Our social protection system comprises numerous cash transfers (family allowances, minimum income support, housing benefits) aimed at those on the lowest incomes and is therefore means-tested. The calculation of many of these benefits is based on income from the year before last (year N-2), i.e. the most recent income declared in the tax return at the start of year N. At the same time, the authorities receive monthly updates on individual incomes for the purposes of calculating social security contributions and withholding income tax at source. This makes it possible to base social security benefits on income figures that more closely reflect individuals’ circumstances at the time they apply for benefits. The reform of housing benefit, which came into force on 1 January 2021, is a step in this direction. Under this reform, housing benefit is now calculated on the basis of income over the last twelve rolling months. This change affects the amount of housing benefit received by individuals, depending on the difference between their income as measured under the old system and their income as measured under the new one. Drawing on previously unpublished data on individuals’ income trajectories, this report aims to assess the redistributive effects of this reform as well as its budgetary implications.
Real-time housing support: évaluation de l’impact
This study aims to assess the budgetary and redistributive effects of modernising housing benefit arrangements, in particular by evaluating an initial reform of the housing benefit system that came into force on 1 January 2021.
Reference IPP Report No. 35
Presentation
Key Results
- Prior to the reform, housing benefit was based on income received in the year before last (year N-2). In addition to this, there were several mechanisms designed to address the time lag between the date of the application and the reference period for income.
- The reform under analysis changes this reference period, which now corresponds to the last twelve rolling months, thereby allowing for greater flexibility in certain adjustment mechanisms.
- We conduct an evaluation of the budgetary and redistributive effects of this reform using previously unpublished data on individuals’ income trajectories, which allow us to determine their income in year N-2 as well as over the last twelve rolling months. This data enables us to simulate individuals’ housing benefits with and without the reform.
- L’évaluation de ces effets est réalisée dans un contexte « avant crise sanitaire », afin d’isoler les effets de cette réforme et les effets de la crise sur les impacts de cette réforme, que les informations disponibles actuellement, essentiellement agrégées, ne permettent pas d’estimer.
- The reform is estimated to have led to a reduction in housing benefit expenditure of €1.2 billion, representing an 8 per cent decrease in such expenditure.
- This overall reduction masks significant variation, with €2.2 billion in reductions in housing benefit and €1 billion in increases.
- Those on the lowest incomes are largely unaffected by the reform, due to mechanisms that were already in place prior to the reform and which take into account certain reductions in income compared with the year N-2 (e.g. income neutralisation for recipients of the RSA).
- The greatest losses are found in the fourth and fifth deciles of living standards. The higher a housing benefit recipient’s standard of living was prior to the reform, the greater the likelihood that their income has risen since year N-2, and the more exposed they are, therefore, to a reduction in housing benefit.
- The beneficiaries have relatively diverse profiles. They include both individuals whose income has fallen since year N-2 and individuals subject to a pre-reform scheme known as ‘flat-rate évaluation’, which aimed to take into account, by way of derogation from the default reference period, the most recent income in the event of a return to work.
- Young workers are the hardest hit by the reform, due to significant discrepancies between their current income and their income in year N-2. 33 per cent of non-student under-25s are losing out, with an average annual reduction in housing benefit of 1,067 euros.
- People not in employment, whose income remains relatively stable over time, and pensioners, who receive little housing benefit, are, on average, only slightly affected.
- When households are categorised by family structure and the age of the reference person, those most affected are single-parent families, single people without children, and households where the reference person is relatively young.
- This reform has been made possible by the use of monthly income data for the calculation of housing benefit. Such data provides greater flexibility in the calculation of resources, particularly regarding the length of the reference period and the frequency of reassessments of entitlement. The reform has settled these two issues, but new debates may arise depending on the observed effects and feedback from experience.
Method and Data
Partners
