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Ministers will raise the Local Housing Allowance (LHA) cap for private sector renters for the first time since 2015 – although benefit rates will remain frozen.
In April, the Department for Work and Pensions (DWP) will raise the cap on how much housing-related benefit tenants can claim by 3% for 2018/19.
That means areas where LHA rates are currently up against the cap will be able to receive Targeted Affordability Funding (TAF) for the first time.
The move could take pressure off Discretionary Housing Payment funding in these areas – top-up funds administered by councils to help people whose housing-related benefit falls short of their rent.
Local authorities in affected areas may also find it easier to secure private rented sector accommodation for homeless households.
However, LHA rates themselves will remain frozen, meaning the raise has no practical implication outside these regions.
LHA sets the amount of housing benefit or Universal Credit housing element that households in the private rented sector can claim.
It is intended to reflect the lowest 30th percentile of local private rents to give welfare claimants access to a portion of the market.
But in practice LHA falls well below the market in some more expensive areas – with the gap widening since rates were frozen in 2015.
TAF was introduced in 2014 to boost LHA in areas where rates fall furthest short of rents. Previously, it has only been used to top up LHA rates below the cap.
The cap raise means that, for the first time, TAF will be distributed to areas where LHA rates are at the limit – many of which are in London.
Chancellor Philip Hammond announced a £125m increase in TAF spending over the next two years in November’s Autumn Budget.
London Councils, the umbrella group for local authorities in the capital which has been lobbying for an LHA cap increase, said the rise will apply to 18 of the 19 LHA rates that are currently capped in London.
In a briefing to its members, it said: “The 3% increase in LHA cap levels is an important step towards restoring affordability for housing benefit claimants in the private rented sector in London.
“However, given the significant gap that still exists between London LHA rates and the 30th percentile of market rents, further changes are still needed.
“Fundamentally, the affordability crisis, and the consequent increase in homelessness created by insufficient LHA rates, can only be addressed in London by removing the freeze on LHA uprating.”
The DWP declined to comment, but a spokesperson confirmed the increase.
In October last year, the government dropped controversial plans to apply LHA to social and supported housing from April 2019.