Rent relief to be paid direct to claimants

Housing benefit claimants will receive their money direct in the biggest shake-up of the system in its 20-year history, Andrew Smith, the Secretary of State for Work and Pensions, announced yesterday.

They will be paid a flat-rate allowance based on rent levels, their income and the size of their family.

Mr Smith told MPs the reforms would streamline a complex benefit that was expensive to administer, vulnerable to fraud, difficult to understand and discouraged the unemployed from finding work.

Although the moves were widely welcomed, the Liberal Democrats warned it could create "ghettos" of poor housing and London MPs feared it did not address the shortage of low-cost housing in the capital.

At the moment, the benefit, under which four million families receive £11.5bn a year, goes straight to landlords. The amount paid depends on an assessment of a fair rent for each family's accommodation made by a local rent officer. In future, a standard allowance will be agreed for an entire area. If a family spends less on rent than the standard assessment, they will be able to pocket the difference; if they pay more, they will have to pay the balance themselves.

The new system will be piloted for private rentals in 10 areas next year, with a view to going nationwide around 2005.

Mr Smith told MPs: "We need to break fundamentally with the past and bring in a fairer, simpler system."

He said the scheme would widen tenant choice and remove "the perverse incentive for corrupt landlords to collude with tenants to set high rents".

But Neil Gerrard, Labour MP for Walthamstow, warned the new system could encourage unscrupulous landlords to hike rents for poor-quality accommodation to the standard rate for the area.

Martin Barnes, the director of the Child Poverty Action Group, said: "Greater simplicity does not of itself guarantee fairness. We are reassured by the minister's claim that there will be no losers but it is difficult to see how this is compatible with a system based on flat-rate payments."