The LHA cap limits the amount of support that can be given for housing costs to 30% of the market rent in the locality (Broad Market Rental Area).

A joint inquiry into the ‘Future of Supported Housing’ by the Work and Pensions and Communities and Local Government Committees concluded that it is “inappropriate” to use the LHA rate and argue that a new Supported Housing Allowance, banded to reflect the actual cost of provision in the sector, should be introduced instead.

Concerns were raised that the government’s proposed reform could lead to a serious shortfall in the availability of supported housing.

The report states: “We propose the government introduces a Supported Housing Allowance, banded to reflect the diversity of provision in the sector and sufficient to ensure supported housing tenants will only require recourse to top-up funding in exceptional circumstances.”

According to the report, ministers are right to consider an alternative funding mechanism for emergency accommodation, given the inability of Universal Credit to reflect short-term changes in circumstance. The committees recommend grants to local authorities, which can commission accommodation and pay providers.

The report also calls a separate funding system for women’s refuges and urges the government to work with Women’s Aid and providers to devise it. The committee said it is essential that refuges are able to operate as a national network, unrestrained by local admissions restrictions.

Richard Graham MP, co-chair of the inquiry and member of the Work and Pensions Committee, said: “Supported housing is deeply valued by those who live in it and contributes enormously to their independence and wellbeing. We support the government’s aims to reform funding for this vital sector to ensure quality and value for money, protect and boost supply, and provide greater local control.

But we are concerned that the proposals, as they stand, are unlikely to achieve these objectives. Our recommendations seek to improve the government’s plans and ensure it delivers on our common goal of a sustainable, long-term funding solution for supported housing.”

Helen Hayes MP, co-chair of the inquiry and member of the Communities and Local Government Committee, added: “The proposals have caused considerable concern. Supported housing providers are reconsidering investment plans, shortfalls in the levels of service are expected to get substantially worse and vulnerable tenants are anxious that they may no longer have the guarantee of a home for life.

“Ministers must intervene immediately by scrapping the proposed Local Housing Allowance reform. The sector needs a far more suitable funding system that recognises the consistent cost of provision across the country and provides long term reliability.

“Supported housing caters for an incredibly diverse range of people, from long-term sheltered accommodation for older people to short-term emergency housing for those who have recently become homeless or are fleeing domestic abuse. The Government is right to consider alternative funding for emergency accommodation and we urge Ministers to also recognise the unique challenges of refuges with a distinct funding model.”

The Scottish Federation of Housing Associations (SFHA), which gave evidence gathered from members to the joint inquiry in February, has welcomed the report.

In its evidence, the SFHA highlighted that LHA was an unsatisfactory way to fund these much needed homes, as the system had no regard for the cost of providing the additional services and facilities needed to enable tenants to lead full and independent lives.

Sarah Boyack, SFHA head of public affairs, said: “We warmly welcome this report and its recognition of the huge cost savings that supported housing offers when compared to hospital and institutional care.

“The content and tone of the report reflect the very grave concerns that the SFHA and other witnesses shared during the evidence session.

“The recommendations are both sensible and achievable, and we back the committees’ call on the UK government to take this opportunity to pause, take heed of the expert evidence and rethink its plans for funding supported housing in the future.”

Inquiry examined

Under the current proposals for supported housing, core rent and service charges for supported housing tenants would be funded up to the level of the applicable LHA rate. For costs above this, the government would devolve ring-fenced top-up funding.

But the committee found that the cost of provision is largely consistent across the country, unlike the LHA rate. Consequently, some areas will rely more on top-up than others. As this is considered a less secure funding source, the committees are also concerned that providers will be put off investing in particular areas, creating a disparity between the supply of homes and services across the country.

The committees argue that a Support Housing Allowance would ensure tenants only require top-funding in exceptional circumstances. The Allowance would be calculated according to a formula made up of a fixed amount for provision, which is consistent between areas, and a smaller variable amount that reflect differences in land costs.

Central funding of the top-up should be guaranteed for at least the duration of the next Parliament to provide greater certainty. Funding levels should be regularly reviewed to ensure the top-up fund keeps pace with increases in the cost of provision and changes in local demand.

Recommendations and conclusions include: