The gap between what councils are paying out in housing benefit and the amount they are reimbursed by the Department for Work and Pensions (DWP) is projected to cost local government over £3 billion from 2017/18 to 2029/30, new analysis reveals.
The analysis, released just days ahead of the Autumn Budget to illustrate the immense financial pressure councils are facing, was carried out by the Local Government Association (LGA) and looked at the cumulative cost of the ‘Temporary Accommodation Subsidy Funding Gap’ in the past eight years.
While households receive the full housing benefit they are entitled to, the amount councils can claim back from DWP is currently capped to 90 per cent of Local Housing Allowance (LHA) rates from back in 2011.
This means councils are not able to claim back costs that reflect what they are spending, and it is increasingly getting worse as the demand for temporary accommodation (TA) rises and they can claim back less and less.
Releasing the stark findings in the run-up to the Budget, the LGA is calling on the Government to address this issue immediately, by uprating the LHA rate councils can be reimbursed to current rent rates.
In addition to identifying how much this difference had left councils out of pocket over recent years, it also found that the annual gap was set to grow by almost 50 per cent in the next five years, from nearly £270 million to almost £400 million per year, without decisive action.
In 2023/24, the most recent year for which we have data, the total spend on housing benefit for councils in England on temporary accommodation was £1.05 billion, while the DWP only reimbursed £780 million to councils, leaving a £266 million gap.
The amount that councils spent on temporary accommodation in 2024/25 was £2.8 billion, indicating that the subsidy gap will be even greater.
If the LGA ask of uprating the subsidy rate to 90 per cent of prevailing LHA rates were agreed, the total projected cumulative cost by 2029/30 will be almost 30 per cent (28 per cent) less than if nothing is changed (£2.3 billion) – that is a saving of £700 million to councils.
The scale of the problem is immense, with currently 132,410 households in TA including 172,420 children.
This challenge risks being exacerbated by the reduction of the Move On period back to 28 days for single adults, and we ask the Government to work with us on resolving this issue.
Cllr Tom Hunt, Chair of the LGA’s Inclusive Growth Committee, said: “It makes no sense that the rates that councils are receiving from the DWP are a decade and half old – the LHA rate must be brought into line with the current reality.
“While the cost of delivering essential services keeps climbing, councils are caught in a vicious cycle of ever-increasing temporary accommodation costs versus static rates they receive back to cover their costs. This means that more and more pressure is applied to their finances, having real world implications for service delivery and growth.
“The Chancellor must use the Budget to undo this immediately. Not only will it mean councils can address the housing crisis more effectively, it will mean that they can focus on investment to drive growth and prosperity for their communities.”
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