Welfare Reform and Work Bill (Third sitting)

Kate Green Excerpts

Tuesday 15th September 2015 Public Bill Committees

[The Chair]

Thank you very much indeed. We have until five minutes to 11 for this sitting. There will be plenty of questions, starting with Kate Green.

[Kate Green (Stretford and Urmston) (Lab)]

Q 130130 Good morning. Thank you very much for coming. My first question is probably for all of you. Would you give the Committee your views on the proposal in the Bill to require a yearly 1% reduction in social housing rents?

[The Chair]

Just before you answer, may I correct a mistake? We have until 10 o’clock, of course, not five to 11.

David Orr: I think the fundamental problem from our point of view is that rents are set, effectively, by the Government, and have been for a period of time. It is 16 or 17 years since Governments first started to be involved in rent setting in the housing association sector. The combined impact of Government intervention over that period of time has been to leave a suite of rents that make no sense at all. There is no consistency. In the evidence that we have provided I have called it a shambles, and I think that that is a fair description of it. You have neighbours living in identical homes, whose financial circumstances are broadly identical, paying vastly different rents. This is not of our making.

The specific proposal to cut rents by 1% per annum for four years, depending on the rate of inflation, means a difference to people’s legitimate business planning expectations of a reduction of around 13% or 14%, or £3.8 billion taken out of housing association business plans. This is because the rate settlement from May 2014 was 10 years at CPI plus 1%. It was a rent settlement agreed with Government and introduced by Government—not by us, but by Government.

As a result of that settlement, designed to give long-term certainty in business planning, a number of associations have organised long-term debt on an assumption of what would happen with rates. Large-scale voluntary transfer organisations entered into contracts to buy the stock, and contracts with the selling local authority, based on rental assumptions signed off by Government. The decision to reduce rents by 1% per annum breaks all of these commitments. Although inevitably sometimes Governments do things we like and sometimes they do things we dislike, we have always been able to rely on commitments made by Government. On this occasion, those commitments have been broken and are causing very considerable difficulty for some housing associations.

I have one further point. This is one of these occasions where a single measure imposed on everyone does not have the same impact on everyone, because of all of those rent changes and that rent thinking. I will give you one example. There is a housing association whose target rent is £86 a week. Their present rent is £48 a week, and this will take them back down to £46 a week. If your rent is already 25% above target rent, it means that you can do less, but it is a manageable proposition. For that housing association it is an existential crisis.

[Kate Green]

Q 131 Can I just pick up on one thing that Mr Orr said? You said that you had been living in a world where effectively rent has been set by Government, so is it wrong for the Chancellor to have suggested, therefore, that social rents have risen out of control?

David Orr: The extent to which social rents have risen is specifically and precisely because of a series of decisions made by Government. These decisions have been made in consultation and negotiation with the sector, unlike this present proposal, but these decisions are Government decisions, not decisions made by individual housing associations, which is why our evidence proposes that at the end of the four years Government should legislate to withdraw from rent setting altogether and relocate responsibility where it belongs—with the boards of housing associations.

Mike Donaldson: From our point of view, next year we will have £11 million less because of the decision to reduce rents by 1%. By year four that will be a £60 million gap, which we will have to plug to carry on with our plans to build homes. We based our business plans on the deal—it was described as a deal with Government, which was a 10-year deal—and of course, as David said, we have funding lines in place to build homes based upon that income. Now we are going to have to plug the gap, and we have to do that in short order because, obviously, we have building expectations; we have a plan to build 50,000 homes. As a result of this, that will be reduced by 18,000 homes, unless we can plug the gap. Our intention is to plug the gap. We want to get back to 50,000 homes, and the intention is to build as many social homes as possible.

Our concern is also that, although there is an expectation in the Bill that this is a four-year deal, there is no promise going forward. There is uncertainty about what the rent regime will be beyond 2020. For us, and for our funders, need a bit more certainty. We have already had one deal ripped up; we do not know what is going to happen in the future.

Gary Porter: The local government perspective is pretty much the same as David’s. Obviously, we fully support the Government’s aim to drive down the cost of the housing benefit bill. It has grown like Topsy over the last 10 years and is definitely unsustainable. The trouble is, this is probably the least sustainable way of bringing it down. It will cost—as we have heard from other people—a lot of new homes being built.

The only way of sustainably bringing down housing benefit is to build new homes. We do not have a sufficient supply of affordable homes; we are pushing more and more people into the private sector, where rents are considerably higher—about £50 a week more expensive than in the state sector—and we need to be able to build more homes. We think, across local government, that this is probably going to cost us about 19,000 homes, which is 19,000 times £50 extra a week on housing benefit. That will cost the country more money in the long run.

