The “low wages, high welfare” economy

Britain’s estimated £25bn housing benefit bill for 2015-16 is being fuelled by soaring rents in the most prosperous parts of the country as workers struggle to find affordable accommodation, new research has found. The report calculates that almost one million jobs have been created in the UK’s cities since 2010, but average annual wages have dropped by £1,300 per person, making it more difficult for workers to make ends meet. Around one-quarter of tenants in private accommodation claim the benefit – and a third of them are in employment.

Welfare spending is growing rapidly in boom areas of the South-east of England, largely driven by the growing cost of housing benefit payments, according to the Centre for Cities think-tank. Spending on housing benefit in better-off cities such as London, Cambridge, Bournemouth and Milton Keynes has risen 50 per cent more than in lower-wage cities such as Glasgow and Liverpool. The average housing benefit claimant now receives £144 a month in London, £128 in Slough, £118 in Oxford and £117 in Brighton, compared with £72 in Doncaster, £73 in Hull or £75 in Dundee.

Despite the record employment levels, the figures reflect warnings from some employers in London and the South-east that they are increasingly struggling to recruit staff because of the exorbitant cost of rents.

In its annual study of the UK’s 63 largest cities, it found that all but one of the cities with the highest wages were in the south-east of England. The exception was Aberdeen. The league table was headed by London, where the average weekly pay is £675. Seven of the 10 cities with the lowest pay were in the north of England, with the lowest wage of £399 found in Huddersfield.

The think-tank’s chief executive, Alexandra Jones, warned of the danger of their growth being “derailed by a lack of affordable homes”. She explained “To support the long- term economic growth of these cities, while also reducing welfare spending, the Government and local authorities need to take urgent action to tackle housing shortages.” She called for more homes to be built, for better use of existing property and for improvements to local transport, adding: “This will make it easier for more people to access jobs and for businesses to grow.”

George Osborne set out to create a “higher-wage, lower-welfare economy”. But the Centre for Cities concluded that half the nation’s cities fall into the opposite category of “low wages, high welfare”.