(8 years, 3 months ago)
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Baroness Evans of Bowes Park (Con)
My Lords, I will speak to the government amendments which are largely technical in nature and stem from issues that have been raised with us. The amendments seek to improve the drafting of the Bill and ensure that the policy can be implemented smoothly. We also intend that they will be helpful to social housing providers. I am aware that my noble friend had helpful meetings with your Lordships before Christmas to explain the purpose of these amendments. I will now seek to put that forward to the House.
Amendment 104BC is a minor technical amendment. It closes a small gap in the drafting of the provisions to bring into the scope of Clause 21 any tenancies that began at,
“the beginning of 8 July 2015 but less than 12 months before the beginning of the first relevant year”.
Under Clause 22, we have set out some exceptions to the policy. The purpose of the exceptions in Clause 22(2) and (3), and the equivalents in Schedule 2, is to protect the value of stock held by social sector landlords, to provide confidence to the financial sector and to ensure that providers can continue to use their stock as security for borrowing.
Amendments 108B to 108D and Amendments 110C to 110E improve the drafting of those exceptions and clarify that they apply to the registered provider’s interest in the property only if the relevant steps are taken for the purpose of enforcing the lender’s rights under the security as intended. They also clarify that for the purpose of these exceptions, where a registered provider appoints an administrator, this is a step to enforce security.
We have brought forward Amendment 110F in response to concerns regarding the potential for practical implementation difficulties in certain circumstances. The new clause, “Implied terms”, is intended to help social housing providers to comply more easily with the requirement for rent reductions for social tenants. The amendment overrides any provision of individual tenancy agreements that may prevent providers varying the tenancy agreement to reduce rents on the most appropriate annual timescales. This is a somewhat technical amendment, so it may help if I provide some background in order that its purpose, which is to assist providers, can be better understood.
The Bill requires social providers to reduce by at least 1% the rents payable by their individual tenants over each of four relevant years. Each provider has a single relevant year, which, as a general rule, will run from April to March. However, a private registered provider with an established practice of co-ordinated rent years for the majority of its tenants may choose instead to use that period as its relevant year. If there is no clear majority the default is that the provider must use 1 April.
Lord McKenzie of Luton (Lab)
My Lords, we thank the Minister, the noble Baroness, Lady Evans, for her introduction and we are grateful for the separate briefing that we received before Christmas with her colleague, the noble Baroness, Lady Williams. This is a very substantial list of government amendments, but we will not oppose them, as overall they are intended to make the policy work more effectively and securely. We understand that they are, in essence, technical.
However, we might just reflect on the fact that in Committee in another place we saw the introduction of four new clauses and one substantial new schedule, with more government amendments on Report. The amendments in this group include those—for example, 108B—which replace provisions inserted by government amendments in Committee in the House of Commons. This creates the impression that the policy has not been fully worked through. I wonder what else is being worked on which will require amendment before we are finished with this Bill.
We know from the Government’s briefing note of Clauses 21 to 28 and Schedule 2 that work is under way on regulations to come into force on 1 April 2016. These are to cover further exceptions but also alternative provision for accepted categories and alternative conditions for granting directions. Regulations are also to cover the enforcement of Schedule 2 by the regulator. Can the Minister say whether we will see at least a draft of these regulations before we get to Report? Clearly, the clock is ticking, and drafting must have reached an advanced stage if the regulations are to come into force on 1 April this year.
So far as Clause 23 is concerned, there is the opportunity for the Secretary of State to direct that the provisions of Clause 21 do not apply to a local authority if it would be unable to avoid serious financial difficulties. Similar considerations arise for private registered providers, where the regulator has to take a view on financial viability. Can the Minister say whether any general guidance will be published covering these matters? We note that the Secretary of State is taking powers to publish measures which individual local authorities can take, so we are back with central government micromanaging the affairs of local authorities—so much for devolving power. But as I say, we do not and will not oppose these amendments.
Lord Kirkwood of Kirkhope (LD)
My Lords, I support what the noble Lord, Lord McKenzie, has just said. He is right to say that the process of this particular measure and its sections through its various parliamentary stages has been less than best practice. Of course, it is not the Minister’s fault; I think that the Committee is grateful to her for her concise explanation of what these amendments seek to do, and it is agreed that they are, by and large, improvements. However, having substantial bits of policy of the kind covered by the sections and amendments that we are dealing with this evening in a summer Budget Statement, with no prospect of any consultation beforehand—an ex cathedra Statement by the Chancellor of the Exchequer, and then a long Summer Recess where everybody tries to work out what on earth it all meant—is not a good way of producing legislation.
It does not surprise me that there was a degree of confusion at the Commons Committee stages and that we are now faced at this quite late stage with admittedly helpful amendments. However, they are technical and they need consideration, because they increase the corpus of housing law and make things more complicated. Not only does the primary legislation make it more complicated; it will spawn secondary legislation. This House will no doubt look forward to studying it in great detail, larding and littering the statute book with consequential changes, including protecting mortgagees, implied terms in leases—which is always dangerous; from a legal point of view, implication by statutory legislation is never a good thing—and transitional protection, which may well be necessary. But at this stage I think it is appropriate for the noble Lord, Lord McKenzie, and the Committee to say to the Minister that housing Bills and measures of this kind should be done properly. Consultation and Green Papers are always an advantage. If we had had a Green Paper in relation to these clauses, some of the difficulties that the Minister faced in introducing these amendments could have been avoided and could be avoided in future.
Baroness Evans of Bowes Park
I thank both noble Lords for their contributions and take note of the points that they raised. In specific relation to the draft regulations, we will be putting out information on our detailed intentions in due course, and I will look at what more information can be provided at Report.
Lord McKenzie of Luton
Can I just press the Minister a bit to say what “in due course” means? Can we narrow that timeline a bit? For example, is it likely to occur before we get to Report?
Baroness Evans of Bowes Park
As I said, we will look at what information we can provide for Report; I am afraid that I cannot go further than that.
Lord Kerslake
Lord Kerslake (CB)
My Lords, I rise to move Amendment 104C. In doing so, I declare my interest as chair of Peabody and president of the Local Government Association. I will also speak to the other amendments in this group that have been tabled in my name, so I hope that noble Lords will bear with me if this takes a little time. I also support the amendments in this group tabled by other noble Lords.
These amendments are all consequential on the Government’s new policy, announced in the July Budget, that social rents should be reduced by 1% per annum in England for the next four years, starting in April 2016. It is therefore appropriate that I say a few words about this policy as background to and rationale for the amendments I have tabled. The policy represented a complete reversal of the previous coalition Government’s policy, announced as part of the 2013 spending review, that rents would rise by the increase in the consumer prices index—CPI—plus 1% for a period of 10 years.
It is instructive to note that this formed part of the infrastructure report Investing in Britain’s Future, which accompanied the spending settlement report. The joint foreword to that report from the Chancellor and the Chief Secretary to the Treasury began:
“Britain at its best is a country that invests in the future”.
In his speech introducing the report to the other House, the Chief Secretary said:
“Our housing associations have told me that they can do more. To do that, they need certainty on rents, alongside public investment. So today I can provide both those things: I can guarantee that social rents will be set at the consumer prices index plus 1% out to 2025”—
note the word “guarantee”—
“and I can provide £3 billion more capital over three years from 2015 to deliver 165,000 new affordable homes”.—[Official Report, Commons, 27/6/13; col. 467.]
Lord Best (CB)
My Lords, I rise to support the amendments in the name of my noble friend Lord Kerslake and to speak to Amendment 108 in this group. These amendments all address the implications of the Government’s plan to require housing associations and councils to reduce their rents by around 12% over the next four years. It has often been said that rent controls were the reason for the private rented sector declining from more than 60% of the nation’s housing after World War II to a meagre 8% or so by 1990. For sure, the new rent cuts will also have unintended consequences.
The Government, in the DWP’s impact assessment for this measure, justify the rent cuts on the grounds that housing association rents have been increasing at a much greater rate than those of private landlords, but it has been government policy that associations should raise their rents toward market rent so that social housing grants can be cut. The higher rents have been necessary to enable associations to borrow more to compensate for grants being reduced from some 90% of the costs of a new home down to around 15%. Lower grants and higher rents have meant more people needing housing benefit. Although previous Conservative Housing Ministers have said, “Let housing benefit take the strain”, now Ministers responsible for welfare want to dramatically reduce housing benefit expenditure and the rent cuts are intended to save nearly £2 billion per annum by 2021 and every year thereafter. These savings will have significant negative consequences for the Government’s housing policy.
The housing associations, whose incomes will have fallen by £1.6 billion per annum by 2020-21, and annually thereafter, can try to make up the difference in three ways. First, they can cut their development programmes, which would damage the Government’s hopes for the building of substantially more homes, as explained by my noble friend Lord Kerslake. Secondly, they can cut their revenue costs; a number have already announced that their added-value programmes will be axed, such as tackling anti-social behaviour, supporting loss-making specialist housing, helping people into work, reducing tenants’ energy costs and so on. Removing these local services means extra costs for society elsewhere. Thirdly, associations can reduce the surpluses that some have generated in recent years, but these surpluses have been ploughed back into housing and services, as well as being important in satisfying lenders, from whom the housing associations have been borrowing some £3.5 billion a year on excellent terms. With increased risk, raising loans will be more difficult and more expensive.
Lord Beecham (Lab)
My Lords, I represent a ward in Newcastle-upon-Tyne—I declare my interest as a serving councillor there and as a vice-president of the LGA—which will be affected by various aspects of the Bill, but particularly by a matter that is the subject of an amendment in the name of the noble Lord, Lord Ramsbotham, who is not in his place, which deals with exceptions to rent reductions for registered providers of social housing which are almshouse charities. I have received two communications about that group, one from a London authority and another from a body called the Hospital of St Mary the Virgin in Newcastle, which operates two schemes, one in my ward—a place called Thomas Horsley House—and another in an adjoining ward. That body is very worried about the possibility of almshouses being forced to reduce the rents they charge. It provides homes for single, poor, older men and currently charges rents of £55 a week in one of the two homes and £57 a week in the home in my ward. Those charges include gas, electricity, water, TV licences for all the over-60s and all repairs and maintenance. The only things that are excluded are council tax, phone bills and TV licences for the under-60s. The body informs me that it has,
“been able to maintain these rents at considerably less than the market rate because we are beneficiaries of the related Estates Trust”.
I know that development well. It is a modern development with very nice accommodation and is on a bus route. It is adjacent to another very good scheme provided by Anchor Housing. For that very similar accommodation, Anchor Housing charges £101.20 per week, which is a considerable difference. The Hospital of St Mary the Virgin says:
“We have taken great care only to increase the rents … by c.£1-2 per week per year, to enable us to maintain the wages of staff at or above the Living Wage, to pay for any increases in utilities”,
and so on. However, the body says that it would find it very difficult indeed to continue to do that if it is compelled to reduce the rents.
I suspect that this is not a large group of social housing providers, but there will be almshouses up and down the country and if they follow the model followed by the body in my ward, they are providing very good value for a vulnerable group of people at a low cost which they will find difficult to sustain, and their tenants will have difficulty meeting higher payments should almshouses be affected by this measure. I very much hope that the Government will consider almshouses and housing co-operatives, which have also been mentioned, as bodies which should not be obliged to reduce their rents, with the implications that that would have.
It is estimated that, over time, Newcastle would lose some £529 million which would otherwise be invested, not just—I say “just”—in building new houses but in maintaining the existing stock. This poses a very considerable threat to the activities of an arm’s-length management company, Your Homes Newcastle, in regard to a substantial holding of houses. The problem here is that reductions in rents would affect not just the potential maintenance of the existing stock but the building of new houses, as noble Lords have mentioned. The impact is already being felt in the ward I represent. Two small schemes in the ward were going forward to tender. Two housing associations withdrew because they were concerned about the viability of the schemes and another is still on the margins of deciding whether to go ahead and, if it does go ahead, it will be on a somewhat different basis. Neither of these is a large scheme.
A relevant consideration is that the smaller the scheme, the bigger the potential impact on the housing association because it is less possible to provide cheaper housing if you are unable to compensate for that to some extent by providing housing that will attract a market rent or that can be sold. The impact of possible rent reductions and of right to buy is already visibly acting as a deterrent to the provision of new housing in my authority, where it is very much needed, and, I guess, in many authorities up and down the country. The Government really need to rethink the impact of this policy beyond the financial gain they will obtain from the reductions in housing benefit—a matter I first brought to light in a Written Question I tabled some months ago, and about which I have made previous mention. There is a very significant gain from that point of view but with very damaging implications for local housing and people who need it, including people who need it more than most—that is, the people catered for by the charities to which I have referred. I hope that the Government will look very sympathetically at the needs of those bodies but also at the impact of the measure on housing need generally in areas that are already hard pressed.
While the Government are doing that, they might take a look at what they are doing—if anything—about rents in the private sector, where, of course, a great deal of housing benefit goes. Today we read of very substantial private rented housing increases across the country. To my astonishment, the rise in Newcastle in percentage terms is the same as that in London. Rents in London have been, and are, going up very considerably. They are going up even higher, I understand, in some other places. I think rents in Bristol have been cited in the Guardian as going up by something like 18% in a year. That is very difficult for people to cope with but must necessarily impose a charge on the public purse as well. What do the Government propose to do to protect tenants in that sector from that kind of rent increase and, indeed, to protect the Exchequer’s interest, given the consequences of rent increases in that sector? None of that seems embodied in the legislation, yet it will have a significant impact on people’s lives and on communities in the areas where these circumstances are currently causing problems, and will continue to do so unless action is taken. I hope the Government will look at that matter as well.
