A shock to the system

To those usually in the know the announcement of a housing Green Paper came out of the blue. "Blimey" said one expert often quoted in these pages, when he heard about the move. Other expressions of shock were unrepeatable and it was a surprise even to the press office of the ministers involved.

One of the reasons the news caught people unawares was that the themes of the Green Paper - housing policy and housing benefit - were supposed to have been thrashed out in the comprehensive spending review. It had been assumed that reform of housing benefit in particular had proved so daunting and stirred up so many departmental rivalries that ministers had concluded that it wasn't worth attempting.

The Green Paper is unlikely to signal the so-called "big bang" reform of housing benefit. But the government wants to have another stab at the relationship of housing policy with the troublesome benefit.

"This is the next stage of the comprehensive spending review," according to housing minister Hilary Armstrong.

Talking to Housing Today she says: "I always said that housing benefit is the most intractable of all the benefit changes. The housing system is largely driven by housing benefit rather than by where we want policy outcomes to be."

Frustrations with the current system were vented last week. Deputy Prime Minister John Prescott said: "Britain's housing system is failing those in need." According to Armstrong: "It's not revolutionary to say it's failing.

People are not living in the sort of conditions that give them the sort of opportunity and confidence to do what they want."

The Green Paper will propose tackling those apparent failings through changes to rents and housing benefit.

Ministers want to replace the relatively flat nature of rents in the social sector with a market-style approach to "strengthen the links with size, location and condition of properties."

Two research projects have been commissioned on the subject (Housing Today, 25 February). And officials have begun modelling the impact of different rent regimes on individual households. "We are looking at how you get rents that reflect something, at the moment they don't reflect anything," Armstrong says.

The idea is that this approach would give tenants greater choice about where they live. "People would be able to say, "would I be better off in a smaller house?"" Three pilot studies are already underway in London to see if benefit incentives would encourage older people in family-sized houses to move to cheaper smaller homes. It is also hoped that cheaper rents in unpopular areas could help tackle low demand. "We know that many people are walking away from social housing. Young people if they have the choice don't go into social housing. We need to find out what will motivate people," says Armstrong. More pilot studies on the various options are likely, she says.

In tandem with proposed changes to rents will be reform to housing benefit. Last week for the first time Chancellor Gordon Brown announced he wanted to see the integration of a housing allowance with the working families tax credit. Many had pointed out, including the Social Security Select Committee, that the tax credit changes would fail unless the two systems were meshed. The government now appears to have recognised that, but worries remain about how it is to be implemented.

And integrating the two systems doesn't help those who can't work. On this point Armstrong confirms that the government is considering separate housing benefit rules for different client groups (Housing Today, 1 October). "It may be that you end up with something different for those people like pensioners who are on fixed income, and those people who could increase their income by going into work."

So it looks as if pensioners will carry on receiving full benefit for their rents, as long their homes are not judged to be under-occupied.

But people below pension age may soon be forced to pay for some of their rent. The Chancellor's red book notes that "other European countries have a flat rate element in personal housing support.

"In Britain, tenants on housing benefit are often given little interest in the rent. The current system is bad for the labour market as well as the housing sector."

The idea of creating incentives in the benefit for tenants to "shop around" for housing appears to be back. There are clear links here with the move to ensure that rents better reflect size, location and condition, as they do in the private market.

Armstrong confirms that ending full entitlement is "being looked at more actively around the Working Families Tax Credit." One option would be to incorporate a series of flat rates within the proposed integrated housing allowance and tax credit system. This is where welfare campaigners get nervous.

Local Government Association welfare rights adviser Geoff Fimister said integrating housing allowances with tax credit would mean there was only one benefit taper so a shallower poverty trap. But he added: "The disadvantage is that although in theory such a system could be linked to actual rents, in practice that's unlikely. There's likely to be a flat rate component.

"Then either you make the flat rate component sufficiently generous to cover most people's rents in which case it costs a lot of money or else you don't and there will be a large number of losers."

Dilemmas like this caused the initial deadlock on the housing part of the comprehensive spending review. It now looks as if the Treasury, which has been known to favour flat rates, has got its way. It was after all the Treasury which announced the Green Paper not the DETR - an unusual move given the subject matter.

But Armstrong won't get drawn on the internal politics. She insists that the plans are not "simply cost-cutting."

She adds: "We are determined to end up with something that's a lot better than what we have at the moment. I don't want people panicking at this stage, people are being given the chance to think things through."