Prevention of Social Housing Fraud Bill

Lord McKenzie of Luton Excerpts

Friday 30th November 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I congratulate the noble Baroness, Lady Eaton, on taking on responsibility for this Private Member’s Bill and for the comprehensive manner in which she introduced it. It is understood that the Bill has the continuing support of the Government and it should also be clear from its consideration in another place that it has our support also. I was pleased to hear from the noble Lord, Lord Greaves, that it has his support. He took us down memory lane to the years when a rent collector would go round the estates on a weekly basis. The housing committee in the authority on which I served did not have every member of the council on it. It was seen as a committee for senior members and it was about 10 years before they would let me near it.

There are various forms of tenancy fraud but this Bill concentrates on the unlawful subletting of social rented housing. The scale of this tenancy fraud is difficult to measure but, as we have heard, the Audit Commission’s updated figures now show that social landlords have lost control of some 98,000 properties. The original estimated cost to the Exchequer of £900 million will obviously have grown since. We know that it is a particular problem in London because high private sector rent levels provide an opportunity to make significant profits. However, it is a problem which is by no means limited to London.

There are, of course, current civil remedies available to landlords through repossession action and recovery of unlawful profit. Some councils have sought to use the Fraud Act, although there remains some doubt about its general applicability in cases of tenancy fraud. There was a major national crackdown in 2009 involving some 150 councils and specific additional funding has been committed by this Administration to tackle the problem. While increasing numbers of tenancy fraud have been identified and challenged, the crackdown has come nowhere near eradicating the fraud. More needs to be done and the measures in this Bill will make an important contribution to the effort.

As we have heard, the Bill includes the creation of new criminal offences of unlawful subletting by assured and secure tenants in social housing; the power for local authorities to prosecute; the ability for courts to order the recovery of any profit from unlawful subletting; and a restriction on assured tenants who sublet regaining their security of tenure.

We should remember that the primary victims of tenancy fraud are those individuals and families on the waiting list and in temporary, often substandard, accommodation who are denied the opportunity to access decent affordable housing. The public purse also suffers because the cost of supporting those denied will inevitably be greater than supporting them in affordable housing. However, increasingly, restrictions on housing benefit will mean that tenants denied access to affordable housing will have to pick up part of this tab themselves. With some 2 million estimated to be on a waiting list for social housing already and the collapse in new social housing starts, the leakage of even 50,000 properties—now estimated at 98,000—from the system should not be allowed to continue

These new criminal powers will undoubtedly assist in providing another route to landlords gaining possession but will, as importantly, also act as a deterrent. The two-tier approach for both secure and assured tenancies, with offences involving dishonesty carrying higher penalties, will reinforce this. We support the exclusions in Clauses 1 and 2, particularly those relating to domestic violence. We also support the provisions in the Bill for the court to make an unlawful profit order, the proceeds of which can flow to the landlord. The maximum payable under these provisions is the amount of rent receivable by the offender less any payments—rents and service charges—payable to the landlord. However, I have a question about how the tax system will fit into all of this.

The rental income receivable for the letting will be taxable, subject, of course, to deductions for rent paid to the landlord. Presumably it would be for the court to take account of this in evaluating any unlawful profit, but it is quite possible, of course, that somebody involved in unlawful subletting would not be rushing to file a self-assessment form. How is it intended that information relating to informal subletting will be shared with HMRC? Noble Lords will be aware of the provisions in the Welfare Reform Act which restrict housing benefit for tenants of social housing when they are deemed to underoccupy their home. We have made clear on numerous occasions, as indeed has this House, how much we deplore this pernicious legislation. However, my point in raising it this morning is not to revisit these arguments, which we will continue to pursue on other occasions, but to examine a related point, the one touched upon by the noble Lord, Lord Greaves.

The Government have suggested that one of the ways a tenant might mitigate the loss of benefit is to sublet a room or take in a lodger. Of course, there are strong reasons why such a course of action would be inappropriate for many families, but for those who might consider it we need to know that there is nothing in the Bill which would make it more difficult to do. It is understood that secure tenants, which includes most council tenants, have a statutory right to take in a lodger. Both secure and assured tenants will need their landlord’s permission to sublet. It seems clear that for secure tenancies, subletting would not create an offence if the written permission of the landlord is obtained, but the drafting in respect of assured tenancies is different and does not seem to allow an exemption even when the landlord gives written permission. Doubtless there is a good reason for this drafting, so perhaps the Minister will explain what it is.

The power to deal with tenancy fraud is one thing; what is as important is the ability to identify and detect cases. The government response to the consultation on social housing fraud indicates support for the creation of a mandatory gateway to require certain bodies to provide relevant information to facilitate detection and prosecution of tenancy fraud. We support this. That response indicates that work on this is being undertaken across government and that the Government will bring forward legislation when the right opportunity arises. Perhaps the Minister will indicate when this might be. Is it intended that this be done utilising the regulation-making powers in the Bill, or otherwise?

There has not been much focus at the other end, although it has been touched upon today by the noble Baroness, Lady Eaton, on the position of tenants to whom property is sublet fraudulently. Clearly, a consequence of the Bill will be that they have to give up possession, and presumably thereafter have to seek alternative accommodation, presumably in the private sector. However, in so far as they have a right to access social housing, can it be confirmed that no detriment will arise for them if they have not been complicit in the fraudulent subletting? Indeed, what if they have? Tenancy fraud is a serious issue and the Bill will help to tackle it, but we must not allow that effort to stigmatise the overwhelming majority of tenants who properly occupy social housing, who strive to pay their rent and be good neighbours.

In conclusion, this is a worthy Bill, we thank the noble Baroness, Lady Eaton, for taking it forward and we trust that it will have a speedy passage on to the statute book.