Welfare Reform and Work Bill

Lord McKenzie of Luton Excerpts

Tuesday 12th January 2016 Lords Chamber

I apologise to the House for the length of these opening remarks, but, as I said, these are technical amendments and I wanted to ensure that the House had our rationale for them. On that basis, I beg to move the amendment standing in my noble friend’s name on the Order Paper.

[Lord McKenzie of Luton (Lab)]

My Lords, we thank the Minister, the noble Baroness, Lady Evans, for her introduction and we are grateful for the separate briefing that we received before Christmas with her colleague, the noble Baroness, Lady Williams. This is a very substantial list of government amendments, but we will not oppose them, as overall they are intended to make the policy work more effectively and securely. We understand that they are, in essence, technical.

However, we might just reflect on the fact that in Committee in another place we saw the introduction of four new clauses and one substantial new schedule, with more government amendments on Report. The amendments in this group include those—for example, 108B—which replace provisions inserted by government amendments in Committee in the House of Commons. This creates the impression that the policy has not been fully worked through. I wonder what else is being worked on which will require amendment before we are finished with this Bill.

We know from the Government’s briefing note of Clauses 21 to 28 and Schedule 2 that work is under way on regulations to come into force on 1 April 2016. These are to cover further exceptions but also alternative provision for accepted categories and alternative conditions for granting directions. Regulations are also to cover the enforcement of Schedule 2 by the regulator. Can the Minister say whether we will see at least a draft of these regulations before we get to Report? Clearly, the clock is ticking, and drafting must have reached an advanced stage if the regulations are to come into force on 1 April this year.

So far as Clause 23 is concerned, there is the opportunity for the Secretary of State to direct that the provisions of Clause 21 do not apply to a local authority if it would be unable to avoid serious financial difficulties. Similar considerations arise for private registered providers, where the regulator has to take a view on financial viability. Can the Minister say whether any general guidance will be published covering these matters? We note that the Secretary of State is taking powers to publish measures which individual local authorities can take, so we are back with central government micromanaging the affairs of local authorities—so much for devolving power. But as I say, we do not and will not oppose these amendments.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I support what the noble Lord, Lord McKenzie, has just said. He is right to say that the process of this particular measure and its sections through its various parliamentary stages has been less than best practice. Of course, it is not the Minister’s fault; I think that the Committee is grateful to her for her concise explanation of what these amendments seek to do, and it is agreed that they are, by and large, improvements. However, having substantial bits of policy of the kind covered by the sections and amendments that we are dealing with this evening in a summer Budget Statement, with no prospect of any consultation beforehand—an ex cathedra Statement by the Chancellor of the Exchequer, and then a long Summer Recess where everybody tries to work out what on earth it all meant—is not a good way of producing legislation.

It does not surprise me that there was a degree of confusion at the Commons Committee stages and that we are now faced at this quite late stage with admittedly helpful amendments. However, they are technical and they need consideration, because they increase the corpus of housing law and make things more complicated. Not only does the primary legislation make it more complicated; it will spawn secondary legislation. This House will no doubt look forward to studying it in great detail, larding and littering the statute book with consequential changes, including protecting mortgagees, implied terms in leases—which is always dangerous; from a legal point of view, implication by statutory legislation is never a good thing—and transitional protection, which may well be necessary. But at this stage I think it is appropriate for the noble Lord, Lord McKenzie, and the Committee to say to the Minister that housing Bills and measures of this kind should be done properly. Consultation and Green Papers are always an advantage. If we had had a Green Paper in relation to these clauses, some of the difficulties that the Minister faced in introducing these amendments could have been avoided and could be avoided in future.

[Baroness Evans of Bowes Park]

I thank both noble Lords for their contributions and take note of the points that they raised. In specific relation to the draft regulations, we will be putting out information on our detailed intentions in due course, and I will look at what more information can be provided at Report.

[Lord McKenzie of Luton]

Can I just press the Minister a bit to say what “in due course” means? Can we narrow that timeline a bit? For example, is it likely to occur before we get to Report?

[Baroness Evans of Bowes Park]

As I said, we will look at what information we can provide for Report; I am afraid that I cannot go further than that.

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[Baroness Hollis of Heigham]

My Lords, to respond to the noble Lord, the latest estimate is that 60% or more of property sold under RTB is now in the private rented sector, it is no longer occupied by the people who bought it.

[Lord McKenzie of Luton]

My Lords, this debate focusing on six specific amendments has become quite broad and—dare I say it?—welcome. The noble Lord, Lord Kerslake, kicked us off by reminding us of the background to the policy—in particular, pointing out that it is a complete reversal of CPI plus 1%, with its 10-year guarantee, which was introduced only a year ago. The noble Lord, Lord Horam, made the point that Governments may be foolish to offer 10-year guarantees, but one would hope that, whatever the term of the guarantee the Government gave, it would be met, and certainly not broken after just one year.

The noble Lord, Lord Kerslake, reminded us of what the policy as now constituted will actually deliver. Rents will be 12% lower and £2.3 billion per year will be lost to housing associations and local councils by 2020. Given the current structure of housing benefit, we are effectively talking about almost a straight transfer of resources from social landlords to the Exchequer. There is also the prospect of having 43,000 fewer social rented homes by the end of the period. The noble Lord emphasised the importance of certainty for the financing of housing provision.

