Welfare Reform and Work Bill

Lord Kerslake Excerpts

Tuesday 12th January 2016 Lords Chamber

Moved by

[Lord Kerslake]

104C: Clause 21, page 20, line 36, leave out “, second or third” and insert “or second”.

[Lord Kerslake (CB)]

My Lords, I rise to move Amendment 104C. In doing so, I declare my interest as chair of Peabody and president of the Local Government Association. I will also speak to the other amendments in this group that have been tabled in my name, so I hope that noble Lords will bear with me if this takes a little time. I also support the amendments in this group tabled by other noble Lords.

These amendments are all consequential on the Government’s new policy, announced in the July Budget, that social rents should be reduced by 1% per annum in England for the next four years, starting in April 2016. It is therefore appropriate that I say a few words about this policy as background to and rationale for the amendments I have tabled. The policy represented a complete reversal of the previous coalition Government’s policy, announced as part of the 2013 spending review, that rents would rise by the increase in the consumer prices index—CPI—plus 1% for a period of 10 years.

It is instructive to note that this formed part of the infrastructure report Investing in Britain’s Future, which accompanied the spending settlement report. The joint foreword to that report from the Chancellor and the Chief Secretary to the Treasury began:

“Britain at its best is a country that invests in the future”.

In his speech introducing the report to the other House, the Chief Secretary said:

“Our housing associations have told me that they can do more. To do that, they need certainty on rents, alongside public investment. So today I can provide both those things: I can guarantee that social rents will be set at the consumer prices index plus 1% out to 2025”—

note the word “guarantee”—

“and I can provide £3 billion more capital over three years from 2015 to deliver 165,000 new affordable homes”.—[Official Report, Commons, 27/6/13; col. 467.]

--- Later in debate ---

[Baroness Williams of Trafford]

My Lords, I think I explained that the Government do not intend to take action on the private rented sector. In fact, the private rented sector being in a healthy position in terms of supply can only be good for the housing market. With those comments, will the noble Lord feel sufficiently reassured to withdraw his amendment?

[Lord Kerslake]

My Lords, first, I thank the Minister for her comprehensive response. I also thank my noble friend Lord Best, the noble Lords, Lord Beecham, Lord Horam and Lord Scriven, the noble Baroness, Lady Blackstone, the noble Lord, Lord Triesman, the noble Baroness, Lady Hollis, and the noble Lord, Lord McKenzie of Luton, for their helpful and supportive comments on the issues I raised in these amendments.

I will make a few points in response to the Minister. First, I was very clear in my presentation of the amendments that I recognised that government had determined the big picture of policy, and that we were therefore talking about appropriate amendments here. On that point the noble Lord, Lord Scriven, is correct. I have sought to set out a number of practical and realistic amendments that the Government could consider.

On social rents, it is worth saying that, yes, they have risen above inflation, but that has been a direct consequence of intended government policy to raise social rents. They have not gone up because of some wilful act by housing associations or local authorities; precisely because it is a controlled area, it comes from government policy. Previous Governments of different political persuasions have acknowledged the need to raise rents so that they are closer to market rents. Indeed, the affordable housing product introduced by the last Government was up to 80% of market rent. Therefore, there has been a clear consensus policy by Governments to raise social rents, and that is why they are as they are.

My second point is that in respect of new housing supply in the social sector, there is what is often called the three-legged stool: a combination of private borrowing, rents and government grant. Each of those needs to be clearly calibrated to deliver the best possible results. As the noble Lord, Lord Triesman, says, confidence about long-term returns is absolutely critical to this. That is how you get cheap private finance into the system. That is why I felt that the 10-year policy was an enlightened and sensible one that would encourage the development of new infrastructure. Because of the compelling demands of the welfare reform savings that the Government need to make, they have chosen to depart from that policy. The key question is, how do we get that confidence and certainty back into the system so that we can maintain the maximum level of supply? I have to tell noble Lords that there is clearly uncertainty in the sector about what will happen at the end of the four-year period; it needs to be addressed in a very clear way, and that cannot wait until 2020.

I am very reassured by the Minister that the exceptions, as we must now call them, will be considered sympathetically. It would perhaps help if it could be made clear how many of the exceptions we have proposed through the amendments will be covered by what the Government intend. I moved an amendment on housing specifically constructed for disabled and elderly needs. That is a crucial area, and we must keep the level of supply going. My noble friend Lord Best has identified other areas where this is critical.

