Leasehold and Freehold Reform Bill (First sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[The Chair]

I take it that we do not need to move the motion about deliberating in private; just intimate to the Clerk or me that you want to speak, and we will proceed informally. We are sitting in public, and the proceedings are being broadcast. Do any Members want to make a declaration of interest?

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

My wife is the joint chief executive of the Law Commission, and we are hearing evidence from it.

Examination of Witness

Mr Martin Boyd gave evidence.

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[The Chair]

I think perhaps the Opposition spokesperson wants to start off with the questions.

[Matthew Pennycook]

Q Martin, thank you for coming to give evidence to the Committee. I have two questions to start off with.

[Ms Marie Rimmer (St Helens South and Whiston) (Lab)]

Excuse me, Chair. Is the loop system on? No? Can we arrange to have it on, please? [Interruption.] Oh, we cannot; I understand.

[Matthew Pennycook]

One of the aims of the Bill—certainly in the terms of reference handed to the Law Commission, whose recommendations frame a lot of parts 1 and 2—was to provide a better deal for leaseholders as consumers and increase transparency and fairness. In your view, to what extent does the Bill as a whole do that? Are there any specific clauses or elements of the Bill that we might seek to tighten up to further improve the experience for leaseholders as consumers? I am thinking of the fact that leaseholders are still liable to pay certain non-litigation costs and that right-to-manage companies are still liable when claims cease.

Mr Martin Boyd: As you may recall, when the Law Commission originally looked at this area of the law, it suggested to the Government that a consolidation Bill was warranted. However, there was not the budget at the time, so it was then given the three projects on right to manage, enfranchisement and commonhold to look at. The enfranchisement proposals and some of the right-to-manage proposals, but none of the commonhold proposals, have been brought forward in the Bill. The difficulty with the Bill is that there is an almost endless list of things that could be added. In removing the one-sided costs regime, the Bill does quite a lot to balance the system during the enfranchisement process. It also attempts to address the problem of the costs regime at the property tribunal. In the current system, the landlord is in a win-win position. Even if they lose the case, they are able to pass on some of their legal costs under most leases. The Bill tries to address some of those issues.

We still have a whole set of problems in the way that resident management companies and RTMs operate. They do not have a legitimate means of passing on their company costs within the service charge. There are still sites where they effectively have to cook the books to pass on the legitimate costs to the service charge payers. There are still many more things to add to the Bill. Clearly, we will continue to have problems with multi-block right-to-manage sites as well. They do not operate effectively anymore, and unfortunately the Bill does not address that element of the problem.

[Matthew Pennycook]

Q Just so I am clear, you think there is scope to tighten the clauses in the Bill when it comes to non-litigation costs at tribunal and RTMs incurring costs?

Mr Martin Boyd: Yes. There are several things that could be added.

[Matthew Pennycook]

Q My second question relates to managing agents. Lots of the freeholders that leaseholders have to deal with are offshore and hard to reach. Managing agents are the first point of contact, and in many cases are the only point of contact. To what extent do you think that the Bill will function effectively without some kind of regulation of managing agents? Should we be looking to introduce that into the Bill?

Mr Martin Boyd: The RoPA—regulation of property agents—report, which the Government undertook some years ago under Lord Best and which proposed statutory regulation of managing agents in this sector and within the estate agency world, has unfortunately not moved forward. There are proposals in the Bill to bring estate agents within codes of practice, but nothing in particular changes on property management. We have a slightly strange position at the moment. In the social sector, there is now an obligation for a property manager to have a proper level of competencies to look after high-rise buildings, or high-risk buildings, as they are still called. In the private sector, though, we have nothing. There are no requirements to have any qualifications to look after and manage the highest of our high-rise buildings in this country. That is simply wrong, so I would support fully a move to the statutory regulation of agents.

[Mike Amesbury (Weaver Vale) (Lab)]

Q Hello Martin, good to see you. Are there any risks in banning new leasehold houses but not flats?

Mr Martin Boyd: Yes, there are risks. Currently, we do not have a viable commonhold system. Even if the Government were to come forward with the full Law Commission proposals, those had not reached the point where they created all the systems necessary to allow the conversion of leasehold flats to commonhold flats. I see no technical reason at the moment why we should not move quite quickly to commonhold on new build for extant stock. I think it will take longer—and, at the end of the day, conversion will be a consequence of consumer demand. People would want to do it. On my side, I would not want us to convert to commonhold, because I could not yet be sure that it would help to add to the value of the properties. It would make our management of the site a lot easier, but I could not guarantee to anyone living there that it would add to the value of their property—and that is what people want to know, before they convert.

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[The Chair]

As usual, we will start with the Opposition spokesman.

[Matthew Pennycook]

Q Gentlemen, thank you for coming to give evidence to the Committee. I could ask about a huge range of issues, but I will start with ground rents.

Various provisions in the Bill touch on ground rents. You will know, for example, that schedule 2 imposes a 0.1% cap on their treatment in valuation. Clause 21 and schedule 7 deal with existing ground rents and how we will treat those. What are your views on the fact that those provisions provide leaseholders with the enfranchisement right to buy out their ground rent under a very long residential lease, but we also have the consultation ongoing with five options? How do those provisions interact? Why have the Government specified an option in clause 21 for a particular type of very long residential lease, while we also have this consultation ongoing and, in theory, a commitment to bring forward further measures that apply to all existing ground rents? Does clause 21 in the Bill as drafted make sense to you?

Sebastian O’Kelly: Not especially. We are eager to hear the result of the consultation on ground rents. We very much support the peppercorn ground rent option and are delighted that the chairs of the all-party parliamentary group also support that. It would be a game-changing measure if that did come about—frankly, stripping out the one legitimate income stream in this ghastly system—but I can see that, as a precautionary measure, you might have that 0.1% provision in the Bill for dealing with enfranchisement. It will assist with some of the enfranchisements where you have very onerous ground rents.

Liam Spender: I agree; it is not clear why the 150-year threshold has been chosen. As far as I understand it, the Law Commission did not consider that in its work. That might be something that could be fruitfully explored in this Committee’s more detailed work.

[Matthew Pennycook]

Q I have two other brief questions. The Bill does not include provision to ban new leasehold houses. If the Government’s intention, as I think has been made clear, is to bring those provisions forward through Government amendments in Committee or on Report—at a later stage—what should they look like? In your view, should we look for those Government amendments to do or not to do particular things?

On the right to manage, only eight of the 101 Law Commission recommendations on right to manage have found their way into the Bill. We face the issue that Mr Boyd referred to—we could add in many more provisions to the Bill. Are there any specific RTM recommendations from the Law Commission that it would be really worthwhile to try to incorporate into the Bill?

Sebastian O’Kelly: In relation to leasehold houses, it is a bit of an embarrassing omission that the proposal is not there. The spreading of leasehold houses around the country simply to extract more cash from the unwitting consumers who had purchased houses from our plc house builders was a national scandal, actually, and it was frankly a try-on too far and caused a huge amount of kerfuffle. There will be times when you would have to build a leasehold house—when the builder does not actually own the land—but they are very isolated cases, and largely this scam has self-corrected through the adverse publicity.

On the right to manage, one of the most egregious issues is where groups of leaseholders have attempted to get a right to manage and have been hit for extortionate legal costs, where their petition for right to manage has been resisted by the landlord. There are certain landlords out there who always, always, unfailingly take this through the legal steps. They rack up legal costs, but of course they can get that back through the service charge. That is an issue that I urge is the worst deterrent to right to manage.

Liam Spender: The lack of right to manage for fleecehold estates—for estates subject to management schemes—is one of the most obvious omissions in the Bill. The Law Commission did an awful lot of work on how to improve the process for multi-block sites, particularly following the Supreme Court decision two years ago on Settlers Court. I think that is another missed opportunity.

[Rachel Maclean]

Q Mr O’Kelly, you are one of a large number of leaseholders who has been adversely impacted by your personal situation. If I am correct, what has happened in your case is that your freeholder has used the service charges from you and others in the block to take you to court—it is an appalling situation. You have updated the APPG and others. For the Committee’s benefit, will you say how much you are out of pocket and whether the provisions in the Bill will address the issues that you have faced and will face in the future?

Sebastian O’Kelly: This is for Liam really, because I am not a leaseholder at all; it is Liam’s court case.

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[The Chair]

Q Welcome to our Committee this morning. Perhaps you would like to introduce yourselves.

Katie Kendrick: I am Katie Kendrick. I am the founder of the National Leasehold Campaign, which has been running for seven years. I am also a trustee of LKP.

Jo Derbyshire: I am Jo Derbyshire. I am one of the co-founders of the National Leasehold Campaign and a trustee of LKP. I am not a leaseholder; I enfranchised and bought the freehold on my home. I had one of the now-infamous 10-year doubling ground rents on my house.

Cath Williams: I am Cath Williams. I am one of the co-founders of the National Leasehold Campaign. I am no longer a leaseholder, but I did buy a leasehold house.

[Matthew Pennycook]

Q Thank you for coming to give evidence to us. I have a general question to start. Large parts of the Bill are broadly uncontroversial and uncontentious, not least because they implement Law Commission recommendations. There is lots we could add in, but let us try to keep a focus on what is in the Bill. In your view, to what extent does the Bill deliver for leaseholders in terms of transparency, fairness, enhanced consumer rights and empowerment? What areas could we look to strengthen or tighten up?

Katie Kendrick: The Bill is very much welcomed and long overdue. As we all know, the Law Commission reports were fantastic and very detailed. The Bill is lacking significantly on the detail of the Law Commission recommendations. The headline was that the Bill would ban leasehold houses, and obviously the Bill as it stands does not do that. I am confident that it will, in the end, ban leasehold houses, but currently that has not been achieved.

The Bill improves the transparency of service charges, but just being able to see the fact that leaseholders are being ripped off more does not actually fix the root cause of the problem. As we all know, the root cause of the problem is the leasehold system per se. I am concerned that the Bill sticks more plasters on a system that we all agree is immensely outdated and needs to go. There is no mention anywhere in the Bill of our long-term vision of achieving commonhold. That is our vision, and it is the elephant in the room. The Bill does not even mention commonhold and how we can move towards it.

