Clause 16 - Loans for mortgage interest

Welfare Reform and Work Bill – in a Public Bill Committee at 11:30 am on 15th October 2015.

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Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions) 11:30 am, 15th October 2015

I beg to move amendment 19, in clause 16, page 15, line 25, at end insert—

‘(7A) The waiting period before a person can apply for a loan under this section shall be 13 weeks.”

To require that the waiting period before an application for a loan for mortgage interest can be made is 13 weeks.

It is a pleasure to serve under your chairmanship, Mr Owen, ill or not.

Housing costs are never far away from our discussions in this Committee, and the clause brings the subject back into focus in a new and unexpected way. It is not at all clear to me what the Government are trying to achieve with this strange proposal. Support for mortgage interest—SMI—is a benefit that has been in existence in some form or another since 1948. It is the same age as the welfare state and the national health service and is paid exclusively to those on the lowest incomes. It is an important part of the social safety net, the entire principle of which is undermined when we start talking about replacing benefits with loans, which is what the proposal would do.

We have tabled mostly probing amendments to clauses 16 to 18. We do not believe that interest-bearing loans have a place in the social security system at all, but we have sought to highlight some of the most serious flaws in the proposal in the hope that the Government might reassure us that the consequences of the changes have been adequately thought through because, at first blush, it seems to us that they have not.

Towards the end of Tuesday’s sitting, we began to air some of the arguments about waiting periods. The Government made clear their intention to fix the waiting period for SMI loans at 39 weeks, which is three times its current level. That is without a doubt a substantial change. The waiting period was set at 13 weeks in 2008  when the global financial crisis prompted the then Labour Government to shorten the waiting period as part of a range of measures intended to prevent homeowners from going into arrears and facing repossession of their homes.

A research report published by the Department for Work and Pensions in 2011—I recommend the Minister reads it because it is very interesting and enlightening—says that the measures were successful. It stated that the changes

“resulted in more people being assisted, more fully and sooner. Borrowers accrued lower levels of arrears or none at all”

and

“lenders have been more willing to forbear and not seek possession.”

The report was published in 2011 and can be found on the Government’s DWP website.

Reversing the process by reverting to a 39-week waiting period is counterintuitive and likely to be counterproductive. It seems likely to increase the probability of homeowners facing repossession and homelessness when they fall on hard times. If the measure is about saving money, making things more difficult for people who find themselves falling on hard times when trying to buy their home and more likely that repossession will happen earlier is counterintuitive because of the costs to us all to look after the people whose homes have been repossessed. As we discussed on Tuesday, I was disappointed that there was no mention of that in the latest Government impact assessment.

The Government have not been able to provide any reassurance that there is a robust evidence base or, indeed, any evidence base at all for the contention that the charge will not risk an increase in homelessness. The best that the Minister could do on Tuesday was to tell us:

“The Council of Mortgage Lenders has not said that the 39-week wait will drive repossessions. That is an eminently respected organisation, and it would have said if it felt that was the case.”––[Official Report, Welfare Reform and Work Public Bill Committee, 12 October 2015; c. 360.]

I was interested and frankly surprised to hear that, and thought perhaps I had misheard it. I gave the Minister the benefit of the doubt at the time, but I am afraid I do not now. I wondered if the Council of Mortgage Lenders had looked into this in a bit more depth than the Government, so I went back and looked over its submission to the Committee. Imagine my surprise when I found that the view it had expressed on the waiting period was the exact opposite of what the Minister told us! For the sake of clarity, I will quote the submission at length, because it is a very helpful document:

“If the waiting time is extended, as planned, we believe that it will result in more cases of repossession as lenders will not be able to allow their customers to continue to accrue mortgage arrears over this period especially where the customer is unable to make any payment. Lenders already have to carefully balance allowing a person to remain in their home while not allowing their financial position to worsen. Extending the waiting time will only cause additional consumer detriment.”

There we are. The council is against it. The one piece of evidence that the Minister was able to cite in support of extending the waiting period turns out to be nothing of the kind.