I can understand, in the short term, why it sounds like a good idea. The Treasury is right, rents have gone up considerably in the last few years but, as David said, that is as a direct result of Treasury policy. We were told how much we had to put our rents up, and we did it—most of us. You can’t blame us for it being that. As David said, people’s business plans are built on an assumption that rent will be at a certain level. Councils across the country that still retained their council houses were compelled by the Treasury to buy them back a few years ago, which we did, but that was based on a business model with rents being the way they were. We are now in danger, probably in four or five years, of most of those councils coming in with a big box of all the keys to their houses to give them back to the Treasury, because we will not be able to sustain the mortgage payments that we have on them.

The whole thing is counterproductive to what the aim needs to be. We have a vast disparity in rents. I think the average council rent is £82, registered social landlord rent is £90-something and the private sector is £137. It is no good just attacking one part of the problem; we need to tackle the cause of the problem, which is not enough housing. If I had a magic wand, or at least the ability to get the Treasury to do what we need it to do, I would take council houses off the public sector debt book. Let us borrow against the value of the stock that we have. We can build you more homes, which will bring down your housing benefit bill.

Alastair Graham: From our point of view, there are really two main areas where we are very anxious about this. We provide housing for people with a learning disability, and the fear is in respect of both existing tenants and potential new tenants.

Unless there is an exemption for supported housing, it will mean that for the several hundred of our properties that we currently lease from a head landlord, when those leases come up for renewal and the head landlord wants the same or an increase in the head landlord rent, we simply will not be able to afford to pay that, because our income will be reduced by the amount set out in the Bill unless we get that exemption. It means that these people will face a very uncertain future and may even have to be housed in very inappropriate, and probably much more expensive, accommodation elsewhere.

The second impact is in respect of new tenants. Some MPs will know that we have successfully launched two bonds over the past couple of years; they have raised £21 million, and we have invested all of that in new housing for people with a learning disability. It has not cost a penny of central Government grant. We had exciting proposals to expand and develop that to provide much more housing through private investment. It is going to be practically impossible to get that private investment with these proposals, because people are not going to want to invest in a business plan that shows the rental income going down year on year over the next few years.

What is really needed is an exemption for supported housing, which would not in any way detract from the Bill’s main thrust to reduce the housing benefit bill. In fact, it would almost certainly save money overall to the public sector, because it would enable us to house people in community-based settings, which is where they will typically want to live. It is usually where their parents want them to live—often just round the corner from them—rather than in expensive, remote institutional settings, far away, that cost the public purse more money. So we would really urge an exemption for supported housing.

[Kate Green]

Q 132 Could I ask for your comments on a suggestion made to me that if this legislation precedes as currently proposed, there should in fact be a choice for some housing associations to accelerate the increase and take it in the first year or two, rather than it being 1% per annum? Have you any comments on the pluses and minuses of that suggestion?

David Orr: That would be even more destabilising for most business plans, because what you do is bring forward the reduction in rent, and once that reduction is in, it is there in perpetuity. That would just add to the amount being taken out of business plans, so it is not a helpful proposal.

[The Parliamentary Under-Secretary of State for Work and Pensions (Mr Shailesh Vara)]

Q 133 Good morning, gentlemen. I just have a few brief questions. For those who are on low incomes, would you agree that the reduction will be beneficial?

Gary Porter: For those who are on low incomes but above housing benefit level, yes, by about 80p a week. For those who earn money but not enough to take them out of housing benefit, no, it will not make any odds. For council tenants, the biggest savers will save about 84p a week. Obviously, if you do not have a lot of money, that extra £1 a week will be a benefit, but there are better ways of doing it.

Mike Donaldson: In L&Q terms, 54% of our residents will not see any benefit at all, because the benefit is to the Treasury—the taxpayer.

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[Anna Turley (Redcar) (Lab/Co-op)]

Q 153 I would like to go back to the points about the financial robustness of housing associations and surpluses and so on. David, could you tell us a bit more about the geographical disparity in that? It is my understanding that, particularly in terms of assets, housing associations in London will be substantially better off than housing associations in, say, Teesside in my area. Could you say something more about what that geographical picture looks like, and the different geographical implications of this policy?

David Orr: Yes, of course, you are quite right that the basic financial strength of organisations varies hugely. If they are in an area where assets are very high value, their business has a greater degree of financial robustness underpinning it than an organisation in an area where the asset value is very low. It is more possible in some parts of the country to trade assets, and therefore maintain financial stability, than it is in others.

The impact goes back to one of the things I was saying earlier. This is a measure that sounds simple, single and straightforward, but it has a profoundly different impact for organisations in different parts of the country. In my introductory remarks I said that for some organisations, not because they are inefficient but because of accidents of history and geography, this decision could mean that they will collapse.

Having an efficiency challenge is one thing, but imposing a new measure that has the direct effect of making it impossible for good, well-run, well-managed, efficient organisations to survive is not helpful.

[Kate Green]

Q 154 There are other measures in the Bill that will have an impact on housing associations and local authorities in relation to rent. I am thinking particularly of the four-year freeze and the reduction in the household benefit cap. Can I start by asking Councillor Porter your assessment of the overall effect of those measures in the Bill on local authorities and, in particular, pressure on discretionary housing payments?

