Feeling the freeze

This spring, many low-income households have been navigating changes to their benefits. But one big impact the benefits system is having right now, is coming from something that hasn’t changed, not something that has.

The local housing allowance (LHA), which sets the level of housing costs support for low-income private renters, was designed to increase in April each year to ensure households could afford the cheapest 30% of properties in an area. But for the last 2 years housing costs support has been frozen: private renters on Universal Credit (UC) are getting support based on rents from September 2023 at the latest, though average rents have grown nearly 16% since then.

This blog explores what frozen LHA looks like in practice - how much support is falling short by, and the hardship this causes. Our new analysis shows that, in many areas, households entitled to the maximum amount of support are missing out on over £100 a month. Meanwhile, 1 in 4 people we’ve helped with low LHA this year needed referrals for charitable support and food banks. Our frontline evidence makes it clear that households can’t rebuild their financial resilience unless housing support is re-linked to rents.

Across Britain, support is falling short

1.7 million households in Britain receive housing support through UC and are private renters. According to the most recent government data, over half of these households face shortfalls between their local LHA rate and the actual cost of their rent. That’s over 900,000 households who need to fill this gap with money that could have gone on other essentials, or risk eviction by falling behind on their rent.

As can be seen in the map below, the impact of frozen LHA is felt across Britain. In 265 of the 350 local authorities (76%), more than half of private renters receiving UC housing support face a shortfall. Households in some areas are especially likely to be affected. In 5 local authorities, mainly in Wales, as many as 3 in 4 have a shortfall between their rent and LHA rate. This raises the question of how frozen LHA affects people differently across Britain, especially in places with a smaller private rental sector compared to the number of low-income households, or with lower average rents but sharper rent increases.

Explore the interactive map here.

Frozen housing support is driving hardship

Data on what LHA would have been, had it been re-linked to rents this spring, shows us exactly how much support households are missing out on. As shown in the charts below, households entitled to the maximum amount of support are missing out on more than £100 a month for a 1 bedroom property in nearly a third of English broad rental market areas (BRMAs). For a 4 bedroom property, they’re missing out on over £100 a month in over 75% of areas. Across areas and property types, maximum LHA rates are 13% lower, on average, than if there had been uprating.

For those with nothing left to cut back, missing out on this much support damages living standards. £100, the average gap in support for a 1 bedroom, is equivalent to nearly half a month’s groceries for the single UC private renters we help with debt.

For people like Lou*, housing support shortfalls can mean relying on food banks:

Lou* lost her job last year, and is relying on UC while looking for work. Adding to the stress of job searching, the shortfall between her housing support and costs means she’s left with only £110 a month after paying her rent. This isn’t enough to cover her groceries and other bills, so Lou is heating her home less and is building up energy and council tax debts. To help manage the pressure caused by the gap between her housing support and rent, a Citizens Advice adviser paused Lou’s debt repayments, and referred her to a food bank.

Sadly, Lou* is not alone — nearly 1 in 4 people we helped with low rates of LHA this year also needed help accessing charitable support and foodbanks. Overall, housing costs support is one of the biggest issues the low-income households we help face. 28% of those we helped with UC last year needed advice on housing support, over 100,000 people.

Negative budgets, where incomes can’t cover basic essentials each month, are another warning sign of the hardship low-income private renters are facing. The private renters on UC who we help with debt are consistently more likely to be in a negative budget than any other renters. For more than 4 years, this group has been more likely to be in a negative budget than not — the only group of renters for whom that’s the case. On average, they’re £75 in the red each month. Gaps between housing costs and support are part of what’s driving this hole in budgets.

For living standards to rise, housing support can’t stay frozen

Housing is one of the biggest costs people face, typically swallowing up about a third of renters’ income. At a time when we’re seeing a breakdown in financial resilience, households won’t be able to get back on their feet if rent keeps eating a bigger hole into budgets.

For the low-income private renters we help, receiving support linked to real rents is a critical way of building up the financial resilience that’s been eroded over the last few years. That means being able to afford other essentials and, for people like Lou*, it could mean not needing to rely on food banks. These impacts would be felt quickly, and are essential if households finances are to have strong foundations in the long term. That’s why re-linking LHA to rents is one of the key steps the government has to take to reverse the decline in living standards.

This blog has been co-authored by Julia Ruddick-Trentmann and Sarah Hadfield.

*All names have been changed.