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Clause 19 - Reduction in social housing rents

Welfare Reform and Work Bill – in a Public Bill Committee at 12:30 pm on 15th October 2015.

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This amendment and amendment 143 make clear that the reduction in rent applies in each year.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

With this it will be convenient to discuss Government amendments 142, 143, 145, 146, 170, 173, and 163 to 168.

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 social rent clauses relate to the Government’s commitment to achieve a reduction in rents for social housing of 1% a year over four years. That will be good for the tenants and for the taxpayer, saving £1.445 billion by 2020-21. The amendments are the consequence of the Government listening to points made since the Bill was published by social landlords, local government and housing bodies, among others. We hope our amendments address some of the issues raised. The amendments in the group are either concerned with issues of clarification or make small drafting changes.

Amendments 141 and 143 clarify that the 1% rent reduction applies in each relevant year, which is to say, each of the four years from 2016. Amendments 142 and 146, taken together, clarify that the reduction relates to the amount of rent that is payable by a tenant in respect of a year—not the amount that is actually paid by the tenant, which is to recognise the reality that those figures might differ. Amendment 145 is a minor drafting point to clarify that the “amount” relates to the “amount of rent”. Amendment 170 is to simplify the drafting of clause 19 and amendment 173 is a drafting change to the clause to provide that a relevant year for a private registered provider whose practice is not an April start to a rent year will be determined in relation to the rent practice for the number of tenancies, not tenants.

Amendment 163 deals with the potential failures of providers to comply with the clause. It seeks to give the regulator of social housing the appropriate grounds on  which to exercise monitoring and enforcement powers. With this amendment we have had regard to how the Housing and Regeneration Act 2008 established such powers and the need to avoid any confusion in how the regulator should exercise its power.

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

The Minister mentioned that he had had meetings with or representations from social housing associations. Will he clarify how many housing associations supported the measures proposed by the Government? How many housing associations have outlined to the Minister and the Department the risk that they might have to close some of the housing they provide as a result of the measure?

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

Let me put things into context. We have spoken with a lot of organisations—I have a list at the back of my file and am happy to read out some of the names if necessary. The context of the measure is that it is part of the Government’s £12 billion welfare reduction. We made that absolutely clear to the country at the time of the general election. The people of the country voted democratically, in their millions, and we have a mandate to make those cuts. That is the reality of the position, which might be something that the Opposition do not like—

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 will not give way for the moment; I will finish my answer. The reality is that that is the position.

We have, however, spoken with a lot of people. I simply refer to the comments made by David Orr, the chief executive of the National Housing Federation, when he give oral evidence before the Committee. Most of us were at that sitting on Tuesday 15 September 2015. In response to a question from my hon. Friend the Member for Sutton and Cheam, Mr Orr said:

“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.”

He went on:

“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.”

With reference to the surpluses—remember that housing associations had a surplus of £2.4 billion in 2014—he said:

“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.”––[Official Report, Welfare Reform and Work Public Bill Committee, 15 September 2015; c. 91-92, Q144.]

Although there have been utterances of disagreement with what we are doing, let me be absolutely clear that housing associations are robustly managed, have robust financial bottom lines and have a £2.4 billion surplus.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark 12:45 pm, 15th October 2015

Riverside Housing Association has said that

“a year on year rent reduction would make this element of our business loss making.”

St Mungo’s has said that

“the requirement to reduce rents in social housing in England by one per cent per year for four years will result in the loss of supported housing schemes for homeless and vulnerable people.”

The Homes and Communities Agency has estimated that those services save the taxpayer £640 million per year. Where is the saving in the longer term if those services do not exist?

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 am sorry that the hon. Gentleman was so keen to ask his question and so busy thinking about it that he paid no attention to what I was saying. He referred to one organisation. I referred to the comments of the chief executive of the National Housing Federation. We have done our homework, and estimate that we will save nearly £1.5 billion, as I have said.

Amendment 163 provides that a failure or risk of failure to comply with clause 19 is not to be, of itself, a ground for exercising certain monitoring and enforcement powers under part 2 of the 2008 Act, by removing clause 22(1) and (2) from the Bill as introduced. The practical effect of the amendment is that, before exercising those powers, the regulator must satisfy the specific grounds relevant to each power in chapters 6 and 7 of the 2008 Act, as amended by clause 22(3) to (8) of the Bill. Amendments 164 to 168 insert the correct title of the Bill into certain provisions.

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

This is my first opportunity to say that it is lovely to see you in the Chair today, Mr Owen. I will speak more fully on the clause when we discuss the Opposition amendments, but I will comment on this first group of amendments. With respect to the Minister, the Government have tabled 42—I have just counted them—amendments, so we can hardly say that they have done their homework. I am afraid that that reflects the nature of the Bill as a whole, which has been made up on the hoof. There has been no thorough assessment. I will go through my concerns about the lack of assessment and the evidence we have heard about today on the impact the Bill will have not just on the viability of housing associations but on their ability to provide affordable housing.

The Minister quoted the National Housing Federation. Housing associations have been working incredibly hard to ensure that they have a going concern and are able to afford to invest in the development of affordable housing. One issue with the clause is that it would threaten their viability and ability to borrow at low interest rates. Moody’s, the credit rating agency for the 44 social landlords, has said:

“A traditional credit strength of English [housing associations] has been the predictability of the policy environment…This stability has been eroded by the sudden removal of the rent-setting formula, which was preceded by limited consultation.”

If anything, the measure will make it even harder. I will speak more fully on the implications, not just for housing associations.

