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Public sector pay isn't the only cap that needs rethinking

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LGC’s essential daily briefing


The end of the public sector pay cap, if it ever reaches local government, will be good news for employees if not necessarily for councils’ balance sheets. However, there is another austerity-driven cap urgently in need of a government rethink.

In a report into homelessness, published today, the National Audit Office concluded it was “likely” the cap on the local housing allowance (LHA), introduced in 2011, had contributed to the huge rise in homelessness over recent years.

Since 2011 there has been a 60% increase in households in temporary accommodation with the end of private sector tenancies now the biggest cause of homelessness in England. As private sector rents have risen, the cap has meant a dwindling supply of housing affordable to those reliant on LHA to make the rent.

According to the NAO councils spent £1.15bn on homelessness services during 2015-16. More than three-quarters of this was on temporary accommodation. As LGC has previously reported, in many parts of the country temporary accommodation costs outstrip what is available through the LHA, meaning councils have to dip into their own funding to keep families off the streets.

As LGC reported today, the NAO was damning about the Department for Communities & Local Government’s approach to tackling homelessness, describing it as “light-touch”, and the failure of the government more widely to evaluate the impact of its welfare reforms, including the cap on the LHA, on homelessness.

One of these reforms, the introduction of universal credit, is causing a major worry to councils. LGC reported today that the first three councils with housing stock to complete a full roll-out – Croydon, Hounslow, and Southwark LBCs – have amassed rent arrears of almost £8m. More than 2,500 of their tenants are so far behind they are at risk of eviction.

This leaves the councils in an impossible position: either evict the tenants making them homeless and potentially liable for temporary accommodation, the cost of which is unlikely to be covered by universal credit, or bear the cost of arrears which will take UC claimants months or years to pay off without a dramatic change in their circumstances. Either way councils are left subsidising the government’s cuts with obvious implications for their own housing investment or even housebuilding plans.

By all accounts the problem with universal credit is not the principle – of simplifying the benefits system and encouraging greater personal responsibility – but its administration. Claimants are not entitled to any benefit for the first week after a claim and then do not receive a payout for six weeks.

Another impending reform is also causing concern to some councils – the Homelessness Reduction Act 2017. Due to come in in April, councils are yet to receive allocations for the additional funding they will receive to deliver it or guidance from the government on what exactly will be expected of them. In a letter to local government minister Marcus Jones this week, London Councils’ executive member for housing Sir Steve Bullock (Lab) warned it may already be too late to recruit the staff required to implement the changes from April.

In his letter Sir Steve, who is also Lewisham LBC mayor, calls for an end to the cap on the LHA, noting “it is increasingly insufficient to meet the cost of renting in London even at the lowest end of the market” and “has itself been a significant driver of homelessness”.

The cap was intended to bring down the welfare bill and tackle the perception that housing benefit was too generous to some families and so unfair on other low earners.

Although efforts to bring down the welfare bill intensified following the coalition government’s election in 2010, the Labour Party’s manifesto for that year also promised to reform housing benefit to prevent families on the benefit living in properties “that other ordinary working families could not afford”. If it was ever the case that significant numbers of families on benefits were being subsidised to live in relative luxury, those days have gone; the LHA cap’s biggest achievement is plunging thousands more families into housing insecurity.

It is high time the government looked again at this policy. Indeed, if the governments of the past decade had put as much effort into tackling the housing crisis, not to mention the nation’s huge skills gaps, as responding to Daily Mail headlines about welfare claimants’ perceived lives of luxury perhaps they would have had more success in bringing down the benefits bill.

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