Funding arrangements for the Homelessness Prevention Grant: LGA response

A sufficient, flexible, and long-term funding approach 

• The Homelessness Prevention Grant is only one part of the overall funding landscape for homelessness. We encourage the Government to ensure that all parts of the funding system – including funding for TA, homelessness prevention, and supported housing - are working in tandem to achieve value for money and deliver the goal of ending homelessness.
• Councils are supportive of the government’s goal to incentivise prevention and reduce temporary accommodation costs. However, they will only be able to deliver this aim if the Government addresses the temporary accommodation (TA) subsidy gap to allow greater investment in prevention via the HPG.
• Overall levels of funding must be sufficient to meet homelessness challenges. This should include ongoing resource to meet a potential increase in resettlement pressures, for example households facing breakdowns in tenancies as they approach the end date of their Ukraine visa scheme and apply for the Ukraine permission extension scheme.
• Funding should be long-term and multi-year to enable effective commissioning and align with local homelessness strategies.
• Flexibility in rough sleeping and HPG funding is essential for an integrated local authority response.
• Funding should enable all relevant local agencies to pool resources and jointly commission responses which address the drivers of homelessness.
• Funding should go directly to councils with statutory homelessness duties, with separate arrangements for combined authorities. 

A fair and effective funding formula 

• We support the simplification of the formula, and the aim to avoid using poor quality RO4 data as a basis for allocations.
• Funding must reflect future costs and rising demand, not just past allocations.
• Any formula must be practical for councils to implement, avoiding excessive administrative burdens, e.g. from logging and categorising activity.
• Accurate indicators should be used for TA cost pressures, which recognise that the unit costs of TA can be much higher than average PRS rents.
• The formula should not disproportionately disadvantage any group of councils.
• There should not be a ringfence between TA and prevention funding, in recognition of the fact that the TA subsidy gap necessitates spend on TA from the HPG.

A supportive and predictable implementation process 

• Transitional arrangements should include rapid payment of gains and short-term compensation of losses.  
• Councils need early notice of funding changes to support budget planning.
• There should be allowance to increase the overall funding envelope year-on-year to account for inflation and unexpected financial shocks. 

Yes in principle, on the basis that the department’s modelling has found this indicator to be an accurate predictor of homelessness prevention and relief demand pressures, relative to other indicators of housing need tested by the department.  

Using this metric will support councils to target their prevention activity at households before the point of homelessness presentations, and support more upstream homelessness prevention in the longer-term. It would also successfully target funding at those councils where demand is highest for reasons beyond their control.

It also avoids some of the administrative burdens associated with other potential indicators, e.g. ‘number of prevention and relief acceptances’. This indicator would require councils to adjust the way they log their activity, to ensure that they are accurately logging activity under the correct categories. Councils have also expressed concern that this metric would be overly sensitive to different local approaches to logging activity.

However, MHCLG should ensure that the chosen metric takes account of how the drivers of homelessness demand can vary across different local areas, especially where these local nuances mean that the number of HB/UC claimants may be a less accurate predictor of demand pressures.

In particular, we are concerned that ‘total HB/UC claimants’ may not capture high levels of demand from households leaving – but who have not yet left - Home Office accommodation following a positive asylum decision, as asylum seekers do not have access to UC or HB, would not be captured in claimant numbers, and are disproportionately supported by some councils. 

Statutory homelessness data shows a significant increase in the number of households owed a prevention duty as a result of being required to leave NASS accommodation between 2022/23 and 2023/24 and around 89% of respondents to this LGA snapshot survey raised that the end of Home Office support after people received their asylum status had led to increases in homelessness. Many councils, following guidance from the Home Office, have taken steps to provide housing and homelessness support for these households immediately after being notified of a positive decision letter, although there is limited asylum dispersal grant funding for councils to provide support to mitigate homelessness both before and after someone receives their asylum decision. This places an additional burden on homelessness services, which is disproportionately experienced by some councils. We would want to see an adjustment applied for these councils to ensure they are not disincentivised from providing early preventative support.