Photo of Peter Dowd Peter Dowd Labour, Bootle

My hon. Friend referred to the fact that this 1% reduction will have a significant effect. Is she aware that Riverside Housing Association has estimated it will lose £3.9 billion nationally?

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

My hon. Friend makes a very good point. I am indeed aware of that. When preparing for this part of the Bill, I was inundated with concerns from my local housing associations about what it will mean for their bottom line and how it will affect their ability to build. Later this afternoon, I will go over what the potential loss of income means for housing associations and local government.

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 simply say to the hon. Lady that we have done what Governments are often accused of not doing: we have listened. Since the Bill was published, we engaged with the relevant communities and stakeholders and listened to their concerns. As will become apparent as the debate progresses, we have made changes that will clarify the position better for those concerned.

I am sorry if the Government, in listening to communities with a view to making the Bill better, are now being accused of doing wrong.

Amendment 141 agreed to.

Amendments made: 142, in clause 19, page 18, line 12, after first “in” insert “respect of”.

This amendment and amendment 146 make clear that the rent in question is the rent due to be paid in respect of a given period.

Amendment 143, in clause 19, page 18, line 12, leave out first “a” and insert “that”—(Guy Opperman.)

This amendment permits a registered provider of social housing to make a reduction in rent of more than the required 1%.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

With this it will be convenient to discuss Government amendments 169, 171, 147, 148, 150 to 153, and 157 to 160.

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

This group of amendments deals with some important elements of the rent-setting process. Amendment 144 provides flexibility to registered providers to set reductions in rent of more than the required 1%.

Amendment 169provides that the rent reductions must be applied on a pro rata basis if the tenant’s tenancy comes to an end part way through a relevant year. The same principle applies if the rent reduction provisions cease to apply to a tenant part way through a year because an exception under clause 20 or an exemption under clause 21 no longer applies. The amendment therefore makes it clear for registered providers that, in the circumstances specified, the rent reduction should apply on a pro rata basis.

Amendment 171 is an essential amendment that clarifies a number of important points. Proposed new subsection (3) provides that the amount payable by the tenant in the preceding 12 months is to be treated as having been the greater of: the amount that would have been payable if the rent at 8 July 2015 had applied during those 12 months; or, if the Secretary of State consents to the use of a different permitted review day, the amount of rent that would have been payable if the rent on the permitted review day had applied during those 12 months. We expect to use the flexibility to grant providers whose normal rent review date is after 8 July permission to use  an alternative date as the reference date when calculating reductions, providing there is no evidence that the provider in question has manipulated his rent review date or implemented rent rises after 8 July 2015 in order to avoid the effects of the rent reduction.

Proposed new subsection (3A) clarifies that the Secretary of State’s consent for an alternative permitted review date may be for a particular case or for a description of cases. It is likely that the Secretary of State will issue a general consent covering typical cases. Proposed new subsection (3B) clarifies that, if a tenant was a tenant on 8 July 2015 and continues as a tenant of the same social housing until the beginning of the first relevant year, they will be treated, for the purpose of clause 19(1), as if they had been a tenant for the 12 months preceding the first relevant year—whether or not that is in fact the case—in order to establish the baseline of the rent on which the reductions will then apply.

Photo of Naseem Shah Naseem Shah Labour, Bradford West

It is great pleasure to serve under your chairmanship, Mr Owen. Will the Minister highlight whether service charges are subject to the 1% cut and explain the process for introducing rent reductions for tenants when rents changes are not usually announced until April?

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

My answers to those questions will come subsequently. There are other issues at hand and I am more than happy to address the matter raised by the hon. Member for Bradford West. That comes up in another section and I will happily deal with it then.

Amendments 147 and 148 clarify that clause 19(7), which allows an alternative relevant year, applies only to private registered providers. Unlike local authorities, whose budgeting and rent reviews are carried out on a traditional financial year cycle, starting 1 April, the housing association sector practice regarding rent review dates varies. Clause 19(7) therefore enables the use of a different relevant year, where the provider’s rent review date for the greater number of its tenancies is not 1 April. The amendments ensure that that subsection applies only to private registered providers, as local authorities do not need that flexibility.

Amendments 150 to 152 on private registered providers, and amendments 157 to 159 on local authorities, provide some important flexibility in the levels of permissible rent once an exemption has been granted by direction. They modify the provision in clause 21 for limited exemptions from the rent reduction requirement, which means that providers will have the flexibility to make a greater reduction in the rent than that set out in the direction.

Amendment l53, which is for private registered providers, and amendment 160, which is for local authorities, deal with circumstances where a registered provider may need to be able to increase rents but it is not appropriate to completely exempt the provider. They allow the regulator and the Secretary of State to issue a direction setting a maximum threshold up to which a provider can increase rents. The amendments give the regulator  and the Secretary of State the tools they need to support registered providers in difficult circumstances while protecting hard-working tenants from excessive increases.

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

Again, these are technical amendments, which we have no specific comment on. My earlier remarks apply. It is good that the Government are in listening mode. It is just a shame that that was not done when the Bill was drafted. As I said, I will discuss my particular issues with the clause later this afternoon.

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 take on board the hon. Lady’s comments. Clearly, the matter will come in for further debate and I am sure that other members of the Committee will wish to comment. Mr Owen, I ask the forbearance of you and the Committee as a number of technical amendments need to be dealt with.

Amendment 144 agreed to.

Ordered, That further consideration be now adjourned—(Guy Opperman.)

Adjourned till this day at Two o’clock.