Clearly, efficiencies can be made in housing associations. Anybody who suggests otherwise is being unrealistic. The key question is what you do with those efficiencies, and whether they are used to reinvest or to cover other government policies. We are left still with the question, raised by a number of noble Lords, of the balance between revenue savings and capital investment for the long term.

My last point concerns who benefits here. I was clear in my speech that two-thirds of tenants, not all of them, will benefit. The reality is that the bulk of the savings from this policy will benefit the Chancellor. That piece of arithmetic cannot be denied.

I welcome the debate we have had on some very important issues. I will withdraw my amendments in the light of the discussion and will return to some of the issues I have raised at a later stage.

Amendment 104C withdrawn.

--- Later in debate ---

Again, I am convinced that the Government do not want additional caps to undermine their housing, health and care policies for those with specialist support needs. Can the Minister assure the Committee that, alongside an exemption from the 1% rent cuts, supported housing will not be covered by the new LHA cap? I strongly support these amendments.

[Lord Kerslake]

My Lords, I support this amendment. I will keep my comments short because my noble friend Lord Best covered very well the key issues. I shall make a small number of points. First, this housing supports people who are most at risk and most in need; that is, domestic abuse refuges, homeless hostels and shelters for frail, older people. Secondly, some housing associations have made a very serious investment and commitment to this form of housing. If we do not accept these properties, the effect would be to penalise those who have taken the bold steps to make this sort of provision.

The noble Lord, Lord McKenzie, referred to Riverside, with which I have also met. Its calculation is that the rent reduction will result in an overall loss of income from Riverside-supported housing schemes of £2.3 million per annum. Crucially, by 2019-20, nine schemes will be pushed into becoming loss-making schemes. A housing association that has done the right thing and has invested in crucially needed, supported housing will face significant losses in its operation of that housing.

Thirdly, an already fragile set of services will become more so. In that context, it is almost certain that housing associations burned on this occasion will not invest in the future. We will put at risk a crucially needed new supply of housing to meet these needs. Something that was previously marginal will become unviable and we will therefore see the consequences of this down the track.

Like my noble friend Lord Best, I cannot believe that this was an intended consequence of the Government in their rent reduction policy. This amendment addresses the issue head on and seeks to put it beyond doubt for those housing associations which have already invested in this type of accommodation or which plan to invest in it.

[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.

--- Later in debate ---

[The Earl of Listowel]

My Lords, I am concerned that the Government’s proposal may reduce the supply of housing or cause what housing is available to be of poorer quality. I go back to my earlier concerns about the poorest families. In her response, will the Minister give an assurance that this will not have the effect that I am concerned about, will not make more families homeless and will not lead to poor families living in poorer conditions and less well-maintained homes? I look forward to her response.

[Lord Kerslake]

My Lords, I shall speak to my Amendments 110A and 110B. I am conscious that we are reaching the end of a long process, so I shall keep my remarks short. These amendments go to a specific issue that needs addressing. They focus on giving flexibility and excepting social rent reductions for two types of new supplier: affordable rent suppliers and social tenancies. That does not address the whole of the issue that I spoke about earlier because the social housing model involves cross-subsidy. When housing associations look at new supply, they look at two things: their investment plan’s overall viability and the viability of individual schemes. For schemes that are less profitable and more marginal, rent is crucial.

There is shared recognition in this House about the need for new supply of all types, including social housing. By giving flexibility by excepting new supply from the rent reduction policy and giving flexibility in the starting rates for these properties, it is very likely that some schemes that would have been put on the back-burner because of viability will go ahead. These amendments will cost very little because new supply is less than 2% of existing stock and therefore the cost in terms of benefits is very small, and the gain, in terms of new supply at the margin, will be considerable. These are two small amendments that will address the issue of new supply, give flexibility at local level to make decisions on rents and tip schemes that would otherwise not have been viable into viability and enable them to be built.

[Baroness Evans of Bowes Park]

My Lords, I shall start by addressing Amendment 110, which was tabled by the noble Baroness, Lady Sherlock, the noble Lord, Lord McKenzie, and the noble Earl, Lord Listowel. It would in effect reverse the summer Budget measure of applying a four-year freeze to housing benefit local housing allowance rates from 2016-17.

