Government plans to change the way housing benefit is calculated will price low income households out of a third of local authorities in England and push them away from areas with higher employment, new analysis by Shelter and the Chartered Institute of Housing (CIH) reveals.

A joint report by the two housing organisations looks at the impact of changes to housing benefit announced in last month's Welfare Reform Bill, including the move to up-rate Local Housing Allowance for private tenants using the Consumer Price Index of inflation rather than the cost of local rents. This will be the measure used to calculate the housing element of the new Universal Credit.

The move, which is planned for 2013, will break the link between the housing support people receive and the housing costs they pay. Over time, where rents rise faster than the CPI, this will mean housing benefit will cover less and less of the housing costs people face.

The report shows that by 2023, just ten years after the change comes in, 34 per cent of local authorities outside of London will be unaffordable for people claiming Local Housing Allowance, including working households on low incomes and those unable to work such as pensioners, carers and people with disabilities.

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The local authorities affected are concentrated in the East of England, East Midlands and the South West where rents have been rising fastest over recent years, showing how claimants will find themselves priced out of huge swathes of the country.

Further analysis reveals a pattern between these areas and those regions with the biggest proportion of claimants in work and the highest rates of employment. Meanwhile, regions that remain affordable in 2023 – the North East, North West and Yorkshire and Humber – are those with the above average rates of economic inactivity and unemployment.

Shelter and the CIH are warning that the change could undermine the government’s aim to get people back into work if they are forced to move away from areas where the job opportunities are into those with lower employment. It could also mean that claimants who are working could find their jobs at risk if they can no longer live near to where they work.

Shelter Chief Executive Campbell Robb said: "These changes will mean that the level of housing support people receive will be based on the average increase in the price of random items like washing machines and a meal out, instead of the rents they actually pay.

"As this takes effect, many people will see a big drop in their housing support, leaving them with a stark choice between rent arrears, eviction and possible homelessness, living in overcrowded homes, or moving across the country to an area where they can afford to live but where there are fewer jobs available.

"In the current economic climate when further job losses are predicted over the coming months, now is the very worst time to take away the housing safety net that helps people who lose their jobs to stay in the areas where they have lived and worked for years."

(CD/GK)