Examination of Witnesses

Welfare Reform and Work Bill – in a Public Bill Committee at 8:55 am on 15th September 2015.

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David Orr, Gary Porter, Mike Donaldson and Alastair Graham gave evidence.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon 8:58 am, 15th September 2015

A warm welcome to our four witnesses. This is an evidence gathering session. It is not a debate about the Bill. You will be asked specific questions and we would like, if possible, concise answers. Please do not feel that you each have to answer every question, although it may be appropriate. If you have something fresh to say, please feel free to catch my eye. We welcome our experts from the National Housing Federation, the Local Government Association, L&Q London Housing Association, and the Royal Mencap Society. Would you kindly read yourselves into the record for Hansard? Mr Orr, perhaps you would like to go first.

David Orr: I am David Orr, chief executive of the National Housing Federation.

Mike Donaldson: I am Mike Donaldson, a director of London &Quadrant Housing Trust.

Gary Porter: I am Gary Porter, chairman of the Local Government Association.

Alastair Graham: I am Alastair Graham, director of Golden Lane Housing, which is part of the Royal Mencap Society group.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Thank you very much indeed. We have until five minutes to 11 for this sitting. There will be plenty of questions, starting with Kate Green.

Q 130130

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

Good morning. Thank you very much for coming. My first question is probably for all of you. Would you give the Committee your views on the proposal in the Bill to require a yearly 1% reduction in social housing rents?

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Just before you answer, may I correct a mistake? We have until 10 o’clock, of course, not five to 11.

David Orr: I think the fundamental problem from our point of view is that rents are set, effectively, by the Government, and have been for a period of time. It is 16 or 17 years since Governments first started to be involved in rent setting in the housing association sector. The combined impact of Government intervention over that period of time has been to leave a suite of rents that make no sense at all. There is no consistency. In the  evidence that we have provided I have called it a shambles, and I think that that is a fair description of it. You have neighbours living in identical homes, whose financial circumstances are broadly identical, paying vastly different rents. This is not of our making.

The specific proposal to cut rents by 1% per annum for four years, depending on the rate of inflation, means a difference to people’s legitimate business planning expectations of a reduction of around 13% or 14%, or £3.8 billion taken out of housing association business plans. This is because the rate settlement from May 2014 was 10 years at CPI plus 1%. It was a rent settlement agreed with Government and introduced by Government—not by us, but by Government.

As a result of that settlement, designed to give long-term certainty in business planning, a number of associations have organised long-term debt on an assumption of what would happen with rates. Large-scale voluntary transfer organisations entered into contracts to buy the stock, and contracts with the selling local authority, based on rental assumptions signed off by Government. The decision to reduce rents by 1% per annum breaks all of these commitments. Although inevitably sometimes Governments do things we like and sometimes they do things we dislike, we have always been able to rely on commitments made by Government. On this occasion, those commitments have been broken and are causing very considerable difficulty for some housing associations.

I have one further point. This is one of these occasions where a single measure imposed on everyone does not have the same impact on everyone, because of all of those rent changes and that rent thinking. I will give you one example. There is a housing association whose target rent is £86 a week. Their present rent is £48 a week, and this will take them back down to £46 a week. If your rent is already 25% above target rent, it means that you can do less, but it is a manageable proposition. For that housing association it is an existential crisis.

Q 131

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

Can I just pick up on one thing that Mr Orr said? You said that you had been living in a world where effectively rent has been set by Government, so is it wrong for the Chancellor to have suggested, therefore, that social rents have risen out of control?

David Orr: The extent to which social rents have risen is specifically and precisely because of a series of decisions made by Government. These decisions have been made in consultation and negotiation with the sector, unlike this present proposal, but these decisions are Government decisions, not decisions made by individual housing associations, which is why our evidence proposes that at the end of the four years Government should legislate to withdraw from rent setting altogether and relocate responsibility where it belongs—with the boards of housing associations.

