Government's plan to raise LHA in line with inflation is nowhere near good enough

Government's plan to raise LHA in line with inflation is nowhere near good enough

Yesterday, the government announced how much housing benefits for private renters will be increased once the current benefits freeze finally ends. The news is not good.

In April 2020, Local Housing Allowance (LHA) – the housing benefit people receive for their private rental costs – will be raised in line with the Consumer Price Index (CPI), which currently stands at a pitiful 1.7%. While any rise in benefit level is welcome, it is completely unacceptable to raise the LHA rates by inflation alone. The significant and far reaching damage being done by the freeze and by the cuts that came before it is pushing people towards and into homelessness every day. This meagre increase will make very little, if any, difference to the lives of those currently struggling.

During the election campaign, we saw every political party express that they wanted to tackle rough sleeping and homelessness. However, without access to an affordable rental market and no alternative, those hit hardest by the LHA rate freeze won’t have a fighting chance of finding a home that’s suitable, affordable, and available. Unless LHA rates are increased, current levels of homelessness will continue and likely rise.

The only way to stop this from happening is to lift the LHA rates up to a reasonable level in all areas as a matter of urgency. Failure to do so will only perpetuate the current dismal situation we’re facing.

Frozen LHA rates are pushing people towards homelessness

Government policy was to set LHA rates so that they cover the bottom third of the local rental markets across the country. The idea was that this level would allow people claiming LHA just enough money to survive in the private rental market. However, as a result of the freeze and various other cuts before it, the LHA rates do not cover the bottom third of rents in a shocking 97% of the country. They don’t even cover the bottom tenth of rents in a third of England (32%).

One of the reasons the rates are now so out of touch with local rents is that since the government first started restricting LHA rates, rents have increased by 15%[1]. It’s not hard to see why rents have far outpaced LHA rates over the past years.

We’ve been clear in our evidence that people are just not coping with LHA rates at such low levels. Often, we see people at our services who are facing such huge shortfalls between their rent and the LHA rate they are entitled to that they are falling behind on paying their rent and ending up in rent arrears. It’s no wonder that when asked about their financial situation, most individuals (63%) in receipt of LHA say that they are either finding it difficult to or are just about getting by. This is almost twice the level of private renters who do not receive LHA (33%)[2].

In fact, the National Audit Office linked the changes in LHA rates to the steep rise in homelessness in 2017, saying: ‘Changes to Local Housing Allowance are likely to have contributed to the affordability of tenancies for those on benefits and are an element of the increase in homelessness.’

With LHA rates so far below cost of rents, the 1.7% increase being suggested would do very little to close the gap. In the announcement yesterday, the government emphasised that people would receive on average an additional £10 per month. Our research shows that for those on low or no income, the average shortfall between LHA and rent is £113 per month. With hundreds of thousands of people struggling with a shortfall across the country and the average shortfall is so high, an extra £10 per month isn’t going to do much to help. It will continue to force people to have to try and make up the difference through other very limited means. This might mean cutting into their subsistence benefits, which are not meant for rent, or by cutting back on necessities like food for themselves or their family. This precarious situation leaves so many people with rent arrears and debt, and with more and more people facing eviction and homelessness.

How much impact would a 1.7% rise have?

While 1.7% reflects inflation for the country, it’s worth remembering that across England rents have also risen, already countering any benefit gained from this increase. Saying that on average people will benefit from an additional £10 per month does not take into account that many people’s rents will also have risen by more than this figure.

As stated above, since the cuts and freeze started, rents have increased by 15%. A 1.7% rise in LHA will make little difference in meeting that increase. And rents aren’t standing still – looking at just the last 12 months outside of London, the cost of renting has increased by 1.7% according to the Office for National Statistics (ONS). This completely negates the 1.7% increase to LHA and means the gap between rents and LHA rates will actually stay the same despite this supposed increase in benefits.

And in some areas of the country, this LHA increase actually represents a worsening of their entitlement in the context of their rising rent. In Yorkshire and The Humber, the cost of renting has increased 1.9% in the last 12 months. In the East Midlands it has increased by 2.1% and in the South West it has increased by 2.3%.

For hundreds of thousands of people across the country, this meagre increase will do nothing to alleviate their shortfalls and in many areas, it means that shortfalls will continue to grow, making things worse.

Small increases just aren’t good enough

These piecemeal increases might give some people a small amount of help, but they in no way attempt to truly tackle the problem. Raising LHA rates by 1.7% in April 2020 would not even come close to alleviating the impossible situation so many people across the country are currently facing.

The evidence is clear and a wide range of voices are now calling for government to do more. LHA rates cannot only be lifted by inflation – the only way to ensure the availability of housing is adequate enough for those claiming LHA is to lift the rates back up so that they cover at least the bottom 30% of rents.

[1] Rents in England have increased by 14% from April 2012 until November 2019 leaving the LHA rates trailing behind. Source: Index of Private Housing Rental Prices, Monthly Estimates

[2] Understanding Society Wave 8 2016-2018