Housing and Planning Bill - Report (3rd Day)

– in the House of Lords at 3:07 pm on 18th April 2016.

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Relevant documents: 20th, 21st, 26th and 27th Reports from the Delegated Powers Committee

Clause 78: Mandatory rents for high income local authority tenants

Amendment 72

Moved by Lord Kennedy of Southwark

72: Clause 78, page 34, line 25, leave out “must” and insert “may”

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Spokesperson (Housing), Opposition Whip (Lords), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Home Affairs)

My Lords, I first refer all noble Lords to my declaration of interests and further declare that I am an elected councillor in the London Borough of Lewisham.

As I said in Committee, and early on Report, many aspects of the Bill are controversial. As we move on to consider the pay-to-stay proposals, I think it is correct to say that this is one of the most controversial parts of the Bill. It is, in fact, just a revenue-collecting exercise for the Government to fund programmes that they should be funding centrally, which makes it all the more disgraceful. Local authorities will have no discretion over who they deem to be a high-income tenant and then what they should be charged.

I have received numerous emails from worried tenants, and I am sure many other noble Lords have as well. I recall one email from a woman who told me that she and her husband have a combined income in London of £42,000. They pay their rent and their taxes, and their children have grown up and moved away. They cannot afford to go on holidays, but they can afford to go out for the odd meal in a local restaurant. They love their jobs and feel that work in the public sector is rewarding. They were very happy. But then they were shaken by the worry that they will be deemed high-income tenants and their rent will increase dramatically to the levels that they see in the private sector. They just cannot afford to pay those levels of rent and are fearful for their future. That distress has been caused by the Government to tenants who find themselves in this position and is due to their handling of this policy right from the start. While we were assured of tapers and other protections, which I am sure the Minister will point to when she replies to this debate, this is no way to make legislation.

I am also puzzled that the noble Baroness, Lady Williams of Trafford, has often referred in our debates to the figure of £50,000 when talking about higher incomes and higher rents, yet the Government propose a cap of £40,000 in London. That makes me all the more convinced that the amounts of £30,000 and £40,000 have been selected more for the number of tenants who are expected to be caught and the revenue raised rather than because anyone really believes that these levels of household income are in any way high. If that is not the case, I invite the noble Baroness to explain clearly for what reason these levels have been selected other than that the department’s own research has illustrated that the largest number of people to be caught have incomes just above the levels proposed by the Government and that this is in fact a tax on council tenants on modest incomes.

I was going to suggest to the House that this is a stealth tax, but there is nothing stealthy about it; it is just a good old smash-and-grab raid. Furthermore, it applies only to earned income, so it is a tax on working as well. It really is unacceptable. My Amendment 72, which is supported by the noble Lord, Lord Kerslake, and the noble Baroness, Lady Bakewell of Hardington Mandeville, would replace “must” with “may”, thereby giving local authorities discretion about the levels of rent they would want to charge tenants who found themselves in this difficult situation. It is right to give local authorities this power to decide what is best for their area and I hope the Minister will accept my amendment. I beg to move.

Photo of Lord Kerslake Lord Kerslake Crossbench

My Lords, I support Amendments 72, 75 and 78 in this group and in doing so declare my interests as chair of Peabody and president of the Local Government Association. The amendments would leave with individual local authorities the decision on whether to increase rents for higher-income tenants, to give them the discretion not to implement the change if income was exceeded by the costs and to enable them to retain this additional income at local level. This would put them in exactly the same place as the Government now propose for housing associations.

As the Bill has progressed, it has been increasingly clear that the pay-to-stay proposals are a back-door form of taxation. Application of the increased rents is mandatory regardless of local circumstances. Local authorities will collect the money, but the Chancellor gets to keep the income. How else could you describe this other than as a locally collected tax? The argument that we are doing this because of higher-income tenants subsidising those on lower income simply does not add up. We know that, following the un-ring-fencing of the housing revenue account, housing revenue accounts must now be balanced without government grant.

I use the term “higher” here because we are not talking about high income. The proposed thresholds, which we will talk about further in the next group of amendments, are for household incomes—this is the crucial point—of £30,000 outside London and £40,000 inside London. A couple in London, one working as a teaching assistant and another working as a caretaker, will come above the threshold. By no stretch of the imagination can these be seen as highly paid positions.

Jan Sweeney and her husband, who live in north Kensington, fit this description precisely. Jan wrote to me and I had the opportunity to meet her subsequently. When they started out in north Kensington many years ago, it was not a particularly attractive place to live, but they made it their home. They have never claimed benefits and have made a positive contribution to the community. They do not go on expensive holidays or own a car. They are just at the stage where the children have grown up and they have some money available to go out for the odd meal and treat the grandchildren.

With sky-rocketing house prices in London, there is no prospect of them buying in their area. Equally, market rents in their area are £400 a week. When we come to vote on this, it is worth being aware of the people we are likely to penalise through this policy—people like Jan Sweeney and her husband. The average household income in the UK is around £30,000. In London, it is around £40,000. These thresholds may be high for council tenants, but they are not high in the country as a whole—in fact, they are near the average for this country.

If we look at taxation policy, the threshold for an individual before income tax rates go from 20% to 40%, will, from April 2017, be £45,000. Many people doing ordinary jobs will be deemed under this policy to have high incomes. If the taper—which I will come to later—is 20p in the pound, their effective taxation rate will be at a higher-income rate of 40p in the pound, even though in income tax terms we define them as basic-rate taxpayers. That smallish group of people will be paying a higher rate of tax at £10,000 lower than those to whom income tax applies.

The Government are committed to a taper, which is welcome. We have still to confirm—we may hear this today—what that taper is. The illustrative options were 10p and 20p and I think it is likely to be 20p, as the Minister has signalled. The modelling by the Institute for Fiscal Studies suggests that with a taper of 20%, some 30% of households would have to pay the full market rent, so not a small number will end up paying the full market rent, even on a taper of 20p in the pound.

On the Government’s own impact assessment, the number of people affected across both council and housing association tenants is around 350,000 or 7% of the total. But to collect the money from that relatively small number of tenants, local authorities, and indeed housing associations, will have to ask every tenant what their position is in relation to their income. That is a huge administrative burden for what is a relatively small number of council tenants. In every respect, it is an inefficient way of raising tax. More to the point, neither local authorities nor housing associations are geared up to be tax collectors.

The cost of the collection compared with the potential income is disproportionate and in some places—hence the reason for the amendment—we need to take a view that it would be uneconomic to collect it. We have still to establish, even though we are now on Report in the House of Lords, how the information on income will be provided to local authorities by HMRC. We have still to establish how we will deal with changes in household income to keep this policy fair.

All of the above would strongly argue for a voluntary scheme as originally envisaged in the Localism Act. Higher rents could be charged for households who are on genuinely higher salaries—the figure in the Act was £60,000 or above. This is a much smaller number of people, perhaps of the order of up to 34,000. Indeed, thinking about the origins of this policy, Bob Crow was on a salary of £145,000—somewhat different from £30,000 and £40,000. Crucially, if we adopted this voluntary approach, we would learn from a localist model how best to deliver a fair and workable system in such a complex and sensitive area. We will debate the thresholds and the taper in more detail in the next grouping. In the mean time, I urge noble Lords to support the alternative, localist, voluntary approach set out in these amendments.

Photo of Baroness Bakewell of Hardington Mandeville Baroness Bakewell of Hardington Mandeville Liberal Democrat 3:15 pm, 18th April 2016

My Lords, I shall speak to Amendments 72, 75 and 78, to which I have added my name. I remind the House of my entry in the register of interests as a South Somerset district councillor.

As has been said many times in this Chamber in recent weeks, local authorities know their communities, and their officers know the circumstances of individual families and couples within these communities. It is far better for local authorities to make decisions that affect the lives of those families than for a blanket diktat to come down from the Secretary of State. It is also surely not logical for a local authority to be forced to implement a high-rent policy if the cost of doing so exceeds the additional income raised by the charging of the higher rent. This is not cost effective and everyone can see that that is the case. I echo the comments made by the noble Lords, Lord Kennedy and Lord Kerslake, and will support them if they wish to divide the House.

Photo of Lord Horam Lord Horam Conservative

My Lords, this is, I am afraid, an idea that probably looks good in the confines of the Treasury or in the rarefied world of special advisers in No. 10. In the real world outside it does not look so good. The noble Lord, Lord Kerslake, mentioned the late Bob Crow. I recognise, as the noble Lord said, that there is a case for saying that people on a higher income or earning over £100,000 should move out of council tenancy and seek a home of their own, thus leaving one for someone on the waiting list. I understand that argument. It is an important one that we should not forget.

However, this is not the greatest problem that we face. In the case of London, for example, where the housing crisis is most acute, 100,000 properties have been bought by secret offshore companies, pushing prices up for ordinary Londoners, who cannot get access in the way that they need to. I also agree with the noble Lord, Lord Kerslake, that this leads to a lot of administration for a small return. He used the word “inefficient”; we should not compromise on efficiency in administration. I believe in smart government, neither large, nor small; it depends on what you need. We should have efficient government and this in principle does not look like that. A lot of bureaucracy will be involved, a lot of mistakes will probably be made and the returns will be quite small. Should the Government be doing something as detailed as this? Should they not leave it to local government? Frankly, this smacks of the sort of thinking that went into the bedroom tax, which I think that many people regret.

