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4 Dec 2002 : Column 1019—continued

10.41 pm

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Tony McNulty): I congratulate my hon. Friend the Member for Cambridge (Mrs. Campbell) on raising this important issue and enabling the House to examine the new consultation paper, XTenancy Money: Probity and Protection". The Government launched it less than a week ago, so I also congratulate my hon. Friend for her timeliness in getting the issue on the agenda. It is clearly a matter of particular concern, given the number of students in her constituency, but the problem goes way beyond constituencies that have many student tenants—it affects the entire private sector.

The Government are determined to improve standards in the private rented sector. We see it as part of our plans and policies in terms of the wider housing

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agenda. A bigger, better private rented sector can help increase choice, flexibility and mobility in housing. Private renting should provide a safe, attractive and cost-effective alternative to owner-occupation or the social rented sector.

Like my hon. Friend, I recognise that most private landlords are well intentioned and anxious to do a good and responsible job, but we need to encourage all private landlords to value their tenants and maintain their properties to a decent standard. Too often we get letters in our mailbags from constituents who feel, rightly or wrongly, that they have been ripped off by unscrupulous landlords. That is certainly the case in areas with a large student population.

Tenants are often afraid that their landlord will retain a deposit unreasonably, and there have been a number of high-profile cases of letting agents misappropriating the moneys of their clients, both tenants and landlords. Many tenants respond to the fear of their deposits being withheld by withholding the final month's rent. That may mean landlords being left without a deposit sufficient to cover any arrears or damage that a tenant may leave behind. So this can lead to a far more widespread and damaging lack of trust and confidence between landlord and tenant than the actual numbers of deposits wrongfully withheld. My hon. Friend alluded to the recent survey of English housing data for 2001–02, which reveals that of households that had a private tenancy ending in the previous three years, 20 per cent. said that part or all of their deposit had been unreasonably withheld.

Today's debate is an important chance to focus on these concerns. They relate to standards of management, especially at the lower end of the sector, and they have to be addressed if private renting is to become more a tenure of choice. The Government are determined to find the right solutions to this complex issue, but it is important that we do so with the full co-operation of landlords and tenants. As my hon. Friend said, for the past couple of years we have supported a pilot voluntary self-financing tenancy deposit scheme operated by the independent housing ombudsman, but, as my hon. Friend also said, it has been only a limited success.

The scheme initially covered five areas: Brent and Camden in London; Brighton and Hove; Birmingham and the west midlands; Norwich and Norfolk; and Merseyside and west Lancashire. However, as larger groups of landlords and agents joined, coverage was extended beyond those areas.

Landlords or their agents have been able to join either a custodial scheme or an alternative insured option—as described by my hon. Friend. Both involve the independent adjudication of disputes. A tenancy deposit may be placed in a ring-fenced account operated by a licensed deposit taker or safeguarded by insurance with an accredited company. The processes involved have worked and there has been a small but increasing number of adjudications, handled efficiently by the independent housing ombudsman.

The pilot tenancy deposit scheme offers a model for safeguarding tenants' deposits. However, the pilot had achieved only one tenth of its target take-up of 30,000 tenancies by last March. That indicates, as my hon. Friend suggested, that if only a minority of the more professional

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landlords participate, there is little prospect of a national scheme that is voluntary and self-financing. A voluntary scheme will not cover the majority of tenants' deposits, let alone the minority of unprofessional landlords who misappropriate tenants' deposits.

Earlier this year, my noble Friend Lord Falconer said that more time was needed to assess whether the pilot tenancy deposit scheme could operate as a self-financing scheme. He noted that its slow take-up so far had made a strong case for legislation on tenancy deposits. Government funding of the pilot has continued, but we need to reach a view soon on how effective any voluntary arrangement could ever be, and on whether the case for legislation is already proven.

