Lime Legal

Lessons learnt

Published 02 January 2024

The government is almost ready to introduce the local housing allowance nationwide. Julian Birch assesses the prospects

Remember shopping incentives? The revolution in housing benefit that would bring tenants the benefits of the market by allowing them to choose better or cheaper or better accommodation?

The basis of the local housing allowance revolution is still there – a flat rate will still be involved and in most cases it will still be paid direct to tenants rather than landlords – but the ambition has been scaled back dramatically. It will not apply to social tenants at all and even in the private sector it will only go to new claimants initially.

It’s a far cry from 2012, when the plan was launched in a green paper called Building choice and responsibility: a radical agenda for housing benefit.

Andrew Smith, the minister who launched it, compared the existing system to ‘shopping in the dark’. But research in the nine pathfinder areas for the allowance has produced little evidence that claimants are shopping in the rental market the same way they do in the supermarket. And a study by Shelter showed that just 8 per cent of more than 13,000 advertised rentals were available to claimants. If they are shopping around at all they are doing it in the equivalent of a dingy corner shop.

However, looked at from the other end of the telescope the fact that little is left of the original radical intentions is very good news. This is the first time that any government has tested a reform of housing benefit before introducing it. If it has changed things along the way, say experts, then it has just responded to seeing what works and what doesn’t.

Meanwhile, the dire consequences predicted by pessimists have not materialised. Claimants in the pilot areas are generally been better off than under the old system and landlords have not deserted the market.

According to independent evaluations, the major gains are:

  • Claimants have been paid higher average amounts and fewer of them have had shortfalls against their rent. The proportion with shortfalls fell from 58 per cent to 39 per cent in pathfinders but from 60 per cent to 53 per cent in control areas. The average claimant in the pathfinders had £6 a week more in benefit than they paid in rent whereas in the rest of the country claimants had an average shortfall was £14 a week.
  • There has been no mass exodus of landlords from the market. The proportion of landlords’ portfolios occupied by a tenant on housing benefit fell from 35 per cent to 31 per cent
  • About 80 per cent had their rent paid direct and 91 per cent of these now have a bank account.
  • Finding accommodation for homeless households became easier because they were more likely to be able to get their benefit paid direct to the landlord.
  • Claims were processed more quickly because individual claims no longer have to be referred to the rent officer.

Against that, however, there was no evidence of improved housing choices or work incentives for claimants. And:

  • Work assessing vulnerability and the time taken on processes such as the verification framework took away some of the gains in processing times.
  • Landlord attitudes to claimants have hardened. They are offering shorter tenancies and making more demands for rents and deposits upfront. ‘If they could afford to, the vast majority of landlords wouldn’t engage with this at all,’ says Liam Reynolds of Shelter. ‘But they can’t afford to simply write off this part of the market.’
  • Although the national picture looks good for claimants, regional variations mean that in two areas (Conwy and North East Lincolnshire) more people have shortfalls than before.
  • Similarly, local variations mean 24 per cent of claimants were judged to be vulnerable enough to have their allowance paid direct to their landlord in North East Lincolnshire against just 5 per cent in Teignbridge.
  • Although more claimants had bank accounts, many were still withdrawing cash to pay bills rather than use automated payments.
  • The under-25s remain worse off than others despite having a shared room rent that is slightly more generous than the single room rent.

Shelter conducted separate research in the pathfinders based on a database of adverts for private rented property. This showed that in practice claimants still have little choice. Only a third of properties were advertised within the maximum amount of housing benefit paid and this proportion has fallen within the last two years. A third of adverts specifically barred claimants. And when landlords advertising properties that seemed both affordable and accessible to tenants on housing benefit were contacted by phone only one in six said they would accept a claimant. By the end of this process only 8 per cent of the almost 13,000 properties advertised were available to claimants.

Overall, the research allows for views from both ends of the telescope, says one leading expert: ‘In the past all governments that changed housing benefit just went ahead and changed it. Here the government has done a two-year pilot. The results are not as horrendous as people thought and the behavioural changes have not been so extreme. Some of the fears about people moving to really small accommodation have not materialised. It’s improved on the existing system and it’s more generous.’

From the other, says Liz Phelps of Citizens Advice: ‘Apart from the very welcome reduction in shortfalls, all you can really say is that it is no big failure. The world hasn’t fallen apart but has it really delivered? What has direct payment to tenants done? Yes it has persuaded lots of them to open bank accounts but many are simply withdrawing money from them to pay the rent in cash. Is that financial inclusion? Not really.’

There is also concern about the amount of variation between areas. ‘If you can get that in nine self-selected pathfinders what will happen in the whole range of local authorities who don’t have the same interest?’ asks one expert.

The national scheme that forms part of the Welfare Reform Bill will differ from the pilots in several important respects:

  • The amount of surplus any claimant can receive will be capped at £15 a week. The DWP says this will ‘prevent work incentives being eroded’. However, in the pathfinders those who had a surplus had an average of £22 a week, suggesting that the cap would also save £100 million a year.
  • The allowance will be based on the median rent rather than the midpoint. The DWP says this will ‘accurately reflect the distribution of rents in an area’ but campaigners fear it will mean claimants get less money. ‘Moving to the median should make things fairer across the country,’ says Liam Reynolds of Shelter. ‘But until the government publishes the evidence we won’t know the impact this will have on claimants and the amounts they receive.’
  • The allowance will be phased in, probably over two years, and will initially only go to new claimants. The DWP says this will ‘prevent the need for complex transitional protection scheme and to ensure no existing tenants will face a drop in their benefit level at the point of change’. However, it should also save money.
  • The size criteria rules will be simplified so that the allowance is based on bedrooms, rather than bedrooms and living rooms.

‘What’s being rolled out is leaner and meaner,’ says Liz Phelps. ‘All these changes are likely to mean we could see larger shortfalls than in the pilots and there are likely to be less resources for advice and support.’ Campaigners are continuing to press for changes in the scheme as the Welfare Reform Bill reaches its final stages. On the local housing allowance, they want:

  • More transparency. What rent officers decide about allowance levels and the broad market rent areas within which they apply determines whether claimants have a shortfall or not. When CHAS Kirklees tried to get figures under the Freedom of Information Act, the Rent Service refused, citing ‘a danger that national economic interests could be adversely affected’. CHAS has now appealed to the information commissioner. Campaigners say rent officers should publish the rates and the evidence used to set them and should be required to consult with local authorities about rent area boundaries.
  • Reform of the rules for under-25s. The allowance’s shared room rate is more generous than the single room rent but campaigners say this has made very little difference. ‘The DWP has told us that the changed definition has reduced shortfalls for under-25s in the pilots by only £3, from £30 to £27, and that the proportion having a shortfall stayed exactly the same at 70 per cent,’ said Liz Phelps.
  • Measures to ensure that vulnerable claimants do not miss out on getting their rent paid direct to their landlord. Local housing allowance guidance to housing benefit department says: ‘You will not be expected to be pro-active in identifying someone as potentially vulnerable.’ Citizens Advice says this risks the most vulnerable claimants losing out.

Ironically, of course, the pathfinder research shows that landlords are more likely to rent to someone if they can get the benefit paid direct. That’s hardly in tune with the radical original aims of the local housing allowance. As our school report [right] shows, judged against its original aims the local housing allowance has succeeded in some areas and failed miserably in others. However, a modest pass mark has to be judged against what’s happened before. The results of virtually all previous reforms of the system would have been enough to get the housing benefit school put into special measures.

‘Some of the high hopes haven’t transpired,’ said one expert. ‘But the main thing is that it’s working and for the private rented sector it isn’t working.’