The emergency Budget from Chancellor Osborne includes changing the percentile of market rents used to calculate Local Housing Allowance (LHA) rates and uprating these rates by Consumer Price Inflation (CPI) from 2013-14; capping the maximum Local Housing Allowance payable for each property size; time-limiting the receipt of full Housing Benefit for claimants who can be expected to look for work; and restricting Housing Benefit for working age claimants in the social rented sector who are occupying a larger property than their household size warrants.

Liz Peace, chief executive of the British Property Federation, said: “Landlords will appreciate the scale of the challenges facing this country, and they are alive to the fact that the cost of LHA is a major component of the country’s annual Welfare Bill.

“This afternoon’s announcement shows the scale of the Government’s ambition to reduce the cost of housing benefit. The local rents for Local Housing Allowance are being sliced back considerably to the thirtieth percentile for the area – rather than the LHA rates being equivalent to the market rents for PRS properties as is the case at the moment.

“This is a massive reduction and unless landlords reduce their rents, will result in a shortfall that LHA tenants will have to make up themselves.

“The rates of LHA have been set by the market rents of property in their local areas. There is a danger in some areas that landlords will leave the sector to capitalise on higher market rents from other tenant groups.

“One issue that has not been raised, and is one that we believe will lead to cost savings for the Government is the introduction of choice as to whether LHA is paid to the landlord.

“Cutting the housing benefits bill is long overdue and we have long said that housing payments need to again be made directly to landlords to avoid the money being taken by tenants and spent on other things. In introducing a cap on housing benefit expenditure, it is vital that claimants in more expensive areas of the country are not sidelined and forced out of homes they have lived in for years.

“This would then create more problems than it would solve and it is vital that we do not end up creating more ghettos or forcing people to travel miles to work,” Peace concluded.