I will come to the specific amendments on co-operatives in a moment, but the noble Lord, Lord Best, said that there are only three options for housing associations: cut programmes, cut the revenue costs which add value to housing association tenants or reduce surpluses. The Government have got themselves in a bit of a jam by believing that just because authorities and housing associations have reserves, that is free money. That reserve is there to support other activities and the current borrowing of housing associations and authorities. My noble friend Lord Beecham told us about the practical impact of the policies on his authority, and also supported the amendment of the noble Lord, Lord Ramsbotham, on almshouses, which I will come to.

The noble Lord, Lord Horam, reminded us that we have to deal with the deficit. Of course we do, but why do we always choose to do so off the back of the most disadvantaged in our society? Why that route?

The noble Lord, Lord Scriven, made the challenging point: is this dogma or is it practicalities that we are getting from the Government? My noble friend Lady Blackstone asked whether the Government would be honest and tell us what they think the effect of the policy will be. We ought to hear the Government’s view on what this will mean for housing provision over the upcoming period.

We had a fascinating lesson from my noble friend Lord Triesman on long-term annuity financing, which is very long-term with small margins, so changes in revenue streams could easily tip it into not being available.

My noble friend Lady Hollis challenged the PM’s view on bulldozing sink estates and made the point that to make social housing work requires decent homes, decent jobs, stable communities and decent management, and I agree with all that.

Amendments 104C and 104D, tabled by the noble Lord, Lord Kerslake, have the effect of reducing to three years the period of the rent reduction. That would coincide with when the Government tell us that the deficit will be dealt with, but that remains to be seen. From 1 April 2019, or the equivalent date where the relevant years are determined by Clause 21(6)(a), the rent reduction provisions will not operate. Amendment 104E requires that registered providers increase rents by CPI plus 1% from April 2020 and also requires there to be a review of the formula rent arrangements to see whether there are prospects of higher increases or greater flexibility.

We support the need to have as much certainty as possible for the future so that registered providers can develop long-term plans, although we understand that the Government may be coy about supporting anything beyond April 2020. It is presumed that the noble Lord’s amendments would apply to those tenancies to which the rent standard currently applies and not more generally. We also support the requirement for a review of the impact of Clause 21 to see what flexibility might be required to address its consequences.

I think that the way the Bill would operate at the moment is that if there is silence on the year 2020 before we come to the new arrangements, the regulator’s ability to set the rent under the rent standard would come back into play because it is negated by Clause 27 only for when the rent reduction proposals are under way. That would deal with the year between CPI plus 1% for 2020 onwards.

Overall, the effect of the noble Lord’s Amendments 104C, 104D and 104E would appear to be that the base for future rent increases would be higher than the Bill currently provides. The loss of income to councils and housing associations would be ameliorated and the shortfall in the provision of new accommodation would be reduced, to the benefit of those in housing need and to the benefit of the public purse, which would otherwise be bearing the strain. Other things being equal, the housing benefit bill would be higher in the short term than would otherwise be the case, as would the cost to those tenants who meet all or part of their rental costs. Overwhelmingly, the focus should be on getting back on track as soon as possible the investment programme under way as part of the 10-year settlement, which is what the noble Lord’s amendments seem to achieve: therefore, we are happy to support them.

Amendment 108, tabled by the noble Lord, Lord Best, focuses on fully mutual housing co-operatives. Amendment 108A, tabled by the noble Lord, Lord Kerslake, focuses on accommodation which is excepted from the right to buy because of specific adaptations for disabled or elderly people. Amendment 109A, tabled by the noble Lord, Lord Ramsbotham, which covers almshouse charities, was spoken to by my noble friend Lord Beecham. These amendments should be supported.

The case on mutual housing co-operatives has been fully articulated, as one would expect, by the noble Lord, Lord Best. We heard in particular from the Edward Henry House Co-operative in Waterloo. It argues that the financial model for housing co-operatives is different from that of housing associations. They do not keep large reserves. The reserves are kept low because of the member-tenant role in running the co-op. The prospects for driving efficiencies is therefore limited. These co-operatives should clearly be an exception to the policy, as should community land trusts, which are a very small section of the sector.

It is understood that the exemption from the right to buy for adapted properties is not widely drawn. Is it the case that it would not apply to one-off adaptations and requires properties to form part of a development of similar homes and to have some sort of social service or extra care provided on site or nearby for them to be subject to the right-to-buy exclusion? If this is the case, such properties would appear to fall within the definition of supported specialised accommodation, which is the subject of a separate exemption which we are going to debate shortly. The Minister may care to comment on that. This begs the question of whether the right-to-buy exemption should be widened at all—but perhaps this is an issue for another piece of legislation.

The financial structure of almshouses is different again. Residents pay a weekly maintenance contribution, rather than rent, which is less than a commercial rate. The exception the noble Lord, Lord Ramsbotham, seeks is entirely justified, and it is presumed that any impact on savings would be negligible.

