How has this happened? The statistics show that 98% of the rise has been from under-65s. The rise was split about equally between the employed and the unemployed, although the employed and pensioners still make up a majority of clients.
There has been a modest increase of claimants in social housing, but the number in private accommodation increased by 60%, from 1 million to 1.6 million. During this period the average award in the private rented sector went from £100.35 a week to a peak of £111.76 and then declined to £107.24. The total amount being spent in this sector went from £495 million per month to an all-time high of £762 million.
In other words: since November 2008, because of the recession an additional £7,000 million has been given to private sector landlords by the government.
Who are these private sector landlords? Well, we know that the amount of private rented accommodation went up in England from 2.1 million in 1997 to 4 million in 2010. There are 1.4 million outstanding buy-to-let mortgages in the UK, which accounts for most of that.
So, it looks like a large number of people are living in buy-to-let properties, and paying enough to cover their landlord's mortgage payments (unless the landlord is unwisely depending upon capital appreciation to make up the difference). In the olden days, Housing Benefit could make mortgage payments, but only on interest - this has appears to have been replaced with a Support for Mortgage Interest payment. Neither of these things would repay the capital for a very good reason - it wouldn't be a very good use of taxpayer's money to pay off someone's mortgage.
I am not entirely clear on why it is a good use of taxpayer's money to pay off someone's mortgage if they are a buy-to-let investor. Furthermore, it appears that lots of buy-to-let investors dodge tax, possibly because they were unaware that only the interest part of their repayments can be set against the rental income. Regardless of whether or not this was intentional, some buy-to-let investors would only have done so because their sums were wrong, and they could not actually legally run at a profit (I've asked HMRC for their estimate of tax evasion from this, it'll be interesting to find out). Tax evasion-led buy-to-let investment probably inflated the housing bubble somewhat, even!
So, there is a problem. Housing benefit is going directly into the pockets of people who were already rich enough to have invested in extra housing during the housing bubble (and also, let's not forget, people who won the right-to-buy lottery), who are possibly also tax scammers. Housing benefit claimants are, let's admit, not going to be massively price sensitive as long as they are within the allowed limit (I mean, why should they be?), so what incentive is there for private landlords to reduce the amount they are charging?
To their credit, the Tories have diagnosed some of this problem, but they then attack it from the wrong end. The state is paying for approximately 1/3 of private rented accommodation. It should have immense negotiating power in the housing market, but it cannot exercise this because this is split between millions of negotiating agents acting independently, and who are being played off against each other by those landlords willing to accept DSS tenants... So, we have their solution to this which is: caps on what people can claim. Which will fairly inhumanely move people out of a few hotspots, perhaps saving the odd million or ten, but it will do nothing to address the underlying problem.
So, how can the state actually properly exercise its massive buying power? One way might be to impose rent caps from the other side. I somehow don't see a Conservative government doing that. Funny thing is though, it used to be part of the political discourse (along with price controls and a 95% marginal rate of income tax!), having only really been abolished by Thatcher. So, are there any approaches that simply involve the government as an actor rather than using its legislative power to bypass the free market? Well, it could block-rent an awful lot of private property, getting a better deal on rent than the individuals could manage on their own, and then sub-let to people eligible to claim housing benefit.
Hang on, this is getting awfully reminiscent of something, isn't it? So: it could get in the game itself. This is why social housing was such a good idea in the first place. The rent covers its operating costs, but the the average social housing award is £30/week less than a private one. That saving over fifty years will easily cover building costs, and then the state will have the asset, not the random third party.
But perhaps we don't need to do a massive building programme just yet. Another factor is that there are over a half a million empty houses in England alone, although it's not entirely clear whether they are in the right places or of the right sort - certainly many of them will be part of the flat glut. If these were all forced onto the private rented market somehow, then that would result in a 20% increase in the availability of homes, which would have to reduce market rates a lot. Bringing them back doesn't need to involve expensive administrative effort from councils, but could be done through the taxation system. Just keep raising the council tax on vacant properties until the total number decreases to an acceptable level. Simples. Or this could be addressed through the planning system. I mean, they have planning permission as dwellings, after all, not as home-shaped art installations. Surely leaving something empty for a long time is a change of use?
tl;dr Housing benefit increases are the result of the inequitable distribution of capital.