Housing benefit: how international perspectives can shape reform

1. Housing benefit:how international perspectives can shape reform Peter Kemp University of Oxford

2. How Britain differs • The HB subsidy rate • Maximum amount of benefit • Marginal rate of benefit • The HB means-test • Income taper • Calculation of income • Complexity of rules • Changes of circumstances

3. Maximum amount of benefit • In Britain, HB can cover all of the rent • NB: the Local Housing Allowance [LHA] • In other countries, HB generally does not cover all of the rent • This difference in part reflects differences in social security provision

4. Marginal rate of benefit • In Britain, the marginal rate of benefit = 100% • i.e. for HB recipients, the marginal cost of housing is nil. • In HB schemes overseas, the marginal rate of benefit is typically < 100% • In the LHA, the marginal rate of benefit = 0%

5. The income taper • The HB taper rate in Britain is very high -> implications for work incentives • HB in Britain goes less far up the income scale -> implications for work incentives • Hence in Britain, HB is more closely targeted on the poor - & this affects work incentives

6. Calculating incomes • In Britain, HB is calculated on: • Net income • Current income • Weekly or monthly income • Elsewhere, HB is more typically calculated on: • Gross income • Income in the previous tax year • Annual income

7. Means testing HB • HB in Britain has very detailed rules • Elsewhere HB tends to be much less complex • HB in Britain is highly responsive to changes in circumstances • Elsewhere HB is generally much less responsive • This affects: • Administrative performance; & • Work incentives

8. Conclusions • HB (incl. the LHA) in Britain is relatively unusual from a comparative perspective • The design and administration of HB in Britain • have both positive & negative impacts on work incentives • are ill-suited to the realities of the modern labour market and how people now live their lives