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Bedroom tax – why reclassification is best for landlords and councils

Video: Joe Halewood speaks to Liverpool bedroom tax tenants in June this year.

Joe Halewood:

The bedroom tax is a highly emotive issue - yet to understand it, you have to view it dispassionately.

Yesterday, I released what could seem like a rant against Joe Anderson, the Mayor of Liverpool, who was berating Stephen Timms and the Labour Party generally for not committing now to scrap the bedroom tax. 

They should scrap it - yet that is not the point.

The real point is that the Mayor of Liverpool was being hypocritical as he has far more power to challenge the bedroom tax than the national Labour Party as does every local council in the country. All local councils can lawfully challenge it now and could have done so from the start. 

In the short post, I asked three simple questions - to which the answer is a resounding YES:

1 Can a council decide that a room under 50 square feet in floor area is not a bedroom?
2 Can a council decide a room 50 to 70 square feet is not a full bedroom?
3 Can a council decide not to go the cost of defending an appeal?

The answer is yes they can - and they can do so as part of the bedroom tax decision making process. Councils are the decision makers for housing benefit decisions and they act as the agent of central government in all housing benefit decisions. The bedroom tax is just another HB decision.

If Liverpool City Council or any other council wished to operate a policy on what a bedroom is in terms of size, they can do so and there is nothing unlawful about it at all. 

If they did so, LCC could significantly reduce the 11,680 estimated households affected by it. 

The council in Liverpool caves into social landlords, despite the fact that it will cost LCC more by doing so - for example, in homelessness costs. They cave in despite it costing the city more as business rates will fall when small local businesses will fold due to anywhere between £8m and £20m being taken out of the local economy. Liverpool generally will suffer huge decline in parts of the city with local shops boarded up and communities devastated and higher policing and health and social care costs will arise that can all be traced back to the bedroom tax policy AND councils' economically inept and politically spineless response to it.

The council has made two critical mistakes.

The first critical mistake is that it believes it cannot ‘rule’ that a room under 50 square feet cannot be a bedroom as the 1985 Housing Act says.

That would be an error of statutory interpretation being the most cited excuse given by local councils - and it is an excuse. I call upon Liverpool and every other council to release legal opinion on that issue as I strongly doubt it exists. If they are unwilling to do that, then that says it is a mere errant assumption on their part that councils cannot interpret what a bedroom is in that way.

The second critical mistake is they have merely assumed that if they adopted size criteria for a bedroom, then the social landlord rent level and the housing benefit in payment would also fall.

This stems from a critical error from social landlords who wrongly believe that reclassifying a now purported 3-bedroom property to a 2 or 2.5 or 2.99999 means that the rent level falls and the housing benefit in payment would fall. This has been stated so often and without any foundation in fact that it has become an urban myth. 

Let’s examine this issue in some detail.

There are a number of issues which stem from the situation in Leeds. The following excerpt from an article in Inside Housing in early July is highly pertinent:

"Lord Freud said councils found to have reclassified properties without reducing the rent charged would face a cut in their housing benefit subsidy. Leeds Council has reclassified 837 homes as having one fewer bedroom each, but is refusing to reduce the rent. Peter Gruen, deputy leader of Leeds Council, said: ‘We have taken all the legal advice we have and what we are doing is perfectly legitimate." He said the council would legally challenge any decision to cut the council’s housing benefit subsidy."

The four short sentences above say a hell of a lot!

The first sentence is the government threat to any council allowing reclassification - it is Lord Freud saying that reclassify a 3 bedroom down to a 2 bedroom and the rent and therefore HB level must fall.

The second states the facts in Leeds and that they are refusing (as a landlord) to reduce the rent.

The third has a councillor saying we have checked this out legally and it is lawful

The fourth sentence says “bring it on; we are calling your bluff!” Note that this is a councillor saying the council – as a corporate entity and not as a landlord – will legally challenge central government if they carry out Lord Freud's threat.

If Leeds as a council can and are willing to do this and have had this legally checked, then every local council can do it and it is in their financial interests to do so.

When I first advocated reclassification of properties from a 3 bedroom to a 2.9 bedroom, I also stated it would NOT see a reduction in rent.

When the highly respected Professor Steve Wilcox advocated reclassification two months ago, his figures did assume a reduction in rent - to which I will return - yet still argued that even with a reduction in rent, that reclassification is in social landlords' best financial interests. That's a critical point, even if I am wrong on my view that rents need not reduce and the same issue that Leeds City Council say they have checked legally.

The Janet Bell case, which I was involved in centrally and discussed in much practical detail, was a case where a 3 bedroomed property had only 2 bedrooms. Yet, the rent stayed the same and so did the HB payment. The landlord LMH knew of this, Liverpool City Council HB department agreed and very speedily agreed the property was a 3 bedroomed property with only 2 bedrooms. A property is NOT the same as the number of bedrooms!

Joe Anderson as the Mayor has much more political power than most councils by virtue of his elected office of Mayor. He can AND SHOULD direct his council to look at the council HB department, adopting a position that anything under 50 square feet CANNOT count as a bedroom for HB (bedroom tax ) purposes. Similarly, that a room 50 to 70 square feet is in effect half a bedroom and again not considered for the bedroom tax HB decision. 

Mayor Joe Anderson should be engaging and leading the 18 housing associations in the city (who have come together in a welfare reform group) to reclassify properties with no rent loss or at worst with a small insignificant rent loss which can be easily made with next year’s last rent convergence formula.

I estimate no more than 5% of social properties in Liverpool (or elsewhere nationally) have a purported ‘bedroom’ of less than 50 square feet and at 50 to 70 square feet of floor space this may be 15 – 20%. This would remove the bedroom tax (or reduce it from 25% to 14%) something like 2336 to 2920 households in the city from the bedroom tax. It would also take away the financial risk of arrears to social landlords from the same number of properties.

That would take 5600 to 7000 men, woman and children in the city out of the bedroom tax so the tenant and electorate would be happy. It would massively reduce social landlord’s financial risks and they would be happy. It would massively reduce the financial risk to the council from homelessness and other additional costs it will have if it, and Joe Anderson, merely sit back and continue on their current course.

It is beneficial to all involved except central government. All those other parties, the tenant, the landlords and the councils roundly and rightly condemn the bedroom tax and its consequences.

Maybe in light of the bizarre bedroom tax judicial review this week landlords and councils could also argue this is a proportionate response too!

One final and very significant point on reclassification is bedroom size.  The 1985 Housing Act does provide a rational justification for reclassifying the number of bedrooms a property has. Yet the reclassification to date which KHT in Knowsley set in motion has had nothing to do with bedroom size. It has all been about difficult to let (DTL) properties.

Every social landlord has DTLs – they are properties in areas where nobody wants to live or in high rises or other less desirable properties for one or a combination of reasons. When the bedroom tax began, these DTLs became ITLs or IMPOSSIBLE to lets - because if nobody wanted them before, with the bedroom tax to pay, they were even more difficult to rent. Social landlords out of financial pragmatism decide to reclassify as some rental income is better than none at all.

KHT reduced the rents and took the financial hit. Leeds is refusing to take the hit by not reducing the rent and therefore HB income and have called the bluff of government on this.

Read the full article here.


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