Draft Housing (Tenancy Deposit Schemes) Order 2026

Matthew Pennycook Excerpts

Monday 2nd November 2026 General Committees

[The Minister for Housing and Planning (Matthew Pennycook)]

I beg to move,

That the Committee has considered the draft Housing (Tenancy Deposit Schemes) Order 2026.

It is a pleasure to serve with you in the Chair, Sir Desmond. The draft order was laid before the House on 8 September 2026. This Government promised in our manifesto to transform the experience of private renting. In addition to the greater security, rights and protections that we have given private tenants through our transformative Renters’ Rights Act 2025, improving how tenancy deposit schemes work is a way that we can further deliver on that promise.

As things stand, when tenants provide a deposit as a security for any breach of tenancy terms, the landlord is required to protect it through a Government-approved tenancy deposit scheme. That means that renters can feel confident that their deposit is safe and secure, and that at the end of the tenancy, it is returned to the tenant and/or landlord in accordance with the appropriate outcome under the scheme. When tenants and landlords disagree over the amount due to each party, the schemes also offer free and independent dispute resolution.

Custodial tenancy deposit schemes are delivered via concessionary contracts, whereby administrators fund the service from interest earned on deposits, rather than receiving payment from Government. Custodial schemes hold more than £2.5 billion-worth of tenants’ money on which they accrue interest. The interest is retained by the scheme administrators as revenue, unless arrangements are in place for part of it to be paid to the tenant. As part of improving the tenancy deposit system, the Government want to unlock the value generated by the schemes and expand the ways in which it can benefit tenants in the private rented sector. Ultimately, that will mean better value for both tenants and the taxpayer.

The draft order will enable the Secretary of State for Housing, Communities and Local Government to receive part of the interest accrued on tenancy deposits protected under a custodial tenancy deposit scheme. Currently, the legislation allows interest to be retained by the scheme administrator, subject to scheme arrangements, providing for part of it to be paid to tenants and/or landlords. I want to be clear that the order does not remove those options. It adds flexibility by introducing a new power that may be used in combination with one or both of the existing options, for example where high interest rates mean that the interest generated by the scheme as a whole considerably exceeds the costs of running the scheme, after allowing reasonable returns to scheme administrators.

The draft order does not itself require any payment to be made to the Secretary of State, nor does it prescribe how such amounts must be determined. Those matters will be determined through future scheme arrangements established via procurement and contractual processes. What the measures do is to allow the Secretary of State to take account of market conditions, scheme performance, operating costs, value for money and the need to maintain an effective, free service for tenants and landlords, while avoiding disproportionately high profits being made by scheme administrators.

The draft statutory instrument is intended to provide flexibility for future arrangements with administrators of custodial schemes. The Secretary of State’s intention is that, if the new power is exercised, the Secretary of State would use any funds received towards programmes or activities that benefit tenants in the private rented sector. The Secretary of State will be transparent in publishing the amount received from the scheme, the programme or programmes funded, and any metrics demonstrating the value delivered. Any arrangement for interest to be paid directly to the Secretary of State will be subject to agreement from His Majesty’s Treasury.

Future arrangements will continue to allow scheme administrators to keep part of the accrued interest to cover the cost of the free service that they provide to tenants and landlords. That amount should be sufficient to enable the scheme to provide a safe and effective service that safeguards tenants’ deposits, to meet its key performance indicators and to make a reasonable profit if it is a private sector entity. Future arrangements may also provide for part of the accrued interest to be paid directly to tenants, where it is decided that that is appropriate. To conclude, the draft order will give the Government additional flexibility to determine how the interest accrued by custodial tenancy deposit schemes is distributed, so as to ensure a fit-for-purpose scheme that will ultimately benefit tenants in the private rented sector and the taxpayer.

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[Matthew Pennycook]

I thank the shadow Minister, the Liberal Democrat spokesman and my hon. Friend the Member for Tamworth for their contributions. I will clear up a few misconceptions on a couple of points, and then I will respond to the other discrete points that have been put to me.

First, it is worth pointing out that the Government have already improved the value that tenancy deposit schemes deliver for tenants and landlords. The current administrators of custodial schemes are already expected to pay part of the interests accrued, in addition to the original value of the deposits, to tenants. The allocation mechanism is different for each of the three current schemes, but requiring administrators to pay interest to tenants and landlords will continue to be an option for future arrangements.

As I tried to make clear in my opening speech, the order is not intended to enable Government to profit from tenants’ deposits. It enables future scheme arrangements to provide for part of the interests accrued on protected deposits to be paid to the Secretary of State. That additional flexibility, as I said, will be particularly relevant where high interest rates mean that scheme returns on the deposits held considerably exceed the administrators’ costs of providing the scheme and wider ancillary services. The shadow Minister, the hon. Member for Orpington, is perfectly at liberty to take issue with the principle of that and to take the view that administrators should benefit from the entirety of the interest accrued on the deposits. We take a different view. We think we should have the flexibility to provide for other uses.

