Think Tank Urges Government to Hike Housing Benefit by £2 Billion

The Resolution Foundation, a UK-based think tank, has recommended that the government increase the housing benefit bill by an additional £2 billion annually at the upcoming Budget. The proposal, detailed in new analysis released ahead of the October 28 Budget, suggests linking the Local Housing Allowance (LHA) to current rental prices, even in expensive areas like central London.

The think tank argues that linking LHA to rents would cost the government an extra £2 billion per year by 2029-30. This recommendation follows a similar past call from the Resolution Foundation for Labour to scrap the two-child benefit cap, a policy later adopted by then-chancellor Rachel Reeves in November 2025 at a cost of £2.3 billion in 2026-27.

LHA rates, which determine the amount of housing benefit individuals can claim, vary by council area to reflect local rent levels. However, these rates have been frozen since April 2024. The Resolution Foundation asserts that this freeze has resulted in a monthly shortfall for housing benefit claimants, as rents have continued to rise. The total cost of housing benefits is projected to reach £39 billion this year, according to the Department for Work and Pensions, with the number of eligible claimants increasing by over a million since 2020.

The think tank's proposal has drawn criticism from some political figures. Shadow work and pensions secretary Helen Whately expressed concern that this could lead to increased welfare spending, stating that individuals on benefits should also consider affordability when choosing where to live. She emphasized the need to control welfare spending and borrowing.

This recommendation comes amid separate plans by Kemi Badenoch to reduce the housing benefits bill by £4 billion to fund national defense. Badenoch's proposal includes lowering LHA rates for new tenancies and freezing them for existing ones until they gradually decrease. She has stated that it is not practical for taxpayers to subsidize rents in high-cost areas.

LHA was originally established in 2008 to cover the cost of the lowest 50 percent of rents in a given area. Its coverage was reduced to the lowest 30 percent in 2011, and subsequent governments have implemented ad hoc freezes on rates, with the current freeze in place for 2026-27.

The Resolution Foundation's analysis indicates that low-income families renting a two-bedroom home in Inner East London face a typical monthly shortfall of £324, with shortfalls exceeding £200 across the rest of London. The gap is now over £100 in more than half of all areas in England. The think tank refutes claims that unfreezing LHA would solely benefit landlords, asserting that their analysis suggests it would lead to a genuine improvement in rental affordability for tenants.

Stephen Hunsaker, an economist at the Resolution Foundation, stated, "With many tenants receiving housing support already going without essentials to pay their rent today, the Government should restore the automatic annual linking of LHA to relieve the pressure on low-income families in the private rented sector."