I have a simple proposal which could end poverty overnight for millions of British people. It doesn’t cost a penny – quite the opposite. It would save the government billions of pounds every year. It would make the UK a much fairer society. So, what’s the catch? Well, this ingenious way of making the UK a fairer place may itself be considered just too unfair by the wider majority of people. The only barrier to my proposal is the potential resentment of the majority to a minority (i.e. the poor) getting something special. To be politically feasible it would need a Grand Alliance of right-wingers and the left-wingers to overcome the centrist moderates. I’m not saying that centrists are against ending poverty. Usually they are reasonably supportive – so long as it doesn’t require too much effort or imagination. But they don’t like only the poor getting something for nothing – especially if it’s a really big something. And in my proposal the poor would certainly get a pretty big something.
Before I set out my proposal, let’s look at the potential for a Grand Alliance of right-wingers and left-wingers. When it comes to policy ideas to address poverty, what is each group currently looking for? The right-wingers want three things: to make big cuts in welfare spending;to find an iconic neo-Thatcherite policy which has a chance of turning the poor into conservatives; to reverse the sharp decline in the proportion of people who own their own home. The left-wingers want three very different things: to protect the poor from austerity; to help working people on low wages with the cost of living; to find a new way to redistribute wealth without frightening away middle class voters by putting up taxes or increasing welfare spend. Luckily, my proposal ticks all six of these boxes!
So what is this proposal? It is to transfer ownership of the 4.1 million social homes in England (one-fifth of the total homes in the country) to the tenants who live in them. (If the other UK countries did this too, more than 5m social homes would be given away across the UK). This is not Right to Buy. The tenants would get the houses without paying a penny for them. On average these homes are worth about £120,000 (ranging from £80,000 in the North to £150,000 in the South East and up to £250,000 in London). The 4m English tenants would get control of £500 billion of public assets and they would no longer have to pay the £20 billion per year of current rent. The average rent is £85 per week (ranging from £60 in the North to £100 in London). As £12 billion (two-thirds) of this rent is paid by the Government through Housing Benefit, the Government would be £12 billion per year better-off if it no longer had rents to support. This all works because the average £120,000 social home only has £18,000 of outstanding debt, leaving equity of over £100,000 for someone to enjoy. And in this proposal, it is the tenant who gets to enjoy it. But who would pay-off the £18,000 of debt for each house, equal to £75 billion across the 4m homes?. My proposal deals with this. When the homes are transferred to the tenant, the Government would retain a 20% charge (a lien) on the property which it recoups when the tenant finally sells the home. This is enough (at £24,000) to pay-off the current debt and the interest payments which would otherwise accrue between now and the sale of the home. The Government would immediately sell-off these charges (or liens), raising £100 billion in cash. With this it would pay-off the current debts. Many of these 20% stakes in the former social homes could be sold to retail investors, giving the middle class the opportunity to invest in property for £24,000 a go. It would be a low risk investment (as it would be the first charge on the property so the value of the investment is protected so long as the home doesn’t fall below 20% of its current value; in all likelihood house prices will rise, even if only modestly, increasing the value of the 20% stake). In future, those in severe housing need would have to exclusively find homes in the private market with Housing Benefit helping with their rents, as it does with millions of poor private sector tenants today. To recap, the tenants would immediately own 80% of the property. And there would be no rent to pay. Now, let’s look at the 4m tenants who would benefit (or the 5m if the rest of the UK copied this approach).
One-third are pensioners, one-third are in work and one-third are out-of-work. My proposal would mean that more than 1.25m pensioners became home-owners. They might decide to sell the home and take the average £100,000 of wealth and move to a smaller property or to join their family. They would have wealth which could be inherited by their family. This matters, as one of the key drivers of inter-generational poverty is the lack of assets and wealth to transfer to children and grandchildren. Although 70% of pensioner tenants are getting their rent paid by Housing Benefit, there are 350,000 who fully pay their rent themselves and they would be £85 per week better-off. To put that in perspective, the State Pension is only £113 per week. In addition, there are a further 300,000 who only get partial Housing Benefit and therefore pay part of their rent. So that’s 650,000 pensioners who would be substantially better-off each week, as well as being part of the 1.25m new OAP home-owners with £100,000 of equity.
Now, let’s look at the third of social tenants in work – that’s 1.55m tenants. 80% of this group earn less than £25,000 per annum, i.e. they earn less than the average income. The other 20% earn above £25,000, but mostly not much more than that. Most of the tenants (three-quarters) in work pay their own rent – so 1.2m of them would, on average, be £85 per week better-off. For someone earning £18,000 per year that’s equivalent to a 30% increase in their wages. Again many of those in work who do get Housing Benefit only get part of their rent covered so a couple of hundred thousand more people in work would be tens of pounds per week better-off. And both groups in-work would have £100,000 in equity in their home, on average. One option available to them would be to use this equity to trade-up and/or relocate to another private home. They would have entered the same free world as other home-owners.
