Welfare Benefits Up-rating Bill

Lord Bates Excerpts

Monday 25th February 2013 Lords Chamber

I am sure that we should take note when landlord groups and tenants’ groups are unanimous, and I look forward to hearing from the Minister on whether her department, not just to save tenants but to prevent further diminution in supply of accommodation, with its costly consequences, will be able to respond positively to my amendment.

[Lord Bates]

My Lords, I wish to comment on the amendment, in which I find a lot to support, particularly the idea of a review. Before I do so, I owe the noble Lord, Lord McKenzie, an apology because in my earlier intervention I made a point about higher-rate tax and said that it had decreased, when of course it had increased. I apologise for impugning his tax-raising credentials. It was a low blow that was not intended. I take this opportunity to correct the record and hope that he might accept my apology.

This is an interesting amendment to consider because we are dealing with a significant crisis. There is no doubt that housing benefit itself needs to be focused on: how it has increased from roughly £11 billion, circa 1997, to a predicted £25 billion in 2015. Clearly, no one could sit in the Treasury, not have a view on that trend and not say that it needs to be looked at carefully.

My second point is that private rents have been increasing at an alarming rate when compared with the rest of the housing market. One needs to consider the increases, which, according to the National Housing Federation, have been something like 35% over the past three years. Over that same period, we have seen an 86% increase in the number of those claiming housing benefit, from 485,000 to 905,000. This is happening at a time when, outside certain sections of the London property market, house prices are actually falling. This is happening when interest rates are at historically low levels, and mortgage rates are at levels whereby 1.99%, two-year fixed rates are being offered. There are very low mortgage rates while house prices are falling, yet at the same time private rents are increasing by not only the rate of inflation but in many cases by twice the rate of inflation. It does not take a great economist—and I note that there are some in the Chamber—to work out that there might be some correlation between housing benefit and a potential inflationary effect on the private sector. I therefore understand that that is one of the issues that my noble friends would look at with some care.

I also note that one of the solutions to the problem is to ensure that there is a greater housing supply through housebuilding. This is an area on which I would pitch to my honourable friend in his pre-Budget purdah and ask him to reflect on how additional funds could be made available. I do not say that the Government have done nothing in that regard. They have put up £10 billion in guaranteed loans to try to stimulate the market, and they have introduced shared ownership schemes through FirstBuy and NewBuy to try and increase house purchase. That is an important element. We do not want, as a society and for the health of our society, to divert people into a life in private rented housing. We want to encourage people to have an ownership stake in society and to own their own home. For them to do that, there need to be enough homes coming on to the market.

There is a competition because, as people are coming on to the market and wanting to own their own home, investors who are experiencing low rates of return in other asset classes are finding, according to Rightmove, that there is a yield of 5.8% on private rented properties—the figure is 6.5% in London—which represents extraordinarily good value in the present market. Capital is therefore flowing into the buy-to-let market, rather than the build-to-buy market. There needs to be some step back from this approach and one needs to ask what is actually happening and how it all connects with changes in benefits.

We are, I assume, taking an approach whereby we believe that capping the local housing allowance and housing benefit will lead to a slowing down of the increases in rents. The noble Baroness is shaking her head, but that is the assumption. We have certainly seen how rents have increased when housing benefit and local housing allowance have increased. Perhaps we should test this out, but that is difficult because we are talking about affecting lots of very vulnerable people. However, there is a case to be looked at. Some annual or periodic review of how this is working and impacting on the housing market would be welcome, and I encourage that part of the amendment. I am delighted to note that my noble friend Lord Freud had been supportive of the idea, and I very much hope that my colleagues on the Front Bench will also be supportive.

Finally, perhaps I may take this opportunity to raise one further question about the way in which benefits are to be paid to the tenant rather than to the landlord. I know that various demonstration projects are undergoing trial in Edinburgh, Oxford, Shropshire, Southwark and Wakefield involving direct payment, and that they have some time to run, but I should be grateful if my noble friend in her response can provide some assessment of how they are going. There are some concerns that paying benefits directly to tenants, particularly when that may represent the largest component of their income, might put them in an invidious position, and some people might get into greater debt as a result. I know that such schemes are being trialled and I should be grateful for some comment from my noble friend on the Front Bench in her winding-up speech.

[Lord McKenzie of Luton]

My Lords, this has been a good but short debate, as any debate around amendments of my noble friend Lady Hollis and the noble Lord, Lord Best, on housing would be. You cannot do better than that in your Lordships’ House. I am grateful to the noble Lord, Lord Bates, for his earlier comments. I thought that he had got it the wrong way round but was not quite sure whether I had misheard. I think that my problem is that I am not confident to challenge him; however, I am grateful for his clarification.

My noble friend and the noble Lord, Lord Best, are on the same page on this matter and we are happy to support the amendment, which calls for a review of housing welfare benefit, especially regarding the affordability of private sector housing. My noble friend and the noble Lord made a particularly powerful case in their analysis of the consequences of a growing divergence between levels of private sector rents and levels of support. We know and recognise why there is a growing divergence—the 30th percentile, the individual cap, CPI uprating, and now the proposed 1% cap. It will be made worse by direct payments when universal credit comes in. There are certainly causes of the pressure on rents, with growing numbers of households and insufficient new builds, but no evidence—indeed, quite the reverse—that the restrictions on housing support are driving rents in the opposite direction. It remains to be seen, as the noble Lord, Lord Bates, suggested, whether there will be any slowing down with the further ratcheting down of housing support.