Gary Porter: For the purposes of what we have been saying today, we have put the freeze and the reduction in the same space. So, all the numbers that we have used have been like the £2.6 billion that we are going to be light because of the freeze and the reduction. They are not different numbers; they are the same numbers.

In terms of the impact of discretionary payments, I am afraid that I cannot answer that at the moment, but I will ensure that one of the members of staff who are supposed to be minding me today has made a note of it, and we will give you that back in writing.

[Kate Green]

Q 155 What has been your experience of managing the household benefit cap since its introduction in the previous Welfare Reform Act?

Gary Porter: It has been a variable picture across the country. Some areas have been affected more than others, as you would expect. Any national measure applied equally across the whole country is bound to have a different effect, depending on where it lands.

[Kate Green]

Q 156 Do you think that what is introduced in this Bill, which has a different level of cap for London and for the rest of the country, is a useful measure? Do you feel that these levels are about right?

Gary Porter: I would leave London councils to argue the case for or against issues for London. I am not very well versed in the specific impact on London. Again, our office will give you an answer to that in writing.

[Kate Green]

It would be very useful if there was additional written evidence.

[The Chair]

Yes, it would be helpful. Mr Orr, I think you want to come in on this one as well.

David Orr: For me, there are two major challenges with the benefit cap. First, of course it is right that there should be a limit on how much the state is prepared to pay. You cannot have open chequebooks, and we do not argue with that, but the way that the cap is introduced does not reflect the reality of the costs that people have. For most people, the cost of feeding, clothing, transport is broadly similar across the country, but housing costs are hugely different. So a single cap, once again, is a single measure that has very different impacts in different parts of the country. I think I am right in saying that the cap has the biggest impact in the midlands.

The second thing, which we are very concerned about, is that the level of cap now means that for a household with three children or more, dependent on benefit for whatever reason, there is nowhere in the country that the rent will be covered within the cap. Nowhere. So, for any household that has three children or more, this is a particular and specific problem.

[Kate Green]

Q 157 And that, of course, will be exacerbated for those families by the child tax credit measures.

May I ask one final question on this point? What might be the impact on personal household housing debts? Will we see households going into debt to meet their rent as a result of the freeze and the cap?

David Orr: We already know that there are some households who have had to do that. I was in Cornwall yesterday, which is an area that has been particularly badly hit by the bedroom tax because there are very few alternative places with smaller accommodation for people to move to. We know that some people there have really struggled to pay the rent and some of them have gone into debt to pay the rent.

[Emily Thornberry]

Q 158 I believe that 70% of households in social housing in some London boroughs are affected by the cap. The benefit cap has particular implications for London councils, so it would be interesting to have some additional evidence on that.

Can we also hear from housing associations about the benefit cap’s effect and what the future for housing associations in London is, given the level of the cap? Are we looking at a future where housing associations will only be able to risk renting out to young professionals without children and will not be able to build accommodation appropriate for families?

Mike Donaldson: We are already seeing the impact of the previous benefit cap in terms of the households we can house in larger accommodation, so it is obviously going to get worse as it reduces to £23,000. The other thing we are concerned about is that there is an assumption that rents drop dramatically once you leave the Greater London area, and that is not true. The area around London has equally high rents, because there is a lot of commuting and so on. So there is a real concern that the £20,000 cap also has a detrimental impact on our residents.

Although we do not know for sure, because obviously we have not got all the information from the DWP, we estimate that another 300 of our residents will be affected by the benefit cap when it is introduced. The history so far has been that we have had to engage heavily with those individuals to ensure that they do not face losing their homes. The extra costs that we incur to employ staff, to get people jobs—we employ staff to give financial advice—is money that we have had to find from elsewhere in the past four years. Going forward, of course we will not have so much money, because we will be facing reduced income from rents, so there is a bind. Most of these people have never worked or have not got an engagement with the jobs market—they are starting from scratch. You have to do an awful lot of work with them to get them into paid employment.

--- Later in debate ---

[The Chair]

Colleagues, we will make a start. We have one witness yet to arrive, but we hope he is on his way.

It is wonderful to welcome witnesses from the Child Poverty Action Group, the Centre for Research in Social Policy and the Centre for Social Justice. Could you kindly read yourselves into the record?

Dr Callan: I am Samantha Callan, associate director for families and mental health at the Centre for Social Justice.

Alison Garnham: I am Alison Garnham, chief executive of the Child Poverty Action Group.

Matt Padley: I am Matt Padley, senior researcher at the Centre for Research in Social Policy at Loughborough University.

[Kate Green]

I should put it on the record that I think I am a life member of the Child Poverty Action Group, and I am certainly a former chief executive, but I will not be asking the questions in this session.

[The Chair]

Thank you, Kate; that is good to know. I know that Stephen Timms has three questions for the panellists.