Selective Licensing of Houses (Additional Conditions) (England) Order 2015

Lord Best Excerpts

Monday 23rd March 2015 Grand Committee

[Lord Best (CB)]

My Lords, I wish to raise a number of points about what is, in essence, an important initiative from the Government for improving conditions in the private rented sector. I declare interests as president of the Local Government Association and as chairman of the Council of the Property Ombudsman. I am grateful to Shelter and Crisis for their briefings, and am also drawing on some years of chairing the Private Rented Sector Policy Forum for representatives of both tenants and landlords.

The positive intention of this statutory instrument is to make it easier for local authorities to designate areas for selective licensing. Once designated, through the requirement for landlords to obtain a licence, the local authority can exercise some regulatory controls through advice and accreditation of landlords and a weeding out of those who are not “fit and proper persons”. With the extraordinary growth of the sector—which has increasingly meant replacing the purchase of properties by first-time buyers with purchase by buy-to-let landlords—it follows that some regulation of the PRS is needed.

Any of your Lordships who watched the recent “Panorama” programme about Britain’s acute housing problems will have witnessed the scenes of overcrowding, “beds in sheds”, high rents and abysmal conditions in parts of the private rented sector. Some intervention seems overdue to introduce proper standards and to weed out the exploitation to be found in what is obviously a minority of cases, but a minority that is truly terrible for the tenants involved and can ruin the credibility and reputation of the whole sector.

The problem has been that local authorities, even where existing powers should lead to intervention, have not had the resources to act. Selective licensing can buttress existing powers and, through the charging of a fee, can raise the money needed to pay for enforcement of the necessary measures. This statutory instrument helps councils wishing to go for selective licensing by sanctioning this regulatory route not just in places where there is low demand for housing and where anti-social behaviour is rife but where there are high levels of properties in poor condition or high levels of inward migration, social deprivation or crime.

I commend this policy of broadening the reach of selective licensing. However, at the same time, the Government are introducing a new restriction on the use of licensing: only in exceptional circumstances, it seems, where the Secretary of State permits it, will the local authority be able to use selective licensing to embrace more than a fifth of its area or more than a fifth of its rented properties. This would prevent the use of licensing to cover at least four-fifths of privately rented properties. The purpose of this restriction, as I understand it, is to save decent landlords the burden of form-filling and, in particular, of paying a licence fee, which could be £100 per property per annum. I want to explore whether this “one-fifth only” rule is sensible.

The CLG Select Committee did indeed find in 2013 that the process of licensing could be bureaucratic and tedious. It is hoped that a simplification of procedures is now to be expected. However, the committee also concluded that local authorities should be given more discretion over decisions on when and where licensing should be implemented.

My objections to the 20% limit are as follows. First, should it not be for councils themselves to decide on the extent of the licensing that they need? I am not sure how, in this age of devolution and localism, central government can decide which places—which streets—most need the extra protection that licensing can bring.

Secondly, councils that want to implement an authority-wide regime and not one covering just a fifth of their territory argue that unsatisfactory—indeed, unsavoury—landlords may be operating in any part of their area. The new restriction would deny councils the tools to sort out the rogues, wherever they are. After all, houses in multiple occupation—HMOs—are subject to licensing anywhere in a local authority’s area, not just in a specified one-fifth thereof.

Thirdly, economies of scale are important for a project such as this. If enforcement is to be effective, and it is not cheap, the more landlords involved the better. The Newham success story shows what can be done—I joined that borough’s enforcement team on one of its dawn raids recently at the invitation of the mayor, Sir Robin Wales—if licensing covers a whole borough, and therefore a large number of landlords. At £100 a property, significant resources can then be raised. If only a fifth of properties were to be involved, the cost to landlords would have to be much higher and/or the service would be much less effective. I note that Newham has completed well over 2,000 enforcement visits, taken dozens of landlords to court and refused licences for some notorious landlords with scores of properties, all because it has had the resources to do so.

Fourthly, I note that the DCLG’s impact assessment stresses the financial burden on landlords of this annual fee but, of course, other industries pay for their own regulation. Set against a rent of perhaps £15,000 a year in Newham, a £100 fee does not sound excessive. The suggestion that landlords will simply pass on the cost to tenants does not sound like good economic sense. It assumes that these landlords are not currently charging the maximum rent the market will bear and that they have the scope for increasing rents further. There seems to be no evidence that where councils are using selective licensing, rents have been raised accordingly. The local housing allowance would certainly not be increased for this purpose. Moreover, I presume that landlords are able to offset licence fees against tax, just like the costs of gas safety inspections or agents’ fees.

