Under the new scheme, the LHA will be paid directly to the tenant who will then take over responsibility for paying rent to the landlord. This represents a significant change from the existing procedure whereby HB can be paid direct to the landlord - leaving the route open for dishonesty.
NLA chairman David Salusbury commented: “At present landlords who provide homes to people on housing benefit generally have the security of knowing that they will receive rent direct from the local authority. Under the new arrangements, the local housing allowance will be paid into the tenant’s bank account, and the onus will be on them to pay the rent to the landlord.
"This leaves open the possibility that the tenant may be tempted to use the money for something else and not pay their rent. This might be because of other pressing financial needs, but it could lead to them getting into arrears. Ultimately that could threaten the security of their home.”
Part of the Welfare Reform Act 2007, the new scheme will apply to HB recipients in the private-rented sector. It is currently being piloted, with a view to a national roll-out from 7 April 2008.
It uses a flat rate allowance based on the size of the tenant’s household and the area in which they rent property to decide the amount of benefit they will receive. This amount is not directly related to the rent charged by the landlord so the benefit that the tenants receive may be higher or lower than the contractual rent. The rate of LHA that customers receive will be reviewed on an annual basis. The LHA is also adjusted to take account of other income received by the tenant or the impact of other people living in the household.
Different LHA rates will apply in different areas. Within those areas, they will be based on the median rent charged by private landlords for properties of various sizes. LHA rates will be further broken down into ‘Room Rates’ that will apply depending on the size of the household, including any non-dependants. Size criteria will be based on allowing one bedroom for:
a) Every adult couple
b) every other adult who is not part of a couple
c) any other adult aged 16 or over
d) any two children of the same sex
e) any two children regardless of sex under age 10
f) any other child
Living rooms, kitchens and bathrooms are ignored for the purpose of the size criteria.
David Salusbury continued: “The procedures for the calculation of the allowance are complex and in some cases could mean that tenants will not receive enough to cover their existing rent. In such situations they will either have to find the difference from other sources, if they can, or find cheaper alternative accommodation – which may create upheaval.
“The upside for tenants is that they will have greater flexibility to use their benefit as they wish – they may elect to live in cheaper accommodation so that they can save some of their allowance for other purposes. The downside is that the onus of greater responsibility will be placed on them to manage their finances, and some unfortunately will fail to do so.
“In the pilot areas, it is probable a number of tenants have defaulted on their rent. If this were to become a widespread trend it would be a cause for considerable concern. There is a statutory requirement for local authorities to pay landlords direct in cases where eight weeks’ arrears have built up. While this is an important safety net, landlords need to be paid punctually and efficiently rather than having to go to the local authority to collect the arrears.
“As ever, we remain committed to working with local authorities to make sure that the introduction of the allowance is as trouble free as possible. It is important that landlords are not discouraged from continuing to provide accommodation to recipients of housing benefit, either because a number of tenants fail to pay their rent or implementation of the new regime is flawed.”
