Housing Benefit and Local Housing Allowances
Nigel Hamilton pores over the new regulations.
In last month’s budget it was announced that the Local Housing Allowance (LHA - the amount payable to tenants through Housing Benefit - HB) will be capped at the actual rent payable. This is a fundamental change to the original promise of the LHA scheme.
When it was introduced last year (April 2008) the idea was that the scheme would promote fairness and choice by setting a ceiling for rents in areas (known as Broad Market Areas - BMAs) based on the average rents in the area and the size of the household. The proposal was intended to clarify the HB system, as people looking for a home while in receipt of benefits would clearly know whether a property offered to them would be paid for or not. If you were looking for a two bed flat in a particular area, the amount the Council would pay in HB was public and fixed. If the official assessment of your household size was that you needed a three bedroom place but you were prepared to live somewhere smaller you could choose to do so, presumably at a rent saving.
If customers were able to find a tenancy at a rent less than the LHA they could pocket the difference, up to a maximum of £15 per week. This was presented as increasing choice for home-seekers in the private sector.
The new scheme is less flexible than the old arrangements, where higher rents were referred by the HB team to the Rent Officer to assess their reasonableness. Now we will just have an absolute ceiling, based on averages that will make significant parts of any BMA unaffordable. Choice appears to have been stripped out completely, in the name of protecting the public purse. This is likely to make HB claimants increasingly unattractive as tenants and thus make housing options, rent deposit and move-on schemes significantly less viable. This in turn can only make setting up of accommodation based services more of a risk.
A local authority view
The LHA scheme has moved a long way since it was first piloted. Before it was introduced nationally a really simple system was piloted. There was a fixed amount for the LHA in an area for each size of household and that is what you would get irrespective of the rent actually paid. If you found a place for £50 a week less than the LHA it was yours to keep. The simplicity of the scheme also appealed to local authorities. I was responsible for the HB service in a London authority at the time and what appealed to us was that the amount of checking and calculation involved in the administration of the scheme was hugely reduced. The pilots delivered much quicker processing and less waiting for their money for tenants and landlords. It also offered fewer mistakes and overpayments (which claimants have to pay back even if they don’t have the means to do so), fewer reviews and a chance to move resources from back office checking to front office services. All this was lost when payments were capped at rent plus £15 subject to the limit of the LHA, at least as complex a calculation as under the old system.
Another seemingly technical change also made a difference. In the pilots, the average rent in an area was calculated by adding up all the value of all the rents in the sample and dividing by the number of properties. Now the LHA is based on the median, ie the figure which means that exactly 50 per cent of properties in a BMA would be covered by the allowance. In many areas, a small number of very high rents had distorted the market and it is likely that in most areas this change reduced the maximum LHA payable.
Whatever the statistical details, the way it’s done now does of course mean that it guaranteed that half of all the rented homes in an area will be beyond the reach of HB claimants.
Finally, and most controversially, when the system was introduced nationally, the BMAs were so large and covered such diverse areas that the rents derived from an average figure for the whole BMA were hopelessly unrealistic for particular areas within it. This did not just result in posh areas being beyond benefits claimants. Very often, rented accommodation is focused in inner city or town centre areas which are part of much larger BMA that includes swathes of suburbia with much cheaper rents. In large cities, BMAs cover areas that do not by any stretch constitute one place. So, for example, someone living in inner city Kilburn will have their LHA determined by rents in suburban Stanmore or virtually rural Harefield, as they are all in the North West London BMA. By the same token Southern Greater Manchester BMA spreads from Altringham in
Cheshire through the centre of Stockport to New Mills and Whaley Bridge on the edge of the Pennines. So people are not just priced out of expensive properties, they are priced out of whole areas.
Legal challenges
This arrangement has been subject to repeated legal challenges. Last year a Mr Hefferenan got the Law Lords to agree that the BMA used to determine his rent in Sheffield was too high. The Department for Work and Pensions (DWP) pushed though a change in the regulations enabling it to maintain the existing arrangements. Now these are likely to be challenged by a number of local authorities, particularly Cambridge, where several surrounding towns virtually price Cambridge itself out of the market.
This all means that the losers include many people who just happen to live in the wrong bit of a BMA. Generally, this doesn’t matter while you have somewhere to live, as existing benefits will not be reduced. But, if you make a new claim, then the LHA limit applies and if your rent is above the LHA level HB will no longer cover it. So if you get work and then lose it and go back onto benefits you could be in trouble. If you agree with your landlord to move from one flat to another you might also have a problem.
Situations like new joint tenancies might also give rise to difficulties and people should seek specialist advice in these circumstances. Furthermore, from April 2009, HB is no longer payable on properties bigger than five bedrooms. So, some large families will be forced to choose between overcrowding and being split up. This could have a disproportionate impact on some Black and Minority Ethnic communities.
Direct payments
In one final change, it is now much harder to agree that rent should be paid direct to a landlord. This can now only happen with some public sector tenancies, or where there is reason to believe that the tenant will be unable to manage to pay their rent, for instance where there are arrears, or a history of arrears. The aim of this is to be less paternalistic - but the concern must be that people are being allowed to get into financial difficulty by either being unable to manage their finances, or by being given a frankly impossible choice. If you’re a single parent on benefits, your kids have grown out of their shoes, you get a new flat at £400 a week (not an outlandish amount in London) and it takes six weeks to process the benefit claim, you will get a cheque from HB for £2,400. Would you buy shoes or give it to the landlord? Perhaps no-one else should make that decision for you, just because you’re on benefits, but I’m not sure it’s a good position to put someone in.
