Welfare Reform and Work Bill

Baroness Blackstone Excerpts

Tuesday 12th January 2016 Lords Chamber

[Baroness Blackstone (Lab)]

My Lords, in speaking briefly to these amendments I declare an interest as the chair of the board of the Orbit housing association group. I want to pick up on something that the noble Lord, Lord Horam, said. Everybody involved in the world of housing associations is acutely aware of the need to be efficient and get good value for money. I certainly am and I am sure that the noble Lord, Lord Kerslake, and others in the House who are involved in them are. A four or five-year reduction in rent is just not the best way of securing such efficiencies. It really is taking a sledgehammer at something and, as the noble Lord, Lord Kerslake, said, the right way to do this is through good internal management and effective and good external regulation.

The intervention in the housing market to legislate for rent reductions in housing associations and local authority properties is not the kind of intervention that you would normally associate with a Conservative Government. I was brought up to believe that Conservatives and the Governments who represented them believed passionately in the working of the market. Moreover, the kind of direction from the centre that this would entail sits very awkwardly with the Government’s claim that they are in favour of greater devolution to the regions and to local government. It is the reverse of that. It is also entirely inconsistent with their avowed aim to increase housebuilding. As the noble Lord, Lord Scriven, has already indicated, we are not going to alleviate the crisis in the supply of housing, especially for first-time buyers and those in desperate need of social housing for rent, with this sort of approach.

On the one hand, the Government want to reduce rents to cut the amount being shelled out on housing benefit; on the other, they want more houses to be built by housing associations and, I believe, by local authorities. If they want the second of those objectives to be achieved, they really should not introduce policies which greatly undermine that goal. We have already heard that it is estimated that the 1% rent reduction over the next four years will lead to a loss of £3.85 billion in rental income for housing associations. The noble Lord, Lord Scriven, has already cited examples of chief executives in the sector saying that in these circumstances they cannot go on with their housebuilding programmes, which ought to be focused on social housing. Put another way, as the noble Lord, Lord Kerslake, said, it will result in a 12% reduction in average rents by 2021, compared to today’s forecasts. Perhaps the Minister could be really honest with us and tell us what effect she thinks this will have on housing association housebuilding. Please do tell us that clearly.

The cost to local authorities is estimated to be £2.6 billion by 2019. This amounts to what it would cost to build 19,000 new homes over the four-year period. Unless local authorities and housing associations are able to make a substantial contribution to the Government’s extremely ambitious targets for new houses between now and the next election, which I and many other Members of this House of course welcome, those targets are highly unlikely to be reached. Again, I would like to hear the Government’s view on the effect of this legislation on their housing targets. They are trying to do one thing with one hand, as the noble Lord, Lord Scriven, said, and something quite different with another—and the two do not come together very well.

I do not want to repeat what other speakers have said on these amendments. But I strongly support what all speakers, particularly the noble Lords, Lord Kerslake and Lord Best, and my noble friend Lord Beecham, have said about particular kinds of housing associations having great problems with what is proposed here. For those reasons, I strongly support the amendments in this group, all of which seem to me to propose wholly reasonable adjustments, which the Government ought to be able to make without too much difficulty. I hope to hear a positive response from the Minister when she replies.

[Lord Triesman (Lab)]

My Lords, I also declare an interest, which is on the register, as a director of a housing association. I share the point that the noble Lord, Lord Scriven, made very eloquently: if you had to categorise the most gripping social problems that we face, among them would be the problems of people either not having any kind of decent housing or being shifted routinely from one low-cost house to another, and all the things that we know are correlated with that, such as worse health, worse educational prospects for the children and less likelihood of families staying together and of intergenerational relationships being sustained. It is a critical problem.

The noble Lord, Lord Horam, tried to say how we can balance the competing issues around this. I make the point to him that it is critical—it has become ever more critical—to understand what the sources of finance are likely to be for building new, affordable and social homes. Not all housing associations are the same. There are some very big ones which have been capable of launching own-name bonds and have done reasonably well in attracting new capital into their building programmes. There is a very much bigger group in the middle—perhaps the overwhelming majority of which would, I am quite sure, be categorised as efficient and among which there has certainly never been a default—which cannot launch an own-name bond as it is not financially within the scope of what they are capable of doing. Then there are very many smaller ones which come under the sorts of pressures that the noble Lord, Lord Best, and others have described.

The middle group is by far and away the biggest of the groups and the one which is most challenged in finding sources of relatively inexpensive capital to build new buildings. We all know that the shortage of such buildings is enormous and the task for those housing associations is therefore profound. The empirical evidence is very clear that most of them have run out of any real capability to raise additional funds from the banking sector, not least because the banks have gone through a period of considerable turmoil in their lending and the amount of risk that they are prepared to take, because they are subject to Basel III and other ratio-controlling mechanisms when it comes to what they will or will not lend. I know that housing associations in that middle group which go back to their bank often find that the bank, rather than wanting to talk about new investment, wants to renegotiate the terms of the debt relating to past investment. It is a fundamental disincentive.

