An impact assessment from the Department for Work and Pensions estimates that limiting housing benefit payments to the number of bedrooms that a social tenant actually needs will affect 670,000 people living in social housing.
The report, released yesterday as part of the government’s Welfare Reform Bill, says most tenants only underoccupy by one bedroom, and will lose around £11 a week in 2013/14, when the change comes into play.
Those with two or more bedrooms that they do not use will lose an average of £20 per week, the assessment says. It also found that tenants in the north, east midlands and Wales were more likely to be affected than those living in London and the south east.
Around 46 per cent of social tenants in the north east will see their housing benefit cut by around £12 a week, while only 19 per cent of London tenants will be affected.
The National Housing Federation condemned the plans. David Orr, chief executive, said: ‘Ministers have long promised to protect the vulnerable and yet these plans could force thousands of people to move out of homes they have lived in for many years.
‘As a result of these changes, thousands of couples are no longer able to offer their grown-up children a room to stay in should their circumstances change, and many single parents will be pushed away from friends, relatives and support networks.’
Under occupancy penalty could force struggling families into hands of loan shark.
Plans to slash housing benefit for hundreds of thousands of low income families could lead to a huge surge in the number of people turning to loan sharks and doorstep lenders as they struggle to pay their bills, campaigners warned today.
The Department of Work and Pensions (DWP) intends to use the Welfare Reform Bill to slash housing benefit for tenants living in homes deemed too large for their needs - even if they have lived there for decades.
The measure will hit 670,000 council and housing association tenants - a third of all working-age housing benefit claimants in the social rented sector across Great Britain.
The DWP has suggested that households seeing their benefit reduced - by 13% for those with one 'spare' room and 23% for two or more 'spare' rooms - should 'move to accommodation which better reflects the size and composition of their household' - or make up the shortfall from other income sources.
Each claimant is expected to lose an average of £676 a year if the Government succeeds in introducing the measure in 2013. Tenants will face a tough choice of either downsizing to a smaller home to avoid the penalty or staying put and paying a much higher level of rent from their own resources.
But even for those who do look to downsize there is by no means any guarantee they will find a smaller social home to move into. Around 180,000 social tenants in England are 'under-occupying' two-bedroom homes, but just 68,000 one bedroom social homes became available for letting in a single year (2009/10).
The average social housing household in receipt of housing benefit has an annual income of just £8,320 a year. The proposed 'under occupation' penalty will leave vulnerable families with a shortfall of £676 to make up from their savings or other allowances. Many are at risk of falling into debt because they simply would not have the money to pay all their bills.
Currently, around 2.5m people borrow from doorstep lenders at rates often in the region of 272% APR for new customers. A further 200,000 are estimated to borrow from loan sharks, who can charge anything up to 2,000% APR. A majority of those financially excluded are social housing tenants.
If a tenant took out a £700 loan to cover the under occupation penalty with the doorstep lender Provident, they would pay an APR of 272.2% on the loan, according to a typical example given on their website. That would mean repaying £1,274 back over the course of a year. For people going to illegal loan sharks the rate could be ten times as much.
Federation chief executive David Orr said: "The Government's plans to penalise hundreds of thousands of low income families who are adjudged to be 'under occupying' their property is harsh and regressive.
"In the vast majority of cases, people will simply not be able to make up the shortfall themselves and could end up being sucked into poverty and spiralling levels of debt.
"The Government has repeatedly said that it will look after the most vulnerable, but pushing thousands of people into the arms of doorstep lenders and illegal loan sharks is wrong and will lead to a huge degree anxiety for many of the poorest in our society."
Niall Cooper, National Coordinator of Church Action on Poverty said: "There is a real danger that people will be pushed into the hands of loan sharks by the housing benefit cuts.
"Many tenants are already struggling to make ends meet, and can ill afford the cost of borrowing from high cost lenders who routinely charge anywhere between 200%-2,000% APR for loans.
"For some, this will push them over the edge - into a spiral of debt, or even homelessness."
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