Finally, let’s look at the third of working age tenants who are not in work. This group broadly falls into two halves. The first half is the 850,000 tenants who are affected by illness or disability. This includes those who are long-term ill or disabled (700,000), temporarily ill or disabled (50,000) or carers for their own family (100,000). 90% of this group receive housing benefit. Whilst a minority of this group can and should return to work, most of the group will remain economically inactive. This proposal would mean that some 200,000 of them (i.e. those not receiving Housing Benefit at all) will no longer have to pay rent and a further group will no longer have to make partial payment. The second group are those who are able-bodied and in good health but not working. This group of 600,000 tenants, includes 450,000 who are unemployed and 150,000 who are inactive lone parents. About a third of this group pay all their own rent. When we step back and look at the 850,000 tenants who are not working but could, we can see that the big advantage of this proposal for them is that it greatly increases the incentive to work. At present (and even under Universal Credit), if an out-of-work social tenant on housing benefit takes a job then 70% of the extra income is clawed back, as the Government reduces housing benefit support. Losing housing benefit is a big disincentive to returning to work. For single people, for example, it is likely that the social rent of £85 per week is a bigger part of their welfare support than their unemployment benefit of £72. The beauty of my proposal is that there is no rent, so there is no housing benefit and therefore there is nothing to lose in returning to work. This kills dead the 70% marginal tax rate (from the Housing Benefit withdrawal taper) on those returning to work. This is also true for those already in work receiving Housing Benefit. At the moment, if they find a higher paid job or increase the number of hours they work each week, they are penalised by 70% of the increased wages being cancelled out by lost housing benefit.
Essentially this is a simple proposal – give away the homes, clear £75 billion of debt, relieve tenants of their rents and save billions per year in benefits. There are a number of big practical things to think about. Firstly, the downside for the new homeowners is that they have to pay for their own repairs and maintenance. It is worth noting that many existing owner occupiers have low incomes – for example, even in London 40% of the poorest households (the bottom quartile) are owner-occupiers. And these millions of poorer people cope with owner occupation. For the 56% of social tenants who currently pay full or partial rent, they can use the money they save on rent to fund repairs. For many of the other 44%, the responsibility to pay for repairs will incentivise them to find the money, e.g. many pensioners will get help from their families; many who are out of work will aim to earn money to fix the home they own; many may take advantage of the freedom of being the owner to take-in in a lodger to increase their income. But for those who feel unable to cope with the liabilities, we could let them decide to continue being a tenant. Secondly, there will be those who worry that the new home owners will sell the house quickly, squander the proceeds of the sale and turn-up as a homeless case a year or two later, requiring the State to find them a home and pay the rent. If people are seriously worried about this risk, we could solve it. One way to do this would be to give the new home-owners 70% of the home value when it is sold and retain the other 10% (£12,000) for 3 or 5 years. This could be called a Welfare Bond. If the former tenant requests housing help (housing benefit or social housing) within the, say, 5 year period then he or she would forfeit the £12,000. If there are no claims in the 5 year period, then the former tenant gets a cheque for £12,000. That’s a big incentive not to go onto benefit or blow the money. Thirdly, this would all require a major piece of primary legislation as it would affect not only councils but also housing associations. It would also require Government to put in place the financial machinery to allow it all to happen smoothly (e.g. pooling receipts and debts across the country and cash-flowing the changes). But these practical things are all soluble if politicians want to drive through this proposal.
So if this is all feasible, is it desirable? The biggest challenge is resentment, especially from those renting in the private sector and those on modest incomes who have paid / are paying for their own house through monthly mortgage payments. Why should those who happen to live in social homes get such generosity? There is no easy answer to this. I could just say “people sometimes get lucky” (e.g. inheritance windfalls) or “wouldn’t it be great to give these millions of people a break?”. Or I could say “if you leave them as social homes, no one will access the £100,000 of wealth in of them or save any money” or “the people in the social homes hardly ever move out, with just 5% of properties churning each year, so we may as well just give it to them”. But I suspect that not enough people share the generosity underpinning my proposal. Nor would it win-over everyone if we explained that our society would be better – 4m poor people would have meaningful wealth; we would have the highest level of home ownership in the G7; we would have greater social and residential mobility; etc. So let’s think of what’s in it for the 80% of the British public who don’t currently live in social housing. One option would be to take the £12 billion of annual savings on housing benefit (described above) and explicitly use it for something else. For example, it is enough to virtually double public spending on adult social care. Or £12 billion would be enough to abolish taxes on the middle class – e.g. £12 billion is enough to cancel inheritance tax and stamp duty on housing sales. Or if we’re still focused on poverty, £12 billion is about enough to remove everyone on the Minimum Wage from paying tax. Or it could be used to build more shared ownership homes for first time buyers, allowing some 200,000 extra homes per year to be built. This would get the building of affordable homes back to the levels of the 1950s and 1960s. After 10 years, 2m new homes would have been built. (Alternatively, for those who believe that we need traditional social housing this could be 200,000 social homes being built each year. This is enough to replace the 4m homes sold-off over a 20 year period. In fact, only 200,000 (5%) social homes currently become vacant each year. So if we did this no-one would notice that the 4m homes had been sold-off in terms of having new, and better, ones available when they are needed.)
I return to the need for a Grand Alliance of Left and Right to face down the Moderates – partly to deal with the resentment, but also because Moderates don’t like radical changes of this magnitude. I would say to both left-wingers and right-wingers, it’s not often that any politicians get the chance to do something dramatic to sort out poverty overnight, especially in a way that costs the tax-payer a lot less. Given that both Left and Right can win from this proposal, they only lose by doing nothing, leaving all that money tied-up in the 4m homes, the poor still poor and the welfare bill climbing every year. So why not do it? Unless, either of them has got a better idea?