We are confronted with six amendments, each of which should be supported. We have had a very robust debate around the thrust of this policy, the problems it creates and the challenges it will create in providing decent housing for people who have no option but to rent.

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Williams of Trafford) (Con)]

My Lords, I thank all noble Lords who have spoken to these amendments. I have listened with care to the comments made and thought it might benefit the Committee if I quickly set out some general comments with regard to the purpose of the 1% rent reduction.

As my noble friend set out at Second Reading, this Bill, including these measures, is part of a broader package of reforms, one of the aims of which is to put spending on welfare on a more sustainable footing, but in a way that protects the most vulnerable. I hope that answers the point made by the noble Lord, Lord Scriven, and other noble Lords who asked the same question. The housing benefit bill for the social housing sector in England has risen by nearly a quarter over the past 10 years to £13 billion, and rising rents are a key part of the equation. Average rent increases in the social sector have been more than double those in the private sector over the past five years. That is why the Government have taken the decision to reduce social rents by 1% a year for four years from 2016. That will mean that by 2020 tenants will be paying around £12 per week less than they would pay under the current policy of CPI plus 1% increases.

I listened carefully to the points made by the noble Lord, Lord Kerslake, regarding Amendments 104C and 104D. The noble Lord brings a great deal of knowledge of these issues to this House—I had not realised he had been chief executive of Sheffield—but we cannot accept these amendments, which would reduce the number of years of the rent reduction from four years to three. The noble Lord asked why we have gone back on the 10-year rent settlement of CPI plus 1%. This measure is crucial to the Government’s drive to secure housing benefit savings in order to control the welfare bill. Moreover, it will reset levels of social rents, which have got out of kilter with the private rented sector over the past few years. Around 60% of social tenants receive housing benefit, and the housing benefit bill for England in the social sector stands at £13 billion, and has risen by a quarter over the past 10 years. Social rents have risen by around 60% over that period. The average weekly rent for housing associations has gone up from £58 a week to £92 a week over the past 10 years. In contrast, in the private rented sector, it is 23%. We recognise that social housing providers will have to manage these reductions, but the Government are committed to reducing welfare spending, and everyone has a part to play. Moreover, we are confident that social housing providers will be able to adapt.

The noble Lord, Lord Beecham, asks why, if we are doing this in the social sector, we cannot do it in the private sector. We believe it is important to allow market rents in the private rented sector so that we have a diverse supply of private rental accommodation available for a variety of different needs. A fundamental move away from market rents would hold investment back when we most need to encourage it, and the resulting shortage of rented accommodation would help neither tenants nor landlords.

We also cannot accept Amendment 104E, tabled by the noble Lord, Lord Kerslake. It would require registered providers to increase rents by CPI plus 1% each year. The amendment also seeks to require the Secretary of State to review whether, given the impact of the rent reduction measure, there should be additional flexibility for registered providers to increase rents above the noble Lord’s proposal for an increase of CPI plus 1%. This is an important point that also goes to the question from the noble Lord, Lord Scriven: the Government will determine rent policy after 2020 at a future fiscal event. When taking future rent policy decisions, the Secretary of State will have to consider a range of issues, and it would not be right to prejudge now what those issues might be.

The noble Lords, Lord Kerslake and Lord Best, talked about the OBR predictions of 43% fewer properties being built by providers. The Government believe that providers will make efficiencies to continue to release resources for new development. I remind noble Lords at this point that housing associations hold £2.4 billion in surpluses, which is a very similar amount to local authorities. In the spending review we secured over £20 billion for housebuilding over this Parliament, including £8 billion for 400,000 new affordable homes over the next five years, so the Government are playing our part in the provision of housing.

[Lord McKenzie of Luton]

How much of that £20 billion is going to be applied for social housing for rent?

[Baroness Williams of Trafford]

That will be £1.6 billion.

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[Baroness Manzoor]

Forgive me for having to get up again; after all, we are coming to this subject on Amendments 107 and 109 so we will debate it then. However, I think there needs to be greater clarification regarding exemptions. There are currently organisations that are very vulnerable and provide housing services for some of the most vulnerable in our society to prevent people from becoming homeless, as well as those that provide refuge for domestic violence victims and so forth. I will not pre-empt the discussion that we will inevitably have, but I am looking for some reassurance from the Minister regarding whether these exemptions will continue to apply to those organisations that currently seem to be exempted. These rent reductions will have an impact because the providers will not be able to continue to provide those services, particularly to help and manage those kinds of conditions.

[Lord McKenzie of Luton]

Might the noble Baroness take the opportunity to clarify the distinction between exceptions and exemptions? I think she has been talking about exemptions today—exceptions are something else.

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Moved by

[Lord McKenzie of Luton]

105: Clause 21, page 20, line 46, at end insert—
“( ) 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.”

[Lord McKenzie of Luton]

My Lords, Amendment 105 stands in my name and that of my noble friend Lady Sherlock. We are pleased to note that it has the support of the noble Earl, Lord Listowel, and the noble Baroness, Lady Manzoor. The amendment calls for the Secretary of State to come forward with a plan to address the impact of lower social rents on housing associations and local authorities within 12 months of the rent reduction provisions coming into effect. It mirrors a debate which took place in Committee in the other place and follows on from much of what we have just debated.