The most important benefit from continuing with the pilot has been that we have had more time and have obtained more evidence to use in producing the consultation paper that we published last Thursday. We have thus been able to combine a number of elements in the consultation paper. First, there is up-to-date statistical data from the survey of English housing. Secondly, we have incorporated the results of research into the pilot by York university. Thirdly, we took into account the conclusions reached by the Department's auditors on the funding and financial prospects of the pilot tenancy deposit scheme. Fourthly, we used our research of the operation of tenancy deposit schemes in other countries and of other voluntary schemes in the UK. Fifthly, we carried out an economic assessment of the costs and benefits of a mandatory scheme for the purpose of a substantial regulatory impact assessment. Finally, we took on board the views of a steering group that oversaw the operation of the pilot.

The steering group was composed of representatives of landlords, tenants, local authorities and financial institutions. They have endorsed the thoroughness of our project and the way in which we achieved a balance of views based on factual evidence. The deadline for responses to the consultation is 28 February, and I should not like to prejudice its outcome.

The paper addresses the following sets of options. First, there are voluntary custodial deposit protection schemes, linked to voluntary accreditation schemes, with deposit protection through the tenancy agreement. That approach would reflect to some extent the approach currently under consideration by the Law Commission in its reform of tenancy law.

Secondly, there are statutory tenancy money protection schemes, along the same lines as the pilot, with various choices of types of scheme. The choices range from requiring landlords to safeguard tenants by being a member of schemes, such as the pilot, to schemes that are in effect state-run, such as the one operated in New South Wales, in Australia. Thirdly, we have also mentioned the possibility of a statutory bank guarantee scheme such as the one that operates in Belgium.

The present consultation may lead to a mandatory requirement for landlords to be members of a scheme to safeguard tenants' deposits, but we would not, in the long run, expect such schemes to require Government funding. The views of Department's auditors, set out in an annexe to the consultation paper, criticised the administration of the pilot tenancy deposit scheme. More importantly, they could not see how the existing pilot could develop into a self-financing scheme, given its low level of take-up.

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Hitherto, membership of the pilot has been free, in essence. The independent housing ombudsman, who manages it, is now seeking the modest charge of £1.02 per tenancy. The Government will continue funding the pilot in the next financial year, as my hon. Friend said, and then, following a decision on the results of the consultation, we shall address the future of the pilot.

As I pointed out earlier, the statistical data showing that 20 per cent. of tenants consider that their deposits were unreasonably withheld, at least in part, cannot be ignored. However, as a regulatory impact assessment included in the consultation paper suggests, the costs of imposing extra costs on the vast majority—as against the benefits for the minority—are finely balanced.

Consultees need to consider whether the scale of the problem is such that legislation is required, and what the consequences of compulsory membership of a scheme to protect tenants' deposits might be. Would the costs, which are likely to be passed on to tenants, be justified? Could we be sure such a scheme would catch the landlords who are the worst offenders?

The consultation paper also covers letting agents, although my hon. Friend did not have time to mention them. As I noted earlier, there have been some high-profile cases of agents misappropriating money belonging to clients, both landlords and tenants.

An annexe to the consultation paper addresses the success of the national approved letting scheme. The government have supported that industry-run voluntary accreditation scheme by funding a free trial for agents who are not members of the professional bodies who set up the scheme. So far, the national approved letting scheme has been a qualified success, but it bears comparison to the pilot tenancy deposit scheme, particularly as it is a voluntary scheme, likely to reach only the more responsible agents. So we are consulting on the way in which letting agents treat landlords' and tenants' money.

My hon. Friend will forgive me if I do not go into further detail, given that we have only just launched the consultation paper, but I certainly look forward to the results that emerge when the consultation ends on 28 February. As she has said, we need to balance the expectations of tenants and landlords and to move closer to our ultimate goal—a private rented sector that is more competently run and more capable of helping to meet housing need.

I would simply add that, yes, we should take cognisance of the concerns expressed by the communities, not just the students, in areas with a high student base, as well as the way in which landlords act in those areas. Again, I congratulate my hon. Friend on raising this important issue and in such a timely fashion. She will forgive me if I do not go into further detail and pre-empt the entire consultation process, but it is right to put those concerns before the House. I believe that the Government are making excellent progress on this important issue. I commend our policies to the House, and hope that all those who have any concerns about this issue will play a full part in the consultation process.

Question put and agreed to.

Adjourned accordingly at eight minutes to Eleven o'clock.

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