In its first budget of June 2010, the new UK government announced changes to Local Housing Allowance (LHA), which are welfare payments that help tenants with low incomes pay their rent. This CCHPR working paper examines the effects of the changes on around one million tenants in private rented housing in Britain whose housing is supported by LHA. The government has already published its own impact assessment of the measures. Its report shows that the measures will reduce payments to virtually all private tenants who claim LHA, with an average cut of £12 a week per claimant.
In this paper we argue that the existing study provides an incomplete basis for assessing the policy changes proposed, and offer new evidence to remedy the deficiencies. The changes to LHA will immediately reduce the incomes of households claiming a means-tested benefit and who are thus by definition already at or near minimum income standards. We conduct a simulation of the measures using detailed household survey data, and find that the average reduction of claimants' incomes after rents are paid will be approximately 7%. We show that between 42,000 and 84,000 additional households will be left with less than £100 a week, the lowest income level guaranteed by current welfare arrangements. Those so affected include lowpaid workers and retired people as well as the disabled and unemployed. The households who will be moved into severe poverty contain between 27,000 and 54,000 dependent children. The impact assessment has also not addressed how tenants will absorb reductions in their means.
Using the simulation and data from past studies of landlord tenant behaviour, we estimate that between 136,000 and 269,000 households will find their rent payments unmanageable as a result of the measures, and project that half of those will be unable to sustain their tenancy and so will be evicted or will move involuntarily. These include up to 21,000 elderly households and 72,000 families with children. We show that the increased sums available for discretionary payments are unlikely to be sufficient to meet the needs of all those whose housing is at risk. We estimate numbers who may resort to statutory homelessness assistance, and the costs of this to the public.
The second part of the paper argues that the changes will diminish the amount of housing available to LHA claimants. A majority of 500 landlords surveyed for the study believes the changes will increase arrears, and a large proportion of those who currently let to LHA claimants intends to reduce the number of such tenancies they offer. There is some scope for landlords to reduce rents, as the government hopes, but this depends on numerous conditions which have not been evaluated.
In the longer-term, the changes to the way maximum allowances are uprated over time will anyway progressively take larger sections of the rental market beyond claimants' reach.