The Conservatives want to cut housing benefit to fund defence spending. But will it work?

Conservative leader Kemi Badenoch has pledged to slash the welfare bill to fund defence spending despite warnings that cutting housing benefit could lead to rising homelessness.

Badenoch said this week that her party would fund a £10 billion annual rise in spending if it wins the next general election to ensure the UK spends 3% of GDP on defence by 2029-30.

That would be funded by welfare cuts, the Tory leader said.

Badenoch would look to restore the two-child benefit cap, which was axed by Labour earlier this year with the promise of lifting more half a million children out of poverty.

The Tories would also look to charge VAT on cars used by disabled drivers through the Motability scheme, saving £1bn according to party estimates.

But the lion’s share of savings would reportedly come from cutting housing benefit. Badenoch’s plans would lower local housing allowance (LHA) to cover the bottom 10% of local market rents rather than the 30% it is supposed to cover now. The party claims this, coupled with freezing social rents, would save £4bn.

With conflicts around the globe, defence spending is a big issue.

Labour has pledged to hit the Nato target of spending 3.5% of the country’s gross domestic product (GDP) on defence by 2035.

The current chancellor John Healey resigned as Keir Starmer’s defence secretary earlier this year. He argued that Starmer had been “unable, and the Treasury has been unwilling, to commit the resources that the nation needs to defend the country at this time of rising threats”.

Andy Burnham’s government is set to lay out a plan next year on how to reach the 3.5% target. It will likely mean tax rises to pay for it.

Would the Conservative cuts really save money?

Homelessness charities have already raised concerns about Badenoch’s plans, according to reporting in the FT.

Both Shelter and the Centre for Homelessness Impact raised concerns about the knock-on costs, arguing that housing benefit freezes are already driving homelessness.

The Guardian put the suggestion to Badenoch. “It all needs to be coordinated,” she said, evading the question. “What we are doing on defence is very closely linked to welfare. My shadow welfare secretary, Helen Whately, is looking at all of the impacts across the board, because we know that every change does create a new situation.”

Local housing allowance rates set how much housing benefit low-income tenants receive to cover their rents.

Rates have been frozen since 2024 – the Conservatives were the last party to raise them. Labour has opted to keep LHA rates frozen since coming to power.

It remains to be seen whether Burnham decides at next month’s budget to unfreeze rates in the spring.

Rents have continued to rise despite the freeze. This means that benefits struggle to cover the cost of renting, leaving low-income households with little choice in finding somewhere affordable to live.

Just two out of every 100 homes on the private rental market are affordable, according to research from Crisis and Citizens Advice published in July.

The housing benefit bill, encompassing both private rents and subsidising social housing rents, sits at around £37bn – almost as much as Labour’s social and affordable housing programme to build new homes over the next decade.

The affordability gap between the cost of local rents and the level of local housing support sits at 22%, according to analysis from Resolution Foundation.

The think tank said the larger the affordability gap, the bigger the risk households are forced into temporary accommodation.

That’s where the Conservative plan is unclear: cutting benefits does not come for free, it leads to knock-on costs elsewhere.

Read more:

• Local housing allowance stays frozen this year. Renters need housing benefit to keep up with rents
• Local housing allowance is finally going up. But is it anything more than just a short-term fix?
• ‘Terrified of a rent increase’: How Labour’s housing benefit cuts are hitting renters

Councils in England paid £2.8 billion to cover the cost of temporary accommodation in 2024-25.

Office for Budget Responsibility analysis said rising demand for temporary accommodation and asylum accommodation as well as social care represent a “significant risk” to council finances. Housing services and social care costs make up around 30% of local authority expenditure in England, up from around 20% a decade earlier.

The number of households living in temporary accommodation is continuing to grow, particularly as LHA rates are frozen.

The cost to councils is also growing. The Local Government Association has projected that, without intervention, local authorities could be paying as much as £4bn a year in temporary accommodation costs by 2029-30.

And that’s not taking into account the wider costs associated with homelessness, such as impacts on the criminal justice system or on the NHS.

Ultimately, the Tories’ plan might look like a quick fix to boost defence spending. But it risks racking up longer-term costs.

Rachael Williamson, Chartered Institute of Housing’s director of policy, communications and external affairs, said: “Cutting housing benefit by reducing local housing allowance to the 10th percentile risks taking us back to a situation where support bears little relation to the real cost of renting.

“At a time when record numbers of households are already struggling with housing costs, this would almost certainly increase financial hardship and homelessness. Any short-term savings to the welfare bill could quickly be outweighed by higher costs to councils, the NHS and other public services dealing with the consequences of people losing their homes.”

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