Transferable deposits

Tenant Fees Bill – in a Public Bill Committee at 2:30 pm on 12th June 2018.

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“The Secretary of State may by regulations made by statutory instrument amend paragraph 2 of Schedule 1 to make provision which enables a relevant person, at the conclusion of a tenancy, to transfer all or part of a tenancy deposit from the landlord or agent with whom that tenancy was held to a second landlord or agent”.—

This new clause would enable the Secretary of State to provide for a tenant to transfer their deposit from one landlord to the next when moving tenancy, rather than needing to find the money for a new deposit before the old one had been refunded.

Brought up, and read the First time.

Photo of Sarah Jones Sarah Jones Shadow Minister (Housing, Communities and Local Government) (Housing)

I beg to move, That the clause be read a Second time.

The new clause seeks to build on the positive outcomes we all hope this Bill will have for tenants by allowing for much-needed changes to the tenancy deposits system. The new clause seeks to resolve the problem faced by large numbers of tenants whereby deposits are charged on new tenancies before the deposit from a previous tenancy is returned, costing significant sums of money every time a tenant moves. There is no need for such a situation to occur, and members on both sides of the Committee support looking at ways of solving it.

As we pointed out last week, it would fail tenants and be a waste of our time if we sat here and allowed through a Bill that simply reinforced the status quo. We have said repeatedly that we welcome the Bill’s ban on agency fees. We urge the Government to go further to resolve other significant up-front fees faced by private renters.

The most significant up-front fees are tenancy deposits, which I remind the Committee are significantly higher than agency fees, often running to several thousand pounds. We have already touched on the issue of the six-week cap for tenancy deposits, but I ask the Government one more time to look at that cap before Report and to think about what we could do. A lower cap would have a measurable benefit for tenants. There are options that the Minister could consider if he really wants to make provision for what he calls “high-risk tenants”.

Aside from the cap, and as several organisations have highlighted, the Bill is an opportunity to look again at whether the whole tenancy deposits system is fit for purpose. Our new clause proposes a system for deposit passports. In its report “Rethinking Tenancy Deposits”, Generation Rent, which we heard oral evidence from, argues convincingly for a new standard of deposit protection based on personal tenant accounts. That would result in a much-needed shift in the deposits system back towards tenants, who too often surrender their money with insufficient control over it. Of course, the arbitration facility in the deposit protection system would remain, so that landlords could be confident they could claim for damage, and tenants would still have the required incentive to keep their property in a good state. More importantly, the system would help to alleviate the pressure on tenants who are being asked to stump up significant sums twice.

If properly implemented, the new system could also allow tenants to recoup some of the interest from the £4 billion of their money that is currently being held, predominantly by landlords and agents through insurance-based deposit schemes. Generation Rent estimates that tenants lose out on £80 million of interest per year to agents and landlords who are essentially able to use deposit funds as a low-cost loan.

The proposed personal tenant account would provide tenants with an individual account with an accredited deposit protection scheme. It would allow the tenant to transfer or passport deposit funds between tenancies. Suggested requirements are that the tenant gives adequate notice to their landlord and pays the final month’s rent. If that happens, an equivalent portion of the protected deposit could be released so that the tenant can transfer those funds towards the deposit on a new tenancy.

It is possible that this new type of scheme would require insurance-based deposit schemes to be phased out. However, the licenses for those types of schemes are set to expire in the next couple of years anyway, and the figures compiled by Generation Rent suggest that they have a negative impact on tenants. Insurance-based schemes allow landlords and agents to pay an insurance premium in exchange for a guarantee on the deposit, enabling them to hold that deposit rather than lodge it with a custodial deposit scheme. Agents and landlords are currently free to collect interest on their tenants’ deposit funds through the insurance-based schemes. One of the two main schemes, the tenancy deposit scheme, advises its members first to collect tenants’ consent. However, figures from a Generation Rent survey found that only one in four agents has tenants’ agreement for that, and only 2% pass interest on to tenants.

We heard evidence that there is support across the sector for this proposed measure, including from the Residential Landlords Association, Generation Rent and Shelter. Generation Rent argues that there is support for passports in the existing deposit protection system. All those organisations have offered to work with the Government to develop a system that works.

The new clause would give the Secretary of State the powers, through secondary legislation, to amend paragraph 2 of schedule 1 after developing a system with which the Government are happy. It is important to note that the new clause sets no requirement on the Secretary of State to implement that change if the Government cannot come up with a system they are happy with. In the evidence we heard, however, there was a clear desire from across the sector to make this work.

