The North Street Development, Social Cleansing in Lewes

THE SOCIAL CLEANSING OF LEWES AND THE NATIONAL PARK

 

The social cleansing of Lewes

Lewes- the major town within the South Downs National Park, is fast becoming a no-go area for people on low or even moderate incomes. The number on the housing waiting list is growing rapidly and homelessness is rising remorselessly. For those who are home owners with manageable or no mortgages things are better, but for those without things are grim.

James Gardner of Homelink told me

“From our point of view, the most damning statistic is that out of all the people we offer to help with rent/deposit etc. barely a third manage to obtain a tenancy. Now it may be that a small minority of successful applicants find alternative sources of help but the vast majority do not. The obstacles are great: many landlords do not accept people on housing benefit;many agents/landlords require a guarantor earning the kind of money that few of our applicants are likely to know; those who are in work are often not earning enough to pay the rent.

The result is overcrowding; the breaking up of relationships which increases the number of people looking for tenancies; the rise in evictions, especially of the young from the family home and the general deterioration of peoples’ mental health. Another trend is that families facing eviction with young children are increasingly finding it difficult to find a place within the two months allowed by Section 21. Because of the shortage of affordable housing, we believe that people need a minimum of three months to find a place”

There are a number of reasons for this:
• Even before recent economic changes, Lewes was a low wage area for those who did not have professional jobs. Recent economic changes have made this situation worse. A significant proportion of the population has to live on very low incomes, even when working. According to the most recent census the median household income in Lewes town in 2011 was £28,469 pa.
• House prices have risen well above the ability of many people to afford a home.
• Private sector rents have risen well above rates of increase in wages.
• Roughly one third of the council housing in the district has been lost to the rental market through the right to buy.
• The benefit system makes it very difficult for people on high rents to be able to afford to work.- especially if they are in low paid jobs.

If we want social diversity to continue in the town then genuinely affordable housing is vital. The council’s own research suggests that 50% of any development should be affordable if any significant dent is to be made in the level of need.

There have been a number of other reasons why the need for affordable housing has increased.

• The bedroom tax has increased the need for more smaller affordable dwellings than currently exist in the town
• The failure to develop affordable housing in the recent past has resulted in a huge build-up of need, particularly among young people.
• There is an increasing number of older people and research suggests that a large proportion of this group needs level access housing. (However approximately 80% of older people in the town are owner occupiers who could buy suitable property rather than rent it.)

The nature of the need

Not surprisingly the numbers on the housing waiting and transfer lists have rocketed. According to Lewes District Council’s latest figures there are 2142 households seeking affordable rented housing in the district.

There are over 400 households seeking affordable rented housing in Lewes town (the highest proportion of the population in the district seeking this.) This figure is an indication of the need for ordinary or sheltered housing rather than extra care. This number appears to be increasing all the time.

Research done by Lewes District Council (LDC) shows “huge unmet demand from young people for one bedroomed accommodation”. There is also a need for accommodation for older people.

Research done by the council of the need of pensioners on the waiting and transfer lists shows:
75% want ordinary housing
25% want ordinary sheltered housing
0% want care housing

Key needs are step free access and getting help in own home rather than moving.

It is good that all dwellings will conform to lifetime home standards, but it should be pointed out that these standards do not require step free access. See http://www.lifetimehomes.org.uk/pages/5b-communal-lifts.html and http://www.lifetimehomes.org.uk/pages/5a-communal-stairs.html

What about the need for extra care housing?

In the light of the information that I have outlined above, I’m surprised that extra care housing has been including in the proposals for affordable housing, since this will reduce the amount of generally available rented housing. I’m even more surprised that just under 30% of all affordable housing is proposed as extra care.

The only documents that I can identify which might justify this are the survey of older people’s housing needs by LDC which is available from their web site and an assessment of need done by East Sussex County Council (ESCC) which I have obtained under freedom of information legislation and which is available from me on request.

• Some of the arguments appear to be circular. On the first page the ESCC report reports Lewes District Council as saying that there is a need for care housing. But LDC does not say how they found out about this need. Where did they find out? Probably from the county council.
• The waiting list for the current extra care scheme in Peacehaven is given by ESCC as 7 households, as opposed to the thousands on the general waiting list (including about 400 waiting for somewhere in Lewes) (I understand that take up of the new scheme in Seaford has been less than expected.)
• According to LDC less than 5% of the 204 people on the waiting list seeking sheltered housing of any kind are interested in shared ownership. This suggests that shared ownership will not meet housing need for older people.
• Locality is a key issue in enabling people to have regular visits from relatives and friends. But the ESCC survey shows that out of 36 people who had been living in Lewes town prior to going into a care home, 30 of them got places in Lewes or Ringmer. Similarly, or 24 people needing a nursing home, 21 found a place in Lewes.
• No account appears to have been taken of the fact that much of the demand in the north of the district is likely to be soaked up by the newly approved extra care scheme in the rural north of the district.
• No account seems to have been taken of the difficulties in letting the recently opened extra care scheme in Seaford, which resulted in the preferred provider of extra care facilities in North Street ( a body which is the extra care provider in Seaford) pulling out of the scheme.
• According to ESCC in 2012 15 people were getting 15 or more hours of care a week in their homes, with 3 more in Ringmer. You can take this as an indication of need for care housing, but it is more likely to be an indication of the ongoing need for more care in ordinary housing.
• As the quote from the LDC strategy in the ESCC points out, there is currently no lack of private housing schemes for older people in Lewes town. This suggests that the 80% of pensioners who are owner occupiers are already well catered for.

It is also important not to equate a need for change with a need for care housing. For example in its conclusion the ESCC document says “Lewes DC data also confirms there is demand for alternative older people’s housing”. That is true, but what the LDC survey showed that older people wanted was housing with level access rather than extra care housing. There was also some demand for traditional sheltered housing.

Lewes council seems to be taking the position that, since there is some general needs housing in the town then this in itself is sufficient reason to provide something different. They say:

“there are already a significant number of affordable general needs properties within Lewes Town, but there is currently no provision of affordable Extra Care housing. Therefore the Housing Authority will actively support plans for one well-designed Extra Care housing scheme proposed within the Town” (letter from LDC to me)

Care housing is always better than a care home, so it is always possible to make a case for providing more. But when there are 400 households on the general waiting list, households are facing huge pressure to downsize because of initiatives like the bedroom tax and when the young people who should be the future of the town are being forced to leave, it is not, in my view, the priority.

It is tempting to suggest that the need for extra care may be a need for the developers to fill as significant proportion as possible of affordable housing with tenants who can be guaranteed not to behave in ways that will put off buyers. It may also be the case that the developers will wish to use the common facilities in the extra care scheme (which may be at least notionally open to the public) to count towards their commitment to provide “public good” even though these facilities are likely to be paid for from other sources

The need to free up existing accommodation

There has been general concern that people may be “over-occupying” larger accommodation and that there is a need to free up existing properties. Indeed the bedroom tax was introduced to deal with this problem (although it does not apply to pensioners)

Although LDC has managed to deal with the initial problems caused by the tax, it will hit many tenants in future immediately a child leaves home. This will free up existing housing, but only if there is a smaller place available. It is also likely that many pensioners would downsize if suitable level access housing were made available.

