Labour’s preferred think tank, the Resolution Foundation, has called on the government to increase housing benefits by £2 billion annually in the upcoming Budget, advocating for changes to better reflect current rental market conditions. The foundation recommends linking Local Housing Allowance (LHA) rates to rising rental prices, particularly in high-cost areas such as central London, to address the growing gap between benefits and actual housing costs. They estimate these adjustments would add approximately £2 billion a year by 2029-30.

The Resolution Foundation also urged the government to abolish the two-child benefit cap—already removed by Labour last year—and to restore automatic annual uprating of LHA in line with inflation and rent increases. This follows the freeze on LHA rates implemented since April 2024, which has contributed to mounting shortfalls for many housing benefit recipients.

The government, however, plans to reduce housing benefit spending by £4 billion, including lowering LHA for new tenancies and maintaining a freeze on rates for existing claimants until rents decline. Conservative ministers argue that controlling welfare expenditure is essential to maintaining fiscal responsibility.

Shadow Work and Pensions Secretary Helen Whately emphasized that households reliant on benefits should live within their means, signaling reluctance to reverse the current freeze. Meanwhile, Business Secretary Kemi Badenoch stated that taxpayers should not be required to subsidize rents in more expensive areas, suggesting individuals seek housing in more affordable locations.

Economist Stephen Hunsaker from the Resolution Foundation countered these views by highlighting the financial strain on tenants who receive housing support, many of whom sacrifice basic necessities to cover rent. He stressed that reconnecting LHA rates with actual rental costs is necessary to alleviate pressures on low-income families and prevent further hardship.

The debate underscores the ongoing tension between efforts to contain welfare spending and the need to address housing affordability amid rising rent levels in the UK.