Housing Benefit (Amendment) Regulations 2010

Lord Freud Excerpts

Monday 24th January 2011 Lords Chamber

[The Earl of Listowel]

My Lords, I apologise. I omitted to declare my interest as a landlord. I do so now.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, this has been an important and interesting debate. I commend particularly the noble Lords, Lord Knight of Weymouth and Lord Best, on bringing forward these Motions and securing this debate. I shall try to answer as many as possible of the points raised, but, since there was an awful lot of them, I may not cover absolutely everything.

Perhaps I may first put the debate into context and explain why the statutory instruments are essential to advance the changes that we have planned. Housing benefit increases have been quite startling, as a number of noble Lords have pointed out. During the last 10 years, housing benefit expenditure as a whole has nearly doubled in cash terms from £11 billion to £21.5 billion in the current year. Only £2 billion of this increase is due to caseload. About £5 billion is due to general price inflation, but, most importantly, £4 billion is due to growth in private and social rents over and above general inflation. Private rents for benefit recipients have risen in real terms 10 per cent more rapidly than rents in the general market. These are exactly the sort of increases that we are seeking to contain. Without any reform, expenditure is forecast to be £24 billion by 2014-15.

It was imperative that we acted swiftly to stop the runaway costs of housing benefit, those costs having been allowed to rise without restriction year after year. As we made clear in the June Budget last year, welfare reform savings play an important role in reducing the overall budget deficit. The changes introduced by the statutory instruments alone add up to £1 billion by 2013-14.

We must be fair to the taxpayer. It is not right that families who work hard to pay their own rent have to pay even more so that those on housing benefit can live in homes that they could not think of affording. Some of the rates are extreme. I know that not a lot of people are taking £2,000 a week for a five-bedroom property in central London, but there are some and the current system allows it. Further down the scale, £500 a week is being paid for two-bedroom properties and £370 a week for one-bedroom properties at this year’s rates. The Government’s measures are designed to take this under some control.

One of the measures that we have announced, and which has been widely welcomed tonight, is providing for an additional bedroom for disabled people living in the private rented sector who need a non-resident, overnight carer.

Noble Lords have gone through the other changes, but I shall summarise them. They include applying an overall cap to local housing allowance rates and setting the maximum rate at four bedrooms. Those rates are £250 for one bedroom, £290 for two bedrooms, £340 for three bedrooms and £400 for four bedrooms. That is a little over £20,000 as the top rate. We are also removing the £15 weekly excess, which the previous Administration would have liked to do but did not. I do not think that anyone argues that it is appropriate that we pay people more than they pay in rent. It was introduced to encourage a process of negotiation between those who are renting and landlords, but it does not seem to have had that effect, so there does not seem to be much point in paying those figures.

The final element that we have been discussing tonight is the adjustment of the local housing rate from the median to the 30th percentile. Overall, there has been a lot of scaremongering generally, and a little of that tonight—and some false reporting about the measures, although there has not been that tonight. Some estimates of the number of people who will be made homeless are, quite frankly, ridiculous. It is simply irresponsible to suggest that thousands on thousands of people will be made homeless and will have to leave the capital in droves, as some have said. I welcome the opportunity to put the record straight and to respond to the concerns raised today.

First, I shall address what is essentially a London issue, surrounding the maximum weekly rates of local housing allowance that we will apply from April. They are still extremely generous rates. It is still far more than the vast majority of people pay out—at the rate of four bedrooms and £400 and more than £20,000 a year, a typical family would need to earn £80,000 a year to be able to afford that kind of rent.

These reforms are not about excluding benefit recipients from the nicest areas, as some have argued. We are simply ensuring a fair deal for the taxpayer. The simple truth is that individuals who claim housing benefit according to local housing allowance rules should face similar choices to those people in low-paid work. There is simply no reason why we should see people moving vast distances, and no mass moves out of the south of the country. In all but three of the most central areas of London, at least 30 per cent of properties will be affordable within local housing allowance rates. I shall just explain that figure, because there has been quite a lot of misunderstanding about it. The survey is based on the properties that are not in large occupied by recipients of housing benefit—so it is 30 per cent at least, except in those three areas, plus whatever elements of the housing stock currently occupied by housing benefit recipients that will go on being affordable. So it is a large proportion, although it is impossible to put an exact number on it, because clearly we are expecting prices to move and more properties to come into that category. But a large proportion of houses will remain affordable.