While my noble friend Lady Williams has noticeably been listening throughout—I pay tribute to her conscientiousness and her willingness to take arguments on board—there is a case to be made for Amendment 72, which would leave this matter to the local authorities. I agree with the noble Lord, Lord Kerslake, that we need a higher threshold before it kicks in: £60,000 in London and £40,000 outside are a minimum, frankly. In many ways I would prefer a higher threshold, but that would be a starting point, which is encapsulated in Amendment 77 in the name of the noble Baroness, Lady Bakewell. I also agree with the proposal in Amendment 75; if the administrative costs outweigh what you raise in revenue, it is senseless to go ahead.

Finally, if we do go ahead with this and raise some money the local authorities should keep it to invest in further council housing. That is essential. It should not go into the pockets of the Treasury, which does not need this small amount and it should not get it. The amendments in this group are both fair and sensible, and it is my experience that what is fair and sensible is usually good politics.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour

My Lords, I very much welcome these amendments, so ably moved by my noble friend and supported by the noble Lord, Lord Kerslake, and the noble Lord, Lord Horam, whose words I thought were very wise.

I must say that I am baffled by the Government’s obsession with council tenants’ incomes. For starter homes, buyers can be on £80,000 a year and still get a subsidy of £100,000 or more to climb the housing ladder into a larger property, and no questions are asked about their income; council tenants, meanwhile, go down the housing snake—they face the bedroom tax mentioned by the noble Lord, Lord Horam, if they cannot compress into a smaller home, while other council tenants, with a family income of £30,000 between two of them, are pushed into market rents. After five or eight years, starter homes owners may happily leave their homes to trade up; at the selfsame time, council tenants fear that they will lose their homes to an insecure tenancy. It cannot all be about Bob Crow, as the noble Lord, Lord Kerslake, said—can it? Fair it is not; spiteful, as far as council tenants are concerned, I believe it is.

So I have some questions to the Minister that span this and the next group of amendments. The original impact analysis suggests that the increased income from rent under this policy, before taper, would be wiped out every year by the “behavioural impact”. In other words, tenants will ensure that they do not pay an extra penny if they can help it, so the Treasury will only gain not from increased rents but from “fiscal drag”. That is very speculative. My first question to the Minister, therefore, is: what are the Treasury’s revised net figures with a taper of 20%? Less income perhaps? Less evasion, certainly. Perhaps less fiscal drag, also?

Secondly, what is the estimated admin cost to local authorities of assessing the income of separate family members for those half of council tenants who are not on housing benefit? Where will that information come from? Will it come from HMRC? For hundreds of thousands of tenants, will councils draw on data that are 18 months old? In many councils, these data would be handled by private companies, so what of taxpayer confidentiality—or does that not matter for council tenants?

Whenever people’s incomes fall, they will, rightly, want their rent to be reduced immediately, although they may be slower to report a pay rise. What will it cost councils to collect data on any such income drop, verify it with HMRC, conjoin family incomes, assess the rent and notify tenants and then collect it? What will it cost to do that all over again for that family, perhaps every month or two, when the job goes, the partner goes, their hours go down or their income, as a self-employed person or someone on commission or on a zero-hour contract, doubles or halves from month to month?

At huge cost, as the noble Lord, Lord Horam, said, local authorities will be endlessly chasing rent arrears for, on the one hand, increased rents or, on the other, for failing to credit for reduced rents. Always, they will be three changes of circumstance behind. With tax credits and with the Child Support Agency, we never caught up—half of all lone parents, I found, had more than a dozen significant changes of circumstance affecting their tax credits or his maintenance every year. That required endless recalculation of tax credits and maintenance, which government never managed to handle. I was there. We were foolish and we got it wrong. We have not learned from it. This is what is so exasperating: look at what has happened with the bedroom tax. I checked this figure over the weekend. So far, some councils have recovered just 30% of the increased rent due because of the cut in housing benefit—30% after a couple of years, with 70% still outstanding and half the affected tenants with hugely increased arrears. That is the legacy. That, as a system, was fairly easy because rent and income in those cases were both fairly stable, unlike this mess. If pay-to-stay rent is not adjusted speedily the tenant will suffer and fall into debt, but if the local authority tries to do so it will be unable to cope. Oh, and the IT providers tell us that the IT will not be ready on time either, but that is a minor consideration.

Now add a taper. Because this policy is so spiteful—I use that word deliberately—the Government have allowed some inadequate mitigation that softens the edges but hardens and makes more difficult the administrative delivery. A taper is welcome, but an increase in the threshold that takes most of those families on fluctuating incomes out of pay to stay is, in my view, essential. Only that will ease the administrative nightmare about to hit local government; only that will protect work incentives and the wish of so many struggling families to get on and progress. Otherwise, tenants will refuse overtime or not declare it. A modest promotion would be declined as, with NI and tax, they will now lose 52p in every pound, making quite fragile lives and that effort to get on so much harder.

As the noble Lord, Lord Kerslake, said, housing associations have discretion on whether to impose pay to stay at all. If they do they are allowed, as the noble Lord, Lord Horam, said, to keep the rent. Councils have neither option. It is mandatory and the money does not stay with them. They will have the cost, but the money goes to the Treasury. The Government are not even guaranteeing that the costs will be covered. The Minister is keen to talk about the level playing field between housing associations and local authorities on right to buy; she is silent, so far, on the lack of fairness between the tenures of housing associations and local authorities on pay to stay.

This policy is spiteful and unnecessary. It will not bring in much income. I do not see why council tenants, unlike us, are expected to contribute to reducing the deficit in this way—pushed behind, according to the impact analysis. It is not too late to amend the Bill. I hope that the House does so today by supporting the admirable amendments in this group and the group that follows.

Photo of Baroness Gardner of Parkes Baroness Gardner of Parkes Conservative 3:30 pm, 18th April 2016

My Lords, this is a very emotive issue. I recall very clearly being quite upset and thinking it very wrong when I discovered that people earning huge salaries—we all know that Bob Crow was the famous one so much in the public eye—occupied properties that someone in much greater need would have required. Yet I also understood his feelings that it was his home, he had lived there a long time and he wanted to stay. Therefore, a very fair answer seemed to me to pay more. I again declare my interest, which is in the register and as I have done every time before.

Would not the answer to all this administration being discussed be to place the onus on the tenant to state whether their income is above a certain amount? That way the council would be much less restricted by being obliged to do it. Either you make it compulsory with a “must” or you do not bother to enforce it too hard at all but give a penalty if, at later stages, you discover that people have not declared when they should have. The whole thing is extremely difficult, yet the people in the greatest need should occupy these properties.

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

My Lords, the amendments in this group seek to make the policy voluntary for local authorities and to impose restrictions on where the policy should operate. These are basically wrecking amendments and I should be clear up front that we cannot accept a voluntary approach for local authorities. Local authorities can now, if they want, put a voluntary scheme in place, but we are not aware of any that have actually done so, so the policy must remain mandatory.

Within these amendments there may be some room for common ground, particularly around considering the impact on authorities in particular areas. Combined with the reassurances that I have provided on the proposals for the design of the policy through regulations, I hope that this can help us avoid an argument about the nature of the scheme. We are clear that it should be applied consistently by local authorities.

Amendment 72, tabled by the noble Lords, Lord Kennedy and Lord Kerslake, would have the effect of making the policy voluntary for local authorities to operate. As I have explained, we cannot accept this position. Unless there are very good reasons for an authority not operating the Government’s policy, with those circumstances set out in regulations, we want a consistently applied policy.

I think that it was the noble Lord, Lord Kennedy, who asked how the figures had been arrived at. The figure of 30,000 represents the top 40% of earners and the figure of 40,000 represents the top 20% of earners.

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

The noble Lord is absolutely right; it does represent households. But he asked how the figures were derived and that is how I understand they were derived.

The noble Baroness, Lady Hollis, raised a number of questions about the affirmative regulations that we will bring forward. Introducing a taper will reduce the money coming in. I have just had a note saying that the regulations we will bring forward will provide more detail in due course. The noble Baroness also asked, what is the updated estimate of savings from the policy in light of the taper? Introducing a taper will reduce the money coming in by about half compared to what was set out in the Budget. That is what I can say at this stage.

Amendment 75, tabled by the noble Lords, Lord Kennedy and Lord Kerslake, seeks to allow a local authority discretion to implement the policy where the costs of administering the policy are likely to be greater than the extra rental income raised. It also seeks to allow local authorities to retain the additional revenue raised from increased rental income. I am sympathetic to one half of this amendment and I can give a commitment that we are thinking through the impact of the policy in certain authority areas. I accept that there may be some areas where social rents and market rents are so close that it may not make sense for an authority to operate the policy. We will consider that evidence carefully and consider how to approach this in the regulations. We will not be allowing local authorities to retain any money raised, however. The money has been identified as a contribution to reducing the national deficit and, on that basis, it must come back to government. I reinforce our commitment to allow local authorities to retain reasonable administrative costs.

Government amendment 133 provides for the regulations to be subject to the affirmative resolution procedure, which I am sure will be supported. I do not think that I need to say much more about this. I have given a commitment that the Government are in listening mode and want to take on board the views of noble Lords across a number of areas of detail. The affirmative regulations give us the chance to do this and I welcome the opportunity.

I hope that I have provided some reassurance and highlighted areas where we are thinking carefully about the way forward. Although we cannot accept a voluntary approach, we will work with noble Lords to consider the impact in some local authority areas. On that basis, I commend the government amendment and hope that the noble Lord will withdraw his.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Spokesperson (Housing), Opposition Whip (Lords), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Home Affairs)

Will the noble Baroness clarify one thing? I may be getting confused but I believe that the figures of £30,000 and £40,000 were the earnings figures that have now been applied to households. That seems a very odd and unfair government policy—taking an earnings figure and applying it across the board.

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

My Lords, the noble Lord raises a very relevant question. May I write to him?

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Spokesperson (Housing), Opposition Whip (Lords), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Home Affairs)

I thank the noble Baroness for that response. However, it highlights the fact that we are still not clear about some issues, even now we are on Report. That has been one of the problems with the Bill from the start. That is not the noble Baroness’s fault, but we are still not clear about some things even on the third day on Report. That is the fault of the department and the way it has handled the whole process.

I thank all noble Lords who have spoken in this debate. I agree very much with my noble friend Lady Hollis that the Government appear to be obsessed with council tenants’ incomes. As the noble Lord, Lord Kerslake, said, households with these income levels could in no way be described as high-earning. This proposal is just a tax on working council tenants on modest wages. That is very regrettable. I have heard nothing from the noble Baroness today or in Committee to convince me otherwise, although she has tried her best. I find this all very disappointing.

I still do not understand why the noble Baroness has on previous occasions—although she did not do so today—referred to a figure of £50,000 in London but seeks to impose this tax on working council tenants earning £40,000. I think the real reason, as we all know, is that the department has done its figures and realised that it needs to start levying this tax on earnings of £30,000 or £40,000 to get the maximum income. That is what this is all about; it is purely a tax.

I agree very much with what the noble Lord, Lord Horam, said. It was a pleasure to serve with him on the Electoral Commission, on which we both served for many years. I would have hoped that, even if the noble Baroness did not listen to my contribution or those of other noble Lords, she would have listened to that of the noble Lord, Lord Horam. However, clearly she has not done so today. I wish to test the opinion of the House.

Division number 1 Housing and Planning Bill - Report (3rd Day)

Aye: 238 Members of the House of Lords

No: 174 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Amendment 73

Moved by Lord Best

73: Clause 78, page 34, line 26, at end insert—“( ) The regulations must specify that the rent shall not equate to more than 10 pence for each pound of a tenant’s income above the minimum income threshold.”

Photo of Lord Best Lord Best Chair, Communications and Digital Committee, Chair, Communications and Digital Committee

My Lords, in moving Amendment 73, I am grateful to my noble friend Lord Kerslake, the noble Lord, Lord Beecham, and the noble Baroness, Lady Bakewell, for adding their support. Amendment 73 continues the debate on pay to stay. It starts with the assumption that the Government are determined to introduce a scheme of this kind to address the issue of very high earners in council housing, such as the case, which has been much quoted today, of Bob Crow on £145,000 per annum. The amendment seeks to moderate the disruption to the lives of ordinary people which this surcharge on the rent could cause.

I note in passing that the extra payment by the tenant is not rent, since it does not relate to the property and the landlord does not receive it. It is a payment that goes to the Exchequer, based on one’s income, and that is normally called a tax. Of course, as we explored in the debate on Amendment 75, if the likely receipts from pay to stay are going to be less than, or much the same as, the cost of administering it, it would be a pointless exercise to impose this housing tax. I was pleased to hear the Minister announce a willingness to accept this point in principle. I do not believe that anyone wants vindictively to tax successful council tenants just for the sake of it. In at least some areas, however, where incomes are highest and market rents are way above council rents, the Treasury has clearly seen that pay to stay is a chance to generate some extra revenue for the Government.

In the light of the amendment that we have just passed—if it is accepted by the other place—councils will be able to opt out of this duty to collect this housing tax for the Exchequer. My guess is that unless the arrangement is changed by Amendment 75, so that local authorities can keep the monies that they raise and apply them to housing purposes, virtually all councils will opt out if Amendment 72 survives. This renders my amendment here almost redundant. However, for local authorities that wanted to introduce a pay-to-stay scheme, it would limit the amount to be collected. It would be helpful everywhere, of course, if the other place fails to support the amendment we have passed.

Pay to stay is another manifestation of the Bill’s overarching policy of, on the one hand, bolstering home ownership, which is fine, but, on the other hand, diminishing the social housing sector, which is not good. In this instance, the levy on council tenants is not for housing purposes: it is, to quote the Chancellor, to “contribute to deficit reduction”. But these austerity measures do not apply to the generous treatment of those who want to buy, be they acquiring starter homes with big discounts or exercising a right to buy with even bigger discounts. For the buyers, there are no reductions in levels of subsidies for those earning more than £30,000, £40,000, £60,000 or £80,000. Amendment 73 would limit the transfer from council tenants to the Exchequer by restricting the levy on those earning more than the threshold, which, we have now been told, will be £31,000 per annum or £40,000 in London.

Amid all the uncertainties as to what this Bill really means, because so many key decisions have been left to subsequent regulations, we have some indications about the detail of pay to stay. It seems very likely, we now know, that the Government, very sensibly, will go for a tapered charge: that is, X pence for every £1 over the threshold, which is clearly much better than a cliff edge over which somebody just over the threshold would see a huge hike, perhaps doubling or even trebling their housing costs.

We also now know that the Government plan to set this taper at 20 pence in the pound. Twenty pence for every pound earned is equivalent to the doubling of basic rate income tax. For those earning £10,000 over the limit, the housing surcharge would cost them another £40 per week on the rent. That sudden imposition out of the blue would be very hard to bear for a couple with a family to support when both earn little more than the national living wage.

The amendment before us proposes a limit on the surcharge of 10p in the pound. Frankly, that is tough enough. Government does not want to pitch the figure so high that it creates work disincentives. The couple in, say, Brighton, each earning under £20,000 a year, would need to weigh up whether one of them should stop working one day a week if they would lose 20p in the pound as the rental surcharge on top of income tax and national insurance contributions, along with a day’s childcare costs and fares to and from work. At least a levy of 10% of earnings over the line would halve that work disincentive. Telling these households to move out and buy elsewhere may be of little help. Their income may not be secure; a big enough mortgage and a necessary deposit may not be within their reach, even with the Government’s generous subsidies for buyers.

I see in this week’s House magazine that a supporter of the Bill in the other place writes that those who,

“move out will be able to buy their own starter home … In my borough, Croydon, the average starter home flat will cost £180,000. So anyone on a household income of over £40,000 will be able to get the £171,000 mortgage … and will only need a £9,000 deposit. This would be good for them, and good for the person in greater social need who can move into the social housing unit that has been vacated”.

Sadly, that does not add up. Before the 20% starter home discount, the £180,000 flat would cost about £212,000. I have had a good look at the Right Move and Zoopla property websites, and I could find only one family-size flat going for that amount among the hundreds of properties for sale in Croydon: a very unprepossessing flat beside the Golden Dragon takeaway, on a high street, at £210,000. The next cheapest sought offers in excess of £245,000—a lot more expensive. Starter homes will be brand new and, I hope, a lot nicer than the properties at the very bottom of that price range. I am very doubtful that anything as cheap as this MP is hoping will be available as a starter home.

There are many more inhibitors to buying for those facing pay-to-stay charges. What if the mortgage companies did not regard either or both the incomes as sufficiently secure? What if finding even a 5% deposit, probably a good deal more than £9,000 cash, is a problem? What if the only starter homes are all sold, in another borough or too far from work, or would mean the children moving schools—and so on? No, moving and buying is not going to work for very many supposedly high-earning council tenants.

I note in parenthesis that if a high earning household vacates a property, it may not, as the Croydon MP expected, be available to someone in greater need, because it may be deemed to be of higher value and have to be sold on the open market, possibly in London to a foreign buyer.

Photo of Lord Lansley Lord Lansley Conservative 4:00 pm, 18th April 2016

I am trying to understand how Amendment 73 is intended to work. I cannot find a reference in the Bill to the minimum income threshold, so I am working on the assumption that the noble Lord believes that it is to be inserted. Is he supporting an amendment for that purpose—and, if so, at what level? For those who are contemplating the application of a taper, surely the level of the taper must critically depend upon the size of the minimum income threshold to which it relates.

