LGA: Temporary accommodation subsidy gap has cost councils more than £700 million over the last five years

Over the past five years, frozen Local Housing Allowance rates have left councils to pick up more than £700 million in costs that they are unable to claim back from government.  

This continues to threaten their financial viability and hamper efforts to reduce homelessness, new Local Government Association analysis reveals today. 
 
Homeless households placed in temporary accommodation are able to claim housing benefit to go towards their housing costs. Councils pay the cost of that housing benefit upfront and are paid back by the Department for Work and Pensions (DWP).  
 
While households receive the full housing benefit they are entitled to, the amount councils can claim back is currently capped to 90 per cent of Local Housing Allowance (LHA) rates back in 2011.  

These rates have massively failed to keep pace with rising rental prices and the increased demand for temporary accommodation. This means that if the cost of the housing benefit claim is higher than those rates, the local authority has to pick up the cost. 

The LGA – which represents councils - is calling on the Government to uprate temporary accommodation subsidy rates to 90 per cent of current Local Housing Allowance rates. It is also calling for the Government reconsider its decision to keep Local Housing Allowance rates frozen for other types of accommodation until at least April 2026 to protect them from ongoing spiralling homelessness costs. 

It comes as new LGA analysis of DWP data shows that:   

• In the past five years, there has been a £737.3 million gap between the amount that councils have paid out in housing benefit to households living in temporary accommodation and the amount they have been reimbursed by government.  
• The data shows that the size of this subsidy gap in 2022/23 was double what it was in 2018/19 (£104.5 million in 2018/19 compared with £204.5 million in 2022/23).   

This gap is in addition to the huge sums of money which councils pay over and above housing benefit limits to meet the total cost of temporary accommodation, which reached £1.75 billion in 2022/23 alone.  

As councils bear the higher and higher proportion of the costs of temporary accommodation, this limits their ability to fund homelessness prevention services. 

The LGA also calls on the Government to also urgently implement a cross-government homelessness prevention strategy which address the drivers of homelessness, including a lack of genuinely affordable homes, to tackle the rising tide of people presenting to councils as homeless. It is essential that local government's experience and expertise is recognised in the development of a new strategy.   
 
Cllr Adam Hug, Housing spokesperson for the LGA said:  

“We are in the midst of a housing crisis, with more people than ever seeking homelessness support from councils as there aren't enough affordable homes available.   

“The pressure this puts on councils' budgets is putting councils under enormous strain. Without serious intervention, more councils will be at risk of having to seek emergency government support.   

“Council housing budgets are being stretched to the limit and they must not keep being left to bridge the gap between rent and the amount we are able to recover via housing benefit subsidy.  

“We need urgent government action to address the temporary accommodation subsidy gap alongside the creation of a more effective housing and welfare system which reduces and ideally eliminates reliance on  temporary accommodation in the long-term. This will not only improve outcomes for communities but also bring significant financial benefits to the public purse.”  

ENDS

Notes to editors

How the Temporary Accommodation reimbursement process works:

Step 1: Individuals/families who are in immediate need of temporary housing are directed to contact their local authority. It is at this point that the local authorities are legally required to assess the needs of their residents and determine whether they are eligible for temporary accommodation.  

Step 2: If the individuals/families meet the conditions for assistance, they are placed into available temporary accommodation. These may be hostels, temporary flats owned by private landlords, councils, or housing associations, or even B&Bs and hotels.  

Step 3: Generally, the local authority covers the upfront cost of the temporary accommodation and is subsequently reimbursed through direct payment from the individual's benefits (when applicable), Discretionary Housing Payments (DHPs), and homelessness prevention grants from the central government. DWP is responsible for administering the reimbursement process. Additionally, the local authority has a duty to provide ongoing support to its residents, including helping individuals in temporary housing find permanent housing and providing resources to help resolve the root causes of homelessness.  

The amount of TA reimbursement is calculated based on Local Housing Allowance (LHA) rates specific to the Broad Rental Market Area (BRMA) where the accommodation is located. The rates are based on January 2011 LHA rates and vary by the type and size of the property. Applicable LHA rates range from the one-bedroom rate to the five-bedroom rate.  

Non-Self-Contained Accommodation (Board and Lodging or Licensed): The subsidy is limited to the one-bedroom self-contained LHA rate for the property's location, and even if more than one room is occupied by the same household, no extra subsidy can be claimed.   

Self-Contained Licensed and Short-Term Lease Accommodation: The maximum subsidy is 90 per cent of the LHA rate for the size of the property.  

Furthermore, the subsidy cannot exceed the weekly Housing Benefit entitlement, or the upper cap limit (£500 per week for accommodation within 6 London (Central London, Inner West London, Inner North London, Inner South West London, Inner East London, Inner South East London, Outer South West London) and £375 for all other BRMAs).