However the provision of extra care places is less likely to result in larger accommodation being freed up. LDC has written to me to say that 2/3 of residents of extra care schemes in East Sussex were already occupying one bedroomed accommodation before they moved. It is probable that accommodation freed up by those going into extra care would have been freed up anyway as people went into a care home. An evaluation done by ESCC of their extra care schemes shows that about 2/3 would otherwise be in care homes. From reading the evaluation it looks to me as if many of the rest had moved in in the expectation that they would need this level of care shortly. As ESCC put it on page 31 of their “Pathways to Support and Independence” document “Extra Care provides a level of accommodation commensurate with residential care.”

WHAT IS AFFORDABLE HOUSING?

Real world affordability

To start examining the question of affordability let’s have a look at someone who is thinking about working a few extra hours to boost their income. When someone’s income is at the level they would get out of work benefits they get full housing benefit, but if they earn more their money gets reduced.

For each extra £1 of income:

32p is lost in tax and national insurance, leaving 68p,

65% of the 68p lost in a reduction of universal credit, a further reduction of 44p, leaving 24p,

a further reduction of council tax benefit of 20% of the 68p lost in a reduction of council tax assistance- a further reduction of 13p, leaving 11p

From this 11p people will have to meet any extra work expenses, for example transport costs if they are working extra days.

You can see that, while the rent is high enough for the person to need housing benefit they are caught in a poverty trap.

(This calculation relies on the introduction of Universal Credit, which is designed to “make work pay”. Under the current system the figures are worse in some circumstances)

You can see that it is vital that tenants on low incomes have rents that are low enough to enable them to get out of the poverty trap. Once their income is above the level at which they have to claim housing benefit they will start to keep a significant percentage of their income.

Affordability at various rent levels

Since many of the proposed lettings are one bedroomed properties for single people this is the option that I want to look at.

An examination of property web sites in August 2014 suggests that the median one bedroomed flat is £175 per week.

The local housing allowance (LHA)(private sector housing benefit limit) for couples and single people over 35 in a one bedroomed flat is £151.50

80% of £175- the market rent is £140

60% of 175- the market rent is £105

Social rents paid by current council tenants for a one bedroomed flat are around £90 or less

(Where the landlord is not a registered social provider and the tenant is single and under 35 the LHA is usually £79.48- the amount that the council will pay for a room in a house, even if the tenant has a one bedroomed flat.)

 

To give you a comparison, someone on £7 per hour might expect to take home about £250 for a 40 hour week allowing for a small amount of tax and national insurance. At rents of £140 and above they would still be caught in the poverty trap. Even at the lower rents they would still be paying a substantial proportion of their income in rent.

CURRENT RENT LEVELS

Subsequent to undertaking this research I have reviewed rents on offer as at 16/3/15. In order to avoid duplication I used the Rightmove site, excluding especially luxurious properties.

This is what I found

There are three figures on each line below, for each size of accommodation.  The first gives you the mean market rent.  The second gives you 80% of this, the third gives you 60%

1 bedroomed £180@ £144 £108

2 bedroomed £254@ £203@ £121

3 bedroomed £28@8 £230@ £173

4 bedroomed £437@ £350@ £262

In my view it is particularly important that rents be kept well below market level in high rent/low income areas like Lewes. 80% of market rent is not affordable. It will not curb the social cleansing of the town.

I suggest that the very maximum that could be considered affordable is 60% and even this is debatable.

*The level of rent has increased slightly since last year but I have not amended the figures because the sample is quite small.

@ Rents marked with this symbol are more than the local housing allowance, the highest rent that can be met in benefit payments.

Real world affordability for shared ownership.

Shared ownership is not for people on the very lowest incomes, but it is useful to look at how someone on the median income of £28k or below might benefit from shared ownership

Under shared ownership you buy a share in the property and rent the rest (rent is typically 2.75% of the value of the share you have not bought. You must also pay for repairs and maintenance (typically £800- 1200 per year)

In September 2014 Affinity Sutton were offering shared ownership properties in Clayhill Court. Lewes. They said that the Minimum salary required for a one bedroomed property was £28,500 (single) and £32,500 (joint) This appears to be for a 30% share in the property. Obviously a larger share or a larger property would cost more.

Hyde Housing have a calculator in their site that suggests that for a two bedroomed flat valued at typical Lewes price of £250,000 a fifty percent share would cost you £695 per month in mortgage, £286 in rent and £80 per month service charge, £12,732 a year.

It looks to me as if shared ownership is out of reach for Lewes residents at below median incomes. Existing tenants with incomes significantly above this would normally do better using the “right to buy”.

Official “affordability”

The definition of “affordable” used in legislation and by the Homes and Communities Agency is a technical one rather than a real world one.

The definition can be found in the National Planning Policy Framework, which also provides a definition of Intermediate housing (which is not the same thing)

“Affordable rented housing is let by local authorities or private registered providers of social housing to households who are eligible for social rented housing. Affordable Rent is subject to rent controls that require a rent of no more than 80% of the local market rent (including service charges, where applicable). (My emphasis)

Intermediate housing is homes for sale and rent provided at a cost above social
rent, but below market levels subject to the criteria in the Affordable Housing
definition above. These can include shared equity (shared ownership and equity
loans), other low cost homes for sale and intermediate rent, but not affordable
rented housing.”

The Homes and Communities Agency can provide grants to fund officially “affordable” housing. In practice they are reluctant to provide funding where the rent is less than 60% of the market value. It is can also be more difficult to get funding where developers are funding a scheme, as is the case here.

Where a scheme that obtains planning permission on the grounds that affordable housing will be provided, the housing concerned must meet this definition.

Is Extra Care Housing “affordable” in the technical sense?

Up until now I have never seen an extra care scheme referred to as affordable housing. Most commentators accept that it is not.

I now have more experience of costs than most people in the field. My experience is that it is not generally possible to make the finances of an extra care without charging rent and services eligible for housing benefit of less than about £250 per week without a very substantial subsidy. Sometimes costs may be more than this. If more than one bedroom is provided the charges will be higher.

On top of this there will be service charges for things that are not eligible for housing benefit, such as meals, fuel in the resident’s flats, support and care.

I am advised by staff at the Peacehaven scheme that residents are asked to pay £170 per week(plus care and support costs) This is well above an officially “affordable rent” This figure has only been achievable because of funding from the Homes and Communities Agency (which is probably not available) and with a substantial subsidy from ESCC which the county council confirms would not be available in a new scheme. I believe that £250 per week would be closer to the likely charge including service charges for this scheme. Care and support costs would be on top of this

LDC has told me that it thinks rents will be affordable because residents can claim housing benefit on part of the charges, but this is not relevant to the official definition of “affordability”.

