Homelessness and Universal Credit: research report

5. Other policies

In addition to sanctions and the five-week wait, there are a number of aspects of the welfare system which reduce benefit income but which are mitigated through Discretionary Housing Payments (DHPs). These include the Bedroom Tax, the Benefit Cap, and recent decisions around Local Housing Allowance (LHA) rates. While these policies also apply to legacy benefits, they have been retained with the introduction of UC.

LHA rates are used to calculate the housing element of UC, as well as Housing Benefit, for tenants in the private rented sector based on the area in which they live. As detailed in our previous report on welfare reform and housing, LHA rates were cut in real terms since 2011 and the link between market prices and payments was lost.^[26] Although LHA rates were rebased at the 30^th percentile of market rents in April 2020, the UK Government has announced that they will be frozen indefinitely in future years. This will amount to real-term cuts as rents increase, forcing more tenants to accept lower-value accommodation, pay an increasing shortfall between their housing benefits and their housing costs, or fall into arrears. As LHA rates, rents, and rent increases vary geographically, so too do the impacts. A survey undertaken by Crisis found that 6 in 10 Local Authorities in England reported significant increases in homelessness as a result of the previous LHA freeze.^[27]

The Benefit Cap, introduced in 2015 as the UC rollout was gathering pace, limits the total amount of benefit income that a household can receive. The number of households affected by the cap has nearly doubled during the Covid-19 pandemic, from around 3,300 in January 2020 to around 6,400 in August. During this time the average amount lost due to the cap has stayed approximately the same, at just over £50 per week, or £2,600 per year.^[28] The vast majority of capped households contain children, and most are lone parents.

The Bedroom Tax is a reduction in UC and legacy benefit housing payments for claimants in the social rented sector who are deemed to have 'spare bedrooms' when compared to the number and ages of people in the household. In particular, the maximum rent that can be covered through benefit payments is reduced by 14% for 1 spare bedroom and by 25% for 2 or more spare bedrooms. The Bedroom Tax was introduced in 2013, the same year as Universal Credit.

We estimate that the LHA freeze, the Benefit Cap, and the Bedroom Tax will reduce expenditure on housing-related reserved benefits by around £115 million each year in Scotland by 2024/25.^[29] However, the Bedroom Tax is fully mitigated in Scotland, while the Benefit Cap and LHA rates are mitigated at the discretion of Local Authorities. These policies would likely have a more significant impact on homelessness if they were not mitigated. Indeed, a report for the Social Security committee report found DHPs were an important factor in preventing rent arrears.^[30]

Figure 11 shows that both the number of DHPs awarded and the average value of each claim have increased since 2013, implying that the unmitigated impact of these policies has increased as UC has been rolled out. In total, £66 million was spent on DHPs in Scotland in 2019/20, with the budget increased to £75.6 million in 2020/21.^[31] The majority of DHP expenditure is targeted at the Bedroom Tax, with smaller proportions directed at the Benefit Cap and LHA rates, as shown in Figure 12.

Source: Scottish Government, May 2020, Discretionary Housing Payments in Scotland: 1 April 2019 to 31 March 2020

Source: Scottish Government, May 2020, Discretionary Housing Payments in Scotland: 1 April 2019 to 31 March 2020