The rent reductions amount to some £3.5 billion by 2020 for housing associations and are estimated by the Local Government Association to amount to some £2.6 billion for local authorities by that date. However, their impact will of course extend beyond 2020 because even if CPI plus 1% is restored after four years, it will be applied to a lower base than would otherwise be the case. LGA figures show that the rental loss for local authorities is equivalent to 60% of the total housing maintenance budget each year or 19,000 new homes over four years. London Councils points to a loss of rental income for London of £800 million up to 2020, but also, the cumulative impact looking across the 30-year business plan, assuming rents at CPI plus 1% after 4 years, is £13.3 billion.

The Government recognise that these reductions will have an impact on the finances of housing associations and local authorities but effectively say—we have heard it again tonight—that these can be managed. This amendment seeks clarification of how the Government think this can be accomplished. Effectively, it restates the question posed by my noble friend Lady Blackstone. Various estimates have been made of the loss of rental accommodation which might ensue, and it is recognised that this will obviously be influenced by what exceptions and exemptions are to be made available. We will come on to these in following groups. The National Housing Federation estimates that 27,000 fewer homes will be built over the next four years, although the OBR has different figures.

The Government have cited a number of factors in support of their view that everything is going to be all right. These include the accumulated surpluses of housing associations and HRA reserves, the latter totalling some £2.2 billion. They also point to the prospect of higher rents arising from social tenants with a household income of £30,000 to £40,000, which the impact assessment suggests could produce,

“hundreds of millions [of] pounds per year”.

Can the Minister give us a breakdown of this estimate, saying how much relates to London and how much to outside London, how many households are likely to be affected and what level of rent is expected to be levied and garnered from this process? Is it correct that the rent standard does not currently apply to rental accommodation where household income is £60,000 or more? Presumably this will have to be adjusted.

As for the reserves of local authorities and housing associations, the Government should be wary of making judgments by looking at the aggregate position. London Councils, for example, cites a loss of rental income of £800 million but reserves of stock-holding boroughs of only £700 million. There is an assumption that reserves can be used effectively without cost. What guidance, if any, is given to housing associations and local authorities generally about maintaining prudent reserves?

If the Secretary of State were to publish a document under Clause 23(12) about measures a local authority might take to avoid financial difficulties, what would his approach be in considering the running down of reserves? The impact assessment explains that the regulator is currently collecting information from large providers and requiring a revised financial forecast return reflecting updated policy announcements. Is this exercise complete and what is the outcome? The impact assessment also makes it clear that the Government are continuing to engage with the housing association sector and,

“remains confident that they will be able to find the necessary efficiencies to manage this change”.

Will the Minister please share with us what specific factors underpin this confidence? What is the Government’s current assessment of the shortfall in social housing for rent which they consider will flow from the operation of Clause 21? In addition, what is the estimated impact on housing waiting lists?

We can exchange statistics about the housing performance of this Government and will doubtless hear, among other things, proposals to develop 275,000 affordable homes over the course of this Parliament. If we do, can we be clear on the definition of affordable housing being used, and how many homes will be available for rent? I beg to move.

[The Earl of Listowel (CB)]

My Lords, I support the amendment. I am very concerned about the rise in child homelessness and the number of homeless families living in insecure accommodation. I am concerned at the possibility that these changes will reduce the supply of housing and contribute to further child homelessness. Will the Minister look at the possible impact on child homelessness of the reduction in rent over the next four years?

I welcome the extra investment, announced yesterday, that the Prime Minister has made in perinatal mental health care so that during and immediately after pregnancy mothers get support if they have mental health issues. I understand that he is doing that because it is increasingly recognised how crucial it is for children to have a good start in life. The noble Lord, Lord Horam, spoke earlier about productivity. I suggest to your Lordships that if we do not do everything possible to give children the best start in life, we will be shooting ourselves in the foot as regards productivity. We know that if they get a good start, they will do well in school and will probably also do well in employment. That is why I particularly support the amendment.

Living in insecure accommodation is also obviously very troubling for children as they may have to move from school to school and may be separated from their friends. I know that, like me, all your Lordships are very concerned about the increasing number of children who are homeless, and I look forward to the Minister’s reply.

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[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.

[Lord McKenzie of Luton]

Does the noble Lord accept that there is a distinction between trying to understand what the Government currently think the impact of their policy will be and evaluating within a certain period in the future how it is working out?

[Lord Horam]

I appreciate that. Clearly, we ought to know as much as we can now about the effect of the Government’s policies as they are articulated in this Bill. None the less, a sensible monitoring process should allow a reasonable period of time for the whole thing to work through. I suggest that halfway through a Parliament is a much more sensible time than 12 months, frankly.

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[Baroness Williams of Trafford]

My Lords, I was not the Minister a year ago. However, I get the noble Baroness’s drift. The point is that we now have a majority Conservative Government and this policy has come out of that. I am not saying in any way, shape or form that it is the social rented sector’s fault. I am saying that that is the position in which we find ourselves, due to many different factors. Over the past few years, inflation has been one of the factors driving it up. However, I will correct that if I am wrong, given that I am saying it from the Dispatch Box.

