Income-related Benefits (Subsidy to Authorities) (Temporary Accommodation) Amendment Order 2010

Lord Taylor of Holbeach Excerpts

Thursday 2nd December 2010 Lords Chamber

[Lord Taylor of Holbeach]

My Lords, I thank the noble Lord, Lord Knight, for asking us to take note. I had to check up on what he was asking us to take note of. I looked at the order of business for the day and discovered that it was the temporary accommodation housing allowance, but I understand that he wants a debate on housing allowances and the Government’s housing policy in general. Fortunately, my noble friend the Minister for Welfare Reform is sitting at my right hand. I know that he is looking forward to engaging in a broader debate with the noble Lord and other noble Lords who have participated in this debate. As was rightly pointed out, this is an important policy area, in which there has been a considerable policy change, and I think that noble Lords will want to be reassured about that.

I think that it would be reasonable if I were to start by addressing the subject on which I swotted up. I am used to having to have a certain amount of agility on my feet, but it is easier to be agile about some things than others. I shall begin by answering a few questions. My noble friend Lord German asked about the SSAC report. We have sought in the new orders to respond to that report and the issues that it raises. There will be a read-across from the report. That will not necessarily satisfy every point, but we have sought to respond. I confirm what he said about mobility issues. It is important to reflect on the fact that, in many cases, mobility is a built-in feature of the housing market. He asked how landlords might be incentivised to adapt to the new market conditions. One of the ways in which that can be done is through direct payments reflecting reduced levels.

The noble Lord, Lord McKenzie of Luton, asked what other leased accommodation is included. Leased accommodation in Wales and Scotland is not covered by the current scheme, but it will be included. This is accommodation that is leased for more than 10 years—this is not applicable for English local authorities—within the housing revenue account.

The noble Lord, Lord Knight, asked about the impact of LHA on homelessness; the noble Lord, Lord Best, was concerned about that, too. It is too soon to know how landlords will react to changes affecting local housing allowance rates for people in the private rented sector. However, we expect that many landlords will reduce their rents as a result of the LHA measures. There may be some increase in the number of tenants who need to find alternative accommodation, but that does not necessarily mean that they will experience—I am sorry, but I cannot find what I was looking for. I think that there is a joke about this: “Now you’re on your own”. I shall stop at that point.

The noble Lord, Lord Knight, asked about the impact on children’s schooling. We have discussed the possible impacts of the housing benefit changes with the Department for Education and the devolved Administrations. It is not possible to estimate how many households with children would move or where they would move to. Movement from one authority area to another may be more common in London, but schools in London have surpluses. Data show that 75 per cent of primary schools and 65 per cent of secondary schools in London have surplus places available. A transitional protection period will give parents more time to plan a school move if that is necessary.

The noble Lord, Lord Knight, suggested that discretionary housing payments are insufficient. We have trebled the amount available for DHPs; in addition, we have announced an extra £50 million funding to help local authorities to implement this change. So we are not asking local authorities to absorb all this on their own.

The noble Lord, Lord Knight, asked how LHA reform affected TA. Will customers in temporary accommodation be able to continue meeting their rent when the changes to LHA come into force? The vast majority of households living in temporary or short-term accommodation have as their immediate landlord a registered housing association or local authority. They will not, therefore, be affected by wider changes to housing benefit affecting those in the mainstream private sector.

If I have not covered all the questions that he raised, I shall write to the noble Lord. Indeed, my noble friend is looking forward to engaging on the whole issue of housing allowances at a debate in future.

As for the reforms themselves, this latest subsidy reform will help to control further the level of housing benefit expenditure for people placed into temporary accommodation by their local authority. It will extend the reach of a new subsidy scheme that was introduced in April this year. The intention of these further changes is to create a more level playing field to ensure that funding streams are equalised among different providers of temporary accommodation. First, I would like to acknowledge that the new subsidy scheme for people in temporary accommodation was developed and introduced under the previous Administration. It already appears to be an effective and well planned reform. Given that, I am sure that the noble Lord, Lord Knight, will wish to show his support for the latest set of changes, which continue from where his Administration left off.

