Local Housing Allowance - Work and Pensions Committee Contents


1  Introduction

1. On 17 October 2002, the then Secretary of State for Work and Pensions, Rt Hon Andrew Smith MP, announced plans for a new form of Housing Benefit (HB) which would no longer be directly linked to rent levels. This new scheme, the Local Housing Allowance (LHA), was introduced in nine "Pathfinder" areas from November 2003 and was extended to a further nine areas from April 2005.[1]

2. The Department for Work and Pensions (DWP) describes the aims and objectives of the LHA on its website:

    Local Housing Allowance (LHA) is the cornerstone of the Government's Housing Benefit reform programme which aims to simplify Housing Benefit and ensure it supports the wider objectives for welfare reform.

    The fundamental aims of the LHA scheme are to promote:

    Fairness—LHA bases the maximum amount paid to tenants on the size, composition and location of the household. Benefit will no longer be based on actual rents but on median levels of rent within localities. Therefore, two households in similar circumstances in the same area will be entitled to similar amount of benefits.

    Choice—tenants are able to take on greater responsibility and choose how to spend their income in a similar way to tenants who are not in receipt of benefits. Like other tenants they are able to choose whether to rent a larger property, or spend less on housing and increase their available income. The claimants will be able to keep the excess (to a maximum £15 per week) if they choose whether to rent accommodation cheaper than their LHA rate or rent a more expensive property and pay the additional rent from their own income.

    Transparency—LHA rates will be published in advance so customers will know the maximum amount of benefit payable. The current link between Housing Benefit and individual rents is complex and does not set out clearly what level of state support is available for people on low incomes. A clear and transparent set of allowance rates helps tenants (and landlords) know how much financial help is available from the state. Tenants are able to compare how much support is available towards their housing costs in different areas and for different property sizes.

    Personal responsibility—Empowering people to budget for and to pay their rent themselves, rather than having it paid for them, helps develop the skills unemployed tenants will need as they move back into work. Currently around 40% of Housing Benefit payments in the private rented sector are made to tenants, with the remainder paid straight to landlords. The Government believes that, where possible, local housing allowance should be paid to tenants, as are most other benefits and tax credits. Safeguards will be put in place for those customers that are unable to manage their financial affairs or who fall into rent arrears.

    Financial inclusion—Ideally, we want people to have their housing payments paid into a bank account and to set up a standing order to pay the rent to their landlord. This has the advantage of being a safe and secure method of payment and provides certainty for landlords that rent will be paid.

    Improved administration and reduced barriers to work—For working age tenants, LHA provides a greater certainty about what help is available in and out of work. A simpler system also helps speed up administration of housing payments, giving tenants more confidence when starting a job that any in-work benefit will be paid quickly. A more transparent system may also improve the ability of individuals to move between areas and to take advantage of employment opportunities.[2]

National roll-out of LHA

3. The experience of the Pathfinder areas led the Government to legislate for the national roll-out of the LHA from 7 April 2008. The Department states that, as at September 2009, there were 4.5 million family units in receipt of Housing Benefit in Great Britain; 1.29 million (28%) were tenants in private rented sector accommodation. Of these, 0.82 million have had their benefit assessed according to the LHA rules. Overall, Housing Benefit expenditure amounted to around £17 billion for the year 2008-09.[3]

4. The legislative basis for LHA is contained in the Welfare Reform Act 2007 and associated regulations. LHA was rolled out nationally for new claimants in the deregulated private sector from 7 April 2008. Other claimants continue to claim HB. Launching LHA on 7 April 2008, the Department's press release quoted the then Minister of State for Employment and Welfare Reform, Rt Hon Stephen Timms MP:

    The LHA is a central part of the Government's wider programme of benefit reform. It's a radical change to the way Housing Benefit is paid in the private rented sector and will help people take action towards managing their own bank accounts, making it easier for them to move off benefits and in to work.

    Having a bank account means that people are job-ready and the LHA will help towards bringing increased responsibility to hundreds of thousands of people.

    We also want to see a Housing Benefit system that will ensure people in similar circumstances will receive the same amount of benefit as others in their area. I am confident that the success of the LHA in the first 18 authorities will be reflected as the scheme rolls out nationally.[4]

Key features of LHA

PRIVATE SECTOR ONLY

5. LHA only applies to private rented sector tenants, not those in social housing rented from local authorities or housing associations. It also only applies to those who make a new claim, or have a break in their claim, after 7 April 2008.

