Sunday, 24 February 2013

Economic Myths: Social housing in the UK is subsidised by the taxpayer

I always find it useful to look at the bigger picture and compare like with like.

Using data culled from various government sources, I have allocated government revenues from land, housing and wealth generally to households by tenure type. Some of the allocations are a bit arbitrary and you have to take into account that there are two layers of tax in the private rented non-claimant sector - taxes paid by tenants and taxes paid by landlords. Benefit spending is easier to allocate (having deducted about £2 billion Housing & Council Tax Benefit lost to fraud and error).

First, let's compare the cost to the taxpayer of claimants in the private rented sector with the overall cost of social housing. As we see, social housing is a break even; the rents paid by the one-third of tenants who are not claiming HB or CTB covers the full cost. The rent and Council Tax nominally demanded from claimant households is meaningless as it is equal and opposite to the HB and CTB nominally paid out. By and large, this is a purely paper exercise. It's like me giving my children £20 a week pocket money and also charging them £20 a week rent.

On the other hand, the cost to the taxpayer of paying for claimants in the private rented sector is enormous. The government spends more money on these 1.2 million households than it spends on 3.0 million claimants in social housing:

Secondly, we note that paying tenants in social housing pay about twice as much in tax (counting everything you pay to the government over and above the cost of services provided in return as tax) as owner-occupier households. They are not subsidised by the taxpayer; they are the ones effectively paying for the social housing for the other 3.0 million, and they don't get any tasty tax-free capital gains, interest rate subsidies and so on.

Thirdly, there is only one group here who is really losing out.

The 4.2 million households who are living rent free have nothing to complain about. Paying tenants in social housing have affordable rents and security of tenure, so they are doing OK. Owner-occupier households are only paying half as much tax as paying tenants in social housing, plus they are getting five times as much back in direct and indirect subsidies (interest rate subsidies, tax-free capital gains, no tax on rental values etc), so they are doing much better.

The ones who are being shafted are paying tenants in the private rented sector, on top of the £2,000 in housing and wealth taxes they pay each year, they pay on average £8,000 a year in rent, which exceeds the costs of providing that accommodation by £5,000 a year - so they are paying directly in cash for their landlords to scoop up £5,000 of national wealth each year for nothing in return.

Finally, the Homeys then wail about paying tenants in the social sector paying "below market rents". What the Homeys really mean is that these tenants shouldn't just pay for the bricks and mortar running costs (which they are clearly paying two or three times over), but they should also pay for the "location rent" on top of that. But when invited to do the same (i.e. to pay LVT on their own homes instead of paying taxes on their earned income), the Homeys politely decline.


adamcollyer said...

Effectively what you're saying is that if local councils go into the landlord business, the profit can go to all of us as taxpayers instead of to private landowners.

Interestingly, my own local council has just agreed to build some houses on land they own and rent them out at market rents (not social housing rents). (The land was earmarked for a school hence lots of anger from local residents, but that's another story.)

Mark Wadsworth said...

AC, yes, that is a fair summary.

Imagine we all lived in council-owned housing paying market rents. That would raise more money that all the taxes on income, output, wealth etc put together so we wouldn't need any of those taxes at all.

And seeing as a large chunk of government spending is welfare, instead of collecting the full rent and dishing it out, the government could just reduce the rents accordingly.

Hey presto, you keep every penny you earn and can spend it all on other people's output - and the banks don't get a penny of it.

Alternatively, we could have LVT on all housing (private or council) instead of taxes on income, output and wealth etc, and dish half of it out as LVT rebates, that would be even better.

Lola said...

No, I am very sorry, but that's total bollocks. The Homeys do not politely decline at all. They scream abuse at you and make suggestions as to your parentage. They question your sanity. They make out that you are some kind of communist. They suggest that you will lots of Gauleiters to enforce all this, etc etc. That's not polite at all.

(On a related matter our office landlords have let the next door office to Haart. They've just finished the refurb and are now moving in. I really do hope that they invite us to the opening party...I have things to say...) (Oh an the company cars are al BM's. 1 Series for the listers and juniors. Nice 3 series for the manager...)

Mark Wadsworth said...

L, true. I was being sarcastic. And estate agents aren't the architects of all this, I don't know why everybody hates them so.

Lola said...

MW - FWIW I do not at all hate estate agents. I just like to tease them a bit...