Lord Horam (Con)
I am very sympathetic to the views put forward by the noble Lord, Lord Kerslake, in moving his amendment. All noble Lords are aware of the acute difficulties in rented accommodation and housing to buy, particularly in London but also elsewhere. I am delighted by the dynamism which the Government are trying to inject into this area. This is, perhaps, not the occasion to look at the full dimension of housing policy because we are considering only one aspect of it in relation to the proposed amendments. None the less, there is a bigger picture which should be taken into account. The noble Lord, Lord Kerslake, made the point that the Bill contains a very abrupt reversal of the position under the coalition Government when there was a 10-year guarantee of the 1% a year increase in rents. Frankly, it was rather foolish for any Government to give a guarantee of that kind. By their nature, these things are very hard to sustain through different economic circumstances. I genuinely wish it could have been carried on, because it was helpful to have that length of forward planning time. In the past, I have been a critic of the failure of Governments—Conservative and Labour and the previous coalition one—to plan ahead on investment. As a devout Keynesian, this is something on which I have been critical of my own Chancellor of the Exchequer in the past. There needs to be one view about current spending and one about capital spending: the two are not necessarily the same thing at the same time.
I understand all that very well, but the reality is that all Governments, of any political complexion, have to take the bigger picture into account. That picture is that the Government are still spending substantially more than they are raising in taxation. At the moment, the figure is approximately £70 billion a year. Let us not forget that under the previous Labour Government this huge deficit was £150 billion at its maximum. This was brought down only by half during the coalition period and the Chancellor of the Exchequer now hopes to bring it down and eliminate it during the course of this Parliament. I am sceptical about whether he will achieve that. As all noble Lords are aware, the economic recovery in this country is rather fragile. At the moment it is in the order of 2% a year and although it would be very good if we manage to achieve that year after year, I am not sure that we will. The winds of economic force around the world are looking difficult. I have for long felt that China was heading for real problems and now it really has them. Its growth has come down to something like 6% from 9% or 10% the previous year. Other countries have massive deficit problems. China has a deficit of over £250 billion: 250% of its GDP as opposed to our 8% of GDP. Japan’s deficit is over 200%; Brazil’s is huge. There is almost a tsunami of debt around the world. This is extremely important in terms of our economic performance and no Government could ignore it. To ask this particular sector to make a contribution—of £12 billion as the noble Lord, Lord Best, pointed out—is responsible. To use a phrase much used by the former Chancellor, Gordon Brown, it is prudent in these circumstances. That is the reality which a Government have to face, so I am not surprised that they have reversed this particular housing policy and gone to a managed 1% over the next four years.
Not to beat about the bush, it is a difficult economic situation. I am not as pessimistic as the noble Lord, Lord Kerslake, and others, or the Office of Budget Responsibility, which talks about 43,000 fewer houses. Indeed, I am rather sceptical about these forecasts as well. I note that the housing association movement, which has entered into a voluntary agreement with the Government, is not itself as pessimistic as that. As the noble Lord, Lord Kerslake, mentioned, there are quite a lot of possibilities for greater efficiency within the movement. I have had talks with housing associations; I was once the chairman of a housing association; I know something about this area. There is certainly a greater possibility of them reacting by improving their efficiency, by mergers, by some of the larger associations taking over some of the smaller ones. All that is possible and it is necessary if we are to make progress.
The way out of the acute economic dilemma which this country and the world face is greater productivity. That is what it is lacking. You get greater productivity by pressing down on costs and achieving greater efficiency. That is what the Government are hoping that the housing association movement and individual housing associations will do. Given what I know about housing associations, and what they are saying to me, I am not pessimistic: they can achieve that. I do not think they believe that there will be the dramatic reduction in the number of houses they produce to rent or buy which the Office of Budget Responsibility has forecast, and they are right not to. We should not be so pessimistic about the effect on housing associations. I hope they can increase their contribution because we need that if we are to meet the ambitious targets which the Government are now setting. Realistically, we have to take all that into account.
I agree with the noble Lord, Lord Kerslake, on the question of exemptions. If you are taking a tough line, as the Government are, on the 1% reduction in rents year by year, you can afford to put in certain exemptions for disabled facilities and other kinds of supported accommodation. This will be discussed when we come to Amendment 109, but it is not enough to give guarantees of a certain kind. This comes back to the question of the certainty you should be able to create for housing associations to plan ahead. It is much better to have something in the Bill, in clear black and white, which they can plan on, rather than some possibility that the Government may waive the situation and decide that, in the eventuality, a certain scheme may pass their test and not be subject to the Bill. It is much better to have something concrete on which a housing association can possibly plan.
I am, therefore, sympathetic to the exemptions talked about by the noble Lord, Lord Kerslake, and other noble Lords. I hope the Government will listen to that argument carefully. If they do, they will show their real intention of being as fair-minded and sympathetic to these real problems as they possibly can. The general attempt to roll back the clear policy on handling private rents is a mistake in the wider context of the economic situation that we face. This area has to make a contribution to our economic success. It ought to be able to do this by increased efficiency and productivity and I very much hope that it will.
Lord Scriven (LD)
My Lords, I support a lot of what the noble Lord, Lord Kerslake, said. The noble Lord and I do not always have a history of supporting each other. He was the chief executive of Sheffield City Council when I was leader of the opposition there. We both know the sparring match well. Since the noble Lord has come into this House, I have listened to him on many issues and on housing in particular. He speaks both sense and practicality on the difficult situation which the Government have got into: seeing social housebuilding as a way of dealing with a welfare bill. The actual consequences of reducing the rent will be that while it may meet the objective of dealing with the welfare bill, it will not deal with the acute shortage of social housing across this country. That is probably the biggest social issue facing families and individuals in this country at the moment.
I jumped up after the noble Lord, Lord Horam, because I wanted to say that I am not sure whether he listened to what the noble Lord, Lord Kerslake, was saying about the bigger picture. Regarding his amendments, particularly Amendment 104D, the noble Lord, Lord Kerslake, was clear. He did not ask for the policy to be totally thrown out but referred to a specific issue: that when the deficit had gone and we were back in balance in 2020, the position that the Government have got themselves into about a reduction of 1% should stop. He said clearly that once the Government had got back into the black, it made no sense whatever to continue with the 1% reduction. So the amendment of the noble Lord, Lord Kerslake, took the wider position.
There is a clear question to the Minister. Is this policy being driven by dogma or by practicality? If it is being driven by practicality on the biggest social policy issue facing the country then, as the noble Lord, Lord Kerslake, said, there is no justification for keeping the 1% reduction after the deficit has been eliminated. There would be wisdom in knowing from the Minister why the 1% reduction would be needed once the deficit had gone, according to the Government’s own predictions. What logical reason would there need to be that would not contribute to dealing with the country’s biggest social problem, which is affordable housing?
The second issue which made me want to jump up straightaway was to do with pessimism and the predictions that the noble Lord, Lord Kerslake, and others have made regarding the effect on the number of social houses built. Again, the noble Lord, Lord Horam, said that he did not believe that such a difficult situation would be the case, and that he had more faith in housing associations dealing with it through efficiencies and other things. I have great faith in many in the public sector, and in housing associations, when dealing with efficiencies. They have been doing that for a period of time but the scale of these reductions will not be dealt with purely through efficiencies. At the end of last year, the chief executive of the Genesis Housing Association was already saying that it will stop building social housing. Chief executives of housing associations are already stating that, and that they will be able to build only houses at market rent. The predictions are not vague; housing associations are already stopping what part of their core purpose was, as their chief executives are making clear.
The third point that I wish to raise is also in support of the noble Lord, Lord Kerslake. I come back to Amendment 104E and the issue regarding the Government giving a clear commitment today that, after 1 April 2020, providers will be able to increase rents by CPI plus 1% each year. Can the Government give the commitment that housing associations will be able to do that? If they do not, again, one has to ask the question: is this being driven by practicality or dogma? I know the Minister well and I am sure that she would not want to be seen as dogmatic. She will want to be practical on these issues and she can give a clear indication to the House. The noble Lord, Lord Kerslake, is looking for not a head-on clash but a practical solution to a very serious problem. I hope that the Minister can give an assurance to the House, through accepting and supporting the noble Lord’s amendments, that there is some light at the end of the tunnel and not a purely dogmatic approach to dealing with both welfare cost and social housing.
Baroness Blackstone (Lab)
My Lords, in speaking briefly to these amendments I declare an interest as the chair of the board of the Orbit housing association group. I want to pick up on something that the noble Lord, Lord Horam, said. Everybody involved in the world of housing associations is acutely aware of the need to be efficient and get good value for money. I certainly am and I am sure that the noble Lord, Lord Kerslake, and others in the House who are involved in them are. A four or five-year reduction in rent is just not the best way of securing such efficiencies. It really is taking a sledgehammer at something and, as the noble Lord, Lord Kerslake, said, the right way to do this is through good internal management and effective and good external regulation.
The intervention in the housing market to legislate for rent reductions in housing associations and local authority properties is not the kind of intervention that you would normally associate with a Conservative Government. I was brought up to believe that Conservatives and the Governments who represented them believed passionately in the working of the market. Moreover, the kind of direction from the centre that this would entail sits very awkwardly with the Government’s claim that they are in favour of greater devolution to the regions and to local government. It is the reverse of that. It is also entirely inconsistent with their avowed aim to increase housebuilding. As the noble Lord, Lord Scriven, has already indicated, we are not going to alleviate the crisis in the supply of housing, especially for first-time buyers and those in desperate need of social housing for rent, with this sort of approach.
On the one hand, the Government want to reduce rents to cut the amount being shelled out on housing benefit; on the other, they want more houses to be built by housing associations and, I believe, by local authorities. If they want the second of those objectives to be achieved, they really should not introduce policies which greatly undermine that goal. We have already heard that it is estimated that the 1% rent reduction over the next four years will lead to a loss of £3.85 billion in rental income for housing associations. The noble Lord, Lord Scriven, has already cited examples of chief executives in the sector saying that in these circumstances they cannot go on with their housebuilding programmes, which ought to be focused on social housing. Put another way, as the noble Lord, Lord Kerslake, said, it will result in a 12% reduction in average rents by 2021, compared to today’s forecasts. Perhaps the Minister could be really honest with us and tell us what effect she thinks this will have on housing association housebuilding. Please do tell us that clearly.
The cost to local authorities is estimated to be £2.6 billion by 2019. This amounts to what it would cost to build 19,000 new homes over the four-year period. Unless local authorities and housing associations are able to make a substantial contribution to the Government’s extremely ambitious targets for new houses between now and the next election, which I and many other Members of this House of course welcome, those targets are highly unlikely to be reached. Again, I would like to hear the Government’s view on the effect of this legislation on their housing targets. They are trying to do one thing with one hand, as the noble Lord, Lord Scriven, said, and something quite different with another—and the two do not come together very well.
I do not want to repeat what other speakers have said on these amendments. But I strongly support what all speakers, particularly the noble Lords, Lord Kerslake and Lord Best, and my noble friend Lord Beecham, have said about particular kinds of housing associations having great problems with what is proposed here. For those reasons, I strongly support the amendments in this group, all of which seem to me to propose wholly reasonable adjustments, which the Government ought to be able to make without too much difficulty. I hope to hear a positive response from the Minister when she replies.
Lord Triesman (Lab)
My Lords, I also declare an interest, which is on the register, as a director of a housing association. I share the point that the noble Lord, Lord Scriven, made very eloquently: if you had to categorise the most gripping social problems that we face, among them would be the problems of people either not having any kind of decent housing or being shifted routinely from one low-cost house to another, and all the things that we know are correlated with that, such as worse health, worse educational prospects for the children and less likelihood of families staying together and of intergenerational relationships being sustained. It is a critical problem.
The noble Lord, Lord Horam, tried to say how we can balance the competing issues around this. I make the point to him that it is critical—it has become ever more critical—to understand what the sources of finance are likely to be for building new, affordable and social homes. Not all housing associations are the same. There are some very big ones which have been capable of launching own-name bonds and have done reasonably well in attracting new capital into their building programmes. There is a very much bigger group in the middle—perhaps the overwhelming majority of which would, I am quite sure, be categorised as efficient and among which there has certainly never been a default—which cannot launch an own-name bond as it is not financially within the scope of what they are capable of doing. Then there are very many smaller ones which come under the sorts of pressures that the noble Lord, Lord Best, and others have described.
The middle group is by far and away the biggest of the groups and the one which is most challenged in finding sources of relatively inexpensive capital to build new buildings. We all know that the shortage of such buildings is enormous and the task for those housing associations is therefore profound. The empirical evidence is very clear that most of them have run out of any real capability to raise additional funds from the banking sector, not least because the banks have gone through a period of considerable turmoil in their lending and the amount of risk that they are prepared to take, because they are subject to Basel III and other ratio-controlling mechanisms when it comes to what they will or will not lend. I know that housing associations in that middle group which go back to their bank often find that the bank, rather than wanting to talk about new investment, wants to renegotiate the terms of the debt relating to past investment. It is a fundamental disincentive.
One thing that has interested me most of all in the last couple of years of close involvement with a housing association is where the money for new building will come from. It frequently comes from what, rather like my noble friend Lady Blackstone, I had always thought was within the domain of Conservative policy up to the hilt. They look for areas of potential private investment, but the private investment in this sphere and segment is very particular. It has to be long term, because none of these are short-term projects, and it will inevitably be at very low rates of return. In short, it is a classic annuity investment. Classic annuity investments appeal to particular kinds of investors. We have found, for example, that the people who understand the need in this country most readily and are prepared to make investments of this kind are the Scandinavian pension schemes. It has been those people who think in the very long term and about low rates of return, because their aim is to provide a sustainable, long-term but pretty marginal annuity income. That is one of the most limited spheres for raising money for new buildings that you can think of, but it is now becoming increasingly vital. Unless they can plan over a period of time what the return will be, what I have described as a very small return becomes no return and they cease to invest. Of course the CEOs and others in housing associations then say they are not going to build, because the last door has been closed.
I hope noble Lords opposite will forgive me for taking such a directly capitalist approach, but I do. I am an entrepreneur. I look at these things and try to work out how it is you can potentially fund things that are socially vital. I ask the Government to think again—perhaps by saying the four years is four years and there is no excuse for going beyond it—about whether they really want to build these homes and whether they will produce the conditions in private market circumstances which will overcome the barriers. There is a very straightforward yes or no answer to that. If the Government want to overcome them, they should not impose something which makes it impossible for investors to fill the gaps that the banks have now left.
