Whitehall is forcing councils to fund today’s housing crisis with 2011 money
Homeless families march in Parliament Street, October 2022 (Credit: Vuk Valcic/ZUMA Press Wire/Alamy)
5 min read
Imagine if every government department had to pay today’s prices for the goods and services it needs, only for the Treasury to reimburse it according to what they cost in January 2011.
Ministers would rightly regard that as absurd and financially unsustainable. Yet this is how councils across England are expected to fund a significant part of the temporary accommodation system.
Every week, local authorities help families who have nowhere else to turn. They may have lost a private tenancy, escaped an unsafe home or simply found that rapidly rising rents have pushed an already stretched household budget beyond breaking point. Councils have a legal and moral duty to help them, and temporary accommodation provides an essential safety net at one of the most difficult moments in their lives.
The problem lies in the way Whitehall funds that responsibility.
For many temporary accommodation placements, the amount a council can recover from government is capped at 90 per cent of the Local Housing Allowance rate that applied in January 2011. That does not reduce the support to which a family is entitled. It means the council, and ultimately the local taxpayer, has to find the difference.
The housing market has changed beyond recognition during the past 15 years. Councils are paying rents, maintenance costs and management fees in 2026, following a pandemic, a surge in inflation and steep increases in private rents. Whitehall’s contribution remains rooted in a housing market that no longer exists.
In Croydon, that gap is costing local taxpayers approximately £40m every year. This is money that cannot be spent cleaning streets, fixing roads, tackling antisocial behaviour or supporting vulnerable residents before they reach crisis point.
We have made difficult decisions to restore financial stability in Croydon and will continue working to manage every pound carefully. We are working to prevent homelessness, secure better accommodation and reduce our reliance on expensive nightly placements. Yet no amount of sound local financial management can close a gap deliberately built into the national funding system.
Nor is this special pleading on Croydon’s behalf. It is a structural problem confronting Conservative, Labour, Liberal Democrat, Reform, Green and independent councils across the country.
Local Government Association analysis shows that councils spent £6bn on temporary accommodation between 2011-12 and 2024-25. More than a third of that total, some £2.2bn, was spent in the final two years alone. Across London, boroughs are now spending the equivalent of one council tax pound in every nine on temporary accommodation.
Unfortunately, we cannot put a line on council tax bills marked “the cost of an outdated Whitehall formula”, but that is increasingly what residents are being asked to fund.
Some will argue that councils should reduce their dependence on temporary accommodation. They are right, and every responsible local authority is trying to do so. The trouble is that the current rules can make that harder.
The better long-term approach is to prevent homelessness wherever possible, build more genuinely affordable homes and help councils acquire or lease good-quality properties. That would provide families with greater security whilst reducing the use of expensive short-term placements.
Yet when councils try to invest in their own accommodation, they run into a tangle of rent and subsidy rules that can make otherwise sensible schemes financially unviable. The result is perverse. Councils remain dependent on more expensive temporary placements, families face greater uncertainty and taxpayers receive worse value for money.
The Local Authority Housing Fund has shown what can be achieved when councils are given the right backing to acquire homes. It has been welcome, but it only begins to address the scale of the challenge.
Building more homes will take time. Correcting an outdated funding formula does not need to.
This government should replace the January 2011 benchmark with the current Local Housing Allowance rate and ensure it is reviewed regularly. Ministers should reconsider the arbitrary 90 per cent cap and simplify the rules so that councils are not penalised when they acquire or lease homes as an alternative to costly nightly accommodation.
This would not be a blank cheque, nor would it remove the responsibility on councils to control costs and prevent homelessness. It would simply stop Whitehall disguising part of the national cost of the housing crisis by leaving it buried in local authority budgets.
I have written to housing minister Matthew Pennycook asking the government to act. I hope council leaders and parliamentarians from every party will add their voices, because the outdated subsidy regime does not distinguish between Conservative and Labour authorities. It drains resources from all of us.
The government has spoken about rebuilding its relationship with local government and devolving greater responsibility to local communities. This is a straightforward test of that aspiration. Devolution cannot mean passing legal duties down whilst withholding the resources needed to discharge them properly.
This campaign is about more than council balance sheets. It is about families who need somewhere safe and stable to live, taxpayers who deserve to see their money used wisely and neighbourhood services that should not suffer because Whitehall has failed to update a 15-year-old formula.
A funding benchmark fixed in January 2011 should not survive the next Budget.
Jason Perry is the Conservative Mayor of Croydon
