The Government’s proposed cuts to housing benefits will hinder the UK’s economic recovery, says the British Property Federation (BPF).

The BPF said the cuts could provide a “recipe for destitution” for up to 800,000 claimants of Local Housing Allowance (LHA), who may be forced to move away from employment hotspots because of high housing demand.

The BPF estimates there are over 400,000 new claimants that will be hit by the changes, and that a further 400,000 people already in work and claiming the benefit may be priced out of their homes -and so potentially have to leave their jobs.

Under the coalition proposals, LHA will be capped at 30% of average local rents, and in what the BPF condemned as “the most unfair and damaging of the coalition’s Budget reforms”, housing benefit will be linked in future to consumer price inflation rather than the higher retail price index.

With half of LHA claimants living in areas of high housing demand, the BPF questioned whether those subject to the cuts will be able to afford to live in the most popular towns and cities across the UK.

Currently in areas across the country such as Harrogate, Trafford, Brighton and most of the South West for every LHA claimant searching for a two bedroom property to rent there are between five and 10 times the number of families in work doing likewise.

In these situations, it is likely that LHA claimants will get left behind as landlords seek higher rents and less risk of rent arrears.

The BPF also questioned proposals to link benefits to CPI, pointing to HM Treasury evidence which shows rents grow at the same long-term rate as earnings, about 4%, whilst the Bank of England seeks to keep CPI to 2% growth per annum.

Ian Fletcher, director of policy, BPF, said: “Reform is needed, but yet more piecemeal changes to Local Housing Allowance are just making a flawed system worse. The Government’s proposals to reduce the country’s housing benefit bill have ramifications for a far wider demographic than the long term unemployed. For the victims of the recent recession and working claimants the last thing they need is to move away from their local jobs market as a result of the cuts to their housing benefit entitlement. It is no means certain that the policy will incentivise claimants back to work and it could have the opposite effect.