I hope I can provide the Liberal Democrat spokesperson, the hon. Member for Taunton and Wellington, with some assurances on that point. Our intention is that the funds received would be used towards programmes or activities that benefit tenants in the private rented sector. They would not be, as he asserted, siphoned off into some Treasury fund that does not deliver on that purpose.

[Gareth Bacon]

If that is so, why not simply put that into this statutory instrument? I share the suspicion of the hon. Member for Taunton and Wellington—he and I seem to be agreeing a lot these days, which I am sure makes us both feel uncomfortable. The Minister has used this phrase again, “the Government expect”, which we have heard so many times over the years. An expectation is not the same thing as something actually happening. It needs to be put into the law. Why not simply put it into the SI?

[Matthew Pennycook]

Simply because—I was coming on to make this point—this order is enabling in nature. It does not require any payment to be made to the Secretary of State, nor does it prescribe how any payment amounts would be determined. Those matters would be determined through future scheme arrangements established via procurement and contractual processes. I have said it before, and I will say it again for reassurance: the Department will publish information about any amounts received, the programmes funded and any metrics demonstrating the value delivered, so there will be full transparency on the use of funds.

[Lewis Cocking (Broxbourne) (Con)]

I thank the Minister for giving way; he is always very generous with his time. Could he provide us with some examples of what MHCLG could use this money for to support renters? He has not listed any yet, and obviously there are none in the SI. I am a bit concerned about where this money is going to be used.

[Matthew Pennycook]

Forgive me, I think I did give an example in my opening remarks, but I do not want to stand here and speculate on the precise programmes that might be funded through those interest payments, if we make a decision to take a portion of them in future. I am being very clear that they would be directed to support private rented sector tenants; they could not be siphoned off for other Government activities. Any payments made to MHCLG would be subject to future agreement via contractual and procurement processes.

[Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)]

I thank the Minister for giving way and for his explanation. Can he at this stage give any indication of the thresholds at which this mechanism would kick in and allow the Department to make those directions? It is perfectly right that a windfall on interest can be put to good public use, but I am interested in where the Department currently considers the threshold for that windfall to start, so that we can know when those schemes might start making a contribution.

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[Matthew Pennycook]

My hon. Friend helpfully brings me on to the two further points I wanted to respond to, which the shadow Minister, the hon. Member for Orpington, rightly probed: essentially, how will the amounts due to the Secretary of State be determined, and what specifically do we intend to spend them on? I cannot confirm to my hon. Friend today what the amounts due to the Secretary of State will be. As I have said, the order allows for the distribution mechanism to vary, taking into account market conditions such as interest rates. Specific arrangements would depend on commercial negotiations with prospective scheme administrators.

I can commit that, first and foremost, the distribution mechanism will prioritise ensuring that the deposit protection and dispute resolution services offered to tenants and landlords continue to be free and effective. I assume we would all agree that that is particularly important. My Department will set key performance indicators and cost-efficiency metrics to monitor the scheme administrators’ delivery. If the interest accrued exceeds the minimum cost of meeting the key performance indicators, the additional amount of interest will be distributed between the administrator of the scheme, tenants and/or landlords, and the Secretary of State. When setting the distribution mechanism, the Secretary of State intends to allow the scheme administrator to keep a reasonable amount of profit as a reward for the service delivered. It is not the Secretary of State’s intention to exploit the tenancy deposit system and agree to arrangements that leave tenants and landlords worse off.

As for what we intend to spend any money received on, the Government have demonstrated their commitment to improve conditions for tenants in the private rented sector. Although a specific programme or programmes cannot be confirmed at this stage, it is our intention to use any receipts to fund Government programmes to benefit tenants in the sector. It is important to say that it will take time for interest to accumulate and be paid to the Secretary of State under future arrangements, if we decide to make use of the power. Those arrangements will depend on market conditions and priorities for the private rented sector, and will be subject to agreement from the Treasury.

[Mr Snowden]

Going back to the threshold point, can the Minister give any indication of what level interest rates would have to reach to trigger this, based on the Department’s calculations in crafting this statutory instrument? If it is a windfall from high interest rates generating additional revenue, what general ballpark does the Minister think interest rates would have to be at to trigger this?

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[Matthew Pennycook]

I commend the hon. Gentleman for the attempt, but I am not going to stand here and give him a general ballpark estimate of what interest rates might be. As I said, any payments to MHCLG will be subject to future agreement via contractual and procurement processes.

I want to clear up one specific point that the shadow Minister made about insured schemes. No final decision has been made in that regard. The Department is assessing the benefits and risks of both insured and custodial models.

To conclude, the Government continue to deliver improvements for tenants in the private rented sector. This order will provide additional flexibility in how interest accrued on deposits held under custodial tenancy deposit schemes may be distributed, so that excess returns that may be generated by the schemes are used effectively. It will enable my Department to deliver an improved tenancy deposit scheme that is fit for purpose and that will, as I have said, deliver better value for money for tenants in the private rented sector and the general taxpayer. Notwithstanding the shadow Minister’s very clear intention to push for a Division, I hope the rest of the Committee will welcome this amendment to the Housing Act 2004.

Question put.