Mike Donaldson: From our point of view, next year we will have £11 million less because of the decision to reduce rents by 1%. By year four that will be a £60 million gap, which we will have to plug to carry on with our plans to build homes. We based our business plans on the deal—it was described as a deal with Government, which was a 10-year deal—and of course, as David said, we have funding lines in place to build homes based upon that income. Now we are going to have to plug the gap, and we have to do that in short order because, obviously, we have building expectations; we have a  plan to build 50,000 homes. As a result of this, that will be reduced by 18,000 homes, unless we can plug the gap. Our intention is to plug the gap. We want to get back to 50,000 homes, and the intention is to build as many social homes as possible.

Our concern is also that, although there is an expectation in the Bill that this is a four-year deal, there is no promise going forward. There is uncertainty about what the rent regime will be beyond 2020. For us, and for our funders, need a bit more certainty. We have already had one deal ripped up; we do not know what is going to happen in the future.

Gary Porter: The local government perspective is pretty much the same as David’s. Obviously, we fully support the Government’s aim to drive down the cost of the housing benefit bill. It has grown like Topsy over the last 10 years and is definitely unsustainable. The trouble is, this is probably the least sustainable way of bringing it down. It will cost—as we have heard from other people—a lot of new homes being built.

The only way of sustainably bringing down housing benefit is to build new homes. We do not have a sufficient supply of affordable homes; we are pushing more and more people into the private sector, where rents are considerably higher—about £50 a week more expensive than in the state sector—and we need to be able to build more homes. We think, across local government, that this is probably going to cost us about 19,000 homes, which is 19,000 times £50 extra a week on housing benefit. That will cost the country more money in the long run.

I can understand, in the short term, why it sounds like a good idea. The Treasury is right, rents have gone up considerably in the last few years but, as David said, that is as a direct result of Treasury policy. We were told how much we had to put our rents up, and we did it—most of us. You can’t blame us for it being that. As David said, people’s business plans are built on an assumption that rent will be at a certain level. Councils across the country that still retained their council houses were compelled by the Treasury to buy them back a few years ago, which we did, but that was based on a business model with rents being the way they were. We are now in danger, probably in four or five years, of most of those councils coming in with a big box of all the keys to their houses to give them back to the Treasury, because we will not be able to sustain the mortgage payments that we have on them.

The whole thing is counterproductive to what the aim needs to be. We have a vast disparity in rents. I think the average council rent is £82, registered social landlord rent is £90-something and the private sector is £137. It is no good just attacking one part of the problem; we need to tackle the cause of the problem, which is not enough housing. If I had a magic wand, or at least the ability to get the Treasury to do what we need it to do, I would take council houses off the public sector debt book. Let us borrow against the value of the stock that we have. We can build you more homes, which will bring down your housing benefit bill.

Alastair Graham: From our point of view, there are really two main areas where we are very anxious about this. We provide housing for people with a learning disability, and the fear is in respect of both existing tenants and potential new tenants.

Unless there is an exemption for supported housing, it will mean that for the several hundred of our properties that we currently lease from a head landlord, when those leases come up for renewal and the head landlord wants the same or an increase in the head landlord rent, we simply will not be able to afford to pay that, because our income will be reduced by the amount set out in the Bill unless we get that exemption. It means that these people will face a very uncertain future and may even have to be housed in very inappropriate, and probably much more expensive, accommodation elsewhere.

The second impact is in respect of new tenants. Some MPs will know that we have successfully launched two bonds over the past couple of years; they have raised £21 million, and we have invested all of that in new housing for people with a learning disability. It has not cost a penny of central Government grant. We had exciting proposals to expand and develop that to provide much more housing through private investment. It is going to be practically impossible to get that private investment with these proposals, because people are not going to want to invest in a business plan that shows the rental income going down year on year over the next few years.

What is really needed is an exemption for supported housing, which would not in any way detract from the Bill’s main thrust to reduce the housing benefit bill. In fact, it would almost certainly save money overall to the public sector, because it would enable us to house people in community-based settings, which is where they will typically want to live. It is usually where their parents want them to live—often just round the corner from them—rather than in expensive, remote institutional settings, far away, that cost the public purse more money. So we would really urge an exemption for supported housing.

Q 132

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

Could I ask for your comments on a suggestion made to me that if this legislation precedes as currently proposed, there should in fact be a choice for some housing associations to accelerate the increase and take it in the first year or two, rather than it being 1% per annum? Have you any comments on the pluses and minuses of that suggestion?