I can see no way that an extra care scheme can be provided as “affordable housing”.

All too often I have seen extra care schemes promoted with over-optimistic estimates of what charges need to be made and what subsidies are available. I note that the original preferred operator of the extra care scheme has now pulled out, probably because of the difficulty of making the scheme stack up financially.

Once the scheme if finally under construction it becomes clear that the financial situation is not viable. As a result a number of things happen:

1) Rents on rental properties rise considerably to the extent that they become clearly unaffordable.
2) An increasing number of extra care places are delivered as either shared ownership or full leasehold properties (where the resident buys a lease in the same way that they might buy a lease on a normal flat.)

Only those with capital can afford the second option since mortgages are rarely available. Shared ownership and leasehold schemes are attractive to more affluent potential residents because the capital value of the home is ignored in assessing ability to pay for care and support charges (in contrast to the situation in care homes where residents are expected to sell former homes to pay the costs). However this comes at a considerable cost to the public purse, which is expected to pay up for care- hardly a desirable solution.

IN CONCLUSION

1. Given the level of housing need in Lewes 50% or more affordable rents would be a significant contribution to the housing needs of the town.
2. A significant proportion of the affordable housing should be level access. If necessary this should be funded by increasing the density to a level similar to nearby streets.
3. In the context of low Lewes area wages it is clear that rents of 80% of market rents are not affordable in any real sense. Rents need to be much lower than this.
4. In the Lewes context of low wages and high housing costs it is unlikely that shared ownership will be appropriate for groups in housing need unless the total market value can be reduced substantially below the usual prices in the area.
5. Any extra care provision needs to be over and above the provision of affordable housing.

Chris Smith March 2015.

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New on line material about sickness benefits

Here are some links to some educational materials that I have created about sickness benefits (employment and support allowance).  You can view the material at http://www.authorstream.com/Presentation/hbhelp-1821661-it-makes-you-sick/. You can see on the right of the page that you can download this presentation as a powerpoint presentation or as a video.

 You are welcome to download this material and use it for any non-profit purpose to promote information about benefits provided that you give me a credit.

 The material is also available on YouTube at http://youtu.be/ua0cJ5NXIa0

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Stepping up the war on the bedroom tax- What social landlords can do

There has been a lot of focus in the housing trade press about the hapless One Vision Housing Association, who sent out a legal looking notice for tenants to sign which said “I understand that One Vision Housing can take legal action against me if I fail to pay my rent including any shortfalls as a result of these changes.”  Few organisations would be quite so blunt or honest about their intentions.

Amazingly One Vision took this action even though its web site admits that it cannot rehouse all those people affected by the bedroom tax, even if they want to move.  One vision is a transfer landlord in Sefton, where the council has added to the agony (and the likely rent arrears) by cutting council tax benefit so that even the very poorest have to pay 20% of their council tax.

But it is clear that the beginning of April, which marks a clear step up in the war against the poor, with the cuts in council tax benefit complimenting cuts in housing benefit,  represents a point at which housing organisations have to decide whose side they are on.  Is it your problem or a problem for all of us?

One Vision and others have made their decision. The organisation intends to survive and thrive at whatever cost to tenants. They are not alone. The same edition of Inside Housing that reported this contains an article by a solicitor on how to effectively use ground 8, which results in mandatory repossession for rent arrears which is obviously prompted by the tax.

But there are other responses.  Just down the road from One Vision’s base, Jon Lord, CEO of ALMO Bolton at Home, is quoted as saying “I know my unease is shared by others in the housing world, but where is the protest?  Where is the anger?”

Well, perhaps it’s time we created some.  Here are some ideas to get social landlords  started.

In England, you can join the English National Housing Federation’s campaign.  Email john.pierce@housing.org.uk.  In Wales and Scotland support any action by your national organisation.

  • Put out press releases about how your organisation is being affected by the tax.
  • All councils run by the SNP and the Green Party have said that they will not evict tenants whose arrears are solely down to the bedroom tax.  See if you can persuade your organisation to make a similar commitment.
  • Support individual residents who want to tell their story by sending out press releases about their situation.  The media always likes personal stories.  Local media will rarely do a hatchet job on individuals, although the national media need watching.  Send copies of these stories to the MP’s who represent the affected tenants.
  • Support and fund tenants associations and other organisations that are opposing the tax.  If you do not have a tenant’s association perhaps now is the time to promote one.  If you are in Scotland the Scottish Parliament has voted money which can be used to fund this sort of activity.
  • If no one else is starting a local campaign maybe you can convene a meeting to start one.
  • Consider reclassifying your properties, although be aware that what you say is not definitive- since the regulations refer to the actual number of bedrooms rather than the definition by the landlord.
  • Consider locking off any “spare” bedrooms, with the agreement of the tenant, so that the tenant cannot use them. It seems to me that they cannot be counted as bedrooms.  The tenancy agreement would obviously have to be amended.
  • Although you have to chase rent arrears and cannot have a blanket policy of writing them off, you can avoid mass ground 8 evictions.  You do have a degree of discretion over how far you pursue rent arrears.  I’m not going to work for any organisation that goes for mass ground 8 evictions.  You may not be in a position to do the same, but I think you can announce your clear opposition.

The bedroom tax is so manifestly unfair that it could turn into this government’s poll tax.  There is an election coming up comparatively shortly and there is a history of getting measures like this repealed after they are implemented.

As the downgrading in of a number of association’s credit ratings in the light of welfare reform suggests that either landlords and tenants hang together or they all hang separately.

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The Single Tier Pension

 

Publicity has been given to the fact that the government is introducing a single tier national insurance pension.  The amount for each individual will be about £144 a week. Sounds good until you realise that some people might have got £200 per week under the old system.

Here is how the current system works.  Everyone who has worked for 30 years (soon to be 35) gets the basic state retirement pension based on their contributions, currently just over £100 per week.  But unless you are “contracted out”   you will also have contributed through your national insurance contributions to a state second pension.  People who are in good final salary pension schemes are contracted out by their employer and other people have contracted out by taking out private pensions, although this is not allowed since last year.  Over a lifetime of work some people earning good wages but who were not contracted out, could build up entitlement to almost a further £100 of pension, although of course some people got less.

Consultancy service Hyams Robertson have done an in depth analysis of who wins and who loses from the replacement of this system by a flat rate national insurance pension of £144 per person (at today’s values)

The issue is complicated because we also have means tested benefits, funded by general taxation, like pension guarantee credit and universal credit.  Under these benefits your income is compared with what the government thinks you need and you get the difference if what you need is less than what you have.  Currently a single pensioner would get £143 per week plus their housing costs such as rent or mortgage interest (if any) The rate for a couple is £218 plus housing costs  So under the old and new schemes some people will be on pension guarantee credit anyway and will be no better or worse off.

