Time for ministers to listen on the LHA cap

Originally posted on May 2 on my blog for Inside Housing. 

When not one but two all-party committees of MPs call on ministers to think again about a controversial policy you might think they would listen – but will they?

The Work and Pensions and Communities and Local Government Committees say the government should scrap its plan to impose a Local Housing Allowance (LHA) cap on supported housing and pay top-up funding via local authorities and devolved administrations.

Ministers claim the intention is not to save money but to ensure better value for money and monitoring of the quality of services.

But the MPs conclude that ‘the funding proposals, as they stand, are unlikely to achieve these objectives’ and that LHA is ‘an inappropriate starting point for a new funding mechanism’.

They call instead for a new Supported Housing Allowance for most of the sector to deliver the same objectives. This would have different bandings for different forms of provision and be based on a formula with a fixed amount to reflect the cost of provision and a variable amount to reflect land values in different areas.

There should also be a capital grant scheme for new development, which the MPs say would mean that rents and service charges could be consistent even when the cost of land varies.

While the government was right to focus on oversight of service quality in some areas, the MPs say that could be achieved via a set of national standards plus registration with and annual inspections by local authorities.

However, they also highlight the diversity of the sector. It may be home to more than 700,000 people but there is no statutory definition of ‘supported housing’ and the diversity of provision will pose a challenge to any new funding system.

The MPs conclude that women’s refuges and short-term and emergency accommodation need separate funding arrangements, probably involving grants to local authorities to fund provision. And they young tenants wishing to leave supported housing should be exempted from the support cut for 18-21 year olds.

They were clearly as unimpressed by the government’s plan for what amounts to a reinvention of Supporting People to run the ringfenced top-up funding as they were by its intention to use LHA.

On the first point, local authorities are unenthusiastic about a ringfence that is not flexible enough to allow them to be innovative and respond to demand but providers know what happened after the SP ringfence was removed in 2009.

On the second, the MPs say:

‘The LHA rate is a measure for general needs housing in the private rented sector and bears no necessary relationship to the cost of providing supported housing. The Government proposed its new funding model on the basis that there was a correlation between the LHA rate and the cost of providing supported housing in different areas. However, the evidence we have received strongly suggests there is no such correlation.’

They also heard evidence that uncertainty about the new system has put new investment on hold at a time when there is already a shortfall in demand:

‘We are concerned the Government does not seem to be aware of the impact its funding proposals are already having on the supported housing sector. The evidence we received is clear that some providers are reconsidering their investment plans in light of concerns around the long-term reliability of funding, with many others fearing they will be forced to reduce existing levels of provision.’

The report was rushed out just before the election shutters came down. A Green Paper setting out the government’s response to a consultation on future funding arrangements was expected this month but was delayed by the poll.

That makes the plans for a ‘shadow year’ for the new funding model from April 2018 and a ‘smooth and effective transition’ to it from April 2019 look challenging to say the least. The MPs call for piloting of the new system prior to phased implementation.

The joint committee’s recommendations have unsurprisingly got a warm welcome from the National Housing Federation (NHF).

Chief executive David Orr says: ‘We strongly urge the next Government to take heed of the report’s recommendations and reconsider the proposed changes ahead of the publication of the Green Paper.’

It certainly ought to take heed but will it? That depends first on whether you believe that the stated objectives are the real ones and how worried ministers are about the consequences of botched reform.

The government’s desire to avoid uncertain costs for services of uncertain quality may be understandable but so too is providers’ suspicion of anything involving a ringfence.

If there are doubts about the ability of cash-strapped local authorities to run the government’s top-up system, won’t they also apply to the committee’s proposed new system of local funding for homelessness services?

And what about supported housing’s place within a wider move to an LHA-based system for housing benefit?

The LHA began as a mechanism for allowing tenants to ‘shop around’ for cheaper rents but it has become the opposite: a way of imposing ever-rising shortfalls on tenants: an allowance as in payment towards your rent rather than for your rent.

That impact has only been amplified by the four-year freeze in LHA rates and it remains to be seen what will happen when the freeze ends in 2020.

As I blogged last month, the arbitrary impact of the LHA cap is not confined to supported housing and the under-35s.

It will also have a severe impact in low-LHA areas of Wales and parts of impact and it is already making some landlords question their policies on everything from allocations to rent setting and their future development plans. It also has the potential to become a backdoor bedroom tax for pensioners.

For Conservatives, the LHA may appeal ideologically as a way of relating all rents to the market (even though it doesn’t now and can’t do by definition when it is extended to cover twice as many properties as now).

But the LHA also offers a stealthy method of making cuts that is not immediately apparent. Any cuts to a Supported Housing Allowance would by contrast be highly visible and highly contentious.

Will a report from two select committees be enough to make the government change course? The all-party consensus is certainly positive and it lays down a marker for the new government.

However, the government has simply ignored previous select committee reports with inconvenient conclusions. Remember 2014, when the Work and Pensions Committee recommended major changes to the bedroom tax?

The same is true of a raft of other select committee reports rushed out just before the election shutters came down.

As I blogged on Friday, the Public Accounts Committee had some harsh words about the state of the housing nation, while on Saturday the Communities and Local Government committee criticised the market dominance of big housebuilders and called for more borrowing freedoms for council housing.