David Orr: That would be even more destabilising for most business plans, because what you do is bring forward the reduction in rent, and once that reduction is in, it is there in perpetuity. That would just add to the amount being taken out of business plans, so it is not a helpful proposal.

Q 133

Photo of Shailesh Vara Shailesh Vara The Parliamentary Under-Secretary of State for Justice, The Parliamentary Under-Secretary of State for Work and Pensions

Good morning, gentlemen. I just have a few brief questions. For those who are on low incomes, would you agree that the reduction will be beneficial?

Gary Porter: For those who are on low incomes but above housing benefit level, yes, by about 80p a week. For those who earn money but not enough to take them out of housing benefit, no, it will not make any odds. For council tenants, the biggest savers will save about 84p a week. Obviously, if you do not have a lot of money, that extra £1 a week will be a benefit, but there are better ways of doing it.

Mike Donaldson: In L&Q terms, 54% of our residents will not see any benefit at all, because the benefit is to the Treasury—the taxpayer.

Q 134

Mike Donaldson: Only if those people remain in the same circumstances.

Q 135

Photo of Shailesh Vara Shailesh Vara The Parliamentary Under-Secretary of State for Justice, The Parliamentary Under-Secretary of State for Work and Pensions

Yes. On a balance of probability, there will be a proportion that will benefit and a proportion that will not. It will be 84p this year, more next year, more in the summer of the following year and so on. Gradually, it will increase for those on low incomes.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

Before you go on, can I follow this up?

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

I am coming back to you in a second, Emily.

Q 136

Photo of Shailesh Vara Shailesh Vara The Parliamentary Under-Secretary of State for Justice, The Parliamentary Under-Secretary of State for Work and Pensions

I note what you say about comparability, but you will be aware that between 2004 and 2014, average social rents rose by more than 60% compared with 23% in the private rented sector. Notwithstanding what you said, would you agree that the reduction in social rents will be able to bring some sort of parity between the private sector and the social sector?

Gary Porter: It is the complete reverse. If you force our rents down and allow private sector rents to go up—

Q 137

Photo of Shailesh Vara Shailesh Vara The Parliamentary Under-Secretary of State for Justice, The Parliamentary Under-Secretary of State for Work and Pensions

Hang on; you say “allow”, but the private sector operates independently. The disparity at the moment is that one has been going up a lot more and the other less so. As I say, look at the figures: between 2004 and 2014, average social rents rose by more than 60% compared with 23% in the private rented sector. Given that this has gone in a certain direction in the past 10 years, if it were to go in the same direction in the next 10 years, clearly one will go up less than the other.

Gary Porter: Private sector rents will go up as a result of this, because there will be less public sector houses built. That will push up the demand in the private sector, which will allow private sector landlords to push their rents up more. That is the way the market works.

David Orr: Sadly, we don’t live in a world that is that simple and straightforward. Social rents going up by 60% is a specific and direct consequence of Government policy to reduce the amount of capital investment in new supply through housing associations, while still wishing to see the same level of delivery.

In the 2010 comprehensive spending review, when capital investment in new supply through housing associations was reduced by 63%, the coalition Government set us a challenge to deliver the same number of new homes or more, specifically by introducing a new rent regime called the affordable rent regime, with much higher rents. That was a Government proposition; it was not asked for or particularly supported by the sector. Having created affordable rents that are designed to be set at 80% of market rates and therefore responsive to what is happening in the market, rebased every time  there is a new letting, the Government now want to reduce the rates on those. It is not consistent; that is the problem.

Housing and housing investment is a long-term business. We borrow money and organise finance on a 30-year basis, and that kind of cavalier approach—up one year, down the next; capital subsidy and then changing it to revenue subsidy—plays havoc with the ability of organisations to make the commitments they have entered into.

Q 138

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

You have been asked a question about those on low incomes and the impact on them of rent going down, and I wanted to pick that up. I wonder perhaps if Councillor Porter particularly might be able to answer this. If rents go down by 1%, will that have an impact on the amount of money that local authorities have available to do repairs, and can you see that having a long-term impact on the service that is available to council tenants?

