The maximum amount of support that private renters on universal
credit or housing benefit can receive to cover their rent is
capped by their local housing allowance (LHA) rate. LHA rates are
frozen at the 30th percentile of rents in the
claimant's local area as measured in the year to September 2023.
But since then, average rents have grown by 19%. The real
reduction in benefits – relative to if LHA rates tracked live
local 30th percentile rents – has reduced the
disposable incomes of affected renters by almost £1,500 a year,
or by 6%. This amounts to an estimated saving of around £1.5
billion for the government this fiscal year.
The overall level of support provided to renters is a political
choice. But regardless of the long-run level of support chosen,
LHA rates should be uprated based on local rents. The current
pattern – of ad hoc resets of LHA rates to the 30th percentile
followed by indefinite freezes – creates volatility and
uncertainty for renters (and the public finances), as well as
unfair and irrational discrepancies in support between areas.
The government should commit to setting LHA rates at a fixed
percentile of local rents, or share of median local rents, that
reflects its chosen level of generosity – and then maintain a
live link to local rents. This need not be the 30th
percentile – resetting LHA rates to around the local
10th percentile or to 75% of the local median rent
would be approximately revenue-neutral in this fiscal year, and
an even less generous system could be revenue-neutral over the
current forecast horizon. Continuing the freeze on LHA rates, or
switching to uprating all rates by economy-wide inflation, would
be a mistake.
Jed Michael, Research Economist at the Institute for
Fiscal Studies, said:
‘With large increases in rents since local housing allowance
rates were last updated, the Chancellor is facing calls to
increase them once again. However, in a tight fiscal environment,
she will need to balance these calls against a huge range of
competing priorities. But regardless of whether the government
wishes to increase support for private renters, calculating
support using increasingly historical and irrelevant data on
local rents is indefensible. Instead, support should relate to
current rents. Depending on the overall level of generosity
chosen, the Chancellor could make this improvement without
spending a penny. This would end the cycle of ad hoc uprating and
freezing which creates uncertainty for the public finances and
tenants, who currently face a postcode lottery of support across
areas.'
ENDS
Notes to Editor
Freezes in housing support once again widen geographic
disparities for low-income renters is an IFS briefing by Jed
Michael and Tom Wernham.