Photo of Lord Best Lord Best Chair, Communications and Digital Committee, Chair, Communications and Digital Committee

My Lords, since the Minister has announced this and circulated a number of us with the details, I am making the not-very-rash assumption that the threshold will be set at £31,000 and at £40,000 in London, and that the taper—the reduction for those earning £1 more than those numbers—will be at a rate of 20p in the pound. I want to put in the Bill a level of taper lower than the level that the Minister proposed in writing to us.

Photo of Lord Lansley Lord Lansley Conservative

I am grateful to the noble Lord for that explanation, but it does not quite answer the question. As it stands, the amendment refers to the minimum income threshold, but nowhere else in the Bill is there such a thing as a minimum income threshold—merely a power in regulations, which Ministers have told us about, to apply such a threshold. It does not exist in the Bill, so the amendment is not complete. I completely understand the point the noble Lord is making. It suggests that the taper he is looking for should be applied to an income threshold in regulations of the kind that Ministers are suggesting. Is that his position?

Photo of Lord Best Lord Best Chair, Communications and Digital Committee, Chair, Communications and Digital Committee

That is my position. I would be very happy to withdraw this amendment if the Minister were able to say that in regulations there would be a taper of 10p in the pound so that it did not need to be placed in the Bill.

The reality is that most of those hit by the proposed housing tax on their earnings will indeed have to stay and pay. I contend that it is important that they should not be forced to move. It would not be wise policy to engineer through a punitive pay-to-stay regime that only those on the lowest incomes can occupy council or housing association homes. Council housing traditionally—right back to the homes fit for heroes after the First World War—provided for hard-working families. Today it today accommodates, for example, key workers—nurses, teachers, care workers and others—for the benefit of the wider community. Social housing will often help people who start out with problems or low incomes but who settle in and prosper. These households are a vital part of sustaining a strong community.

For several decades those of us involved in social housing have been aware of the need for mixed-income communities—not benefit ghettos, to use a horrid term. Driving out all those who have done well is the very opposite approach to the kind of place-making that addresses the Prime Minister’s concerns about deprived estates. Every housing professional will tell you that confining council or housing association estates just to poorer and vulnerable people can stigmatise all those who live there. That approach removes role models of people who are succeeding at work and deprives an estate of people with spending power and of potential community leadership.

In conclusion, pay to stay has proved the most contentious ingredient in the Bill because, unlike the gains for future would-be buyers and the problems for future would-be tenants, it affects hundreds of thousands of existing tenants. If handled insensitively, it will impair work incentives and the living standards of those on pretty moderate incomes who instead really deserve praise for their hard work and success and who help to sustain a mix of incomes on council estates. This amendment accepts the probability of the Government introducing a pay-to-stay surcharge, but, by limiting the levy to 10p in the pound, it minimises the considerable downsides to this policy.

I am not hopeful that the Minister, who has now announced the decision on having a taper of 20p in the pound as the rental surcharge, will today accept the 10p in this amendment. However, I know that she and the Secretary of State have been considering other ways in which a similar outcome—a reduced burden for not very highly paid council tenants from the new levy—can be achieved. My hope is that her response to the amendment will not necessitate a Division today, but I must reserve judgment on that. In the mean time, I beg to move.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Housing), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Justice)

My Lords, I support the amendment moved by the noble Lord, Lord Best, and I shall refer to the amendments in this group to which my noble friend Lord Kennedy and I have subscribed. The noble Lord, Lord Best, having referred to Zoopla, I should declare an interest on top of my local authority interests. Recently Zoopla gave an evaluation, not sought by me, for my four-bedroom semi-detached in Newcastle of £5.96 million. On my pointing out that this was somewhat excessive—despite the house having been built by the father of the noble and learned Lord, Lord Woolf, in the 1930s—Zoopla radically reduced the price, such that after a few days I seemed to be more than £5 million less well off than it would have had me and the world believe. Such is the world of estate agency.

These amendments deal with the critical issues of the taper which should apply to the imposition of higher rents, whether by government diktat or the exercise of discretion by housing authorities, and the relevant income thresholds. It is all of six weeks since the Minister wrote to Peers with the Government’s response to the six-week consultation initiated in October. The consultation, which contained not a single figure, occupied all of four pages. The response, remarkable for its opacity even by comparison with the abysmal lack of information that has been a feature of virtually every aspect of this Bill, consisted of three pages and no definitive indication of the relevant figures. The Minister’s letter accepted the notion of a taper, exemplifying in very broad terms the impact of tapers of 10% and 20%, but, significantly, without specifying the anticipated impact per household or the aggregate cost to the Exchequer. At 1.34 pm today I and, no doubt, a few other noble Lords received an email from the Minister stipulating a 20% threshold, which now results in the threshold figures being £31,000 outside London and £40,000 in London. I do not blame the Minister at all for this belated information, but it is another symptom of the way the Government as a whole conduct their business in general and on this Bill in particular.

As the Secretary of State reminded my noble friend Lord Kennedy and me last Thursday, this provision stems essentially from the Treasury’s determination to save money, not from any substantive housing policy requirements, and is based on the false premise that council rents are subsidised by the taxpayer—a notion that, in all fairness, the Minister disavowed in an Answer to a Written Question from my noble friend Lord Kennedy. Council house rents are not subsidised by the taxpayer. However, as the noble Lord, Lord Best, has indicated, it is a tax, in the same way that the residents of Boston discovered when the tax on tea was imposed in 1776. I do not say that the reaction will entirely match that of that celebrated occasion, but it is a tax and nothing to do with housing as such.

There is a paradox embedded in the Government’s approach. If tenants feel unable to pay the higher rents demanded, they may seek private rented accommodation, adding thereby to the pressure on rent levels in that sector—on which, incidentally, the Government propose no action—which could ultimately increase the housing benefit budget and indeed line the pockets of landlords while so doing. In Committee, I cited the case of the son of a family friend whose household income is a little over £40,000 and who would face a large increase in rent if the threshold remained at that level, which it appears it now will. The Minister indicated in her letter that the Government would institute a taper, and of course, we have heard that that is now their intention and what that threshold would be.

The Delegated Powers and Regulatory Reform Committee’s 27th report, while commending the Government’s acceptance of the application of the affirmative procedure to the rent regulation regime, expresses surprise that the Minister rejected its other recommendations and remains,

“of the view that there should be more on the face of”,

the Bill,

“to define the key expression ‘high income’”.

It regards as inappropriate the “sub-delegation to guidance” in Clause 78(4) of the determination of rent and the calculation of income under Clause 79(2)(f) because,

“it will elude any form of Parliamentary control”.

We now understand that there is to be an affirmative procedure, but as we all know, that is not the same thing as parliamentary control, and it certainly comes much later than the legislative process which creates the situation in the first place.

These are not, of course, trivial matters. London Councils estimated that on the original figures, 28,000 households in the capital would be affected. In Newcastle, the council’s estimate is some 500 houses. However, what is the Government’s estimate, and on what basis, of the impact of the proposed thresholds and tapers in London and elsewhere on the households affected and the amount to be paid to the Treasury net of any costs incurred by the authorities? I understand that the net figure is likely to be some £230 million, but that does not take account of the costs of administering the scheme—which, of course, will be incurred not by the Government but by local authorities. Can the Minister assure us that this pay-to-stay principle will not be extended to housing association tenants once their legal position in relation to the ONS’s concerns about their status and its impact on the definition of “public expenditure” is determined?

How, moreover, is household income to be calculated? Members have raised concerns about the position, for example, of resident family members who have income. The consultation document referred merely to the two highest earning members of the household. They may not, of course, be the tenants; they might be an elderly parent—or, rather, an older parent, because as I understand it we are talking about earned income—or a younger member of the family rather than a tenant with an interest in the property. Moreover, in these days of zero-hours contracts, many with brief periods of employment or fluctuating earnings from employment or self-employment may move above or below the threshold with, I suspect, some rapidity, given the relatively modest amounts involved and the types of trades and jobs which provide variable wages. I am not merely talking about zero-hours contracts, although that would of course be an issue, but generally there is likely to be a fluctuation of income. How are councils supposed to deal with this, and at what cost as regards administration? Is it appropriate for HMRC to be distracted from its belated efforts to tackle tax evasion and avoidance by having to supply information to councils—and perhaps, ultimately, to housing associations—about household income? What will it cost HMRC, stretched as it is by its current responsibilities, to undertake that exercise? Further, what undertakings can the Minister give about reviewing both the taper and the thresholds?

I am pleased that the Government have indicated that they are prepared to accept—I take it that that part of today’s discussions remains valid—Amendment 77ZA, a manuscript amendment in my name, under which the household income threshold,

“for the purposes of defining ‘high income’, is to be increased every three years to reflect any increase in the consumer price index”.

I hope the Minister will be able to assure us that the Government will still implement that element, at least, of today’s somewhat fraught discussions.

There are many questions about and difficulties with the proposed scheme. I hope your Lordships’ House will support the amendments in this group and that the Government will think again. It may be that certain of these issues can be dealt with next week, and if the Government are not in a position to agree on them today, I hope that they can at least give us some assurances. Failing that, this matter will have to go backwards and forwards between the Houses. That would be regrettable. It would prolong uncertainty and, I suspect, not answer the questions that I and others have raised.

