The Government has been urged to increase housing benefit by £2 billion a year at next month’s Budget, with the Resolution Foundation calling for payments to be linked to rising rents across the country.
The think tank said Local Housing Allowance (LHA) should be automatically uprated each year in line with rental prices. Its analysis suggests restoring the link would cost an additional £2 billion annually by 2029-30.
LHA sets the amount of housing benefit available to private renters and varies between council areas. Claimants in London receive more than those in the North East, reflecting the differences in local rents.
However, rates have been frozen while rents have continued to rise. The Resolution Foundation said this had left many households receiving housing support with a monthly shortfall.
It found that low-income families renting a two-bedroom property in Inner East London faced a typical gap of £324 a month, while the shortfall was at least £200 elsewhere in the capital. The gap exceeded £100 in more than half of England’s areas, it said.
The number of people eligible for housing benefit has risen by more than one million since 2020. The Department for Work and Pensions expects the overall cost of housing benefits to reach £39 billion this year.
Stephen Hunsaker, an economist at the Resolution Foundation, said: “With many tenants receiving housing support already going without essentials to pay their rent today, the Government should restore the automatic annual linking of LHA to relieve the pressure on low-income families in the private rented sector.”
The proposal comes after Kemi Badenoch set out plans to reduce the housing benefit bill by £4 billion and use the savings to fund defence. Under the Conservative plan, £1.8 billion would be saved by cutting LHA rates for new tenancies, while rates for existing tenancies would be frozen until they gradually fell into line.
Helen Whately, the shadow work and pensions secretary, said Labour MPs would press for further increases in welfare spending after the Government scrapped the two-child benefit cap.
“Most people have to live within their means. If you can’t afford an expensive area, you live somewhere cheaper. The same should apply to households on benefits too. That’s only fair,” she said.
Mrs Badenoch has argued that taxpayers should not fund rents in expensive areas, saying people who need local housing allowance would have to move somewhere cheaper.
LHA was introduced in 2008 to help claimants meet the cost of the lowest 50 per cent of rents in their area. That was reduced to the lowest 30 per cent in 2011, while successive governments have frozen rates on an ad hoc basis since 2016.
Critics of restoring the link with rents argue that landlords could simply increase rents to match the extra support. The Resolution Foundation said its analysis indicated that unfreezing LHA would instead improve affordability for renters rather than create a windfall for landlords.