The Government have to do better than that. In order to persuade Members on the Opposition Benches, the Government ought to make an effort to produce  some evidence or opinion from someone apart from Government Ministers that shows that the proposal is a good idea, and that extending the waiting period for mortgage lenders to get repayment will not mean an increase in homelessness. That, I appreciate, is an uphill task, but it is one they have set themselves.

I appreciate that I am a cracked record on this, but we must go beyond the rhetoric and look at evidence. Social policy should be based on evidence, and I will be interested to hear whether there is any evidence to show that extending the period from 13 weeks to 39 weeks, as the Government want, will actually help anybody.

Photo of Hannah Bardell Hannah Bardell Shadow SNP Westminster Group Leader (Fair Work and Employment)

It is a pleasure to serve under your chairmanship once again, Mr Owen. The Scottish National party supports the intentions behind Labour’s amendment 19, because access to support must be available within 13 weeks and not the proposed 39 weeks.

According to Shelter, around £300 million per annum in SMI is “small” in terms of welfare spending, but it is very important:

“It covers the interest payments for around 200,000 home owners on their mortgages, meaning that they are less likely to be forced into having their home repossessed and, ultimately, to end up homeless.”

Shelter also says that SMI has

“tight eligibility criteria and is restricted to very low income households who are out of work, pensioners or sick or disabled. In fact, the overwhelming majority of recipients of SMI either qualify through pension credit or employment and support allowance.”

They are already some of the most vulnerable benefit claimants, so adding a further burden by turning the benefit into a loan is essentially giving with one hand and taking away with the other. We do not support the Government’s attack on the weakest by forcing more and more vulnerable people to take on the added burden of debt just to get out of hard times. How can we define that as welfare?

Amendment 19 would ensure a waiting period for applications by eligible claimants for support with mortgage interest of 13 weeks. That would offer protection against the Government increasing the waiting period, as they have done with statutory instrument No. 1647, which will increase the waiting period to 39 weeks from 1 April 2016. The explanatory memorandum to the instrument states:

“The provisions in this instrument introduce a 39 week waiting period for all working age claimants who are required to serve a waiting period before housing costs, including payment of eligible mortgage interest, can be paid.”

We do not want yet more financial pressure on benefit claimants due to having to wait more than half a year to receive financial help with their mortgage interest payments, let alone the added pressure of that financial help pushing them into further long-term debt when that benefit is turned into a loan. Has the Minister had discussions with the Scottish Government on the implications of that change from support to loan, which will impact the people of Scotland by pushing them into further debt? I would be grateful for information on that.

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

It is a pleasure, Mr Owen, to serve under your chairmanship. First, may I clarify one point concerning the Council of Mortgage Lenders?  The other day, I spoke in good faith and on the basis of the many regular meetings that we have with the CML during which the issue has not been raised at all. Indeed, Paul Smee, its director general, did not raise the issue when he was in a meeting with my ministerial colleague, the noble Lord Freud, when they met in early September. Although the CML has definitely said that it believes that the 39-week waiting period will drive repossessions, they are unable to quantify numbers of repossessions. We will continue to work with the CML to assess any such impact in terms of repossessions but we do not believe that these will be significant.

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 have said all I am going to say on that. I would like to make progress as there is a lot to be said this morning. I would rather not get bogged down on issues on which I have made proper statement.

Claimants receiving income-related benefits may claim help towards the cost of their mortgage interest payments. Other than those receiving state pension credit, claimants have to serve a waiting period before the entitlement to help with mortgage interest begins. During the period of 1997 to 2009—the announcement was made in 2008 but the actual impact was in 2009—the waiting period for the majority of working age claimants was 39 weeks. In January 2009, the then Government introduced temporary arrangements reducing the period to 13 weeks, specifically to deal with the economic circumstances and to give additional protection to those who lost their jobs during the recession. At the same time, the maximum value of the mortgage for which support was available—the capital limit—was doubled to £200,000.

