5 Ways to Reduce the Spare Room Subsidy

As we approach the anniversary of the introduction of the bedroom tax, its’ impact is becoming clearer. DWP figures to November 2013 show that the HB reduction has been applied to 498,174 households and each has lost on average, £14.40 per week. With increases likely as families move into the higher priced private sector, the reduction in HB is likely to be £150m short of the recently claimed £490m.

Let’s remind ourselves of the core argument. Speaking in the Lords on its introduction, Lord Freud said, “We do not think that taxpayers should be expected to meet the cost of somewhere approaching 1 million spare bedrooms, a cost of around £0.5 billion every year...”


So, what else could be done to make up this shortfall? How else could households be incentivised not to hold spare rooms? In the interests of fairness, what else could be done? After all, as an exercise in using fiscal policy to influence behaviour change, the spare room subsidy has been pretty successful. It has opened our eyes to what could be achieved if we were consistent across the board.


Imagine building on this success. What if the spare room subsidy was removed from everybody, not just social housing tenants? Think of the accommodation that would be freed up. Think of the money it would save not paying capital subsidies to build. Think of the tax it would raise. And more, housing waiting lists might even fall dramatically.


The following proposals would discourage under occupation and incentivise people not to be property ‘wasters’.


Stamp Duty Land Tax. Levied at 1% below £250,000 and 3% when the property price is above £250,000. £1 over £250,000 adds £5,000 on to the tax bill. This is a huge fiscal cliff which, in lower priced areas, has a perverse effect on the market. In London, where the average house price is now £400,000 it has no effect. Why not introduce a greater graduation - one that increases in steps with the increase in bedrooms so encouraging purchasers not to under occupy? With £6.097m collected in 2012-13 and the market picking up, there is a huge tax raising potential.


Right to Buy. The number of occupants is known. If there are spare bedrooms, use a negative multiplier on the discount. People won’t get such a large spare room subsidy (discount) and if there are increased receipts, they can be used to build new.

Whilst on the Right to Buy, remove the exemption from Stamp Duty Land Tax. The discounted purchase price is likely to be at the lower end of the new graduated bandings so will be less onerous but will still increase with the number of bedrooms - reducing the incentive to buy bedrooms you don’t need.


Council tax is known to be highly regressive - a band H property will pay at most three times as a band A, even though the value of the property may be ten or more times higher. Introduce a mansion tax so that all those spare rooms don’t go untaxed. To encourage under occupancy even further, remove the single occupant discount of 25% discount.


A second home is only for extreme wasters; spare bedrooms in separate properties, so let’s reduce the subsidies available. Councils can give furnished second homes or holiday homes a discount of between 0% to 50%. Why encourage under occupation? Make it mandatory to charge twice the standard council tax for unoccupied properties. With a little imagination, there are also other ways that spare bedrooms in second homes can be discouraged with amendments to inheritance tax and capital gains tax.


Lastly, few know that if you let a bedroom in your home, up to £4,250 of income is tax free. Want to reduce the number of spare bedrooms? Double the allowance to £8,500.


These proposals won’t be in the Chancellors budget on Wednesday, laying bare the real reason for the removal of the spare room subsidy. If the objective was to remove public subsidy for under occupation, it would be tenure blind. The press would headline the extremes of under occupancy, television would broadcast programmes of people rattling around mansions whilst homeless families were squeezed into bed and breakfast, we would be encouraged to use our mobile phones to photograph and report spare bedrooms, there would be a twitter campaign against the feckless and greedy under occupiers. They would have a name to rival the scroungers - the wasters.

But none of this happens. Only the poor and vulnerable are singled out, vilified and impoverished. And that is why the bedroom tax is not about removing public subsidy for under occupation. It’s plain and simple; it’s an attack on the living conditions of the poor.