Baroness Hollis of Heigham (Lab)
My Lords, I want to raise a slightly wider point, as I see the 1% rent cut as the most recent of the attacks on social rented housing. What has triggered my comments is that the Prime Minister announced at the weekend that he wishes to bulldoze sink estates of 1960s tower blocks, where families and the employed had moved out to be replaced—in his words—by “gangs” and “ghettoes”. If that bulldozing is what local communities want, I would cheer him on. Low-rise and higher density housing is what most of us prefer—providing, of course, it remains available for social renting and is not part of social cleansing.
However, anybody who is familiar with the welfare housing of American cities, as I know many of your Lordships are, will begin to recognise his picture. US welfare housing is stigmatised, poorly built and poorly maintained, and if you get a proper job you are required to move on and out. People are therefore locked for life into unsafe streets and unsafe homes. The UK has had a very different history with social housing, ever since it built “homes fit for heroes” after the First World War. Even now, in Norwich, people put carpeting down on public stairways in social housing and carve out flower borders around the base of their flats. In those estates, you do not have a problem with arrears, graffiti or policing. We built some of the best social housing in Europe, which gradually broke the link between poverty and poor life chances in housing. We stayed together, supported each other and policed each other, and that generational stability produced what Nye Bevan called,
“the living tapestry of a mixed community”.
All noble Lords in the Chamber this evening know what makes social housing work, despite the Prime Minister’s comments this weekend. Yes, it is physically decent homes at affordable rents, but also steady jobs, because as Octavia Hill said a century or more ago, you cannot live regular lives on irregular earnings. You want decent homes, decent jobs and stable communities with low turnover. You also need competent management, chasing arrears, responding to the need for repairs and stamping out anti-social behaviour. None of this is rocket science. If that is what the Prime Minister wants, I will cheer him on. However, in my view, his policies are destroying, slice by slice, everything that he says he wants.
What is the point in rehabbing homes if at the same time you undermine the lives of those who live in them? Sink estates are caused by not just the physical fabric but, above all, the social fabric. To that, the Government’s housing policies, including this one, are doing irreparable damage.
Lord Elton (Con)
My Lords, I have a fraction of the knowledge and experience in this field of the noble Baroness, and I am tempted from my seat only by her final remarks and those she made early on. I remind her that this is not the United States and, on the whole, we behave differently here. My experience of right to buy, which is a little greater than my experience in the rest of this field, is that when it started, you could tell which were the right-to-buy houses by the brightly painted doors, the clean net curtains, window boxes and the flowers. Going round the same estates, I now observe that the same doors are brightly painted, with clean net curtains and window boxes with flowers. The whole picture is not as gloomy as the noble Baroness suggested. I make no comment on the rest of her speech, but that makes me listen to it with a little more doubt.
Baroness Hollis of Heigham
My Lords, to respond to the noble Lord, the latest estimate is that 60% or more of property sold under RTB is now in the private rented sector, it is no longer occupied by the people who bought it.
Lord McKenzie of Luton
My Lords, this debate focusing on six specific amendments has become quite broad and—dare I say it?—welcome. The noble Lord, Lord Kerslake, kicked us off by reminding us of the background to the policy—in particular, pointing out that it is a complete reversal of CPI plus 1%, with its 10-year guarantee, which was introduced only a year ago. The noble Lord, Lord Horam, made the point that Governments may be foolish to offer 10-year guarantees, but one would hope that, whatever the term of the guarantee the Government gave, it would be met, and certainly not broken after just one year.
The noble Lord, Lord Kerslake, reminded us of what the policy as now constituted will actually deliver. Rents will be 12% lower and £2.3 billion per year will be lost to housing associations and local councils by 2020. Given the current structure of housing benefit, we are effectively talking about almost a straight transfer of resources from social landlords to the Exchequer. There is also the prospect of having 43,000 fewer social rented homes by the end of the period. The noble Lord emphasised the importance of certainty for the financing of housing provision.
I will come to the specific amendments on co-operatives in a moment, but the noble Lord, Lord Best, said that there are only three options for housing associations: cut programmes, cut the revenue costs which add value to housing association tenants or reduce surpluses. The Government have got themselves in a bit of a jam by believing that just because authorities and housing associations have reserves, that is free money. That reserve is there to support other activities and the current borrowing of housing associations and authorities. My noble friend Lord Beecham told us about the practical impact of the policies on his authority, and also supported the amendment of the noble Lord, Lord Ramsbotham, on almshouses, which I will come to.
The noble Lord, Lord Horam, reminded us that we have to deal with the deficit. Of course we do, but why do we always choose to do so off the back of the most disadvantaged in our society? Why that route?
The noble Lord, Lord Scriven, made the challenging point: is this dogma or is it practicalities that we are getting from the Government? My noble friend Lady Blackstone asked whether the Government would be honest and tell us what they think the effect of the policy will be. We ought to hear the Government’s view on what this will mean for housing provision over the upcoming period.
We had a fascinating lesson from my noble friend Lord Triesman on long-term annuity financing, which is very long-term with small margins, so changes in revenue streams could easily tip it into not being available.
My noble friend Lady Hollis challenged the PM’s view on bulldozing sink estates and made the point that to make social housing work requires decent homes, decent jobs, stable communities and decent management, and I agree with all that.
Amendments 104C and 104D, tabled by the noble Lord, Lord Kerslake, have the effect of reducing to three years the period of the rent reduction. That would coincide with when the Government tell us that the deficit will be dealt with, but that remains to be seen. From 1 April 2019, or the equivalent date where the relevant years are determined by Clause 21(6)(a), the rent reduction provisions will not operate. Amendment 104E requires that registered providers increase rents by CPI plus 1% from April 2020 and also requires there to be a review of the formula rent arrangements to see whether there are prospects of higher increases or greater flexibility.
We support the need to have as much certainty as possible for the future so that registered providers can develop long-term plans, although we understand that the Government may be coy about supporting anything beyond April 2020. It is presumed that the noble Lord’s amendments would apply to those tenancies to which the rent standard currently applies and not more generally. We also support the requirement for a review of the impact of Clause 21 to see what flexibility might be required to address its consequences.
I think that the way the Bill would operate at the moment is that if there is silence on the year 2020 before we come to the new arrangements, the regulator’s ability to set the rent under the rent standard would come back into play because it is negated by Clause 27 only for when the rent reduction proposals are under way. That would deal with the year between CPI plus 1% for 2020 onwards.
Overall, the effect of the noble Lord’s Amendments 104C, 104D and 104E would appear to be that the base for future rent increases would be higher than the Bill currently provides. The loss of income to councils and housing associations would be ameliorated and the shortfall in the provision of new accommodation would be reduced, to the benefit of those in housing need and to the benefit of the public purse, which would otherwise be bearing the strain. Other things being equal, the housing benefit bill would be higher in the short term than would otherwise be the case, as would the cost to those tenants who meet all or part of their rental costs. Overwhelmingly, the focus should be on getting back on track as soon as possible the investment programme under way as part of the 10-year settlement, which is what the noble Lord’s amendments seem to achieve: therefore, we are happy to support them.
Amendment 108, tabled by the noble Lord, Lord Best, focuses on fully mutual housing co-operatives. Amendment 108A, tabled by the noble Lord, Lord Kerslake, focuses on accommodation which is excepted from the right to buy because of specific adaptations for disabled or elderly people. Amendment 109A, tabled by the noble Lord, Lord Ramsbotham, which covers almshouse charities, was spoken to by my noble friend Lord Beecham. These amendments should be supported.
The case on mutual housing co-operatives has been fully articulated, as one would expect, by the noble Lord, Lord Best. We heard in particular from the Edward Henry House Co-operative in Waterloo. It argues that the financial model for housing co-operatives is different from that of housing associations. They do not keep large reserves. The reserves are kept low because of the member-tenant role in running the co-op. The prospects for driving efficiencies is therefore limited. These co-operatives should clearly be an exception to the policy, as should community land trusts, which are a very small section of the sector.
It is understood that the exemption from the right to buy for adapted properties is not widely drawn. Is it the case that it would not apply to one-off adaptations and requires properties to form part of a development of similar homes and to have some sort of social service or extra care provided on site or nearby for them to be subject to the right-to-buy exclusion? If this is the case, such properties would appear to fall within the definition of supported specialised accommodation, which is the subject of a separate exemption which we are going to debate shortly. The Minister may care to comment on that. This begs the question of whether the right-to-buy exemption should be widened at all—but perhaps this is an issue for another piece of legislation.
The financial structure of almshouses is different again. Residents pay a weekly maintenance contribution, rather than rent, which is less than a commercial rate. The exception the noble Lord, Lord Ramsbotham, seeks is entirely justified, and it is presumed that any impact on savings would be negligible.
We are confronted with six amendments, each of which should be supported. We have had a very robust debate around the thrust of this policy, the problems it creates and the challenges it will create in providing decent housing for people who have no option but to rent.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Williams of Trafford) (Con)
My Lords, I thank all noble Lords who have spoken to these amendments. I have listened with care to the comments made and thought it might benefit the Committee if I quickly set out some general comments with regard to the purpose of the 1% rent reduction.
As my noble friend set out at Second Reading, this Bill, including these measures, is part of a broader package of reforms, one of the aims of which is to put spending on welfare on a more sustainable footing, but in a way that protects the most vulnerable. I hope that answers the point made by the noble Lord, Lord Scriven, and other noble Lords who asked the same question. The housing benefit bill for the social housing sector in England has risen by nearly a quarter over the past 10 years to £13 billion, and rising rents are a key part of the equation. Average rent increases in the social sector have been more than double those in the private sector over the past five years. That is why the Government have taken the decision to reduce social rents by 1% a year for four years from 2016. That will mean that by 2020 tenants will be paying around £12 per week less than they would pay under the current policy of CPI plus 1% increases.
I listened carefully to the points made by the noble Lord, Lord Kerslake, regarding Amendments 104C and 104D. The noble Lord brings a great deal of knowledge of these issues to this House—I had not realised he had been chief executive of Sheffield—but we cannot accept these amendments, which would reduce the number of years of the rent reduction from four years to three. The noble Lord asked why we have gone back on the 10-year rent settlement of CPI plus 1%. This measure is crucial to the Government’s drive to secure housing benefit savings in order to control the welfare bill. Moreover, it will reset levels of social rents, which have got out of kilter with the private rented sector over the past few years. Around 60% of social tenants receive housing benefit, and the housing benefit bill for England in the social sector stands at £13 billion, and has risen by a quarter over the past 10 years. Social rents have risen by around 60% over that period. The average weekly rent for housing associations has gone up from £58 a week to £92 a week over the past 10 years. In contrast, in the private rented sector, it is 23%. We recognise that social housing providers will have to manage these reductions, but the Government are committed to reducing welfare spending, and everyone has a part to play. Moreover, we are confident that social housing providers will be able to adapt.
The noble Lord, Lord Beecham, asks why, if we are doing this in the social sector, we cannot do it in the private sector. We believe it is important to allow market rents in the private rented sector so that we have a diverse supply of private rental accommodation available for a variety of different needs. A fundamental move away from market rents would hold investment back when we most need to encourage it, and the resulting shortage of rented accommodation would help neither tenants nor landlords.
We also cannot accept Amendment 104E, tabled by the noble Lord, Lord Kerslake. It would require registered providers to increase rents by CPI plus 1% each year. The amendment also seeks to require the Secretary of State to review whether, given the impact of the rent reduction measure, there should be additional flexibility for registered providers to increase rents above the noble Lord’s proposal for an increase of CPI plus 1%. This is an important point that also goes to the question from the noble Lord, Lord Scriven: the Government will determine rent policy after 2020 at a future fiscal event. When taking future rent policy decisions, the Secretary of State will have to consider a range of issues, and it would not be right to prejudge now what those issues might be.
The noble Lords, Lord Kerslake and Lord Best, talked about the OBR predictions of 43% fewer properties being built by providers. The Government believe that providers will make efficiencies to continue to release resources for new development. I remind noble Lords at this point that housing associations hold £2.4 billion in surpluses, which is a very similar amount to local authorities. In the spending review we secured over £20 billion for housebuilding over this Parliament, including £8 billion for 400,000 new affordable homes over the next five years, so the Government are playing our part in the provision of housing.
Lord McKenzie of Luton
How much of that £20 billion is going to be applied for social housing for rent?
Baroness Williams of Trafford
It will be £1.6 billion to provide 100,000 homes for rent.
Baroness Hollis of Heigham
So the Minister is saying that £20 billion is set aside for affordable housing, but only £1.6 billion of that £20 billion will be available for social housing to rent. Am I right?
Baroness Williams of Trafford
The £20 billion will be invested in housebuilding over this spending review, and £1.6 billion of that will be invested for 100,000 homes for rent.
The noble Lord, Lord Kerslake, makes the point that not many people pay their own rent. In fact, out of the 4 million households in the social sector, one-third actually pay their own rent, and the noble Baroness, Lady Hollis, alluded to that.
Amendments 108, 108A and 109A seek to place some exceptions in the Bill. Perhaps I can offer some reassurances in this area. The Government have made clear our intention to look to continue to accept those types of housing that are currently exempted from the rent standard, subject to determining whether the existing definitions are appropriate in the light of the revised policy. These include specialised supported housing, which provides support for the most vulnerable people and was developed in partnership with councils or the health service. We will bring forward regulations to set out these and any further exceptions needed under Clause 22.
I recognise that many noble Lords are keen to see further categories of housing or provider excepted. Noble Lords, including the noble Lord, Lord Beecham, in the absence of the noble Lord, Lord Ramsbotham, have spoken to amendments that would accept fully mutual housing co-operatives, homes for the elderly or disabled and almshouses. We are equally keen to understand noble Lords’ concerns and are keeping these matters under review. Nevertheless, the Government believe that most providers can find operational efficiencies to manage these reforms, and it is simply not appropriate to except large swathes of housing from the provisions to deal with a few hard cases.
We are also investing in specialised housing for older people, and in the spending review we have committed £400 million of funding to deliver 8,000 specialist homes for the vulnerable, the elderly and those with disabilities through the affordable homes programme, with a commitment to further funding from the Department of Health for specialist accommodation. We will continue to support local areas to meet their local needs by maximising funding flexibility.
I remind noble Lords that while the Government expect providers to make all possible efforts to manage the rent reductions and to plan on that basis, Clause 23 of the Bill allows for individual providers to apply for an exemption from the rent reductions if they face severe financial difficulties. Many noble Lords have alluded to that point. We do not expect providers to budget on the basis that an exemption will be automatically granted; as I said, they should be able to make all possible efforts to manage the reductions.
