Building Safety Remediation: Leaseholders

Debate between Shabana Mahmood and Dan Poulter

Wednesday 22nd June 2022 Westminster Hall

[Shabana Mahmood]

The hon. Gentleman is absolutely right. I will be coming on to the issues in relation to insurance later in my remarks. May I take this opportunity to say how refreshing and positive it has been to be able to work with Members from across the House? That has been the House at its best and I am sure that is the reason why we have been able to make so much progress in the Building Safety Act. I hope we will continue to work together on the ongoing financial impacts, and I hope to persuade the Minister to give further necessary ground. I will come to the matters of insurance very shortly.

Many hundreds of people in my constituency have been affected and have been living with the consequences of the cladding scandal for five long years. With work having started on some of these buildings, if people are very lucky they may finally be able to live in safe buildings in about five years’ time. At best, we are looking at an entire decade of normal life being wiped out for people caught up in this scandal. Even that timescale, with people losing a decade of their life, will be out of reach for many thousands of people in our country.

I want to bring some of the ongoing issues to life for Members and the Minister by using an example in my constituency: the development at Islington Gates. There are 141 flats in the development, which is now described as an orphan block. The original developer, Midlands and City Developments, went into liquidation in 2007, and Miller Construction, which built the block, was bought out by Galliford Try in 2014. The remediation works at Islington Gates come in at a total of £9 million. Some 80% of that—£7.2 million—relates to the removal of the non-ACM cladding that covers the building. The remaining 20%—£1.8 million—relates to additional defects that were discovered and revealed as a result of the scandal, including deficiencies in fire compartmentation and other measures. As per the new rules in the Building Safety Act, the £1.8 million will need to come from the developer and, through the cascade effect that the legislation envisages, could be passed on to the owner and potentially to leaseholders, up to the value of the new cap.

Let us consider the issues relating to the ongoing work for cladding remediation. The bid that Islington Gates submitted to the building safety fund for cover was accepted, but the payments came in later than anticipated, creating huge cash-flow problems that have further exacerbated the crisis for many of my constituents.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

I congratulate the hon. Lady on securing the debate. Many developers set up ground rent payment arrangements that will be very profitable in the long term, in view of the escalation of ground rent, and they set up service companies that sit underneath the main development company. Given the huge profits that developers make from those arrangements, does she agree that we need to do more to hold the developers to account, and that although the lifting of the current cap was welcomed, it should be lifted further?

[Shabana Mahmood]

I completely agree with the hon. Gentleman. I see no reason to maintain a cap. If we have conceded the principle that leaseholders are not to blame, that developers have made a lot of money out of these developments and that there is money available for the Government to go after on behalf of taxpayers all over the country, they should do so, and they should protect leaseholders from any additional costs.

I am concerned that the building safety fund still adopts a “computer says no” approach in cases such as those of Islington Gates, where eligibility for the fund has been accepted, the works are under way and the initial payment has been made. Administrative errors can lead to delays in further payments for the works, and that causes a huge amount of unnecessary stress. People are putting up with living in buildings that are completely covered and have no natural light. They are putting up with living inside a building site, so they have all the noise and dust of that, and the general loss of normal life and the amenities that we all have a right to expect. This work is unavoidable and necessary, but it is in everybody’s interest that it takes place as quickly as possible, so leaseholders have a chance of living a normal life soon.

Every time the BSF causes an additional delay—that is completely unacceptable— if it has accepted eligibility, works are under way and the initial payment has been made, there should be an expectation that money will be got out the door as quickly as possible for all additional payments. If administrative issues need resolution, they can be dealt with after the cheque has been paid. We have already established eligibility, and it is not as though my leaseholders are going to run off with that money. There is no risk to the taxpayer. Will the Minister say something about the BSF’s approach, and will he make sure it does not add to the stresses and strains that my constituents face?

In respect of non-cladding defects—£1.8 million is required to make Islington Gates safe—the Government have made it clear in statements about the legislation and in press releases on their website that they expect developers to take responsibility for any building developed by any company within their corporate group, including cases where they acquire the original developer of the building. That would mean that the £1.8 million liability for Islington Gates falls on Galliford Try, which bought Miller Construction, the original builders.

Unfortunately, Galliford Try insists that it has no obligation to pay, and none of us has been able to do anything to persuade it otherwise. My constituents have been campaigning, and I have written to Galliford Try. We have done everything that we can think of to try to persuade it that it must meet its liabilities, do the right thing and put up the money to remediate the non-cladding defects revealed at Islington Gates. I understand that in a meeting with some of my constituents, civil servants from the Minister’s Department confirmed that Galliford Try is the correct entity to pursue for the cost of those remediation works.

