Welfare Reform and Work Bill

Baroness Hollis of Heigham Excerpts

Monday 21st December 2015 Lords Chamber

[Baroness Hollis of Heigham (Lab)]

My Lords, I will just ask a few questions slightly wider than the amendments tabled. The Minister will know that we have coming towards us a Housing and Planning Bill that will extend extensively the right to buy, treat starter homes as part of affordable housing and seek to both extend owner-occupation and push it further down the income scale to people who, at the moment, are not able to access it in terms of both deposit and repayments. The result of that will almost certainly be greater risk of default and problems in maintaining mortgage payments, a more precarious relationship to the world of work, and periods therefore where these people do not have reliable income.

The questions are very simple. Has the Minister talked to his colleagues in the DCLG about this? Is he aware that the demand for this sort of support will almost certainly increase substantially in years to come? What assumptions is he making about the implications of that money which must be made available, perhaps for long-term loans, to sustain people such as those who are fairly marginal to the owner-occupied market coming into it—possibly with the best of reasons, but none the less they will struggle to sustain their repayments? How much connection is there between this policy of the DWP and the work being pushed by the Minister’s colleague Greg Clark in the other place through the DCLG?

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, I start by responding to Amendment 103A, which would keep the waiting period at 13 weeks. The background to this is well known. Claimants receiving income-related benefits may claim help towards the cost of their mortgage interest payments. Apart from those receiving state pension credit, claimants must serve a waiting period before entitlement to help with mortgage interest begins. Before 2009, the waiting period for the majority of working-age claimants was 39 weeks. In January 2009, temporary arrangements were introduced that reduced this period to 13 weeks. This was to provide additional protection to those who lost their jobs during the recession. At the same time, the maximum value of mortgage for which support is available, known as the capital limit, was doubled to £200,000. In the summer Budget, it was announced that from April 2016 the waiting period will return to the pre-recession length of 39 weeks although the capital limit of £200,000 will be maintained.

This amendment would remove the current broad powers in the Bill that allow the waiting period for support for mortgage interest to be set out in regulations, replacing them with a narrowly defined 13-week waiting period, but I suspect it is a probing amendment. We wish to retain the ability to act quickly in different circumstances, and putting this in primary legislation would prevent that.

Let me be clear about why we help owner-occupiers with mortgage interest payments. The purpose is not to secure their asset or to reduce any outstanding payments owed to lenders. The purpose is simply to mitigate the risk of repossession. The CML now says that it believes the 39-week waiting period will drive repossessions, but it is unable to quantify the number of repossessions. We will work with the CML to assess any such impacts in terms of repossessions, but we do not believe that they will be significant, particularly at the current level of house prices. There is no evidence to suggest that lenders will do anything other than exercise the same degree of forbearance that they did prior to 2009 when the 39-week waiting period was last applied, particularly as we are maintaining the higher capital limit.

Amendment 104 seeks to change the way in which SMI loans are recovered from the equity in the claimant’s home. The intention is that a charge registered by a local authority to reclaim deferred payments for social care would always take precedence over a charge registered by the DWP to recover an SMI loan. As the Bill stands, the Government can require that a loan be secured by a charge over the claimant’s property. Under provisions in the Land Registration Act 2002, charges are recovered in the order in which they are registered. If the SMI charge was registered on the property before any deferred payment arrangement, it will have prior claim to any equity when the property is sold. The legal charge will therefore be subordinate to any existing charges on the property, including the mortgage. That answers one of the questions asked by the noble Baroness, Lady Sherlock.

We envisage that advice would normally be given via a telephone conversation and would cover the following areas: the claimant’s financial position now and in future, their understanding of the terms of the loan, and encouragement for them to engage with any heirs they might have. The delivery of that financial advice will be outsourced to a third-party provider.

Section 34 of the Care Act 2014 obliges local authorities, in prescribed circumstances, to offer DPAs. The intention is that people should not be forced to sell their home in their lifetime to pay for their care. If there is no equity in the property—a subject raised by the noble Baroness, Lady Sherlock—the family would be able to apply for a funeral payment from the Social Fund.

I pick up on the question asked by my noble friend Lord Young. Local authorities are not required to make such an offer where there is a pre-existing charge on the property. Recipients of SMI loans by definition have a pre-existing charge—their mortgage—so in such cases there is no obligation to offer deferred payments. The registering of a charge in respect of an SMI loan does not, therefore, directly interfere with the policy intent of the Care Act.

