The Resolution Foundation is urging the UK government to allocate an extra £2 billion annually to housing benefits in the October 28 Budget. The proposal seeks to tie the Local Housing Allowance (LHA) to current market rents to alleviate the burden on low-income renters.
The £2 billion push to re-link Local Housing Allowance
The Resolution Foundation, a think-tank with ties to the Labour party, argues that the Local Housing Allowance (LHA)—the primary subsidy for private renters—must be automatically linked to current rent levels in each council area. According to the report, restoring this automatic annual rise would cost the Treasury an additional £2 billion per year by the 2029-30 period.
This increase would bring the total national housing-benefit bill to approximately £39 billion for the current year. The Resolution Foundation suggests that the current system, which sets LHA rates at a fixed percentage of local rents (originally 50% and later reduced to 30%),is too infrequent in its adjustments to keep pace with the volatile private rental market.
Closing the £300 monthly shortfall in Inner East London
The disparity between government subsidies and actual market costs has created severe financial pressure for the UK's poorest residents . In London's Inner East, the report notes that some beneficiaries face a monthly shortfall of £300, while those in other parts of the city see gaps exceeding £200.. This gap is not limited to the capital; the Resolution Foundation claims that more than 50% of English areas now have a shortfall greater than £100.
These figures highlight a growing crisis where low-income households are forced to choose between paying their landlords and purchasing basic essentials. By aligning the LHA with current rent levels, the think-tank argues that the government can restore dignity to these households while simultaneously capping over-payments to landlords.
Kemi Badenoch's £4 billion cut versus Helen Whately's support
The proposal has set the stage for a sharp political divide ahead of the upcoming Budget.. Helen Whately, the shadow work and pensions secretary for Labour, has indicated that her party is prepared to support the increase, viewing it as a necessary step to ensure social security spending remains "honest" and reflective of real-world costs.
Conversely, Conservative Treasury Secretary Kemi Badenoch has proposed a starkly different path. As reported, Badenoch intends to cut £4 billion from the housing-benefit bill to redirect funds toward defense spending. Her strategy includes freezing LHA rates for existing tenancies and lowering them for new ones, creating a direct conflict between national security priorities and social welfare.
A million more claimants since 2010 and the failure of frozen rates
This current friction is part of a long-term trend of eroding support for the UK's most vulnerable renters. Since 2010, the number of people entitled to housing benefits has surged by over one miillion, yet the LHA rates have remained frozen since April 2024. This freeze has occurred while rent inflation has consistently outpaced the available subsidies.
The Resolution Foundation's current plea follows a previous demand to scrap the two-child benefit cap, a policy the Labour government intends to address in November 2025. This pattern suggests a broader systemic failure where welfare benchmarks have failed to track the actual cost of living for over a decade.
Whether landlords will absorb the LHA subsidy
A central point of contention remains whether increasing the LHA would actually help tenants or simply lead to higher rents.. The Resolution Foundation's study counters the argument that landlords would simply hike prices to absorb the extra £2 billion, claiming instead that the subsidy would improve affordability in high-cost areas.
However , the report leaves some questions unanswered. It does not provide a detailed mechanism for how the government would prevent opportunistic rent hikes in a supply-constrained market. Furthermore , it remains unclear how the Treasury would balance these proposed increases against the competing £4 billion defense priority championed by Kemi Badenoch.
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