A peppercorn ground rent would massively change the playing field and help us to move towards our vision of commonhold, so we need to get a peppercorn ground rent for existing leaseholders in there. With the Leasehold Reform (Ground Rent) Act 2022, which means new builds do not have a ground rent, we have created a two-tier system. The Bill really does need to look at existing leaseholders and what can be done to help to put them in a similar position to new leaseholders. If ground rents are wrong for the future, they were wrong in the past and we therefore need to be bold enough to go back and fix that. Peppercorn ground rent has to be the solution. This is an amazing opportunity and I hope that will be the outcome of the consultation.

Cath Williams: On peppercorn ground rent, we have noted a new definition of a long-term lease being 150 years, which we have never come across before. Many members in our group—there are over 27,000 members in the National Leasehold Campaign—have modern leases with ground rents at significantly less than 150 years, at around 99 or 125 years. That means that the provisions in the Bill do not give them the opportunity to revert to a peppercorn ground rent. If we have read it correctly—we are not legally trained—they would be excluded as having a non-qualifying lease. That is our understanding: that they would be excluded. That could be a significant number of leaseholders who will not benefit from the peppercorn ground rent opportunity in the Bill.

[Rachel Maclean]

Q You mentioned that you welcome the peppercorn ground rent. It has often been put to me by campaigners on the other side of this argument that leaseholders do not mind paying ground rents. What is your view on that proposition?

Jo Derbyshire: I had a ground rent that doubled every 10 years. It meant that my ground rent would be £9,440 after 50 years. It certainly is not a trivial issue in my experience. A ground rent is a charge for no service. That is the big thing for me. Some warped genius at some point in the mid-2000s decided to create an asset class on our homes. It is just wrong.

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[Andy Carter]

Q Can I just go back to your point, Jo? You said that it went from £5,000 to £50,000. Have they given you any rationale for the £50,000? Where did that number come from?

Jo Derbyshire: That was the market value for a 10-year doubling lease.

[Matthew Pennycook]

Q A huge amount of the Bill is left to future regulations and statutory instruments. That is understandable in many cases—I am thinking of the service charge provisions and others. Are you concerned that it will take a long time to bring some of the measures into force? Is there a specific concern about the incentives that that creates in the time between them coming into force and the Bill receiving Royal Assent? As the Bill is drafted, there are some hard cliff edges, for example, on the new 999-year leases, where you have people who must extend before they come in. However, there are some potential cliff edges if the commencement dates on lots of these things are 12, 18 or 24 months away. Is that a concern?

Katie Kendrick: It is a big concern, because leaseholders are trapped. They are in limbo, so they do not know whether to enfranchise now or to wait for the Bill to go through. The Bill says that it will make it easier, cheaper and quicker, but the devil is in the detail, and we do not know what the prescribed rates will be. We are being promised that it will be cheaper, but will it? It all depends on who programmes the calculator. Ultimately, will it actually be cheaper? The Bill says that it will abolish marriage value, which is hugely welcomed by leaseholders, so those people with a short lease approaching the golden 80-year mark are waiting. Do they go now?

[Matthew Pennycook]

Q Some of them will not have a choice, will they?

Katie Kendrick: No, some people do not have a choice. People’s lives are literally on hold, and have been for many years, waiting for the outcome of the legislation. If we need further legislation to enact the Bill, people cannot sell. Housing and flat sales are falling through every single day because of the lease terms and service charges. It is horrendous. It will grind the buying and selling process to a halt.

[Barry Gardiner]

Q I want to ask you about this whole business of people being unable to sell, and, in effect, the interaction between what the Government have tried to tackle in the Building Safety Act 2022 and what we have in this Bill.

Under the Building Safety Act, the provision is to appoint a designated person—an agent—to deal with the safety of the building. Often it will be the developer who is responsible for the remediation of a building that has fire safety defects and so on, which the Government are quite rightly trying to address, but they will argue that it is not possible to do that unless they have control over the management of the block as a whole. Therefore, there is a conflict between the Building Safety Act and the provisions in this Bill to help leaseholders gain the right to manage.

You might have just enfranchised and got the right to manage your own block, yet there is now an appointed person who will be told by the court that they have the right to manage the block. Very often, it will be the person you have just liberated yourself from. You will have just enfranchised yourself from that freeholder, only to find that they are now back in control. Do you feel there is a way in which the Committee should try to remediate and address that problem when it is looking at the Bill, and do you have any ideas as to how we should go about it?

Cath Williams: First of all, the situation that flat leaseholders are in at the moment, where they have building safety issues and leasehold issues, is so complex. It is horrendous. We hear daily in the National Leasehold Campaign about these poor leaseholders. It is really heartbreaking.

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[The Chair]

Good morning. Would our last witness like to introduce herself?

Amanda Gourlay: I am Amanda Gourlay. I am a barrister at Lazarev Cleaver LLP and I am an associate member of Tanfield Chambers. I have been in practice for nearly 20 years—I think it is 18.

[Matthew Pennycook]

Q Amanda, thank you for coming to talk to the Committee. You have expertise in a number of areas, but I wanted to probe you on something that we have not gone into the details of—the service charge provisions in clauses 26 to 30. Lots is left to regulations, but these clauses are potentially quite transformative—particularly clause 27, as most leaseholders will experience that clause as it relates to service charge demands. In your view, looking to improve the Bill further, what are the flaws, inconsistencies, deficiencies and problems with these clauses, albeit the regulations are coming, and what stipulations might we look to put in the Bill about what those regulations must look like?

Amanda Gourlay: I would like start by quickly saying that while the Bill is welcome—as far as I am aware, we have been working towards leasehold reform for about six years now, from a service charge perspective—in an ideal world, although I appreciate that we are not starting with an ideal world, the best starting point would be to repeal everything we have so far so that we can codify and consolidate everything. I say that in relation to service charges, which apply only to leasehold properties, but also to bring all the charges relating to services and works that homeowners, occupiers and residents might pay within one regime, so that we are not looking at a separate regime for estate management charges or for estate management schemes, which are different from estate management charges, but we bring everything into one place. If I receive a demand for payment of maintenance of a park on my estate, it matters not to me whether I am a leaseholder or a freeholder—the money that I pay is exactly the same.

I wanted to set that out as my starting point, if I had a blank piece of paper and endless parliamentary time and patience. Having said that, we are where we are. I have made notes and, with your permission, I will run through them as quickly as I can, while still providing some degree of detail. I am a lawyer—I am one of those people whose living is derived from working with leasehold. I am one of the people who is often criticised in this arena.

I have had a good look at the clauses of the Bill. There are good things: there are time limits and an enforcement provision, and we are undoubtedly attempting to achieve some transparency. I wanted to put that out there as the good news to start off with.

From an improvement perspective, I want to start with clause 28, which deals with the provision of the written statement of account and the report the landlord will be required to provide. I have very little to say about clauses 26 and 27. Clause 26 brings the fixed service charge into the service charge regime. Clause 27, as you say, relates to the service charge demand. We do not know what the regulations are going to say. We do have an existing framework—a relatively limited one—for service charge demands, so there is something there, but we will need to see what the regulations do. What we would really benefit from is consistency in the regulations, so that across the board, as a leaseholder moves from one flat or property to another, they can expect to see the same charges set out in the same way, broadly speaking—so that they know what to look for when they go from one place to another.

The clause I have had quite a look at, with the benefit of some accounting input, is clause 28. It will insert two new sections into the Landlord and Tenant Act 1985, which is the framework we are looking at when looking at the Bill from the perspective of these clauses. It is good that we have a time limit for the provision of service charge accounts. I have come across many cases where leaseholders are repeatedly asked to pay on-account service charges and they never receive a reconciliation at the end of the year, so there is no real knowledge of what is being spent.

We could do with looking at a template for the provision of service charge accounts. That may be a matter for regulation, rather than the Bill, but I want to explain to you why I say that is important. When the service charge accounts come over, they have often been prepared by the managing agent, who has then instructed an accountant to review them in some shape or form. Often, the accountant will simply say, “I have agreed a set of procedures that I am going to follow in relation to the service charge accounts. I am going to check that the numbers have been properly extracted and check a small sample of the invoices to make sure that what is said has been invoiced has found its way into the accounts.” What we do not find for leaseholders, unless the lease requires something like an audit, is a proper review of service charge accounts with a balance sheet, an income and expenditure report, and notes to the accounts.

The first thing I must say as I am explaining this is that I am not an accountant—far be it. If I may make a suggestion, it would be extremely helpful for the Committee to engage with either a firm of accountants or, in fact, the Institute of Chartered Accountants in England and Wales; the Committee could then ask how they would go about formulating a proper system—probably in conjunction with the Royal Institution of Chartered Surveyors, under the fourth edition of the code, hopefully—in order to bring service charge accounting into the arena that it is currently in in the commercial code, or the professional statement that the commercial environment has in it.

Accounts is a big area, and it would be immensely helpful to have more involvement all round from accountants. I will not say accountants are the elephant in the room, as that would be a discourteous metaphor. They are the people who are never seen in tribunals. They are the people who do not speak loudly to Committees such as these. Yet, service charges are as much about the money as they are about the services. A balance sheet will give completeness. Income and expenditure will tell you what has come in and what has gone out. It makes sense.

While we are there, might I also invite the Committee to consider trying to bring together the differing understandings of “incurred” in the 1985 Act, as against what an accountant will understand. An accountant will understand a cost being incurred when that service is effectively provided. When I consume electricity, I incur a cost from an accountant’s perspective. From a lawyer’s perspective, I do not incur that cost until either, as a landlord, I receive the invoice, or I pay that invoice. So, they are very different dates and times. Some consistency between those professions would be helpful.

We would very much benefit from cost classifications that would support the provision of service charge accounting. It would also support the tribunal in understanding where to look for certain costs in relation to service charges. Cost classification would simply be some headings, some detail beyond that and then detail of the service that has actually been provided.

I am stepping entirely outside my area of comfort, but I confess I am married to a chartered accountant who specialises in commercial service charges. I have some wonderful Sunday morning conversations with him over breakfast. Those are points that, between us, we have come up with—looking at the way that service charge accounts have been prepared.

Further, in clause 28, there is a word I have not seen before in relation to service charges. That is that there is an obligation to provide leaseholders information about variable service charges “arising”. I am not sure what that means, and it would benefit from some explanation. That is the sort of word that will find its way into tribunals, I would expect. If “incurred” did, and found its way to the Court of Appeal, “arising” could do with some explanation.

The report, which is the second element in clause 28, which a landlord is required to—

[The Chair]

May I interrupt?

Amanda Gourlay: Of course you may, with great pleasure.

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[Barry Gardiner]

Thank you. That is extremely helpful.

