‘Irrational' civil service financial modelling on future housing benefit demand threatens local authorities with a funding shortfall, a parliamentary spending watchdog has warned.

A Public Accounts Committee (PAC) report on housing benefit (HB) reform issued today states the Department for Work and Pension (DWP) cannot accurately forecast the effects changes would have on an estimated two million claimants likely to receive lower payments, or on housing reply.

Changes to HB - designed to save £6.2bn by 2014/15 from annual £23.4bn HB costs - include cuts in the rates paid to claimants renting privately or social housing tenants in homes deemed ‘under-occupied'. 

But in the absence of modelling, the department intends to take a reactive ‘wait and see' approach to its measures– assessing the impact on rent levels, arrears and homelessness before taking action.

However, the PAC reports the DWP is introducing significant changes with limited understanding of the costs local authorities would incur. 

Additionally, the impact of the reforms on claimants' finances could be exacerbated by other changes to the welfare system, most notably the Coalition's flagship ‘Universal Credit' programme and the localisation of council tax benefit payments, the report states.

Margaret Hodge, chair of the PAC said: ‘It is not clear whether the additional £390m which the DWP has set aside to fund discretionary housing payments over four years will be enough for local authorities to manage the impact of the changes.

‘This figure is not based on any rational assessment of need,' Ms Hodge said.

David Orr, chief executive for the National Housing Federation, branded the Government ‘irresponsible' for implementing HB changes without knowing the full consequences for the people affected.

Lewisham Mayor Sir Steve Bullock, executive member for housing at umbrella group London Councils, today issued a report detailing the impact of benefit reforms which suggests London would be hardest hit and should be treated as a ‘special case'.

‘London Councils supports a fairer, more accountable system of welfare that encourages work,' Sir Steve said.

‘But since changes to housing benefits in April 2011 the number of households claiming housing benefit for private rented housing in London rose by over 32,000. Rents went up by 9% for the most basic housing in that period and this is increasingly a London issue.'