Baroness Hollis of Heigham
Will the Minister agree to the circulation before Report to all Members of your Lordships’ House of a list of the categories of social housing that are regarded by the Government as potentially exempt from the 1% cuts in rent, so that we know before Report exactly who will be affected and who will not?
Baroness Williams of Trafford
My Lords, I am afraid that I cannot give that level of comfort to the noble Baroness. As I say, we are very carefully keeping this under review, but I cannot commit to giving her that list before Report.
Baroness Williams of Trafford
If I may finish, all I can say is that we take very seriously housing providers that might suffer financial difficulties because of the reductions. In those cases they will be able, under Clause 23, to apply for an exemption.
Baroness Hollis of Heigham
So what the Minister is saying is that the Government will come in after the event, when providers are already on their knees and some of them might be going under, as opposed to letting us know which categories may be exempt by virtue of their particular needs. These providers are offering supported housing, which has not only high physical building costs but high social costs in terms of supporting tenants.
Baroness Williams of Trafford
My Lords, exemptions will apply to providers that demonstrate to the Government that they will face financial difficulties because of the reductions. I cannot prescribe from the Dispatch Box who those providers will be; it is for them to come forward to the Government. However, in the main we will expect providers to be able to cope with the reductions.
Baroness Manzoor (LD)
My apologies; my throat is not very good, so I hope that noble Lords can hear me. What is the Government’s view of the organisations that are currently supported and are exempt from these specifications but will not be covered by universal credit?
Baroness Williams of Trafford
My Lords, there are several different types of accommodation. There is supported housing, which is a general term for housing that supports vulnerable people and covers a huge number in this sector. There is accessible housing, which is adapted or modified housing, and specified accommodation, which is accommodation used for housing benefit purposes. So there are different types of accommodation but, in terms of an exemption, it is up to a provider to come forward to the Government and say why they might face financial difficulties because of the reductions.
Baroness Manzoor
Forgive me for having to get up again; after all, we are coming to this subject on Amendments 107 and 109 so we will debate it then. However, I think there needs to be greater clarification regarding exemptions. There are currently organisations that are very vulnerable and provide housing services for some of the most vulnerable in our society to prevent people from becoming homeless, as well as those that provide refuge for domestic violence victims and so forth. I will not pre-empt the discussion that we will inevitably have, but I am looking for some reassurance from the Minister regarding whether these exemptions will continue to apply to those organisations that currently seem to be exempted. These rent reductions will have an impact because the providers will not be able to continue to provide those services, particularly to help and manage those kinds of conditions.
Lord McKenzie of Luton
Might the noble Baroness take the opportunity to clarify the distinction between exceptions and exemptions? I think she has been talking about exemptions today—exceptions are something else.
Baroness Williams of Trafford
The noble Lord has just read my mind. Doing so might be helpful because I think that we are now talking at cross purposes. An exemption relates to a provider, which is why I could not give the noble Baroness an assurance, because I do not know what providers might struggle because of rent reductions, whereas an exception relates to a sector, such as one that might provide for domestic refuges. Therefore an exemption is quite different from an exception, and I think we might have been talking a bit at cross purposes. I almost lost my train of thought there. However, I hope that with those reassurances, the noble Lord will feel—
Lord Beecham
Before the noble Baroness sits down, she referred to the private rented sector and implied that it was not as important as it would appear to be. However, has not the proportion of houses now in the private rented sector approximately doubled in the last few years, so that it now makes up 20% of total housing stock? How does that equate to her apparent fears for the viability of the sector if, for example, the Government take equivalent action with the rents they charge?
Baroness Williams of Trafford
My Lords, I think I explained that the Government do not intend to take action on the private rented sector. In fact, the private rented sector being in a healthy position in terms of supply can only be good for the housing market. With those comments, will the noble Lord feel sufficiently reassured to withdraw his amendment?
Lord Kerslake
My Lords, first, I thank the Minister for her comprehensive response. I also thank my noble friend Lord Best, the noble Lords, Lord Beecham, Lord Horam and Lord Scriven, the noble Baroness, Lady Blackstone, the noble Lord, Lord Triesman, the noble Baroness, Lady Hollis, and the noble Lord, Lord McKenzie of Luton, for their helpful and supportive comments on the issues I raised in these amendments.
I will make a few points in response to the Minister. First, I was very clear in my presentation of the amendments that I recognised that government had determined the big picture of policy, and that we were therefore talking about appropriate amendments here. On that point the noble Lord, Lord Scriven, is correct. I have sought to set out a number of practical and realistic amendments that the Government could consider.
On social rents, it is worth saying that, yes, they have risen above inflation, but that has been a direct consequence of intended government policy to raise social rents. They have not gone up because of some wilful act by housing associations or local authorities; precisely because it is a controlled area, it comes from government policy. Previous Governments of different political persuasions have acknowledged the need to raise rents so that they are closer to market rents. Indeed, the affordable housing product introduced by the last Government was up to 80% of market rent. Therefore, there has been a clear consensus policy by Governments to raise social rents, and that is why they are as they are.
My second point is that in respect of new housing supply in the social sector, there is what is often called the three-legged stool: a combination of private borrowing, rents and government grant. Each of those needs to be clearly calibrated to deliver the best possible results. As the noble Lord, Lord Triesman, says, confidence about long-term returns is absolutely critical to this. That is how you get cheap private finance into the system. That is why I felt that the 10-year policy was an enlightened and sensible one that would encourage the development of new infrastructure. Because of the compelling demands of the welfare reform savings that the Government need to make, they have chosen to depart from that policy. The key question is, how do we get that confidence and certainty back into the system so that we can maintain the maximum level of supply? I have to tell noble Lords that there is clearly uncertainty in the sector about what will happen at the end of the four-year period; it needs to be addressed in a very clear way, and that cannot wait until 2020.
I am very reassured by the Minister that the exceptions, as we must now call them, will be considered sympathetically. It would perhaps help if it could be made clear how many of the exceptions we have proposed through the amendments will be covered by what the Government intend. I moved an amendment on housing specifically constructed for disabled and elderly needs. That is a crucial area, and we must keep the level of supply going. My noble friend Lord Best has identified other areas where this is critical.
Clearly, efficiencies can be made in housing associations. Anybody who suggests otherwise is being unrealistic. The key question is what you do with those efficiencies, and whether they are used to reinvest or to cover other government policies. We are left still with the question, raised by a number of noble Lords, of the balance between revenue savings and capital investment for the long term.
My last point concerns who benefits here. I was clear in my speech that two-thirds of tenants, not all of them, will benefit. The reality is that the bulk of the savings from this policy will benefit the Chancellor. That piece of arithmetic cannot be denied.
I welcome the debate we have had on some very important issues. I will withdraw my amendments in the light of the discussion and will return to some of the issues I have raised at a later stage.
“( ) For the purposes of subsection (6), a private registered provider’s practice as regards its tenancies is to be determined by reference to its practice as regards the tenancies of its social housing in the year ending with 31 March 2016 (and a private registered provider which has no tenancies of its social housing in that year is to be regarded as having no practice as regards its tenancies).”
Lord McKenzie of Luton
“( ) The Secretary of State must, within 12 months of this section coming into force, produce a plan to offset the impact of lower social rents on housing associations and local government.”
Lord McKenzie of Luton
My Lords, Amendment 105 stands in my name and that of my noble friend Lady Sherlock. We are pleased to note that it has the support of the noble Earl, Lord Listowel, and the noble Baroness, Lady Manzoor. The amendment calls for the Secretary of State to come forward with a plan to address the impact of lower social rents on housing associations and local authorities within 12 months of the rent reduction provisions coming into effect. It mirrors a debate which took place in Committee in the other place and follows on from much of what we have just debated.
The rent reductions amount to some £3.5 billion by 2020 for housing associations and are estimated by the Local Government Association to amount to some £2.6 billion for local authorities by that date. However, their impact will of course extend beyond 2020 because even if CPI plus 1% is restored after four years, it will be applied to a lower base than would otherwise be the case. LGA figures show that the rental loss for local authorities is equivalent to 60% of the total housing maintenance budget each year or 19,000 new homes over four years. London Councils points to a loss of rental income for London of £800 million up to 2020, but also, the cumulative impact looking across the 30-year business plan, assuming rents at CPI plus 1% after 4 years, is £13.3 billion.
The Government recognise that these reductions will have an impact on the finances of housing associations and local authorities but effectively say—we have heard it again tonight—that these can be managed. This amendment seeks clarification of how the Government think this can be accomplished. Effectively, it restates the question posed by my noble friend Lady Blackstone. Various estimates have been made of the loss of rental accommodation which might ensue, and it is recognised that this will obviously be influenced by what exceptions and exemptions are to be made available. We will come on to these in following groups. The National Housing Federation estimates that 27,000 fewer homes will be built over the next four years, although the OBR has different figures.
The Government have cited a number of factors in support of their view that everything is going to be all right. These include the accumulated surpluses of housing associations and HRA reserves, the latter totalling some £2.2 billion. They also point to the prospect of higher rents arising from social tenants with a household income of £30,000 to £40,000, which the impact assessment suggests could produce,
“hundreds of millions [of] pounds per year”.
Can the Minister give us a breakdown of this estimate, saying how much relates to London and how much to outside London, how many households are likely to be affected and what level of rent is expected to be levied and garnered from this process? Is it correct that the rent standard does not currently apply to rental accommodation where household income is £60,000 or more? Presumably this will have to be adjusted.
As for the reserves of local authorities and housing associations, the Government should be wary of making judgments by looking at the aggregate position. London Councils, for example, cites a loss of rental income of £800 million but reserves of stock-holding boroughs of only £700 million. There is an assumption that reserves can be used effectively without cost. What guidance, if any, is given to housing associations and local authorities generally about maintaining prudent reserves?
If the Secretary of State were to publish a document under Clause 23(12) about measures a local authority might take to avoid financial difficulties, what would his approach be in considering the running down of reserves? The impact assessment explains that the regulator is currently collecting information from large providers and requiring a revised financial forecast return reflecting updated policy announcements. Is this exercise complete and what is the outcome? The impact assessment also makes it clear that the Government are continuing to engage with the housing association sector and,
“remains confident that they will be able to find the necessary efficiencies to manage this change”.
Will the Minister please share with us what specific factors underpin this confidence? What is the Government’s current assessment of the shortfall in social housing for rent which they consider will flow from the operation of Clause 21? In addition, what is the estimated impact on housing waiting lists?
We can exchange statistics about the housing performance of this Government and will doubtless hear, among other things, proposals to develop 275,000 affordable homes over the course of this Parliament. If we do, can we be clear on the definition of affordable housing being used, and how many homes will be available for rent? I beg to move.
The Earl of Listowel (CB)
My Lords, I support the amendment. I am very concerned about the rise in child homelessness and the number of homeless families living in insecure accommodation. I am concerned at the possibility that these changes will reduce the supply of housing and contribute to further child homelessness. Will the Minister look at the possible impact on child homelessness of the reduction in rent over the next four years?
I welcome the extra investment, announced yesterday, that the Prime Minister has made in perinatal mental health care so that during and immediately after pregnancy mothers get support if they have mental health issues. I understand that he is doing that because it is increasingly recognised how crucial it is for children to have a good start in life. The noble Lord, Lord Horam, spoke earlier about productivity. I suggest to your Lordships that if we do not do everything possible to give children the best start in life, we will be shooting ourselves in the foot as regards productivity. We know that if they get a good start, they will do well in school and will probably also do well in employment. That is why I particularly support the amendment.
Living in insecure accommodation is also obviously very troubling for children as they may have to move from school to school and may be separated from their friends. I know that, like me, all your Lordships are very concerned about the increasing number of children who are homeless, and I look forward to the Minister’s reply.
Baroness Manzoor
I add my support for the amendment. I do not have much to add to what has already been said by the noble Lord, Lord McKenzie, and the noble Earl, Lord Listowel, except to say that it is a very simple amendment but a very important one. It simply says:
“The Secretary of State must, within 12 months of this section coming into force, produce a plan to offset the impact of lower social rents on housing associations and local government”.
To my mind, that seems very practical, very reasonable and very fair. Surely the Government and the Minister would want to understand the impact of their policy and to have an option B. If they have an understanding of the potential impact of the reduction in social rents, the Government and others can mitigate it and put in place proposals to amend the measure. Therefore, from the perspective of these Benches, the amendment seems absolutely reasonable and sensible. If the Minister did not accept it, we would not understand why, for all the reasons that have been articulated and which I shall not repeat.
When we come to Amendments 107 and 109 we will be looking at issues around homelessness and, in particular, at the impact on the generation of young people who will not get housing benefit. A policy of having an impact assessment will clearly go a long way towards at least gaining an understanding of the people who will be affected by the reduction in social rents, and I therefore wholeheartedly support the amendment.
Baroness Blackstone
My Lords, I did not get up again and ask the Minister for a reply to the question that I put at the end of the last group of amendments about the impact of the reductions in rent on the number of houses being built and on the Government’s targets, but I shall do so now as it is extremely relevant to my noble friend’s amendment.
When Governments introduce a policy of this sort—a rather unusual policy in some respects—it is right to then try to evaluate the impact and to monitor a change of this sort. It is simply a matter of good government. Therefore, I hope that, even if the Minister does not want to accept the precise wording of my noble friend’s amendment, she will at least come back to us and say, “Yes, of course, this should be evaluated and monitored. We will do it”. Above all, I would like an answer to my question about the Government’s current position on the effects of the reduction in rent on the longer-term targets that they want to achieve for housebuilding by 2020.
Lord Horam
My Lords, the noble Baroness, Lady Blackstone, may be amazed to know that I rather agree with her that all government policy should be carefully monitored to see its economic and social effect. However, while I well understand the purpose of the amendment—I appreciate that it is well meant—12 months is frankly far too short a period in which to see what the effect of this quite dramatic change in policy will be. It would be much more sensible to wait for a period of two to three years before you could sensibly look at the exact effect, either social or economic, of these policies. I see that the noble Baroness is nodding. I do not think that this proposal will work because 12 months is simply too soon. It is no time at all in which to look at the way in which the measures unfold.