[Matthew Pennycook]

Q I just wanted to follow up on something, so that I am clear in my own mind in relation to Mr Gardiner’s question about the provisions in the 2002 Act that have not been brought into force, and it directly relates to what you have just said about proposed new section 21D.

In some senses, many of the new requirements in this section are covered by the enforcement measures in clause 30. Is proposed new section 21D the only example, or are there other examples, of where that power in the 2002 Act might be considered necessary for a leaseholder to use, because the enforcement provisions do not cover the full gamut, if you like? I suppose that I am trying to get to where the enforcement clause is lacking. Is Mr Gardiner correct in specifying that there are circumstances in which you would want to withhold because the non-payable enforcement clauses do not bite in the relevant way?

Amanda Gourlay: I am instinctively nervous about withholding, even if it is simply a question of process.

[Matthew Pennycook]

Q I suppose what I am getting at is that you would not need to withhold if the enforcement clause properly covers all the requirements therein.

Amanda Gourlay: It seemed to me that when I was reading through the clauses in the Bill that it was really section 25D that stood out as the measure that was not covered by clause 30. Clause 30 very clearly enumerates that we have section 21C(1) which is about the demand for a payment; 21E, which is about the reports—obviously, between C and E there is D, which is not in there—and then we also have 21E covered. You can literally trace those measures through. D was the one that stood out for me as being a necessity.

It might be said that that is because the provision of those accounts is outside the control of the landlord, because the accountant is the person who is preparing the accounts and they may—you will understand that I am trying to argue both against myself and for myself. There is that possible argument that may be proposed as a counter-argument to mine.

[Richard Fuller]

Q Ms Gourlay, I just wanted to go to part 4, which is about the regulation of estate management charges. You talked at the outset about bringing everything together in the process and we have heard a lot about people saying how it is all a bit of a David and Goliath process, so I wanted to get your views on how effective you think some of the measures in the Bill are when it comes to trying to help David in his battle against Goliath. We should always remember that David actually beats Goliath; I do not know why or whether that is a bad thing.

You talked also about the provision of information and how important it is that people have access to annual reports and so on. In clause 49, there is a provision whereby the failure to provide things such as annual reports will carry a charge, with a maximum charge of up to £5,000. Then in clause 51, which addresses other aspects of what should be provided—in this case, charge schedules; you said how important they were—there is a maximum charge of £1,000. Does that sound like a sufficiently large sling from which a shot may be fired, or is it just a cost of doing business?

Amanda Gourlay: Again, we come back to the fact that for some landlords, particularly those that might be management companies with no other assets, £1,000 would be crippling; effectively, that might put them into insolvency unless they can recover those moneys from other leaseholders. For other landlords, even £5,000 will be next to nothing. It is a shot across the bows; it is clear that such failure is regarded with disapproval.

What I would like to do is to take those figures back, because they appear in part 3 as well as in relation to the estate management charges. The way in which they are formulated is that they are damages that can be awarded to a tenant if they make an application, certainly on the leasehold side of things—

Leasehold and Freehold Reform Bill (Second sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[The Chair]

Will Members please indicate whether they would like to ask a question of the witness? We will start with Matthew Pennycook.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Q I again put on the record my declaration of interest that my wife is a joint chief executive of the Law Commission, which Professor Hopkins is representing.

Professor Hopkins, thank you for coming to give evidence to us. I have two questions, perhaps three if we have time. My first relates to those clauses that implement options or recommendations made by Law Commission reports. Parts 1 and 2 of the Bill implement not all but a subset of those recommendations. I expect that the Law Commission will have had a dialogue with Government about what the clauses look like, but ultimately what goes into the Bill is a political choice for the Government. With a view to strengthening the Bill, I will be grateful if we can get a sense from you whether any of the clauses that draw on those options and recommendations is in any way problematic? Do they contain flaws? Are there omissions that mean they will not work in the way that the Law Commission intended them to?

My second question is related to the Law Commission’s reports as a whole. My understanding is that they were meant to work as a complete package. In drawing on only a subset of recommendations, is there a risk that some of the underlying rationales for the options and recommendations that you made will be blunted or limited by the fact that others have not been included?

Professor Hopkins: To answer your first question, I am confident that the clauses of the Bill that implement the Law Commission recommendations achieve their desired intent. I know from my team that there will be a number of technical amendments. I do not think that that is necessarily unusual, given the complexity of the legislation, and it reflects the continuous process of examining iterations of clauses to ensure that robust scrutiny is applied.

I should explain the Law Commission’s involvement in the clauses. We have worked in much the same way that we would in producing any Bill: Law Commission staff have written instructions to parliamentary counsel, scrutinised drafts and iterations of the clauses, and commented back to parliamentary counsel. We have provided our usual role in the development of draft clauses.

As for the robustness of the clauses, as you said, our reports—in particular on enfranchisement—gave recommendations that would have wiped away the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, to provide an entirely new and unified scheme for houses and flats. In the process of instructing counsel, the Government have made decisions on what to implement. We have had to think about how to carry over that policy in the context of legislation that performs keyhole surgery on existing legislation, rather than starting with a blank sheet. With that constraint in mind, however, I am confident that the clauses achieve their desired purpose.

[Matthew Pennycook]

Q To ensure that I have understood you correctly, do you expect some technical amendments, whether minor or not, to come to clarify the provisions?

Professor Hopkins: There will be some technical amendments to come that refine the operation of the clauses.

[Matthew Pennycook]

Q And on the package as a whole working?

Professor Hopkins: On the package as a whole, the Bill implements key recommendations that would be most impactful to leaseholders, in providing them with much greater security and control over their homes and in putting the financial value of the home in the leaseholder’s hands rather than in the landlord’s hands. It will also enable leaseholders to take control of the management of their block through the right to manage, enabling more leaseholders to do that than can do so at the moment. In particular, it extends the non-commercial threshold from 25% to 50%, which is a doubling, and it also enables more leaseholders to own their block through meeting that threshold.

What is there in the Bill will have a considerable impact for leaseholders exercising enfranchisement rights, whether individually or collectively, and for leaseholders who are exercising the right to manage. There are other things in our schemes that are not there, and other benefits that will not be obtained. For example, sweeping away the ’67 and ’93 Acts, and providing a unified scheme, would bring with it the ability to remove some procedural traps that can arise. So there are other things in our scheme as a whole that are not in the Bill, but what is there will have considerable impact and a very positive impact for leaseholders.

[Matthew Pennycook]

Q On what is not there, the Government have chosen to include none of the recommendations on commonhold. We very much think that commonhold should be the default tenure going forward. Without enacting all of the 121 recommendations on commonhold, are there any that could be included in the Bill fairly easily, and in a way that would pave the way for commonhold in the future?

Professor Hopkins: During Second Reading, the Secretary of State said that he thinks commonhold is preferable to leasehold, and I concur with that. We concluded that commonhold is a preferable tenure to leasehold. It gives the benefits of freehold ownership to owners of flats—the benefits that owners of houses already enjoy.

Commonhold does of course have a history. It was introduced in the Commonhold and Leasehold Reform Act 2002 and has not taken off. Our recommendations as a whole were designed to provide a legal scheme that would enable commonhold to work more flexibly and in all contexts—to work for complex, mixed-use developments. With commonhold having failed once, there is a risk of partial implementation, meaning that commonhold has a second false start, which would probably be fatal to it. I think that the legal regime for commonhold needs to be looked at as a whole, to ensure that it works properly for the unit owners, developers and lenders who lend mortgages over commonhold. We need the legal regime that works. We need to remove any other blocks on commonhold.

[Mike Amesbury (Weaver Vale) (Lab)]

Q Do you think that it is a missed opportunity not to take those recommendations on commonhold forward?

Professor Hopkins: It is our job at the Law Commission to make recommendations for Government reform and of course we would like to see those recommendations implemented, but ultimately what goes in the Bill is a matter for the Government to decide, not the Law Commission. There is a lot in this Bill that is very positive for leaseholders, albeit the commonhold recommendations are not there.

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[The Chair]

Mindful of the fact that we will be drawing this to a close at half-past, I call Matthew Pennycook.

[Matthew Pennycook]

May I press you a bit further on valuation? This is a phenomenally complex area to understand, and the standard valuation method in schedule 2 is extremely technical. The Law Commission set out options—it did not make recommendations—but the Government have chosen to allow the Secretary of State to prescribe the applicable deferment rate.

In all your work, did you wrestle at all with the fact that there may be some leaseholders who do not benefit from a fixed rate, in the sense they could have negotiated higher and more favourable rates in certain circumstances? Is that potentially a risk? Related to that, will it be the case that the Government need to set multiple rates to account for regional variations? Is a single fixed rate going to be an issue?

Professor Hopkins: In answer to both questions, I cannot sit here and say that every leaseholder will pay less. I can identify the fact that leaseholders with 80 years or less on their lease will pay less, because they will not pay marriage value, and that leaseholders with onerous rents will pay less, because of the cap on those taken into account.

Overall across the system, having the prescribed rates will be a considerable saving for leaseholders on the whole, because that takes out the legal and valuation costs in negotiating a rate and a price. It takes out that entire source of dispute, which will be beneficial—

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[The Chair]

We will now hear from Matt Brewis, director of insurance at the Financial Conduct Authority. We have until 3 pm for this next session. Will the witness please introduce himself for the record?

Matt Brewis: Hi. I am Matthew Brewis. I am director of insurance at the FCA, so I am responsible for regulation of all brokers and insurers that operate in the UK.

[Matthew Pennycook]

Thank you for coming to give us evidence, Mr Brewis. The FCA published a report in September 2022 on insurance for multi-occupancy buildings. In a general sense, on the basis of the recommendations and potential remedies you outlined, to what degree do clauses 31 and 32 faithfully enact those recommendations? Furthermore, it would be useful to know whether the FCA might have any ongoing role in the arrangements that those clauses will introduce. Finally, in that report, the FCA made a recommendation about a pooled risk insurance scheme. Could that be introduced into the Bill as an additional means of providing leaseholders with protection?

Matt Brewis: I will set out what the FCA is responsible for and what it is not, because that is the context for this and probably the questions to follow. Insurers write a policy and brokers sell it to a freeholder or property management agent who is the customer. They pass on charges to the leaseholder, who is partly a beneficiary of the product, but the primary beneficiary is the freeholder. The FCA is responsible for the insurer and the broker, the creation and selling of the product. That is where its role ends.