A small number of people in the most expensive places will, of course, have to move, but they will not have to move far, and we will work with local authorities to give those people the support that they need. In central London, 2.5 million jobs are accessible within 45 minutes of travel. Bus fares, although they went up this month, are no more than £1.30 for a single journey so they can go long distances on a bus. Low-income working households mostly pay a rent slightly lower than the appropriate local housing allowance rate. This group living in private rented accommodation is mobile; 40 per cent of them have been in that accommodation for less than a year. It is not unusual for families to move. Indeed, over a quarter of a million people moved out of or between inner London boroughs in 2008-09, which is a point that the noble Lord, Lord German, made.

On the estimates of homelessness that various bodies have put out, it is important not to rely on those estimates if they are based on what landlords say they will do or on early experience. We must look at the shortfalls. After the reforms, 32 per cent will see no change in shortfall, 450,000 households will have a shortfall of less than £10 a week and 35,000 will have a shortfall of more than £20 a week. Not all of those will have to move, let alone become homeless.

One difficulty in writing an impact assessment when there are behavioural and market-based effects is that it is not easy to quantify those impacts, because they involve a complex interplay of behavioural decisions by individual landlords and individual tenants. We are talking about market forces here. Although economic theory would suggest that if a purchaser of up to 40 per cent of a market reduces the amount that they are willing to spend, it will cause rents to fall, it is only in the end through observation that we will be able to obtain absolutely conclusive evidence.

We have had similar concerns raised about our decision to cap local housing allowance levels at the four-bedroom rate but that reflects the kind of housing choices that are made by larger families who are not on benefit. It builds on the restriction introduced by the now Opposition in April 2009 to cap at the five-bedroom rates. Let us be clear: most families not on benefit cannot afford to live in properties with five or more bedrooms. We are reflecting here the choices made by families everywhere.

These measures have been closely scrutinised. We have made available more data on impacts than has ever been the case. Clearly, some people will receive less benefit as a result of the changes but that does not necessarily mean that all of those people will be drastically worse off. The gap between the 30th percentile and 50th percentile can be quite narrow. On average, it is currently £15 a week for one-bedroom properties and £26 per week for two-bed properties in London. In the outer south-east area, the difference can be as little as £8 a week for two-bedroom properties. Clearly, one effect that will happen is that the 30th percentile and the median can start moving together if we do not get the downward pressure that we are trying to impose on the rates. That would actually be bad news for the Government, because we would not lose some of the gains but see a market response as those medians move together, rather than the wholesale disruption that some people have been forecasting. In practice, setting the local housing allowance rates at the 30th percentile merely reflects the choices of low-income households; we know that from the research that we undertook last year.

The noble Lord, Lord Best, told us about the attitude of landlords. Rather than accept his concerns wholesale—although he is clearly a great authority in this area—I would point out that, in the last 18 months, more than 400,000 private rented sector tenants have been claiming, which shows that landlords are certainly prepared to rent to tenants claiming housing benefit. I repeat my point that, at 40 per cent of the market in not all, but many areas, landlords will have no choice but to reduce their rents and give back some of the excess gain that we seem to have seen in this part of the market. We are also giving landlords an incentive by widening local authority discretion to pay housing benefit direct to the landlord, a point raised by the noble Baroness, Lady Thomas. We are not giving this discretion away for nothing and the complex language here was to make sure that we get something for something: that if we are translating a payment stream from, let us say, a triple-B-rated level to a triple-A sovereign income stream, we get something for our money. That is why that is written so carefully.

Because I do not want to run out of time, I will jump to the key thing and I will come back to whatever I can fit in after that. I want to turn to the important issue of the monitoring and evaluation of these changes. I am very grateful to the noble Lord, Lord Best, for his timely Motion. I am very happy to agree to his proposal for an independent review. I make a firm commitment to the House that we intend to commission independent, external research to help us evaluate the impact of the reforms. This review will cover all the areas that the noble Lord outlined in his Motion. I can assure the House that it will be comprehensive and thorough and, of course, I readily agree that the outcome of the evaluation should be presented to both Houses, together with a written ministerial statement. Among the issues that it would cover—these were points raised by noble Lords—will be homelessness and moves; the shared room rate and houses in multiple occupation; what is happening in Greater London; what is happening in rural communities; what is happening in black and minority ethnic households; large families; older people; people with disabilities and working claimants. That is what this review will cover.