I want to press the Minister on just what we are supposed to do now that Galliford Try refuses to pay. It denies any and all liability for the £1.8 million. Will the Minister explain the role he envisages for the Department’s recovery unit, and whether the Department would front up that money and then go after Galliford Try itself? How does he see the new legislative landscape for remediation contribution orders working in respect of leaseholders such as those at Islington Gates? My view—I think it is shared by many Members across the House—is that innocent leaseholders should not have to stump up any more money and then wait for redress at some unknown point in the future. That money should be made available now from the correct company, which should hold the liability to begin with.

I turn to insurance costs, which the hon. Member for Woking (Mr Lord) mentioned. Much attention has been paid to the cost of remediation, waking watches, alarm systems, sprinklers and other measures, but it was clear to me from the start from my constituency casework that the cost of insurance was a major problem. In my constituency, premiums jumped in buildings affected by the cladding scandal. At the Jupiter 1 development, residents saw a 1025% increase in their insurance premium, from £40,000 to £450,000. King Edwards Wharf saw their premium jump from £50,000 to £450,000. Islington Gates used to pay £36,000 and saw that jump to £320,000.

Brindley House was in the terrible position of being the first building in the whole country without insurance when it was impossible to get cover for it for a period of time. The Minister will know that placed all leaseholders, and everybody else who was connected to the building, in default of their mortgage or rental agreements. That was a terrible stress. When insurance cover was eventually obtained, it jumped from £46,000 to £322,000.

Those are shocking increases in insurance premiums. It is clear to me that the calculation of the premiums did not take into account the risk in those buildings and, in particular, the measures that leaseholders have taken to reduce risk in their buildings. In each building, hundreds of thousands of pounds has been spent on state-of-the-art alarm systems and other measures, such as waking watches, to bring down the risk of a catastrophic fire. None of that was reflected in the insurance premium. The more residents have paid for risk mitigation, the more their insurance premium has gone up. It would have made no difference whether they had done those works or not. I think that that is a total con.

I first wrote to the Financial Conduct Authority and the Government at the beginning of 2020, and it has taken two years for a little bit of investigation to be done. I welcome the fact that the Secretary of State wrote to the FCA to ask it to look into the matter, but if that had been done in 2020, we would be much further into the investigation into the behaviour of the insurance sector. I dare say that if the insurance sector had known that there would be Government-level scrutiny of the premiums, two years-worth of unjustifiable insurance hikes might not have been visited upon my constituents and people all over the country.

This problem requires much more than a slow-paced inquiry. I would like the Government to take much stronger action much more quickly so that we are not still talking about the cost of insurance premiums some years hence. The reality is that insurance companies have made money twice over out of the cladding scandal, first from the policies they used to indemnify the so-called professionals and the building industry as a whole—let us be honest, they will not be called to pay out on those policies; nobody envisages that insurers will pick up at the tab for this scandal—and, secondly, because they have gone on to charge thousands of people eye-watering sums to insure those buildings. They have given people no credit for the money they have spent making their buildings safer to live in while they wait for the final works to be completed. It is unconscionable. The Government should intervene to seek financial redress for affected constituents. If the additional cost of insurance were included in the cap brought in by the Building Safety Act 2022, many people would be much closer to that £10,000 anyway, and they would be protected from additional costs. I wonder whether the Minister might address that point and see if there is any possibility of including insurance payments within that £10,000.

The Secretary of State’s letter to the Financial Conduct Authority asked for suggestions to achieve widely available and affordable cover for leaseholders. That letter should have included some additional asks, one being that the FCA should consider redress for the insurance hikes that are taking place. It is clear to anybody from the outside who is paying attention to the effect of the cladding scandal, and making a fair assessment about its financial impact, that the insurance companies have gained excessive profits from the building safety crisis. They should be required to contribute to the remediation costs, on the basis that they covered the actions of the developers that failed to comply with building safety and have since received increased premiums as a result thereof. Nothing less will do.

We should look to the insurance companies for further assistance in covering the overall costs of remediation, which will, in the end, fall on the taxpayer in some way, shape or form, especially if more and more developers do not live up to their responsibilities. It is high time the Government added insurance companies to the list of people that they need to go after in order to recover some of the costs of this scandal. I look forward to hearing what the Minister has to say about that.