Traditionally, the customer has been the freeholder, who has been the beneficiary, but our review found that there was no benefit in freeholders shopping around to get the best price, because they simply pass on the cost to the leaseholder, often with significant add-on charges and other functions. We found that the risk price that insurers charged between 2016 and 2021 pretty much doubled. The brokerage charge by brokers increased by more than three times, or 260%-ish. The service charges added on increased by about 160%, so they more than doubled.

In our report, we recommended a number of pieces, including that leaseholders should be partially party to the contract, in that they should be provided with a copy of the documentation—previously, they have not been—and that insurers and brokers, when creating and selling products, should consider the needs of leaseholders, the people who are paying, in a way that insurers and brokers have previously not been required to.

We also made a number of recommendations about the parts that were not relevant to FCA regulation but were part of the chain and to do with freeholders and property management agents. That is where the clauses that you mention, 31 and 32, come into effect—where there is a restriction on the commission that can be charged by the brokers or by the property management agents to the leaseholders. I think that how much impact these clauses will have will depend on how broadly or tightly the secondary legislation around these points is drafted. Of course, I and my colleagues will work closely with the Department as that gets put together.

In terms of your second question, “Should a pooling scheme be included as part of the legislation?”, we believe, based on how parts of the market currently work, that pooling does work. By putting together buildings under one roof, as it were, for an insurance contract, you spread the risk; that reduces the cost of insurance. We see that as how it operates at the moment. We recommended that the Association of British Insurers work with the market in order to put together a pooling arrangement, which they have been working on—

[Matthew Pennycook]

Q For a very long time.

Matt Brewis: For a very long time. Unfortunately, I do not have the power to force anybody to write business that they do not want to. But the ABI has been working closely with a number of firms, and progress is being made. I believe that pooling remains the best option to reduce the cost to leaseholders. In terms of how that could be achieved, I think it is appropriate that the market try to do that. It is always possible for the Government to step behind that, albeit that would be at a significant cost—

[Matthew Pennycook]

Q But it would not necessarily require primary legislation—or would it, in your view, in terms of how you would implement such a recommendation?

Matt Brewis: It does not require primary legislation for the market to do it itself, as it is seeking to do at the moment, working with us, working with the brokers and working with colleagues at DLUHC.

[Rachel Maclean]

Q Mr Brewis, thank you for coming here. Is it within your remit or do you have any helpful information for the Committee to understand a point that has been put to me and that I am seeking to test with you, which is that when some of these freeholds have been sold off in the past, the insurance obviously is then sold off—sorry, let me start again; it is very complicated. The contention is that in the past some leaseholds have been sold off or converted, so now the freeholder, which may be an insurance company or a pension scheme, does not have that income stream that it used to have, and there is a consequent risk on insurance companies or pension funds that have previously been reliant on that income stream to make the returns to the pensioners. Is that something that you recognise? Do you have any powers to update us on it? Do you have any powers to investigate it? Do you have any thoughts on it?

Matt Brewis: If I understand your question correctly, you are saying, “Is there pressure on freeholders to charge more to make increased returns to pension funds?” I cannot answer that question, I am afraid; it was not part of our review to date. Sorry, I cannot tell you—

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[Barry Gardiner]

I think the law has done a pretty good job of that over the years.

[Matthew Pennycook]

Q To further explore Mr Gardiner’s point about fees, not commissions, what is your understanding of proposed new section 20G of the 1985 Act, which defines these excluded insurance costs? What would that cover? Or is that something for the secondary legislation as well? In which case, what should it cover, to fully protect leaseholders from all types of insurance costs that might be passed on unreasonably?

Matt Brewis: It is quite a significant list. The question effectively is: what are the reasonable costs of writing an insurance policy, and then the appropriate checks to be carried out to ensure that that policy is enforceable? From my perspective, that is focused on providing the information to the insurer or the broker that allows them to appropriately price the insurance—to understand the risk factors of that building, to determine the likelihood of escape of water, the quality of its fire defences and other things, all of which in sum add up to whatever the risk price is. There are different methods for determining what is an appropriate brokerage fee. We have seen some firms come out to suggest that it should be a maximum of, say, 10% of the cost. Others take a time-and-costs-incurred approach, based on how much work they have done. Being clear about things that are directly relevant to the pricing of the insurance is the best starting point for what should be allowed to be charged.

[Matthew Pennycook]

Q In general terms, do I take from that that we should seek to define excluded insurance costs fairly widely, beyond a strict definition of commission, to ensure that we are broadly protecting leaseholders from the problems that you outlined in your September 2022 report?

Matt Brewis: Yes.

[The Chair]

Thank you. If there are no further questions from Members, I thank the witness. We will now move on to the next panel.

Examination of Witnesses

Harry Scoffin, Karolina Zoltaniecka, Cathy Priestley and Halima Ali gave evidence.

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[The Chair]

We are very grateful that you are here, Cathy. Thank you very much. I call Matthew Pennycook to start us off.

[Matthew Pennycook]

Q Thank you all for coming to give evidence. I have two questions—one for Harry and Karolina and then one for Cathy and Halima.

Harry and Karolina, we heard earlier from Professor Hopkins from the Law Commission, which had 121 recommendations on commonhold. It is clearly not feasible to add all those to the limited Bill we have in front of us at Committee stage. Professor Hopkins says there is a risk of partial commonhold legislation that might create unintended consequences. Are there any of those recommendations that we can reasonably add in that might make things easier in the future and pave the way for commonhold? That is my question to both of you.

Cathy and Halima, clause 59 in part 4 of the Bill seeks to amend the Law of Property Act 1925. Would you agree that section 121 of that Act needs to be done away with? Are we attempting to, if you like, ameliorate an historic law that should really just be freehold forfeiture and should be done away with? On part 4 generally, we have sought to introduce by amendment an RTM regime for private estates. Are there any other tweaks to part 4 that we could reasonably look to make?

Harry Scoffin: In terms of the commonhold point, obviously, attitudinally, I have accepted that it will be seen as out of scope of the Bill. But we also have to remind ourselves that England and Wales are the only two jurisdictions in the world that persist with this fundamentally unfair system. The Law Commission—we heard from Nick Hopkins earlier—gave a big endorsement of commonhold in 2020. They flew officials out to Australia and Singapore, where I grew up and where we lived under strata title, a form of commonhold where residents are in control. But there is no point crying over spilt milk.

There is a good alternative, interim measure before second-generation commonhold eventually comes through. Bear in mind that I have been campaigning now for six years—that is six years of my life that I have wasted trying to abolish leasehold. The fact is that the time to have brought in commonhold was now. We did not even necessarily have a guarantee that this Bill would be here. After the Queen’s Speech in 2022, it was dropped at the last minute because of pressure from No. 10. So I am not going to hold my breath for commonhold.

However, one thing we can do, which is a pragmatic halfway-house compromise, is to say that all new leasehold flats come with a share of the freehold. That still persists with the leasehold system, but residents have control from day one. They are like Alan Sugar on “The Apprentice”: if they are being ripped off, they say, “You’re fired,” and they get a better company in—that is capitalism, that is choice and that is the right way forward for now if we are not doing commonhold, which is obviously too meaty.

Secondly, all new leases must be 990 years. At the moment, shared ownership leases under the new model lease through Homes England and the Greater London Authority must be 990 years. I think it is obscene that, after this Bill comes in, people can buy a brand-new flat from one of these developers and be hit with a 99 or 125-year lease. They need to be able to get a 990-year lease from the beginning, given that Parliament has already got rid of ground rents—two years ago, it got rid of ground rents—and our argument is that the value in the freehold is now valueless.

Ground rents have gone, so why do you not just require developers to hand over a freehold with a resident management company? I understand that Matthew Pennycook is halfway there with an amendment to bring in resident management companies; we just need the freehold. If we do not have the freehold, we will allow the expensive middleman, the rip-off freeholder, to have some form of control going forward. I know of developments with an RMC, where you might think, “Bob’s your uncle, they’ve got control,” yet they are still being ripped off on things like insurance, even though they appoint the managing agent.

From that point of view, let us not let perfect be the enemy of the good, but leasehold must stop and, with leasehold, we must get rid of its toxic forms so that everyone has a share of the freehold from day one. As we heard from Nick Hopkins, it would be much easier for those guys to convert to commonhold later, but we should give people the ability to have the freehold to begin with.

It is not just me who says that; in 2006, an academic who is on the Commonhold Council—this is in my written submission—expressed the view that, if people have super-long leases of 990 years and zero ground rent, it is asking nothing of developers to hand over the freehold, because the freehold is valueless. They might as well give the freehold, as opposed to expecting leaseholders to go through the rigmarole, stress and cost of buying it later. Also—we might get on to this later—getting 50% of a large block is impossible, so doing that is absolutely the right thing.

Another point is that the market for leasehold flats has collapsed, so the gap between the average price of a house and that of a flat is at its widest in England in 30 years. The fact is that buyers have woken up to the toxicity of leasehold, particularly after Grenfell and the cladding situation. They have worked out that this is a hideously one-sided deal. It is like the sub-postmasters, this idea that, every way you turn, people say, “You signed the contract. You’re responsible for the shortfalls. That’s the law, that’s the contract,” but it is so hideously one-sided.

If you can do only one thing to the Bill, even though it will not directly help existing leaseholders, it should be to say that all new flats must be share of freehold with a resident management company. Give us control of our homes, our lives and our money, please. It is 22 years since the last Act. Let’s do this.

[Matthew Pennycook]

Q Halima and Cathy, on part 4 and rent charges—unless you have something to say, Karolina. I am leaving it to you to self-police.

Karolina Zoltaniecka: The Bill is very welcome. It does remove a few of the barriers to commonhold, but I feel that a few more things could be done, through amendments, to take steps towards commonhold and to make it easier to convert once we enfranchise and buy the freehold. We could lower the agreement rate from 100% to 75%. They have that in Australia already; you only need that amount to have a special resolution. There is already a trial for 20 blocks in the country. We cannot say it is not working, because it is working.

There is a lot of miscommunication around commonhold in the industry. There could be an education and awareness campaign. The Bill could also be amended to introduce a sunset clause for existing flats. There could be some sort of agreement between the commercial and the leasehold residential blocks to pave the way for how this will be defined when we get to commonhold and people can convert. That would prepare people and get them ready, in practical terms, for how to run and maintain their blocks. There could be long-term maintenance plans and we could give people real, practical skills in how to do that.

