Councils set to face £3bn bill for temporary accommodation funding black hole by 2029/30 – with gap set to grow by 50 per cent in next five years – LGA analysis

The gap between what councils are paying out in housing benefit and the amount they are reimbursed by the Department for Work and Pensions (DWP) is projected to cost local government over £3 billion from 2017/18 to 2029/30, new analysis reveals.

The analysis, released just days ahead of the Autumn Budget to illustrate the immense financial pressure councils are facing, was carried out by the Local Government Association (LGA) and looked at the cumulative cost of the ‘Temporary Accommodation Subsidy Funding Gap’ in the past eight years.

While households receive the full housing benefit they are entitled to, the amount councils can claim back from DWP is currently capped to 90 per cent of Local Housing Allowance (LHA) rates from back in 2011.

This means councils are not able to claim back costs that reflect what they are spending, and it is increasingly getting worse as the demand for temporary accommodation (TA) rises and they can claim back less and less.

Releasing the stark findings in the run-up to the Budget, the LGA is calling on the Government to address this issue immediately, by uprating the LHA rate councils can be reimbursed to current rent rates.

In addition to identifying how much this difference had left councils out of pocket over recent years, it also found that the annual gap was set to grow by almost 50 per cent in the next five years, from nearly £270 million to almost £400 million per year, without decisive action.

In 2023/24, the most recent year for which we have data, the total spend on housing benefit for councils in England on temporary accommodation was £1.05 billion, while the DWP only reimbursed £780 million to councils, leaving a £266 million gap.

The amount that councils spent on temporary accommodation in 2024/25 was £2.8 billion, indicating that the subsidy gap will be even greater (1).

If the LGA ask of uprating the subsidy rate to 90 per cent of prevailing LHA rates were agreed, the total projected cumulative cost by 2029/30 will be almost 30 per cent (28 per cent) less than if nothing is changed (£2.3 billion) - that is a saving of £700 million to councils. 

The scale of the problem is immense, with currently 132,410 households in TA including 172,420 children.

This challenge risks being exacerbated by the reduction of the Move On period back to 28 days for single adults, and we ask the Government to work with us on resolving this issue.

Cllr Tom Hunt, Chair of the LGA’s Inclusive Growth Committee, said: “It makes no sense that the rates that councils are receiving from the DWP are a decade and half old – the LHA rate must be brought into line with the current reality.

“While the cost of delivering essential services keeps climbing, councils are caught in a vicious cycle of ever-increasing temporary accommodation costs versus static rates they receive back to cover their costs. This means that more and more pressure is applied to their finances, having real world implications for service delivery and growth.

“The Chancellor must use the Budget to undo this immediately. Not only will it mean  councils can address the housing crisis more effectively, it will mean that they can focus on investment to drive growth and prosperity for their communities.”

Notes to Editors

• 1) The data which shows the level of the discrepancy in 2024/25 is due to be released later this year.

The LGA has coordinated an open letter, along with District Council Network and London Councils, which is set to go to all MPs ahead of the Budget on temporary accommodation costs. For more information please contact Chris Mitchell

The analysis was drawn from the DWP data on Housing Benefit and Council tax expenditure by local authority here' with this link https://www.gov.uk/government/publications/benefit-expenditure-and-caseload-tables-2024

The demand for temporary accommodation has been increasing drastically and recent figures show 132,410 households were in temporary accommodation, which is an increase of 12.8 per cent from 31 March 2024.

The number of children in temporary accommodation increased by 13.7 per cent to 172,420,

How the Temporary Accommodation reimbursement process works; 

Step 1: Individuals/families who are in immediate need of temporary housing are directed to contact their local authority. It is at this point that the local authorities are legally required to assess the needs of their residents and determine whether they are eligible for temporary accommodation.  

Step 2: If the individuals/families meet the conditions for assistance, they are placed into available temporary accommodation. These may be hostels, temporary flats owned by private landlords, councils, or housing associations, or even B&Bs and hotels.  

Step 3: Generally, the local authority covers the upfront cost of the temporary accommodation and is subsequently reimbursed through direct payment from the individual’s benefits (when applicable), Discretionary Housing Payments (DHPs), and homelessness prevention grants from the central government. DWP is responsible for administering the reimbursement process. Additionally, the local authority has a duty to provide ongoing support to its residents, including helping individuals in temporary housing find permanent housing and providing resources to help resolve the root causes of homelessness.  

The amount of TA reimbursement is calculated based on Local Housing Allowance (LHA) rates specific to the Broad Rental Market Area (BRMA) where the accommodation is located. The rates are based on January 2011 LHA rates and vary by the type and size of the property. Applicable LHA rates range from the one-bedroom rate to the five-bedroom rate.  

Non-Self-Contained Accommodation (Board and Lodging or Licensed): The subsidy is limited to the one-bedroom self-contained LHA rate for the property’s location, and even if more than one room is occupied by the same household, no extra subsidy can be claimed.   

Self-Contained Licensed and Short-Term Lease Accommodation: The maximum subsidy is 90 per cent of the LHA rate for the size of the property.  

Furthermore, the subsidy cannot exceed the weekly Housing Benefit entitlement, or the upper cap limit (£500 per week for accommodation within six London (Central London, Inner West London, Inner North London, Inner South West London, Inner East London, Inner South East London, Outer South West London) and £375 for all other BRMAs).  

Currently the Asylum Seekers move on period has been uprated to the standard 56 days in line with the Homelessness Reduction Act 2017, however it has been reduced down to 28 days for single adult asylum seekers.

The Move On period for single adult Asylum Seekers has recently changed to 28 days, remaining at 56 days for families and older people in line with the Homelessness Reduction Act 2017. The move on period has been linked to rising demand and costs for housing and homelessness services locally as people leaving Home Office accommodation may need Councils’ advice to find housing to move to.

ENDS