Low-income renters will struggle to afford housing costs after Rachel Reeves’s decision to freeze the amount of housing benefit they receive in the budget, experts have warned.
Liz Kendall, the work and pensions secretary, confirmed on Thursday that local housing allowance (LHA) – the localised rates that determine how much housing benefit claimants are entitled to – will be locked at the current levels until 2026.
LHA has failed to keep step with rising rental costs for more than a decade. The Conservative party froze it for seven out of the last 12 years, before increasing rates earlier this year.
Cara Pacitti, senior economist at the inequality thinktank Resolution Foundation, said of last week’s budget: “We were really disappointed not to have seen an increase in local housing allowance, to support low income renters with their housing costs.
“LHA was increased to match local rents last year,” she said. “Since then, we’ve seen 8% rental [price] growth. That’s obviously totally unsustainable and, for a lot of families, that’s going to mean really significant gaps between the housing support they’re given and the private rents they’re trying to pay.”
Research by the Joseph Rowntree Foundation showed that private renters relying on LHA to pay for their homes will be on average £243 worse off a year as a result of the freeze, and £703 worse off by the end of parliament if rent prices continue to rise.
According to the Office for National Statistics, average UK private rents rose by 8.4% between September 2023 and 2024.
“The LHA freeze was in the [budget] small print,” said Ben Twomey, chief executive of Generation Rent. “But that is going to affect 4.6 million people who receive LHA. That seems to us to be a choice made by the government that denies support to those most in need of it.
“Half of those people receiving LHA have children who depend on them,” he said. “So it’s really going to cause major problems in terms of driving people into poverty, driving people into homelessness and increasing rent arrears.”
Chris Norris, policy director at the National Residential Landlords Association, said the rise in rents is being driven by landlords exiting the market and creating a rental shortage, as well as rising costs incurred and increased regulation. “They’re rising because costs have really gone up over the past couple of years.”
Norris also said the chancellor’s budget decision to raise stamp duty on second homes and buy-to-lets from 3% to 5% would stunt the number of private rentals on the market. “Simply put, it’s just more expensive to add stock to the marketplace,” he said.
Twomey put rent rises down to a lack of price regulation. “Rents go up because they can,” he said. “There’s no check on the way rents increase. Collectively, the market rate of rent is basically what every landlord sticks their finger in the air and decides.
Landlord costs go up, landlord costs go down – either way, tenants’ costs go up.”
Labour also announced increased funding for other housing projects in Wednesday’s budget, including £500m for its affordable housing programme. “We heard them announce funding for affordable housing, increasing the social housing stock, which is really important for a lot of low-income families who are renting privately when in previous generations they would be in social housing,” said Pacitti.
A government spokesperson said: “We are committed to the biggest increase in affordable housing in a generation, and to ensuring our social security system is fair and sustainable.
“Local Housing Allowance rates were increased earlier this year, worth an additional £800 on average to low-income households, and we have announced £1bn to support low-income families through the Household Support Fund and Discretionary Housing Payments.”