Commonhold is so much easier. Having a strata, I know that. You do not have complex laws. You talk to each other and work problems and disputes out. You have meetings. Laws are prescribed, so it is easy for people to know what to do each step of the way. I do believe that there are things that could be done with commonhold in the Bill to pave the way and say that we have a future with commonhold and it will happen en masse.

[Matthew Pennycook]

Q Thank you. Halima and Cathy on part 4, please?

Halima Ali: Overall, I want to say that the model of maintenance that has been implemented is a scam, and all this Bill is really doing is legitimising the scam. Homeowners are being fleeced. This needs to be brought under control. In terms of the Law of Property Act, this is a positive step, but I would argue as a homeowner that a management company should not have its foot on my neck. This is my property. It is my hard-earned future for my family and kids, and no management company should have any rights over it. I feel that the model should be abolished altogether. There are two different tiers—fixed rent charges and variable rent charges—that are being allowed to continue in the private estate model. This needs to be abolished altogether.

Cathy Priestley: I do not really have anything to add except to say, would all the measures in the Bill really be necessary if the fundamental, underlying problem of private estate management was addressed? The estates we are talking about are not gated; they are not private. They contain public facilities, public open space, play parks and community centres. They might have private sewage systems and pumping stations. They almost always have sustainable urban drainage systems, because that is the way that flooding is mitigated these days. In the past, all these areas would have been adopted by the local authorities, but they are not being. If they were, there would not be any need for regulating managing agents or for the abolition of section 121.

[Matthew Pennycook]

Q I agree with you about the underlying point, and we may seek to address that, but if we have to work with this new regulation of estate management regime, are there any ways you would like to see it strengthened or tightened?

Cathy Priestley: It would be helpful for those who are on truly private estates and who do have private management, but we do not see any reason why homebuyers on estates should suddenly become estate managers for their local community.

Halima Ali: It is exactly as Cathy said: normal homebuyers are not qualified to manage estates. If we are given the right to manage, if we are looking at a development of over 100 homes, it is really hard to get in touch with 100 people who will agree and be on the same page. It is not workable. The Government are insisting on regulating, but realistically the Bill is not doing anything for us. Literally all it is doing is maintaining a scam.

[The Chair]

I am mindful of the fact that we will have to bring this session to a conclusion at 3.40 pm and five more Members have indicated that they would like to speak, so you can time yourselves accordingly. I will start with Andy Carter.

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[The Chair]

Thank you for the clarification. I call Matthew Pennycook to start us off.

[Matthew Pennycook]

Q Thank you, gentlemen, for giving us your time this afternoon. I have a question for each of you. Andrew, in the regulation of managing agents, do you think it is necessary to ensure that the provisions of the Bill work effectively? Your Best working group report is slightly out of scope, but if we do not introduce the parts—if not the entirety—of it, on the regulation of managing agents as it impacts on the Bill, would that harm the operation of the measures in the Bill? That is my question to you.

Angus, we have exchanged correspondence on valuation, and I know that you take the view that the deferment rate should not be fixed by the Secretary of State. I wanted to explore that a bit further, in the sense that the 2007 Cadogan v. Sportelli judgment, which has broadly set deferment rates, was made in the context of 0.5% interest rates. I have heard it put to me by people in other parts of the country that it may work in London, but it is very out of kilter with what works in different regions. If the Government are minded to remain of the view that the Secretary of State should fix the deferment rates, how best should the Secretary of State do that? What would need to be taken into account? Is there a need to set multiple rates for different parts of the country to deal with the variations? I want to explore the prescribed rates a bit more and how they can function most effectively if schedule 2 is to remain.

Mr Andrew Bulmer: Thank you for the question. On the regulation of managing agents, I should also declare that I was on Lord Best’s working group. There were three components to Lord Best’s recommendations: first, there should be a regulator; secondly, the regulator should have a code of practice through which to hold the industry to account; and, thirdly, there should be mandatory competency standards. That applies to sales and lettings as well as to block, or leasehold block management. He made a distinction with block: because of the large sums of money and the high risks involved, block should be qualified to a higher standard—indeed, minimum level 4.

There is a compelling reason why regulation is required. The way to think of it is the apocryphal tale of “The Ambulance Down in the Valley”, a famous poem. There is a large cliff, and people fall off it. Should there be a fence at the top of the cliff or an ambulance down in the valley? Redress and the first-tier tribunal, as well as the ombudsman, are the ambulance down in the valley, but it would be better to prevent harm occurring in the first place. Minimum competency standards and a regulated sector are the fence at the top of the cliff.

Lord Best made his recommendations four or five years ago now and I wholeheartedly support them—we support them. If we take Lord Best’s basket of reasons, put it on the table in front of us and acknowledge that, we will then have to consider where the industry has moved. Since that time, we have had the Building Safety Act, which was supposed to introduce a building safety manager. That was abandoned and the building safety manager is now in effect the property manager. The property manager now has to learn half of a new profession. The responsibilities and the technical knowledge that go with that are considerable.

For leaseholders who are RMC directors, the Building Safety Act also makes the RMC the principal accountable person, and to whom do they turn? The first port of call is the building manager. The Building Safety Act has the unfortunate consequence of inevitably driving leaseholders, who may be very intelligent individuals—such as the lead violinist of the London Philharmonic Orchestra, a brilliant individual but not an expert in building safety management—to their building manager. That means the Act is now driving lay consumers into the hands of an unregulated sector. That is another basket of reasons, in addition to Lord Best’s basket, on why the sector should be regulated.

Then we come to this Bill, which we warmly welcome and very much support. We can go into the details of it, but let us be very clear that we think it is a Bill that is going in the right direction. One of the Bill’s effects is going to be empowering leaseholders to look after their own affairs, and that is a good thing. But, again, we have the leaseholder, who is not daft—they could be a brilliant surgeon, or a lead violinist—but are none the less not property experts, so, again, the move towards self-determination and self-control means that they are being driven into the hands of an agency sector that is entirely unregulated. If Lord Best’s basket of reasons were not enough, if we add to it the Building Safety Act, then we add to it the inexorable drive towards leaseholder control of their own homes and their own affairs, it is surely now time that the sector was regulated.

If there is no appetite to regulate in this Bill, with its limited time going through Parliament, at the very least we should introduce minimum competency standards. It has been done already, swiftly and elegantly, following the death of poor Awaab Ishak, where mandatory qualifications were brought in in the social sector.

Many buildings are mixed use. A building manager will be walking down a corridor, qualified to manage the units on the left-hand side but not the units—or homes, I should say—on the right-hand side. That is inequitable and it makes no sense. Further, it also assumes that those in the private sector are not vulnerable. Vulnerable people live in the private sector too. The argument for, at the very least, having a code of practice and mandatory qualifications for building managers is, in my view, all-compelling.

Angus Fanshawe: On fixing rates and the deferment rate, before the Cadogan v. Sportelli case, which you mentioned, the deferment rate was always a contentious point. In my years of practising, that case has probably been the most important; really, it removed the deferment rate as something that was in dispute. Since that case, I cannot recall that I have ever had a disagreement on a deferment rate or a problem with agreeing the deferment rate.

Cadogan v. Sportelli set the rate at 4.75% for houses and 5% for flats. There are a couple of exceptions—well, maybe one or two more than that, but there are two significant exceptions where you can depart from 4.75% or 5%. My concern is that if we fix the rate, we will remove the opportunity, as is the case now, for leaseholders to agree a higher rate than 4.75% or 5%.

As I say, there are two cases where there are significant exceptions. The first is that if you have an intermediate leasehold—so, you have a head leaseholder who has a reversionary period—then commonly you would agree that at something higher than 5%, normally 5.5%, to the benefit of the leaseholder. Also, with some buildings there is an element of obsolescence—so, will the building actually be there at the expiry of the lease in, say, 80 years’ time? With a building built in the 1960s or 1970s, which perhaps has a life expectancy of 50 or 60 years, is there certainty that it will be there at the end of the term? In those circumstances, you can agree—I do not think with too much controversy—a slightly higher rate than 5%, again to the benefit of the leaseholder. If you are going to fix the rates, that will bring an unfairness, either to the leaseholder or the freeholder, depending on what rate you are going to fix.

It also ties in with capitalisation rates, if you are going to fix the capitalisation of the ground rent. There was a case on capitalisation rates—Nicholson v. Goff in 2007—that set out very clearly how the capitalisation rate should be assessed: so, the length of the lease term, security of the recovery, the size of the ground rent and the rent review provisions, if any.

Every ground rent is different; every circumstance is different. Again, if you are going to fix the capitalisation rate in the same way that you are going to fix the deferment rate, that could certainly bring about unfairness. It could be unfair to freeholds, it could be unfair to leaseholders, but the problem with fixing the rate is that it does bring unfairness.

[Matthew Pennycook]

Q Just to probe you further on why, from your point of view, the Cadogan v. Sportelli rates are 4.75% and 5%, is that just for central London or is it your view that it works broadly across the country?

Angus Fanshawe: Yes, you are right. The case was about a flat in Cadogan Gardens—so, London SW3, prime central London. However, it was very clear. It set out how the deferment rate should be assessed. If the rate is to be assessed, I think the Cadogan v. Sportelli case sets out very clearly how it should be assessed. That would be the starting point: if the Government decide to do that, that is the starting point.

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[The Chair]

Q We will now hear from Kate Faulkner OBE, the chair of the Home Buying and Selling Group, and Beth Rudolf, the director of delivery for the Conveyancing Association. We have until 4.50 pm for this session. Will the witnesses please introduce themselves for the record, starting with you, Beth?

Beth Rudolf: I am Beth Rudolf. As you say, I am the director of delivery at the Conveyancing Association. I started my working life as an estate agent, became a licensed conveyancer and now work with the Conveyancing Association to improve the home-moving process for the consumer.

Kate Faulkner: Hi, my name is Kate Faulkner. I am chair of the Home Buying and Selling Group. If you are not familiar with it, it is a massive volunteer group. Our steering group has more than 30 different organisations, because that is how complicated it is to buy and sell a home in this country, be it leasehold or not. We have participants who are practitioners, as well as all the trade bodies, regulators and redress schemes. Our aim to improve the home buying and selling process, to prevent the one third of fall-throughs when a sale has been agreed after the offer stage and to reduce the length of time, which impacts on people’s uncertainty of life when they are buying a home. I have worked in all property sectors, from part-exchange to helping people who need to move into a retirement home and working with agents. Most of my work involves trying to communicate to consumers from an industry or Government perspective.