Photo of Lord Kerslake Lord Kerslake Crossbench 4:15 pm, 18th April 2016

My Lords, I rise to speak to my Amendment 76 and to Amendment 73, which I support. I set out my concerns about pay to stay in the debate on the previous grouping, so on this occasion I will keep my remarks fairly short. I support everything that the noble Lord, Lord Best, said about the taper, so I shall focus particularly on the threshold.

For the reasons that I have already spoken about, these proposals catch not just households on high incomes but those on average incomes. They may be in the higher group in relation to social rented properties but, as households, they cannot in any sense be described as high income in relation to the population as a whole. This is a crucial point. It is not about high-income households in any meaningful sense, so to have any kind of fairness in the system, we need to raise the thresholds from those proposed and keep the taper low. It is not a matter of either/or; both are necessary.

My amendment proposes increasing the thresholds that have just been announced by the Minister by some £9,000. That would make them £40,000 outside London and £50,000 inside London, and the amendment would put those thresholds in the Bill. That was one of the options referred to in the Government’s own impact assessment, so it must have been under consideration. It is in fact lower than the previously proposed threshold of £60,000 agreed by the coalition Government. I think that there is a case for the threshold to be at least £60,000 in London, as proposed by the noble Baroness, Lady Bakewell, but, in the spirit of trying to reach a compromise, I have aimed to meet the Government half way on this—hence the recommended thresholds in the amendment.

The effects of raising the thresholds would be twofold. First, it would substantially reduce the number of people caught up in these proposals. There is a clustering of people around the £30,000 to £40,000 income level, so raising the thresholds would reduce the numbers to perhaps as low as 50,000 compared with 350,000. Secondly, it would start at the income level of people, and households in particular, in the top 20% of incomes, not in the top 50%, as is currently proposed, so it would affect people on genuinely high incomes compared with what is proposed now. I think that by any reasonable reckoning having the thresholds at the levels that I propose would be a fairer starting point, and a taper of 10p in the pound would be much fairer. Taking on board these amendments would go a long way to making what I think is a very poor piece of legislation a little fairer and a little more workable.

Photo of Baroness Bakewell of Hardington Mandeville Baroness Bakewell of Hardington Mandeville Liberal Democrat

My Lords, I shall speak briefly to Amendment 73 in the names of the noble Lords, Lord Best, Lord Beecham and Lord Kerslake, to which I have added my name. I shall speak also to Amendment 77 in my name and that of my noble friend Lord Foster of Bath.

The pay-to-stay policy has caused widespread concern among hard-working couples and families who are struggling to make ends meet and do not consider themselves to be high earners. It is essential that we give these people some sort of peace of mind that they will be able to afford to pay their rent, continue in their jobs and finish the education of their children. Raising the threshold of the income level at which people start to pay a higher rent to £40,000 outside London and £60,000 inside, at the same time as introducing a taper of 10 pence in the pound, would go some considerable way towards achieving that. Such a taper would assist couples and families with their budgeting and with planning to work towards paying market rents. In my opinion, 20p in the pound is too harsh. The discrepancy between a high earner for tax purposes and a high earner in terms of paying rent is stark, and the Government need to acknowledge that this is illogical.

Both amendments are crucial to the implementation of the Government’s pay-to-stay policy, to ensuring that tenants are given some level of security and that the threat of eviction is not continually hanging over their heads. I agree with the comments that have been made by the previous speakers.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Work and Pensions)

My Lords, I declare my interest as a vice-president of the LGA. I want to comment briefly on some of the administrative and practical implications that seem to be emerging from this policy. I support the amendment moved by the noble Lord, Lord Best, in relation to tapers. One of the consequences of having a taper is that the income figure needs to be precise in every respect. It is one thing to have a threshold that people have to get over, but you have to be clear as to how much in excess of that threshold people have to be for the taper to operate fairly. That seems to me to bring into question some fundamental issues. We had a bit more information from the Minister today—a couple more veils were drawn back from how this is going to work. However, there are still some fundamental matters that have not been worked through, or, if they have, they have not been disclosed to us.

The first issue is whether or not what we are talking about will always be an annual assessment of a person’s income. Certainly the thresholds have been proposed in terms of annual amounts, but is there any suggestion that these are going to be divvied up into quarterly or weekly amounts so that the assessment would change not only periodically but frequently? If the answer is no, and we are looking at an annual assessment, that can be done only on the basis of a preceding year because until you get to the end of a year it is impossible to know what the yearly income is, particularly when you have fluctuating contracts. My noble friend Lord Beecham touched upon the issue of those who are self-employed. In any particular year, a self-employed person’s income is often not determined finally until some time after the end of the year, not during it.

Secondly, we do not know what the final definition of “income” is going to be. We know that certain benefits are going to be excluded, such as DLA and child benefit, and that is to be welcomed. However, what about things like SSP, statutory maternity pay or carer’s allowance and a number of other matters? What is to be included? It seems to me that the Government by now ought to have worked that through in some detail.

As to whose income is to be taken into account, again touched upon by my noble friend Lord Beecham, as I understand it the proposal is that if you have joint tenants it can be the income of those joint tenants or the income of their spouses or civil partners, whichever are the highest two. But that comes back to the issue of the period for which you are going to assess, because until you get to the end of a year, you do not know necessarily which are the two highest incomes from those four people. Somebody might get a year-end bonus on the last day of the tax year and that person could then become one of the two highest earners—what are you going to do then? Will the rent be recalculated on some basis? It does not make sense. These are fundamental issues about how this is going to work and I think we need greater clarity.

Photo of Baroness Lister of Burtersett Baroness Lister of Burtersett Labour

My Lords, I rise to make a few brief points in support of this group of amendments. First, with regard to the threshold, I thank the Minister for her response in her letter of 8 April to my question as to why it had been reduced from that in the voluntary scheme. However, the statement in the letter that the new thresholds are above the average median wage is not an explanation for the reduction, because that was the case already. Similarly, her response to my noble friend Lord Kennedy on the previous group of amendments was no answer to why there has been a change in the thresholds. Given that, according to the FAQs appended to the letter, the Government have no information on how the voluntary scheme has operated, what is the evidence base for changing the threshold? If as the Minister said a moment ago no local authority has chosen to implement the voluntary scheme, that speaks volumes. Nor has there been any public assurance that the thresholds will be reviewed regularly to ensure that they are uprated in line with median wages—although, as my noble friend Lord Beecham referred to that just now, I hope that we are about to be given some illumination on it.

The new thresholds may be above the median wage—although, as we have heard, we are in many cases talking about two wages—but they still take no account of the costs associated with children and childcare and disability; that is, an income has to be assessed against basic needs if a means test is to be fair. I have yet to hear a justification for this. The issue is not addressed in the equality statement, magicked up on the day we discussed this matter in Committee, nor does that statement mention the potential indirect discriminatory impact on second earners, mainly women, for whom the policy is likely to act as a disincentive to stay in or take up paid work, especially if the taper will be 20% rather than 10% as had been hoped in Committee.

Government Amendment 73A states that,

“regulations may create exceptions for high income tenants of social housing of a specified description”.

I am sorry to be dense, but does “specified description” refer to the tenants or to the social housing or both? Either way, can the Minister give us some idea of what those exemptions might be, as she was pressed to do in Committee? In particular, having expressed sympathy on the issue, has she come to a decision on the treatment of disabled people and carers? I thank her for arranging a meeting between officials and Carers UK. She seemed to be thinking along the lines of exempting certain benefits received by disabled people and carers. The letter that we have all received today confirms that disability living allowance will be exempted, but what about carer’s allowance and other disability benefits? While exemption would be helpful, as Habinteg has pointed out, these benefits do not necessarily cover all the additional costs associated with disability which can mean that what might appear to be a relatively high income is not that high in relation to needs. Can the Minister address the specific issue I raised in Committee of exemption for disabled people in accessible adapted homes and, on the same logic, victims of domestic violence whose homes have been adapted under the sanctuary scheme?

Finally, the Minister was pressed both in Committee and today by my noble friends Lady Hollis of Heigham and Lord McKenzie of Luton about treatment of fluctuating incomes, which goes way beyond the question of zero-hours contracts. Anyone who has done any work in this area will know that people on lowish to middling earnings have incomes which fluctuate a lot. The issue was raised with me in a recent email from a member of the public, a self-employed actor whose income, a good chunk of which goes to her agent and on expenses, can fluctuate between £8,000 to £10,000 one year and £20,000 the next, and even when working she can be paid months after the job has finished. She cannot understand how her and her partner’s joint income will be assessed and is worried. She says, “If I was having a poor year that was assessed on a good year I simply would not have the funds to pay the rent”, and asks, “How will it work with varying income and self-employed workers? I would appreciate some solid answers from the Government”. Well, wouldn’t we all? Hitherto, answers have been as solid as soup. The answer in the FAQs that in the case of redundancy or a family crisis a so-called high-income social tenant could apply for universal credit is no answer to what then happens to the rent. I hope that we can get some clearer answers and assurances today and that we can do something to mitigate what my noble friend Lady Hollis described as a spiteful provision.

