Rent increase with S21 issued

Possession - Section 8 and Section 21

Can I increase rent although I have issued a section 21?

I have issued a S21 beginning of May, so hence six months’ notice required. The tenant has had a small fire caused by candles and caused £500 worth of damage which she agreed to pay, (I have text message from her confirming she will pay for the damages). The repairs have been carried out, so I'm out of pocket, but now she says she cannot afford to pay the damage cost and told me to deduct it from the deposit. (I offered to let her pay me in instalments but she declined) Now I’m left with no security if she stops paying rent or causes other damage or any other issues when she vacates the property. I'm already aware that she has damaged a light fitting and there's an iron burn in the carpet, both which will need to be replaced but the deposit fund has been exhausted by the fire damage.
In light of this I'm looking at increasing her rent, (no rent increase during her four-year tenancy). I’m not bothered if this would cancel the S21. The tenant is on housing benefit so she could claim the increased amount from that so will overcome her affordability issue.