Hyams Roberts calculated that a single person with earnings of just £10,000 per year at today’s values, who works for 50 years, contributing to the state system would have got  a pension of £192.45 at todays values under the old system  Under the new system they get just £144

http://cdn.hm-treasury.gov.uk/budget2013_complete.pdf

In summary the government has made sure that

1)    Lots of people who do not have a company or private pension but who have been saving through the state scheme will be up to £50 per week worse off than they would have been when they retire.

2)    Some people will get more state national insurance pension, but in most cases this will state pension credit going down by the same amount.

3) Where there is a good public sector scheme both employees and employers will have to pay more to the state scheme.  This will lead to reductions in or closure of final salary pension schemes. The government is to allow employers to overrule pension scheme trustees in order to make the pension scheme meaner

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POLL TAX MARK 2 COMES TO LEWES

DO YOU CLAIM COUNCIL TAX BENEFIT?

ONE IN FIVE LEWES HOUSEHOLDS DO.

ARE YOU UNDER PENSION AGE?

IF SO:

LEWES COUNCIL WANTS TO CUT YOUR BENEFIT!

 

From April Lewes District Council will set the rules for council tax benefit in the area instead of the government. Many low paid working people and those under pension age who cannot work rely on council tax benefit to pay their council tax.  Here is what the council (along with other councils in East Sussex) proposes to do:

NO MORE  THAN  £20 PER WEEK COUNCIL TAX BENEFIT- HOWEVER POOR YOU ARE

Even if you are destitute you will not get more than £20 per week benefit.  These figures show the current weekly rates of council tax for each band.

 

Band A … £20.09 – £21.61          Band E … £36.83 – £39.63
Band B … £23.43 – £25.22          Band F … £43.52 – £46.83
Band C … £26.78 – £28.82          Band G … £50.22 – £54.04
Band D … £30.13 – £32.42          Band H … £60.26 – £64.84

(figures vary according to the local parish rate)

 

So even people living in the most modest housing will lose out. Their benefit will not cover all of the council tax.  Things will be worse for families, who need larger housing which tends to be in higher bands. Almost everyone who is unable to work will have to meet some of the council tax out of their personal benefits.

 

Heaven knows how the council will manage to collect the amount of council tax not covered by benefit.  Mrs Thatcher lost her job largely because of rage about the community charge (poll tax) and the fact that councils could not collect the amounts of the charge not covered by benefit.  Now the coalition government has ensured that it is local council members who will the subject of this rage.

IF YOU ARE ENTITLED TO LESS THAN £5 YOU DON’T GET IT.

When they work out how much benefit you are entitled to, if it is less than £5 per week you don’t get it. This will mostly affect people who work for low wages.  £5 may not sound a lot, but if you are struggling on the minimum wage it could make working unviable.

EVEN LESS MONEY IF YOUR CHILDREN STILL LIVE AT HOME

If you have someone who is living with you who is not legally dependent on you your benefit is cut to cover the amount they are supposed to give you. (a non-dependent deduction)   This happens even if they do not pay any money.  This most commonly happens when working age children still live with their parents.  The councils want to double the amount that will be taken off benefit in this situation. This is likely to lead to increased homelessness amongst young people, with extra costs to the council.

NO BENEFIT IF YOU HAVE SAVED A BIT

If you have savings of more than £6,000 and you are under pension age you will not get any benefit at all.  Tough on those who make provision for a rainy day, but no problem for those who squander all their money.

WORSE TO COME FOR PEOPLE IN WORK?

If you are working and you earn more than you would get on benefits your council tax benefit is reduced.  At the moment, for every pound that you take home over benefit level you lose 20p of your benefit.  This is on top of the amount you will lose from tax, national insurance and universal credit (probably about 72p).

 

The council refuses to say whether it will change this.  It doesn’t suggest that it could reduce the amount and the whole tone of the proposal is that things will get worse rather than better. So the deduction will be at least 20p in the pound.  It could be as high as 25p in the pound, in which case why work? The council must come clean about what it proposes.

WHO IS TO BLAME FOR THIS?

A lot of the blame must go to the Coalition government.  They have cut the grants paid to council to pay council tax benefit with by 10% and said that councils cannot cut benefit to pensioners.  This means that councils must either savage benefit for working people or cut services or put the council tax up or all of these.

IS IT A DONE DEAL?

No. The council has just announced its proposals. It will finally decide in January. On the council’s web site there is a consultation that you can take part in- although they do not ask for your views about the rate of reduction for people in work.

WHAT CAN I DO?

By all means fill in the council’s consultation survey before the end of October, but also please let as many people as possible know what is happening.  Please also contact your Lewes District Council member to let them know that this proposal is not on.  No one likes putting up the council tax but this is the only alternative if we are all to take the strain rather than the most vulnerable in our community.

 

If you live in another area in East Sussex it is likely that your council are proposing the same system.  If you live elsewhere find out what your council is doing and publicise it.

 

THE CUTS WILL NOT APPLY TO PENSIONERS.

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Lewes rents- unaffordable and insecure

LEWES TENANCY STRATEGY

 

Lewes District council is deciding on its strategy on “affordable rents” for housing associations.  It may apply this policy to council tenancies later.  It also proposes a new form of insecure tenancy agreement.  I’m a housing and benefits consultant based in Lewes advising hundreds of housing associations up and down the country.  So I wanted to give you some information based on my experience.

 

Who is affected and who should be consulted?

 

The issue only affects new tenants.  It does not directly affect existing  tenants although they could be affected if they want to transfer.  It will apply to new developments and many  re-lets, where a house or flat becomes empty

 

The new tenancies, with limited security of tenure, are likely to apply to all new social housing, but the new rents will not apply to Lewes council housing for the time being.

 

But the rents used for housing associations now are likely to be used for new council tenants later.

 

So it is vital that people on the council waiting list are consulted since they will be most directly affected. 

 

Do things have to change?

 

No.  Many smaller associations have decided not to change their policies.  But many of the larger ones active in the district do want to increase their rents and make tenants less secure.  It is up to the council to decide whether or not it wants to let them and whether or not it wants to apply the policies to council housing.

 

What sort of rents would be charged?

 

The government wants associations to charge up to 80% of the commercial market rent.  Although the theory is that this is only the maximum, there have been a lot of cases where funding has been refused for new housing schemes where rents lower than this are proposed.

 

What does this mean in Lewes district?

 

The easiest way to find out what this might mean is to look at “reference rents”.  These are figures that are currently used when there is a dispute about whether housing association rents are too high.  They represent the average commercial rent for the size of the property in the area.