Gary Porter: Well, yes. Whatever money is taken out of the system will prevent us either, in some cases, from maintaining the homes in the way that we would like to maintain them, or—more importantly from a Government perspective, I would suggest—from building new homes to reduce the long-term housing benefit bill. It will in a few cases have an impact on the ability to maintain homes properly, but I hope that my members would find a way of prioritising making sure that people still live in fit, decent properties. We have a good track record over the past 10 years of improving the high quality of our housing stock, and I cannot see any council easily going back on that. They will make other decisions, other than reducing maintenance, but that will be investment in their value.

Q 139

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

I wonder—again, Councillor Porter and perhaps Mr Orr could answer this—to what extent we think that the cut in social rents will have an impact on the overall growth in spending on housing benefit, compared with a similar policy applied to private sector rents. I think, Councillor Porter, you touched on this. We are looking at the differences between social rent and the private sector, and if the Government want to cut back on the housing benefit bill, and therefore cut social housing rents by 1%, that might have one impact, but if a similar policy were to be applied to the private sector, how much more housing benefit would be saved?

Gary Porter: Yes, but you might then end up with people in the private sector deciding that they do not want to be letting to the people you need to house in those properties. Don’t get me wrong, I fully support the idea of not spending £20 billion-plus a year on housing benefit—it is a crazy system. We should not be wasting that money that way, but the only way of sustainably stopping that money being spent is to build more homes. We need, one way or another, to build more affordable homes for people on low incomes to live in. That is the cheapest solution for the country.

Q 140

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

You are here speaking on behalf of the Local Government Association, which obviously is a cross-party organisation, and I believe that you are Conservative councillor.

Gary Porter indicated assent.

Q 141

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

I will choose one more question to ask. I think, Mr Orr, you touched on the effect of the cut to social rents—or the Government enforcing a cut—of 1%. You said that housing associations have been pushed into the 80% affordable rent bracket. I wondered what the effect of the 1% cut would be on housing associations’ ability to build, versus pushing your tenants into 80% affordable rent, or 80% rent, instead.

David Orr: Our initial calculation was that in the absence of other mitigating action, the impact of the 1% cut would be a minimum of 27,000 homes lost—

Q 142

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

So that is 15,000 with local authorities and 27,000 with housing associations per year.

David Orr: Yes. It could be more than that, but what is happening is that the housing associations are looking all the way through their business plans and making decisions, trying to prioritise how they deal with the cut. The truth is that some housing associations have already started the process of making members of staff redundant, and often these are people who are doing the work to support people’s tenancies, such as financial inclusion staff or neighbourhood support staff. So it is difficult at this stage to be absolutely clear, but certainly the options that people are exploring include doing more under the affordable rent regime, with more conversions to affordable rent, or more new homes for shared ownership, rather than for social rent. That will play out over the next year, while people come to terms with the impact and recalibrate their thinking about the future.

Some housing associations in high-value markets are increasingly building for market sale and market rent, partly because that is a useful product in the market and partly to generate profit so that they can create their own cross-subsidy for affordable and social rent, and for shared ownership. But that does not work in low-value markets in the north of England and elsewhere.

Q 143

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

So they are building for private sale in London and building for social rent outside London.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

A very quick answer, please; we are moving on.

David Orr: Broadly speaking.

Q 144

Photo of Paul Scully Paul Scully Conservative, Sutton and Cheam

You have touched on a few areas. In 2014, the housing association sector produced a surplus of £2.4 billion. The Government assessment is that the sector is financially robust. Do you agree with that, and are you well-placed to deliver efficiency savings to manage the reduction? If you agree, could you outline some of the ways you might look at doing that, beyond what you said?

David Orr: I think that, in truth, there is no sector anywhere that is not still capable of making further efficiency savings. That is as true in our sector as it is anywhere else. Specifically, Government direct investment in housing associations is at a very low level. Ten years ago, when the Government put in a pound of public money, housing associations were generating £1.60 of private investment. Now, the Government put in a pound of public money and housing associations generate  £6 of private investment; I think that is a pretty impressive efficiency gain. To be able to do that, housing associations have to be financially robust and be able to generate surpluses that give confidence to the investors in our sector.