Lord McKenzie of Luton
Does the noble Lord accept that there is a distinction between trying to understand what the Government currently think the impact of their policy will be and evaluating within a certain period in the future how it is working out?
Lord Horam
I appreciate that. Clearly, we ought to know as much as we can now about the effect of the Government’s policies as they are articulated in this Bill. None the less, a sensible monitoring process should allow a reasonable period of time for the whole thing to work through. I suggest that halfway through a Parliament is a much more sensible time than 12 months, frankly.
Baroness Williams of Trafford
My Lords, Amendment 105 seeks to require the Secretary of State to produce a plan within 12 months to offset the impacts of the rent reductions on housing associations and local government. As my noble friend Lord Horam said, that is quite soon after the event.
Many private registered providers are in a strong financial position. Overall, the sector had a surplus of £2.4 billion in 2014, and local authorities had £2.2 billion in local authority housing reserves. However, it may be helpful if I recap some of the amendments made in another place which have been welcomed by housing providers. These include allowing providers with rent levels below formula to increase rent to the social rent rate when re-letting a property—that is formula less the appropriate annual reductions; and providing the Secretary of State with powers, by regulations under Clause 26, to allow rent setting for new tenancies in supported housing at up to 10% above the rate for general-needs housing. This should help providers of supported accommodation for vulnerable people to continue to provide that important housing.
Funding for supported housing is also part of the Government’s wider financial settlement to councils. This includes investing £5.3 billion in the better care fund in 2015-16 to deliver faster and deeper integration of health and social care. This will help councils to invest in early action to help people live in their own homes for longer and help prevent crises, as well as supporting councils to work more effectively together, deliver better outcomes for less money and drive integration across all local services.
Noble Lords have expressed concerns about the impact of these reforms on housing supply. Let me be absolutely clear that the Government remain committed to ensuring that there is housing for those who cannot access the market. The recent spending review further confirmed this Government’s commitment to housing provision. As I said in the debate on the previous group of amendments, we have £8 billion to deliver over 400,000 affordable housing starts; that is the largest affordable housebuilding programme by a Government since at least 1979. This includes around 100,000 homes for affordable or intermediate rent. However, we recognise that the rent reductions may have an impact on some registered providers. That is why the Bill provides for both exceptions to the policy, in Clause 22, and exemptions to the policy, in Clause 23, which we have debated previously.
The noble Earl, Lord Listowel, talked about the impact on child homelessness. I am sure he will forgive me if I say that the impact on the child will be the same as the impact on their family. The whole purpose of both this Bill and the housing Bill is to build a range of different types of houses for a range of different types of tenure, and for the social sector not to gallop out of kilter with the private rented sector, as it has. Of course, those children will grow into young people, and the Government have an ambition to provide 200,000 starter homes for people between the ages of 20 and 40.
Baroness Hollis of Heigham
I wonder whether the Minister could rephrase her comment about social rents being out of kilter with the private rented sector. She has heard the evidence in previous discussions: first, that those social rents rose because government required them to rise; and secondly, that social rents are on average about 40% or less of private sector rents. Therefore, the pressure on the housing benefit bill has come very substantially from the increase in the number of properties in the private rented sector. That is completely at odds with the position that the Minister keeps painting: that the justification for increasing social rents is that they are somehow out of kilter.
The Earl of Listowel
That is certainly my understanding too: that more and more the poorest people are being pushed into using the private rented sector as the supply of affordable social housing has dwindled. This has led to more insecure housing and, unfortunately, more and more homelessness. Of course, many of these people are parents, and therefore their children become homeless too. Perhaps the Minister might think of writing to me before Report, because I have not given her notice of my question. However, I am listening to what she has to say.
Baroness Williams of Trafford
I am very happy to write to the noble Earl. I do not make a judgment about why social rents have, in percentage terms, increased out of kilter with those in the private rented sector. The quantum might be different but, in percentage terms, they are out of kilter with the private rented sector.
Baroness Hollis of Heigham
My Lords, essentially, the Minister is saying that it is now acceptable to punish local authorities and housing associations for doing what the Government required them to do.
Baroness Williams of Trafford
No, my Lords; I am saying that we need to reset the picture for the social rented sector.
Baroness Hollis of Heigham
Does that mean that the Minister did not know a year ago what the effect of the policies would be?
Baroness Williams of Trafford
My Lords, I was not the Minister a year ago. However, I get the noble Baroness’s drift. The point is that we now have a majority Conservative Government and this policy has come out of that. I am not saying in any way, shape or form that it is the social rented sector’s fault. I am saying that that is the position in which we find ourselves, due to many different factors. Over the past few years, inflation has been one of the factors driving it up. However, I will correct that if I am wrong, given that I am saying it from the Dispatch Box.
The noble Lord, Lord McKenzie, asked about the guidance to social providers on maintaining surpluses. We feel that it is a matter for the housing association boards to run their businesses as they see fit. It is a well-regulated sector that, to date, has managed its finances magnificently. Boards have been advised to raise any anticipated exceptional challenges with the regulator to discuss any difficulties that they might anticipate.
Lord McKenzie of Luton
Is any guidance given to local authorities on prudent reserves?
Baroness Williams of Trafford
As an ex-local authority leader, I can tell the noble Lord that we were always advised through CPA inspections and so on that reserves should be used in a managed spending process and not to prop up revenue deficits—they would be used for maintenance of properties and that sort of thing.
Baroness Williams of Trafford
But they have revenue and capital reserves. I do understand local authority obligations on reserves.
The noble Baroness, Lady Blackstone, talked about the impact on tenants. The Government published an impact assessment, which included the impact on protected groups. A third of social renters actually pay less. However, I will write to the noble Baroness more fully on impact because I realise that I did not answer her question on the last group of amendments.
Baroness Blackstone
I am not sure that the Minister has understood my question. It was about the impact of a reduction in rent on the Government’s housebuilding targets. What is her view on that? The Government ought to have some idea now; although it also ought, along the lines of my noble friend Lord McKenzie’s amendment, to be monitoring this, perhaps not just over 12 months but over a longer period, to get some sort of understanding of what the impact is. No Government should come up with a proposal of this sort when they have committed to an increase in the number of houses being built without some understanding of what its impact will be.
Baroness Williams of Trafford
Perhaps I may write to the noble Baroness; I understand her point. However, I also understand the point made by my noble friend Lord Horam: it is difficult to assess an impact within 12 months. It will probably take longer.
The noble Lord, Lord McKenzie, asked about the high-income social tenants’ policy and its impact on housing. It is worth noting that we will have an opportunity to scrutinise this fully during the passage of the Housing and Planning Bill, when I will probably be the Minister standing at the Dispatch Box. However, at this point I hope the noble Lord will feel able to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank all noble Lords who have participated in this short debate. The noble Earl, Lord Listowel, expressed his concerns about the impact of the policy on children; the noble Baroness, Lady Manzoor, believed that we had a straightforward, simple proposition to put to the Government; and my noble friend Lady Blackstone still awaits an answer to the fundamental question she has now raised on the last two groups of amendments. We must hope that the correspondence from the Minister will elicit a response.
I accept the point that if particular issues arise, the route of exemptions and exceptions may be brought to bear to address them, but that does not substitute for the fundamental question my noble friend is asking: what is the Government’s assessment, in introducing these policies, of the impact they will have on the provision of housing and their targets for building houses? How will it be affected by this?
The noble Lord, Lord Horam, made a reasonable point about monitoring and said that one should do that after a period of longer than 12 months. I hang on to my point that we are looking for two things here: the Government’s current assessment of the impact on housebuilding of the introduction of the policy; and then monitoring what will happen in practice.
We have given this issue a good airing. For the time being, I beg leave to withdrawn the amendment.
Lord McKenzie of Luton
“(c) the accommodation is specified accommodation, as defined in The Housing Benefit and Universal Credit (Supported Accommodation) (Amendment) Regulations 2014 (S.I. 2014/771).”
Lord McKenzie of Luton
My Lords, Amendment 107 calls for certain types of property to be excepted from the provisions of the rent reduction scheme. It was assumed when it was drafted that it would have the same effect as Amendment 109 in the name of the noble Lord, Lord Best, and others. I acknowledge that Amendment 109 seems to have garnered a broader range of support and doubtless this has much to do with the credibility of the person whose name is at the top of it as well as the substance of the drafting.
The scope of this exception is built on the coverage of the regulations which widen the protection from the benefit cap. It is intended to include supported housing where the landlord is of a specified type and provides, or causes to be provided, care support or supervision to claimants; supported accommodation where the landlord is a specified third or social sector provider and care, support or supervision is provided to residents; third and social sector refuges, including local authority refuges where a claimant is accommodated because they are fleeing domestic violence; and local authority hostels providing care, support or supervision.
The Government’s briefing note on these clauses indicates that they are minded to align exceptions to the policy with exemptions that apply to the rent policy set out in the rent standard guidance. We would support this as far as it goes as its coverage would include PFI schemes, temporary social housing and short-life leasing schemes for the homeless, residential and nursing homes, student homes and key worker accommodation. Perhaps the Minister will confirm that this is still the intent and say why, therefore, more could not be put in the Bill.
Despite this, it is considered that the specialised supported housing definition included in the rent standard is too limited. The guidance itself has indicated that interpretation has not been without difficulty. For example, it says that the exemption from social rent requirements of specialised support in housing is usually limited to those properties developed in partnership with local authorities or the health service and which satisfy all of the following criteria. The scheme should offer a high level of support for clients; no or negligible public subsidy should have been received; and the scheme should have been commissioned in line with local health and social services or supporting people strategies and priorities. I paraphrase.
Adopting the definitions in the housing benefit and universal credit regulations—which is what this amendment and the amendment of the noble Lord, Lord Best, do—will provide a wide enough basis for an exemption from Clause 21. The reason we need a comprehensive exception from the policy in this respect has been abundantly clear from the range of submissions we have received. As the submission from Homeless Link sets out, the type of accommodation we are referring to—let us call it supported housing—caters for a wide range of tenants with specific needs requiring various degrees of support. It points out that this provision is generally more expensive to build, manage and maintain. The fear is that the rent reduction measure will lead to a loss of existing supported housing schemes, with fewer schemes being developed in the future. Those who bear the brunt will be the homeless, those with mental health problems, people fleeing domestic violence, those with learning disabilities and those with drug and alcohol problems. Denying them the chance of decent accommodation and care and support will only push the costs elsewhere in the public sector as well as impairing the life chances of those whose quality of life is under challenge.
We have been presented with examples of projects that will fall by the wayside, including from Riverside, with a third of its supported housing schemes being at risk; St Mungo’s, with a cumulative four-year loss of projected income of £4 million; and the YMCA, with the potential end to a housing project for 170 16 to 17 year-olds. Indeed, Riverside has set out a range of stark facts. It states that early Riverside projections indicate the impact of the rent decrease policy will be a reduction in income in excess of 16% over four years, a cumulative total of almost £100 million, which it says will reduce its operating margins by 9.5%. Riverside owns and manages around 4,600 units of supported housing. Housing associations as a whole manage 105,000 units of supported housing, which is 3.7% of all stock managed. The level of savings forgone, it is suggested, as a result of an exception for supported housing, would be modest.
Having moved this amendment, I hope it puts us on the same page as the noble Lord, Lord Best. I look forward to hearing from him to see whether we can forge a common position. I beg to move.
Lord Best (CB)
My Lords, I speak to Amendment 109, which covers the same issue as Amendment 107, moved by the noble Lord, Lord McKenzie of Luton. Of course I entirely support that amendment, which was so well presented by the noble Lord. In both cases the amendments look for an exclusion from the proposed 12% rent cuts for supported housing as defined in housing benefit and universal credit regulations. I am grateful to the noble Lords, Lord Kerslake and Lord Shipley, and the right reverend Prelate the Bishop of Rochester for supporting this amendment, and to the noble Lord, Lord Horam, who spoke earlier in favour of exceptions and exclusions for cases of this kind. I also offer sincere thanks to Members from all sides of the House who signed a letter to the Times, co-ordinated by the National Housing Federation just before Christmas, expressing the hope that the Government would give favourable consideration to the case we are making today.
The specialist housing organisations that fall within this definition—such as St Mungo’s Broadway, the YMCA and many small charities—would suffer a major blow from the 12% reduction in income from their rents. These are the organisations on the very front line, providing supported housing for those with mental health, drug and alcohol problems, homeless people, care leavers, those fleeing domestic violence, as well as veterans and older people needing care and support.
The vulnerable people these charities support inevitably require higher spending than for general-needs renting. The charities working for them operate on the margins of viability and can easily be pushed over the edge. As well as supported housing being provided by specialist bodies, many of the larger housing associations have been keen to include schemes of this kind within their wider stock, but these social businesses cannot absorb loss-making projects. It is very hard for them to sustain this specialist provision if supported housing becomes a financial liability.
Management costs are not the only ingredient that means supported housing must have higher rents than the norm. There are higher maintenance costs due to the higher turnover of tenants, greater wear and tear, more voids between lettings, more arrears, and even significantly higher insurance premiums. Yet without these housing schemes it is certain that a lot of people will suffer the most acute deprivation, including living out on the streets. Moreover, the wider impact on society from neglecting their needs will be immense. The Homes and Communities Agency found that supported housing work produced a net positive financial benefit of some £640 million—more than six times the savings that the Government would obtain from cutting rents by the fourth year of this rent-cutting policy.
The accommodation covered by the amendment has already been given special status in respect of the new benefit cap and exemption from the so-called bedroom tax. Therefore it seems entirely consistent to exclude these hostels and specified accommodation schemes from the requirement for rent cuts. The Government have stated that it might be possible for an organisation which could face extinction as a result of the rent reductions to apply for a waiver from this requirement. However, there are two flaws in this approach to solving the problem now facing housing.
First, the specialist charities requesting a waiver face ongoing uncertainty and an unknown, potentially bureaucratic and time-consuming process to decide the somewhat extreme question of whether they will become insolvent rather than just be completely undermined by losing so much income. Secondly, the waiver route does not address the issue of supported housing provided within their wider role by larger housing associations that do not face financial ruin but which are likely to pull back from pursuing this kind of accommodation if rent cuts render supported housing loss-making.
