Measures are being considered by ministers to prevent a wave of evictions in Britain's big cities, especially inner London, as housing benefit cuts announced in the budget start to bite. One step would be to give local authorities extra discretionary funding.
Simon Hughes, the Liberal Democrat deputy leader and backroom deal-maker, is holding talks with ministers. He is also examining whether the London councils could pool resources, so that inner boroughs, more likely to be inundated by homeless applicants, could transfer some applicants to outer boroughs.
The transfers would only occur if the homeless applicant had no connection with the local London borough.
Hughes is also holding talks inside the coalition on how to build affordable homes more quickly. The London mayor, Boris Johnson, has already called for extra transitional funds.
The rules – designed to save £1.8bn by capping maximum payments – are expected to affect 1 million families nationwide. There have also been suggestions by London councils that 82,000 people could be evicted.
Karen Buck, Labour MP for Westminster North, said there was a prospect of a major shift in population out of inner London to outer London where rents are lower. She suggested some of the shift could see the equivalent of a new town being established.
According to the department for work and pensions, the loss faced by London households is an average £22 a week, although many face a higher loss.
In inner London the cuts due to the higher rent levels are startling, according to the department's own impact assessment. In Westminster 1,360 households in two-bedroom properties will see their contribution to rent reduced by an average of £140 a week or £998 a month. In Hackney 1,690 claimants will lose £32 a week, and in Hammersmith a similar number will lose an average of £24 a week. In Islington 620 claimants in two-bedroom houses would lose an average of £36 week.
Advocates of the reform argue the housing benefit budget is spiralling out of control and has artificially raised rents. The government hopes that when the lower housing-benefit rate is in place rents will fall as landlords accept they are unable to charge so much. The reform is due to be phased in next April and autumn.
The government argues that, even when the cuts are in place, the overall housing benefit budget will still be rising, but more slowly.
The housing benefit budget has risen by £7.3bn since 2001-2. In the past two years there have been 220,000 more claimants on housing benefit in the private-rented sector in work. Buck also highlighted new figures showing the extent to which housing benefit keeps people in work.
Nationally there are a minimum of 272,000 households in receipt of local housing allowance (in effect, housing benefit for those in the private sector) where somebody is in employment, 26% of all LHA recipients. The department's impact assessment indicates that all LHA households will lose as a result of the housing benefit cuts.
There are 24 local authorities where 40% or more of those affected are in employment, including Hackney, Brent, and South and West Oxfordshire. In 158 local authorities 30% or more LHA claimants are in employment, and in 318 areas 20% or more. In London a third of all those affected by the changes are in employment, 59,000 households in total.
The figures shows how important housing benefit has become to working families, especially in higher-cost areas. Since November 2008 the number of working people in receipt of housing benefit has increased by 235,000, mainly as hours have been cut back and more families have had to rely on only one wage packet.
More than half the increase in the benefit bill is due to an increase in claimants in the private rented sector.
Shelter and other housing agencies fear the private landlords will simply leave the market, and not lower prices.