Fifthly and finally, the real impact is surely not the relatively modest annual fee but the effects of licensing on raising standards in the PRS. The fee is not money down the drain. It pays for a service, making the worst landlords fulfil their obligations. Not only do tenants benefit from the improved performance but other landlords benefit because licensing helps to drive out unfair competition from those who do not play by the rules. The Newham experience shows how the police, Home Office and Her Majesty’s Revenue & Customs can all be helped, thereby saving the taxpayer money under a number of other headings.

So I congratulate the Government on opening up more opportunities for selective licensing, strengthening the hand of local authorities to exercise greater regulatory influence over the private rented sector in their areas. However, I see the somewhat arbitrary restriction of licensing to just a fifth of areas or properties as a mistake that will unnecessarily undermine this opportunity to enhance the standards and reputation of the sector. A fallback power for the Secretary of State to intervene if a maverick local authority behaves in an eccentric way is understandable, but not a blanket blocking of local authority plans to improve tenants’ lives in this way. I am glad to hear that an impact assessment will take place in 18 months but, in the mean time, can the Minister reassure us that the Government will use their powers only to curb the autonomy of local government in extreme cases? The net effect of this statutory instrument is otherwise one good step forward but two steps back.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for his introduction to this order. I particularly welcome the contribution that we have just heard from the noble Lord, Lord Best, pretty much all of which we agree with.

The order itself is to be welcomed but we know that it comes attached to an administrative change to the general approval regime which will significantly curtail the opportunity to introduce selective licensing. From 1 April, local authorities will have to seek confirmation from the Secretary of State for a selective licensing scheme which covers more than 20% of their geographical area or will affect more than 20% of the privately rented homes in the local authority area. This is yet another centralising, controlling proposition from the Government, who continue to espouse the cause of localism but too often act in a contrary manner.

However, we support the arrangements for selective licensing; indeed, they were introduced under legislation of the previous Labour Government. The intent is to focus on those who show no interest in managing their properties properly, often letting to anti-social tenants who cause havoc for the local community. Licensing is a means of seeking to ensure that landlords are fit and proper persons. Can the Minister confirm that a local authority cannot simply designate an area on a whim? In particular, local authorities are currently required to consult those likely to be affected by designation and consider any representations made. Nor, if we are correct in our understanding, can the licence conditions be open-ended; they must relate to residential use of the property. Although authorities have a degree of discretion to set the precise conditions of the licence, they must include certain mandatory conditions, including the requirement to produce a “gas safe” certificate each year, keep electrical appliances and furniture in a safe condition, and keep smoke alarms in proper working order. Why on earth would the Government wish to weaken these requirements?

These matters need to be considered in the context of what is happening more generally in the private rented sector. One in five now lives in the PRS, including 1.5 million families with children, but we know that a third of the homes in the PRS do not meet decent home standards. We need to drive up standards by introducing a national register of landlords, which will make it easier for local authorities to introduce licensing schemes and ensure that tough sanctions are in place.

It is argued by the Government that selective licensing is not supposed to be a blanket arrangement, but does the Minister not accept that being more selective would be aided if there were a national register? From the information in the impact assessment, only a handful of local authorities have introduced authority-wide schemes to date—Newham, Barking and Dagenham, Enfield, Liverpool and Waltham Forest—although others are exploring the possibility. Can the Minister say specifically what problems have actually arisen in those boroughs? From the evidence we heard from the noble Lord, Lord Best, it seems that Newham, far from being a problem, has actually been a success and that progress is being made in tackling bad landlords. What evidence is there that landlords are not absorbing the cost of licensing?

It is suggested that borough-wide selective licensing can deter investors. RBS’s position is cited, but is not the whole rationale for licensing to improve areas, encourage better management of stock and tackle anti-social behaviour? Is it not the case that individual authorities are best placed to judge the impact on the extent of licensing in their areas? Why on earth would they wish to do something to impair the prospect of more investment in their housing? So far as the new thresholds are concerned, what analysis underpins the Government’s 20%/20% approach? What evidence backs up that requirement?

It is suggested that the Government will issue guidance—indeed, the Minister has confirmed that—advising local authorities to focus their efforts, in the first instance, on just the 10% most deprived local super output areas across the country. This would significantly reduce the number of PRS properties covered by a licensing scheme; one can see the tabulation at the end of the impact assessment. The Government’s emphasis seems to consider the landlord in priority to the tenants and the community.

I have one further point. Option 1 in the impact assessment sets out whether approval would be granted in schemes larger than 20%, and states that,

“local authorities must be able to demonstrate the scheme is enforceable and fully resourced”.

How will that judgment be made? Does this not mean that the most deprived areas, which are likely to have the greatest need for licensing, will struggle the most to resource that requirement? Where is the fairness in all that?