 

In March 2012 these were the reference rents covering Peacehaven, Newhaven and Lewes (Seaford is slightly lower):

One bedroomed property                    £150 per week

2 bedroomed property                        £210.58

3 bedrooms                                        £242.31

 

Of course, the average varies depending on what part of the district you are in. A survey of the Rightmove site on 20/3/12 shows this range of rents

 

SEAFORD

1 bedroomed                                      £121-138

2 bedroomed                                      £230-312 (mainly in Corsica Hall)

3 bedroomed                                      £196-277

 

PEACEHAVEN

1 bedroomed                                      £133-162

2 bedroomed                                      £173-219

3 bedroomed                                      £219-288

 

NEWHAVEN

1 bedroomed                                      £104-162

2 bedroomed                                      £173-202

3 bedroomed                                      £185- 231

 

LEWES

1 bedroomed                                      £167-185

2 bedroomed                                      £173-219

3 bedroomed                                      £219 (one only)

 

These figures are a little less reliable because a comparatively small number of rents are shown for each area.

 

So, based on this, we can expect 80% market rents to work out roughly like this:

 

1 bedroomed                                   £120 per week

2 bedroomed                                   £155

3 bedroomed                                   £170

 

Rents might be a little more in Lewes and a little less in Newhaven.

 

Does this kind of rent look affordable to you?

 

Who do you think could afford these kinds of rents?

 

Current Lewes council rents are being advertised at £70 for one bedroom, £70-90 for two bedrooms and £80 plus for three bedrooms according to the Homemove site

 

Caught in the poverty trap

 

We live in an area of high costs and low wages. So high rents are a particular problem for us.

 

More and more people will be forced onto housing benefit, even though they are working.  This will increase the housing benefit bill and make it difficult for people to see any significant advantage from working or increasing their hours.

 

The decisions that the council will need to take over the next year over council tax benefit for working people will be crucial, but people on housing and council tax benefit are likely to lose around 91p for every extra pound they earn once universal credit is introduced.

 

It works like this:

 

For each extra £1 of income:

 

32p is lost in tax and national insurance, leaving 68p,

 

65% of the 68p lost in a reduction of universal credit, a further reduction of 44p, leaving 24p,

 

a further reduction of council tax benefit of perhaps 22% of the 68p- (depending on what the council decides) lost  in a reduction of council tax benefit- a further reduction of 15p, leaving 9p

 

From this 9p people will have to meet any extra work expenses, for example transport costs if they are working extra days.

 

Trapped in rented housing

 

If you have more than £16,000 worth of savings and you are under pension age then you can’t get housing benefit and if you have more than £6,000 then your benefit is drastically reduced. This means that you cannot save unless your income is so high that you are well above housing benefit level.   So for many working people bang goes the chance of saving to buy somewhere.  You will be stuck in rented housing, whether you like it or not.

 

The benefits cap

 

It is no better for those who are not able to get a job.  They will be limited to a total benefit entitlement of £500 per week (less for single people) from next April. At current benefit rates here is the maximum amount sick and unemployed people will have in benefit to pay their rent.

 

couple 18+, 4 children                       £114

couple 18+, 5 children                       £51

Lone parent 18+, 4 children               £157

lone parent 18+ 5, children                £95

 

(a detailed explanation of these figures is available if required)

 

You can see that this is less than the likely “affordable” rent. Tenants would have to pay any extra out of the amount intended for food etc.

 

BEDROOM TAX

 

Even worse is the bedroom tax, which will be introduced for council and housing association tenants at the same time. One bedroom will be allowed for a couple or single adult, two children of opposite sexes under 10 will be expected to share, as will children of the same sex over this age.

 

If you have “too many bedrooms” then your benefit will be worked out on a rent that is lower than what you have to pay.  If you have one extra bedroom then there will be a 14% reduction.  If you have two or more extra bedrooms then the reduction will be 25%.  It is important to understand that there is normally no period of grace. If your son or daughter leaves home the new limits will apply immediately.

 

Higher rents mean that the amount of the bedroom tax is greater.

 

Will higher rents mean that more homes can be built?

 

The government says that we need higher rents to fund more homes. But I think you have to treat this claim with a lot of caution.

 

A lot of the housing associations operating in the area are national or regional. There is nothing to stop them taking the money from high rents here and spending it building new homes in cheaper areas, like Sittingbourne, Margate or Newcastle.  In fact, from a financial point of view, it would be sensible to do so.

The council could build more homes, but it would need to start charging these high rents to do so, and even then the government might not agree.  Plus there are not many sites suitable for new housing in the area which are not in the hands of private developers already.  Before you accept this argument ask where the sites for these new homes would actually be.

 

What about flexible tenancies?

 

These tenancies are for fixed periods.  These can be as short as two years.  It is up to the landlord to decide how long they will be.  At the end of this period you have no right to stay.  At the moment most landlords are offering 5 years.

 

These are applying to an increasing number of housing association lettings and the council plans to introduce them for new council tenants.

 

The idea is that you can be evicted if you no longer “need” your home or if someone “needs” it more than you do.

 

We have already seen the effects in Lewes of fixed term lettings in the private sector.  People tend to have little investment in the area that they are living in because they don’t know how long they will be there.  People face the prospect of losing their jobs, their schools and their support networks.

 

We talk a lot about the need to build stable communities, but this policy will damage them.  The problems are not as great as in the private sector, where the fixed period can be as short as six months, but imagine being in the last year of your tenancy and not knowing whether you could stay.

 

Will flexible tenancies make more housing available for those in need?

 

If you answer “yes” to this question then you have to ask who will be made to leave, who does not leave now, and where they would go.

 

You need an income of about £40,000 a year to be able to afford to buy even the cheapest one bedroomed flat in the area.  There are very few prospective council or housing association tenants who have even that. Something larger will obviously cost a lot more.

 

I’ve explained how high rents stop people on housing benefit saving money.  It should also be obvious that people not on housing benefit will find it difficult to save for a deposit if rents go up.

 

So the people you would have to evict at the end of the tenancies would have to rent in the private sector. Someone would have to look at the list of tenants and potential tenants and say “You are the most deserving, but you deserve less”.  Is this what we want?

 

Everybody probably has one neighbour that they think should move, but would you want to have someone in judgement over you and whether you can keep your home?

 

CONCLUSION

 

The council does not have to adopt a tenancy strategy involving “affordable” rents and “flexible” tenancies, and many councils have not done so.

 

There are particular reasons why such a strategy would be bad for Lewes.

 

These include:

The high commercial rents in the area

The low wages in the area

The need to build and retain stable communities

The impact of the total benefit cap

The poverty trap

The increased difficulties for potential home owners

The increased impact of the bedroom tax

The low level of the likely increase in housing availability.

The fact that the worst impact is likely to fall on hard working people working for low or modest wages.

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Why the rich should get child benefit

WHY RICH PEOPLE SHOULD HAVE CHILD BENEFIT

The government is doing a U turn on the plan to scrap child benefit for those on higher tax brackets.  That’s great.  Here’s why:

Child benefit works because it isn’t means tested.  You don’t have to prove your income.  That is why almost everyone who is entitled to it claims it.  It is simple to administer too. All you have to do is prove that you are the main carer for a child so it is harder to fiddle.

