Housing Benefit Bombshell - will freeze lead to soaring arrears?

The freezing of Housing Benefit at 2020 levels, announced in the small print accompanying the Autumn Statement yesterday, risks leading to more hardship for tenants and possible arrears for landlords.

That’s the view of Polly Neate, chief executive of Shelter, who says: “There’s a housing hole in this budget - housing benefit remains frozen at 2020 levels when private rents have been rising at record rates.

“Increasing Universal Credit will really help people struggling to pay their food and fuel bills, but crucially it doesn’t cover rents which are most people’s biggest outgoing. Unless housing benefit is increased, the shortfall with real rents will only grow - swallowing up other benefit increases. The boost to benefits will be built on quicksand.  

“The glimmer of hope for those at the sharp end of the housing emergency is the planned increase to the benefit cap. Raising the cap will put more money in the pockets of the hardest hit families. The government’s refusal to unfreeze housing benefit ignores the rental crisis that is unfolding, and means that homelessness will continue to rise this winter.”

Another campaigning group - Generation Rent - made a less nuanced assessment of the Autumn Statement. 

While Chancellor Jeremy Hunt announced a seven per cent rent rise cap for tenants in the social housing sector, there was no such announcement for the private sector, to the irritation of Generation Rent director, the Baroness Alicia Kennedy.

She says: “As the Chancellor announced plans to cap rents in the social housing sector, and extended access to mortgage support, he left private renters vulnerable to unaffordable rent increases. Market rents have risen by 12 per cent in the past year and it is very easy for landlords to raise the rent on their current tenants when they can threaten a no-fault eviction.

“Freezing rents, suspending no-fault evictions and relinking Local Housing Allowance to actual rents would ultimately benefit the public finances by preventing homelessness, and keeping people near their jobs. Instead, private renters face a winter of hardship, particularly the one in four who are in fuel poverty.

“The additional £6 billion fund for energy efficiency is welcome as long as it is effective in insulating private rented homes and ensures the benefits flow to tenants who face fuel poverty rather than their landlords.”

And Matt Downie, chief executive of another charity - Crisis - says: “What this statement doesn’t do … is alleviate the mounting strain on 1.9m private renters who rely on housing benefit to cover their rent. With housing benefit remaining frozen, stuck at levels set in 2018-19, and rents rising at their fastest rate in 16 years, this cut will leave more and more people unable to afford a secure home.

“Abandoning renters during a recession and cost of living crisis is unforgiveable. We urge the government to immediately invest in housing benefit so that people have a fighting chance of finding and keeping a home. Doing nothing risks a further surge in homelessness, forcing thousands into misery and destitution.”

Yesterday’s Autumn Statement announcements included five that were directly relevant to the private rental sector.

- Halving the Capital Gains Tax annual exemption from £12,300 to £6,000 in 2023—24 and again to £3,000 in 2024-25 - a hit for landlords in particular. Tim Walford Fitzgerald, tax partner at HW Fisher says: “This is bad news for landlords, second home owners and those looking to sell their property as capital gains tax is applied at a much higher rate for residential property sales. Expect to see a decline in the number of disposals – people will hold off from selling their assets during unfavourable conditions. Or, if there is a delayed introduction for the new threshold, look out for a quick spike in sales as individuals and families try to beat the new implementation date.”

- The dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024. It means that by 2025, anyone receiving dividends above this amount (likely to include many landlords who have incorporated) will pay tax on them at a rate depending on how much other income they receive.

- Local authorities can raise council tax by five per cent without holding a referendum (that is three per cent, plus an additional two per cent if they have social care responsibilities). This is likely to be another pressure on private tenants and means band D council tax could rise from an average of £1,966 to as much as £2,064.

- Stamp Duty cuts announced in September will be time-limited, ending on March 31 2025.  Hunt says: “This is to help the jobs and firms that rely on the housing market through the current challenges, while strengthening the public finances in the longer term.” Earlier this autumn former Chancellor Kwasi Kwarteng increased the threshold at which Stamp Duty is charged on residential purchases from £125,000 to £250,000 with the threshold for first-time buyers also up from £300,000 to £425,000 and to be used on purchases worth up to £625,000.

- Inheritance Tax thresholds frozen for an extra two years, making hundreds of thousands of home owners liable to IHT. The threshold currently stands at £325,000 with a further residential nil rate band set at £175,000. IHT is levied at 40 per cent above this level. 

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