The noble Lord, Lord McKenzie, asked about the guidance to social providers on maintaining surpluses. We feel that it is a matter for the housing association boards to run their businesses as they see fit. It is a well-regulated sector that, to date, has managed its finances magnificently. Boards have been advised to raise any anticipated exceptional challenges with the regulator to discuss any difficulties that they might anticipate.

[Lord McKenzie of Luton]

Is any guidance given to local authorities on prudent reserves?

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[Baroness Williams of Trafford]

Perhaps I may write to the noble Baroness; I understand her point. However, I also understand the point made by my noble friend Lord Horam: it is difficult to assess an impact within 12 months. It will probably take longer.

The noble Lord, Lord McKenzie, asked about the high-income social tenants’ policy and its impact on housing. It is worth noting that we will have an opportunity to scrutinise this fully during the passage of the Housing and Planning Bill, when I will probably be the Minister standing at the Dispatch Box. However, at this point I hope the noble Lord will feel able to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I thank all noble Lords who have participated in this short debate. The noble Earl, Lord Listowel, expressed his concerns about the impact of the policy on children; the noble Baroness, Lady Manzoor, believed that we had a straightforward, simple proposition to put to the Government; and my noble friend Lady Blackstone still awaits an answer to the fundamental question she has now raised on the last two groups of amendments. We must hope that the correspondence from the Minister will elicit a response.

I accept the point that if particular issues arise, the route of exemptions and exceptions may be brought to bear to address them, but that does not substitute for the fundamental question my noble friend is asking: what is the Government’s assessment, in introducing these policies, of the impact they will have on the provision of housing and their targets for building houses? How will it be affected by this?

The noble Lord, Lord Horam, made a reasonable point about monitoring and said that one should do that after a period of longer than 12 months. I hang on to my point that we are looking for two things here: the Government’s current assessment of the impact on housebuilding of the introduction of the policy; and then monitoring what will happen in practice.

We have given this issue a good airing. For the time being, I beg leave to withdrawn the amendment.

Amendment 105 withdrawn.

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Moved by

[Lord McKenzie of Luton]

107: Clause 22, page 21, line 6, at end insert—
“(c) the accommodation is specified accommodation, as defined in The Housing Benefit and Universal Credit (Supported Accommodation) (Amendment) Regulations 2014 (S.I. 2014/771).”

[Lord McKenzie of Luton]

My Lords, Amendment 107 calls for certain types of property to be excepted from the provisions of the rent reduction scheme. It was assumed when it was drafted that it would have the same effect as Amendment 109 in the name of the noble Lord, Lord Best, and others. I acknowledge that Amendment 109 seems to have garnered a broader range of support and doubtless this has much to do with the credibility of the person whose name is at the top of it as well as the substance of the drafting.

The scope of this exception is built on the coverage of the regulations which widen the protection from the benefit cap. It is intended to include supported housing where the landlord is of a specified type and provides, or causes to be provided, care support or supervision to claimants; supported accommodation where the landlord is a specified third or social sector provider and care, support or supervision is provided to residents; third and social sector refuges, including local authority refuges where a claimant is accommodated because they are fleeing domestic violence; and local authority hostels providing care, support or supervision.

The Government’s briefing note on these clauses indicates that they are minded to align exceptions to the policy with exemptions that apply to the rent policy set out in the rent standard guidance. We would support this as far as it goes as its coverage would include PFI schemes, temporary social housing and short-life leasing schemes for the homeless, residential and nursing homes, student homes and key worker accommodation. Perhaps the Minister will confirm that this is still the intent and say why, therefore, more could not be put in the Bill.

Despite this, it is considered that the specialised supported housing definition included in the rent standard is too limited. The guidance itself has indicated that interpretation has not been without difficulty. For example, it says that the exemption from social rent requirements of specialised support in housing is usually limited to those properties developed in partnership with local authorities or the health service and which satisfy all of the following criteria. The scheme should offer a high level of support for clients; no or negligible public subsidy should have been received; and the scheme should have been commissioned in line with local health and social services or supporting people strategies and priorities. I paraphrase.

Adopting the definitions in the housing benefit and universal credit regulations—which is what this amendment and the amendment of the noble Lord, Lord Best, do—will provide a wide enough basis for an exemption from Clause 21. The reason we need a comprehensive exception from the policy in this respect has been abundantly clear from the range of submissions we have received. As the submission from Homeless Link sets out, the type of accommodation we are referring to—let us call it supported housing—caters for a wide range of tenants with specific needs requiring various degrees of support. It points out that this provision is generally more expensive to build, manage and maintain. The fear is that the rent reduction measure will lead to a loss of existing supported housing schemes, with fewer schemes being developed in the future. Those who bear the brunt will be the homeless, those with mental health problems, people fleeing domestic violence, those with learning disabilities and those with drug and alcohol problems. Denying them the chance of decent accommodation and care and support will only push the costs elsewhere in the public sector as well as impairing the life chances of those whose quality of life is under challenge.