  • Means tested (income related) benefits don’t work.  They are complicated to administer.  In extreme cases they cost more to administer than the money paid out. People don’t claim.  For example huge numbers of pensions are missing out on pension credit.  Nearly all means tests create unfairness – why does a family where one person is the only worker lose benefit even though their income is less, whilst a family with a higher joint income where both work keeps their child benefit?
  • When it starts, a means test just affects people on high incomes.  But soon the bar is lowered and people on moderate and low incomes start to miss out.
  • When everybody gets a service then everyone has an incentive to make sure that it works, when something is just for people on low incomes it becomes, in the words of David Cameron “a poor service for poor people.”  People fight for the NHS and for state education because they have an interest in it.  So it is with child benefit
  • Child benefit paid to people with children and is usually paid to women, so it represents a transfer of income at any level from the child free to those rearing children and from men to women. We should support this.

 

hen you see people saying that the rich should not get benefits like bus passes and benefits remember that this is one step away from saying that universal services like education and health should only be for the poor.

The answer is, of course, that universal benefits and services should be funded by higher taxation of those who can most afford to pay.  The tax system is by no means perfect, but it beats any system of means tested benefits

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MAKING LOTS OF BAD BENEFIT DECISIONS? HOW TO STOP CLAIMANTS CHALLENGING THEM

 

MAKING IT HARDER TO APPEAL

The government has started to work out how to make it harder to appeal, in line with powers brought in by the Welfare Reform Act which is now going through Parliament.

The proposed changes will NOT apply to housing benefit or council tax benefit but WILL apply to universal credit and pension guarantee credit, the benefits that will replace housing benefit and which will be administered by the Department for Work and Pensions (DWP)

The government is going to make it compulsory to ask for a revision of benefit before you can appeal.

There are huge delays in getting appeal hearings because the number of appeals has gone through the roof.  This is mainly because of the fact that something like 40% of claimants who are refused sickness benefits appeal.  On average about 40% of these appeals are succesful.  This figure rises to something like 70% if claimants are to be represented.

Under current rules, when a claimant appeals the benefit payer automatically reviews their decision.  If they do not wish to change it the case is automatically sent on to the appeal tribunal.  This means that the claimant only has to take one action to get their case decided.

You might think that the sensible idea would be to improve initial decision making and to put more resources into making sure that appeals got heard quickly.  But the government is not doing this.

Claimants will have to ask the DWP for a review of their benefit.  The DWP will do this and let the claimant know the result.  The claimant will then have to send in a second letter appealing if they want to keep the matter live.

We know that claimants are reluctant to appeal now, even if they have a good case.  Where claimants have to take a second step to keep the matter alive they are even more likely to drop out.

The DWP has issued a consultation document. Key features outlined in it are:

1) They are not interested in discussing whether or not the change should be implimented, only how it should be carried out.

2) Further confusion will be caused because it is intended that appeals should normally be sent to the tribunals service in future, not the benefit payer, but if the claimant sends in an appeal to the tribunals service before requesting a review this will not be forwarded to the benefit payer.  Instead it will be sent back to the claimant.

3) At the moment a claimant can appeal within 13 months of a decision if the tribunal thinks that it is in the interests of justice to hear the appeal. (They frequently do).  But the proposals mean that a claimant will have to ask for a revision within a month of the decision unless they can prove that a very limited set of special circumstances apply.

4) There will be no time limits for the DWP to reply to a revision request.

5) Claimants will be able to appeal if the DWP revises the decision in their favour but does not give them all that they want.

The DWP wants responses to:
Appeals Reform Consultation Decision Making and Appeals – Legal Group Department for Work and Pensions The Adelphi, 5th Floor 1-11 John Adam Street London WC2N 6HT
Fax 0207 962 8541
Email appeals.reform@dwp.gsi.gov.uk
The deadline is 4 May 2012.

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Government says -Dont get sick

GOVERNMENT SAYS- DON’T GET SICK!

 

Don’t get nasty illnesses or have accidents – That is what the government is telling hard working couples.  At the beginning of February it rejected amendments by the House of Lords and vowed to press on with its cuts to sickness benefits.

 

We don’t like to think about it, but long term illness or disability is always just a moment away – Some fool pulls out in front of your car, you get an unexpected diagnosis from your doctor, you fall off a ladder, you have an accident at work.  It can happen to us all, and does every day.

 

That’s why we pay national insurance.  Each week or month you will see deductions made from your wages for this.  Your employer contributes too.  We have all paid so much that the national insurance fund has a stonking £42 BILLION surplus (and rising).  We are insuring against risks like sickness and unemployment and also a pension in our old age.

 

As you might expect from an insurance policy, you get paid for as long as you are ill or disabled and unable to work – at least up to now.

 

But now the government wants your partner to pay for you instead.  Single people and the very poorest are protected because they can claim means tested benefits

 

Hard working couples, who have both been working and paying national insurance will now find that after a year of sickness or disability no benefit is paid for the person who cannot work.  Instead the working partner will be expected to support them.

 

The government says that in a recession  we cannot afford benefits but the latest report  by the government auditor shows that the  surplus national insurance fund from which these benefits are taken is set to grow to £57 BILLION by 2015

 

And if you do manage to claim it isn’t much fun.  By now most of us have read the stories about people having to rush from their latest round of chemotherapy to “work related activity”  to encourage them to chase non-existent job that they are too ill to do.  It could be you this time next year.

 

Changes to social security are not  just about other people who are poorer than you. They are about you and your future.

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National Insurance- What are you paying for?

NATIONAL INSURANCE- JUST ANOTHER FORM OF TAX?

 

There are lots of people who will tell you that the national insurance contributions you pay, and your employer also pays on your behalf, are nothing but another form of taxation, that what you get is not related to what you pay and there is no national insurance fund.

 

They are wrong.  At the end of this article I look at why they might be saying this, but first, a bit of history and a few facts.

A bit of history

After the second world war people were determined not to go back to the poverty they remembered before the war.  So the new anti- poverty scheme, proposed by William Beveridge and adopted by the new Labour government, was very popular.  Under the national insurance scheme everyone would pay contributions.  In return they would be insured against all the risks that mean that they could not support themselves through work, sickness, pregnancy, old age, unemployment and widowhood. Benefits were to be set at a level designed to keep people in a modest but secure standard of living and were to be paid based at the contributions you had paid. There was to be no benefit paid to people in work on the grounds that this would encourage low pay.

 

Employees paid contributions (Currently these are called class one contributions).  So did employers. (These are called class 1 secondary contributions)  Self employed people also paid, although their payments did not qualify them for unemployment benefits. (Currently they pay class 2 and class 4 contributions). Contributions are normally worked out as a percentage of wages.