If an association with wider objectives has to improve its financial viability by closing its supported housing schemes, the effect will be just as bad as forcing a small charity out of business. This is where we get into the issues raised by the Minister on the difference between exempting organisations by providing a waiver if they look like they are going bust because of the rent reductions, and excluding categories of housing—the category in this case being supported housing.
I know that the last thing the Government want is to undermine housing provision for those in the most acute need, with all the extra expenditure for the NHS, social care, the justice system and the rest which would follow. I believe that the Government already have a concession of this kind in mind, but confirmation of the position by the Minister is needed urgently because the process for a rent reduction on 1 April, with the sending out of thousands of notices to tenants and local authority housing departments, which will be very hard to rescind, must begin at the end of this month.
I must conclude with a footnote, albeit a rather important one. The Government are also planning to introduce another constraint: a cap on housing benefit for council and housing association tenants at the same level as for tenants of private landlords; that is, at the local housing allowance level. This ceiling is not a problem for the great majority of housing association properties since their rents are lower than in the private rented sector. The noble Baroness, Lady Hollis, suggested that they are something like 40% to 50% lower. But, of course, rents for supported housing—the kind of housing that private landlords do not provide—are obviously much higher.
For example, a homeless project for people with mental health and/or drug and alcohol issues is currently charging £119 per week, but the relevant local housing allowance maximum for an ordinary one-bedroom flat is £84 per week, so the new cap at LHA levels would mean a loss of £35 per week per flat for the project. A purpose-built autism scheme for enabling people to move out of institutional care would face a shortfall of £90 per week per flat, even though the scheme saves huge sums compared with the costs of leaving people in the institutional setting.
Lord Kerslake
My Lords, I support this amendment. I will keep my comments short because my noble friend Lord Best covered very well the key issues. I shall make a small number of points. First, this housing supports people who are most at risk and most in need; that is, domestic abuse refuges, homeless hostels and shelters for frail, older people. Secondly, some housing associations have made a very serious investment and commitment to this form of housing. If we do not accept these properties, the effect would be to penalise those who have taken the bold steps to make this sort of provision.
The noble Lord, Lord McKenzie, referred to Riverside, with which I have also met. Its calculation is that the rent reduction will result in an overall loss of income from Riverside-supported housing schemes of £2.3 million per annum. Crucially, by 2019-20, nine schemes will be pushed into becoming loss-making schemes. A housing association that has done the right thing and has invested in crucially needed, supported housing will face significant losses in its operation of that housing.
Thirdly, an already fragile set of services will become more so. In that context, it is almost certain that housing associations burned on this occasion will not invest in the future. We will put at risk a crucially needed new supply of housing to meet these needs. Something that was previously marginal will become unviable and we will therefore see the consequences of this down the track.
Like my noble friend Lord Best, I cannot believe that this was an intended consequence of the Government in their rent reduction policy. This amendment addresses the issue head on and seeks to put it beyond doubt for those housing associations which have already invested in this type of accommodation or which plan to invest in it.
The Lord Bishop of Rochester
My Lords, when I added my name to the amendment in the name of the noble Lord, Lord Best, I did so in the naive belief that we might be pushing at an open door. I still maintain that belief because I hope that the Minister will reassure us on some of these matters. I, too, cannot believe it was intentional that we would be threatening to undermine the housing provision for some of the most vulnerable people in our society. The two noble Lords who have just spoken have made many of the points which I would have made, and others have been made earlier this evening.
I underline our commitment as a society to these very vulnerable groups, which includes the frail elderly and the other groups who have already been mentioned. In many ways, we have a moral responsibility as a society to provide for these people. In addition, there is a much more self-interested argument. The investment we make in this kind of housing, as has already been hinted at by one or two other contributors to our debate, prevents other costs which are far harder to control and which would roll out in the future if this kind of provision was placed in jeopardy.
Mention has been made of housing providers having surpluses and so forth. But in this particular part of the supported-housing world, very often we are dependent on small providers—charitable providers—which do not have that kind of background or those resources on which to call. I have grave concerns about some of the small charitable providers that are part of this bit of the sector and whose financial viability could be called into question and made very difficult. These organisations work with people with very complex and high support needs where margins are already very tight.
As has already been indicated, this policy change would come in at the same time as the LHA changes. Montgomery Court in my town of Rochester provides an extra care scheme for frail elderly people. We estimate that with the LHA cap, it would lose £65 a week per unit. These kinds of schemes are often very dependent on high staffing levels in relation to the support provided. It is precisely the sector where very good policies around minimum wage and living wage are likely to increase costs for providers in a way that might not be the case in other sectors. We find these providers potentially being hit from a number of different sides at the same time. At the very least, we need clear estimates of the impact, not just of one policy but of a range of policies which could come to bear on these organisations within a short space of time.
Mention has been made also about undermining the confidence of providers in investing in new provision. Again referring to extra care places for frail elderly people, in Kent where I live we have fewer than 500 such places. The estimate is that we need 10 times that amount by the end of this decade. That is a significant increase and those specialist providers will need to have serious confidence if they are to make that kind of investment.
As has already been indicated, these two amendments draw upon a definition which has already been established. It seems to me that there is a logic and consistency in building on that. At the end of the day, although we have been talking about the viability of organisations, this is about the provision for people and for some of the most vulnerable people in our society. Therefore, I, with others, hope to hear encouraging words from the Minister in her response.
Baroness Blackstone
My Lords, I rise briefly to support what has been said very eloquently by all those who put their names to this amendment. I just want to underline one thing. Supported housing of this sort is absolutely central to keeping a wide variety of very vulnerable people out of much more expensive institutional care, whether it be hospitals, residential homes for the frail elderly or criminal justice institutions. It is a really good example of the need for joined-up policy thinking in this particular social area. I hope that the Minister will accept that this is of enormous importance from the point of view of cost and good social policies, but also of the humane cost of the possible abandonment of these people because the housing association special institutions are no longer able to operate.
Lord Shipley
My Lords, I hope that the Minister understands the seriousness of this matter. I do not want to repeat what other speakers have said. Suffice it to say that there used to be three sources of funding for supported housing: the Supporting People programme, specific grants, and the income from rent and service charges eligible for housing benefit. Given the deep budget reductions to the first two, it has left income from rent as critical to the financial viability of schemes. That is an important issue to be made clear, because if rents go down, the income inevitably goes down and cannot be replaced from other sources. As we have heard, that 1% annual rent reduction policy will have two consequences for supported housing: a reduction in new building and lower staffing support for schemes, and, indeed, the potential collapse of schemes, given that the management and maintenance costs of supported housing can often be a third higher than the general housing stock.
When I spoke on this matter at Second Reading, I said that there was a danger that if the preventive role of supported housing were reduced, it would push up costs in other parts of the public sector. As the noble Baroness, Lady Blackstone, has pointed out, there is evidence that the rest of the public sector has to pay out more if supported housing is not there to help people. A few years ago, the Homes and Communities Agency reported that there was a substantial net saving for the public sector from investing in specialist housing.
A further consideration is the evidence of the National Housing Federation, which has identified a shortfall of more than 15,000 units in the number of supported housing lettings available each year to people of working age. Furthermore, there is some evidence that the recent rise in rough sleeping is related to the lack of supported housing lettings. So the conclusion is pretty clear. I understand that the cost to the Government in agreeing Amendments 107 and 109 is around £75 million per year—I would be grateful if the Minister could confirm that number. If it is, then surely it is at a level low enough for the Government to accept the cost, because the advantages to the public service outweigh the cost of the £75 million loss.
Lord Young of Cookham (Con)
My Lords, I intervene briefly from these Benches to add my support to Amendment 109 in the name of the noble Lord, Lord Best. When I intervened at Second Reading, I mentioned that I wanted to return to this issue in Committee. Subsequent to that, the noble Lord, Lord Kirkwood, chaired a meeting on the Committee Corridor of a number of organisations which would be directly affected, and they made some very moving presentations about the implications for them if the Bill went through without further amendment. Subsequently, I added my name to the letter referred to by the noble Lord, Lord Best, to the Times, expressing the hope that the Government would smile on this amendment or give the necessary comfort in some other way.
As others have said, the last thing my noble friend wants to do is to precipitate the closure of valuable schemes run by voluntary organisations providing support to vulnerable groups. Indeed, that is why there is a whole clause in the Bill entitled “Exceptions”, and subsection (5) gives powers to the Secretary of State to do basically what he wants to. The exemptions that have been trailed so far by the Government are welcome, but I agree with others that they may not go quite far enough, and I wonder if we can just nudge the Government a little further to give a greater degree of comfort to those running these projects.
Baroness Warwick of Undercliffe (Lab)
My Lords, I support these two amendments, and I declare an interest as chair of the National Housing Federation.
I support so many of the arguments that have been made throughout the debates this evening. I am extremely concerned about the impact of the 1% rent reduction on housing associations and their tenants. The federation estimates that the 1% cut year on year will mean a loss of £3.85 billion in rental income over the proposed four-year period. As has already been said, the Office for Budget Responsibility has warned the Government that the result will be 43,000 fewer homes than housing associations would otherwise have been expected to build.
The irony of this is that associations want to build homes, and they will be doing their utmost to manage the cuts and to strive for the efficiencies that the Minister has already referred to, but this is presenting them with an absolutely huge hurdle. It is also ironic—and others have made this point—that the Government, too, are ambitious. Given their ambition, and the urgency of that ambition, to build 1 million more homes over exactly that same four-year period, I agree with others that this policy seems somewhat perverse.
Even more perverse is the impact of the 1% cut on the provision of social housing for the most vulnerable people referred to in these amendments, including those escaping domestic abuse, veterans, people with disabilities and the homeless. All fall under the heading, which the Minister referred to, of specified accommodation. In speaking to these amendments, I want strongly to urge the Government, even if they change nothing else, to change their mind on this issue and to exclude this highly specialised, challenging and much more cost-intensive provision from the rent reduction requirement.
The Government will know that the purpose behind these amendments has support from all corners of the House. Indeed, the letter to the Times, which many of us signed and has already been mentioned, urged just such a reprieve for supported housing. I also believe that the Government did not intend to harm vulnerable people or to increase homelessness, yet that is exactly what this policy will do, and indeed it is already doing it.
Make no mistake: if the Government are to avoid what is likely to be a catastrophe for these very vulnerable people, they need to act now. I cannot overstate the urgency because, in the next few weeks, associations will be sending out thousands of letters about rent levels from 1 April. They will need to know what the position is for supported housing. Indeed, many of them have already discussed plans for closing down these facilities—these homes—because the financial risk would be too great to sustain them. They are making these plans with heavy hearts. These homes are a fundamental part of their social mission and charitable purpose. These are the very people associations were set up to house.
The sector has spoken with one voice on this issue and the message delivered to government could not be clearer. Providers of supported housing are united in their commitment to care and support for these vulnerable groups and equally united in their concern about the impact the rent reduction will have on their ability to develop and provide housing and services for these people in the future. It is worth emphasising that, unless the Government commit to this change, there will inevitably be much greater pressure on the NHS and a rise in homelessness.
On any count, this policy does not make financial sense. If it were excluded from the rent reduction measure, as we urge, it would reduce savings on that policy overall by £93.5 million, but the Homes and Communities Agency has estimated that the provision of specialised housing for vulnerable and older people saves the public purse £640 million—more than six times more. That is real value for money.
The Government have acknowledged that the rent reduction may cause a reduction in service provision, but their proposed solution is no solution at all—neither an organisational waiver, which the Minister referred to in her response to the previous amendment, nor a partial waiver, also mooted, offers a viable solution to a sector-wide problem. Indeed, one of the issues has again been referred to: since these schemes are higher and the margins much tighter, the rent reduction may sometimes push supported housing into deficit while not pushing the whole organisation into financial deficit. They may be abandoned to sustain financial viability. That is an important point that the Government need to take into account. It would certainly be extremely expensive and time-consuming to establish. I do not see how either of these would offer providers the certainty that they need to take the financial risks involved in continuing this provision.
I have had the opportunity to talk to the Minister and I am most grateful to her for engaging with me on this issue. I, like others, very much hope that she can today commit to bringing forward an amendment to address these concerns on Report. Providers stand ready to help the Government find the right way forward, but above all we expect to see the Government commit to what they have promised: to ensure that the provisions in the Bill do not have unintended harmful, even disastrous, consequences for the care and housing of some of the most vulnerable people in our society.
Baroness Manzoor
I rise just briefly, because I am an optimist and I do not want to delay the Committee further, to say that I totally concur with Amendments 107 and 109—they are one and the same—and the issues surrounding them relating to supported housing. I commend the Government on keeping supported housing out of universal credit and other benefits when they did their calculations. To my mind this is very similar. There needs to be clarity. As I said, I am an optimist; I do not for one minute think that the Government intended for these negative consequences to occur for supported housing where it is particularly needed for young people and people who may be homeless, and where crisis housing and services are needed.
I concur with everything that has been said and will add just one last point: if an organisation is totally on its knees, it will not think about investing for the future or how to improve. If an organisation has to come cap in hand back to the Government to say, “We need to be exempted now”, that will be too late because those services will have been lost for the future. That will invariably have an adverse effect on service standards. People may well end up being homeless. We must not forget that these organisations are there because we need crisis management for these people, whether they are drug users, young people on benefits, women fleeing domestic violence and so forth. I ask the Minister to answer the questions that were put so well by the noble Lord, Lord Best, to clarify whether specific accommodation and supported accommodation will be exempt from the measures in the Bill.
Lord Kirkwood of Kirkhope
My Lords, I should like to add a codicil to the debate. I hesitate to join in this interesting discussion and I have listened very carefully to what has been said. I come from Scotland. North of the border, this debate and the Government’s proposals for the housing association social rented sector in general, particularly the supported part of that important contribution to our housing capacity, are viewed with total disbelief. People north of the border would consider that this debate, while taking into consideration the economic case, omits the social ethic and commitment that housing associations and supported housing organisations bring to the provision of accommodation units in the United Kingdom. There is a separate way of looking at things, and that ethic is being put at risk by some of these policies.