STANDARD RATES WITHIN BROAD RENTAL MARKET AREAS

6. The LHA is a flat rate allowance for different sizes of properties within a Broad Rental Market Area (BRMA). Prior to the introduction of the LHA, these areas were known as "localities". At that time, there were 305 localities in England, 22 in Wales and 85 in Scotland. As at April 2008, the number of BRMAs was 156 in England, 22 in Wales (reviews in Wales had taken place more regularly), and 19 in Scotland (now reduced to 18).

7. The Rent Service is responsible for determining BRMAs. A BRMA comprises two or more distinct but adjoining areas of residential accommodation, within which a person could reasonably be expected to live having regard to facilities and services for the purposes of health, education, recreation, personal banking and shopping. When determining BRMAs the rent officer takes account of the distance of travel, by public and private transport, to and from facilities and services of the same type and similar standard.

8. Within a BRMA, the LHA for different sizes of properties is calculated by reference to the median rent among private properties not occupied by tenants on housing benefit. The median rent is the rent that is halfway up the ordered distribution of rents for properties of the same size in a BRMA. For each category of property, rent officers compile a list of rents that represent the non-LHA private market within each BRMA and calculate the median rent from this information.

9. The Government argued that paying the same level of allowance to tenants with similar circumstances within the same area would produce a fairer and more transparent system. Tenants would be able to make a choice between the quality and price of their accommodation. The LHA rates within a BRMA for different sizes of accommodation are published.

10. BRMAs determined by the Rent Service in some areas have proved to be controversial, particularly in areas that encompass both high and low rent localities, where the use of median rents over a large area can pull down the level of LHA payable.

DIRECT PAYMENTS

11. LHA is paid to the tenant (direct payments). It can only be paid to landlords in certain circumstances:

  • There are at least eight weeks rent arrears (compulsory);
  • Deductions are being made from other benefits (JSA/ESA/IS/Pension Credit) and are being paid to the landlords to pay rent arrears (compulsory);
  • The authority considers the claimant 'is likely to have difficulty managing his/her financial affairs' (often referred to as 'vulnerable' claimants);
  • The authority 'considers it improbable that the claimant will pay their rent';
  • Landlord payment has been made previously under either of the two compulsory grounds (1st or 2nd bullet point) (so for example, payment to the landlord can continue even where the arrears have reduced to below 8 weeks or have been cleared);
  • For up to eight weeks where the authority suspects that 3rd or 4th point above applies and it is considering making payments on those grounds;
  • If the tenant leaves with arrears of rent owing.[5]

12. The latest DWP statistics indicate that 72% of customers whose benefit is assessed according to the LHA rules receive their Housing Benefit directly. Couples (with and without children) are more likely to receive Housing Benefit directly (83%) compared with lone parents (76%) and single customers (67%).[6]

KEEPING THE DIFFERENCE

13. LHA is paid at the standard rate to the tenant based on the size of the accommodation they are deemed to need. For example a couple with no children would receive the LHA based on a one-bedroom property. Tenants who rent a property at below the standard allowance, or who move to a cheaper property in the local area, or who negotiate the rent below the standard allowance, are currently allowed to keep the difference between the rent charged and the allowance paid, up to a certain cap.

14. Thus, in theory, tenants have a choice of paying more (out of their own income) for larger/higher quality accommodation or living in smaller accommodation and retaining a percentage of the housing allowance. The Government argued that this would give tenants more choice. It was also hoped it would give tenants an incentive to "shop around" for accommodation and thereby potentially have a downwards influence on rents.

15. The amount of LHA that a tenant can currently keep is capped at £15 a week. If their rent is more than £15 below the level of LHA then their benefit payment is reduced. As part of the 2009 Budget the Government announced that the LHA would be amended from April 2010 to remove the provision allowing tenants to retain up to £15 per week in "surplus" benefit:

    The Local Housing Allowance (LHA) was introduced in April 2008, and costs have exceeded the planned expenditure for this policy. To bring the cost into line with what is affordable, whilst still ensuring all recipients can afford their rent, the Budget announces that from April 2010 there will no longer be scope for anyone to receive more LHA than they have to pay in rent. Existing claimants will move onto the new arrangements on the anniversary of their claim.[7]

16. A consultation paper on the draft regulations to remove the entitlement to the excess of up to £15 was issued on 19 June 2009 with a closing date for comments of 10 September. The effect of the proposal was summarised as:

