The new Housing Benefit cap and how pensioners lose out

The summer budget of 2015 brought many reforms to already super-reformed benefit system. I’ve talked about many of them here before – cuts to the universal credit work allowance that severely damage work incentives, a much lower benefit cap that restricts benefit for renting families, a higher minimum wage for over 25s (the advantages of which are greatly offset by losses to benefits).

One of the most severe cuts, however, relates to the capping of housing benefit and universal credit for those renting from social landlords. This includes rent charges by local councils, housing associations and other registered providers of social housing.

Currently, for the most part, housing benefit and the equivalent housing element of universal credit is payable on the whole sum of the rent if the claimant lives in social housing. Certain charges are not paid for, like payments the tenant makes for laundry, cleaning or personal care, even if they are included in the rent. Otherwise, whatever is charged to the tenant is the maximum housing benefit. This is not necessarily the actual payment. If the person has sufficient funds to pay some money towards the rent, the housing benefit may be lower. It sets the maximum payment.

Local Housing Allowance

This contrasts with rents in the private sector which are based on an average market rent in the local area. This average market rent is called the local housing allowance (LHA). If the person’s rent is higher than the LHA, the maximum housing benefit is limited to the LHA rate. If the rent is lower, the maximum housing benefit is the amount they are charged in rent.

Up until 2012 the LHA was based on the exact mean average rent in the area. This meant that 50% of properties in any given area were at or below the LHA rate and 50% were above it. From 2012 this was changed so that the LHA was set at only the 30% rate of average rents. Less than a third of privately rented properties now have a rent that can be met by housing benefit.

Why is this all relevant? Well, from April 2017 the maximum rent in the social sector that can be met by housing benefit or the housing costs element of universal credit will also be limited by the local housing allowance. This may not seem problematic at first glance. Social rents are necessarily lower than market rents so this isn’t a problem, surely. Why does this even need to be put in place?

Well, not all social rents are lower than the market rent that would be applicable in the claimant’s case. I want to discuss two main areas where this a potential problem – pensioners who are underoccupying their home and people in supported accommodation. I’ll look at pensioners this week and turn my attention to supported accommodation next time.

Pensioners and the “bedroom tax”

The underoccupation charge, more commonly known as the bedroom tax, has affected working age people since 2013. It reduces the maximum rent that housing benefit or universal credit can pay if the tenant has a spare bedroom. Spare bedrooms are worked out using a strict definition with very few exceptions. It means that a single person must live in a one bedroom flat or lose money, while a family with two children needs a two bedroom or possibly three bedroom property. If the house is too big, benefits will not cover the rent, even if a smaller place is not available.

Pensioners are exempt from this charge and will continue to be. So, for example, a single pensioner can continue living in a large family home, even if their family has long since moved out. Under the new rules, this will no longer be the case as the LHA will limit the rent based on the type of property the person needs. If they do not need two, three or four bedrooms they will be limited to how many they need.

Let’s use Carmathenshire as an example. The average social rent for a property with two or more bedrooms is £80.99. For a one bedroom property it is £67.94. The LHA for a two bedroom property is £92.05 and for one bedroom it is £72.98. You can see that the LHA rate is comfortably over the equivalent social rent. However, if a pensioner is underoccupying the property, their rent is capped at the LHA rate for the smaller property that they are deemed to need.

A single pensioner or a couple occupying a two bedroom property in Carmathenshire can currently receive the full £80.99 that is their average rent. From April 2017 they would only be entitled to the LHA for a one bedroom flat, so would have their housing benefit reduced to £72.98. That is a loss of £8.01 per week – a 10% loss of benefit. This compares to a 14% loss of benefit that a working age person would receive due to the so-called bedroom tax. Not far off equivalent.

Pensioners are exempt from the bedroom tax? Not from April, they’re not.