Field's poverty puzzle

Gordon Brown may have presented his welfare-to-work Budget, but that merely began the overhaul of the employment and benefits systems. One of the most challenging problems for the Government is the reform of housing benefits, which Frank Field, the minister for social security, is reviewing.

The factors driving his review are the cost of those benefits - pounds 11bn a year and rising - and the need to create a smooth welfare-to-work process that eliminates incentives to stay on benefits. The problem for Mr Field is that these are apparently mutually incompatible objectives: housing economists say he must increase the benefits budget in the short-term if he is to get more claimants into work.

Ending the housing poverty trap is an essential part of eliminating work disincentives, says John Perry, policy director of the Chartered Institute of Housing. He says it requires extra public spending.

"There is a need to tackle housing costs for low income people," Mr Perry says. "The cumulative withdrawal of benefit when in full-time or part- time earnings is equivalent, at its worst, to a 97p in the pound tax rate. Taking into account travel to work costs, you would probably be worse off moving into a job nominally with a much higher income, so an earnings disregard is the best way of getting out of the poverty trap."

Although there is already such a mechanism, it has been frozen since 1988 and is just pounds 5 a week for a single person or pounds 10 a week for a couple. These incentives are inadequate, according to the institute.

"The other part of our case is to extend housing benefit to low income home owners," Mr Perry says. The last government's emphasis was to persuade home owners to take out mortgage protection insurance. But few home owners - and extremely few on low incomes - have done so.

Peter Kemp, director of the Centre for Housing Research at Glasgow University, believes that housing benefits must be adapted to fit the flexible labour market that the Prime Minister and Chancellor say is a permanent part of our economy. Bureaucracy must be overcome, and claimants should be able to move between work and benefits without delays in handling claims.

"Is the system too fine-tuned, and does it need to be more rough and ready?" Mr Kemp asks. "In Germany, if your income or rent changes by less than 15 per cent they don't adjust your housing benefit immediately, but wait until the end of your benefit period." But, he warns, "More incentives may cost more money, at least in the short term."

Frank Field, before he became a minister, spoke of the need to reduce rents radically to move people away from benefits dependency. Means-tested rent subsidies could be replaced by bricks-and-mortar support. But the private sector would be upset if housing association rents became too much cheaper than home ownership or private tenancies. It might also be expensive to administer if grants had to be paid to associations and councils to maintain properties as well as to build new homes.

Julie Rugg, of the Centre for Housing Policy at York University, says the Government must put an end to the distortions in the housing market caused by housing benefits. In many areas almost all properties for rent are taken by people who are dependent on benefits, affecting the rental market. Rent officers, appointed by the Department of the Environment, set private rents, based on local market rents. But this is flawed, Dr Rugg says, when comparable rents are also paid for through housing benefit.

"There is huge unhappiness about rent officers' decisions, because they are not accountable," she says. "There is concern that rent officers are having an increasing influence over housing benefit payments. Their role needs to be looked at again."

Dr Rugg's advice could save money for both the government and tenants. Some suggestions from other housing economists create more problems - not only would they cost money to implement, but much of the advice is contradictory.

Experts cannot even agree on how wide-ranging the Mr Field's review should be. Dr Rugg says the Government must look at the broader picture, remembering how many young people sleep on the streets, and have the courage to change the system radically.

Richard Best, director of the social reform charity the Joseph Rowntree Foundation - which has just published some of Dr Rugg's research - has written an open letter to the minister urging him to be moderate in any changes. He calls for "no big gestures".

There is one point of consensus among the housing lobbyists, and that is that extra expenditure on housing benefit should be paid for out of the savings achieved by the cutting of Mortgage Interest Relief At Source announced in the Budget. The Treasury, no doubt, has other ideas about that