Home rule: The case for full devolution of housing benefit

The publication of the draft legislation, Scotland in the United Kingdom: An enduring settlement, which will enact the Smith Commission's recommendations for further devolution to Scotland, has led to a row about who will hold power over welfare reform. In particular, the requirement that the Scottish government must consult with the UK government on devolved welfare policy has given rise to the complaint that Westminster ministers will have a veto on abolition of the spare room subsidy, the so-called 'bedroom tax' Whether or not that is true – and the text in question looks to me like the usual arrangements for consultation within federal or quasi-federal systems – the argument could readily be put to bed by taking housing benefit out of the universal credit and devolving it entirely.

The draft legislation gives the Scottish government certain powers to vary the housing costs elements of the universal credit and how they are paid. But the case for taking housing out of the universal credit altogether is a compelling one. The rationale is set out in today's IPPR North report, Poverty and devolution:

'"the devolved institutions are responsible for key aspects of the housing and property market. They control not just housing policy and investment, but also planning policy. As a result of the Scotland Act 2012 the Scottish government will also have responsibility for all property taxes. Devolved governments can encourage the construction of new houses in both private and public sectors, and in particular facilitate increases in the social housing stock through investment they make, direct or permit, if they wish.

'And yet in spite of a stronger understanding of their respective national and local housing market conditions, their unique housing problems, and the housing competencies needed to influence the supply and type of housing, they do not have control over rent subsidy. Control over such a key investment stream is the missing piece of the puzzle for better housing policy and a clearer, more local focus on tackling the cost of housing.

'First, rent subsidy control would allow the administrations to determine problems and priorities that accord to their local circumstances, rather than policies set in Whitehall (such as the spare room subsidy) which appear to be of little relevance to housing markets in the devolved nations – as evidenced by the deal that was struck with Northern Ireland – but nevertheless can force rent subsidy recipients into destitution. For instance, rather than the Scottish government having to invest resources in reversing the effects of the spare room subsidy, Scotland should instead be making rent subsidy budgeting decisions themselves, in a manner that would target Scottish allocation problems, not ones in London.

'Second, devolving rent subsidy budgeting could over the long run increase the supply of affordable housing and reduce the costs of rent subsidy. By calculating the long-term trade-offs, devolved governments could target their investment in social housing to reduce the costs of housing benefit. Allowing the devolved governments to use a proportion of housing benefit money to build new social housing, and in turn reduce expenditure on the more expensive private rented sector, would result in socially useful assets (which potentially could be sold when no longer needed) and is arguably a better long-term use of public money. Cutting reliance on the private rented sector by offering cheaper rents offers social tenants a quicker route out of poverty.

'Third, control over rent subsidy would also bring much more stability and certainty to their substantial housing investment budgets. With the ability to control how rent subsidy policy is made, the devolved institutions can provide revenue certainty to their own public housing investments, and provide a more stable platform for affordable housing supply from the registered social landlord sector. As IPPR has argued elsewhere, the devolving of housing benefit would, over time, potentially contribute to reversing the 30-year drift in public spending from building homes to subsidising rents. In the long run it would be far better to invest more in bricks and mortar than in paying private landlords. The devolved administrations have proven much better at investing in new supply of social housing, and are as a result more active in helping families to reduce the housing cost pressures that have such an impact on policy discussions.'

There are a number of benefits that should remain pooled across the United Kingdom, either because they are cyclical, like jobseeker's allowance, or contributory, like the basic state pension. But housing benefit does not meet these criteria and it is a prime candidate for full devolution. Indeed, only the desire to protect the integrity of the universal credit – misplaced in my view – prevented this happening when the original Smith Commission proposals were being developed.

There is another good candidate for devolution outside the universal credit, and that is the childcare element. Childcare is best funded – as in the Nordic countries – on the supply-side, as a public service (whether provided directly by the state or not). Funding it through tax credits and reliefs is costly, inefficient and inegalitarian. Here again, then, welfare devolution should go further, allowing the Scottish government full control over childcare resources and the wherewithal to make further progress towards a universal and affordable preschool childcare system.

As the draft legislation is debated in the weeks ahead, the case for these more radical reforms to the universal credit should be on the table.