The Hidden Housing Tax

Local Housing Allowance shortfalls are causing significant hardship for the people we support

An epidemic of evictions means the number of people living in temporary accommodation recently hit a 25-year high — including 130,000 children — and Citizens Advice is helping more people than ever before experiencing or threatened with homelessness.

Without action, the problem is only going to get worse. The cost of renting has increased significantly in recent years, as a result of under-supply of housing and higher interest rates, and these conditions are expected to persist for the foreseeable future.

The government should honour the LHA deal

Quick fixes to the structural problems of the UK housing market are in short supply too. But there’s something that the government can do to alleviate the hardship we’re seeing: stick to the deal it made with benefit claimants when Local Housing Allowance (LHA) was introduced.

LHA determines the financial support for housing people on Housing Benefit or Universal Credit can receive. LHA rates are supposed to be set at the 30th percentile of rent costs in the area where a claimant lives — placing a limit on how much can be claimed, but with the value of this limit being protected as rent costs rise.

However, LHA has been frozen since 2020. Restoring the link to local rents is essential. The government has also cut funding for discretionary housing payments (DHPs), designed to offer temporary relief to people experiencing LHA shortfalls.

LHA shortfalls are increasing…

As rents have accelerated, the freezing of LHA has led to an average housing support shortfall of almost £750 each year. This is similar to the median monthly cost of renting a 1- or 2-bedroom property privately in England: in other words, people are getting 12 months’ accommodation for the price of 13.

Shortfalls are much higher in some of the most densely populated areas — well above 30% in Central London, and above 20% in parts of Greater Manchester and other large cities — as a result of both higher rents, and the application of a national limit on support for housing costs.

Furthermore, rents are increasing fastest in the most deprived areas, where benefit claimants are more likely to live. Citizens Advice’s cost-of-living survey, conducted in June 2023, found that, of private renters on Universal Credit or Housing Benefit experiencing a shortfall between their benefit income and rent payments, 25% have a shortfall of more than £300 per month (or more than £3,600 per year), and a further 30% have a shortfall of between £100 and £300 per month.

…and having a devastating impact

We see the consequences every day in our local network. For people like Grace*, who was evicted without cause, along with her children, by her landlord. The family are stuck in a B&B as they can’t afford the higher cost of a new tenancy without moving a long way from where the children currently go to school.

We have also helped Libby*, who had to rehome her pets when a rent shortfall of £430 per month left her facing homelessness, and Marcus*, whose housing precariousness has exacerbated mental health problems.

The lower ‘shared accommodation rate’ (SAR) of LHA, which means single people aged under 35 are required to live in shared properties, is a huge problem for many people. For example, we support many separated parents who have only partial custody of their children: the SAR can mean they are unable to provide a family home.

We also find that many people can be prevented from working by the LHA system. Rents tend to be higher where employment opportunities are concentrated. But if the area where claimants live includes neighbourhoods with lower rent costs, LHA rates will be lower — meaning people cannot afford to live close to where they are most likely to find work. Freezing LHA has compounded this problem.

The Autumn Statement must unfreeze LHA

Every family deserves a decent place to live, and we’re asking for the benefits system to work as intended. Recipients of Housing Benefit and Universal Credit have stuck to the LHA bargain, but the government has not.

*Names have been changed

Read our report ‘The impact of freezing Local Housing Allowance: the Autumn Statement must address the hidden housing tax’ for the complete analysis and our policy recommendations.