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Life on a low income: what Coming Home says about the benefit system

21 February 2021


RENTERS on low incomes receive help with their housing costs through the housing element of Universal Credit (for all new claimants) or through Housing Benefit (for those who were already claiming before the new system came into effect). The method of calculating the amount of housing subsidy is essentially the same under both systems, and depends on a combination of housing need (family size and composition), household income, and rent level.

When housing benefit was first introduced, private-sector tenants on very low or zero income had all of their rent covered, provided they lived in a size of property suitable for their family. For those with higher incomes, the amount paid gradually tapered off for every extra pound of income they earned.

However, there have been increasing restrictions placed on what tenants can claim. Eligible rents for single people under 25 without children were restricted to a “shared accommodation” rent from 1996, and the age was raised to under 35 from 2012.

More fundamentally, from 2003, the Government piloted a system which moved away from eligible rents being based on the tenant’s actual rent to one where eligible rents were restricted to no more than the median rent in their broad local area, known as the Local Housing Allowance (LHA). This new approach went national in 2008.

Since 2011, the LHA has been tightened substantially, initially by reducing the maximum allowance to the cheapest 30 per cent of rents in the local area, and then by constraining and freezing these rates over time, so that by early 2020, LHA rates had fallen far below the 30th percentile in many parts of the country. Analysis by the Commission found that in half of all broad market rental areas, households requiring a one- or two-bedroom home could only access one in ten rental properties at the rates the Government were willing to pay.

LHA rates were raised early on in the pandemic back to the 30th percentile of local rents, to assist those on lower incomes, but will be frozen again in cash terms from April 2021.

Social-sector tenants still get their actual rent paid, but since 2013 they face an “underoccupancy charge” or “bedroom tax” reduction in their housing support if they are deemed to be under-occupying their home, for example a couple living in a two-bedroom property. This reduction currently affects around 500,000 households.

The total amount of benefits that a household can receive is also restricted by the benefit cap (also introduced in 2013). This is currently £1917 a month in Greater London and £1666 elsewhere (less for single adults). In high-cost areas, where the private rent on a modest three-bedroom home can easily reach £1200 or more a month, that leaves very little income for food, utilities, and other basic items.

The five-week waiting period for Universal Credit and delays in processing new claims have exacerbated the financial strain on households facing changes in their circumstances, including those who have lost their job or experienced a significant reduction in their income due to the pandemic.

The overall impact of the changes to LHA rates and other welfare cuts is that a large number of low-income households are unable to pay their rent without using income that was intended to cover other essential living costs. As benefit levels are already below the poverty threshold — and well below what most people consider necessary to achieve a basic but decent standard of living — this means that many families are having to make difficult choices between eating, heating and paying their rent.

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