Local Housing Allowance (LHA), the method by which housing benefit rates for most private rented tenants are calculated was reformed in 2011/12 to reduce eligibility.
The key reforms were:
- eligibility limited to the 30th percentile of local rents meaning the lowest 30 per cent of rents in an area should theoretically be affordable to a household in receipt of housing benefit (this limit was previously set at the 50th percentile)
- overall national caps were introduced that do not take account of prevailing rents in an area
- the age at which an individual or couple becomes eligible for benefit equivalent to the cost of a one bedroom property, as opposed to a room in a shared house, rose from 25 to 35.
The introduction of national caps in addition to the 30th percentile rule means that in areas of high rent, particularly London, the actual maximum housing benefit is set far below the 30th percentile.
Of 80 LHA rates in London, 51 are now set below the 30th percentile; that’s 64 per cent. London Councils has argued that the government should take London’s higher housing costs into account in the reform of housing benefit. Concern has been expressed that failure to do so has the potential of increasing homelessness in the capital as well as further concentrating housing benefit receipts in some lower cost boroughs. In December 2012, the Chancellor announced that LHA would be restrained further by limiting the rate at which cash eligibility grows to 1 per cent for two years. However he also indicated that 30 per cent of the savings that accrue to the Treasury from this measure would be set aside to exempt some parts of the country with the highest rents from below inflation uprating.
An overall cap on the amount of benefit a workless household is able to receive has been applied since the end of September 2013. As London’s rents are higher than anywhere else in the country,housing benefit payments are also higher and consequently half of all households affected by the benefit cap are London households.
Download the full report on the right hand of this page.