Under changes being introduced in October, council house or housing association residents will able to let out their rooms to gain thousands of pounds in tax-free rent, and keep their benefits.
One council has advised tenants that they can keep up to £4,250 in tax-free income from renting out their spare rooms in an effort to claw back any reduction in benefits they suffer as a result of the so-called “bedroom tax”.
The Government estimates that 660,000 council house tenants will be affected by the withdrawal of housing benefit for those with a spare room.
The policy is intended to make better use of council housing stock by encouraging tenants to move to more suitably-sized homes.
Ministers have been encouraging tenants to find ways to lessen the blow of losing the subsidy. Steve Webb, the pensions minister, told MPs: “Some will swap, some will take in the extra lodger, some will work extra hours: there are a range of things people can do.”
Any extra income from rent will have no bearing on a council tenant’s universal credit.
Currently, benefit claimants must declare income from lodgers. This can affect their entitlement to housing benefit, jobseeker’s allowance and income support. However, from October, tenants will be able to keep rent and retain full entitlement to any benefit, after ministers amended what counts as income in draft regulations for universal credit.
The Department for Work and Pensions said the new rules “don’t specify that income from a boarder or lodger is to be treated as either earned or unearned income, so by default the income isn’t taken into account”.
Matthew Sinclair, the chief executive of the TaxPayers’ Alliance, said: “Taxpayers will be extremely concerned about the prospect of tenants legally profiting from their access to social housing.”
“The Government must not let them make money by playing landlord with their council house.”
Jane Ellison, a Tory member of the Commons work and pensions committee, said: “If more people decide it’s appropriate for them to do this it will really help others, especially young single people who are struggling to find an affordable home.”
Labour accused the Government of an about-turn. Last year, Grant Shapps, at the time the housing minister, said tenants who sublet their homes could be jailed or fined.
A spokesman for the Department for Work and Pensions said: “Letting people take on a lodger and fill a previously empty room clearly makes better use of our social housing stock.”
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