We have heard the Prime Minister say that he will address poverty by addressing what he calls its root causes. Some of that is absolutely embedded in the homes of challenged families, with drug abuse and people who are recidivists and serial offenders who come out of prison, and all of that kind of thing. The housing association supported sector as it is deployed in the United Kingdom is absolutely at the centre of supplying some of the solutions that the Prime Minister is aiming for in other aspects of government policy. That includes the Work Programme and universal credit. Housing associations are playing a very engaged and positive role in the rollout of universal credit, as I have seen for myself when visiting some of them. So I am puzzled that this supported sector is being put at risk—and I think that it is being put at risk.
We have heard evidence from some very powerful people with professional understanding of this issue. The right reverend Prelate and his colleagues also have personal experience of the consequences of a failure to support, care for and supervise some of the clients who use supported accommodation. It is clear to me that there is a real and present danger that we will end up reducing the sector’s capacity to operate. To my mind that case has been absolutely made. The noble Lord, Lord Young, referred to a powerful meeting attended by people who will be affected by these changes, which he and I both attended.
How I approach this issue on Report will depend a lot on whether I can understand the Government’s position with regard to the future risk to supported accommodation but, more importantly, with regard to exemptions. If we do not know what the Government are willing to do—if anything—by way of exemptions, we will be left to our devices in coming up with amendments, which will be pressed. Speaking for myself, although I am from Scotland, if some of the issues that have been so powerfully argued this evening are put to the vote, I will have no hesitation in supporting attempts to mitigate the Government’s policy.
The approach of the noble Lord, Lord Kerslake, is absolutely right. The Government have made their position clear and no one is trying to stop that happening, but mitigation is possible, constructive and available if the Government are willing to discuss and treat. The only way they can begin to help us do that is by making their policy clear this evening, as Committee ends. Then we can go away and discuss the options collectively and respectively so that we can get the best outcome in the remaining stages of the Bill. The Minister needs to make clear the Government’s position on exemptions for supported accommodation. Otherwise, we will meet her in the Lobbies on Report later in the month.
Baroness Williams of Trafford
My Lords, I have listened very carefully to the comments made by noble Lords this evening in debating the amendments that would extend the exceptions—which we were talking about two amendments ago—to the policy to specified or supported accommodation. I can offer some reassurances in this area at this stage. It may be helpful if I first recap the commitment made in another place, which was welcomed by housing providers, to continue to allow rent setting for new tenancies in supported housing at up to 10% above the rate for general-needs housing. This should help providers of supported housing for vulnerable people to continue to provide that important housing. We will put this in place by way of regulations under Section 26, the power to make alternative provision for excepted cases.
To address the point made by the noble Lord, Lord McKenzie, the Government have also made clear their intention to continue to except those types of housing that are currently exempted from the rent standard, subject to determining whether the existing definitions are appropriate in light of the revised policy. These include specialised supported housing, which provides support for the most vulnerable people and was developed in partnership with councils or the health service. We will bring forward regulations to set out these and any further exceptions needed, under Clause 22 or paragraph 5 of Schedule 2, as appropriate.
Baroness Hollis of Heigham
To go back to a question we asked about an hour ago, will the noble Baroness be providing those draft regulations before Report?
Baroness Williams of Trafford
I cannot give that commitment at this stage, but as soon as we can make any progress on it we will.
Baroness Manzoor
I understand that the Minister cannot give the commitment now, but can she assure the Committee that, having reflected upon it, she will undertake to write to us to say how soon that could take place?
Baroness Williams of Trafford
My noble friends Lord Freud and Lady Evans and I have already been speaking to providers and my noble friend Lord Young brought this point up. I undertake that we will continue to speak to providers, but I simply cannot make a commitment from the Dispatch Box at this stage. We are doing all that we can to work with providers.
Baroness Hollis of Heigham
I am afraid that is not an accurate statement of where we are. The Minister has known for some time that this is on the agenda. She has known since before Christmas that this issue was coming up. She has talked to the providers; she knows the concern around this House; everyone in this Committee has requested, begged or asked the Minister. She knows what will happen on Report if she does not. Given her consensual style, her willingness to meet providers and her wish to respond to the sense of the Committee, I am sure that she must come back before Report to tell noble Lords what she will do about this, so that we can make a judgment. That would go a long way to abate the concerns which she recognises. If she has to tell the department that it has to change its timescale, so be it.
Baroness Williams of Trafford
My Lords, the noble Baroness has been in government and she knows the processes of government. She is right to say that I am a consensual politician, where I can be, but I will not stand at the Dispatch Box and give assurances that I cannot absolutely fulfil. I therefore have to say that I cannot do that but I will be doing all I can to make progress in this area. That is all I can say at this stage.
Lord McKenzie of Luton
My Lords, I thank the Minister as I thought that what she was beginning to say was encouraging, but can I clarify one point about the reference to specialised supported housing? This is really the nub of the issue. Is the definition which the Government are working towards the same as that exempting people from the benefit cap, or is it a different one?
Baroness Williams of Trafford
My Lords, it is different. We are looking at this whole area of provision but it is a different definition. The noble Lord asked whether we could include the exceptions on the face of the Bill. They would probably be too complex to include in the Bill, while regulations would provide more flexibility to effect better the appropriate definitions and make adjustments in due course.
Funding for supported housing is also part of the Government’s wider financial settlement to councils. This includes investing £5.3 billion in the better care fund in 2015-16 to deliver faster and deeper integration of health and social care. This will enable councils to invest in early action to help people live in their own homes for longer. It will also help prevent crises, as well as supporting councils to work more effectively together, deliver better outcomes for less money and drive integration across all local services. We are also investing in specialised housing for older people. In the spending review, we have committed £400 million of funding to deliver 8,000 specialised homes for the vulnerable, elderly and those with disabilities through the affordable homes programme, with a commitment to further funding from the DoH for specialist accommodation. We will continue to support local areas to meet their local needs by maximising funding flexibility.
I think it was the noble Lord, Lord McKenzie, who asked about the combined impact of the social rent reduction and capping the highest housing benefit awards for social renters, in line with caps applicable in the private rented sector, meaning that supported housing will be decimated. Now that I am looking at the noble Lord, I do not think it was him who asked this. But there was a noble Lord who asked that question, because I have written it down. Applying a cap on the highest social rents will mean that housing benefit will no longer subsidise families who take new tenancies in social houses that many working families cannot afford. The new cap will have effect only from 2018 for new or re-let social tenancies signed after 1 April 2016.
The noble Lord, Lord Shipley, asked whether the savings of £75 million were for supported housing. I do not know but I will write to him about it and I can come back to that question on Report, if he wishes. My noble friend Lord Young asked whether we can meet providers, as I think I have said. We have met providers and will meet them again.
Finally, I reiterate that while we expect providers to make all possible efforts to manage the rent reductions and plan on that basis, Clause 23 allows for individual providers to apply for an exemption from the rent reduction if they think that they will face severe financial difficulties.
Baroness Hollis of Heigham
Does the Minister think that it will remain private if any organisation comes to the Government saying, “We’re about to go bankrupt—please help us”? Do they think that the organisations will continue to get the confidence of their local authorities, or of the markets or investment? I am staggered by this approach of “Go to your knees, then we may help you out”, as though that is a way in which providers could continue to support some very vulnerable people.
Baroness Williams of Trafford
My Lords, providers have a very good track record both in managing their finances and in terms of the housing that they provide, and I do not expect that a housing provider will go to the Government only when it is on its knees. In well-run housing associations, I expect that forward planning would show what sort of difficulties might be coming up and that they might therefore apply for an exemption on that basis. I hope it would not be at the 11th hour, because that is not good financial planning. I hope I have provided some reassurances and that the noble Lord will feel able to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for a very comprehensive reply. There was a moment there where I thought some comfort was coming, but it disappeared relatively quickly. I thank all noble Lords who participated in this short debate—forgive me if I do not pick up on all the comments, because I believe that pretty much everyone who spoke on this issue shared the same view. I also believe that the Government did not intend this to happen. We will cling to that belief and hope that it sees us to a sensible solution at the end of the day.
There is an overwhelming recognition that supported housing of the type we have discussed is significantly needed in our country, and that if it is not provided, the cost to the rest of society will spill over and be much worse. We need to act quickly on this. The noble Lord, Lord Best, in his comprehensive argument in favour of the amendments, made the point that we need to pursue exceptions rather than exemptions. Exemptions will not be any use to those associations which embed provision within their business plans, and the uncertainty that having to seek an exemption will lead to is one that many will not be prepared to live with or cannot live with. Urgency on this is important.
I do not think we had an answer on whether the other components which are exempted from the rent standards at the moment, such as PFI schemes, temporary social housing and short-life leasing schemes for the homeless, are going to be replicated in some way. The important point is that if the definition of specialised supported housing is not going to be the broader one, then the job will not be done, and we will return to this if it is not. We look forward to continued engagement on this between now and Report, but in the mean time, I beg leave to withdraw.
Lord Freud
“(2) Section 21 does not apply in relation to social housing of a registered provider if, where the registered provider’s interest in the property that consists of or includes the social housing is subject to a mortgage—
(a) the mortgagee is in possession of the interest in the property or the part of the property that includes the social housing, in the exercise of the mortgagee’s powers to enforce the mortgage,(b) a receiver has been appointed in relation to the interest in the property or the part of the property that includes the social housing by—and that appointment is in force, or(i) the mortgagee, in the exercise of the mortgagee’s powers to enforce the mortgage, or(ii) the court, in connection with enforcing the mortgage,and that appointment is in force, or(c) a person has been appointed by the mortgagee, in the exercise of the mortgagee’s powers to enforce the mortgage (including, in the case of a floating charge which relates to the interest in the property, the power under paragraph 14 of Schedule B1 to the Insolvency Act 1986), to exercise powers that include a power to sell or otherwise dispose of the interest in the property or the part of the property that includes the social housing and that appointment is in force.”
“(3) If—
(a) a registered provider’s interest in property that consists of or includes social housing was made subject to a mortgage, and(b) the interest in the property, or the interest in the part that includes the social housing, is sold or otherwise disposed of after the coming into force of section 21 by—(i) the mortgagee, in the exercise of the mortgagee’s powers to enforce the mortgage,(ii) a receiver appointed by the mortgagee or by the court as described in subsection (2)(b), or(iii) a person appointed by the mortgagee as described in subsection (2)(c),section 21 ceases to apply in relation to that social housing at the time of that sale or other disposal.”
“( ) In subsections (2) and (3)—
“mortgage” includes a charge or other security;“mortgagee” includes a person who is entitled to take steps to enforce a charge or other security.”
Lord McKenzie of Luton
“Housing costs in the private rented sector
(1) The Secretary of State must, at a time no later than the end of the financial year ending March 2017 and at least once during the course of each of the subsequent four financial years, review the relationship between housing costs in the private rented sector and levels of local housing allowance.
(2) Where a review under subsection (1) shows that less than 30 per cent of private rented properties in each locality are affordable to persons in receipt of local housing allowance, the Secretary of State must by regulations under section 130A of the Social Security Contributions and Benefits Act 1992 (appropriate maximum housing benefit) amend the rates of local housing allowance.”
Lord McKenzie of Luton
My Lords, Amendment 110 stands in my name and that of my noble friend Lady Sherlock. We welcome the support of the noble Earl, Lord Listowel, who has added his name to it. The amendment moves us into somewhat different territory. It is about the adequacy of the local housing allowance system and the quarterly review of the extent to which at least 30% of private rented properties in each locality are made affordable by the LHA. It is an opportunity, in particular, to review the effect of the four-year freeze on the LHA.
Whereas the Government have sought in the Bill to ameliorate the costs of housing benefit for social housing by reducing rent levels, their efforts and those of the coalition Government have taken a different approach in the case of the private rented sector. For the PRS, the Government have progressively reduced the level of support provided by the LHA. This started by moving the LHA rate down from the median rent in any given area to the 30th percentile and was followed by national caps on categories of property, limited uprating, initially to 1% a year, and now a four-year freeze. As well as changes to the LHA which effectively substitute for the rent level in any calculation, there have been changes which affect the calculation of housing support itself: the abolition of the family element, the two-child policy and cuts to work allowances, not to mention, where appropriate, the benefit cap. That is happening at the same time as more people are looking to the PRS for housing and rents are increasing.
The private rented sector is growing out of all proportion to the UK’s housing stock, and is expected to comprise more than one-third of the total stock by 2032. This growth has been stimulated in particular by the deregulation efforts in the Housing Act 1988 and the continuing shortfall under successive Governments of new housing provision. Research by Shelter highlighted that a third of renters are now families with children—those most affected by the volatility and uncertainty of the rental market. Nearly three-quarters of families who rent are in work and would overwhelmingly like to own their own home but believe that they will never be able to afford it.
In a release just last week, Shelter set out recent findings of an online survey which showed that 32% of private renters have had to cut back on either heating or winter clothing to meet housing payments and 56% are struggling or falling behind with their rent. An earlier study by Shelter highlighted that more than half of local authorities in England have a median private rent for a two-bedroom home which costs more than 45% of median take-home pay in the area. Eight per cent of authorities have median rents that are 50% or more of median full-time take-home pay. This is before the 1% freeze begins to operate.
The test the amendment sets down is whether 30% of private rented properties in each locality are affordable to people whose housing support is based on the LHA. It implies that the 30% would be the lowest cost, the 30th percentile, because that was the central test considered appropriate before uprating was decoupled from actual rental levels, a change which has been deepened by the LHA freeze which, as we touched on, is to be visited on social rented housing in 2018.
As I said, the extent to which private sector rents are affordable depends on how the broad rental market area operates in practice, as well as the details of the current social security system, but the starting point is the actual level of the allowance, the rent equivalent. There is no doubt that at times of growing demand, inadequate supply and rising rents, a freezing of the LHA is likely to widen the gap between actual costs and the level of housing support.
Indeed, this is already happening, particularly in London, where London Councils recently published an analysis of the likely effect of the freeze which demonstrates that already less than 30% of private rented properties are affordable at the LHA rate. It suggested that only 5% to 10% of properties in some high-value parts of inner London might be affordable and that this could spread more widely around the capital. For 2015-16, a gap is already opening up between LHA rates and the 30th percentile. Based on government figures, in two-thirds of the broad rental market areas the 30th percentile rents for two-bedroom properties, for example, are already above the April 2015 LHA levels.