If supported, the new clause will be warmly welcomed for giving the opportunity to streamline the existing deposit system, to remove excess bureaucracy for landlords and agents, and to solve a needless and costly problem that continues to present barriers to people hoping to rent in the private sector.

Photo of Robert Goodwill Robert Goodwill Conservative, Scarborough and Whitby 2:45 pm, 12th June 2018

If I may briefly interject, the hon. Lady identifies a problem, which came through in the evidence sessions, that affects landlords as well as tenants. The frustration of having a deposit locked up with the current landlord that cannot be given to the new landlord is a problem. However, now is not the time to address it. Indeed, the hon. Lady said that we should look at ways of solving the problem. Were we to try to do that in this Bill, we could end up delaying the introduction of legislation that everyone agrees will be of great benefit to tenants, because a lot of consultation would need to be done. We would need to look at situations where, for example, the tenant misleads the new landlord that all the deposit will be released when in fact there might be some deductions.

I absolutely sympathise with the feelings expressed, but I hope the Minister will not allow this issue to delay the Bill. Although I sympathise with the hon. Lady, I am sure many on the Conservative Benches will not be able to support the new clause at this time.

Photo of Rishi Sunak Rishi Sunak Parliamentary Under-Secretary (Housing, Communities and Local Government)

I am delighted to say that I agree with both the hon. Member for Croydon Central and my right hon. Friend the Member for Scarborough and Whitby. We fully support and encourage innovation in the tenancy deposit sector. We know that it can often be difficult for tenants to raise funds for a deposit at the outset of a tenancy, especially if they are moving from one property to another; indeed, that is partly the motivation for bringing forward the Bill.

In the Government’s response to the Housing, Communities and Local Government Committee following the pre-legislative scrutiny, we emphasised our commitment to assess the merits of alternatives to traditional security deposits and promised to report our findings to the Committee. The Government responded only in May, so I hope Members will forgive me when I say that the work is not quite completed, but it is in process.

We have been exploring this issue for a while, including in the 2017 consultation on banning letting fees. It may interest hon. Members to know that my Department, like many others, offers an employer-backed deposit scheme to civil servants living in the private rented sector. That works in the same way as a season ticket loan, allowing employees to borrow from their salary up front to pay for a rental deposit and repay it from salary payments over the course of their career. Many private businesses, such as Starbucks, take the same approach, and we definitely encourage more to do so.

I am pleased to say that in May the Minister for Housing and Homelessness held a roundtable with my hon. Friend Mr Walker, who has been passionate about this issue, along with the three deposit protection schemes and Shelter, to explore further how existing tenant deposit protection was working and what further innovation was possible. I am pleased to say that, as a result of that preliminary work, the Minister has been working much harder to progress the issue and will convene a formal working group with the deposit schemes and key representatives from tenant and landlord groups to explore it further.

There are still many things that need to be considered, as was highlighted by my right hon. Friend the Member for Scarborough and Whitby. For example, the key concern with deposit passporting is ensuring that landlords are still able to recover any damages at the end of a tenancy. There is a great deal of technical complexity that needs to be examined. That would involve understanding the percentage of the deposit that could be passported, and when and how liability for providing a tenant with the relevant prescribed information about where their deposit is protected should be passed from one landlord to another.

We certainly need to consult the sector and get its input before implementation. We are also keen to explore other alternatives, aside from passporting, such as payment of deposits by instalment. I hope hon. Members can see that the Government are taking this issue very seriously. My hon. Friend the Minister has already convened groups and is continuing to convene working groups to examine this issue and figure out a way forward. With that in mind, rather than delay this legislation, I call on the hon. Lady to withdraw her new clause.

Photo of Sarah Jones Sarah Jones Shadow Minister (Housing, Communities and Local Government) (Housing)

I have listened to the Minister’s response, and I am glad that there are working groups, roundtables and other such things looking at these issues. As a former senior civil servant, I know well the line that there are still many things that need to be considered, which can be used to push things into the long grass so that they never get completed.

I take the point from the right hon. Member for Scarborough and Whitby that we do not want to delay the Bill and that we need to look at these matters properly, but I urge the Minister to speed up the working groups and roundtables and to try to come forward with something. If he did, I am sure he would have the support of the Opposition. I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 3