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Local Housing Allowance (LHA) was introduced on 7 April 2008 to provide Housing Benefit entitlement for tenants renting private sector accommodation in England, Scotland and Wales. The LHA system introduced significant changes to the way Housing Benefit (HB) levels are restricted and how benefit is paid. It does not replace Housing Benefit - it is just a different way of calculating entitlement under the existing Housing Benefit scheme. Its aim is to improve levels of transparency when calculating Housing Benefit. Under LHA, a flat allowance is used to decide the eligible rent of all claimants with similar sized households living in a broad rental market area, rather than tying the level of benefit to the individual property. This is supposed to provide an incentive for those on Housing Benefit to find cheaper accommodation.
In October 2002 the Government announced the introduction of the Local Housing Allowance (LHA) to replace existing Housing Benefit rent restrictions for private tenants. Local Housing Allowance uses the same regulations as the existing scheme. LHA is means tested and tapered in exactly the same way as Housing Benefit - however, the eligible rent is fixed for a household of a given size in a given area. It is not normally restricted below the advertised LHA rate; if the tenant moves into accommodation that is cheaper than the LHA rate, the tenant gets to keep any difference (up to a maximum of £15). (Payments of this 'top up' amount in LHA calculations ceased in February 2009)
Local Housing Allowance was introduced starting in November 2003 as part of a wider review of Housing Benefit regulations in nine 'Pathfinder' or pilot areas: Blackpool, Brighton & Hove, Conwy, Coventry, Edinburgh, Leeds, Lewisham, North East Lincolnshire and Teignbridge - starting in Blackpool in 2003. From April 2005 a further nine councils started to implement the LHA, starting with Wandsworth, followed by East Riding, St Helens, Argyll and Bute, South Norfolk, Norwich, Pembrokeshire, Guildford and Salford.
An evaluation of the operation of the LHA was commissioned by the Department for Work and Pensions, and carried out by The Centre for Housing Policy, working as part of a consortium of universities, together with the National Centre for Social Research.
Housing Benefit is a means tested social security benefit in the UK that is intended to help people with low incomes pay for rented accommodation. It is governed by various acts of Parliament - see, for example, The Social Security Contributions and Benefits Act 1992 . Operationally, the governing Regulations are statutory instruments arising from that Act. It is governed by one of two sets of regulations. For working age claimants it is governed by the Housing Benefit Regulations 2006, but for those who have reached the qualifying age for Pension Credit, these are amended by The LHA and Information Sharing Regulations. The legislation to enable Local Housing Allowance was introduced under the Welfare Reform Act which received Royal Assent in May 2007. This provided for the national application of the LHA regime on April 7, 2008 and the introduction of the Employment Support Allowance, which replaced Incapacity Benefit.
The LHA system is a form of housing benefit administered, along with council tax benefit, by the local authority in whose area the property being rented lies. For those areas where there is two-tier local government Housing Benefit is administered by the District or Borough council layer of local government.
Unlike the previous schemes, the claimant is normally unable to request that payments of benefits are made to their landlord, although they may be made to a third party. Exceptions may be made where the tenant has a history of not paying rent or is not sufficiently able to handle their affairs. Decisions on this are subject to a Council operated Safeguard Policy which may be requested from the Local Authority.
In all cases a landlord must be paid the rent (without any excess) if the tenant is more than 8 weeks in arrears. This will continue until the arrears are below 8 weeks.
LHA does not currently affect:
Housing Benefit is available only to those who are treated as liable to pay rent, have permanent right to reside in the UK and pass the habitual residence test.
In the main only new claims and tenants who move into a private assured shorthold tenancy will be paid Local Housing Allowance.
In the Pathfinder and Second Wave Group of Local Authorities (those detailed in the section above), any tenant who would have received less Housing Benefit under the LHA rules than under their previous scheme had their prior eligible rent protected until their LHA figure is higher than the benefit allowed under the previous scheme, after which time their eligible rent switchs to that set under the LHA rules.