One thing that has interested me most of all in the last couple of years of close involvement with a housing association is where the money for new building will come from. It frequently comes from what, rather like my noble friend Lady Blackstone, I had always thought was within the domain of Conservative policy up to the hilt. They look for areas of potential private investment, but the private investment in this sphere and segment is very particular. It has to be long term, because none of these are short-term projects, and it will inevitably be at very low rates of return. In short, it is a classic annuity investment. Classic annuity investments appeal to particular kinds of investors. We have found, for example, that the people who understand the need in this country most readily and are prepared to make investments of this kind are the Scandinavian pension schemes. It has been those people who think in the very long term and about low rates of return, because their aim is to provide a sustainable, long-term but pretty marginal annuity income. That is one of the most limited spheres for raising money for new buildings that you can think of, but it is now becoming increasingly vital. Unless they can plan over a period of time what the return will be, what I have described as a very small return becomes no return and they cease to invest. Of course the CEOs and others in housing associations then say they are not going to build, because the last door has been closed.

I hope noble Lords opposite will forgive me for taking such a directly capitalist approach, but I do. I am an entrepreneur. I look at these things and try to work out how it is you can potentially fund things that are socially vital. I ask the Government to think again—perhaps by saying the four years is four years and there is no excuse for going beyond it—about whether they really want to build these homes and whether they will produce the conditions in private market circumstances which will overcome the barriers. There is a very straightforward yes or no answer to that. If the Government want to overcome them, they should not impose something which makes it impossible for investors to fill the gaps that the banks have now left.

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[Baroness Manzoor]

I add my support for the amendment. I do not have much to add to what has already been said by the noble Lord, Lord McKenzie, and the noble Earl, Lord Listowel, except to say that it is a very simple amendment but a very important one. It simply says:

“The Secretary of State must, within 12 months of this section coming into force, produce a plan to offset the impact of lower social rents on housing associations and local government”.

To my mind, that seems very practical, very reasonable and very fair. Surely the Government and the Minister would want to understand the impact of their policy and to have an option B. If they have an understanding of the potential impact of the reduction in social rents, the Government and others can mitigate it and put in place proposals to amend the measure. Therefore, from the perspective of these Benches, the amendment seems absolutely reasonable and sensible. If the Minister did not accept it, we would not understand why, for all the reasons that have been articulated and which I shall not repeat.

When we come to Amendments 107 and 109 we will be looking at issues around homelessness and, in particular, at the impact on the generation of young people who will not get housing benefit. A policy of having an impact assessment will clearly go a long way towards at least gaining an understanding of the people who will be affected by the reduction in social rents, and I therefore wholeheartedly support the amendment.

[Baroness Blackstone]

My Lords, I did not get up again and ask the Minister for a reply to the question that I put at the end of the last group of amendments about the impact of the reductions in rent on the number of houses being built and on the Government’s targets, but I shall do so now as it is extremely relevant to my noble friend’s amendment.

When Governments introduce a policy of this sort—a rather unusual policy in some respects—it is right to then try to evaluate the impact and to monitor a change of this sort. It is simply a matter of good government. Therefore, I hope that, even if the Minister does not want to accept the precise wording of my noble friend’s amendment, she will at least come back to us and say, “Yes, of course, this should be evaluated and monitored. We will do it”. Above all, I would like an answer to my question about the Government’s current position on the effects of the reduction in rent on the longer-term targets that they want to achieve for housebuilding by 2020.

[Lord Horam]

My Lords, the noble Baroness, Lady Blackstone, may be amazed to know that I rather agree with her that all government policy should be carefully monitored to see its economic and social effect. However, while I well understand the purpose of the amendment—I appreciate that it is well meant—12 months is frankly far too short a period in which to see what the effect of this quite dramatic change in policy will be. It would be much more sensible to wait for a period of two to three years before you could sensibly look at the exact effect, either social or economic, of these policies. I see that the noble Baroness is nodding. I do not think that this proposal will work because 12 months is simply too soon. It is no time at all in which to look at the way in which the measures unfold.

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[Baroness Williams of Trafford]

But they have revenue and capital reserves. I do understand local authority obligations on reserves.

The noble Baroness, Lady Blackstone, talked about the impact on tenants. The Government published an impact assessment, which included the impact on protected groups. A third of social renters actually pay less. However, I will write to the noble Baroness more fully on impact because I realise that I did not answer her question on the last group of amendments.

[Baroness Blackstone]

I am not sure that the Minister has understood my question. It was about the impact of a reduction in rent on the Government’s housebuilding targets. What is her view on that? The Government ought to have some idea now; although it also ought, along the lines of my noble friend Lord McKenzie’s amendment, to be monitoring this, perhaps not just over 12 months but over a longer period, to get some sort of understanding of what the impact is. No Government should come up with a proposal of this sort when they have committed to an increase in the number of houses being built without some understanding of what its impact will be.

