Think Tank Urges Government to Boost Housing Benefits by £2 Billion

The Resolution Foundation, a prominent think tank, has recommended that the government increase housing benefits by £2 billion annually. This proposal, outlined ahead of the upcoming Budget, suggests linking the Local Housing Allowance (LHA) to current rental prices, even in expensive urban areas such as central London. The think tank estimates that this adjustment would result in an additional £2 billion in government spending per year by 2029-30.

The LHA determines the amount of housing benefit individuals can claim and is typically set based on local rental markets. Historically, LHA rates have not consistently kept pace with rising rents, leading to a shortfall for many claimants. Rates have been frozen since April 2024, while the number of people claiming housing benefits has increased significantly, with the total cost projected to reach £39 billion this year.

The Resolution Foundation previously advocated for the abolition of the two-child benefit cap, a measure that was subsequently adopted. Their latest recommendation aims to re-establish the automatic annual linkage of LHA to local rents, ensuring that benefit levels adjust in line with market fluctuations. According to the think tank's analysis, this change would provide a genuine improvement in rental affordability for low-income families rather than solely benefiting landlords.

This recommendation comes amidst ongoing debate about welfare spending. Earlier this month, Kemi Badenoch announced plans to reduce the housing benefits bill by £4 billion, with funds earmarked for defense. These plans include lowering LHA rates for new tenancies and freezing rates for existing ones. Badenoch stated that it is not justifiable for taxpayers to fund rents in costly areas, suggesting that individuals should consider less expensive locations if they require housing benefit assistance.

The LHA system was introduced in 2008, initially intended to cover the lowest 50 percent of rents in an area. This coverage was later reduced to the lowest 30 percent in 2011, and governments have since implemented ad hoc freezes on rates, most recently for the 2026-27 period.

The Resolution Foundation's analysis indicates that the current LHA freeze creates a substantial monthly shortfall for families. For instance, a family renting a two-bedroom home in Inner East London could face a deficit of £324 per month. The think tank contends that unfreezing LHA would alleviate pressure on low-income families in the private rented sector and ensure they can meet their rental obligations without sacrificing other essential needs.