[Matthew Pennycook]

Q Thank you, ladies, for your time. Unless I have overlooked them, there are no provisions in the Bill to mandate or impose any requirements on time and fee for providing home buying and selling information. Several witnesses referred to that being a problem and to not having relevant information at the point of a sale going through. Should those clauses be added to the Bill?

Kate Faulkner: There are various issues. I heard one of the best descriptions of this recently, which was that, if I ask you to bake a cake with 20 ingredients but I only give you five of them, it is a bit difficult to do. Once you have made the offer and the legal companies have had a look at it and at the agreements, in a couple of months’ time you might get up to 10 of those ingredients. Eventually, four or five months later, you might have all 20 and you can then buy and sell that property. That is the biggest problem we have.

One of the massive opportunities with the Bill is to mandate the information required for people to understand what they are purchasing with a leasehold property. A key thing that we do not have in the property sector that other areas have—I have worked in the health, beauty, food and drink sectors—is an awful lot of natural education on how to buy things. We have nothing; there is no natural education of the public in our sector, apart from in the media, where any property story is particularly negative.

The work we are doing now has been fantastic. It has improved consumers’ education so that they really understand what they are buying into and that leasehold is very different from freehold, but they have now got the impression that leasehold is a bad thing. When leasehold works, it is not a bad thing.

From my perspective, and certainly from all the work we do with our participants on the Home Buying and Selling Group, it is essential that information be provided up front. Fantastic work has been done by the group that worked with trading standards, who now require up-front information, but it is not mandated. Although agents are supposed to understand all the property rules and regulations, from the discussion you had earlier, apparently nobody thinks that they should be qualified, and there is no regulation, so one problem is that agents have no idea about the trading standards up-front information that is coming through. A lot of good work is being done; the issue is that it is not working on the ground.

On leasehold specifically, people have to get hold of leasehold packs. There is a cost associated with them, and the time it takes can be excruciating. Anything that can be done to cap those costs would be welcome, but we need to make sure that quality is still required. The danger of the cost being too low is that we do not get quality leasehold packs, and they are essential due to the complexity of leasehold. The time it takes is also essential. Mandating up-front information specifically for leasehold would help us to reduce fall-throughs and reduce the time it takes, but most importantly, it would mean that people could get on with their lives more quickly than they currently can.

Beth Rudolf: I am the co-ordinator of the leasehold property enquiry form and the freehold management enquiry form, which are supported by TPI, RICS, the Law Society, the Conveyancing Association and right across the sector. The intention of the forms was to create a standard template for the information required. It is noticeable that, of the questions raised, only five are time-sensitive, such as failings to pay ground rent or the current budget—the kinds of things that change over time. Most of the information is standardised across the whole of that estate; nothing is going to change. Certainly, when we were looking at the regulation of property agents with Lord Best, it was clear that some of the bigger managing agents already have templated tenant portals where people can go to get that information. That needs to be put across the whole of the leasehold sector, the rent charges and the managed freehold estates, because we are seeing charges of up to £800 for the information.

We are also seeing the duplication of those charges. We will go to the landlord and they will say, “We only answer the ground rent ones, but we still want £400 to answer those. You will need to go to the managing agent to get the information about the service charges.” The managing agent says, “Right, well, we charge £400 for that, but you will need to go to the Tenants Association to get information about disputes and consents,” and so it goes on.

The timescale to getting the information having paid for it is about 57 days. For the consumer, it is an absolute nightmare. As Kate says, guidance from National Trading Standards came out on 30 November 2023 which sets out the material information—the information that would be relevant to the average consumer. It is not all the information. What we need mandated is what information and what data should be reviewed to identify what the relevant material information is, because without that how do we know if somebody has the information from the leasehold property inquiries or from the seller’s or the estate agent’s guesswork? Certainly, without the regulation of property agents, there is nothing to say, if they do just make it up, that anybody can take anything against them. We absolutely need that to be incorporated. It was promised and there was an announcement, I think, in 2018 that the leasehold property inquiry information should be made available at a cost of £200, with a refreshment fee for those time-sensitive elements of £50, and that that information should be made available within 10 working days. We have still not seen that and there is nothing in the Bill that identifies that.

[Rachel Maclean]

Q I have one question for each witness. Kate, if I can come to you first. You made the point that leasehold works for some leaseholders. We know that there are something like 4.98 million leasehold properties. How many would you say it is working for? That might be impossible, but what is your gut feeling?

Kate Faulkner: I do not think we have ever asked that question, so it is very difficult to answer. Also, the issue with property is that people change a lot. As a result, you could have a block that works brilliantly because we have a wonderful violinist or—my grandma used to own a little place at The Poplars in West Bridgford in Nottingham and, through complications, the family still owns a garage where my grandma used to live. The two guys who run that estate—the guy who does the accounts and the guy who does the overall management—are absolutely fantastic. They are a pleasure to deal with, and it is an extraordinarily well-run block. Now, if either of those were to move on, who knows whether there is anybody to replace them?

If we take another situation—I must say that this was quite a shock for me and I was a bit green in those days—I owned a flat and I thought it was safe to buy because it was owned by a housing association. Thirty per cent of those flats were owned privately. We were treated abominably by that housing association, and I would go as far as to say that they really did not like private leaseholders. I understood; they were social homes originally and they did not want us to own them. I felt we were treated as if we were an ATM machine. The original agreement that we signed up for with the housing association was a good one, but we found that they were changing that agreement over time and changing it so fast with so much paperwork that by the time the roof needed to be replaced, all the reasons we had bought that property, which we thought was safe, had been taken away from us. I know what I am doing and I asked all the right questions, but we still ended up with a situation where we had no control whatsoever over what was happening.

You have two cases there. In one, you have a wonderfully-run estate, but that could change overnight if different people take over, and in the other, you have a situation where I thought I would be safe with the housing association, only to find all the rules were changed.

To give you some idea, I think it is the complexity of this that is so scary. However good anybody is, the missing qualifications are just horrendous. That just has to be sorted. The best way I could describe it to you is that when I moved, I had a bag. Do you remember those big Asda bags? Not the ones that they do now, because they seem to have got smaller, like everything else. I had a big Asda bag, and after owning this flat with the housing association for 10 years, I had three lever-arch files full of paperwork.

When we brought the complaint against the housing association about how they had dealt with the roof renovations, it took a year to take that to a complaint situation. When I suggested that I take it to a first-tier tribunal, I was told—this is one of the good things—that if I drove my other leaseholders into taking them to a first-tier tribunal, it would cost more than £30,000. I was asked whether I wanted that responsibility on my shoulders. Taking that cost off is one of the good things, but my worry is that however good we do, until you give the leaseholders parity with the legals—the surveying and the accounting expertise of the freeholder or agent or whoever it might be—we will still never dig ourselves out of the situation we have. That parity service has to be free, or every leaseholder puts in a hundred quid a year or something to provide them with some sort of service.

--- Later in debate ---

[The Chair]

Apologies, Douglas, I have one eye on the screen, where the Minister is now on his feet in the Chamber—we do not want to keep you waiting while we do lots of voting. Douglas Maxwell of Henderson Chambers, will you introduce yourself quickly for the record, please?

Dr Maxwell: Good afternoon. My name is Douglas Maxwell. I am a barrister in private practice at Henderson Chambers in London.

[Matthew Pennycook]

Q Dr Maxwell, I want to ask you about two things: A1P1 and compensation. The Secretary of State’s view is that clause 21 is compatible with the relevant ECHR provisions. I presume you agree. The Government have five options out for public consultation at present. There is a sliding scale of risk in the potential for litigation—although they might well all be litigated in due course—from the capping of the peppercorn down to the freezing of ground rents at their current levels.

On the existing ground rents, to what extent do you think that any of those courses of action in the five options will be compatible with the provisions of A1P1? On compensation, how credible do you find the figure in the Government’s impact assessment? They cite the figure of £27.3 billion as the estimated change in asset value from calculating the loss of ground rent income on the relevant leases. Do you find that a credible figure, or is it subject to a heavy amount of caveats, assumptions and so on?

Dr Maxwell: To deal with your first question, I think it is important to start by looking at how the European Court of Human Rights, the Strasbourg Court, considers applications under article 1 of the first protocol. The Court has said consistently that where a deprivation of property occurs—article 7 interprets that effectively as when your entire right to property is extinguished and all economic value is lost—there is what is called a presumption of compensation. I am not entirely sure, because we do not have the proposals set out in statute—we simply have the consultation document—

[Matthew Pennycook]

Q But the Secretary of State has expressed a preference for the first option, so let us say it is capping a peppercorn.

Dr Maxwell: In most instances, it would appear that that would fall within control of use: the freeholder’s right to property is not entirely extinguished, because they retain the ability to use, sell or whatever that property, and they retain the ability to make money through other means such as enfranchisement fees or lease extension fees. I discussed this yesterday with Professor Bright at the APPG, which I know some of you were present at, but there might be instances where it falls within the category of a deprivation, or certainly gets close to that category, where the entirety of the income is derived from ground rent and the removal of that would effectively remove the value.

Absent sight of those sorts of leases and the relevant facts, we are dealing only in hypotheticals here, so that brings us to another question, which is to look at the macro picture of the options as a whole and the micro application of that to certain facts. It might be that on the macro approach, looking at the totality, we are dealing with a control of use, which means that there is no presumption of compensation, but it could be that if we looked at the micro analysis, certain individual circumstances do fall into that. Again, absent the relevant facts, it is only possible to speculate. It is a very broad market and there are lots of different leases.

[Matthew Pennycook]

Q Understood. What about the impact assessment figure?

Dr Maxwell: I am not an economist. I have skimmed the impact assessment figures and noted the figures that seemed to be quite substantial. I noted for option 1— correct me if I am wrong, but I do not have a copy in front of me—I think it said that in the first 10 years, the loss of ground rent might be £5 billion, and then a loss of value of about £27 billion. I am not an economist, so I cannot really comment on whether that figure is remotely correct or reflective at all.

[Matthew Pennycook]

Q Understood. On a practical level, would you expect any of the five options that are out to consultation to be the subject of litigation on the part of landlords? Or are there some that are safe, well beyond the infringements we are discussing?

