Background
Proposals for Local Housing Allowance are set out in Chapter 6 of the Welfare Reform Green Paper, A new deal for welfare: Empowering people to work, published in January 2006.
On 19th June 2006 the Government published its response to the Welfare Reform Green Paper consultation exercise and confirmed it would proceed with the national rollout of Local Housing Allowance.
- Why are we introducing Local Housing Allowance?
- How Local Housing Allowance works
- Local Housing Allowance pilot areas
Why are we introducing Local Housing Allowance?
Local Housing Allowance (LHA) is the cornerstone of the Government's Housing Benefit reform programme which aims to simplify Housing Benefit and ensure it supports the wider objectives for welfare reform.
The fundamental aims of the LHA scheme are to promote:
- Fairness - LHA bases the maximum amount paid to tenants on the size, composition and location of the household. Benefit will no longer be based on actual rents but on median levels of rent within localities. Therefore, two households in similar circumstances in the same area will be entitled to similar amount of benefits.
- Choice - tenants are able to take on greater responsibility and choose how to spend their income in a similar way to tenants who are not in receipt of benefits. Like other tenants they are able to choose whether to rent a larger property, or spend less on housing and increase their available income. The claimants will be able to keep the excess (to a maximum £15 per week) if they choose whether to rent accommodation cheaper than their LHA rate or rent a more expensive property and pay the additional rent from their own income.
- Transparency - LHA rates will be publised in advance so customers will know the maximum amount of benefit payable. The current link between Housing Benefit and individual rents is complex and does not set out clearly what level of state support is available for people on low incomes. A clear and transparent set of allowance rates helps tenants (and landlords) know how much financial help is available from the state. Tenants are able to compare how much support is available towards their housing costs in different areas and for different property sizes.
- Personal responsibility - Empowering people to budget for and to pay their rent themselves, rather than having it paid for them, helps develop the skills unemployed tenants will need as they move back into work. Currently around 40% of Housing Benefit payments in the private rented sector are made to tenants, with the remainder paid straight to landlords. The Government believes that, where possible, local housing allowance should be paid to tenants, as are most other benefits and tax credits. Safegaurds will be put in place for those customers that are unable to manage their financial affairs or who fall into rent arears.
- Financial inclusion - Ideally, we want people to have their housing payments paid into a bank account and to set up a standing order to pay the rent to their landlord. This has the advantage of being a safe and secure method of payment and provides certainty for landlords that rent will be paid.
- Improved administration and reduced barriers to work - For working age tenants, LHA provides a greater certainty about what help is available in and out of work. A simpler system also helps speed up administration of housing payments, giving tenants more confidence when starting a job that any in-work benefit will be paid quickly. A more transparent system may also improve the ability of individuals to move between areas and to take advantage of employment opportunities.
How Local Housing Allowance works
LHA is a flat rate allowance based on the size of household and the area in which a person lives. There are no changes to the entitlement rules - this will be based on a person's income and savings and proof of a valid tenancy. Payment will normally be to the tenant, who will then pay the landlord.
Each local authority will be divided into Broad Rental Market Areas (BRMA). Rent Officers will set individual LHA rates for each BRMA. These will be published by the local authority so that landlords and prospective LHA customers can be clear about the amount of rent that LHA will cover.
Prospective tenants will be able to shop around with their allowance. If they find a property they like with a rent that exceeds their LHA they will need, as they do now, to make up the difference themselves. But if they find somewhere with a rent below their allowance, they will be able to keep the difference up to a maximum £15.00.
Local Housing Allowance pilot areas
We have tested LHA with a number of local authorities since 2003.
Changes have been made to LHA for national rollout as a result of the work done by the pilot authorities and to ensure that it fits with our wider objectives on promoting work. A new deal for welfare: Empowering people to work summarises these changes.
There are several significant differences between the version of LHA currently being run by Pathfinders/2WG and the national rollout version. These include:
- the amount of excess benefit (the difference between the contractual rent and the LHA rate) customers can receive will be capped at £15 per week
- the introduction of LHA for new customers in the private sector, those existing customers who have a break in their claim or where an existing customer changes address
- an amendment of the size criteria - to consider bedrooms only
- the calculation of LHA rates based on median rents rather than mean which means that 50% of the market will be available to people on benefit
- that DWP will undertake a review of the scheme after two years, which will include an opportunity to consider whether existing Housing Benefit claimants should be transferred onto LHA.