It’s always the hope that kills. This week, housing campaigners dared to believe that one of the most damaging bits of our dysfunctional housing system had finally been tackled. In his Autumn Statement, the Chancellor Jeremy Hunt accepted their arguments that unfreezing the Local Housing Allowance (LHA) was an “urgent priority”. He announced that he “will, therefore, increase the LHA rate to the 30th percentile of local market rents”. LHA is the form of housing benefit available to low-income households to help them pay the rent, and like all benefits it’s tightly controlled with caps and eligibility criteria.
In 2011, George Osborne lowered the definition of “market rents” from the median rental property to the cheapest 30 per cent in each area, but then went further (limiting increases to level with inflation, and imposing the overall household benefit cap), and ultimately froze LHA entirely in 2016. By 2020, LHA was on average nearly 10 per cent lower than actual rents. There was a one-off rebasing to the 30th percentile as part of the coronavirus support package in 2020, but as rates have been frozen since then and rents have soared, the gap between benefits and rents has ballooned again. In many parts of the country there are now no homes to let at rents within the LHA rate at all. Campaigners have been pointing out for years that this combination of LHA restrictions, benefit caps and runaway private rents is one of the main drivers of poverty in Britain. In the four years after the last uprating of LHA, rents have been increasing at record speeds, so a change is definitely due.
As a seasoned watcher of these “fiscal events” I knew better than to just take the words of the Autumn Statement speech at face value, and waited anxiously for the full suite of budgetary documents to be released. And there it was, in Table 5.1 listing the cost of all the policy decisions made: the LHA reset has £1,285m against it for 2024-25, rising steadily to £1,700m over the following four years. Hunt was going to unfreeze LHA and allow its 1.6 million households to just about pay the rent.
But as sharper observers than me were quick to point out, this uprating was in fact just another one-off. In April 2024 LHA will indeed be uprated, but from then, year after year, it would be frozen again. Given that rents in some places have been going up by over 10 per cent a year, the gap between what the benefit will pay and what landlords charge will only grow larger, condemning millions of households to further poverty and, perhaps ultimately, homelessness. This is not hyperbolic doom-mongering. This is a simple description of what has already been happening for years. Private renters have been routinely paying half or more of their income in rent, even with benefits. Homelessness has been rising fast, placing ever-greater pressure on already stretched council budgets, driving more of them than ever into bankruptcy. Widespread destitution is back.
It should be an absolute no-brainer for Hunt – a private landlord himself – to return LHA rates to something resembling the actual level of rent in the private sector. After all, this has been a cornerstone of Conservative housing policy since the 1980s. It may not seem like an obviously Thatcherite position, but it was a conscious policy choice along with reducing social housing subsidies and expecting poor households to fend for themselves in a deregulated market. As the Conservative housing minister of the early 1990s George Young said at the time, “Housing benefit is there to take the strain for those who cannot pay.” At that time the housing benefit bill was around £6bn per year. Today it’s more than £25bn.
The failure to keep LHA in line with rents speaks to a trilemma at the heart of our approach to the housing market and the welfare state: governments cannot avoid all three of widespread poverty, ever-rising welfare costs, and major interventions into key markets. All three of these are legitimate political aims, and ones that the current government would presumably sign up to. But it’s not possible to avoid all three at once, so in practice all governments must choose to embrace – or at least tolerate – poverty, escalating welfare costs, or structural intervention. George Young was acknowledging that the price of the state stepping back from intervention was that the benefit bill would rise. It was the opposite choice from what was made after the Second World War, when Conservative and Labour governments chose to fund council house-building and regulate private renting. But it was at least a coherent and consistent political choice to mitigate the impacts of the market deregulation they had enacted.
In recent decades that intellectual or political honesty has been lacking. Instead, politicians have repeatedly promised to achieve growth by cutting back, or to improve fairness by deregulating, and denied that these policies could possibly be behind the rise in poverty and homelessness. For one brief, shining moment last week, I thought that we might be seeing a return to some honest recognition of the trade-offs, and that LHA might even keep track of rents in future. Sadly it seems I was wrong.