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Welfare reform and reducing the deficit in 2010

After coming to power in 2010, the Coalition Government announced a package of welfare reforms to reduce public expenditure as part of its deficit reduction programme. Housing Benefit (HB) was targeted as an area for reform due to “ballooning” expenditure.

In 1999/20 HB accounted for expenditure of £11 billion, by 2009/10 it had reached £20 billion in cash terms and was forecast to reach £25 billion by 2015/16, representing a “further rise of 24 per cent.” The Government described the forecast as “unsustainable in any economic climate” and said the need to tackle the deficit made reform even more pressing.

The June 2010 Budget announced changes to the way Local Housing Allowance (LHA) rates are calculated for HB claimants in the private rented sector (PRS). An under-occupation deduction was announced for working-age claimants living in social rented housing with spare bedrooms (also referred to as the bedroom tax/Removal of the Spare Room Subsidy). The Coalition Government said these measures would:

…provide a fairer and more sustainable Housing Benefit scheme by taking steps to ensure that people on benefit are not living in accommodation that would be out of the reach of most people in work, creating a fairer system for low-income working families and for the taxpayer.

Further measures were announced in the October 2010 Spending Review, including the household benefit cap and the extension of the Shared Accommodation Rate (SAR) to most single HB claimants in the PRS under the age of 35. Previously the SAR applied to claimants under the age of 25, with some exceptions.

These measures were also applied in the calculation of the Universal Credit (UC) housing costs element when this was rolled out from 2013.

Early reactions 

The measures were controversial, particularly the under-occupation deduction. Commentators argued claimants would face hardship and eviction if they couldn’t meet the shortfall between the rent due and their HB entitlement. Social landlords said they didn’t have sufficient units of smaller accommodation to offer to tenants who wanted to move.

In the PRS, landlord organisations and commentators such as Shelter and Crisis argued that restricting LHA rates and extending the SAR would make it difficult for claimants to access the sector, particularly in areas of high housing demand.

Further HB restrictions from 2015 onwards

Following the 2015 General Election the new Conservative Government announced further reforms in the July 2015 Budget. These included freezing LHA rates from April 2016 for four years, the removal (with some exceptions) of entitlement to housing support from people aged-18-to-21 from April 2017 (later reversed), and a reduction in the household benefit cap from £26,000 to £23,000 in London and £20,000 elsewhere. The household benefit cap is not strictly a housing support measure, but it results in reduced entitlement to help with rent payments where a household has a benefit income above the threshold.

Which measures have saved the most?

Expenditure on housing benefits in 2021/22 is forecast to be £30.3 billion. This reflects a significant increase in claims (caseload) during the pandemic.

Of all the measures implemented to date, the requirement on social landlords to reduce rents by 1% in each year for four years from 2016 has achieved the highest level of savings. Tenants in the social rented sector are more likely to be reliant on HB/housing cost element of UC, so reducing the sector’s rents produces benefit savings.

Basing LHA rates on the 30th percentile of market rents (previously the median) and the freeze on LHA rates between 2016 and 2020, has achieved the next highest level of savings (see page 14).

Some commentators argue that savings should be viewed in the context of other impacts, such as the rise in statutory homelessness and rough sleeping, and increased insecurity for private sector tenants. Research carried out by the University of Warwick (2020) claims that for every £1 in HB saved, local authority spending on temporary accommodation has increased by 53p.

The end of the LHA freeze and the coronavirus pandemic

It was the Government’s intention to uprate LHA rates by 1.7% in line with the Consumer Price Index from April 2020. By this date, 946 of the 1,000 LHA rates in the UK were poised to be lower than the corresponding 30th percentile of local market rents – with an average shortfall of 9.6%.

However, in response to the pandemic, LHA rates were reset at the 30th percentile of local market rents over 2020/21. This was widely welcomed, with some caveats. For example, the housing charity Shelter and others pointed out that covering only the 30th percentile of market rents left a majority of those potentially facing a drop in income due to the pandemic with a shortfall in assistance.  

Concern about accrued rent arrears during the pandemic has led to more focus on the rent safety net. Commentators working across the sector have long criticised austerity measures which have affected renters’ safety net. They argue that limiting help with rent payments contributes to increased levels of homelessness and to concentrations of households in poor quality, overcrowded housing.

There have been calls during the pandemic for at least a temporary increase in LHA rates to cover median rents and for the national cap on LHA rates to be lifted so high cost areas are not penalised. To date, the Government has resisted, telling the Housing, Communities and Local Government Select Committee they will continue to monitor the effectiveness of the financial support package for tenants.

Alongside the November 2020 Spending Review, the Secretary of State for Work and Pensions announced that in 2021/22 LHA rates would again be frozen in cash terms.

A coalition of stakeholders across the public and private sector issued a series of press notices during the pandemic. On 18 February 2021, ahead of the Budget, they called for, amongst other things, “a welfare system that provides renters with the security of knowing that they can afford their homes.”

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