Local Housing Allowance

Debate between Kerry McCarthy and Hywel Williams

Wednesday 15th March 2023 Westminster Hall

[Hywel Williams (Arfon) (PC)]

I beg to move,

That this House has considered the Local Housing Allowance.

I am grateful and delighted to be able to lead the debate, and to do so under your chairmanship for the first time, Ms Elliott. I am glad to be here.

Housing represents a large cost to many people, but it is becoming increasingly unaffordable. The aim of the local housing allowance, of course, is to help those renting in the private sector, but it is becoming less and less effective because the level of support is increasingly out of step with the actual housing market. Since 2012, LHA rates have been decoupled from the 30th percentile of rents. Some hon. and right hon. Members will perhaps remember when it was coupled to the lower half of the market, rather than the lower third, but there we are—it is now the 30th percentile. Decoupled, it is instead uprated by consumer prices index inflation, 1% or even 0%.

That, in turn, has led to a growing gap between the actual rents that people pay and the amount of housing support that they can receive. It was therefore very welcome —but long overdue—when, in March 2020, in response to the pandemic, the Government increased LHA rates to realign them with the lowest 30% of rents at September 2019. Suddenly, we were returned to the status quo ante. However, that relief was very short lived: inexplicably, the Government froze LHA again in November 2020. Indeed, the Institute for Fiscal Studies said that the policy was

“arbitrary and unfair, and its consequences will only become more bizarre over time.”

Freezing the LHA has two broad consequences. First, the rise in rents is decreasing the amount of housing in the private rented sector available to those claiming housing benefits. Secondly, the support that low-income renters get with housing costs will be related not to the current level of rents in their area but rather to the rents of 2019. A moment ago, I used the word “inexplicably.” However, the Government’s thinking might well be quite obvious. Most commentators see it plainly as a short-term money-saving exercise—short term and short sighted, as the annual cost of maintaining the LHA level in cash terms was forecast to be £840 million in 2022-23, which would gradually fall to £345 million by 2025-26.

The alleged saving is illusory when one factors in the wider economic and social damage that the decision is causing. Previous analysis from Crisis showed that the annual cost of restoring LHA to the 30th percentile would be around £1.1 billion. That would in turn lift 32,000 people out of poverty and save a further 6,000 people from homelessness, which would produce savings of £5.6 billion—a cost of £1.1 billion, a saving of £5.6 billion. Some £5.5 billion of that saving would be on homelessness services, and £124 million on temporary accommodation. Over a three-year period, after the costs are deducted, that would save the UK Government £2.1 billion. That is why one must take the broader costs into account.

That sum is itself not to be discounted—it is a large amount of money—but most importantly, restoring the LHA to the previous level would save vulnerable people and their children from untold misery. That is the real gain. I would say it is unnecessary misery—unless, God forbid, we think that the cut in LHA is in fact an arm of disciplining the poor. Despite that evidence and the growing pressure on the Government, it was bitterly disappointing to see them maintain a freeze on LHA in the 2022 autumn statement. Although I listened very carefully to the Chancellor’s jolly festival of optimism at lunchtime, I did not detect a single word of comfort about LHA.

Despite the housing benefit freeze, rents continue to rise. In the 12 months to January 2023, private rents, in Wales at least, increased by 3.9%, the highest annual percentage change since records began in 2010. The damage being done is quite clear. The Bevan Foundation reports that in the last month only six of the 22 local authorities in Wales had any properties available at or below the LHA rates. The actual numbers are stunningly bad. During the first two weeks of February, only 32 properties in Wales were available at or below LHA rates—just 32 properties for the entire country and just 1.2% of the properties advertised on the formal rental market. In my local authority of Gwynedd, 187 properties were advertised for rent, but only 10 were fully covered by the LHA rates. People should remember that Gwynedd is—if Members will allow me this term—one of the “better” areas, with 10. Many places have none whatsoever.

There is broad consensus across the housing and homelessness support sector in favour of unfreezing the LHA and restoring it to the 30th percentile. Voices such as Crisis, the Select Committee on Levelling Up, Housing and Communities, the National Residential Landlords Association and Welsh anti-poverty organisations—such as the Bevan Foundation, which did the research I mentioned earlier—say that, and I echo those calls. The Chancellor should unfreeze local housing allowance and uprate it to the 30th percentile of market rents as we begin to address the unaffordability of housing.

Last year, I asked the Government in a parliamentary question whether they had made an impact assessment of the decision not to uprate the LHA and about the impact on the proportion of homes available in Wales that would be covered in full by LHA. I was told that no such assessment had been made. That is making policy in the dark. If we do not know what we are dealing with, how can we make policy? I ask the Minister, given that the growing gap between real rents and LHA rates in Wales is plain to see, how the Government can justify not making such an assessment and whether she will do so? That seems to me to be an obvious step to take.

Such an assessment might highlight the way that the LHA freeze perpetuates homelessness and housing insecurity. The shortfall means that people claiming housing benefit are forced to move into properties that are not fully covered by what they receive from the DWP and, often, properties of terrifyingly poor quality. Many hon. Members will have seen the sorts of cases we get—I get them regularly—that involve houses that are essentially unfit for people to live in.

Crisis Wales has said that

“too many people and families are being forced into homelessness because housing benefit simply isn’t sufficient to keep a roof over their heads”.

It is a fundamental failure. Policy in Practice found that for every 10% increase in the number of households experiencing a gap between the LHA rate and rent, the proportion of households in temporary accommodation will rise by 1%. The cause and the effect are quite obvious, I think; there is a congruity and a causality there. There are just more people in temporary accommodation.