Dr Maxwell: If any of the options are implemented, it will result in a significant loss in value of freeholds. As a result, there is a prospect of challenges being brought. I cannot comment on where those challenges will come from, but it would be slightly naive to say that any of those options are completely safe from challenge. However, the prospect of a challenge being brought is very different from the finding of a violation; seeking to bring or threatening judicial review is very different from the actual court finding that a violation has occurred. Obviously, the risk register—if you want to call it that—of the finding of a breach is effectively reduced if you go down the relevant options to the final one of freezing ground rent, and there are other questions about the proposals as set out in there.

This was discussed last night with the APPG, but it is important to recognise that there is Strasbourg case authority concerning cases from Norway that went to Strasbourg on the capping of ground rent. Obviously, ground rent in Norway is not exactly the same as it is in England and Wales, but there are some similarities. There was an initial case called Lindheim where the Strasbourg Court said that a cap of 0.2% in Norway breached the right to property of article 1 of the first protocol. That was because, effectively, the value was completely lost.

The Norwegian Government engaged in a process like this—a very considered discussion and consideration within the political sphere of the best way forward—and they effectively set a cap, which was the equivalent of about £600 a decare—I had to look that up—which is 0.2 acres. They set a cap, which again was challenged in a case called The Karibu Foundation, and that was when the ground rent related to about 0.6% of the land’s value. In that case, the European Court of Human Rights said, “No, there is not a violation here, because the Norwegian Parliament have clearly considered this and they have what the Strasbourg Court calls a ‘broad margin of appreciation’. These sorts of questions are for Parliament”—they are for you. The EHCR said that it had been adequately considered, they have retained the property, and that is reflected. Therefore, there cannot be seen to be what the Strasbourg Court usually refers to as an “individual and excessive burden” on this foundation, and it said that a breach had not occurred.

The principle is that a cap or a limit on ground rent is not necessarily a violation, but you have to apply it to the certain facts and see whether it falls within causing an “individual and excessive burden.” But we are absent from facts and again dealing in hypotheticals here. We have to look at the macroanalysis.

[The Chair]

Are there any further questions?

Ukraine Refugee Visas

Matthew Pennycook Excerpts

Thursday 31st March 2022 Commons Chamber

[Kevin Foster]

Yes, I share my right hon. Friend’s disappointment, but as I have touched on, we are seeing the pace of decision making increase, as happened with the Ukraine family scheme. At one point last week, we saw 6,000 visas issued under that scheme in just two days. The trajectory is increasing; it is on a similar trajectory to the Ukraine family scheme, and we look forward to being able to make decisions very shortly on the vast majority of cases.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I echo the comments of my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) that neither visa system is working currently at the pace required. May I ask the Minister how applications are being prioritised, and specifically whether he can assure me that those with serious medical conditions, or who are at risk because of their location, are at the top of the list when it comes to processing their applications?

[Kevin Foster]

Certainly, where there are specific issues, we will look to prioritise a case. We make the point that people do not need to wait in Ukraine for a decision: they are welcome to move or to apply from safe third countries. As was touched on in the previous urgent question, the actual challenge for many people will be getting from where they are in Ukraine to a safe neighbouring country, not least given some of the war crimes that are being committed by Russian forces against civilians, to which those travelling are vulnerable. We will prioritise where appropriate, and, certainly, if there are particular instances of where that needs to be done, I am happy to hear them.

Metropolitan Police: Strip-search of Schoolgirl

Matthew Pennycook Excerpts

Monday 21st March 2022 Commons Chamber

[Kit Malthouse]

Of course we are concerned about the time it takes for complaints to be dealt with, which is why we changed the IOPC regulations at the end of 2019 to compel speedy investigations. It is the case now that if any investigation is going to take longer than 12 months, the IOPC must write to the appropriate authority—me or, for example, the Mayor of London—to explain why. The director general of the IOPC has done an outstanding job in driving the workload down and bringing more investigations in under 12 months, but there is obviously still a lot more work to do.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

This is a deeply disturbing case both in terms of what happened and the fact that racism was clearly a factor, but may I ask the Minister how it came to light? According to the independent safeguarding report, Hackney Council only became aware of the incident when the family approached a GP; given that this happened two years ago, why is it not automatically the case that when a child is strip-searched social services are notified and a safeguarding review is triggered?

[Kit Malthouse]

That is one of the questions the investigations will answer. It is my understanding that this issue was referred to the IOPC by the Metropolitan police from a policing point of view, but I agree that it would be of interest to know why it took so long to appear through the local safeguarding structure and I undertake to find out for the hon. Gentleman.

Oral Answers to Questions

Matthew Pennycook Excerpts

Monday 15th July 2019 Commons Chamber

[Kate Hollern (Blackburn) (Lab)]

6. What steps he is taking to ensure that his Department’s immigration policies do not unfairly discriminate on the basis of (a) race and (b) nationality.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

10. What steps he is taking to ensure that his Department’s immigration policies do not unfairly discriminate on the basis of (a) race and (b) nationality.

[Janet Daby (Lewisham East) (Lab)]

14. What steps he is taking to ensure that his Department’s immigration policies do not unfairly discriminate on the basis of (a) race and (b) nationality.

--- Later in debate ---

[Caroline Nokes]

I thank the hon. Lady for raising that specific issue. Although I cannot comment on individual cases, we do not wish to see anybody disadvantaged because of the individual requirements of travel documents from their country of origin. I would be very happy to work with her to see whether we can find a solution.

[Matthew Pennycook]

The Department’s own statistics make it clear that last year’s average refusal rate for entry visas from Nigeria was 37%, and almost 44% for entry visas from Ghana, compared with an average refusal rate of only 12% across all countries. Can the Minister explain to my west African-born constituents, whose family members, friends and ministers of religion are being refused visitor visas in ever rising numbers, why the system is discriminating in that way?

[Caroline Nokes]

I reassure the hon. Gentleman that the system is not discriminating in that way and that the Home Office is obliged to consider all visa applications in light of the evidence presented by the applicant. He might be reassured to learn that, in the year ending June 2018, we saw a 2% increase in the number of visas issued to sub-Saharan African nationals compared with the same period of the previous year.

Police Pension Liabilities

Matthew Pennycook Excerpts

Tuesday 6th November 2018 Commons Chamber

[Mr Hurd]

I spoke to Jane about this yesterday, when she and other PCCs were in the Home Office talking about the serious violence strategy. She was very clear, as she always is, about the pressures on Merseyside police. It is a consistent refrain across the system. I am very, very aware of it. That is why I took the steps I took last year. They were small steps but they were steps in the right direction. I intend to come to the House again in early December with the next stage in this journey, which is the 2019-20 funding settlement.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Will the Minister confirm that, alongside the cuts that will fall on police, our fire services are also liable for costs in the region of hundreds of millions of pounds? What is he going to do about that?

[Mr Hurd]

As I said in my statement, this issue affects all public services. We are in conversations with the fire services, as we are with the police. Their funding settlement is in a different cycle from the police, and we will address it in the next CSR.

Serious Violence Strategy

Matthew Pennycook Excerpts

Tuesday 22nd May 2018 Commons Chamber

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Five young men have been stabbed in my constituency in the past month alone. The community is traumatised, and people are worried that things are going to get worse, as they always do, as the long summer nights roll in. I know that lots of London Members here will be wondering what can be done in the immediate term, in addition to the strategy, in terms of extra funding for prevention and diversionary programmes to ensure that we do not have a summer of escalating violence in our capital.

[Mr Wallace]

I understand the fear about the challenges on summer nights. If five people had been killed in my communities, I would feel as horrified as the hon. Gentleman.

First, we are building on the things that have been happening for years. We are getting everyone around the table—the Mayor of London is on the serious violence taskforce—because it is about engaging everyone. I am not deaf to the resource issue, and I do not pretend that the police have not been under stress. We can disagree about why they have not had more money. We also have to recognise that policing has to change as crime changes. We have seen them do some good stuff. We have sometimes seen money spent in the wrong place. We have to work on making sure money is spent in the right places.

Calais

Matthew Pennycook Excerpts

Monday 24th October 2016 Commons Chamber

[Amber Rudd]

I would like to reassure my hon. Friend that the best way to assess age is by using experienced social workers. That is what we are doing in order to assess people’s age on the ground. Most of the young people we are talking to—children, minors, whatever we care to call them—are teenagers. We are prioritising those under 12, but most of them are teenagers and most are young boys. I still think that this is the right thing to do, and I ask my hon. Friend to reassure his constituents that we will always do the proper safeguarding checks to ensure that people are indeed who they say they are.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I commend the Home Secretary and her staff for the efforts they are making to accelerate the process of bringing unaccompanied minors, in particular, to this country. May I just press her on the challenges that local authorities are facing? My understanding is that local authorities that do not have sufficient foster places of their own are all calling the same limited number of independent agencies. Does she see a more central role for the Government in co-ordinating the availability of places in the independent sector?

[Amber Rudd]

The hon. Gentleman raises an important point, and if that were the case, it would not be a successful outcome. Our information is that a lot of the local authorities are choosing to work together, and we have a lot of examples of good practice in which four or five local authorities are getting together to make a joint offer rather than competing with each other.

Gangs and Serious Youth Violence

Matthew Pennycook Excerpts

Thursday 3rd March 2016 Commons Chamber

[Mr Umunna]

The hon. Gentleman makes a very important intervention. I agree with him: fear is definitely a major factor, and I will come to it shortly. Trauma also plays a role, and I will come to that too.

There is another common theme, which I have talked about with my right hon. Friend the Member for Tottenham and my hon. Friend the Member for Westminster North. Time and again, at every community meeting on this issue, we hear that there are simply not enough things for our young people to do. I get fed up with hearing that every week and every time we discuss this issue in the House, because nothing ever seems to get done about it. We have to ensure that there are more meaningful things for our young people to do outside school hours, and I am not talking about some windy church hall with a table tennis table. We need decent, proper activities that will expand our young people’s horizons and give them things they will enjoy doing in their local areas. Otherwise, we have the problem of collectives of their peers becoming their surrogate family. That relates to the issue that the hon. Member for Beckenham (Bob Stewart) talked about, but I will come on to that in a moment because I want to go through some of the other factors.

In relation to popular culture, it is too easy to blame rap music or whatever, but it is a society thing. We live in a society that promotes and glamorises violence. It is too easy to say that it is the fault of the creative industries. We increasingly have a society where our young people are encouraged to engage in these kinds of violent activities. This is promoted among us and we have to deal with it.