It is cause and effect. If you create an environment in which you require people to be social enterprises and behave in an entrepreneurial way, you need to be able to generate the surpluses. Most of it is not available cash. In our sector more than anywhere else, surpluses are not paid as dividends to shareholders; they are reinvested in building new homes and providing services. Yes, there is apparently an amount of surplus that could be squeezed, but if you squeeze the surplus you get fewer new homes.

Q 145

Photo of Paul Scully Paul Scully Conservative, Sutton and Cheam

Can I ask Councillor Porter and Mike Donaldson whether there is a way beyond what we have already talked about for the Government, local authorities and housing associations to create further efficiency savings, with all three working together?

Gary Porter: All three working together? There are big tranches of other Government Departments that own land in areas that are controlled by councils that could be building more homes. If you could speak to the Ministry of Defence or the national health service—any of the big landholding Departments—about releasing that land to local authorities to add value by putting planning permission on them, we could use that for pushing out private sector rent and private sector buy to sell. We could put public sector cheaper rents on there; we could do whatever you wanted with it if you freed up the land. Trying to get Government Departments to do it is difficult—that has been the case for the 15 years since I became a councillor. It does not matter which party is in government it is, the one thing that whoever is in charge of a Government Department does not like doing is releasing land that they are sitting on. But we could all work together quite easily.

Q 146

Photo of Paul Scully Paul Scully Conservative, Sutton and Cheam

Obviously, in London you got the London Land Commission to release some of the Greater London Authority land and Transport for London land.

Gary Porter: Yes, but the rate of the One Public Estate stuff is very slow. I still think that there are probably quite a few cases of underreporting of assets and things. There are some imaginative things. We have made a few suggestions to the Treasury, which I will not say in this room because it might scare the horses elsewhere. There are quite a few things we could do to work together to achieve a better outcome. It comes back to the same thing: we need more homes. That is the only way of sustainably bringing down the bill.

Q 147

Photo of Paul Scully Paul Scully Conservative, Sutton and Cheam

The current intention of the legislation is to have in place exemptions that are broadly the same as those already in place in the rent standard. Does the panel believe that the exemptions in the rent standard are the right ones?

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Shall we hear from the others—Mr Graham and Mr Donaldson?

Alastair Graham: The exemption needs to be couched in the widest terms possible to ensure that people with learning disabilities and other vulnerable groups are  properly protected from the impact of the legislation. It is fairly widely recognised that legitimate extra costs are involved in housing people with learning disabilities and other vulnerable groups. However the exemption is phrased, we need to make absolutely sure that we protect those vulnerable groups in the years going forward.

Mike Donaldson: We support the exemption of supported housing or specialised housing, because it operates completely differently from general needs housing. If it is not exempt, it will put very vulnerable people at risk. Given that the objective here is to reduce the housing benefit bill, we also think that housing which has been provided to people who are not in receipt of benefits should be exempt too, particularly intermediate market rent. We credit-check these people to make sure that they can afford the rent from their own means and do not need to be supported by the state. We think that that should be exempt as well. There is a technicality around affordable rent. Affordable rent, which was introduced by the coalition Government, is a gross rent and it includes a large slice of service charge. The Bill talks about rent, not about rent and service charges. That is a confusion, and it needs to be looked at. It is a technicality, but it does need to be sorted out.

David Orr: I think the Bill identifies, broadly speaking, the right areas for considering exemption. The supported housing exemption as presently defined in the Bill is too narrow, and we would argue that it should be what is called specified housing. This is housing which is not covered by the universal credit arrangement. DWP has already accepted that this kind of housing should be exempt from those normal arrangements because of the amount of care and support that is provided.

A separate area that is not mentioned at all in the Bill is relatively recent new large-scale voluntary transfer organisations. Their business plans are very much under pressure, because they entered into 30-year contracts based on a series of assumptions about rent that were formally approved by the Government. They are not going to be able to meet their promises—or, in some cases, meet their contractual obligations—and they are under very, very severe pressure. We think that there should be exemptions there.

Q 148

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark

Thank you all for coming, and for the GSCE economics refresher for the Minister, which was really useful. My question comes straight back to that issue of supported housing. The point was made that in the previous changes of universal credit and the benefit cap, there were specific exemptions for supported housing. Why do you think that the Government have failed to make the same exemptions applicable to this change? Were discussions held with any of you before the Government announced their plans? What impact do you think it would have on the services in the longer term if the full specified accommodation exemptions were not made?