Initially, where the LHA amount was more than the actual rent paid, the claimant was permitted to keep any excess Housing Benefit paid over and above their rental liability. The rules have been amended for the national roll out of LHA so that claimants will only be awarded a maximum LHA of £15 per week over and above their actual rent if they find a property cheaper than their applicable LHA rate. Any existing claimant in the Pathfinder/Second Wave Group authorities who receives more than this amount under the existing rules will also have this extra protected for 52 weeks, after which time the £15 maximum excess will apply. As part of the 2009 Budget, the Secretary of State for Work and Pensions proposed to amend the Housing Benefit regulations from 5 April 2010 so that the up to £15 weekly excess that customers can receive over and above their contractual rent is removed. This will mean that no claimant can receive more in Housing Benefit than they actually pay out in rent. This proposal would remove the incentives for tenants to seek less-expensive accommodation which was one of the primary rationales for the roll-out of Local Housing Allowance. Coupled with the removal of the supervisory role formerly played by the local rent officer, this raises questions about the long-term sustainability of the programme.
Where the landlord is a not for profit company (or voluntary organisation), a Registered Social Landlord or a Local Council that provides care support or supervision, they will be exempt from Local Housing Allowance and will fall under the housing benefit rules in operation prior to 2 January 1996.
The LHA does not currently apply to council tenants and most housing association tenants but, from April 2013, a reduction in eligible rent for those of working age under-occupying their home will apply. This will reduce the rent on which benefit is paid by 14% for those with one extra bedroom and 25% for those with two or more.
LHA will only be paid directly to the landlord if there are exceptional reasons - e.g. if the tenant is unable to handle their financial affairs, has a bad history of paying landlords or is more than 8 weeks in arrears. If the tenant is in arrears by more than 8 weeks, benefit must be paid to the landlord.
The amount of LHA awarded depends on:
Local Housing Allowance will be calculated on the number of rooms the claimant's household needs not the number of rooms in the property or the amount of rent charged.
The number of bedrooms needed is based on the number, age and sex of people who live in the claimant's household. The bedroom requirement is calculated as follows:
If the claimant is single and aged under 35, the category of property considered appropriate is a bedroom in shared accommodation. This means a property in which the claimant has the exclusive use of one bedroom, but shares one or more of a kitchen, a bathroom, a toilet or a room suitable for living in.
The maximum LHA rate covers a four bedroom property.
The old way of setting fair rents for an area involved rent officers assessing each property, and a maximum Local Reference Rent set to reflect the maximum 'reasonable' rent for the area. Under LHA, Broad Market Rental Areas (BMRA) have been defined, and rent officers attempt to determine a median rent level which is intended to give Housing Benefit recipients access to roughly the cheapest 30% of the properties available to rent in any given area.
For definition of Broad Market Rental Area, see Concepts and terminology section above.
All Housing Benefit decisions of a Local Authority are subject to appeal through the Tribunals service. There is no direct right of appeal against the LHA rate awarded to an individual tenant, or the local rent level specified by the rent officer for the Broad Rental Market Areas. However, their decisions are open to Judicial Review and they have already been subject to challenge.
Questions of fairness of the Local Housing Allowance system were raised when it was revealed in October 2008 that a family in the London borough of Ealing was receiving £150,000 a year in Local Housing Allowance to rent a 7 bedroom property. As the Brown government acknowledged in the 2009 Budget, families on benefit might be significantly better off than low income working families. "Indications [...] are that some claimants may be able to afford accommodation that is out of reach of working families on low incomes. Furthermore, costs of Housing Benefit have been rising above inflation despite static caseloads." The transition from the old housing benefit system to Local Housing Allowance significantly increased payments available for larger houses in some areas, as can be seen by comparing the Local Reference Rent calculated by the Valuation Office Agency, which served as the basis for determining the old housing benefit, against the current Local Housing Allowance. As an example, the Local Reference Rent for the largest type of house in the East Thames Valley locality in March 2009 was £328.85 per week, while the Local Housing Allowance for a similar property in the same area was £646.15 per week, an increase of £16,500 per year.