Local authorities use various types of property to provide households in need with temporary accommodation, including their own stock, hostels and bed and breakfast hotels. However, most temporary accommodation is secured from the private rented sector, through some form of lease or licensing agreement with a private landlord. The order that came into force in April this year affected housing benefit subsidy for cases in private sector leased accommodation, but only those where the local authority is the claimant’s landlord. The changes due to come into force from April 2011, which we are discussing today, will extend the new subsidy rules to cases in leased accommodation where a registered housing association is the claimant’s landlord. These are known as Housing Association Leasing schemes, or HALs.

The main purpose of introducing the new subsidy scheme in temporary accommodation was to encourage more local authorities to charge reasonable rents. This does appear to be happening in many cases. Basically, the old scheme allowed too much subsidy to be paid on some properties because it took no account of their actual size or location. Housing benefit expenditure had increased in this area from around £250 million in 2002-03 to more than £640 million in 2007-08. The rate of increase in costs was unsustainable, and was disproportionate to increases in the case load, which peaked in early 2005 at around 110,000 households in Great Britain.

I should stress that, since then, local authorities have done a lot of good work on homelessness prevention that has helped to bring those numbers down considerably, but, although the temporary accommodation case load has been coming down, expenditure has been going up. In part, that was due to local authorities in London charging inflated rent levels. Those high rents—averaging £300 to £400 plus per week, even on small one or two-bedroom properties in parts of London—could be met by housing benefit, but such rent levels were very likely to deter people from working. The level of worklessness among households in temporary accommodation is high. Independent research published in 2008 suggests that the level is around 64 per cent but is possibly higher in some parts.

In addition, families living in temporary accommodation in London, where most of the case load is concentrated, often remain in such accommodation for lengthy periods. Despite its name, the average period spent in “temporary accommodation” in London is three years. It is clear that unnecessarily high rents, which often attract 100 per cent subsidy, are not good either for households living in temporary accommodation or for the taxpayer.

The new subsidy scheme that came into force in April this year, which is based on local housing allowance rates, ensures that the weekly amount of subsidy payable for these cases is based on market rates in the private rented sector. In other words, the amount of subsidy now relates to the size and location of the property used by the local authority. There are three elements to the subsidy formula: the rental element, which reflects the cost of leasing a property; an amount towards the management costs—the management costs element—involved in running these schemes; and, lastly, two upper cap limits, of £500 for properties in central and inner parts of London and £375 for properties located elsewhere.

For the rental element, we take the local housing allowance rate based on the size and location of the property and remove 10 per cent. The 10 per cent is a notional amount, which is taken off to reflect management costs that have already been factored into market rents. We then add back into the formula one of two separate amounts for the management costs of running private sector leasing schemes, such as maintenance and void costs. The amounts are £40 a week for authorities in London and £60 a week for other authorities. The lower amount for London authorities reflects their ability to achieve economies of scale. The actual amount of subsidy payable is the lowest of: the LHA-formula amount; the customer’s actual HB entitlement, if it is less than that; and the appropriate upper cap limit.

Returning to the rental element, I should advise that the LHA rates used in the formula for this financial year are those that were published in January 2010. Using a static rate provides more funding certainty for local authorities throughout the year. From April next year, the subsidy amounts will be based on the January 2011 LHA rates, which will still be set using the median of rents. Therefore, it is evident that the LHA changes announced in the emergency Budget for private rented sector claimants are entirely separate from the subsidy arrangements for people in temporary accommodation.

One of the key issues surrounding the new subsidy scheme’s introduction this year was whether to include the housing association leasing schemes—HAL schemes—that I mentioned earlier. At the time, there was no evidence of inflated rent levels among those schemes and, in most cases, rents still appear to be staggered appropriately to reflect different property sizes. However, the risk of having different subsidy rates for housing association and local authority-run leased accommodation is that it could lead authorities to shift from one type of scheme to another, depending upon which seems more generous. There would also be greater potential for private landlords to draw authorities and housing associations into procurement bidding contests, which would increase expenditure.

This latest amendment to the subsidy order—the Income-related Benefits (Subsidy to Authorities) (Temporary Accommodation) Amendment Order 2010 (SI 2010/2509), which is the subject of this debate—will extend the new subsidy scheme to include cases in housing association leased accommodation, as well as close off some other potential loopholes. It will ensure that there is no benefit for local authorities in switching between different schemes based on whichever attracts the most subsidy. It will create a level playing field for providers, who often compete to procure properties in similar locations.