I argue that housing benefit is a terrible part of the welfare system and that it ought to be scrapped on CapX.
Now the government has U-turned on plans to abolish tax credits, it should look at housing benefit for welfare savings—most housing benefit is a transfer to landlords and the remainder is an inefficient and distortionary intervention. It should abolish the £26bn system and use the money to fund tax cuts for low earners and a shallower Universal Credit withdrawal curve. Paradoxically, housing benefit is one of the causes of our housing crisis, rather than a solution.
There are numerous ways of compensating low earners in better ways: for example it would cost about £14bn to raise the threshold at which workers start paying National Insurance Contributions to the full-time minimum wage level (£251.25 a week or around £13,000 a year). We could also make the rate at which Universal Credit is withdrawn less steep, or beef up tax credits. Any of these would strengthen work incentives and efficiency, and enhance the progressivity of the overall tax and benefits system, relative to the current regime.