Housing Benefit (Amendment) Regulations 2010

Debate between Lord German and Lord Best

Monday 24th January 2011 Lords Chamber

[Lord Best]

My Lords, I shall speak to all three of these Motions, but in particular, to the third one standing in my name. I share the concerns of the noble Lord, Lord Knight of Weymouth, that the changes introduced by the regulations and the order are likely to have very serious consequences. The Government expect the cumulative effect of the eight caps, reductions and restrictions on housing benefit and local housing allowances, of which two are the subject of regulations before us today, to achieve savings of over £2 billion each year by 2015. What is not certain is where the impact of these changes will fall, as the noble Lord, Lord Knight, indicated.

The charities working in this field have produced excellent briefings for us. Those have come from Shelter, Crisis, Citizens Advice, Homeless Link, Barnardos, Family Action, along with the Chartered Institute of Housing and the National Housing Federation, with support from the Local Government Association and some impressive work once again from the Greater London Authority. These bodies all note the likelihood of several thousand tenants facing homelessness. Apart from this wrecking the life chances of the families concerned, the charities point out that the extra costs of homelessness could more than outweigh the housing benefit savings. Homeless Link notes that, on conservative estimates, if even one quarter of those identified as at severe risk were to become homeless, then all the gains from the housing benefit cuts would be lost.

The charities also point out, as has the noble Lord, Lord Knight, that a greater number—over 900,000—of tenants who stay put when their benefits are cut could be forced to find the balance from their very low incomes: state pensions; incapacity benefits; jobseeker’s allowance; or, for a fifth or so of these tenants who are in low-paid work, from their very modest earnings. I do not believe it is the intention of Ministers to increase the number of homeless households, which would, in any case, be self-defeating and counterproductive, nor do I believe that the Government intend to impoverish nearly 1 million very poor households with the equivalent of a cut in their pensions and other benefits of an average of £12 a week for each household. If that was the outcome, set against the coalition Government’s commitment that the effects of reducing the deficit should not fall disproportionately on those least able to take the strain, then the housing benefit changes would have to be deemed a terrible failure.

Rather, it is hoped that, away from the very high-value areas that claimants will have to leave, landlords will reduce rents to accommodate all or most of the fall in housing benefit/LHA payments. If so, to a large extent it will be landlords not tenants who take the hit. This would certainly be a desirable outcome where landlords are abusing the HB arrangements. The analysis by the Department for Work and Pensions suggests that 13 per cent of the rise in housing benefit is attributable to greedy landlords increasing rents to squeeze more out of the system. Thirteen per cent is not a huge proportion of the rise in costs, but nevertheless, it is worth addressing.

I think the new measures will indeed lead to some landlords reducing their rents. In some parts of the UK, particularly where unemployment has been very high and may go higher, a very high proportion of tenants are in receipt of housing benefit. If landlords are not to risk serious arrears, they will have to adjust to lower rents. In some places, current market conditions mean that the alternative of selling the rented property into owner-occupation will not be an option. Landlords may be resentful, they may even lose money—I fear they will not be investing and improving their properties—but, like it or not, they will have to go with the lower rents if that is all the tenants can pay.

Just how widespread will this be? In how many cases will it be the landlord not the tenant who absorbs the cost of the cuts? Talking to private landlords from different areas, I think there are opportunities for rent reductions where the local housing allowance is paid direct to landlords—as is facilitated by these regulations, avoiding the danger of arrears, which can lead to evictions that are costly for landlords as well as traumatic for tenants—and where the required reduction is relatively small, say 5 per cent of the rent. In such cases, good will toward good tenants, combined with the hassle and costs of replacing tenants, will incline many landlords to make modest rental concessions, particularly in not raising rents as soon as the opportunity arises, but there are definitely finite limits on the extent of this restraint. Even a 5 per cent rent reduction will be a problem for a lot of landlords. Five per cent of rent might exceed the margin, the profit from letting, after taking account of mortgage repayments, management and maintenance costs, an allowance for vacancies and so on. Some buy-to-let landlords with relatively high debts on their property could be in difficulty if they were to cuts rents by 5 per cent. Moreover, the figures in the DWP's impact assessment indicate that a 5 per cent rent reduction would not be enough to close the gap, to remove the new shortfall between benefit and rent, in the great majority of cases. It would appear to cover less than 90,000 cases out of a total of well over 900,000.