Photo of Lord Low of Dalston Lord Low of Dalston Crossbench 4:30 pm, 18th April 2016

My Lords, I support Amendments 73 and 76. I am not au fait with all the technicalities of many of the issues in the Bill, but I know that the proposals to raise the rents—as the noble Lord, Lord Best, pointed out, this should more properly be thought of as a tax—of so-called high-income tenants or households has given rise to great anxiety on the part of local authority housing tenants with quite modest incomes who enjoy subsidised rent. It is important that the Government should know that there is real concern about this right around the House.

I have received representations from a council tenant in Camden who currently pays £700 a month who has told me that she faces her rent being raised to £4,000 a month under the provisions of the Bill if they are not modified—a level she would be completely unable to pay. She has recently been widowed and is particularly concerned that if 2015-16 is taken as the base year, three months of her late husband’s pension will be taken into account in computing her income, thus artificially inflating the income by reference to which she will be deemed liable to have her rent raised to market levels. That is similar to a point just made by the noble Baroness, Lady Lister.

In briefings as the Bill has passed through the House, the Minister has consistently offered warm words about the Government’s concern to find ways of softening the impact of these provisions in the Bill, but so far they have completely failed to come up with any alleviation and today the taper has been confirmed as 20p in the pound. I therefore strongly support the amendments that would raise the threshold and smooth the taper to more realistic and much fairer levels.

Photo of Viscount Hanworth Viscount Hanworth Labour

My Lords, I shall speak to my Amendments 77A, 77B and 77C to Clauses 82 and 83. These clauses concern the pay-to-stay regime whereby those whose earnings exceed a threshold level would have their council rents increased. It must be clear that, if a penalty is to be faced by a household whose joint income exceeds a threshold level, there will be an incentive to keep their income below that level. If the pay-to-stay policy is to result in significant revenue, sufficient to defray the costs of administering the regime, the income threshold will have to be set at a very low level. In other words, people on very low incomes will be discouraged from attempting to secure higher incomes. It is extraordinary that such an impediment to earning should be posed by a party that claims to support the workers and the strivers of our society. This speaks of an utter carelessness if not of a naked duplicity.

Two of the amendments in this group propose to set a level-of-income threshold significantly higher than the one contemplated by the Government. Another amendment proposes that the penalty should be subject to a taper to increase step by step with the excess or earnings above the threshold level. I strongly support all of those amendments.

My own amendments deal with some further and possibly minor details of the pay-to-stay proposal. In common with so much of this Bill, the clauses in question are enabling provisions that allow the Secretary of State to determine regulations after the passage of the Bill. Clause 82(1) allows the housing authority to remove an extra rent charge that has been imposed on higher earners when the income has fallen back to a level below the threshold. I propose, in Amendment 77A, that in such circumstances the authority “must” reduce the rent. Clause 82(1) also allows the housing authority to remove an extra rent charge that has been imposed as a penalty on a tenant who has failed to provide information or evidence of their income. The clause proposes that the authority “may” remove the charge when information is forthcoming and it has been demonstrated that the tenant’s income is below the threshold level. In Amendment 77B I propose that in such circumstances the authority “must” remove the penalty.

In Clause 83, we see a provision for an appeals procedure to which the housing authority “may” have recourse. In Amendment 77C I propose that the provision should be mandatory. I acknowledge that it may be costly to establish an appeals procedure and that in these times of economic stringency there is an incentive to avoid such costs. However, the recourse to justice should not be regarded as an optional extra, affordable only in times of affluence. Such an attitude would threaten the very basis of our civil liberties.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour

My Lords, the reason for the Government’s proposals on pay to stay was allegedly to reduce the deficit. I hope the Minister and the House will forgive me if I come back and push the Minister yet again on by how much all this will reduce the deficit. I am still not clear.

If I have got this wrong, I am sure that the Minister will be able to correct me. In the original impact analysis, from before the taper was proposed, page 60 on higher-income tenants, says, taking the year 2019-20, by which time it will have bedded in, two or three years down the line, that the additional rental income is expected to be £0.49 billion, less “behavioural impact”—that is, what tenants do about that—and the cost £0.53 billion. So the behavioural impact is greater than the additional rent income. However, there is additional “fiscal drag”, which gives you £0.48 billion. That means that the total additional rental income in 2019-20 is £0.45 billion. So £450 million is the net money allegedly going to the Treasury to reduce the deficit, taking into account just three factors: the rental income, the behavioural effect on tenants and fiscal drag.

When I just asked the Minister—I am grateful for the information—she said she believed that, as a result of the 20% taper, the net effect for the Treasury would be half that figure. That is approximate, but let us say that it is that: £450 million comes down to £225 million in 2019-20. Let us assume that the proposal for indexing by CPI every three years is accepted by the Government, which therefore reduces most of the gain from fiscal drag. Does that £225 million now come down to £150 million, more or less?

However, the elephant in the room has not even been included in that, which is what my noble friend Lord McKenzie and others talked about: the cost to local authorities of administration. That has not been included in these figures. That has also to be deducted before the money goes to the Treasury. What do we expect that figure to be? The noble Baroness, Lady Williams, kindly permitted me to ask the Box for this information. We do not know. We are consulting. We will find out later. Will that be £50 million or £100 million? We know that the local authority administration costs will be huge, we know that they have not been included and we know that they are not in the analysis. How much real money will go to HMT?

We know that the increased rents will be wiped out by behavioural impact. We know that the fiscal drag on which the Government were relying will be modified substantially by any amendment to connect it to CPI, and we know that we have not included the local authority admin costs at all. I stand to be corrected but, on my calculations, this means that the Government will be lucky to clear £100 million a year to the Treasury from these proposals. All this spite, administration, fear, worry, hassle and stigma for £100 million a year to reduce the deficit—this is madness. Perhaps the Minister can confirm my figures.

Photo of Lord Lansley Lord Lansley Conservative 4:45 pm, 18th April 2016

My Lords, I had not intended to say anything on this, but following the most helpful exchange with the noble Lord, Lord Best, I just want to make two points quickly before we conclude this debate.

First, it seems to me that, within this group of amendments, there appears to be an assumption both that the taper should be low and that the threshold should be high, but that is an illogical position to take. If the threshold were very high, the taper presumably should be much higher, representing a much greater capacity to pay. To that extent, I urge noble Lords who are thinking about supporting any non-government amendments in this group to think very carefully about how one thinks about this. If one supports a taper, it seems to me that giving the Government discretion to bring in a taper is an appropriate way to do it, because the Government can then balance the threshold with the taper. Otherwise, if one introduces a low taper, it seems to me that one should therefore automatically not support amendments whose purpose is to increase the threshold and to impose a higher‘ threshold.

Secondly, although my knowledge of this is only as good as the figures that I have looked up in the last few minutes, the English housing survey figures from 2013-14 suggest that, including housing benefit, private rented sector tenants were paying on average 43% of their income in rent, whereas local authority housing tenants were paying on average 28% of their income in rent. I do not quite understand where the 10% figure that has been included in Amendment 73 comes from. It is asserted to be fair, but on the face of it the difference in rental costs as a proportion of income between private rented sector tenants and local authority tenants is already significantly larger than that—so where the 10% figure comes from I am not quite sure I understand. In so far as local authority tenants have an income that allows them to pay more, private rented sector tenants might not understand if we were to legislate in such a way as to ensure that local authority tenants paid less of their income in rent, relative to a market rent, than would be the case if they were out in the market having to rent at that level.

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

My Lords, I will, if I may, take this opportunity to reiterate our overall position on this policy. I wrote to noble Lords about this earlier this afternoon and I would like to take the opportunity to set out the key points on the Floor of the House. I hope that noble Lords will indulge me, but I will not take interventions at this stage, because I hope that many of the questions will be answered as I make my way through my opening statement.

The policy is about fairness, and our view is that social housing at lower rents should be provided to those households that need it most. Households that decide to remain in social housing but can pay more should be expected to do so. At the same time, the Government are making home ownership more accessible to tenants both of local authorities and of housing associations through the right to buy and shared ownership.

In Committee, I reinforced the Government’s commitment to ensuring that the policy is designed fairly and that work always pays. On this basis, I gave three reassurances: first, that we would introduce a taper to ensure that it would always be in the tenant’s interest to increase their earnings; secondly, that we would exempt those on housing benefit entirely; and that we would allow local authorities to retain the reasonable costs of administering the scheme.

In Committee, many important points were made. The noble Baroness, Lady Hollis, asked how the policy would work alongside universal credit. The noble Baroness, Lady Lister, spoke eloquently about the importance of ensuring that the policy is applied fairly for social tenants. The noble Lords, Lord Kerslake and Lord Best, both raised concerns about the level of the thresholds and how we mitigate those through our choice of income taper.

