What springs to mind when you think about the damaging legacy of the last 14 years of welfare cuts? Probably policies such as the bedroom tax, the two-child limit or the punitive introduction of universal credit. But one policy is often left out of this reckoning, even though it has arguably had an even greater impact: the repeated capping and freezing of local housing allowance (LHA).
This cut is a direct cause of Britain’s soaring homelessness figures, the desperate mothers trapped for years in wholly unsuitable temporary housing, the rapid social cleansing of our major cities and even the financial crisis overwhelming England’s local authorities.
Let me explain. LHA is the maximum rate of housing benefit you can claim if you are a private sector tenant. Because we have sold off and demolished so much social housing over the last 40 years, this now means the LHA rate determines where people who cannot afford to pay the rent can live.
When the Conservative and Liberal Democrat coalition first came to office in 2010, the existing rate was set in accordance with the “50th percentile” of local rents. This meant you could claim enough to rent the cheapest half of properties in the area you were seeking a home.
But the coalition government soon dropped this rate to the 30th percentile and placed caps on the amount that could be claimed. This meant that the rate would only cover the worst properties in a local area, or, in areas where rents exceeded the caps, none at all. From as early as 2014, experts were warning that this policy was pricing poorer people out of wealthier parts of London.
But the situation was to get worse. Even with the caps in place, rising rents in the private sector were increasing the value of the 30th-percentile figure year on year, and as a result, the benefit bill was rising. But rather than act to stop landlords hiking rents so frequently, the government chose to limit benefits – first by capping their rises, and then with a total freeze from 2016.
The result was a predictable disaster: rents in inner city areas were increasing exponentially, but the benefits people could claim to pay them were not. By 2018, LHA rates had slipped £120 behind the real-world “30th percentile of local rents” in Cambridge, £114 in Edinburgh and £227 in east London.
The effect was obvious: tenants who were either out of work, or employed in one of the many critical sectors where wages are too low to cover the rent, could no longer pay the bills. They started to lose their homes.
And when they applied to the council for homelessness support, there was little it could do: there was no social housing available and no private rented homes that were affordable. This created an enormous problem for the council, which – if the household was in priority need – had a statutory duty to house them.
The only option was to place them in “temporary” accommodation, which cost the public purse far more than a private rented tenancy would have.
There were a shade under 70,000 households, including 111,000 children, in temporary accommodation, when the freeze was first imposed in 2016. Today the figure is 112,660 families and a staggering 145,800 children.
Many of them have been there for years: children growing into teenagers in hotel rooms or desperately inappropriate converted offices, subjected to repeated moves, fire safety risks and environments that stunt their development.
In fact, temporary accommodation has been cited as a contributing factor in 55 child deaths since 2019. This is almost certainly an undercount. This welfare policy is literally killing children.
And it is not saving money. London boroughs are swiftly going bankrupt, in large part due to the £90m they are shelling out on private accommodation every month.
We are also seeing poorer families shipped out of higher-rent areas. London boroughs have looked to the Medway towns in Kent, the north-west, Stoke and Blackpool to make housing offers to those in need. The latest research estimates 40,000 households per year are being moved outside of their area: ripped away from schools, GPs, family and support networks. The result is a dearth of key workers and schools closing due to a lack of children.
There has been some respite recently. Come Covid, in that heady period when the state briefly recovered the memory of the idea that it should protect its citizens from destitution, the freeze was lifted. The LHA rate rose 13% in a year and many families were able to find homes again.
But this was a blip: the rate was immediately frozen again at 2020 levels – with the post-pandemic explosion in rents, we were quickly back where we started.
By Autumn 2023, this had built into a crisis that threatened to overwhelm local authority budgets. The leader of Eastbourne Council said his borough was spending 49p in every £1 it collects on temporary accommodation. Ministers were warned they were “presiding over the end of local government” as a result.
Chancellor Jeremy Hunt proudly announced in his budget that he would again unfreeze the rate, and the eligible rate jumped 16% this April. But once more this was to be short-term respite: the freeze would be imposed again afterwards, simply restarting the journey towards another crisis.
What we can see now is that the capped LHA model is bust - if you cap benefits and allow rents to rise, the only possible outcome is soaring homelessness. The Conservative party has been trashing the public balance sheet of councils to enrich some of the worst private landlords, large hotel chains and opportunistic corporate investors, simply so it can claim benefit payments are falling.
The option is there for Labour to take a different route. Simply reverting to the pre-2010 position and linking LHA to the 50th percentile again would ease a lot of pain overnight. But this means committing to spend more on benefits – something the party seems currently completely unwilling to do.
Longer term, a package of rent control for the private sector and a rapid increase of social housing, via acquisition and new building, would break the cycle of rising rents and rising benefits. Whether Labour has the political will and the guts to do this remains to be seen.
Peter Apps is a contributing editor at Inside Housing and the author of Show Me the Bodies: How We Let Grenfell Happen
