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Spending Review: £76 million funding gap in councils' temporary accommodation budgets

"As the Spending Review approaches, now is the opportunity for government to ensure councils are sufficiently resourced to provide essential services and help boost growth to communities."

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Councils are facing an additional £76 million shortfall in their temporary accommodation budgets following changes to the allocation of the Homelessness Prevention Grant, new analysis from the Local Government Association shows.  

This funding gap exacerbates the already significant financial challenges for councils, as they try to meet the growing demand for homelessness services. It comes as new figures released today show that on 30 September 2024, 126,040 households were in temporary accommodation, which is an increase of 15.7 per cent from a year before. 

As the Spending Review approaches, the LGA is highlighting that without sufficient resourcing, councils are having to plug the finance gap in order to meet their duties on temporary accommodation.   

In 2023/24, councils spent nearly £2.3 billion on temporary accommodation -  around £1.06 billion of this cost needs to be met by councils using either their reserves or the grant.  

Last year, councils received £399.8 million in grant funding to spend on domestic homelessness and temporary accommodation pressures - the extreme demand pressures facing councils mean that, in many areas, a large part of this must be spent on temporary accommodation.   

However, under the new funding arrangements for 2025/26, while grant allocation has increased to £633 million, at least 49 per cent of this funding must now be spent on homelessness prevention and relief activities. This leaves only 51 per cent (£322.83 million) available for temporary accommodation.  

This change means councils have up to £76 million less to spend on temporary accommodation compared to last year, forcing them to cover the gap from already-stretched reserves.   

The LGA has previously highlighted that the temporary accommodation subsidy gap—the shortfall between the actual cost of providing accommodation and the funding available from the Department of Work and Pensions —amounted to £204.5 million in 2022/23.   

The LGA is calling on the Government to urgently remove the ringfence within grant funding, as well as uprate the temporary accommodation subsidy to 90 per cent of the prevailing local housing allowance rate (housing benefit), to relieve pressure on councils’ reserves and enable them to focus on preventing homelessness.   

Cllr Adam Hug, Housing spokesperson for the LGA, said:  

“It is right that the Government has increased its focus on prevention and relief of homelessness, however this sudden shift in funding allocation without a suitable transition period risks exacerbating the financial pressure councils are under at a time when temporary accommodation costs continue to rise dramatically.  

“An uprating of the temporary accommodation subsidy is desperately needed to address the significant and growing cost pressures faced by councils. 

“As the Spending Review approaches, now is the opportunity for government to ensure councils are sufficiently resourced to provide essential services and help boost growth to communities.” 

Notes to Editors 

  • Last year's HPG allocation - 331 + 109 top-up = £440m 
  • All of this could be spent on TA except £40.8 million of the £109m top-up, which was ringfenced for Ukrainian resettlement 
  • This left £399.2m available to spend on general/domestic homelessness and TA pressures 
  • Councils' net current expenditure on TA in 2023/24 was £1.06 billion 
  • Now, HPG allocation is £633m 
  • At least 49 per cent must be spent on prevention and relief, leaving 51% - or £322.8 million available to spend on TA 
  • This means that the amount of HPG available to spend on TA has decreased by a total of £76 million 
  • This is further increasing financial pressure on councils which are already struggling to meet costs of TA 
  • Prevention funding is positive in the longer-term but must be accompanied by the TA subsidy gap being uprated - previous LGA analysis has shown that this gap cost councils £204.5m in 2022/23 

Homeless households placed in temporary accommodation are able to claim housing benefit to go towards their housing costs. Councils pay the cost of that housing benefit upfront and are paid back by the Department for Work and Pensions (DWP).   
  
While households receive the full housing benefit they are entitled to – and private landlords can freely set temporary accommodation rents - the amount councils can claim back is currently capped to 90 per cent of Local Housing Allowance (LHA) rates from back in 2011.   

These rates have massively failed to keep pace with rising rental prices and the increased demand for temporary accommodation. This means that if the cost of the housing benefit claim is higher than those rates, the local authority has to pick up the cost. 

Previous LGA analysis shows that, in the past five years, there has been a £737.3 million gap between the amount that councils have paid out in housing benefit to households living in temporary accommodation and the amount they have been reimbursed by government.”  

ENDS