  • All new customers claiming Housing Benefit in the deregulated private sector on or after 5 April 2010 would not be entitled to any excess benefit over their contractual rent.
  • Existing customers, including those in the former LHA Pathfinder areas, who are currently entitled to an excess payment of up to £15, would see a reduction in their benefit when their claims are reviewed, usually on the anniversary date of their claim.[8]

17. The Social Security Advisory Committee, in accordance with its statutory duty, also undertook a public consultation exercise. As a result of these consultation exercises, the Government decided not to implement the withdrawal of the excess in April 2010 and to delay this reform for one year.[9]

The inquiry

18. In our call for evidence we stated that we had decided to examine how DWP is helping people in the current economic climate, in particular focusing on:

  • The objectives of LHA and whether they are met in practice;
  • Whether LHA is understood by claimants and landlords;
  • The impact of direct payments to claimants on both claimants and landlords;
  • Whether adequate and consistent mechanisms/processes are in place to help Housing Benefit Departments identify and assess vulnerable claimants;
  • The boundaries and rent officer regulations which underpin Broad Rental Market Areas (BRMAs) and their impact on LHA rates and access to affordable rental properties for claimants in all communities including access to transport and work;
  • Whether LHA incentivises landlords to raise their rents to the BRMA median rate;
  • The £15 excess entitlement policy and the potential impact of its removal;
  • The 5 bedroom cap; and
  • Whether advice services have the capacity to adequately support LHA claimants.

19. The Committee invited witnesses to submit written evidence by 16 November 2009. Ninety-seven memoranda were received from a wide range of individuals and organisations.

20. The Committee took oral evidence from Ms Liz Phelps, Social Policy Officer, Citizens Advice; Ms Caroline Davey, Deputy Director of Communications, Policy and Campaigns, Shelter; Mr Mark McGoogan, Head of Golden Lane Housing—Mencap's Social Housing Provider, Mencap; Mr Simon Gordon, Head of Communications, National Landlords Association; Ms Margaret Collier, Private Residential Landlord, British Property Federation; Mr Bill Irvine, Spokesman for Policy & Parliamentary Affairs Committee, Scottish Association of Landlords; Mr Sam Lister, Policy and Practice Officer, Chartered Institute of Housing; Cllr Tony Newman, LGA Environment Board Member, Local Government Association; Ms Julie Holden, Head of Revenues and Benefits for Tandridge District Council, Surrey, Institute of Revenue Ratings and Valuation; Helen Goodman MP, Parliamentary Under Secretary of State, Department for Work and Pensions; Mr Paul Howarth, Divisional Manager, Housing Benefit Strategy Division, Work and Wellbeing Group; and Mr Neil Couling, Benefit Strategy Director, Work and Wellbeing Group, Department for Work and Pensions.

21. As part of the inquiry, the Committee also held a seminar with officials from the Valuation Office Agency, Brighton & Hove local authority (Pathfinder authority) and the London Borough of Greenwich (national roll-out authority). We are extremely grateful to all the speakers for a very informative series of presentations and to the DWP Parliamentary liaison team for arranging the seminar.

22. We would also like to thank Peter Kemp, Barnett Professor of Social Policy and Fellow of St Cross College, University of Oxford, for assisting us as Specialist Advisor during the inquiry.[10] We very much appreciate the contribution he made to our work.


1   These Pathfinder authorities are: Blackpool, NE Lincolnshire, Salford, Guildford, Pembrokeshire, Norwich, South Norfolk, St Helens, East Riding, Wandsworth, Leeds, Conwy, Edinburgh, Brighton & Hove, Argyle and Bute, Lewisham, Coventry, Teignbridge Back

2   http://www.dwp.gov.uk/local-authority-staff Back

3   Written evidence from Department for Work and Pensions (LH 89), published on the Internet Back

4   http://www.dwp.gov.uk/newsroom Back

5   Housing Benefit Regulations 2006, Regulations 95(1), 96(1)(c),(2)(b),(3A),(3B) Back

6   Written evidence from Department for Work and Pensions (LH 89), published on the Internet Back

7   Budget 2009, HC 407, p 97, para 5.33 Back

8   DWP, Housing Benefit Amendment (No2) Regulations 2009, June 2009 Back

9   Written evidence from Department for Work and Pensions (LH 89), published on the Internet Back

10   Relevant interests of the Specialist Advisor were made available to the Committee before the decision to appoint him on 4 November 2009. The Committee formally noted that Professor Kemp had declared that he was a member of the Department's Housing Strategy Group. Back


 
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