As is mentioned above, there should also be ongoing resource to meet a potential increase in resettlement pressures; whilst refugees, including Afghan resettlement arrivals and Ukraine visa scheme arrivals, can access UC and HB, resettlement programme developments may lead to increased homelessness risks and pressures for these cohorts. For example, there is a risk of Ukrainian households facing increased breakdowns in tenancies as they approach the end date of their Ukraine visa scheme and apply for the Ukraine permission extension scheme, and a risk of Ukrainian households having their hosting arrangements breakdown once thank you payments for hosts are decreased from £500 to £350 from 1 April. Also, under the new Afghan Resettlement Programme, as of the 1 March, the time that Afghans spend in ‘transitional’ or initial, temporary accommodation will be limited to nine months; there is a concern that this could lead to an increase in homelessness if accommodation is not secured by the end of the 9 month period. We therefore suggest that the homelessness impacts of these resettlement schemes are closely monitored, and if the risk increases, additional funding is made available through the homelessness prevention grant in the same way that the £120 million UK-wide fund was announced for 2024-25 to help councils address homelessness pressures and support Ukrainians into settled accommodation.

Indifferent. We appreciate that MHCLG has found a four-quarter average of TA numbers to most accurately predict current demand, relative to other metrics tested. However, councils have suggested that the available TA demand numbers – which capture 'snapshot' demand at the end of each quarter – are not an accurate picture of true demand. A more accurate measure would consider the flows of households in and out of TA, as this better reflects the changing pressures which councils face in managing homelessness demand. In the longer-term, MHCLG should consider how it could capture more accurate 'live' demand data. 

Additionally, we are still concerned that historic demand may not be an accurate predictor of future demand, especially where pressures arise from external factors or Government policy changes. The recent rise in homelessness duties owed as a result of households leaving asylum accommodation would be an example of a sharp, unexpected rise in demand which disproportionately impacts some councils. 

To mitigate this, we suggest an additional funding envelope each year to respond to unforeseen events, ensuring councils can adapt without experiencing a drop in year-on-year allocations. This would balance the need for responsive funding with councils’ requirement for long-term financial certainty.

Finally, the inclusion of funding for TA in the HPG risks creating perverse incentives for those councils which have pursued a strategy of reducing the number of households in temporary accommodation. Funding TA outside the HPG – including by increasing the TA subsidy – would more strongly align councils around the goal of driving down TA numbers and ending homelessness. 

We are supportive in principle. We are pleased to see that the formula no longer relies on RO4 data, as councils have expressed concerns about its accuracy. Nationally, there are inconsistencies with how councils complete their RO4 returns, and this responsibility doesn’t always sit with homelessness services who are best placed to know their levels of spending. Councils would welcome support from the Government to improve the quality of RO4 data in the longer-term.

We would support the proposal to use “mean rents in the PRS”, on the basis that alterations to the rental metric used in the formula would not significantly change how funding is distributed. 

However, as with our response to Question 1, MHCLG should ensure that this metric accurately captures the nuances in homelessness drivers across different councils, and the costs of addressing presentations which result from these drivers. 

Yes. We were concerned about the previously proposed Area Cost Adjustment (ACA), on the basis that it would result in less money for smaller councils who may face complexities in housing needs such as coastal towns which are suffering with a housing crisis as a result of second homes. It also was not supported by the larger councils who would have theoretically benefitted, such as councils in London, as their housing needs far outweigh their comparatively large population size. 

The Labour Cost Adjustment – alongside a rental metric – simplifies this adjustment and is a more accurate reflection of the costs of delivering prevention and relief activity in councils. 

Yes, in principle. However, the Government should ensure that average labour costs are not weighted by boroughs’ population size, as this is not a good indicator of costs.

No. We agree that using historic RO4 data is not an appropriate way to measure current and future TA costs. We also agree that using RO4 data would disadvantage those councils which have incurred capital expenditure to invest in cheaper forms of TA.

However, the proposal to use ‘mean rents in the PRS’ does not adequately reflect the high costs of temporary accommodation (TA), particularly in areas where the cost of emergency accommodation is significantly higher than standard rental rates. Recent research from the Centre for Homelessness Impact has shown that, in some regions, the unit costs of TA can be up to three times higher than the equivalent costs of private rented sector accommodation. The proposal to use mean PRS rents would have a significant adverse impact in these areas, with disproportionate impacts on some regions.