Alastair Graham: No discussions were held with ourselves, and I think that that is the case across the sector more broadly as well. The impact, as I said earlier, will be felt by people who are some of the most vulnerable in our society. Most of them do not work. Only 7% of people with a learning disability currently work, and most of them would still fall within housing benefit. In relation to the answer to a previous question,  they will not actually feel any benefit from the reduction of only 1% that would apply to them. Because there is no explicit exemption in the Bill, this is causing a lot of anxiety among individuals with learning disabilities and their families, because they simply do not know what is going to happen.

I understand that the Bill makes provision for the Secretary of State to make further exemptions down the road, but until we know what those exemptions are going to be and how they will be couched, there is an awful lot of uncertainty. This is causing anxiety which I think is largely unnecessary, because I do not really believe that the intention behind the Bill is to embrace supported housing. I urge clarification on this as soon as possible, so that people are not placed in that position. We are here in September, and we are only talking about April. It is not very far away. We will need to send out rent letters in the near future. We need to be able to give some reassurance, both to our existing tenants and their families and to potential investors if we want to carry on trying to get private investment at scale. As I said earlier, that is going to end up saving money for the public purse, not costing money.

David Orr: It feels to us as though there is little clear explanation as to why this more limited category is in the Bill. If the Government have already accepted that specified accommodation is different, then they ought to accept that across all of the arrangements that affect it. I think you would have to ask the Chancellor why this decision has been made, but there is a very strong case for ensuring that all specified accommodation is exempt from this measure.

Q 149

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark

We are primarily talking about accommodation for people fleeing domestic violence, people with learning disabilities and mental health problems, and homeless accommodation. They are exempt elsewhere. You are suggesting that this would cause complexity rather than simplification, which is something that the Government are striving for. Do you think that this has come about by design or by accident? Do you think it was a drafting problem? I notice that the Minister was shaking her head, but I hope that there will be clarity that this was an accident rather than a deliberate omission.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

That is not really a question for this panel.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark

Well, I am asking it. Do you think it was design or accident?

David Orr: I am not prepared to opine on the thinking of others, but it will not aid simplicity in a very complex rental environment. It is just another level of complexity. The long-term implication is that there will be less housing of this kind if this measure goes through. I think that will be problematic.

Q 150

Photo of Jess Phillips Jess Phillips Labour, Birmingham, Yardley

I am terrible at parliamentary protocol, but I feel that I have to declare now. If you look in the Register of Members’ Financial Interests, you will see that I worked for Women’s Aid within the past six months; there it is, on the record.

I want to get some further answers on supported accommodation. It is my experience that, with the reduction of funding for supporting people and other local authority  supported housing schemes, housing benefit-plus, as we would call it in supported accommodation terms, has picked up the slack for keeping those places open. There are lots of refuges and lots of places like those you are describing for people with learning difficulties where funding for supporting people was reduced. Organisations acted well to keep opening new beds for vulnerable people through housing benefit regulation. Will this have an effect on the supply of accommodation for, for example, victims of domestic violence, where there has already been a reduction due to the cuts in supporting people? I ask you, Mr Graham.

Alastair Graham: I do think that the implication is that it will be more difficult to provide full supported housing and new supported housing for many types of vulnerable groups because—firstly, from a private investment point of view—it is difficult to lever in private investment on its own or in combination with capital grant, if you have to show a business model in which your rental income is reducing year on year for the next four years but there is profound uncertainty beyond year four.

As David mentioned earlier, we thought, in the sector, that we had some certainty on this for 10 years and it was much easier to have those conversations with private lenders on that basis. Any kind of new housing or new proposition that we want to make will be a lot more difficult if we have to have a business model that shows that reducing rental income.

Q 151

Photo of Jess Phillips Jess Phillips Labour, Birmingham, Yardley

Will any excess charge that you charge the tenant—in almost all supported accommodation an excess is usually charged directly from the organisation to the tenant—have to increase, thus increasing the cost for vulnerable people?