We have listened carefully to those arguments and to the views expressed by tenants and local authorities. We agree that people in receipt of certain state benefits should not be caught and that there should be an element of protection for those households on incomes close to the thresholds. Rents should rise by a reasonable amount and protect those work incentives. Following our consideration of the views and arguments, I can outline today much more policy detail that we intend to put into regulations. I hope that that will reassure noble Lords.

First, I can say more about which households will be affected. The policy will affect households with an income of more than £31,000 outside London and £40,000 in London. This would mean that households with two adults each working 35 hours a week on the national living wage would be below the threshold. In addition, I can confirm that no household in receipt of universal credit or housing benefit—this is the point that the noble Baroness, Lady Hollis, made—will be subject to the policy. This makes absolutely clear that this policy is not aimed at households on the lowest incomes, or at those households on incomes above the thresholds in areas of very high market rent that may qualify for these benefits. I hope that this will reassure the noble Baroness in particular about the link with universal credit. It also means that there will be no extra burden on the taxpayer, who would need to fund the increase in housing benefit or in universal credit to cover the rent.

This link to benefits is further reinforced by our proposed definition of “income”. I think that the noble Lord, Lord McKenzie, alluded to this. We want to define this as “taxable income”. When determining whether a household’s income is over the threshold, this means that we will take into account employment earnings, pension income and investment income, but not child benefit, disability living allowance or tax credits. This will protect many families on incomes close to the thresholds. Taken together, these announcements on income thresholds, the exclusion of households on universal credit and the definition of “income” make it absolutely clear that there will be no impact on families on low incomes.

Secondly, I know that there have been concerns about how much additional rent a household might have to pay. In Committee I said that we would use a taper to ensure that households did not face a very large increase in rent as a result of a small increase in income. I can confirm that we are proposing a taper of 20%. This will mean that for every additional pound someone earns over the income threshold, they will pay an extra 20p towards the rent. In determining the level of the taper we have looked closely at a range of tapers in use, including universal credit, to ensure that tenants’ rents are increased in an affordable way, while maintaining the principle that those who can pay a little more do so. The taper ensures the principle of affordability and of protecting incentives to work.

A household outside London on £32,000 a year will pay less than £4 a week extra and a household in London with a taxable income of £42,500 will pay less than £10 a week. A household outside London with an income of £40,000 would pay around £35 a week. The households that I have just described would be in the top 40% of household income. At a 20% taper level, most high-earning social tenants would pay no more than 20% of their income in rent—much less than the average household in the private rented sector and lower than the 33% of income often used by housing providers as a rule of thumb for what is considered affordable.

Thirdly, I know that noble Lords have been keen to ensure that we implement this policy in a way that does not penalise the parents of adult children who live at home, perhaps while they save to buy their own home. With that in mind, I can now confirm that “household” will be defined as the tenant, any joint tenants and their spouses, partners or civil partners. Within a household, only the incomes of the two highest earners will count. This means that the incomes of non-dependent children will not count unless they are named on the tenancy agreement—and, even then, only if they are one of the two highest earners. I reaffirm at this point that no household in receipt of universal credit or housing benefit will be subject to the policy. As I said earlier, the policy is not aimed at households on the lowest incomes or households on incomes above the thresholds in areas of very high market rents which may qualify for these benefits.

Finally, I can confirm that in the first year local authorities will return the actual amount of money they raise through the policy: the Government will not set a formula. However, we will return to this issue after the first year, when more information is available, to decide on the best approach. I understand that noble Lords are keen to scrutinise the detail of this carefully. As announced in Committee, I have accepted a recommendation from the DPRRC to make the secondary legislation subject to the affirmative regulation procedure. I am sure that this will be welcome news to your Lordships. There will be some further policy questions to address before we debate regulations but I want to take the opportunity to clarify some points of detail which I know the House had concerns about in Committee.

The noble Baroness, Lady Hollis, and the noble Lord, Lord Campbell-Savours, raised some important points about private companies having access to individuals’ income data. I assure noble Lords that the data-sharing powers in the Bill will be limited to data shared between HMRC and local authorities and HMRC and housing associations. The Bill contains strict conditions over how that information can be used and there is absolutely nothing here that enables further data-sharing with third parties.

There was some debate about admin costs. It is still the Government’s position that local authorities will be able to retain a reasonable amount of admin costs. I know that there was some confusion about this language in the previous debate. It is the Government’s intention that the costs should be covered but we are working with local authorities to fully understand the costs they will face in setting up and running the policy. It is important that we do not unfairly reward local authorities which are running inefficient systems. I can also confirm that regulations will not expect local authorities to collect where the administration costs would not be covered by the returns from this policy—a number of noble Lords made this point.

Before I conclude, I want to say something about the approach for housing associations. The decision on whether to operate a policy will be voluntary for housing associations. The Bill contains a requirement that where a housing association wants to operate a voluntary policy it must publish details of that policy and have an appeals mechanism in place. This is not a control but a sensible protection for tenants, but where housing associations operate a policy they can retain any funds raised and use them for investment in new social housing. We will continue to work with housing associations to help them put policies in place where they wish to do so. I hope that the details I have set out, though rather lengthy, demonstrate that the Government have listened to concerns raised by this House. Our proposals strike a balance between the need for fairer rents in the social sector and the need to ensure that the policy is applied fairly to tenants.

I now move on to the amendments. Government Amendment 73A allows us to make exemptions for those households in receipt of housing benefit and universal credit. Our proposed definition of income will ensure that payments from tax credits, child benefit and disability living allowance will not count towards the calculation of income. I hope that this will provide an element of reassurance for those in receipt of these benefits who may be close to the threshold. Of course, noble Lords will spot that this does not mean that everyone receiving disability living allowance, for example, will be outside the scope of the policy. If their income is high, they may be asked to contribute more. I am sure that there will be strong views on this, and I should make it clear that other exemptions could, of course, be made in the regulations. I know that noble Lords have particular concerns about the impact on certain groups of people—for example, the noble Baroness, Lady Lister, spoke eloquently about those with caring responsibilities or those who have suffered at the hands of a partner through domestic violence. We take this very seriously. I welcome further views on this, so that we can take forward further consideration of the evidence in advance of the affirmative regulations.

I am grateful to the noble Lord, Lord Best, for his Amendment 73, which seeks to place a 10% taper in the Bill. I share concerns about mitigating the impacts on households close to the threshold and protecting work incentives. The taper level of 20% that we are proposing should be considered not in isolation but alongside our commitment to exempt households in receipt of some of the benefits about which I have spoken today, as well as our definition of income, which will exclude a wide range of other benefits from the calculation. Taking all these factors into account, my view is that the 20% taper level strikes the right balance between mitigating the impact on households, preserving work-based incentives and ensuring that tenants who can afford to pay more do so. However, I reinforce the practical impact of our taper. At 20%, this will mean that for every £1,000 earned over the threshold, the rent increase will be just under £4 a week. This means the average proportion of income that a tenant would pay in rent would be around 15%. This would still be considerably below the commonly used rule of thumb that a maximum of one-third of income should be spent on housing costs, and far lower than the average PRS equivalents.

Amendment 76, tabled by the noble Lords, Lord Kerslake and Lord Kennedy of Southwark, and Amendment 77, tabled by the noble Lord, Lord Foster, and the noble Baroness, Lady Bakewell, both seek to put higher income thresholds in the Bill. The Government’s preferred option of setting the income thresholds at £31,000 and £40,000 respectively represent the starting point at which tenants who earn above average incomes should start to contribute a little more. The taper will be applied to ensure that for every £1,000 someone earns above the threshold, the additional rent would be lower than £4 each week.

Amendment 77ZA, tabled by the noble Lords, Lord Beecham and Lord Kennedy of Southwark, seeks to increase the income threshold every three years to reflect the consumer prices index. I am happy to return to this at Third Reading if we can reach a consensus before then because I share the noble Lords’ concerns about mitigating the impacts on households close to the threshold and protecting work incentives both now and in the future. We must have a policy that is fair, but it goes too far to place the amendment in the Bill.

Amendments 77A and 77B have been tabled by the noble Viscount, Lord Hanworth, and I shall speak to both of them together. I assure noble Lords that we will use regulations to set out the circumstances in which rents should be reviewed, both when a household falls below the income thresholds or when income drops by a certain amount. We must have a policy that is fair. There will be obvious circumstances—for example, when someone loses their job. There must be an incentive to declare the correct income under the policy. Our view is that the best way of doing this is for local authorities to be required to raise rents to the maximum available in an area where there is a persistent failure to engage with the policy. However, I want an approach that is fair. We will issue clear guidance to local authorities on the steps they should take to contact tenants before this sanction is applied. If the sanction does have to be applied, then local authorities would be required to reset the rents to the correct level once a subsequent declaration is made. I hope I have provided some reassurance on these points. We can, of course, return to this aspect of the policy once we have the regulations.

The noble Lord, Lord McKenzie, asked, on the point about declarations being made annually, what happens if someone’s income changes suddenly or several times in the course of one year. I have asked for clarification on whether this would be similar to the arrangement on tax credits where one is expected to notify the authorities as soon as possible when incomes change. I understand, from a whisper across the Chamber, that this policy would work in a very similar way, but I will write to the noble Lord to clarify it further.

