Rent Officers (Housing Benefit and Universal Credit Functions) (Local Housing Allowance Amendments) Order 2015

(Limited Text - Ministerial Extracts only)

Monday 23rd November 2015 General Committees

[The Parliamentary Under-Secretary of State for Disabled People (Justin Tomlinson)]

It is an absolute pleasure to serve under your chairmanship, Mr Pritchard. The order puts in place the changes needed to freeze local housing allowance rates for four years from April 2016. Between 2000 and 2010, housing benefit expenditure doubled in cash terms, reaching £21 billion. Left unreformed, housing benefit would have cost £26 billion by 2014-15. Our reforms are now saving about £2 billion a year, and the summer Budget measures will add to that. Crucially, we ended the presumption that housing benefit would always pick up the bill.

Since reforms to the LHA were introduced by the coalition Government from April 2011 the number of housing benefit claimants living in the private rented sector is down by about 1% nationally and 3% in London. More claimants are moving into work as people make sensible decisions about what they can reasonably afford. The case load numbers show that claimants continue to live in all areas, including central London. The current case load for those renting privately in the capital stands at 258,000.

The Government made clear their intention to make significant savings to welfare expenditure before the general election. This measure is part of that commitment and was announced in the summer Budget. The Budget statement was followed by several days of debate, which provided an opportunity for this and other Budget measures to be discussed, particularly on the first day of debate, 9 July, when my right hon. Friend the Secretary of State for Work and Pensions responded on behalf of the Government.

This measure is not included in the Welfare Reform and Work Bill, as the Secretary of State already has the powers in primary legislation to change the way in which LHA rates are set. In response to hon. Members’ comments, however, it might help if I clarify how the freezing of LHA rates will work during the four-year period. The rates will still be reviewed each year by rent officers, who will continue to calculate, as they have previously, the 30th percentile of a list of rents for each property size in each area. In line with the amendments to the rent officers order, they will then set the new LHA rates at either the April 2015 rate or the 30th percentile of listed rents if that is lower.

[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

Will the Minister clarify the means by which the area is codified? I ask that because in Stoke-on-Trent and Staffordshire there is a broader area for housing benefit that does not actually take account of some of the narrower economic circumstances of a specific area.

[Justin Tomlinson]

It is done on a regional basis. Discretionary housing payments can help to alleviate that situation, but I will come back to that, if the hon. Gentleman can be patient.

[Tristram Hunt]

My concern is that we are ending up with areas in which it is much easier for landlords to make quite a high profit on housing benefit, relative to other areas. Essentially, the rate is too generous. Streets are being turned into areas with fly-by-night populations, as well all the problems we see with certain landlords. The order needs to be more specific about how the benefit is adjudicated.

[Justin Tomlinson]

Let me ponder that question and come back to it.

The Government recognise that some places will see high increases in rents, so we have made provision to help those areas. Over this Parliament, 30% of the savings generated from the measure will be recycled and used to create more targeted affordability funding, which will be used to reduce the gap between frozen LHA rates and the 30th percentile reference rent in areas of the greatest rental growth, building on the £140 million already distributed since 2014.

Hon. Members may be aware that in 2015-16 we have increased 191 LHA rates by 4%, instead of the uprating limit of 1%, using the targeted affordability funding. More than half of the LHA rates in London—41 out of 70—received the extra increase. The funding has also benefited other parts of the country such as Manchester and Aberdeen.

[Emily Thornberry]

The Minister just referred to 41 areas receiving this additional funding. Is he telling the Committee that in those 41 areas, people can rent anything in the bottom 30th percentile of properties in the local authority, within the limits of housing benefit?

[Justin Tomlinson]

That is why the additional funding was provided—to make up the difference in those particularly high rental growth areas.

[Emily Thornberry]

The Minister will appreciate, however, that it did not.

[Justin Tomlinson]

I will come to the stats. I will not forget that point, as it has already been mentioned.

In 2016-17, the effect of freezing LHA rates will be the same as it would have been if rates had been uprated by CPI inflation due to the level of CPI forecast in September. As a result, LHA rates would not increase in 2016-17 but would mostly remain at the 2015-16 levels. As there is currently no inflation in the economy, no savings will be made from the freeze in 2016-17 and there will therefore be no targeted affordability funding for that year. Targeted affordability funding will, however, be available from the savings for subsequent years, up to and including 2020-21.

From 2017-18, we will use the targeted affordability funding to support areas where higher rent increases are causing a shortage of affordable accommodation. The amounts of targeted affordability funding available each year from 2017-18 and our plans for how we distribute it will be announced as part of the review of the order in future years.

In the summer Budget, the Chancellor of the Exchequer announced that an enhanced package of £800 million of discretionary housing payment funding will be made available to local authorities over the next five years to provide support to the most vulnerable claimants affected by housing benefit reform, including this measure. That was a 40% increase on what was previously offered. I can also reassure hon. Members that alongside the LHA rates, we will continue to publish the 30th percentile of market rents in each area, as we have previously, so that they can be scrutinised.

To pick up on some of the specific questions that were asked, I absolutely agree that the biggest challenge is demand outstripping supply. Addressing the lack of affordable housing is therefore a real priority. There has been a welcome announcement of an extra £1.45 billion to be spent creating an additional 43,000 affordable homes in London by 2018.

[Emily Thornberry]

I wonder if the Minister could assist us with those affordable housing statistics. Will those affordable homes be in the bottom 30th percentile? Will they be within reach of housing benefit? If we are talking about housing benefit and affordability, surely the two should be in line.

[Justin Tomlinson]

We do not control housing prices, but clearly the quicker we can get these new houses, the bigger the difference they will make. Across the country, we expect at least another 275,000 affordable homes to be built before the end of the Parliament. Through the new homes bonus, we provide additional incentives to local authorities to increase the provision of affordable homes, so they get paid more than just six times the value of the council tax. Our extension of the right-to-buy policy will also result in new housing stock being brought in.

I was asked whether the policy had resulted in rental prices falling. In some areas it has, and in some it has not. We know that 27% of landlords have been negotiating; that figure is as high as 47% in London. On the point about whether there will be ghettos and whether people will suddenly disappear, 79% of those who moved during this period moved within 5 miles, and the vast majority did so for personal rather than financial reasons. If we look at the broader picture, we see that 93% stay within their region.

There have also been behavioural changes. Two hundred people a week are coming off housing benefit because of a combination of rising wages in our growing economy, the 2 million new jobs that have been created, the negotiations that have taken place and, in some cases, the fact that rents have been reduced. Therefore, keeping the economy going in the right direction remains a key priority. In response to another point that was raised, the broad market areas take into account local amenities such as schools, shops, hospitals and transport, and there can be quite a broad range of rental prices within an area.

I commend the order to the House.

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Division 1

Ayes: 10

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Conservative: 8

Noes: 5

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Labour: 4
Scottish National Party: 1