Caroline Elsom is Research Director at Onward.
The new Prime Minister may have avoided setting another Halloween Budget, but the many fiscal challenges he faces aren’t anywhere near exorcised. Much of Westminster’s attention is on how Burnham can control welfare spending to fund a multitude of competing priorities. Commentators tend to focus on disability benefits and the growing number of young people not in employment, education or training – otherwise known as NEETs. But another part of the benefits bill demands his attention: housing benefits.
One in five households in Britain has its housing costs covered, at least in part, by the benefits system, through Housing Benefit or the Universal Credit housing element. That is equivalent to every household in England’s nine largest cities combined living all or in part rent-free. Official forecasts suggest that, by the end of the decade, housing benefits will cost more than double what they did in 2018.
But even that alarming trajectory doesn’t scratch the surface, because it takes no account of the overwhelming pressure on Burnham to raise rates. New research by Onward, published last week, shows that if rates are uprated as Labour MPs are demanding, core housing benefit spending alone (excluding supported and temporary accommodation) could exceed £52 billion by the end of the next parliament, up from around £30 billion today.
The current freeze in Local Housing Allowance, which sets the support for private renters, has already pushed rates well below their default level of the 30th percentile of local rents. This year, over a third of rates are below even the 10th percentile. By next year, that is likely to be true in over 55 per cent of local areas, and in over 95 per cent by 2030.
Despite the improbability of these freeze scenarios playing out, the OBR’s Spring forecast assumes rates stay frozen until 2030/31. That would be a six-year freeze, longer than the previous four year freeze in 2016 that was fiercely opposed by those now sitting on government benches. Holding the freeze into next year would be politically painful, while holding it for the remainder of the parliament is practically impossible. Any departure from the assumed freeze means adding to the list of reasons why the Chancellor needs to find more money before the Budget. A move he simply can’t afford without breaking fiscal promises.
Burnham has been backed into this corner by his own campaigning and by the colleagues on whom he relies for support, who have long argued for significant uplifts. When Labour introduced Local Housing Allowance in 2008, rates were set at the median rent, not the 30th percentile. Tenants who chose cheaper properties could keep up to £15 a week of the difference, and claimants could be entitled to up to five bedrooms rather than four. Throughout the coalition and Conservative years, Labour in opposition argued vociferously for a return to these settings.
That history, much like a campfire story, has not been forgotten. Ahead of last year’s decision to extend the freeze, the then Labour Chair of the Housing, Communities and Local Government Select Committee, Florence Eshalomi MP, backed a coalition of forty organisations calling on the government to restore rates to at least the 30th percentile, and to assess the impact of returning to the median. She has since been appointed a minister in the Ministry of Housing, Communities and Local Government.
The Prime Minister himself has repeatedly criticised rate freezes and called for regular uplifts. A fortnight before the November 2025 Budget, while Mayor of Greater Manchester, he called for Local Housing Allowance to be restored to reflect “real rental costs.”
When the last uplift to the 30th percentile was announced in the 2023 Autumn Statement, his press release declared that “one of our biggest calls has been the urgent need to unfreeze Local Housing Allowance and I am pleased that the Chancellor has listened.” In his pitch for the Labour leadership in June, he again attacked freezing rates as a way of controlling costs.
After years knocking on the No.11 door demanding benefit treats, Burnham must now find a way to pay for them at the Budget. He will find little sympathy on the Conservative benches, which have adopted Onward’s plan to reset Local Housing Allowance to the 10th percentile and extend the caps to social housing, saving £4.5 billion a year by the end of the next parliament. It will be taxpayers who are haunted by the ghost of Burnham’s bill for years to come.