It was announced in the summer Budget that, from April 2016, the waiting period will return to the pre-recession length of 39 weeks, but it is important to remember and to note that the higher capital limit of £200,000 will be maintained. Given that the 39-week period was perfectly satisfactory from 1997 to 2009, and that the reduction was introduced purely on a temporary basis to deal with the then economic circumstances, it is right and proper that we should now revert to the former system.

We are all aware that the economy is on the rise and of the huge benefit that the employment market has had. We have record employment levels. I pay tribute to my right hon. Friend the Minister for Employment for her contribution to ensuring the record level of employment that we have at the moment.

The amendment would remove the current broad powers in the Bill that allow the waiting period for SMI to be set out in regulations, replacing them with a narrowly defined 13-week waiting period.

Photo of Debbie Abrahams Debbie Abrahams Shadow Minister (Work and Pensions)

The Government’s own impact assessment says that people of pension age are more likely to be affected by the change in SMI. Has there been an assessment to look at the impact that it may have on, for example, their ability to pay social care costs, and at what overlap there may be as a result of having an ageing population?

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

May I first pay tribute to the hon. Lady? She has a formidable reputation in health matters, particularly in relation to elderly people. I understand  that she co-chairs at least one all-party parliamentary group and chairs another. She comes with a formidable background and I take what she says with considerable respect.

It is important to remember that many pensioners will have had the assets for many years. That is actually the case. During that period, those assets will have appreciated considerably. What we are saying is that the loan will be paid only when the home is eventually sold. If there is no equity left, there will be nothing to pay back to the state. The provision is reasonable given that there are taxpayers who do not own their own home but whose taxes are being used to help others—pensioners or not—with a substantial asset whose value is continuing to appreciate and rise in value thanks to those taxes. As I said, no payment will be required until the property is sold at the end. If there is a balance left, that will be written off.

We also wish to retain the ability to act quickly in response to varying wider situations, such as economic downturn in the event that that happens again. Prescribing the waiting period in primary legislation would remove that flexibility. It is important to understand that the purpose of helping owner-occupiers with mortgage interest payments is not to secure their asset or reduce any outstanding payments owed to lenders; it is to help them mitigate the risk of repossession. There is no evidence to suggest that lenders will do anything other than exercise the same degree of forbearance that they did during the period 1997 to 2009, when the 39-week waiting period last applied, particularly as we are maintaining the £200,000 upper capital limit.

The hon. Member for Oldham East and Saddleworth also spoke about social care. Again, some people who need social care have assets that they have held for many years, often decades. People do not buy houses late in life, particularly those who are pensioners now. Many of them have an alternative income—not everyone, I accept—so we believe that there is sufficient equity to meet social care as well as the charge for the loan.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions) 11:45 am, 15th October 2015

The Minister asserts extraordinary things. I am sorry, but “We do not believe that this will increase repossessions; there is no evidence that it will” is not an answer to “Please provide the evidence that it won’t.” It is not an answer simply to assert that that will not happen, when common sense dictates that people who do not pay their mortgage for three times as long as before are likely to get into trouble with the lenders. It seems perfectly straightforward.

I will move on to that in a moment, but again, many of the points made by the Minister do not accord with what we know to be the case. As my hon. Friend the Member for Oldham East and Saddleworth said, only 15% of those who rely on the payment are on jobseeker’s allowance. Half of them are pensioners, and 40% of them are disabled, so they are unlikely to be able to get back into work. Social policy should be made on the basis of evidence rather than what one would like the situation to be. I will withdraw the amendment at this  stage, but the Government should go back to the drawing board and think again. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 116, in clause 16, page 15, line 25, at end insert—

‘( ) The regulations may define “owner-occupier payment”.’

This amendment provides for regulations under clause 16 to define the term “owner-occupier payment”. The definition will make provision about mortgage interest payments and payments under alternative finance arrangements.

117, in clause 16, page 15, line 26, leave out subsection (8).—(Guy Opperman.)

This amendment removes definitions that are no longer needed for clause 16.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

I beg to move amendment 134, in clause 16, page 15, line 34, leave out subsection (11) and insert—

‘(11) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by resolution of, each House of Parliament.’