Alastair Graham: We would need to look at all sources of income coming into the equation to see if we could still do something to make it possible to provide housing for vulnerable people. That is why we are in this business. We want to provide housing. We know that there is a huge, desperate need for this type of housing with the appropriate care and support. Unless there are the kind of exemptions that we have talked about, these reductions will just make it more difficult to provide this kind of housing.

Q 152

Photo of Jess Phillips Jess Phillips Labour, Birmingham, Yardley

Finally, to clarify, do you think that this funding reduction could mean that, for example, victims of domestic violence will directly be charged more for their rent by third-party providers of this type of accommodation, because of a reduction in housing benefit?

Alastair Graham: I’m not sure, to be perfectly honest. I cannot say.

Q 153

Photo of Anna Turley Anna Turley Labour/Co-operative, Redcar

I would like to go back to the points about the financial robustness of housing associations and surpluses and so on. David, could you tell us a bit more about the geographical disparity in that? It is my understanding that, particularly in terms of assets, housing associations in London will be substantially better off than housing associations in, say, Teesside in my area. Could you say something more about what that geographical picture looks like, and the different geographical implications of this policy?

David Orr: Yes, of course, you are quite right that the basic financial strength of organisations varies hugely. If they are in an area where assets are very high value, their business has a greater degree of financial robustness underpinning it than an organisation in an area where the asset value is very low. It is more possible in some parts of the country to trade assets, and therefore maintain financial stability, than it is in others.

The impact goes back to one of the things I was saying earlier. This is a measure that sounds simple, single and straightforward, but it has a profoundly different impact for organisations in different parts of the country. In my introductory remarks I said that for some organisations, not because they are inefficient but because of accidents of history and geography, this decision could mean that they will collapse.

Having an efficiency challenge is one thing, but imposing a new measure that has the direct effect of making it impossible for good, well-run, well-managed, efficient organisations to survive is not helpful.

Q 154

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

There are other measures in the Bill that will have an impact on housing associations and local authorities in relation to rent. I am thinking particularly of the four-year freeze and the reduction in the household benefit cap. Can I start by asking Councillor Porter your assessment of the overall effect of those measures in the Bill on local authorities and, in particular, pressure on discretionary housing payments?

Gary Porter: For the purposes of what we have been saying today, we have put the freeze and the reduction in the same space. So, all the numbers that we have used have been like the £2.6 billion that we are going to be light because of the freeze and the reduction. They are not different numbers; they are the same numbers.

In terms of the impact of discretionary payments, I am afraid that I cannot answer that at the moment, but I will ensure that one of the members of staff who are supposed to be minding me today has made a note of it, and we will give you that back in writing.

Q 155

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

What has been your experience of managing the household benefit cap since its introduction in the previous Welfare Reform Act?

Gary Porter: It has been a variable picture across the country. Some areas have been affected more than others, as you would expect. Any national measure applied equally across the whole country is bound to have a different effect, depending on where it lands.

Q 156

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

Do you think that what is introduced in this Bill, which has a different level of cap for London and for the rest of the country, is a useful measure? Do you feel that these levels are about right?

Gary Porter: I would leave London councils to argue the case for or against issues for London. I am not very well versed in the specific impact on London. Again, our office will give you an answer to that in writing.

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

It would be very useful if there was additional written evidence.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Yes, it would be helpful. Mr Orr, I think you want to come in on this one as well.

David Orr: For me, there are two major challenges with the benefit cap. First, of course it is right that there should be a limit on how much the state is prepared to pay. You cannot have open chequebooks, and we do not argue with that, but the way that the cap is introduced does not reflect the reality of the costs that people have. For most people, the cost of feeding, clothing, transport is broadly similar across the country, but housing costs are hugely different. So a single cap, once again, is a single measure that has very different impacts in different parts of the country. I think I am right in saying that the cap has the biggest impact in the midlands.

The second thing, which we are very concerned about, is that the level of cap now means that for a household with three children or more, dependent on benefit for whatever reason, there is nowhere in the country that the rent will be covered within the cap. Nowhere. So, for any household that has three children or more, this is a particular and specific problem.

Q 157

Photo of Kate Green Kate Green Shadow Minister (Equalities Office) (Women and Equalities)

And that, of course, will be exacerbated for those families by the child tax credit measures.

