Recommendation 4

We are not convinced that, in setting Local Housing Allowance (LHA) rates, the Department for Work & Pensions (DWP) has given due consideration to the impact on homelessness. Reforms to welfare benefits since 2011, including periodically capping and freezing LHA rates, have reduced the income households can derive from benefits in real terms. Some 45% of households now face a shortfall between the LHA they receive and the rent they pay. DWP states that it makes decisions about LHA rates in the context of other benefits and has decided to freeze LHA rates for 2025–26 at the 2024–25 level. We are concerned at the subjectivity of DWP’s judgements and that it cannot say what impact raising LHA rates would have on homelessness. Separately, local authorities pay for temporary accommodation and reclaim the costs from DWP. Given that funding is essentially based on the 2011 LHA rate, it has not kept up with local authorities’ rising temporary accommodation costs. In 2022–23, local authorities in England experienced a subsidy loss of £204.5 million, compared with £41.4 million in 2012–13 (both expressed in 2022–23 prices). DWP explains that the subsidy has never covered local authorities’ full costs, and MHCLG argues that it makes up some of the subsidy loss through its local government funding settlement, but it is unclear how an appropriate amount is decided upon. recommendation Alongside the Treasury Minute response, DWP should write to the Committee setting out, in detail, its justification for the levels of LHA it has set, both for individuals and for local authorities with regard to the temporary accommodation subsidy.