To require that regulations under this section must be subject to the affirmative resolution procedure.

The proposed extension of the waiting period is, in my view, just the tip of the iceberg of what we do not know about how the switch from benefit to loan will work in practice. As is often the case with this Government, the Bill contains little detail. The operation of the proposed scheme will instead be set out in regulations, which the Government intend to slip through on the nod, hoping that no one will be paying any attention. Amendment 134 would require that the regulations on the details of the proposed loan scheme under the clause be subject to the affirmative procedure. It is all about democracy.

As drafted, the Bill will allow the Government to implement significant changes to the scheme, including such important details as the loan provider, the rate of interest payable on the loan itself, the terms of repayment and any additional charges and fees, without the need to seek parliamentary approval. That is pretty extraordinary. Amendment 134 would require the regulations to be subject to a debate and a vote in both Houses, so that we may scrutinise the proposals properly and understand what we are being asked to agree to.

I have touched on some of the important details that have been left out of the Bill, some of which I wish to explore further to give a sense of the scale of the issue. The first and most immediately obvious question is, who will provide the loans? In 2011 the Department for Work and Pensions, when it called for evidence, indicated that it would be responsible for administering the scheme, but things seem to have changed. The Bill lists a number of potential providers, including deposit-taking institutions, insurers and local authorities, of which the DWP is not one. So we are left to guess.

The Bill also indicates that administrative fees and interest charges will be payable on loans, but it does not say what will be chargeable or how the rates of interest might be set. It seems ironic, and not at all fair, that when the Government are proposing that loans for mortgage interest should be subject to repayment with interest we do not have the detail in the Bill, so we are not in a position to make an informed judgment.

Another unanswered question is to do with the interaction between the proposed scheme and universal credit. If people continue to receive support for housing costs as part of their monthly universal credit payment, the Government are creating a recipe for confusion by telling claimants that part of their benefit has become an interest-bearing loan that they must at some point repay. We seem to be going in all sorts of different directions at once, and that would seem to undermine one of the core arguments that Ministers put forward in favour of universal credit, which is—I do not know if you remember this, Mr Owen, but we hear it all the time—that it is supposed to be simple. Well, that is not simple.

The Bill is silent on a number of other issues, many of them more complex, that will inevitably arise from the transition period. There are, for example, many features of support for mortgage interest that might make sense for a means-tested benefit, but which seem less appropriate when imposed as a condition for receipt of a loan. Time-limiting claims for those on jobseeker’s allowance is an obvious example. Putting a ceiling on the amount of eligible capital for which SMI is payable is another. The Government do not make it clear whether either of those features will be carried over to the loans that will replace SMI, nor have they made it clear what additional costs the loans may be able to cover.

The Minister recently tabled a number of amendments—we have just heard one—that will change the wording of the Bill to specify that loans will be able to cover “owner-occupier payments” and not only mortgage interest. It is as if a light has just gone on above the Minister’s head and he realises that more ought to be covered. It seems to reflect the Government’s realisation that the scheme has the scope to cover additional costs, such as essential repairs and service charges. For example, some of my pensioners in Bunhill might find themselves in difficulty and needing to go for SMI, but they also have huge service charges for the lifts and cleaning—many of them complain that the service charge is one of the biggest costs that they have—so the Government, at the last minute, have realised that they have to do something about that as well.

If that is the case, the recognition came late in the day, and it indicates that the full implications of the proposal are still not fully thought through. Here we are, in Committee, discussing such an important change—a change of principle, whereby we are asking people to take out a loan in order to pay off the interest on a loan—and the Government have simply not thought it through. We are talking about some of the most vulnerable people, and frankly, leaving aside the fact that the principle is wrong and the measure will not save a great deal of money, to add insult to injury, the Government have not even thought it out.

Finally, the Bill leaves out the crucial issue of the rate at which the loans will be payable. If the payments are too low to cover the full amount of interest owed—for example, if the Government, as they have suggested, use the Bank of England’s standard interest rate as a benchmark—the system will not serve its purpose, and it will increase the incentive for people to abandon their mortgages altogether. I do not know whether the Government have thought of that.