Between 2015 and 2022, the number of households that required assistance to avoid homelessness in Wales increased by approximately 9,000, while the estimated number of rough sleepers increased by 69%. The evidence is there if the Government choose to look; if they choose otherwise, and not to look—if they choose to pass on the other side of the road—they will of course not see it. The Bevan Foundation also notes that it is not a coincidence that this all took place at the same time as LHA rates were frozen. Even now, we can see a slow increase in homelessness, with 158 more people in temporary accommodation in Wales between November and December of last year. That is in just one month. I say again that that is at a substantial and unneeded cost to the public purse.

I have another question for the Minister. Will she now assess how much local authorities could save in housing people who are homeless by unfreezing LHA rates, to enable them to sustain tenancies? That is an obvious piece of research, and the answers would be illuminating.

Housing insecurity can also lead to further pressure on other essential costs, such as energy and food, with serious consequences for mental and physical health. That is likely to be one contributing factor in the shocking statistic that 61% of people in Wales report that their mental health is negatively affected by their financial position. The LHA freeze means that emergency discretionary funding, such as discretionary housing payments or DHPs, are being used to plug the gap. Again, Welsh local authorities spent the highest sum of their allocated DHPs in 2020-21. The latest data show they are on course to do the same this year, with a 4% increase in the number of DHPs being spent on local housing allowance shortfalls.

That is all in the context of austerity, of course, as the reduction in DHP funding available to Welsh local authorities in the last financial year amounted to a 27% cut, which follows a reduction in the previous year of 18%. The cuts resulted in the Welsh Government topping up DHP funds last year by £4.1 million. That is the knock-on effect. I again put it to the Minister that there is a fundamental problem when local authorities are using their emergency allocations, and the Welsh Government have to top up the funds due to successive cuts. Does the Minister think that is sustainable in the long term? I do not think so, but I am interested in her opinion.

The LHA freeze is not the only concern. When it comes to the calculation of LHA, it is important to note that the rates sometimes do not accurately reflect market conditions, particularly at the very local level. At present, there is no obligation on landlords to share information on rents they charge, which makes it difficult to secure a true overview of the local rental market. Furthermore, are the broad rental market areas used to calculate each area’s LHA truly representative? They can encompass large areas with multiple rental markets within them. The gradient of change in the markets might be extremely steep, and might not take hotspots of high rent into account.

For example, in my constituency of Arfon we have Bangor University and a student population of 9,000, which is very large relative to the around 20,000 people in the local area of Bangor itself. There might be a severe hotspot there. In more rural parts of north-west Wales, holiday lets might have a significant effect. In the south-east, the removal of the Severn bridge tolls has increased rents in places near the border, such as Newport. People live in the cheaper parts in Wales and drive over to Bristol for their jobs.

[Kerry McCarthy (Bristol East) (Lab)]

The hon. Gentleman mentions Bristol, where this is a massive issue, which is the reason I have come to this debate. A recent inquiry by the Bureau for Investigative Journalism and a local newspaper, The Bristol Cable, found that there were virtually no properties with LHA rates available in Bristol, as he said is the case in his patch. I share his concerns; it is happening everywhere.

[Hywel Williams]

I agree entirely with the hon. Lady. As I said earlier, this affects the entire UK. Indeed, she might be clairvoyant, because I am going to refer that particular point in Wales. My concern, of course, is with Wales, where I know what is happening best. In Arfon, as I said, we have Bangor University and the holiday lets market, and then we have the Severn bridge.

I have asked the Department for Work and Pensions if it plans to undertake an assessment of the accuracy of the mechanism and metrics used to calculate the rate at which the local housing allowance is set and allocated in Wales, and the broad rental market area boundaries, if they are relevant. I was told that those boundaries are kept under review by the rent officers in Wales, and if they decide that a boundary should change, they can submit a review to the Secretary of State for consideration. I ask the Minister: have there been any applications by rent officers in Wales to request a review of broad rental market areas in Wales? I would be interested to know. I believe the BRMA mechanism should be devolved. Housing is already a devolved matter, as are other welfare services. There is a congruence between them, and a reasonable case can be made for them to be under the same authority. We could then redesign the mechanism to be far more responsive to local circumstances.

The local housing allowance is just one plank of the large-scale reform of the housing market. That is why Plaid Cymru secured the inclusion of a welcome commitment by the Labour Government in Wales to introduce proposals for a fundamental right to adequate housing for Welsh citizens, as well as an explanation of the role that a system of fair rents could play in making the private rental market affordable for local people on local incomes. There are also new approaches for making housing affordable. The devolution of housing benefit has a key role to play in that process. Had we control of the funding of housing benefit, we would then do things differently, such as repurposing some of the money into building more social housing. That would allow Wales to move from a model of subsidy to a rent system that subsidises supply. It is a straightforward move.

Welsh Labour has committed, in the co-operation agreements with Plaid Cymru, to advocate for the devolution of the administration of benefits. I asked the shadow Secretary of State, the right hon. Member for Leicester South (Jonathan Ashworth), if he would be prepared to pledge that. He said that I was inviting him to venture into choppy waters. I think that is quite true, but I will just bowl this one at my colleague on the Labour Front Bench, the hon. Member for Westminster North (Ms Buck): will the Labour party in Westminster consider supporting devolving LHA to Wales, as Welsh Labour Members in the Senedd have asked?

To conclude, it is vital that the Government take action to end the housing crisis. Affordable, decent housing should be a right for everyone. Affordability is central to housing stability, and can then reduce stress and increase self-esteem, wellbeing, life satisfaction and a sense of security for people. It can also alleviate crowding, further reducing stress and the spread of infectious diseases. I call on the Government to take action now to address the affordability crisis by unfreezing the local housing allowance.