Between 2000 and 2010, expenditure on housing benefit doubled in cash terms, reaching £21 billion per year. If left unreformed, by 2014-15 housing benefit would have cost taxpayers £26 billion per year. This measure to freeze local housing allowance rates for four years will build on the reforms introduced in the last Parliament, which saved £4 billion and continue to deliver savings of around £2 billion a year. Savings from freezing local housing allowance rates are estimated to be around £655 million for Great Britain over the four-year period of the measure.

I will set out the process for setting the local housing allowance rates and what we already do to monitor the levels in comparison with market rates. Within DWP, local housing allowance rates are monitored each year to assess any divergences between the rates and local rents. Each autumn, the rent officer services provide DWP with rental data for all broad rental market areas for the 12 months up to the end of September. This is used to review the rates, and in the past two years has been the basis for identifying which rates should be increased by the targeted affordability funding.

If any changes are needed to secondary legislation, such as setting out a schedule of which areas and rates might be increased by the targeted affordability funding, they need to be carried out during the autumn and laid before Parliament, observing the requisite timescales before the amendments come into force before the LHA determination date at the end of January each year.

I should add that the Secretary of State has the power to review the local housing allowance rates or to provide in regulations for the maximum housing benefit to be an amount other than these rates. These powers have been in place since the LHA scheme was introduced and were reinforced in the Welfare Reform Act. Noble Lords will be aware that this measure has already passed through secondary legislation and been agreed by the Delegated Legislation Committee in the other place. The order was not prayed against by Members of this House and was therefore not subject to a debate. I reassure noble Lords that, alongside the LHA rate, we will continue to publish at the end of January, as we have done previously, the 30th percentile of market rates in each area. The noble Lord, Lord McKenzie, asked about his figures. They are broadly right in terms of the figures that he asked about.

The first step is for a provider to determine what would have been the rate of formula rent for that social housing—I apologise to noble Lords; I do not think this is quite right. I have not responded to the question from the noble Lord, Lord Kerslake. Typically for me, I appear to be missing a page. I will now turn to Amendments 110A and 110B, tabled by the noble Lord, Lord Kerslake. I am grateful to him for bringing forward these amendments and giving me the opportunity to explain to the Committee the approach that the Government are taking regarding rent-setting for new tenancies.

Schedule 2 to the Bill sets out how maximum rent should be determined during the four years of rent reductions for tenancies that were not in place at the beginning of 8 July 2015. Different rules apply to existing and new social housing and affordable-rent housing, and they are set out in paragraphs 1 to 3 of Schedule 2 respectively. Rents for new social housing, excluding affordable-rent housing, may be set up to the social-rent rate. It may be helpful for me to explain in slightly more detail how the social-rent rate is calculated, which is set out in the Bill in paragraph 1(4) of Schedule 2. The first step is for a provider to determine what would have been the rate of formula rent for that social housing at the beginning of 8 July 2015. The Government’s intention is to set that out in regulations that will mirror the formula for 2015-16, as set out in the rent standard guidance and the Government’s guidance for rent. In this way we have sought to make the 1% rent-reduction policy work in a similar way to existing policy in so far as we can.

Noble Lords will be aware that formula rent takes into account relative property values and local earnings, the size of the property and an overall rent cap. Local circumstances are therefore taken into account in determining what the rate of formula rent is. Once determined, the social-rent rate is found by then applying the appropriate annual reductions. But we do not think it appropriate to continue to allow providers of new general-needs housing the flexibility to set rents at up to 5% above formula. That flexibility was only ever intended to be taken up by general-needs housing providers on an exceptional basis and is now out of step with the Government’s policy for rent reductions, which necessitates a more tightly-controlled approach. As I have explained, the social-rent rate will be closely aligned to the previous formula-rent policy, which took into account local conditions. Local property values and local earnings are in fact built into the formula.

For new tenancies of affordable-rent housing, paragraph 3 of Schedule 2 provides that the rent payable by that tenant should be set at no more than 80% of the amount that would be the market rent for that property, and that in the following years a 1% per annum reduction to that maximum rent applies. But this is a maximum rent, and guidance regarding other factors of rent setting, including local factors, remains in place. Housing which may be let on the affordable-rent basis will be identified as such by regulations under paragraph 4 of Schedule 2 to the Bill, and I can be clear that our intention is that this will reflect existing policy regarding properties that may be let at an affordable rent.