The noble Baroness, Lady Manzoor, asked about the types of property on which it is possible to secure a loan. Charges can be secured on the claimant’s equity share in shared ownership and on leasehold properties.

I turn back to local authority provision. Local authorities are not precluded from offering DPAs where there is an existing charge so long as they are satisfied that there is adequate security. This means that they may still consider offering deferred payments if, after taking account of the outstanding mortgage, the remaining equity would be sufficient to cover an individual’s likely care costs. It is arguable that in some circumstances the existence of a charge in respect of an SMI may make authorities less inclined to agree to defer payments in such cases. However, it is important to note that deferred payments are available only where the person enters residential care. In such circumstances, payments of income-related benefits cease, including payments of SMI. As the claimant will have no means to meet their mortgage payments, it is probable that the property would have to be sold anyway. I should be clear that the position as I have just described it is not a consequence of changing SMI into a loan; it is inherent in the current system.

Amendment 104A is intended to exempt disabled claimants from the provision that introduces SMI loans and allow them to continue to receive this help in the form of a non-recoverable benefit. The purpose of providing SMI is to protect owner-occupiers from the risk of repossession and allow them to remain in their homes. In almost all cases, these payments are sent direct to lenders rather than to the claimant. When Clause 16 comes into effect, the level of support will remain the same as now—the point made by my noble friend Lord Young—and payments will continue to be sent direct to lenders. Neither lenders nor claimants will see any difference in the way the system works, so exempting any particular group would not have any impact on the level of protection they were afforded. The difference is that under the loans scheme the payments will be recoverable, but recovery will not be sought until the property is sold. So the day-to-day income of disabled people will not be affected.

SMI supports individuals in the accrual of a significant asset. Many taxpayers who are providing that support cannot afford to buy their own homes. It is only fair that this support is recouped where equity is available when the property is sold. I do not believe there is a sustainable argument that people with disabilities should be exempted from refunding some of the equity that the taxpayer helped them to accrue, while other people supported during periods of financial need should not.

The amendment is defective, in that it does not make a consequential amendment that would continue existing SMI entitlement for the group that the amendment is designed to protect—but let us leave technical issues aside.

Lastly, Amendment 104AZA would prevent the Government from changing support for mortgage interest into a loan for those on state pension credit, and allow them to continue to receive help with their mortgage interest as a benefit rather than a loan indefinitely. This would be unsustainable and unfair on the taxpayer. As I have previously said, it is not right that taxpayers, many of whom cannot afford to buy their own home, are subsidising the acquisition of a substantial asset. Pensioners will have access to the same level of support for mortgage interest payments as the current system provides, and the Government will not recover the loan until the property is sold. With pension credit claimants, it is most likely that this will be on their death and therefore will impact not them but the beneficiaries of their will.

Pensioners will have the same access to support that the current system provides, and the Government will seek to recover the debt only up to the level of available equity when the property is sold. In response to questions from the noble Baronesses, Lady Sherlock and Lady Manzoor, I say that any outstanding debt at that point will be written off. Owner-occupation involves the acquisition of a potentially valuable asset that often increases in value over time. It is right and sustainable that the taxpayer reclaims their contribution to this asset.

The amendment would also introduce a waiting period for pensioners before they could receive help with their mortgage interest payments. There is currently no waiting period for help with mortgage interest for pensioner claimants, and it is not the Government’s intention to introduce one.

I cannot go into great detail on the questions from the noble Baroness, Lady Hollis, but to the extent that more support will be required for people, this is a far more sustainable way for the state to provide it than through grants. We are still considering our response to the DPRRC line on whether the procedure is negative or affirmative. With these explanations, I urge noble Lords not to press their amendments.

--- Later in debate ---

[Earl Cathcart (Con)]

My Lords, the three amendments in this group all relate to private landlords, who now account for 4.2 million properties for rent and more than half of all rented properties. However, as of August, less than a third of all housing benefit claimants lived in private rented accommodation. Why so few? Why is there this bottleneck deterring private landlords from taking on benefit claimants? As a landlord, I have claimants in my properties, but it is not made easy. Given the choice of a couple in work or a couple on benefits, for the landlord it is a no-brainer. Why take the risk, the hassle and the uncertainty of renting to the couple on benefits?

