Labour's housing benefit freeze leaves almost one million children at risk of poverty

Labour’s decision to freeze local housing allowance (LHA) rates will leave almost one million children living in households where there is a shortfall between housing benefits and rents.

Analysis from the Institute for Public Policy Research (IPPR) think tank found that the government’s decision not to raise LHA to cover the bottom 30% of rents will leave 925,000 children living in households facing a cash gap.

An estimated 440,000 households with children currently cannot cover their rents with housing benefits with an additional 90,000 households expected to struggle to make ends meet by March 2026 following the government’s LHA freeze.

• Rough sleeping in London won’t get better until 2026, says Sadiq Khan
• MPs and voters agree that there is a housing crisis – but they’re split on how to solve it

Not all families are affected equally in different parts of the country. Families in Wales hardest hit with 62% of households renting privately facing a shortfall compared to 31% in Scotland.

Homelessness and housing campaigners have called for the government to rethink its plan to freeze LHA rates as the Big Issue revealed the decision could see families face real-terms cuts of hundreds of pounds a year.

Henry Parkes, principal economist at IPPR and author of the report, said:  “A safe, secure and affordable home should be the foundation for every child’s future. Instead, too many families are trapped in a cycle of poverty and instability caused by unaffordable rents and insecure tenancies. Housing reform isn’t just a moral imperative – it’s an economic necessity.”

LHA rates are intended to ensure housing benefits cover the bottom 30% of market rates to ensure low-income renters can cover private rents in their area.

The rates used to cover the 50th percentile of private rents until the Tory-Liberal Democrats coalition government reduced that to 30%.

LHA rates have also faced freezes in recent years. The Conservatives had frozen LHA rates for four years before re-linking them to private rents last year while Labour opted to refreeze rates from April this year.

That’s despite rents hitting record highs and rising above inflation and wages.

IPPR analysis found the decision to cut the percentage of rents LHA covers as well as periodic freezes has made at least two-fifths of private rental properties less affordable and led to an increase in child poverty. 

The think tank has called for an increase in social housing to cut the government benefit bill as well as a long-term target to increase LHA rates to cover the bottom 50% of market rents.

Researchers also urged the government to set up a new English housing tribunal as part of the Renters’ Rights Bill, which will be debated by peers in the House of Lords for the first time this week. The tribunal would enforce new rights given to private renters by the Renters’ Rights Bill, as well as conducting a review into the evidence for formal rent caps. 

The government spends around £32bn a year on housing support through the benefits system with most of the cash going into the pockets of private landlords, IPPR researchers said.

The think tank’s modelling found that the government could save £3bn a year in housing benefit expenditure and reduce relative poverty by 200,000 if it was able to move all families with children on means-tested benefits into social housing.

IPPR’s findings come just days after Big Issue analysis revealed Labour’s decision to freeze LHA rates could see low-income renters face a real-terms cut to housing benefit costing them hundreds of pounds a year.

Our analysis of Valuation Office Agency figures showed tenants in shared accommodation face an effective cut of £445 in housing benefit over the next year. Renters in one-bedroom accommodation could lose £599 a year with a £753 loss in two bedrooms, cuts of £930 in three bedrooms and families in four-bedroom £1,275 a year worse off.

Polly Neate, chief executive of Shelter, said the LHA freeze was driving homelessness. 

“Local housing allowance should be a lifeline, covering the bottom third of local rents – but right now, it simply doesn’t. The government must unfreeze it immediately so struggling families can avoid homelessness,” she told the Big Issue.

A government spokesperson said: “No person should be in poverty – that’s why we’ve extended the household support fund again, are maintaining discretionary housing payments and are giving an extra £233m to councils directly for homelessness, including the largest-ever investment in prevention services, taking the total to nearly £1bn for 2025/26.

“Alongside this, we are uprating benefits and the state pension, increasing the national living wage and helping over one million households by introducing a fair repayment rate on universal credit deductions, while our child poverty taskforce develops an ambitious strategy to give all children the best start in life.”

Do you have a story to tell or opinions to share about this? Get in touch and tell us more. Big Issue exists to give homeless and marginalised people the opportunity to earn an income. To support our work buy a copy of the magazine or get the app from the App Store or Google Play.