Councils projected to face “£3bn funding black hole” for temporary accommodation by 2029/30, LGA warns

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

The LGA warned: “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.”

In addition to identifying how much the difference has left councils out of pocket over recent years, the LGA claimed that the annual gap is set to grow by almost 50% in the next five years, from nearly £270 million to almost £400 million per year, “without decisive action”.

The Association said: “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.”

In light of its findings, the LGA has called on Government to “uprate” the LHA rate councils can be reimbursed to current rent rates, claiming that if its ask of uprating the subsidy rate to 90% of prevailing LHA rates were agreed, the total projected cumulative cost by 2029/30 will be almost 30% less than if nothing is changed (£2.3 billion) – representing a saving of £700 million to councils. 

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.”

A Government spokesperson said: “We recognise that the demand for temporary accommodation has now reached record highs.

“That’s why we are investing more than £1 billion in homelessness services, launching a cross-government homelessness strategy, and investing a record £39 billion in affordable and social housing.

“Any future decisions on subsidy rates will be taken in the context of the Government’s missions, goals on housing and the financial context.”

Lottie Winson