We live in a society that not only promotes violence and too often glamorises it, but promotes an ideal whereby our young people define themselves by reference to what they have as opposed to who they are. There is a consumerism element. Helping one’s family to get on is definitely an issue.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Will my hon. Friend acknowledge that this is not just about young people providing for their family but about their desire to have things, and the role of criminal gangs in offering them a quick buck, so that they are able to earn money to buy things, which because of their low income they are otherwise unable to have?

[Mr Umunna]

There are so many big elephants in this room of issues, but one is poverty and deprivation. We cannot ignore the part that that plays. My hon. Friend is right to raise that issue. Young people who do not have anything are often robbing from other young people who do not have anything, then there is revenge, and we end up with a cycle of violence. That is definitely part of what we see happening.

Part of the reason that too many of our young people do not have enough money is the unemployment rate among them. Our education system is producing a whole generation who do not always have the skills that our employers need, particularly the technical and vocational skills. Let us face it, this has happened under Governments of all persuasions. I do not see this as a party political issue; I am not interested in scoring any points. We have to deal with the problems in a skills eco-system that is not giving our young people the skills that they need to offer employers to get a job. Let us not forget that hanging over this is the fact that youth unemployment is double the main rate.

The things I have spoken about are fairly obvious—the more talked-about factors—but we need to delve far deeper into the causes than we generally have. The hon. Member for Beckenham referred to the belief of many young people that they are safer in a group than they are on their own. As academics have argued, the perceived need for safety and protection tends to validate behaviour and levels of violence in ways that can obscure the boundary between right and wrong. There is also the issue of being bullied and how that interrelates with carrying or using a weapon. We do not like to talk about that, but we should. There is a semi-formal, often unsupervised daily routine outside school, but sometimes inside school too, that can incubate the production of behaviour and values that lead to a life of this kind of violence, and the expected norms of school and wider mainstream society are juxtaposed to that.

In addition to the fear that the hon. Gentleman talked about, the other big issue is trauma—the sheer trauma that many of our young people experience in their daily lives, which requires much greater consideration than we see reported in our media.

To return to the work of Whitney Iles, this issue needs to be seen as one not just of violence prevention, but of health, particularly mental health. Our young people are being traumatised by some of their experiences, but they are being given no support to deal with them. Unless we start engaging with them, not only on the obvious level, but at a deeper level, we will not be able to resolve the violence on our streets.

What should be done? First, the Labour Government introduced Every Child Matters, which had a strategic aim to provide wraparound care for young people from long before they went to school to long after they left. That did bring in teenagers, but I think we need to adopt an “every teenager matters” approach, with much more targeted schemes and versions of the previous initiative, in order to address problems experienced by teenagers. It must be said, however, that, as my right hon. Friend the Member for Tottenham has said, the problems are impacting on younger and younger children, not just teenagers.

Secondly, we have to elevate the standing of youth work in our country. It is about time that we put it on the same pedestal as teaching. Often, youth workers spend as much time as teachers with our young people, but we do not talk about their profession in the same way. We have to do so and put it on a pedestal; we cannot just look at it as an add-on. Too often, youth work is left to people who have other jobs and who may, through their tenants or residents association, be providing youth work on top of their daily job. It needs proper funding so that people can do youth work full time and so that we regard our youth workers in the same way as we regard our teachers.

Thirdly, I really do think that the Government have done some good things, and that is why I want them to reverse their decision to disband the very important ending gang violence and exploitation peer review network, which spreads best practice to local authorities and others. It is due to end in April—next month—but I really hope the Government will reverse that decision, because it is a good network and I have heard very good feedback about it from all over the country, including Lambeth. I want it to continue.

Fourthly, we have to ensure that our young people are properly taught in school about the consequences of what they do, and that they are provided with support to deal with their experiences outside school as well. I want to see more role models who have been members of groups and who have been victims, or even perpetrators, of acts of violence and suffered the consequences. I want more of them to go into schools and tell their story so that future generations do not take the same wrong turn as they did. There is nothing like having somebody who has lived that life telling young people what will happen if they carry on down that avenue. We need to provide much more support to our schools.

This is controversial, but I do not care and am going to say it anyway: a lot of the young people who get wrapped up in all this ultimately have quite commercial and entrepreneurial instincts. Their energy, however, is simply not channelled in the right way and the result is that they turn to criminality and highly illegitimate, terrible ways of doing things. If many of our young people received enterprise teaching in our schools, and if they were provided with inspiration and more access to opportunities to set up their own business, do their own thing and work for themselves in a way that delivers the goods and some money, perhaps we would be able to stop them taking a wrong turn. I can just see the write-ups saying, “MP says terrible gangsters should start businesses”, but, frankly, I do not care. If they have that kind of instinct, I want to make sure that they do not end up taking a wrong turn and doing illegitimate business, but that they set up a business and become the next Branson. I would like to see many of the kids from the Tulse Hill estate in my constituency going on to be the next Richard Branson.

--- Later in debate ---

[Mr Lammy]

I am so pleased that my hon. Friend raises that issue, because that is the other factor that is new. I am about to come on to that.

The young age profile has something to do with the fact that enforcement on this national problem is working: the police are locking people up. We are serious about people carrying a knife and, historically, we have been serious about people carrying a gun. The police have locked up some of the older individuals, particularly after the 2011 riots, but all that has done is to drive the crime down to younger individuals.

My hon. Friend the Member for Streatham made a point about the definition of gangs. It is very dangerous to call any congregation of young people a gang. It almost feels as though we call any congregation of young black and brown people a gang. Those of us in the House who have children, particularly children who are getting to their teenage years, know that, to a 12 or 13-year-old, joining a gang is quite attractive. We therefore need to be very careful about the definition of gangs.

[Matthew Pennycook]

My right hon. Friend rightly raises what happens when the police target older members of criminal gangs—I am talking about criminal gangs, not groups of young people—in operations. It leaves a vacuum that triggers a spike in violence among the younger, lower orders of the gangs, who have been drawn in for the very reasons he cites.

[Mr Lammy]

My hon. Friend is completely right. What is unfortunately being said about the moral compass of these young people is incredibly worrying. They are impressionable; they are young. For reasons that my hon. Friend the Member for Streatham raised, when I say that they are impressionable, I am referring to the fact that we live in a society that has prioritised choice for the individual above everything else. We live in a society where people have the choice of whether to be exposed to quite serious violence on social media, on television and in parts, although not all, of the games industry. It is hard for modern parents, however much money they have, to distinguish between access to those images and that impression.

We therefore have young people stabbing others, almost as if they do not realise the consequences. It is quite, quite bizarre that someone might not realise that puncturing skin and causing blood loss might lead to a loss of life. I have seen images—they are on YouTube, so we can see them—of young people being stabbed continuously and it being almost like a pastime. My hon. Friend the Member for Lewisham, Deptford is right that much of this goes completely unreported. It never turns up in our hospitals. It is solved by self-medication. People go to the pharmacy and get their band aid. It is sorted out in the community, so there is an indication that this violence is going down.

My hon. Friend the Member for Dulwich and West Norwood (Helen Hayes) raised something else that is new and worrying and that we would not associate, historically, with mods and rockers or Dickensian times: the phenomenon of women, including young women, being at the centre of the action. Again, as some of the older individuals who run the gangs have been locked up—actually, let us be clear that they can still run a gang from prison—they bring in the younger folk. Why? Young folk are less likely to get a sentence if they are caught. They also bring in the women on the estates and prey on the young women. Historically, the Children’s Commissioner has done tremendous work to raise issues such as the sexualisation of women and the way in which women become the victims of gang activity. Someone can hide the knife in their girlfriend’s bedroom or hide their stash with her. She can walk quietly over to the opposite estate and perhaps not get detected or picked up in quite the same way, so the profile is changing.

--- Later in debate ---

[Ms Buck]

I agree. However, it is not just youth services; there is also pressure on child and adolescent mental health services. For all the talk about giving mental health services parity, there has been an unprecedented squeeze in modern times on mental health services, particularly on CAMHS. My hon. Friend the Member for Streatham made a point about mental health and I want to spend a minute or two on that. Westminster council—again, I praise it when it does good things—commissioned a report on gangs and mental ill health, a vastly unexplored subject that is important in understanding serious youth violence.

The report said:

“Street gangs and associated serious violence have been a growing concern in the UK over the past decade and a specific concern in Westminster. They are concentrated in poor urban areas with high crime and multiple social problems. The mental health needs of young people in gangs have, until recently, been overlooked.”

The report demonstrated extremely high mental health need among those involved in gangs. Compared with non-violent men, gang members had increased rates of antisocial personality disorder—57 times higher than the average. Suicide attempts are 13 times higher, psychosis is four times higher, and anxiety disorder rates are twice the average. Gang members are significantly more likely than non-violent men to have used mental health services, with gang members eight times more likely to have consulted a psychiatrist, eight times more likely to have been admitted as a mental health in-patient and five times more likely to have used psychotropic medication.

We have a mental health crisis that affects the very people that we need to deal with, yet, at the same time, CAMHS are being reduced, and particularly some of the school-based services that can provide early referral. I am especially worried that the mental health intervention in my local authority is half what it was two years ago, and is funded only until next year. Of course, the Mayor’s Office for Policing and Crime—MOPAC—anti-gangs initiative is funded only until next year. There is therefore uncertainty about intervention.

[Matthew Pennycook]

My hon. Friend is making a powerful case. There have been 35 gang-flagged incidents in Greenwich and Woolwich in the few months since I was elected last May, including far too many tragic deaths in the Woolwich area. Given that, and the epidemic that hon. Members have described, does she agree that it makes no sense for the Government to pull front-line capacity, peer reviewers and national co-ordinators out of the ending gang and youth violence programme?

[Ms Buck]

I totally agree. We understand a great deal about what is going on, even with a changing dynamic, yet we are in danger of doing all the wrong things. We are scrapping youth intervention in some places; we are closing down the youth service in some places; we are cutting CAMHS and so many other areas of early intervention; and we are—fatally in my view—ensuring that services that work for children and young people who are at risk of gang involvement are short term and end quickly.

I believe two things. First, it takes a village to raise a child. Those of us who live in the city, which is diverse, mobile and disconnected, know that we have to build and rebuild that village every single day. Voluntary endeavour alone cannot do it: our village must include neighbourhood police and the youth service, the national health service, CAMHS and schools, as well as churches, mosques, voluntary groups and individual families. Secondly, we should treat gangs and serious youth violence as a public health emergency as much as a criminal justice matter. Mental health services are on the frontline of that battle.