Does the Minister accept those figures? Unless rents are to come down, this shortfall will only grow. A clear consequence of this is that more and more people will uproot and move to cheaper areas, with all the consequences of that upheaval for families and their communities, both old and new. For some, the benefit cap will further make properties unaffordable, leading inexorably to homelessness and poverty. We cannot allow this to go on. This is a deepening crisis, which the Government need to address. The noble Lord, Lord Kerslake, has two amendments in this group. I may respond to them when I wind up. I beg to move.
The Earl of Listowel
My Lords, I am concerned that the Government’s proposal may reduce the supply of housing or cause what housing is available to be of poorer quality. I go back to my earlier concerns about the poorest families. In her response, will the Minister give an assurance that this will not have the effect that I am concerned about, will not make more families homeless and will not lead to poor families living in poorer conditions and less well-maintained homes? I look forward to her response.
Lord Kerslake
My Lords, I shall speak to my Amendments 110A and 110B. I am conscious that we are reaching the end of a long process, so I shall keep my remarks short. These amendments go to a specific issue that needs addressing. They focus on giving flexibility and excepting social rent reductions for two types of new supplier: affordable rent suppliers and social tenancies. That does not address the whole of the issue that I spoke about earlier because the social housing model involves cross-subsidy. When housing associations look at new supply, they look at two things: their investment plan’s overall viability and the viability of individual schemes. For schemes that are less profitable and more marginal, rent is crucial.
There is shared recognition in this House about the need for new supply of all types, including social housing. By giving flexibility by excepting new supply from the rent reduction policy and giving flexibility in the starting rates for these properties, it is very likely that some schemes that would have been put on the back-burner because of viability will go ahead. These amendments will cost very little because new supply is less than 2% of existing stock and therefore the cost in terms of benefits is very small, and the gain, in terms of new supply at the margin, will be considerable. These are two small amendments that will address the issue of new supply, give flexibility at local level to make decisions on rents and tip schemes that would otherwise not have been viable into viability and enable them to be built.
Baroness Evans of Bowes Park
My Lords, I shall start by addressing Amendment 110, which was tabled by the noble Baroness, Lady Sherlock, the noble Lord, Lord McKenzie, and the noble Earl, Lord Listowel. It would in effect reverse the summer Budget measure of applying a four-year freeze to housing benefit local housing allowance rates from 2016-17.
Between 2000 and 2010, expenditure on housing benefit doubled in cash terms, reaching £21 billion per year. If left unreformed, by 2014-15 housing benefit would have cost taxpayers £26 billion per year. This measure to freeze local housing allowance rates for four years will build on the reforms introduced in the last Parliament, which saved £4 billion and continue to deliver savings of around £2 billion a year. Savings from freezing local housing allowance rates are estimated to be around £655 million for Great Britain over the four-year period of the measure.
I will set out the process for setting the local housing allowance rates and what we already do to monitor the levels in comparison with market rates. Within DWP, local housing allowance rates are monitored each year to assess any divergences between the rates and local rents. Each autumn, the rent officer services provide DWP with rental data for all broad rental market areas for the 12 months up to the end of September. This is used to review the rates, and in the past two years has been the basis for identifying which rates should be increased by the targeted affordability funding.
If any changes are needed to secondary legislation, such as setting out a schedule of which areas and rates might be increased by the targeted affordability funding, they need to be carried out during the autumn and laid before Parliament, observing the requisite timescales before the amendments come into force before the LHA determination date at the end of January each year.
I should add that the Secretary of State has the power to review the local housing allowance rates or to provide in regulations for the maximum housing benefit to be an amount other than these rates. These powers have been in place since the LHA scheme was introduced and were reinforced in the Welfare Reform Act. Noble Lords will be aware that this measure has already passed through secondary legislation and been agreed by the Delegated Legislation Committee in the other place. The order was not prayed against by Members of this House and was therefore not subject to a debate. I reassure noble Lords that, alongside the LHA rate, we will continue to publish at the end of January, as we have done previously, the 30th percentile of market rates in each area. The noble Lord, Lord McKenzie, asked about his figures. They are broadly right in terms of the figures that he asked about.
The first step is for a provider to determine what would have been the rate of formula rent for that social housing—I apologise to noble Lords; I do not think this is quite right. I have not responded to the question from the noble Lord, Lord Kerslake. Typically for me, I appear to be missing a page. I will now turn to Amendments 110A and 110B, tabled by the noble Lord, Lord Kerslake. I am grateful to him for bringing forward these amendments and giving me the opportunity to explain to the Committee the approach that the Government are taking regarding rent-setting for new tenancies.
Schedule 2 to the Bill sets out how maximum rent should be determined during the four years of rent reductions for tenancies that were not in place at the beginning of 8 July 2015. Different rules apply to existing and new social housing and affordable-rent housing, and they are set out in paragraphs 1 to 3 of Schedule 2 respectively. Rents for new social housing, excluding affordable-rent housing, may be set up to the social-rent rate. It may be helpful for me to explain in slightly more detail how the social-rent rate is calculated, which is set out in the Bill in paragraph 1(4) of Schedule 2. The first step is for a provider to determine what would have been the rate of formula rent for that social housing at the beginning of 8 July 2015. The Government’s intention is to set that out in regulations that will mirror the formula for 2015-16, as set out in the rent standard guidance and the Government’s guidance for rent. In this way we have sought to make the 1% rent-reduction policy work in a similar way to existing policy in so far as we can.
Noble Lords will be aware that formula rent takes into account relative property values and local earnings, the size of the property and an overall rent cap. Local circumstances are therefore taken into account in determining what the rate of formula rent is. Once determined, the social-rent rate is found by then applying the appropriate annual reductions. But we do not think it appropriate to continue to allow providers of new general-needs housing the flexibility to set rents at up to 5% above formula. That flexibility was only ever intended to be taken up by general-needs housing providers on an exceptional basis and is now out of step with the Government’s policy for rent reductions, which necessitates a more tightly-controlled approach. As I have explained, the social-rent rate will be closely aligned to the previous formula-rent policy, which took into account local conditions. Local property values and local earnings are in fact built into the formula.
For new tenancies of affordable-rent housing, paragraph 3 of Schedule 2 provides that the rent payable by that tenant should be set at no more than 80% of the amount that would be the market rent for that property, and that in the following years a 1% per annum reduction to that maximum rent applies. But this is a maximum rent, and guidance regarding other factors of rent setting, including local factors, remains in place. Housing which may be let on the affordable-rent basis will be identified as such by regulations under paragraph 4 of Schedule 2 to the Bill, and I can be clear that our intention is that this will reflect existing policy regarding properties that may be let at an affordable rent.
Lord McKenzie of Luton
My Lords, I thank the Minister for her reply. I should not worry too much about getting Box notes confused. I once read out a Box note that said “Don’t go there”. It is tucked away somewhere in Hansard, but I will not tell noble Lords where.
I thank the noble Lord, Lord Kerslake, for dealing with his amendments. The proposition he advanced is entirely reasonable—that new supply, which he said was less than 2% of the total, could be freed up from these provisions. It is a pity that the Government could not respond positively to that.
So far as the rest of the response was concerned, I am not sure that the Minister fundamentally dealt with the issue around the private rented sector and the effect of affordability, and that there is a widening gap between what the LHA reduces in terms of support and rent levels. In some respects that is forcing quite significant movements out of the capital, out of initially lower-cost areas into even lower-cost areas, and the consequences of that for people’s lives, lifestyles, their community, schooling for their kids and so many other issues is quite profound. I regret that the Government are not addressing that issue. However, perhaps in fairness to the Minister I ought to read the record, supplemented as appropriate by any correspondence she feels in retrospect it might be helpful to have. Having said that, I beg leave to withdraw the amendment.
Lord Freud
“(2) Part 1 does not apply in relation to social housing of a registered provider if, where the registered provider’s interest in the property that consists of or includes the social housing is subject to a mortgage—
(a) the mortgagee is in possession of the interest in the property or the part of the property that includes the social housing, in the exercise of the mortgagee’s powers to enforce the mortgage,(b) a receiver has been appointed in relation to the interest in the property or the part of the property that includes the social housing by—(i) the mortgagee, in the exercise of the mortgagee’s powers to enforce the mortgage, or(ii) the court, in connection with enforcing the mortgage,and that appointment is in force, or(c) a person has been appointed by the mortgagee, in the exercise of the mortgagee’s powers to enforce the mortgage (including, in the case of a floating charge which relates to the interest in the property, the power under paragraph 14 of Schedule B1 to the Insolvency Act 1986), to exercise powers that include a power to sell or otherwise dispose of the interest in the property or the part of the property that includes the social housing and that appointment is in force.”
“(3) If—
(a) a registered provider’s interest in property that consists of or includes social housing was made subject to a mortgage, and(b) the interest in the property, or the interest in the part that includes the social housing, is sold or otherwise disposed of after the coming into force of Part 1 by—(i) the mortgagee, in the exercise of the mortgagee’s powers to enforce the mortgage,(ii) a receiver appointed by the mortgagee or by the court as described in sub-paragraph (2)(b), or(iii) a person appointed by the mortgagee as described in sub-paragraph (2)(c),Part 1 ceases to apply in relation to that social housing at the time of that sale or other disposal.”
“( ) In sub-paragraphs (2) and (3)—
“mortgage” includes a charge or other security;“mortgagee” includes a person who is entitled to take steps to enforce a charge or other security.”
Lord Freud
“Implied terms
(1) A lease or other agreement by virtue of which a person is a tenant of a registered provider contains, by virtue of this subsection, an implied term enabling the registered provider to reduce the amount of rent payable by the tenant, without giving prior notice, where the reduction is made for the purpose of complying with a requirement imposed by or under section 21or 26 or Part 1 of Schedule 2.
(2) Subsection (1) has effect notwithstanding any express provision in a lease or other agreement.
(3) Section 102 of the Housing Act 1985 (variation of terms of a secure tenancy) has effect subject to subsection (1).”
“Change of registered provider
(1) This section applies if—
(a) particular social housing of a registered provider becomes social housing of another registered provider (“the transferee”), and(b) the social housing is subject to a tenancy that began before the social housing became the transferee’s social housing.(2) Sections 21 to 26 and Schedule 2 have effect in relation to the amount of rent payable by the tenant under the tenancy as if—
(a) the transferee’s relevant years were the same as the initial registered provider’s relevant years, and(b) rent payable by the tenant before the social housing became the transferee’s social housing were rent payable to the transferee in respect of such earlier periods.(3) Subsection (4) applies if, immediately before the social housing became the transferee’s social housing, a requirement imposed by or under section 21or 26 or Part 1 of Schedule 2 was disapplied or modified as regards the social housing—
(a) by a direction under section 23 or paragraph 6 of Schedule 2, or(b) under section 26(4).(4) If the social housing becomes the transferee’s social housing otherwise than at the beginning of a relevant year of the initial registered provider, the requirement continues not to apply or continues to apply as modified (as the case may be) until—
(a) the relevant year of the initial registered provider current when the social housing becomes the transferee’s social housing comes to an end, or(b) if earlier, the tenancy comes to an end.(5) In this section a reference to a relevant year of an initial registered provider includes, in the case of an initial registered provider that has ceased to exist, a reference to what would have been a relevant year of an initial registered provider if it had not ceased to exist.
(6) In this section “initial registered provider”, in relation to a tenancy of social housing, means the first registered provider which—
(a) was subject to a requirement imposed by or under section 21 or 26or Part 1 of Schedule 2 as regards the tenancy, or(b) would have been so subject but for its being disapplied—(i) by a direction under section 23 or paragraph 6 of Schedule 2or under section 26(4), or(ii) by or under section 22 or paragraph 5 of Schedule 2.”
“Transitional provision
(1) This section applies if, immediately before the rent restriction period ends—
(a) a lease or other agreement by virtue of which a person is a tenant of a registered provider contains provision under which rent will or may be increased with effect from a date or dates specified in the lease or other agreement (“rent review dates”), and(b) the registered provider is subject to a requirement imposed by or under section 21 or 26 or Part 1 of Schedule 2 as regards the tenant.(2) The lease or other agreement contains, by virtue of this subsection, an implied term enabling the registered provider to treat a date that falls—
(a) after the rent restriction period ends, and(b) before the first rent review date to occur after the rent restriction period ends,as if that date were the first rent review date to occur after the rent restriction period ends (instead of the date provided for in the lease or other agreement).(3) Subsection (4) applies if, under the provision mentioned in subsection (1)(a), the intervals between rent review dates may only be intervals of 51 weeks or more.
(4) The lease or other agreement contains, by virtue of this subsection, an implied term enabling the registered provider, if it acts as mentioned in subsection (2), to treat the relevant date as if it were the second rent review date to occur after the rent restriction period ends (instead of the date provided for in the lease or other agreement).
(5) In subsection (4) “the relevant date” means the date that precedes the second rent review date by the same period as the date treated under subsection (2) as the first rent review date precedes the first rent review date provided for in the lease or other agreement.
(6) The lease or other agreement contains, by virtue of this subsection, an implied term requiring the registered provider, if it acts as mentioned in subsection (4), to treat the date that precedes each subsequent rent review date by the same period as if it were that subsequent rent review date (instead of the date provided for in the lease or other agreement).
(7) The lease or other agreement contains, by virtue of this subsection, an implied term providing that, if the registered provider treats an earlier date as if it were a rent review date because of a term implied by subsection (2), (4) or (6), other provision in the lease or other agreement is to have effect accordingly.
(8) Nothing in this section prevents the registered provider and the tenant varying or excluding by agreement a term implied by virtue of this section.
(9) Section 102 of the Housing Act 1985 (variation of terms of a secure tenancy) has effect subject to subsections (2), (4), (6) and (7).
(10) In this section “rent restriction period”, in relation to a tenant of a registered provider, means the period during which the registered provider might be subject to a requirement imposed by or under section 21 or 26 or Part 1 of Schedule 2 as regards the tenant.”
Lord Freud
Lord Freud
“( ) section 21(3) and (4);”