There is another reason to fear that landlords will not implement the hoped-for rent reductions. Since demand outstrips supply in so many areas, landlords can simply opt to reject those on benefit. Already a high proportion of landlords and their agents will not accept those on HB. These tenants cannot put down a deposit or pay rent in advance. Local authorities, unhappily, often take some time to process HB applications and early arrears can mount. Rent is paid on a four-weekly basis while landlords expect it on a calendar monthly basis and, however unfounded, there are fears by landlords and their agents that those on HB will be troublesome tenants. The compensation has been that LHA can pay up to the level of the middle rent for the area, the 50 per cent marker, but now that the maximum is to be reset at 30 per cent, this advantage is lost. Where they can, it seems likely that more landlords and managing/letting agents will avoid letting to those in receipt of HB. I am told by the staff in local authorities who seek to secure privately rented accommodation for vulnerable households in their area that previously helpful landlords are already pulling back, even where the council guarantees the rent and gives back-up support for tenants.

The underlying problem is, of course, the overall acute shortages of available homes. With more demand than supply, experts, such as Professor Michael Ball at Reading University, predict rent rises, not rent reductions. Until mortgages are plentiful again without requirements for large deposits, the private rented sector will have a ready market of young people who cannot buy. If landlords stop letting to those on benefit, properties will be available to absorb some of this growing demand, but that would, in the absence of sufficient housing, exacerbate the problems for those reliant on benefit.

It is very far from certain that many landlords will reduce rents, and it is possible that more landlords will withdraw from letting to those in receipt of these lower benefits. Since we now rely on the private rented sector to house nearly a million poorer households, this would be very bad news, but, as the Merits Committee notes, the DWP's impact assessments states that,

“it is impossible to quantify the indirect impact of the measures with any degree of certainty as it is not possible to predict the behavioural effects on tenants or landlords.”

It is for this reason that I have brought forward the resolution in my name that is before your Lordships today.

The resolution proposes a wholly independent, rigorous review reporting to both Houses of Parliament on the impact of the HB changes: on children; on homelessness; on whether mitigating measures, including the modest sums available in discretionary housing payments, are making a difference; on whether local authorities are being put under intolerable pressure, not least in handling the extra social and welfare costs if there is an influx of low-income households into their area; and so on. Thankfully, existing tenants are being given an extra nine months before facing these HB changes, with none affected before December 2012, so a first review one year from now can cover only new lettings, not the existing stock. The feared mass migration out of central London will not have begun in earnest before 2013 but I suspect it will become apparent quite early if landlords are not reletting vacant properties to those on the new benefit levels, in which case the review would enable Government to take corrective action. We know from the concessions made in response to the highly critical Social Security Advisory Committee’s report that swift action can be taken if required.

Last week I met the Minister and I believe he shares some of my concerns. I am hopeful he will be willing to make a significant statement today in response to the proposition in my resolution. An independent report next year could provide the basis for the Government to make “in-flight” corrections to amend or suspend some of these regulations and to prevent the dramatic changes to the HB system, leading to a potential national tragedy for so many low-income households.

[Lord German]

My Lords, I thank the noble Lord, Lord Knight, for his agreement that he is not going to pursue the annulment and also for his support of the noble Lord, Lord Best. The Motion will meet the problem we are all facing—what might happen in the future. In some ways, it is like trying to judge between those who know the next winner of the Grand National and those who believe that it is an art form to study the form and decide which direction to take. Essentially, this whole issue rises or falls on an assessment of how the market will behave.

I want to consider the agreement between the former Labour Government and what the Government are trying to do today. The noble Lord, Lord Knight, said that we should go ahead with the £15 that was made available to people who could negotiate a smaller rent and we should take that away. That was a proposal that he quite rightly made while in government. There is a general agreement that the costs of local housing allowance and housing benefit must be reduced and contained. There is a question which we are all struggling with about the speed with which we do it. There probably will be a consensus in the overall ambition but a difference in the speed by which we achieve that.

There is an agreement that the current expenditure trends, as shown in the impact assessment by the DWP, are unacceptable and unsustainable. Continuing as we are from the evidence that we are given, private sector rents will be driven up, the gap between housing benefit paid in social housing and in the private housing sectors will be extended, and the difference between average earnings and private sector subsidised rents will be widened. That is unacceptable. We know from the figures that the average impact of these measures on households in the private sector will be £12 a week, but of course there are great disparities in that. The figure is £12 a week across the whole of Great Britain but if you look at the difference between Blackpool and London, you get a huge variation. That was a figure which the previous Labour Government alighted on as one of the reductions they would make, but for a much smaller group of people than that which is proposed now. So it sounds remarkably like we are moving in a direction in which people want to travel but not necessarily at the speed at which everybody wants to go.