May I ask one final question on this point? What might be the impact on personal household housing debts? Will we see households going into debt to meet their rent as a result of the freeze and the cap?

David Orr: We already know that there are some households who have had to do that. I was in Cornwall yesterday, which is an area that has been particularly badly hit by the bedroom tax because there are very few alternative places with smaller accommodation for people to move to. We know that some people there have really struggled to pay the rent and some of them have gone into debt to pay the rent.

Q 158

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

I believe that 70% of households in social housing in some London boroughs are affected by the cap. The benefit cap has particular implications for London councils, so it would be interesting to have some additional evidence on that.

Can we also hear from housing associations about the benefit cap’s effect and what the future for housing associations in London is, given the level of the cap? Are we looking at a future where housing associations will only be able to risk renting out to young professionals without children and will not be able to build accommodation appropriate for families?

Mike Donaldson: We are already seeing the impact of the previous benefit cap in terms of the households we can house in larger accommodation, so it is obviously going to get worse as it reduces to £23,000. The other thing we are concerned about is that there is an assumption that rents drop dramatically once you leave the Greater London area, and that is not true. The area around London has equally high rents, because there is a lot of commuting and so on. So there is a real concern that the £20,000 cap also has a detrimental impact on our residents.

Although we do not know for sure, because obviously we have not got all the information from the DWP, we estimate that another 300 of our residents will be affected by the benefit cap when it is introduced. The history so far has been that we have had to engage heavily with those individuals to ensure that they do not face losing their homes. The extra costs that we incur to employ  staff, to get people jobs—we employ staff to give financial advice—is money that we have had to find from elsewhere in the past four years. Going forward, of course we will not have so much money, because we will be facing reduced income from rents, so there is a bind. Most of these people have never worked or have not got an engagement with the jobs market—they are starting from scratch. You have to do an awful lot of work with them to get them into paid employment.

Q 159

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

Can I talk about another situation? Let’s say a family living in Berkshire might want to move into housing association accommodation. Under the benefit cap, would the housing associations want to take the risk of building accommodation for a family in case the family fell out of work and then needed to depend on benefits, because those benefits would not pay sufficiently high rent even to pay for building the property in the first place? How many housing associations are following the example of Moat, which says that it cannot afford to build two and three-bedroom houses any more because of fear of the benefit cap?

Mike Donaldson: Well, the original benefit cap mainly affected larger families and it was four-beds that were mainly affected, so we have had difficulty letting some of those properties because the people who we would normally house cannot afford the rents. It is not a significant issue, but it has begun to be an issue, and it will just get worse because we are now talking about the smaller bed sizes—not two-bedrooms, but three-bedrooms. In London, they are going to be much more difficult to let at the rents that we are talking about. So it will just get worse, and by year four of this regime I think we will have a substantial issue.

Q 160

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

I was talking not just about renting, but about housing associations not being prepared to build family accommodation in the south-east because of a fear of their tenants becoming unemployed.

Mike Donaldson: I think you will see people developing smaller homes, because people can afford them. I accept that it may lead to overcrowding down the line, but that is where the pressure is.

Q 161

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Colleagues, we are approaching the end of this witness session. Does anyone have a final, burning question that they would like to put to our very expert and concise panel? David, would you like to add something for the record?

David Orr: May I say two things? One is a very specific plea on behalf of large-scale voluntary transfer organisations that have rents way below target. Under the existing arrangements, they are allowed to re-let at the target rent, rather than at their existing rent; as currently drafted, the Bill will not allow that to happen. Please could we put that back in? It would make a substantial difference to those organisations and would cost almost nothing.

Secondly, on the previous conversation, housing associations are trying to make sense of that issue. There is a huge commitment to continue to deliver the mission. Housing associations are mission-driven organisations and want to be able to provide good-quality accommodation for people right across the income  spectrum. I think we will see some two, three and four-bedroom homes being built, although I also think the incidence will diminish, but we have to think strategically and long-term about the consequences. One of my profound anxieties about the change in the Bill is that it feels short-term and that the long-term consequences have not been properly calculated.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

Thank you very much, that is extremely helpful to hear and has certainly been noted at this end of the room.

Thank you for giving us your time and expertise, gentlemen. It has been much appreciated.

Sitting suspended.