As the rental market tightens due to increased demand, it is important to encourage and support private landlords to house those in receipt of universal credit so that they can access accommodation, otherwise they will find themselves at the back of the queue. These amendments explore ways to do just that.

The first amendment is about giving the power to give the relevant universal credit information to the landlord. Landlords need assurances that tenants have the funds available to pay their rent. Without these, renting to them becomes a risky business. Currently, the private landlord can get no information about the amount of universal credit and when it will be paid. For those tenants in work, landlords will always ask for references from employers to establish their income to ensure that the funds are available to cover the rent. Surely it must be common sense for landlords to be able to do likewise for those in receipt of benefits. I understand that social landlords are able to gain such information, so why not private landlords? Surely what is good for the goose must be good for the gander. I acknowledge that it is quite difficult to find out how much benefit will be available before the tenant moves in, but it is not beyond the wit of man to publish a ready reckoner to help everyone see where they stand, according to each local housing area’s allowances.

Amendment 104B would insert a new clause to ensure that there is a legal power, where the tenant provides written consent, for the Department for Work and Pensions to disclose to all landlords information on the housing element of the tenant’s universal credit, including the amount, or approximate amount, and when it will get paid.

The second amendment relates to rent arrears. As benefit claimants may often move home, including to seek work, landlords need the security of knowing that tenants in receipt of benefit cannot simply stop paying their rent and leave their property. Currently, rent arrears can be recouped where a benefit claimant is still living in the house to which the arrears apply. There is, however, little or no opportunity for the landlord to recoup when such tenants move house, unless they are prepared to go through a lengthy and costly court process.

I cannot see the logic in allowing the landlord to recoup the arrears if a tenant is still in the landlord’s property, but not if the tenant has moved. I realise that there will probably be a hierarchy of deductions that can be made from future universal credit—no doubt future rents, council tax, utility bills, et cetera, would come first—but if even only a percentage of the arrears was paid each month, it would act as a disincentive to tenants to rack up the arrears in the first place and ensure that the landlord was not left high and dry once the tenant had jumped ship. Amendment 104BA would insert a new clause requiring the Secretary of State to make regulations to ensure that rent arrears follow a tenant in receipt of universal credit and that landlords affected have a clear route to reclaim lost rent in such circumstances.

The third amendment concerns making payment of the housing element of universal credit direct to the landlord, with the written consent of the tenant. It is vital that landlords have full confidence that they will be paid in full and on time if vulnerable tenants are to have access to the rented homes they need. This is especially important since the Government took away the option for tenants to ask that the housing element of universal credit be paid directly to the landlord, as was formerly allowed under housing benefit. At first, I thought that that omission was an oversight, but I now understand that the Secretary of State wants all the money to be paid to the tenants so that they learn to become responsible for managing their money—a great idea but, sadly, I do not think it is working.

A survey conducted this year by the Residential Landlords Association found that of those private sector landlords who had tenants on universal credit, 63% had tenants in arrears on their rent. Of this group of landlords, 85% had contacted the Department for Work and Pensions to have a tenants’ housing element of universal credit paid directly to them after eight weeks of arrears, as is their entitlement. More than 57% of this group said that it had taken the department more than five weeks to respond to the request, with all the consequent difficulties this caused the landlords in not getting paid.

I understand that the problem is even worse when one looks at social housing. A survey carried out by the National Federation of ALMOs and ARCH—the Association of Retained Council Housing—found that nearly 90% of council house tenants in receipt of universal credit are in arrears. I had to look that up again: I could not believe it, but apparently it is so.

[Baroness Hollis of Heigham]

I declare an interest as a former chair of both a local housing committee and a housing association. Given that universal credit is paid at the end of the month and this might not be coterminous with housing associations or social housing, what does the noble Lord regard as an arrears? Is he talking about more than eight weeks’ failure to pay the rent, because five to six weeks might simply be the failure to co-ordinate payments, given the move, unfortunately, to monthly payments?

[Earl Cathcart]

I think that I caught the noble Baroness’s question. I do not think it is after eight weeks: I think it is in arrears—that is, they have not paid the monthly rent on time and they have not paid the next month’s rent on time, et cetera. I hope that that answers the noble Baroness’s question.

