Citizens Advice warns of ‘hidden housing tax’ caused by benefit freeze

Citizens Advice has called on the chancellor to reform Local Housing Allowance (LHA), which it said now represents a hidden housing tax on people on the lowest incomes.

LHA determines the amount of Housing Benefit and Universal Credit that claimants can receive to cover their housing costs. But it has been frozen since 2020 while rents have risen, leaving those reliant on it facing growing shortfalls between their benefit income and housing costs.

Tenants are forced to find the money to cover the shortfall under threat of eviction, in some cases cutting back on essentials such as food and energy.

Among the findings of Citizens Advice’s report:

• The average LHA shortfall is almost £750 per year, similar to the median monthly cost of a one or two bedroom property in England
• Universal Credit recipients coming to Citizens Advice for help with debt who live in private rented accommodation in England and Wales have an average LHA shortfall of £144 per month
• Among private renters on Universal Credit or Housing Benefit who are experiencing a shortfall between their benefit income and rent costs, 25 percent have a shortfall of more than £300 per month (or more than £3,600 per year)
• Citizens Advice is supporting more and more people experiencing homelessness and in temporary accommodation as a result, at least in part, of LHA being frozen. One adviser in Sheffield reported that the majority of people they helped with LHA issues have been evicted or recently threatened with eviction

Since 2011 LHA has been officially set at the 30th percentile of local private sector rents for each size of property, meaning anyone whose rent payments are higher than that faces a shortfall. But below-inflation rises, followed by a lengthy benefit freeze, meant that LHA lost much of its value over the rest of the decade. The link to the 30th percentile was restored in April 2020, but with LHA frozen since then, it has again fallen back in value.

With an additional national LHA cap heavily restricting Housing Benefit in the most expensive areas, the report found the largest shortfalls in Central London. The 30th percentile of privately rented four-bedroom properties in the Central London ‘broad rental market area’ (BRMA) is almost double the maximum LHA rate. Similarly, a two-bedroom property is 143% of the maximum LHA rate.

Other BRMAs with gaps significantly higher than the national average include Central Greater Manchester, Tameside and Glossop, Greater Liverpool, the Black Country, Bristol, Gloucester, and East Sussex.

Some of the largest gaps relate to the cost of shared accommodation. For example, in Chesterfield the cost of a single room is 137 percent of the maximum LHA.

Citizens Advice called on the chancellor to relink LHA to the 30th percentile of rents and abolish the national LHA cap.

Image: Jon Tyson