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[The Lord Bishop of Rochester]

My Lords, when I added my name to the amendment in the name of the noble Lord, Lord Best, I did so in the naive belief that we might be pushing at an open door. I still maintain that belief because I hope that the Minister will reassure us on some of these matters. I, too, cannot believe it was intentional that we would be threatening to undermine the housing provision for some of the most vulnerable people in our society. The two noble Lords who have just spoken have made many of the points which I would have made, and others have been made earlier this evening.

I underline our commitment as a society to these very vulnerable groups, which includes the frail elderly and the other groups who have already been mentioned. In many ways, we have a moral responsibility as a society to provide for these people. In addition, there is a much more self-interested argument. The investment we make in this kind of housing, as has already been hinted at by one or two other contributors to our debate, prevents other costs which are far harder to control and which would roll out in the future if this kind of provision was placed in jeopardy.

Mention has been made of housing providers having surpluses and so forth. But in this particular part of the supported-housing world, very often we are dependent on small providers—charitable providers—which do not have that kind of background or those resources on which to call. I have grave concerns about some of the small charitable providers that are part of this bit of the sector and whose financial viability could be called into question and made very difficult. These organisations work with people with very complex and high support needs where margins are already very tight.

As has already been indicated, this policy change would come in at the same time as the LHA changes. Montgomery Court in my town of Rochester provides an extra care scheme for frail elderly people. We estimate that with the LHA cap, it would lose £65 a week per unit. These kinds of schemes are often very dependent on high staffing levels in relation to the support provided. It is precisely the sector where very good policies around minimum wage and living wage are likely to increase costs for providers in a way that might not be the case in other sectors. We find these providers potentially being hit from a number of different sides at the same time. At the very least, we need clear estimates of the impact, not just of one policy but of a range of policies which could come to bear on these organisations within a short space of time.

Mention has been made also about undermining the confidence of providers in investing in new provision. Again referring to extra care places for frail elderly people, in Kent where I live we have fewer than 500 such places. The estimate is that we need 10 times that amount by the end of this decade. That is a significant increase and those specialist providers will need to have serious confidence if they are to make that kind of investment.

As has already been indicated, these two amendments draw upon a definition which has already been established. It seems to me that there is a logic and consistency in building on that. At the end of the day, although we have been talking about the viability of organisations, this is about the provision for people and for some of the most vulnerable people in our society. Therefore, I, with others, hope to hear encouraging words from the Minister in her response.

[Baroness Blackstone]

My Lords, I rise briefly to support what has been said very eloquently by all those who put their names to this amendment. I just want to underline one thing. Supported housing of this sort is absolutely central to keeping a wide variety of very vulnerable people out of much more expensive institutional care, whether it be hospitals, residential homes for the frail elderly or criminal justice institutions. It is a really good example of the need for joined-up policy thinking in this particular social area. I hope that the Minister will accept that this is of enormous importance from the point of view of cost and good social policies, but also of the humane cost of the possible abandonment of these people because the housing association special institutions are no longer able to operate.

[Lord Shipley]

My Lords, I hope that the Minister understands the seriousness of this matter. I do not want to repeat what other speakers have said. Suffice it to say that there used to be three sources of funding for supported housing: the Supporting People programme, specific grants, and the income from rent and service charges eligible for housing benefit. Given the deep budget reductions to the first two, it has left income from rent as critical to the financial viability of schemes. That is an important issue to be made clear, because if rents go down, the income inevitably goes down and cannot be replaced from other sources. As we have heard, that 1% annual rent reduction policy will have two consequences for supported housing: a reduction in new building and lower staffing support for schemes, and, indeed, the potential collapse of schemes, given that the management and maintenance costs of supported housing can often be a third higher than the general housing stock.

When I spoke on this matter at Second Reading, I said that there was a danger that if the preventive role of supported housing were reduced, it would push up costs in other parts of the public sector. As the noble Baroness, Lady Blackstone, has pointed out, there is evidence that the rest of the public sector has to pay out more if supported housing is not there to help people. A few years ago, the Homes and Communities Agency reported that there was a substantial net saving for the public sector from investing in specialist housing.

A further consideration is the evidence of the National Housing Federation, which has identified a shortfall of more than 15,000 units in the number of supported housing lettings available each year to people of working age. Furthermore, there is some evidence that the recent rise in rough sleeping is related to the lack of supported housing lettings. So the conclusion is pretty clear. I understand that the cost to the Government in agreeing Amendments 107 and 109 is around £75 million per year—I would be grateful if the Minister could confirm that number. If it is, then surely it is at a level low enough for the Government to accept the cost, because the advantages to the public service outweigh the cost of the £75 million loss.