We have been presented with examples of projects that will fall by the wayside, including from Riverside, with a third of its supported housing schemes being at risk; St Mungo’s, with a cumulative four-year loss of projected income of £4 million; and the YMCA, with the potential end to a housing project for 170 16 to 17 year-olds. Indeed, Riverside has set out a range of stark facts. It states that early Riverside projections indicate the impact of the rent decrease policy will be a reduction in income in excess of 16% over four years, a cumulative total of almost £100 million, which it says will reduce its operating margins by 9.5%. Riverside owns and manages around 4,600 units of supported housing. Housing associations as a whole manage 105,000 units of supported housing, which is 3.7% of all stock managed. The level of savings forgone, it is suggested, as a result of an exception for supported housing, would be modest.

Having moved this amendment, I hope it puts us on the same page as the noble Lord, Lord Best. I look forward to hearing from him to see whether we can forge a common position. I beg to move.

[Lord Best (CB)]

My Lords, I speak to Amendment 109, which covers the same issue as Amendment 107, moved by the noble Lord, Lord McKenzie of Luton. Of course I entirely support that amendment, which was so well presented by the noble Lord. In both cases the amendments look for an exclusion from the proposed 12% rent cuts for supported housing as defined in housing benefit and universal credit regulations. I am grateful to the noble Lords, Lord Kerslake and Lord Shipley, and the right reverend Prelate the Bishop of Rochester for supporting this amendment, and to the noble Lord, Lord Horam, who spoke earlier in favour of exceptions and exclusions for cases of this kind. I also offer sincere thanks to Members from all sides of the House who signed a letter to the Times, co-ordinated by the National Housing Federation just before Christmas, expressing the hope that the Government would give favourable consideration to the case we are making today.

The specialist housing organisations that fall within this definition—such as St Mungo’s Broadway, the YMCA and many small charities—would suffer a major blow from the 12% reduction in income from their rents. These are the organisations on the very front line, providing supported housing for those with mental health, drug and alcohol problems, homeless people, care leavers, those fleeing domestic violence, as well as veterans and older people needing care and support.

The vulnerable people these charities support inevitably require higher spending than for general-needs renting. The charities working for them operate on the margins of viability and can easily be pushed over the edge. As well as supported housing being provided by specialist bodies, many of the larger housing associations have been keen to include schemes of this kind within their wider stock, but these social businesses cannot absorb loss-making projects. It is very hard for them to sustain this specialist provision if supported housing becomes a financial liability.

Management costs are not the only ingredient that means supported housing must have higher rents than the norm. There are higher maintenance costs due to the higher turnover of tenants, greater wear and tear, more voids between lettings, more arrears, and even significantly higher insurance premiums. Yet without these housing schemes it is certain that a lot of people will suffer the most acute deprivation, including living out on the streets. Moreover, the wider impact on society from neglecting their needs will be immense. The Homes and Communities Agency found that supported housing work produced a net positive financial benefit of some £640 million—more than six times the savings that the Government would obtain from cutting rents by the fourth year of this rent-cutting policy.

The accommodation covered by the amendment has already been given special status in respect of the new benefit cap and exemption from the so-called bedroom tax. Therefore it seems entirely consistent to exclude these hostels and specified accommodation schemes from the requirement for rent cuts. The Government have stated that it might be possible for an organisation which could face extinction as a result of the rent reductions to apply for a waiver from this requirement. However, there are two flaws in this approach to solving the problem now facing housing.

First, the specialist charities requesting a waiver face ongoing uncertainty and an unknown, potentially bureaucratic and time-consuming process to decide the somewhat extreme question of whether they will become insolvent rather than just be completely undermined by losing so much income. Secondly, the waiver route does not address the issue of supported housing provided within their wider role by larger housing associations that do not face financial ruin but which are likely to pull back from pursuing this kind of accommodation if rent cuts render supported housing loss-making.

If an association with wider objectives has to improve its financial viability by closing its supported housing schemes, the effect will be just as bad as forcing a small charity out of business. This is where we get into the issues raised by the Minister on the difference between exempting organisations by providing a waiver if they look like they are going bust because of the rent reductions, and excluding categories of housing—the category in this case being supported housing.

I know that the last thing the Government want is to undermine housing provision for those in the most acute need, with all the extra expenditure for the NHS, social care, the justice system and the rest which would follow. I believe that the Government already have a concession of this kind in mind, but confirmation of the position by the Minister is needed urgently because the process for a rent reduction on 1 April, with the sending out of thousands of notices to tenants and local authority housing departments, which will be very hard to rescind, must begin at the end of this month.

I must conclude with a footnote, albeit a rather important one. The Government are also planning to introduce another constraint: a cap on housing benefit for council and housing association tenants at the same level as for tenants of private landlords; that is, at the local housing allowance level. This ceiling is not a problem for the great majority of housing association properties since their rents are lower than in the private rented sector. The noble Baroness, Lady Hollis, suggested that they are something like 40% to 50% lower. But, of course, rents for supported housing—the kind of housing that private landlords do not provide—are obviously much higher.

For example, a homeless project for people with mental health and/or drug and alcohol issues is currently charging £119 per week, but the relevant local housing allowance maximum for an ordinary one-bedroom flat is £84 per week, so the new cap at LHA levels would mean a loss of £35 per week per flat for the project. A purpose-built autism scheme for enabling people to move out of institutional care would face a shortfall of £90 per week per flat, even though the scheme saves huge sums compared with the costs of leaving people in the institutional setting.

