Housing benefits for private renters could be increased in the Autumn Statement after repeated pleas to Chancellor Jeremy Hunt from ministers, local councils, and homelessness campaigners, i understands.
Mr Hunt is weighing up whether to boost the Local Housing Allowance (LHA) to help low-income families with rising rents but feels restricted by fiscal pressures across the board.
The LHA is the mechanism used to calculate the housing benefit element of Universal Credit. It has been frozen in cash terms since 2020 even though other benefits have increased with inflation and private rents have soared, hitting historic highs in many parts of the country since then.
The homelessness charity Crisis has long warned that lower-income private renters face a growing benefits “black hole” if the Treasury does not increase the cap.
And behind closed doors, i understands that Whitehall officials are worried that the current situation – rising homelessness for people who cannot afford their rents and swelling temporary accommodation costs for local councils – is unsustainable.
Both the Department for Work and Pensions (DWP) and Levelling Up Secretary Michael Gove are understood to have pressed the Treasury on the issue, urging them to unfreeze LHA. Mr Gove previously told i he was in constant conversation with the Treasury.
The All Party Parliamentary Group (APPG) for Temporary Accommodation was also approached by the DWP to help provide evidence on the impact of the freeze.
“We know that the government is aware of the situation,” Sam Pratt, Stakeholders and Partnerships Manager for Shared Health Foundation which chairs the APPG, told i.
Mr Pratt added that while it would cost “a lot” to unfreeze LHA, it would “make sure that homelessness is prevented.”
“This is urgent,” Mr Pratt added. “This should be top of the list of things the Chancellor does in the Autumn Statement.”
Private tenants who need state support to pay their rent are supposed to be able to access the cheapest third (30th percentile) of the private rental market. However, the freeze at 2019-20 levels means that this is no longer possible because it amounts to a cut in real terms.
Due to the combination of the government’s LHA freeze and rent hikes, the Institute for Fiscal Studies estimates that just 5 per cent of homes available for private rent are now affordable for those who rely on state support.
There are now more people renting privately than living in social or council housing, including a growing number of low-income individuals and families.
Close to 5 million households rely on a private landlord to keep a roof over their heads in England today; 1.9 million of them need housing benefit to pay their rent. Many of these people are in work.
What is Local Housing Allowance and how does it work?
Local Housing Allowance (LHA) is used to calculate the maximum amount that people who rent from a private landlord can claim under the Housing Benefit element of Universal Credit.
This maximum rent is based on where someone lives, the number of bedrooms they need for children under 16 or other dependents, and the rent they pay.
The LHA used to cover the cheapest half (50th percentile) of the private renting market in any given area. It was cut to cover the lowest third (30th percentile) by former Chancellor George Osborne in 2010.
In 2020, during the pandemic, the LHA was increased slightly but then frozen at 2019-20 levels. Since then, historic rent rises mean it no longer covers the cheapest third of the market in many places.
Homelessness is rising and experts fear this is because a growing number of low-income renters are both struggling to pay their rent and find somewhere to live if they are evicted for falling behind on their rent due to the LHA cap.
104,510 homeless households are now living in temporary accommodation such as hostels, B&Bs, and even converted offices. This includes 131,370 dependent children and is a 10.3 per cent increase on last year.
Temporary accommodation for homeless families is often substandard and can be a danger to health. Temporary accommodation has also been a factor in the unexpected deaths of children.
Francesca Albanese, executive director of policy and social change at Crisis, said that the housing benefit “black hole” was now a “catastrophe” for low-income renters.
“Every day that passes with housing benefit being stuck at its outdated rate means that more and more people are being pushed closer to the brink,” Ms Albanese said. “Our research shows that over 80 per cent of councils across England have found the freeze to be extremely challenging when helping those at risk of homelessness – and pushing councils to the brink of financial collapse.”
Crisis is calling on the Chancellor to unfreeze LHA so that housing benefit covers “at least the 30th percentile of rents”.
This is the “single biggest step” the Government could take in the short term to prevent homelessness for tens of thousands of households, Ms Albanese added.
The total cost of temporary accommodation hit its highest ever amount this year of £1.7bn. Across the country, local councils are struggling to pay temporary accommodation bills and warning that it could push them into bankruptcy.
As a result, the Local Government Association (LGA) is also urging the government to unfreeze LHA.
Darren Rodwell, the LGA’s housing spokesperson told i that the LHA freeze, combined with the rising cost of living, asylum, and resettlement pressures as well as a national shortage of social housing was “driving increases in homelessness, reducing councils’ ability to source suitable accommodation and putting pressure on council budgets.”
“The Government should use the Autumn Statement to unfreeze LHA rates so that it covers the 30th percentile of local rents,” Mr Rodwell said.
The Department for Levelling Up, Housing and Communities and the Treasury have been approached for comment.
The DWP would not comment on whether it had asked the Treasury to unfreeze LHA.
However, a spokesperson said: “One of the best ways to help families who are struggling is to halve inflation, that’s why it’s our priority.”
“Our Discretionary Housing payments provide a safety net for anyone struggling to meet their rent or housing costs,” the spokesperson added.
