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Local Housing Allowance House of Commons Work and Pensions Committee Local Housing Allowance Fifth Report of Session 2009–10 Report, together with formal minutes and oral evidence Ordered by the House of Commons to be printed 22 March 2010 HC 235 Published on 30 March 2010 by authority of the House of Commons London: The Stationery Office Limited £15.50 The Work and Pensions Committee The Work and Pensions Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Work and Pensions and its associated public bodies. Current membership Terry Rooney MP (Labour, Bradford North) (Chairman) Anne Begg MP (Labour, Aberdeen South) Harry Cohen MP (Labour, Leyton and Wanstead) Michael Jabez Foster MP (Labour, Hastings and Rye) Oliver Heald MP (Conservative, Hertfordshire North East) John Howell MP (Conservative, Henley) Joan Humble MP (Labour, Blackpool North and Fleetwood) Tom Levitt MP (Labour, High Peak) Greg Mulholland MP (Liberal Democrat, Leeds North West) Chloe Smith MP (Conservative, Norwich North) Jenny Willott MP (Liberal Democrat, Cardiff Central) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/parliamentary_committees/work_and_pensions_committee.c fm. A list of Reports of the Committee in the present Parliament is at the back of this volume. Committee staff The current staff of the Committee are James Rhys (Clerk), Emma Graham (Second Clerk), Hanna Haas (Committee Specialist), Laura Humble (Committee Media Adviser), Lisa Wrobel (Senior Committee Assistant), Hannah Beattie (Committee Assistant) and Sharon Silcox (Committee Support Assistant). Contacts All correspondence should be addressed to the Clerk of the Work and Pensions Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5833; the Committee’s email address is [email protected] 1 Contents Report Page Summary 3 1 Introduction 5 National roll-out of LHA 6 Key features of LHA 7 Private sector only 7 Standard rates within Broad Rental Market Areas 7 Direct payments 7 Keeping the difference 8 The inquiry 9 2 Objectives of Local Housing Allowance 11 Fairness 11 Choice 12 Transparency 12 Improving personal responsibility and financial inclusion 13 Reducing barriers to work 14 Improving administration 15 3 Direct payments—principles 17 4 Direct payments—practicalities 21 Access to bank accounts 21 Timing of payments 22 Access to financial advice services 24 5 Vulnerable claimants and rent arrears 27 Rent arrears 27 Vulnerability safeguards 28 Eight weeks rule 28 Early intervention 30 6 Broad Rental Market Areas 33 BRMA boundaries and access to work 33 Rent levels and £15 excess entitlement 37 7 Impact of LHA rules on large families, disabled people and under 25s 41 5 bedroom cap 41 Disability 43 Under 25s 46 Conclusions and recommendations 48 Formal Minutes 52 2 Witnesses 53 List of unprinted evidence 53 List of Reports from the Committee during the current Parliament 56 3 Summary The Local Housing Allowance (LHA) is a way of calculating entitlement to Housing Benefit for customers living in the private rented sector which applies to customers who have made a new claim or moved address since 7 April 2008. The concept of a flat rate allowance was first considered as part of the Government’s Housing Benefit reform plans in 2002, and was extensively tested in 18 local authorities from 2003 onwards. The aim of the LHA is to give customers more choice and responsibility over their housing needs. LHA rates are set locally for each property size according to the number of bedrooms and customers are able to see in advance the maximum amount of benefit to which they are entitled. We believe that this represents an improvement on the previous scheme whereby rent was calculated on an individual basis by rent officers. It makes the benefit much simpler to understand, transparent and easier to administer. The LHA is currently being monitored by the Department as part of a two-year review. This inquiry will provide an analysis of how the scheme has worked against its primary objectives of fairness, choice, transparency, improving personal responsibility and financial inclusion, reducing barriers to work and improving administration. Evidence suggests that whilst the objectives of LHA are sound, it is falling short of its original intentions and is in need of urgent review to ensure that those intentions can be met in practice. Particularly in the current economic climate, we believe it is important to increase personal responsibility and financial inclusion and to remove barriers to work, and we make a number of recommendations in this report as to how this aspect of the scheme can be improved. A key feature of the LHA is that, in most circumstances, customers have their benefit paid directly to them. This is the most controversial aspect of the LHA and the one on which the Committee received most evidence, with the majority arguing that tenants should have a choice in whether the benefit is paid to them or directly to the landlord. However, we believe that direct payments to the tenant should remain the default as long as the necessary financial advice and vulnerability safeguards are in place. Managing one’s own finances is an important step towards personal responsibility and financial inclusion and, through this, readiness for work. There is evidence that giving tenants the choice of having rent either paid to them or the landlord would defeat this important objective of the scheme and help perpetuate benefit dependency. However, we acknowledge that the policy of direct payments to the tenant will only be working well when practical problems are addressed, safeguard procedures for vulnerable tenants are strengthened and landlord confidence in the scheme is improved. We make a number of recommendations in this report to that end, for example on access to bank accounts and calling on local authorities to use their discretion as to the form in which they pay LHA. We also believe it is the Department’s responsibility to ensure that local authorities identify vulnerable tenants early, before the build up of rent arrears, and to ensure that local authorities understand the safeguard rules and implement them correctly. We recommend that local authorities should seek the advice of landlords, financial advice services and the 4 voluntary sector pro-actively to identify vulnerable claimants. LHA rates are set at the median rate for each bedroom size within a Broad Rental Market Area (BRMA). BRMA boundaries are set by rent officers and are intended to reflect areas in which people live in terms of access to transport and services. The evidence on the existing boundaries for BRMAs suggests that most are working well in terms of the level at which the LHA is set. However, there are some within which rent levels vary considerably where the LHA has the potential to distort the local private rental market and impede access to work. We recommend that the Department asks the Valuation Office Agency to review those areas where rents vary greatly, such as Cambridge and Blackpool. We also strongly recommend that the Department include access to low paid work as an underlying criterion for setting BRMAs. On 6 April 2009, regulations were amended to cap LHA levels at the five bedroom rate. We agree with the Government’s principle that Housing Benefit levels should be appropriate to what is affordable for people on low pay and should represent value for money for the tax payer. This relationship was clearly distorted when LHA was rolled out and a small number of benefit claimants living in large accommodation claimed an amount for rent that was well out of the reach of most working families. However, it is equally important that the solution to this problem does not undermine other Government objectives on availability and quality of housing, child poverty and race equality. There is clear evidence that the current LHA rules constitute a real barrier to independent living for disabled people who require an extra bedroom and we believe this requires urgent action from the Department. We recommend that the Department changes LHA rules as a matter of urgency to allow for reasonable adjustments for disabled people in line with its obligations under the Disability Equality Duty. 5 1 Introduction 1. On 17 October 2002, the then Secretary of State for Work and Pensions, Rt Hon Andrew Smith MP, announced plans for a new form of Housing Benefit (HB) which would no longer be directly linked to rent levels. This new scheme, the Local Housing Allowance (LHA), was introduced in nine “Pathfinder” areas from November 2003 and was extended to a further nine areas from April 2005.1 2. The Department for Work and Pensions (DWP) describes the aims and objectives of the LHA on its website: 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.
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