Whatever rate the Government settle on, that important detail deserves more in-depth discussion than the Committee has time for. It simply is not good governance  for Ministers to pass legislation that allows them to make changes of such consequence with so little accountability. I hope, therefore, that Government Members will agree that Ministers need to be more forthcoming about their intentions on these issues before the Bill moves forward.

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

The amendment would require the regulations made under clause 16 to be subject to the affirmative resolution procedure and to be approved by each House of Parliament. That is not necessary, since the fundamental principles we wish to achieve will have been clearly laid out during the Bill’s passage and debated in Parliament.

We had a call for evidence between December 2011 and February 2012. That is a number of years ago, and there has been debate since then. We have had oral evidence. It was between December 2011 and February 2012 that the idea of providing support for mortgage interest payments through a loan was first introduced, and the majority of responses were positive.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions)

I appreciate that the Minister is saying that he will be able to push the principle through using his majority, but the point I am trying to make is that the details make no sense, and the Government have not thought them through. Given that we have no indication of how the system will work, we need an opportunity to scrutinise it further in a Delegated Legislation Committee so that, frankly, we can give the Government a hand, because they are making a pig’s ear of this. The Minister talked about the call for evidence in 2011 and 2012, but the can was kicked down the road for many years, until after the Conservative party won the election, at which point the Government started pushing these things through without thinking through the consequences.

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

There is a fundamental distinction between pushing forward an ideology, while ignoring everything and anything that may be put forward, no matter how sensible it is, and deciding to consider the evidence before the Committee and recognise the reality of Government—that it is important to have flexibility and regulations. That is why Departments across Whitehall have regulations: to be able to deal with the minutiae. It is also important to have that facility so that we can deal with things quickly and take a flexible attitude, rather than go through the cumbersome and time-consuming procedure of having everything approved in Parliament. That is simply not the way the real world works; it was not the way the Labour Government operated, it certainly was not the way the coalition Government operated, and it is certainly not the case now.

Photo of Debbie Abrahams Debbie Abrahams Shadow Minister (Work and Pensions)

Can I push the Minister a little on interest rates and ask him to reflect on the experience with student loans? They started off in 2010 at a base rate, but they have now gone on to commercial rates. Allowing the issues in the Bill to be fully debated involves important considerations of transparency and openness.

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

The hon. Lady makes a very good point, and she gives me the opportunity to make it clear that, unlike students, almost all the people we are talking about have an asset—a property. Therefore, the two groups are fundamentally different. The interest rate we  charge will be what we will have paid to borrow the money, and that will depend on the gilt rates at the time. It is as straightforward as that.

The Government recognise the importance of helping owner-occupiers in times of need, and they remain committed to doing so. We are simply changing the nature of the support we provide so that in future the support will be paid to claimants in the form of a recoverable loan. We will recover the loan only when the house is sold, or earlier if individuals’ circumstances change and they are in a position to pay the money back.

It is right that taxpayers, many of whom are unable to afford their own home, will no longer be asked to subsidise claimants in the accrual of a significant asset. We will continue to engage with stakeholders as we prepare for the introduction of these measures, which is vital to ensure that implementation is smooth and that the provision of support for mortgage interest continues seamlessly through the transition.

Requiring the affirmative resolution procedure would have a negative impact on implementation planning and the development of contracting arrangements with third party providers, and in so doing delay the savings that can be achieved by this measure. I hope that the hon. Member for Islington South and Finsbury will withdraw the amendment.

Photo of Emily Thornberry Emily Thornberry Shadow Minister (Work and Pensions) 12:00 pm, 15th October 2015

This was a probing amendment and an attempt to get more detail from the Government, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put, That the clause, as amended, stand part of the Bill.

The Committee divided: Ayes 11, Noes 9.

Division number 44 Decision Time — Clause 16 - Loans for mortgage interest

Aye: 11 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 16, as amended, ordered to stand part of the Bill.