 

The general rule has always been that if your income was below a lower limit you did not need to pay, but you did not earn any benefit.  If your income was above an upper limit this was ignored.  You did not pay any more contribution above the upper limit, but you did not earn any extra .

 

But the problem was that at the start of the scheme no-one had paid any contributions.  So there had to be a safety net.  This was national assistance.  It was designed as a safety net for those who had not paid enough contributions.  It was to be set at a lower level than national insurance benefits to encourage people to work and contribute.  For obvious reasons it could not be funded out of national insurance.  So it was funded out of general taxation.  It was to be means tested.  This means that the government decided how much you needed to live on (now called the applicable amount) and then it looked at how much income you already had.  If what you needed was less than what you needed to live on you got the difference.  National assistance lives on but has been changed and renamed.  It is now income related job-seeker’s allowance for unemployed people, income related employment and support allowance for people who cannot not work because of sickness or disability, income support for other people of working age who cannot work and pension guarantee credit for people who are over pension age.

 

Since 1979 governments have run down national insurance benefits and increased means tested ones.  Currently national insurance unemployment and sickness benefits are paid at the same rate as means tested ones.  Basic national insurance retirement pension at around £100 pw for a single person, is well below the means tested pension guarantee credit which is around £135 for a single person.  However out of work national insurance benefits are important for couples where only one is working and for those who have savings.  Although the very poorest do not benefit from the contributions that they have made towards retirement, for many people the national insurance basic pension is the bedrock on which they build their retirement provision.  Further on I look at the extra state second pension which can add to the basic benefit.

Where do your contributions go?

If you asked contributors what their national insurance contributions went on, many of them would put the NHS first.  They would be largely wrong. There are powers to deduct money from contributions but in most cases section 162 of the Social Security Administration Act limited these to 1.05% of the wages on which employees national insurance is paid and 0.9% of the employers contribution on the same wages.  This means that around 10% of all national insurance contributions went to the NHS from 1992 up to 2003.  (There are slightly different rules for the self employed)

 

But in 2003 the Labour government added an additional 1% to employees’ national insurance contributions.  Unlike most contributions, this one had no upper limit.  They also added to employers contributions. Section 4 of the National Insurance Act 2002 allowed the whole of these extra payments to go to the NHS.

 

The same section increased the percentage of ordinary contributions that went to the NHS. The 1.05% went up to 2.05% and the 0.9% went up to 1.9% Without fanfare the contribution went to about around 20% and the national insurance fund was about 10% poorer than it was before.

 

The Government actuary’s Report on the 2011 re-rating and up-rating orders  (appendix 5) estimates that in 2011/12 £82 billion national insurance contributions will go into the national insurance fund and £20 billion will go to the NHS.

 

In 2011 the coalition government doubled the size of the additional contribution but this extra money was put into the national insurance fund, not given to the NHS.

 

You can see that the slight of hand by the Labour government increased the contributions to the NHS, but they are still clearly defined and limited.  The bulk of funding of the NHS is through general taxation. NHS paymentsHHh

are taken away before the contributions are added to the fund and do not form part of the fund. So when we look at the surplus that the fund has this will be after these deductions have been made.

 

Section 162(1) of the Social Security Administration Act prohibits the spending of national insurance contributions on anything but the National insurance fund and the NHS. Section 163 of the Social Security Administration Act says that the national insurance fund can only be spent on national insurance benefits, redundancy payments where the employer fails to make these, and administrative costs.  There is no power to spend it on anything else. Means tested benefits must be funded out of general taxation.

Is there a national insurance fund and, if so, what sort of state is it in?

It should by now be clear that the fund exists, but to avoid all doubt section 161 of The Social Security Administration Act requires the existence of a national insurance fund. The government must report on the state of fund every year and the government actuary must examine it every 5 years. The most recent report is for 2010/11  It shows a surplus of just under £43 billion, about four times what the government actuary thinks that it ought to keep in reserve. (This is lower than the figure I have given in past articles, which was based on projections.)

 

The surplus has come down considerably since the crisis of 2007, as you might expect, with fewer contributions and more payments being made. A House of Commons Library briefing on 14/6/12 showed that the 2008/9 surplus was over £50 billion and that the figure had grown steadily over recent years.  However According to the Government Actuary’s Report on the 2011 re-rating and up-rating orders (appendix 9) predicts an increase in the surplus to £57 billion by 2014/5.  The rate of increase in surplus seems to be growing.

 

There seems to be no lack of money to pay national insurance benefits, despite government insistence that it has to make further cuts in national insurance sickness benefits!

 

But it could be suggested that there may be transfers in and out of the national insurance fund are so numerous that they make the existence of a fund a sham.  However this seems not to be the case. In the early years the Treasury put money in to the fund.  You might think this reasonable since the government has decided that some people should be treated as having made contributions when they have not made them.  These include people with responsibilities for children and other dependents.  This recognises that some people make a social contribution rather than a financial one.  The government also uses reductions in contributions to incentivise employers and we might expect the government to make up this shortfall.  But the House of Commons Library briefing on 14/6/12 shows that there have been no payments this century.

 

I’ve explained that the fund is formally ring fenced, But I have also shown how money is being taken out to fund the NHS and employer incentives.  Tony Lynes in his briefing for the Southwark Pensioners Action Group adds a few more examples of pilfering from the fund.  It is also the case that, while the fund used to invest its surpluses in Gilts, it now gives soft loans to the government.  But I suggest that this still amounts to no more than pilfering rather than an argument for the non-existence of a fund.  The Financial Times recently reported that in a period when the stock market had grown by something like 55%, individual funds in which people could invest their private pension money had only grown by about 30% because of charges and overheads.  We call this wrong, but we do not say that the person had no fund.

 

National insurance benefits are funded on a pay-as-you go basis, as are schools, the health service and many other public services.  But to point this out is to make a point about the way the fund is used, not one that can be used to say that the fund does not exist.

What do you get for your money?

National insurance pays for a number of benefits, but I want to focus here on retirement pension, which is by far and away the most important; the benefit that the most money is spent on. There are two components, the basic pension and the state second pension

Basic state retirement pension

The amount of basic state retirement pension is set by Parliament.  After years where it was increased by the increase in the Retail Price Index, it is now increased by the higher of the average increase in earnings, the Consumer Price Index and a fixed percentage.  The rate for a single person in 2011/12 is £102.65.  You can get an addition for a legal partner of £61.20 if they do not have their own pension.

 

The conditions have varied over time but a pensioner retiring on 1 January 2011 would need to have paid enough national insurance contributions in 30 years of their working life to get full basic benefit. In many earlier years you had to have contributed for about 85% of your working life to get full basic pension. Otherwise a reduced pension is paid. The reduction in conditions was justified by the Labour government on the grounds that it protected those with caring responsibilities but could not be credited with contributions.  Whilst this reduction dilutes the contributory principle I think it is still fair to say that contributions match payments.

