18 February 2012

The economics of the UK housing benefit cap

I'm as liberal as they come. Economically and socially. I believe in markets, but I also believe that we need massive redistribution to ensure effective safety nets and fair life chances for all children. But sometimes, the Guardian, you just take bleeding heart liberalism to whole new levels.

Yesterday you invited us to feel sympathy for Amira and her four children, who are losing their publicly-funded £812 a week flat near Edgware Road because of the new cap on housing benefits. Eight hundred and twelve pounds a week.

Median earnings in the UK are around £500 a week. Yes, we need a safety net. But should we really be paying 160% of average earnings in housing benefit alone for people out of work so that they can live in very desirable postcodes in central London?

£812 a week is £42,224 a year. Considerably more than what most working people earn. Paid by the state in rent.

Homelessness is scary. Moving kids to new schools can be disruptive. These adjustments needs to be handled delicately. But if we drop the status quo bias for one second, paying £812 a week in housing benefits for one household (PLUS other benefits) is insane.

(The win-win solution here, by the way, is remove planning restrictions, ignore the nimbys, let the private sector build the extra houses that it would if it could, and watch rents fall).

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