We need your support to keep TheyWorkForYou running and make sure people across the UK can continue to hold their elected representatives to account.

Donate to our crowdfunder

Clause 16 - Loans for mortgage interest

Part of Welfare Reform and Work Bill – in a Public Bill Committee at 11:45 am on 15th October 2015.

Alert me about debates like this

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.