Budget leaves big gaps to be filled

Posted: November 27, 2025 | Author: julesbirch | Filed under: Benefit cap, Budget, Housebuilding, Local housing allowance, Rents |Leave a comment

Originally written as a column for Inside Housing.

Even if it had not been leaked in advance, this Budget could have been defined as much by what was not in it as what was.

The astonishing mistake made by the Office for Budget Responsibility (OBR) in uploading a report containing all the key measures before chancellor Rachel Reeves had started speaking came after weeks of well-sourced stories about them.

We already knew the headline measures: the abolition of the two-child limit; a council tax surcharge on high-value homes; and freezing income tax thresholds.

They were joined on the day by a private landlord tax (higher rates of income tax on income from property), confirmation of more money for the Warm Homes Plan and a welcome move to tackle the ‘benefit trap’ facing tenants in supported and temporary accommodation. 

But the Budget delayed one of the decisions most eagerly awaited by  social landlords: they will now have to wait until January for the government’s final decision on rent convergence, in effect how quickly they can increase their lowest rents above the CPI plus 1 per cent limit.

Three months on from the consultation closing, the Budget background document explains that: ‘While the government remains committed to implementing social rent convergence, it is important to take the time to get the precise details right, taking account of the benefits to the supply and quality of social and affordable housing, the impact on rent payers and affordability.’

And there was no mention at all of the Local Housing Allowance (LHA) freeze, perhaps the housing issue raised by more organisations than anything else in the run-up to the Budget.

LHA rates have been frozen since April 2024, based on the cheapest 30 per cent of local rents in September 2023, but rents have already risen by 19 per cent since then.

The overall benefit cap also went unmentioned, even though keeping it in place will blunt the impact of abolition of the two-child limit on child poverty.

Confirmation that the freeze in both will continue in 2026/27 finally came in a written statement from work and pensions secretary Pat McFadden. 

A reversal of the LHA freeze would have cost £1.5 billion a year but, according to the Institute for  Fiscal Studies (IFS), a million low-income households have already lost £1,500 each as a result.

The result next year will be even larger rent shortfalls. Rent arrears, evictions and homelessness will be the inevitable result.

There was no news either for local authorities desperate for relief from the costs of homelessness and temporary accommodation.

Ahead of the Budget, the Local Government Association] warned that the gap between what councils are paying for temporary accommodation and what they get back from the Treasury will reach £3 billion by 2029/30. 

As things stand, they can only claim 90 per cent of LHA rates from 2011 even as the homelessness and costs have soared.

But there is a direct link between this and the chancellor’s key Budget theme.

‘The biggest barrier to equal opportunity is child poverty,’ she said in her speech. ‘Because for every child that grows up in poverty, our society pays a triple cost. The first and the heaviest is to the child. Going to school hungry, waking up in a cold home, or in another B&B while other children enjoy the advantages of parents with time to help with homework, the quiet space at home to work in – too many go without.  

‘And there is also the cost of supporting a family in poverty which ends up in the lap of overstretched councils who can do no more than shunt them into temporary accommodation, at huge cost to local taxpayers.’

It seems strange to acknowledge this in her speech but do nothing about it in her Budget so it is still just possible that there may be a decision in the homelessness strategy expected shortly but the signals do not look good.

Elsewhere in the Budget, there were significant moves on property taxation that fell well short of the fundamental reform required.

The new high value council tax surcharge will raise a useful £400 million a year and does begin to address the fundamental unfairness of a regressive system.

The Treasury says the surcharge will affect properties worth over £2 million – about 1 per cent of the total -but it remains unclear how they will be revalued given that council tax is still based on house prices from 1991.  

This ‘mansion tax’ has got all the attention but the new tax on landlords will actually raise more money (£500 million a year).

This was part of a wider move to increase income tax on unearned income (property, dividends and savings) relative to earned income from work.

Landlords will now pay a basic rate of  22 per cent tax on their income from property (up from 20 per cent), a higher rate of 42 per cent (40 per cent) and an additional rate of 47 per cent (45 per cent).

Once this sinks in, the inevitable result will be another rash of headlines about a ‘landlord exodus’ and a likely increase in landlords turning themselves into companies. 

The unknown is the impact on the supply of private rented homes but the OBR forecast that it will reduce over the longer term and ‘risks a steady long-term rise in rents if demand outstrips supply’.

On the supply of homes more generally, the Budget had little to say beyond a concession to housebuilders on changes to landfill tax they claimed would add £25,000 to the cost of a new home.

The Budget background document repeats that ‘the government is committed to delivering 1.5 million homes in England’ while offering little else to support that apart from planning reforms and funding already announced.

But thanks to its embarrassing error we already knew what the OBR thinks of that.

The watchdog expects net additions to fall to 215,000 in 2026/27 before rising sharply to 305,000 by 2029/30 and concludes that: ’This leaves cumulative net additions between 2024-25 and 2029-30 at 1.49 million, around 10,000 lower than in March’.

But before anyone gets too excited about getting so close these are figures for the whole of the UK. The target of 1.5 million for England  alone looks as far away as ever.  

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