Appendix 1: Rent Officers (Housing Benefit and Universal Credit Functions) (Modification) Order 2023 (SI 2023/6)
Letter from Lord Hodgson of Astley Abbots, Chair of the Secondary Legislation Scrutiny Committee, to Mims Davies MP, Parliamentary Under Secretary of State at the Department for Work and Pensions
The Committee has asked me to write to you for clarification of the effects of this instrument which freezes Local Housing Allowance (LHA) rates in 2023-24 at the levels applied in April 2020. The Explanatory Memorandum (EM) does not give any information about the policy intention or the impact of this change and subsequent responses from your Department have left us in some doubt.
We were initially unclear from the EM whether “LHA is to be frozen at the levels applied in April 2020” meant the calculation of LHA will follow the 2020 formula using current rents, or whether DWP will simply continue to pay the same amount that has applied since April 2020. The Secretary of State for Work and Pensions’ written ministerial statement (HCWS374) of 17 November 2022 however states that: “the Local Housing Allowance rates for 2023-24 will be maintained in cash terms at the elevated rates agreed for 2020”.
We interpret that statement to mean that if benefit claimants were in receipt of £100 LHA in September 2020 the effect of these Regulations is that they will continue to receive £ I00 in September 2023, assuming that their circumstances remain the same and their rent levels have not fallen.
It is widely reported, however, that rents have risen. significantly in the intervening three years, so we would anticipate that in September 2023, that £100 LHA will represent a much smaller proportion of the rent due.
The EM appears to confirm this interpretation, as it goes on to state: “If the Order is not made, the Rent Officers Orders will revert to their previous text which took effect from April 2020 to increase rates to 30th percentile of local market rates, and this will apply for 2023-24.”
Depending on market rates, the 30th percentile of the current local market rents, could represent a higher or lower proportion of the rent payable due to that individual, when compared to the 2020 LHA level frozen in cash terms. This is a critical issue in assessing the effect of the instrument but information on that comparison is not provided. Nor is there any data on the impact of the measure on benefit expenditure.
The additional response we received from your Department said “there is no increase or decrease in housing support for claimants as a result of this legislation”. Again, this is equivocal: it may be true in cash terms, but it may not provide the complete picture of the impact of housing support for tenants when rising rents are taken into account. I would therefore be grateful for an absolutely clear statement of:
- Whether this SI is maintaining LHA payments at the same level in cash as was paid in April 2020 (subject to the claimant’s circumstances remaining the same).
- How the average rents used for this calculation have changed since April 2020.
- Whether the outcome of this instrument for the majority of claimants will be to receive a larger or smaller proportion of their monthly rent.
- What the DWP’s policy objective is in choosing to freeze rents at 2020 levels rather than allowing the system to revert to the 30th percentile formula.
- What the estimated increase or decrease in DWP benefit expenditure would be if the system reverted to the 30th percentile formula, relative to the policy in this instrument.
24 January 2023
Letter from Mims Davies MP to Lord Hodgson of Astley Abbots
Thank you for your letter requesting clarification of the effects of the Rent Officers Orders 2023. I’ve provided answers to each of your questions below:
What is the DWP’s policy objective in choosing to freeze rents at 2020 levels rather than allowing the system to revert to the 30th percentile formula relative to the policy in this instrument?
DWP’s policy objective on the rising cost of living is to balance the challenging fiscal environment with helping the most vulnerable households manage higher costs. To meet this objective, benefits will be uprated by inflation (10.1%) (subject to parliamentary approval) from April this year. We will also be providing additional support in 23/24 through £11bn in Cost-of-Living payments to working age households and those receiving disability benefits. This is in addition to £842 millionn for the Household Support Fund (HSF), rising to £1bn when including Barnett impact, to enable the extension of the HSF in England in the next financial year.
In April 2023, the Government will also increase the benefit cap levels in line with inflation (10.1%) which will support private renters who are subject to the cap. All currently capped households (around 120,000 as of August 2022) - will see an increase in benefit in April 2023. Around 30,000 households will be taken out of the cap entirely and around 60,000 other households (who would have become capped in the absence of an increase in the levels) will not become capped. Most capped households are also renters and will benefit by on average an extra £29 per week.
In this context, we decided not to further uprate the Local Housing Allowance (LHA) - which we substantially increased in 2020 by investing almost £1 billion, giving households an additional £600 on average in 2020/21. The increase has been maintained since then so that all those who benefitted from the increase continue to do so.
DWP are forecast to spend over £30 billion on housing support for renters in 2023/24, benefiting over 5 million claimants in the private and social rented sectors.
For those who do face a shortfall in housing costs, Discretionary Housing Payments (DHP) are available from local authorities. Since 2011, the Government has provided nearly £1.6 billion in DHPs to local authorities to support people who need help with their housing costs.
DWP and DLUHC are working collaboratively to establish how existing and new government levers can be used effectively in the short, medium, and long term to address housing challenges.
Whether this SI is maintaining LHA payments at the same level in cash as was paid in April 2020 (subject to the claimant’s circumstances remaining the same)?
As stated in the Explanatory Memorandum, the 23/24 Local Housing Allowance rates (rather than total funding) will be frozen in cash terms at 2020/21 levels. The amount a household receives in housing support during 2023/24 remains unchanged, assuming their circumstances remain the same.
How the average rents used for this calculation have changed since April 2020?
In 2020, LHA rates were uprated to the 30th percentile of market rents.
Based on the latest market rents data, for the year to September 2022, the average percentage changes in the 30th percentiles for each bedroom entitlement since the 2020 uprating are as follows:
Table 1: LHA rates
SAR* |
1 Bed |
2 Bed |
3 Bed |
4 Bed |
|
|
Average percentage change between LHA rates and 2022 30th Percentiles |
10.45% |
9.28% |
8.63% |
8.98% |
9.63% |
Source: Information provided by DWP. *SAR is shared accommodation rate – applicable to those aged under 35 and living alon
Whether the outcome of this instrument for the majority of claimants will be to receive a larger or smaller proportion of their monthly rent?
The outcome of this instrument is that households will not see an increase or reduction in their housing support level if all other circumstances remain unchanged. Where a household’s rent has increased since 2020/21, they will therefore receive a smaller proportion of their monthly rent in housing support set by LHA rates.
It is unfortunately true that rents for new tenancies are rising quickly in some areas. However, the majority of tenants remain in their current rental property from one year to the next and tend to see smaller rental increases than those who move. It is therefore unclear whether a majority of tenants will see an increase in their rent from 22/23 to 23/24.
To reiterate, DHP funding is available for those needing assistance due to rising housing costs, this is alongside signposting to the Household Support Fund for wider financial support.
What is the estimated increase or decrease in what DWP benefit expenditure would be if the system reverted to the 30th percentile formula, relative to the policy in this instrument?
The estimated AME costs to the department to revert LHA rates to the 30th percentile in 2023/24 only is in the region of £600-£700 million for just 23/24.
30 January 2023