[Lord Knight of Weymouth]

The Minister has been very helpful in directly addressing the Motion of the noble Lord, Lord Best. I am sure that the whole House will be grateful if he gives us assurance on the one outstanding feature, that this will be an annual review reporting to both Houses of Parliament.

[Lord Freud]

I thank the noble Lord for his intervention. Very elegantly, I have an answer for him on my next page—although, of course, I am not reading, I am keeping carefully to my text in this important area. The noble Lord, Lord Best, suggested that the review should be published after a year and we considered that point very carefully, but given the implementation timescales for these changes, particularly the transitional protection arrangements that we have introduced, I think that one year is too soon for a meaningful piece of evaluation research. Many housing benefit recipients will not be affected by the changes until well into 2012. We will therefore make the findings available in early 2013, with initial findings available in the spring of 2012 and an interim report in the summer of 2012.

[Baroness Hollis of Heigham]

That is very helpful of the Minister. I fully understand his reasoning for why the report may therefore need to come out somewhat later than the noble Lord, Lord Best, originally proposed. Will the Minister also be giving us details about what is happening with rent levels, the 30th percentile, CPI and as a result, if necessary, the continued rebasing of the 30th percentile figure to ensure that it does not drift down because of the effect of CPI?

[Lord Freud]

I thank the noble Baroness for that. If I have one minute when I finish my prepared speech, I will try to touch on the CPI.

With regard to further reporting after what I have just described, I am not convinced that it would be appropriate to commit to an annual report on these reforms when so many other welfare changes will be made, as the noble Baroness has pointed out—not least, the introduction of the universal credit. I suggest that we ask the authors of the independent review to recommend whether they think that a follow-up evaluation will be necessary. As I said, I am happy to commit to the independent review that I have described.

Before I close on the CPI, I should point out that it is designed to bear down and we are locked into it for the years 2013-14 and 2014-15. Thereafter it is up to the Government to decide whether rates using that methodology go out of kilter.

These changes are important. We have put in a lot of transitional support along with a comprehensive programme of practical support to help local authorities implement these measures so that we can finally reform housing benefit and make it fit for purpose. There is no doubt that these statutory instruments are sensible and proportionate. They must go ahead and I commend them to the House.

[Lord Knight of Weymouth]

My Lords, I do not want to delay the House for very long. I thank noble Lords on all sides for what was an excellent debate and a demonstration of this House at its best. As the Minister said, it was an important and significant debate.

If Members of your Lordships’ House who were not present for the whole debate find themselves scratching around for something to do late at night, perhaps later on in the week, they would do well to read it in Hansard, although I fear that if they were members of the coalition they might find it slightly depressing, given that it certainly gives the lie to the notion that we are all in this together. The noble Lord, Lord Best, was so persuasive that everyone agreed with the case that he made for an independent review—even, I think, the Minister.

We heard about the human cost from the right reverend Prelate the Bishop of Hereford and the noble Baronesses, Lady Sherlock, Lady Wilkins and Lady Turner; we had the passion of the noble Lord, Lord Adebowale, and the noble Baroness, Lady Dean; we had the forensic analysis of the noble Baroness, Lady Hollis, making a strong case that the housing benefit levels do not shape the market but landlords do; and we heard specific worries on child protection from the noble Earl, Lord Listowel. The only comfort for the Minister and for those reading Hansard afterwards might come from the noble Lord, Lord German, and the noble Baroness, Lady Thomas of Winchester, but they would be minute crumbs of comfort given the balance of the speeches, where the noble Lords had more in common with their noble friend Lord Kirkwood, who summed up the cross-party opposition very well before my noble friend Lord McKenzie completed the argument.

I thank all those who briefed us before this debate, particularly the Social Security Advisory Committee for its excellent report, and the officials at the Department for Work and Pensions for a devastating impact assessment on the Minister’s proposals.

The Minister himself made a brave attempt to persuade us that everything will be okay. In his speech, the noble Lord, Lord German, suggested that there was as much certainty as backing a Grand National winner in trying to predict the outcome of these regulations. My money is on my noble friend Lady Hollis’s analysis over the Minister’s. I am disappointed that we have not had a commitment to an annual report. It will be up to the noble Lord, Lord Best, to decide whether to divide the House, but for now I beg leave to withdraw the Motion.