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[Baroness Williams of Trafford]

My Lords, the noble Baroness has been in government and she knows the processes of government. She is right to say that I am a consensual politician, where I can be, but I will not stand at the Dispatch Box and give assurances that I cannot absolutely fulfil. I therefore have to say that I cannot do that but I will be doing all I can to make progress in this area. That is all I can say at this stage.

[Lord McKenzie of Luton]

My Lords, I thank the Minister as I thought that what she was beginning to say was encouraging, but can I clarify one point about the reference to specialised supported housing? This is really the nub of the issue. Is the definition which the Government are working towards the same as that exempting people from the benefit cap, or is it a different one?

[Baroness Williams of Trafford]

My Lords, it is different. We are looking at this whole area of provision but it is a different definition. The noble Lord asked whether we could include the exceptions on the face of the Bill. They would probably be too complex to include in the Bill, while regulations would provide more flexibility to effect better the appropriate definitions and make adjustments in due course.

Funding for supported housing is also part of the Government’s wider financial settlement to councils. This includes investing £5.3 billion in the better care fund in 2015-16 to deliver faster and deeper integration of health and social care. This will enable councils to invest in early action to help people live in their own homes for longer. It will also help prevent crises, as well as supporting councils to work more effectively together, deliver better outcomes for less money and drive integration across all local services. We are also investing in specialised housing for older people. In the spending review, we have committed £400 million of funding to deliver 8,000 specialised homes for the vulnerable, elderly and those with disabilities through the affordable homes programme, with a commitment to further funding from the DoH for specialist accommodation. We will continue to support local areas to meet their local needs by maximising funding flexibility.

I think it was the noble Lord, Lord McKenzie, who asked about the combined impact of the social rent reduction and capping the highest housing benefit awards for social renters, in line with caps applicable in the private rented sector, meaning that supported housing will be decimated. Now that I am looking at the noble Lord, I do not think it was him who asked this. But there was a noble Lord who asked that question, because I have written it down. Applying a cap on the highest social rents will mean that housing benefit will no longer subsidise families who take new tenancies in social houses that many working families cannot afford. The new cap will have effect only from 2018 for new or re-let social tenancies signed after 1 April 2016.

The noble Lord, Lord Shipley, asked whether the savings of £75 million were for supported housing. I do not know but I will write to him about it and I can come back to that question on Report, if he wishes. My noble friend Lord Young asked whether we can meet providers, as I think I have said. We have met providers and will meet them again.

Finally, I reiterate that while we expect providers to make all possible efforts to manage the rent reductions and plan on that basis, Clause 23 allows for individual providers to apply for an exemption from the rent reduction if they think that they will face severe financial difficulties.

[Baroness Williams of Trafford]

My Lords, providers have a very good track record both in managing their finances and in terms of the housing that they provide, and I do not expect that a housing provider will go to the Government only when it is on its knees. In well-run housing associations, I expect that forward planning would show what sort of difficulties might be coming up and that they might therefore apply for an exemption on that basis. I hope it would not be at the 11th hour, because that is not good financial planning. I hope I have provided some reassurances and that the noble Lord will feel able to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for a very comprehensive reply. There was a moment there where I thought some comfort was coming, but it disappeared relatively quickly. I thank all noble Lords who participated in this short debate—forgive me if I do not pick up on all the comments, because I believe that pretty much everyone who spoke on this issue shared the same view. I also believe that the Government did not intend this to happen. We will cling to that belief and hope that it sees us to a sensible solution at the end of the day.

There is an overwhelming recognition that supported housing of the type we have discussed is significantly needed in our country, and that if it is not provided, the cost to the rest of society will spill over and be much worse. We need to act quickly on this. The noble Lord, Lord Best, in his comprehensive argument in favour of the amendments, made the point that we need to pursue exceptions rather than exemptions. Exemptions will not be any use to those associations which embed provision within their business plans, and the uncertainty that having to seek an exemption will lead to is one that many will not be prepared to live with or cannot live with. Urgency on this is important.

I do not think we had an answer on whether the other components which are exempted from the rent standards at the moment, such as PFI schemes, temporary social housing and short-life leasing schemes for the homeless, are going to be replicated in some way. The important point is that if the definition of specialised supported housing is not going to be the broader one, then the job will not be done, and we will return to this if it is not. We look forward to continued engagement on this between now and Report, but in the mean time, I beg leave to withdraw.

Amendment 107 withdrawn.

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Moved by

[Lord McKenzie of Luton]

110: After Clause 23, insert the following new Clause—
“Housing costs in the private rented sector
(1) The Secretary of State must, at a time no later than the end of the financial year ending March 2017 and at least once during the course of each of the subsequent four financial years, review the relationship between housing costs in the private rented sector and levels of local housing allowance.
(2) Where a review under subsection (1) shows that less than 30 per cent of private rented properties in each locality are affordable to persons in receipt of local housing allowance, the Secretary of State must by regulations under section 130A of the Social Security Contributions and Benefits Act 1992 (appropriate maximum housing benefit) amend the rates of local housing allowance.”

