact of the bedroom tax been different in London?

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London boroughs have a lower rate of social tenant households affected by the bedroom tax than the GB average, but the average hit has been higher. The shortage of housing is acute in London and the existing stock needs to be better utilised, but a policy that encourages families to move to more expensive and smaller private rented accommodation benefits neither the tenants nor the taxpayer.

Posted on 10 November 2014

In May 2014 just under 50,000 households in London were seeing their housing benefit cut because they were deemed to have a "spare bedroom". This is the result of the removal of the spare room subsidy in April 2013, commonly referred to as the "bedroom tax".

The change meant that social tenants considered to have a "spare bedroom" saw their housing benefit entitlement cut by 14%; or by 25% for those with 2 or more spare bedrooms. But the change has impacted London in a distinct way - while the proportion of social renting households affected is lower than elsewhere, the average reduction in housing benefit is higher.

Overall 9% of social rented housing benefit claimants in London have been affected, 5 percentage points lower than the average for Great Britain. While the proportion of households affected varies at the local level, nowhere does the rate exceed that of the GB average. Greenwich has the highest proportion of affected households, but at 12% it is 2 percentage points below the average for Great Britain. This trend reflects that social rented properties in the capital on average have fewer bedrooms than elsewhere in the country.

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However, while the proportion of social renting households affected is lower in London than across the rest of Great Britain, the average amount of housing benefit lost by affected households is significantly higher. In May 2014 the average amount of housing benefit lost as a result of the change was £21 per week in London. This is higher than any other region or country in Great Britain and is £6 above the GB average. This marked difference is linked to the much higher housing costs in London, which even affects the rent levels of social tenants.

This variation in the average cut from the bedroom tax is also apparent within London: the average loss in housing benefit in Inner London was £21.20 per week, compared to £20.20 in Outer London. This corresponds to higher housing costs in Inner London boroughs. Indeed, of the 10 local authorities across the country with the biggest average loss in housing benefit, 9 are in Inner London. At £24 per week, Wandsworth has the highest average cut in Britain. A job seeker would have to cover this housing benefit shortfall with an income of £72. In London this means around a third of the benefit money intended for non-housing costs (such as food, fuel, and transport) would have to be spent on rent.

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But as London's Poverty Profile has previously shown London has the highest levels of overcrowding in the country, and it is the highest in the social rented sector at 17%. So the bedroom tax has the greatest potential in London to relieve levels of overcrowding by encouraging families with a spare room to downsize and vacating much needed larger properties.

However, an independent evaluation of the impact the bedroom tax for DWP has shown that in the first 6 months the policy had caused only a handful of families to move. Less than 5% of affected families downsized within the social rented sector. The proportion downsizing in to the private rented sector was even lower at 1.4% nationally, and less than 0.5% in London due to the high costs of private renting.

The bedroom tax is another example of the severe impact housing benefit cuts have on families in areas where housing costs are high - the cut in income is much higher and the alternative options fewer. A policy that encourages families to move to more expensive and smaller private rented accommodation is not desirable for either the tenant or the tax payer. In London where the shortage of affordable housing is so acute, it's clearly desirable that those properties are better utilised, but the bedroom tax doesn't appear to be or hasn't proved to be an effective mechanism to achieve this.