[Baroness Hollis of Heigham]

I meant that the arrears might simply be a technical cash-flow issue, and not a legitimate arrear, because if, for example, the rent is due before the payment of universal credit, there will be a period when there will be arrears. The noble Earl will understand my point, but the arrears that matter are the arrears that become irrecoverable, which usually, in my experience, means eight weeks.

--- Later in debate ---

If I may step gently into the research quoted by my noble friend, particularly regarding the figure of 90%, I was delighted at the rare sight of the noble Baroness, Lady Hollis, championing the Government on this.

[Baroness Hollis of Heigham]

Ha!

[Lord Freud]

All right, highly delighted.

[Baroness Hollis of Heigham]

Keep going.

[Lord Freud]

Half of those arrears were accrued in the first four-week period. We discovered in the direct payment project that there is genuinely an issue about moving people over in the first three months, and we are spending an enormous amount of energy and effort on pinpointing that. Indeed, we are doing a lot of work now with social landlords to get the problem under control.

I should point out that this proposition would be of greatest value to private landlords, as the social sector is much less volatile. It is not unrealistic to suppose that commercial landlords, like any other small business people, should make a certain amount of provision for bad debt. Rent payments can be made direct to landlords once arrears reach the equivalent of two months, which limits the degree of their exposure.

Amendment 104BB would allow universal credit claimants to request that the Secretary of State pay their housing costs element to their landlord. The Secretary of State already has powers to pay all or some of a claimant’s universal credit entitlement to a third party where it would be in the claimant’s or their family’s interests. In practice, these powers are used to protect vulnerable claimants or claimants in rent arrears by paying the universal credit housing costs element direct to the landlord. However, as I have already said, the default position is for universal credit to be paid as a single monthly sum direct to the claimant; that is designed to mirror what would happen if the claimant was in full-time employment, when they would be responsible for managing their own funds and paying their own rent. The direct payment project showed that after 18 months the rent payment rate was 99%, which was comparable to now. Where there are problems, the department can manage payments and look to use the arrears option.

The amendment would also go further than the current arrangements for housing benefit, whereby the majority of private sector tenants are paid their housing benefit direct. To allow claimants to opt out of managing their own budgets while receiving universal credit would be a step backwards for them and a step away from claimants being job-ready.

I will need to answer the questions from the noble Baroness, Lady Sherlock, in writing, so I will cover those later.

Finally, my noble friend asked a question about Scotland. The Scotland Bill grants powers to Ministers to decide how to make payments but this is not a straightforward thing to do, because universal credit covers people who are in work and out of work and presumably you would not want to make payments to in-work people because perhaps the payments do not cover their rental elements. Therefore, it is a much more complicated issue than people realise when they do not understand completely how universal credit works.

The Government believe that work is the best route out of poverty and that universal credit should help, not hinder, claimants on their journey into employment so that they do not fluctuate in and out of work or go up and down the taper. Paying universal credit as a single monthly payment will ensure that claimants are best prepared for the transition to work and for staying in work. I hope that, on the basis of the explanations and reasons I have provided, my noble friend will withdraw his amendment.

[Baroness Hollis of Heigham]

My Lords, can the Minister help us? It would be very useful to have this information before we come to Report. The evaluation of the bedroom tax—obviously the Minister will be familiar with it— has just come out in the last three days or so. It shows that over 55% of tenants affected by the bedroom tax were in arrears in autumn 2014, although of course many of them had already been in arrears. Does the Minister have any figures to try to separate out the effect of the bedroom tax on the arrears issue from the move to universal credit and its payment methods? What information does the department have, and is it collecting any? It will be quite hard now, because problems in paying your rent are beginning to layer on top of each other. We will need to disentangle these, if not for this Bill then for the Bill to come.

[Lord Freud]

I will not resist the temptation of pointing out that there is no such thing as a bedroom tax; it is the removal of the spare room subsidy, and I will be answering a Question on that tomorrow. Interestingly, the direct payments project provided a lot of insight into this issue. It started off with direct payments and then people started taking on the removal of the spare room subsidy as well. I will try to find the precise figures for the noble Baroness, as I am speaking slightly from memory. We found that the people who had learned how to go through the direct payment process were able to handle the removal of the spare room subsidy more efficiently than others. I will aim to get the noble Baroness chapter and verse on that.