Brown: End the housing benefit scam

GORDON BROWN, the Chancellor of the Exchequer, is proposing the long-term abolition of Housing Benefit for those in work.

The pounds 11bn benefit is claimed by about 4.7 million people, 40 per cent of whom are pensioners. Social Security sources believe the Chancellor is determined to switch the benefit into a pay-cheque tax credit for low- paid employees.

The direct injection of the benefit cash into pay would reduce fraud, now thought to be running at about pounds 1bn a year on Housing Benefit alone. It would also offer the unemployed an even clearer incentive to move from welfare to work.

Root-and-branch reform of housing policy and associated benefits could also bring an eventual end to mortgage interest tax relief for wealthier home-owners. The big squeeze on that relief, now worth about pounds 1.5bn, was started by the Tories and further reduced from 15 per cent to 10 per cent from 6 April.

The replacement of Housing Benefit by a flat-rate tax credit would give claimants a greater incentive to shop around for cheaper housing - ending the incentive for unscrupulous landlords to inflate their rents.

One in 12 housing benefit claims to councils were found by the Public Accounts Committee last March to be false or wrongly inflated. Only one in every 100 fraudsters exposed are prosecuted by local authorities.

The move would follow the introduction of the Working Families Tax Credit, due to replace Family Credit from April 2000. That new tax credit, to be administered by the Inland Revenue, will directly provide around pounds 5bn help to about 1.5 million working families; roughly pounds 70 per family per week. Plans to extend the idea to other benefits are being developed in Whitehall, and could eventually include Council Tax Benefit, and even Child Benefit.

But in a letter to the Commons Social Security Committee on Friday, Mr Brown was more open about it than ever before. He said: "The Welfare Reform Green Paper made clear that Housing Benefit is being reviewed with the aim of providing a benefit that is easy to understand, simple to administer, minimises work disincentives and the risk of fraud."

In fact, the Welfare Reform Green Paper did not make that clear. It explained the problems with the benefit, and said it was being reviewed, but it did not reach Mr Brown's conclusion.

A contrast between the Chancellor's openness and the Department of Social Security's more cloaked approach to reform was provided last Thursday, when the Department replied to a Commons Public Accounts Committee complaint about the complexity, confusion, and error-rates of Housing Benefit - described by MPs as "a breeding ground for fraud".

The Department said: "The Welfare Reform Green Paper made clear the Government's view that the current Housing Benefit scheme is excessively complex, unpredictable, inconsistently administered, and too open to abuse and exploitation.

"In addition, the Government has serious concerns about its impact on work incentives and the way it takes away responsibility from the people who depend on it."

It did not say, as Mr Brown did, that the plan was to come up with a benefit that was easy to understand and administer, minimising work disincentives and fraud.

Before the introduction of the Working Families Tax Credit, the interaction of Family Credit, Housing Benefit and Council Tax benefit means that many low-paid families are effectively being "taxed" 97p for every extra pound earned: net income goes up by little more than 3p for every extra pound they earn.