We acknowledge that using mean rents as a proxy for TA costs could have the positive effect of reducing councils’ use of high-cost TA, supported by wider Government funding for TA acquisitions, e.g. the Local Authority Housing Fund. Councils share the view that using lower-cost TA is strongly desirable, and many are taking active measures to achieve this. However, in the short to medium-term, many councils have no choice but to use higher-cost forms of TA, and to bear a large proportion of the cost due to the ongoing TA subsidy gap. The proposal to use ‘mean rents in the PRS’ will further disadvantage these councils and limit their ability to restructure their approach. 

Addressing the TA subsidy gap is a key first step to mitigating these concerns. Applying an adjustment to account for the proportion of households in more expensive forms of TA could also help to more accurately reflect TA costs. If the Government does pursue the use of the ‘mean rents’ metric, then transitional arrangements should be put in place to enable councils to reshape their TA acquisition strategy and drive down TA costs over the longer term.

Yes, in principle. However, the Government should ensure that average labour costs are not weighted by boroughs’ population size, as this is not a good indicator of costs.

Yes. Using the local authority’s costs data to calculate its share of the total will take account of any significant pressures on that council compared to others in the region, e.g. authorities with high numbers of presentations from households leaving Home Office accommodation.    

Other. We are supportive of the Government’s intention to invest in homelessness prevention. However, we would not support an explicit ringfence in the HPG, which will have an adverse impact on councils forced to spend high amounts on temporary accommodation, and exacerbate the impact of the temporary accommodation subsidy gap. It would also limit councils’ ability to respond to unexpected homelessness pressures.

Recent analysis by the Centre for Homelessness Impact shows that the shortfall between local authority spending on temporary accommodation and the income they receive to cover it has increased significantly year on year, with a 55 per cent increase in net current expenditure on TA between 2023/24 and 2022/23. Between 2018/19 and 2023/24, the shortfall has increased by over 120 per cent. This is partly driven by the TA subsidy gap, and means that councils are realistically increasingly reliant on the HPG to meet TA costs.  

We appreciate that, even without an explicit ringfence, the Government will want to apply a weighting to different parts of the formula as part of their intention to improve transparency in the formula. Here again, councils support the policy intention behind weighting prevention costs more heavily in the formula. They are keen to invest in prevention and reduce TA costs. However, the current reality is that councils are driven to spend a high proportion of HPG on TA, partly due to the TA subsidy gap. 

We would suggest that weighting is more closely aligned with actual current spending patterns, e.g. 49 per cent on TA and 51 per cent on prevention and relief, with regional adjustments for regions where TA spend is a higher proportion of overall spend. This would more realistically and pragmatically reflect current spending patterns in homelessness services. 

We would support a review of this weighting in subsequent years, as councils adjust their spending patterns in favour of prevention.

Yes. As with our response to Question 9, we do not think the formula should be weighted in a way that penalises councils for incurring high TA costs. In the event that it does, a phased approach would be helpful to enable councils to plan and adjust their service provision as needed. 

Labour and rent costs should be split in a way that accurately reflects current spending patterns, with the potential for regional adjustments.

Yes. Transitional arrangements are necessary to prevent disruption to services, particularly where councils face a reduction in funding. They should allow councils time to adapt while ensuring that those receiving increased funding benefit as soon as possible. 

We suggest that transitional arrangements are applied on the proviso that no councils should experience a cash loss compared to the previous year in their allocation, and councils due to see increases in funding should do so as soon as possible. 

Other. The proposed caps provide a balance between ensuring stability for councils that may see reduced funding while allowing others to benefit from increased funding allocations in a reasonable timeframe. However, we would want to see funding additional to the overall envelope to compensate those councils experiencing a loss compared to baseline during the transition period.  

N/A.

N/A.

Tapering ensures a smoother transition and allows councils time to adjust service delivery models gradually. However, sufficient notice must be given to councils to enable effective budget planning. 

Priya Thethi/Emily Bennett

Policy Adviser

Mobile: 07464 652600

Email: [email protected]