[Lord McKenzie of Luton]

My Lords, Amendment 110 stands in my name and that of my noble friend Lady Sherlock. We welcome the support of the noble Earl, Lord Listowel, who has added his name to it. The amendment moves us into somewhat different territory. It is about the adequacy of the local housing allowance system and the quarterly review of the extent to which at least 30% of private rented properties in each locality are made affordable by the LHA. It is an opportunity, in particular, to review the effect of the four-year freeze on the LHA.

Whereas the Government have sought in the Bill to ameliorate the costs of housing benefit for social housing by reducing rent levels, their efforts and those of the coalition Government have taken a different approach in the case of the private rented sector. For the PRS, the Government have progressively reduced the level of support provided by the LHA. This started by moving the LHA rate down from the median rent in any given area to the 30th percentile and was followed by national caps on categories of property, limited uprating, initially to 1% a year, and now a four-year freeze. As well as changes to the LHA which effectively substitute for the rent level in any calculation, there have been changes which affect the calculation of housing support itself: the abolition of the family element, the two-child policy and cuts to work allowances, not to mention, where appropriate, the benefit cap. That is happening at the same time as more people are looking to the PRS for housing and rents are increasing.

The private rented sector is growing out of all proportion to the UK’s housing stock, and is expected to comprise more than one-third of the total stock by 2032. This growth has been stimulated in particular by the deregulation efforts in the Housing Act 1988 and the continuing shortfall under successive Governments of new housing provision. Research by Shelter highlighted that a third of renters are now families with children—those most affected by the volatility and uncertainty of the rental market. Nearly three-quarters of families who rent are in work and would overwhelmingly like to own their own home but believe that they will never be able to afford it.

In a release just last week, Shelter set out recent findings of an online survey which showed that 32% of private renters have had to cut back on either heating or winter clothing to meet housing payments and 56% are struggling or falling behind with their rent. An earlier study by Shelter highlighted that more than half of local authorities in England have a median private rent for a two-bedroom home which costs more than 45% of median take-home pay in the area. Eight per cent of authorities have median rents that are 50% or more of median full-time take-home pay. This is before the 1% freeze begins to operate.

The test the amendment sets down is whether 30% of private rented properties in each locality are affordable to people whose housing support is based on the LHA. It implies that the 30% would be the lowest cost, the 30th percentile, because that was the central test considered appropriate before uprating was decoupled from actual rental levels, a change which has been deepened by the LHA freeze which, as we touched on, is to be visited on social rented housing in 2018.

As I said, the extent to which private sector rents are affordable depends on how the broad rental market area operates in practice, as well as the details of the current social security system, but the starting point is the actual level of the allowance, the rent equivalent. There is no doubt that at times of growing demand, inadequate supply and rising rents, a freezing of the LHA is likely to widen the gap between actual costs and the level of housing support.

Indeed, this is already happening, particularly in London, where London Councils recently published an analysis of the likely effect of the freeze which demonstrates that already less than 30% of private rented properties are affordable at the LHA rate. It suggested that only 5% to 10% of properties in some high-value parts of inner London might be affordable and that this could spread more widely around the capital. For 2015-16, a gap is already opening up between LHA rates and the 30th percentile. Based on government figures, in two-thirds of the broad rental market areas the 30th percentile rents for two-bedroom properties, for example, are already above the April 2015 LHA levels.

Does the Minister accept those figures? Unless rents are to come down, this shortfall will only grow. A clear consequence of this is that more and more people will uproot and move to cheaper areas, with all the consequences of that upheaval for families and their communities, both old and new. For some, the benefit cap will further make properties unaffordable, leading inexorably to homelessness and poverty. We cannot allow this to go on. This is a deepening crisis, which the Government need to address. The noble Lord, Lord Kerslake, has two amendments in this group. I may respond to them when I wind up. I beg to move.

[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.

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This group of amendments covers two quite separate and important areas of policy. I apologise again for flailing around slightly in the middle of my response, but I hope that, on the basis of the explanations I have provided, the noble Lord will be able to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for her reply. I should not worry too much about getting Box notes confused. I once read out a Box note that said “Don’t go there”. It is tucked away somewhere in Hansard, but I will not tell noble Lords where.

I thank the noble Lord, Lord Kerslake, for dealing with his amendments. The proposition he advanced is entirely reasonable—that new supply, which he said was less than 2% of the total, could be freed up from these provisions. It is a pity that the Government could not respond positively to that.

So far as the rest of the response was concerned, I am not sure that the Minister fundamentally dealt with the issue around the private rented sector and the effect of affordability, and that there is a widening gap between what the LHA reduces in terms of support and rent levels. In some respects that is forcing quite significant movements out of the capital, out of initially lower-cost areas into even lower-cost areas, and the consequences of that for people’s lives, lifestyles, their community, schooling for their kids and so many other issues is quite profound. I regret that the Government are not addressing that issue. However, perhaps in fairness to the Minister I ought to read the record, supplemented as appropriate by any correspondence she feels in retrospect it might be helpful to have. Having said that, I beg leave to withdraw the amendment.

Amendment 110 withdrawn.