State second pension

Originally everyone got the same, no matter how much they had contributed, but in 1964 an attempt was made at increasing pension in line with contributions.  It was called Graduated Pension and for each £7.50 a man paid in contributions or £9 for a woman, they earned an extra 2.5p per week in pension when they retired, uprated for inflation.

 

This rather pathetic scheme was replaced in 1978 by the State Earnings Related Pension, (SERPS) The architect of SERPS was Labour’s Barbara Castle.  The idea that the more you contributed, the more you should get is not, at first sight, a socialist one, but did recognise the growth of company and private pensions.  The government recognised that there were some employers who were never going to be able to offer decent pensions and perhaps realised that the then emerging private individual pensions were not going to be a good deal.

 

If your employer could show that they offered a better pension scheme than SERPS they could opt employees out of it. This meant that they and employees paid lower national insurance contributions but that the employees did not build up entitlement to additional pension.  Self employed people do not build up entitlement to the additional pension either.

 

But everyone else with a job contributed.   Entitlement has been changed and reduced over the years. The more you contributed over your working life the more you got, but the basic idea of SERPS was that you contributed all your working life you would get 25% of the difference between the upper and lower national insurance limits (later reduced to 20%), uprated by inflation.  So entitlement was directly related to what you paid, as it had been for Graduated Pension.

 

From 2002 SERPS was replaced by State Second Pension.  The formula is quite complex and income at some levels accumulates more entitlement than others.  There is also the possibility of being credited with contributions in certain situations. It is interesting that a search of government web sites reveals very little about state additional pension.  Most searches for explanations bring up lots of private pension company sites, who obviously see SSP as an important competitor.  The clearest explanation I have found is on the Scottish Life web site.

 

Contributors keep the entitlement that they have built up over the various schemes and someone retiring today might have entitlement from all three additional pension schemes.

 

If you are not up to the calculations some idea of how valuable the state additional pension could be is that in 2012 the maximum additional state pension you can get from SERPS and state second pension is set at £159.52 per week.  Of course you would have to be earning quite a lot to have accumulated this level of pension and most higher earners will be opted out into final salary schemes.  But, when you add on basic state pension a single person could get £260 per week, and a couple double this.

 

The Conservative government under Mrs Thatcher decided to let individuals who wanted to opt out individually do so.  They offered national insurance rebates, which sunk the national insurance fund into deficit for a time.  At the time the conventional wisdom was that if you were in the first half of your working life then it was probably better to opt out of SERPS and invest in a private pension, since there was a longer time for gains to accumulate, but if you were in the second half of your working life it was better to stay in SERPS.  This advice was given in a period of stock market boom.  It is not clear whether it still holds, but in any case the new government has now withdrawn the choice.  People will no longer be able to use money purchase private pensions to opt out of the state second pension from April 2012.

 

So the bulk of national insurance contributions are not a tax.  They are a payment of insurance towards pensions and other benefits.  But there are parts of the scheme that are tax.  The 1% surcharge added by the Labour Government for the NHS, which runs over the normal upper limit, is clearly a tax, since it leads to no benefit entitlement and the amount goes to something normally funded by general taxation.

 

The same might be said for the further 1% added by the current government but, since it stays in the national insurance fund, it could be said to be a socialist move, designed to ensure that rich pay more whilst not getting any extra benefit.

 

We could also argue that the class four, income related contributions made by self employed people are a tax, since they get no direct benefit from them.  But on the other hand, they get entitlement to a range of benefits for their class two contributions.  They get all the benefits that an employed opted out worker would get except job-seekers allowance, but pay far less in class two payments than most employees would.  So it could also be said that class four contributions are a crude way of evening the situation up.

Why do national insurance benefits get talked down?

 

You might think that, with final salary pension schemes closing all over the place, and the discrediting of money purchase schemes, state retirement pension, especially the state second pension, would come to the fore.  But it has not.

 

This may be because it has few champions.  Welfare rights campaigners and social welfare academics tend to focus on the very poor. Trade Unions focus on the opted out schemes they have obtained for their members.  Organisations like Age UK focus on those who have already retired. Economists often don’t understand the scheme. Those who know the most, the pension companies, have an interest in keeping silent.  The Labour party was once the champion of state retirement pension but until recently only Frank Field was prepared to argue in the party for a return to national insurance principles.

 

Since the all political parties have remained silent on national insurance benefits.  Not surprisingly many people don’t know they have any entitlement. Few could work out what their likely entitlement was and say how it will be worked out.   I suspect that this is deliberate on behalf of governments. If you don’t know you have it or you think it has already been taken away then you don’t fight to keep it.

 

For the last few years both Labour and coalition governments have followed a policy of eroding the state second pension with the idea of making it a flat rate pension.  The poorest get more but the more well paid get less.  The level might pan out at about £130-140 a week per person when second pension and basic pension are combined.

 

A good idea?  – not when you look at it closely.  Remember that the means tested pension guarantee is currently £135 for one person.  Most people are entitled to get their income topped up to that. So they would be no better off.

 

The key beneficiaries would be those who are not entitled to the means tested guarantee payments because they have savings above the limits and those in couples where the other member has a state pension as well. (The means tested rates for couple are less than double the single person’s rate) There would also be benefits for people who had work or private pensions as well as their state second pension.

 

But these groups are likely to be small.  We are talking about people who are on low incomes who are less likely to have lots of savings and where it is more unlikely that both partners will have good national insurance records.  Plus, when someone is earning work or private pension benefits they are unlikely to be contributing to the state second scheme as well. The government will incur very little expenditure

 

The price of these meagre gains is that those who would have got higher amounts of state additional pension lose out.  Effectively the state competition with private pensions is gone.  From April 2012 people with no work scheme will have to pay for a state second pension that, in many cases they will not benefit from.  They will be forced to take out private sector pension schemes.  I suspect that this is what governments have wanted.

 

It should be fairly obvious that the NEST scheme, where there is a 4% contribution from the employer and a 2% contribution from the employee, will benefit few but the government and the pension provider.  Under the current system the meagre pension pot will be of little benefit to most of the lower paid and will do little to replace what higher earners have lost.   Employers may use the scheme to replace their current money purchase schemes where payments of 5% and above by the employer are common.

 

To try to deal with this the Prime Minister has borrowed the idea of a Citizens Pension from the Green Party.  Seductively, he floats £140 as its level.  Most people do not realise that most of them are guaranteed nearly this amount anyway.  The advantage of a flat rate scheme, possibly not linked at all to national insurance contributions, is that you can say  “I’m sorry we can’t afford to increase the level because the economy is going badly, or it is Wednesday, or we don’t like pensioners”, or for some other reason.  You might even do away with the employer’s national insurance contribution and put all of the burden on the employee.  But you can only get away with this if people have forgotten that they have already paid for a decent pension.  Hence the silence.  Let’s remind people that they are paying good money for pensions and other benefits and stop pretending that national insurance is just another tax.

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