There has been the critical Social Security Advisory Committee report and its priority is the impact of the regulations. That is its job, not dealing with deficit reduction. Nevertheless, the report quite rightly said, “Do not implement this, but if you are choosing to implement it, here is a range of things you should do to make these changes work”. I am pleased that the Government have accepted the majority of these, in particular the delaying and phasing for current recipients of housing benefit.

There is a quite distinct issue relating to London in this variation. One in four of housing benefit households in London is affected by these measures and the primary impact in London is that the average figure across London for the change in rent to be paid by these allowances is £22. However, 17,000 of the 21,000 losers as a result of a cap on the rent are located in London, so there is a London issue which is almost unique within Great Britain. I read in the other place the evidence given in the form of the committee report and the committee discussion and there was a sense that people were seeing the whole of Great Britain through the prism of London. That is a dangerous process and we may have to look at London separately because in the rest of Great Britain the average impact of these changes on rents is £9.84 a week. In a period when landlords have low interest rates on mortgages, this may be the right time for them to absorb this change.

I will return to the London problem later. First, I would like to look more closely at the impact this figure of £9.84 will have on household rentals around the rest of Great Britain. Essentially, the difference of view which I hear on this issue is around this central question. The noble Lord, Lord Best, said it just now. Will landlords reduce their rents to meet the new levels set by Government? This is fundamentally an issue about the operation of the private rented sector market.

The Government essentially influence about 40 per cent of rents in Great Britain. In terms of pure economics, the state must surely have a prime influence on the level of general rents because it pays the rents of 40 per cent of the properties. It is not quite a monopolistic situation, but the Government are a major purchaser of tenancies in the country.

How has this market operated until now? On the one hand, it seems that tenants have found properties for rents at levels which they know the Government will pay; on the other hand, landlords have set their rents at the level which the Government will pay. There is no incentive on either side to adjust or to deal with this matter. In straightforward terms, it is a market in which the principal and largest purchaser has not really had much influence over the price paid.

Will the changes make a difference? I sincerely hope so, but we are talking of market behaviour. It cannot be an exact science. That is why it is essential that the spirit of the Motion of the noble Lord, Lord Best, is followed and a full evaluation and measurement of the impact are carried out just as soon as the first complete annual cycle of the new regime has ended. We need to know whether the desired changes which it is assumed will be brought about as a result of the measures have taken place.

The market is more likely to work in the direction that the Government want if the state enters the market as a negotiator. Currently, there is no incentive for the state to get the best rental price. We are talking about an incentive that is, first, a copper-bottomed guarantee of rental income, which the Government can provide—the Government are backing the money being provided—and, secondly, a direct payment to the landlord if they accommodate the changes. That is an important concession which the Government have made as a result of the report by the Social Security Advisory Committee.

I welcome the additional funding for housing benefit specialists to intervene in negotiations with landlords, but I have to ask the Minister two questions. First, do those people have the right skills to enter a negotiation market where previously they dealt with a different set of criteria and a different environment? Secondly, is the funding which they are making available to enable the negotiation to take place sufficient?

The big question for London is: is there a ready supply of non-housing benefit tenants ready to fill the properties if landlords are not prepared to reduce their rents? That is why I suppose that such a huge portion of the new funding for discretionary housing benefit and assistance is going to London. Will the Minister confirm that the Government will ensure that the most vulnerable are protected and recognise the distinct market pressures which make London so different?

I accept, of course, that there is mobility of tenancies in London. As a relatively new Member here who has had to seek to rent a property in London during the week, I have found that tenancies move very quickly—you will not expect to take a long time looking over a property as you might normally do in other parts of the country. A quarter of a million moves take place each year in inner London alone, which demonstrates to me that people seem to want to move rapidly. Having moved several times in my life, I must say that it has been the most horrendous part of my life that I can remember; I would prefer not to move at all because it is such an unpleasant exercise. I suppose that there is a different quality to life in London which means that people like to move around more rapidly.

However we judge this matter, we have to recognise that the reason for pressure on the funding of private sector rents is a shortage of social housing in this country. I hope that the Government’s ambitions for the net number of new properties in the social sector will be achieved, but much more can be done in this field by way of other arrangements with private funding. Much more imaginative use of private funding can be made to create more units of social sector housing. We need to dwell on that matter because this is an equation. If we want to make sure that the balance of the equation is right, we need more social housing in our country. We must remember above all else that people need and deserve a proper roof over their heads. In all the initiatives that we take to keep public expenditure under control, we must not lose sight of this fundamental aspect of a decent society.