Amendment 77C, tabled by the noble Viscount, Lord Hanworth, seeks to provide protection for the tenant and to ensure that increased rents are subject to an appeals mechanism. We will be putting such a mechanism in place, in regulations. Further work is needed on the role and scope of appeals, but I give a commitment that we will bring forward detail for the debate on the regulations. I would welcome the views of noble Lords on the scope of appeals.

Amendment 78, tabled by the noble Lords, Lord Kennedy and Lord Kerslake, would permit local authorities to retain the increased rental income from this measure, rather than surrender it to the Exchequer. As I have made clear, this policy will make an important contribution to the Government’s manifesto commitment to reduce the deficit. I have already given a commitment that local authorities will be able to retain a reasonable amount of the costs of operating the scheme, subject to the conclusion of work with local authorities to determine what an appropriate figure might be.

I have just spotted that the noble Lord, Lord McKenzie, asked about whether the specified description referred to tenants or households. It refers to tenants.

I hope that, with those words, noble Lords will feel able not to press their amendments. I commend the government amendment to the House.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Work and Pensions) 5:00 pm, 18th April 2016

Before the Minister sits down, I will ask for clarification on two points. She said that anybody on housing benefit would be outwith the policy. What is the position of a tenant just on the cusp of housing benefit at the moment—but not in receipt of it—who, if charged a higher rent, is brought into the housing benefit system? Will that person then be in the system and immediately out? How is that going to work? Does using taxable income not inevitably mean that it has to be based on some “preceding year” basis, with all the complications of changing circumstances arising since?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour

Will the Minister confirm, or say that she still does not know, whether the final net money going to the Treasury after increased rents, the taper, fiscal drag—possibly modified by CPI—and the effect of local authority administrative costs will be nearer to £100 million a year as a contribution to reducing the deficit? Is it, frankly, worth it?

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

The noble Baroness might find it helpful to watch this afternoon’s proceedings. She put a set of figures to me which mixed up hundreds of thousands with hundreds of millions and it was quite difficult to follow where she was coming from. I do not want it now, but could she reiterate what she asked in writing? I am not trying to be difficult, but I found it quite hard to follow some of the mixing up of hundreds of thousands with hundreds of millions—and, indeed, fractions of billions. So if she would not mind, perhaps she could write to me.

The noble Lord, Lord McKenzie, asked me questions which are quite detailed and technical in parts. He asked me about preceding years—in fact, I will let him intervene, because he probably needs to repeat the question to me.

Photo of Lord Elton Lord Elton Conservative

My Lords, the Companion, at paragraph 8.137, sets down the Standing Orders for how we conduct these debates. We are on Report, not in Committee.

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

I thank my noble friend, but I was very clear that the noble Lord was asking a question of clarification.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Work and Pensions)

I am grateful to the Minister, and I do not want to prolong our proceedings; we have much to get through. The issue was that if it is based on taxable income, does that not inevitably mean that it will have to be based on a preceding year’s income, because you cannot for the year for which you are setting rents possibly know the outcome of people’s taxable circumstances in all respects?

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

The noble Lord raises a reasonable point, and it is clear across a number of policy areas that it is not always possible to be absolutely accurate on either anticipated income or income in retrospect—but I will write to the noble Lord to clarify exactly what the framework for the policy will look like.

Photo of Baroness Bakewell of Hardington Mandeville Baroness Bakewell of Hardington Mandeville Liberal Democrat

My Lords, I am sorry, but I want to raise a point of clarification. I had understood that the pay-to-stay provision was intended to move tenants on social rents towards a market rent, but I thought I heard the Minister say that the Government are moving them towards paying a third of their income in rent. Will she clarify that please?

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

What I said was not in order to move them to paying a third of their income in rent; it was quite something else. I can repeat what I said: the households I described are in the top 40% of household income and, at a 20% taper level, most high-earning social tenants will be paying no more than 20% of their income in rent—much less than the average household in the PRS, and lower than the 33% of income often used by housing providers as a rule of thumb for what is considered affordable. I was making the point that we were not doing that.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Housing), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Justice)

My Lords, the Minister said that we might return to Amendment 77ZA at Third Reading. Is that an undertaking on her part to bring something back on the lines of the amendment?

Photo of Baroness Williams of Trafford Baroness Williams of Trafford The Parliamentary Under-Secretary of State for Communities and Local Government

The point that I was making was that the noble Lord made a valid point and that, if we can reach some sort of consensus, it may be possible to bring something back at Third Reading.

Photo of Lord Best Lord Best Chair, Communications and Digital Committee, Chair, Communications and Digital Committee

My Lords, I am grateful to all noble Lords who contributed to this debate. The noble Lord, Lord Beecham, concluded on a point that he made at the beginning: the linking of these numbers to CPI, so that they remain the same in real terms in years to come. That important point remains unresolved, but there is a promise to return to it at Third Reading.

I am grateful to the noble Lord, Lord Kerslake, for his support. As well as the taper, which is the subject of the amendment, he talked about raising the £30,000 or £40,000 threshold, as did the noble Baroness, Lady Bakewell. We may need to return to those points.

The noble Lord, Lord McKenzie of Luton, pointed out some of the many hazards in trying to calculate these sums: finding the two highest earners, updating their earnings from previous years and the rest of it. As a former Minister in this field, he understands the complexities of these things, and we should be warned by him of the problems in administering the arrangements.

The noble Baroness, Lady Lister, talked about the various kinds of benefit that need to be excluded from these calculations. I hope that she was at least in part reassured by the Minister’s comments.

The noble Lord, Lord Low, quoted examples from his own experience. The noble Viscount, Lord Hanworth, wanted an appeals procedure, and I hope that he was satisfied that the Minister was able to reassure him that there will be an appeals procedure in this regard.

The noble Baroness, Lady Hollis, wondered whether all this was about was raising £100 million to try to reduce the deficit. The Red Book following the last Budget Statement has a figure, and I think that that figure is £125 million a year, so she is not so far adrift there. We are talking in those sort of terms: £100 million a year, maybe £125 million a year, as the figure that will be produced from this.

The noble Lord, Lord Lansley, pointed out that in the private rented sector, people pay on average some 43% of their income in rent, whereas in the council sector, it is only 28%, so there is room to increase what people in the council sector pay. However, it may be that the private sector rents are too high, not that the council rents are very much too low.

I am extremely grateful to the Minister for explaining a number of the points that have been worrying us. She explained that there will be a taper, how various benefits will be excluded from the calculation of this, how two people who are earning the national living wage would be within the taper and would therefore be okay—but one does not think of people earning just above the national living wage as being really high earners, and that is what this taper is addressing.

In the consultation paper, the Minister put out two choices: either a taper at 20p or a taper at 10p. Virtually everyone who responded to the consultation thought that 10p was rather better than 20p. It is, of course, extremely disappointing that the Minister now tells us that there is a firm commitment to 20p, not 10p: that is twice as much. She makes the point that it is only a little more to pay in rent for those who are only a bit above the level, but if a couple’s earnings are £40,000 instead of £30,000—perhaps each of them earning £5,000 more than that limit—that is a £10,000 gap, which would mean that £2,000 of the extra £10,000, or £40 per week, would have to go on the increase in rent. With a 10p taper, it would be £20 per week instead of £40. In this amendment, I am claiming that £20 per week extra is quite enough for people who are not on very high incomes. They will have a multiplicity of other commitments, and to suddenly be faced with £40 per week rather than £20 per week makes a very significant difference.

I am glad that this will be looked at under the affirmative resolution procedure; that is good news for later. But I am sorry that the Minister, who I know has worked hard to try to get the best arrangements that she possibly can for us, has not succeeded in satisfying me—and, I suspect, others—with this level of taper. I would therefore like to test the opinion of the House.

Division number 2 Housing and Planning Bill - Report (3rd Day)

Aye: 279 Members of the House of Lords

No: 177 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Amendment 73A

Moved by Baroness Williams of Trafford

73A: Clause 78, page 34, line 33, at end insert—“( ) The regulations may create exceptions for high income tenants of social housing of a specified description.”

Amendment 73A agreed.

Amendments 74 and 75 not moved.

Clause 79: Meaning of “high income” etc

Amendment 76

Moved by Lord Kerslake

76: Clause 79, page 35, line 1, at end insert “which will not be below £50,000 a year per household in London, or £40,000 per household outside London,”

Photo of Lord Kerslake Lord Kerslake Crossbench

My Lords, I welcome the debate that we have had on this amendment. I believe, though, that the thresholds are still too low and catch too many people on ordinary incomes. I would therefore like to test the opinion of the House.

Division number 3 Housing and Planning Bill - Report (3rd Day)

Aye: 264 Members of the House of Lords

No: 173 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Clause 82: Reverting to original rent levels

Amendments 77A and 77B not moved.

Clause 83: Power to change rents and procedure for changing rents

Amendment 77C not moved.

Clause 84: Payment by local authority of increased income to Secretary of State

Amendment 78 not moved.