Housing and Planning Bill

Written evidence submitted by SHOUT and TPAS (HPB 109)

Clause 74: Mandatory rents for high income tenants

About TPAS and SHOUT

TPAS is the leading national tenant involvement organisation. We’re unique in that our membership is made up of local tenants and their landlords. We represent 1900 tenant and residents groups and 230 landlords. Our mission is to promote effective tenant involvement and empowerment. www.tpas.org.uk

SHOUT is a campaign making the case for social housing. Formed in January 2014, SHOUT is governed by volunteers. SHOUT intends to influence policy debates in the run-up to the 2015 General Election and beyond. SHOUT will make the case for investment in genuinely affordable socially-rented homes and demonstrate the positive effects that social housing has on people and communities.

1. Introduction

1.1. As the Committee prepares to consider Clause 74 on mandatory rents for high income tenants, TPAS and SHOUT have gathered social tenants’ views and experiences relating to "Pay to Stay" with a particular emphasis on how the measure would affect current tenants. The information and case studies presented here illustrate these consequences. This submission argues that "Pay to Stay" is a bad idea in practice and principle, and uses real-life examples to explain why.

1.2. Assessment suggests that the financial losses for some working and pensioner households will be even greater than the tax credit cuts which were just dropped by the government. These households are not high earners and they fear the impact on their ability to sustain their current accommodation and employment.

1.3. We hope that members of the committee will be able to take account of the situations of real tenants when examining Pay to Stay and to consider amendments that will ameliorate the negative consequences of the proposal.

2. Summary

2.1. "Pay to Stay" affects people who are not well off and would cause hardship: the policy would result in people who are on the minimum wage and receiving tax credits, or pensioners with modest works pensions, having their rents increased to levels they cannot afford. Many such households would not be in a position to buy either.

2.2. Pay to Stay is:

· Contrary to the Government’s aims of encouraging aspiration and reducing welfare dependency. "Pay to Stay" would punish people for getting on in life, and increase dependency on welfare.

· An administrative nightmare and breach of taxpayer confidentiality, embroiling tenants and landlords in complex and intrusive bureaucracy.

· Wrong in principle: there is no justification for increasing the rents of "higher income" social tenants. They pay their way already, and the government subsidises lots of other services, regardless of income level.

2.3. A summary of views expressed is that there is no need to make life harder for tenants who are protected from market prices just because housing is unaffordable for many people. A better solution would be to try to improve affordability for everyone.

3. Detailed submission

"Pay to Stay" affects people who are not well off and would cause hardship

3.1. At the thresholds proposed, some of the people who would be affected by the policy are a long way from having what most people would consider to be very high incomes. A couple who are both working full time earning £7.80 per hour - not much over the minimum wage - would have a household income over the threshold. So would a pensioner couple with works pensions of £9,000 a year each. Even if it is a single tenant earning this amount, the proposed £30,000 a year threshold is roughly the same as median gross household income, i.e. bang in the middle of the income distribution. These are not high income people.

3.2. Affected households would see very significant rent increases, particularly in higher cost areas of the country, in some cases to levels which they could not possibly afford.

"My rent would increase by 4 times what I currently pay. I am a pensioner"

"My rent will triple to approximately £1,500 leaving my household £4,100 below the maximum social benefit level of £26,000 and £7,400 worse off in total."

"Our rent could increase by £200-£300 a month, we would love to buy instead but due to age and previous credit/debt problems are unable to. So we will have pay more rent because we work."

3.3. For example, a household in inner London who contacted TPAS could see their rent going from £6,200 a year to over £22,000 a year, ie from less than 20% of a £40,000 annual income, to over half their pre-tax income. A household in Milton Keynes could see their rent going from £5,000 a year to £8,600, ie from less than 20% of their income to nearly 30% of their pre-tax income. The hit to the disposable income of such households well exceed the losses from the tax credit changes which the Chancellor abandoned in the Autumn Statement.

3.4. The Stacie Lewis case study illustrates the kind of hardship which could result from the policy.

3.5. No account is taken of household composition (i.e. how many people are supported by that income) or of households’ potential to leave social housing and meet their housing needs in other ways.

3.6. Commentators have suggested that tenants who do not wish to pay the higher rent could look for alternatives – move to cheaper rented accommodation, exercise the Right to Buy, or purchase using shared ownership. Tenants do not believe these are feasible or appropriate options, however.

3.7. Some affected households might be able to exercise the Right to Buy (some commentators have suggested one purpose of the policy is to encourage higher take-up of it). But many could not. Even with the maximum discount, a household exercising Right to Buy in an strong housing market would need a huge deposit and be unable to secure the necessary mortgage. Pensioners affected by the policy would almost certainly not be able to obtain a mortgage on any terms.

3.8. The Jones case study illustrates these housing affordability issues.

It is contrary to Government’s aims of encouraging aspiration and reducing welfare dependency

3.9. In his 2013 Budget speech, George Osborne said: "For years people have felt that the whole system was tilted against those who did the right thing: who worked, who saved, who aspired."

3.10. The "Pay to Stay" policy would hit hard social tenants who have worked hard and got on in life – people who work long hours to provide for themselves and their families, people who have studied part time so they can get a professional job. Couples both in roles like teachers, nurses or paramedics would be subject to higher rents, even if one only works part time.

"Being late middle aged, should we be penalised for being middle earners at the end of our work lives? We are too old and even full timers are still too low paid to get mortgages now."

3.11. Faced with the prospect of a rent increase of up to £12,000 a year, a perfectly natural response would be to cut working hours to reduce household income below the threshold, or not take up a promotion offered at work.

"For the first time in my life, I have the potential to earn £40,000 in negotiated self-employed contracts but I will negotiate fewer self-employed contracts to keep me below that level as I will not "contribute" to making myself homeless after 42 years of paying into the system, taking nothing out of the system, and having aspired throughout all those years to work hard and improve my lot."

3.12. The trainee teacher case study shows how the policy is leading ambitious young people to consider not taking up professional jobs for which they have studied hard.

3.13. Some households would, perversely, need to start claiming housing benefit to help them cover the higher rent. The Bedfordshire case study shows how the state would start paying benefits of up to £2,000 a year to meet part of the cost of the higher rent.

An administrative nightmare and breach of taxpayer confidentiality

3.14. Social landlords often make enquiries about income at the beginning of a tenancy, but generally do not concern themselves with non-benefit claiming tenants’ incomes after that. They are still less likely to have any awareness of the incomes of household members who are not on the tenancy agreement. Private landlords would not do so either.

3.15. The policy could conceivably operate on the basis of self-declaration, but there would be obvious and very strong incentives on tenants not to disclose income fully. There has been talk of landlords having to presume all tenants have the higher income unless they can prove otherwise. With either approach, there is no current way for landlords to verify what tenants say.

3.16. This is presumably why the Government has included in the Bill unprecedented powers for HMRC to share data with landlords, and even private companies. Data on the incomes of a far wider group of tenants than those actually affected by the policy would need to be shared, to verify that all those who should be paying higher rents had actually been identified. Both HMRC and landlords would need to develop systems with an exceptionally high level of security to pass on and hold this data. The costs would be very significant, and the track record of HMRC on large digital projects does not inspire confidence.

3.17. The Government’s impact assessment suggests administrative costs would be around £60 per household affected. This seems on the low side, since the incomes of many more households than those actually required to pay higher rents would need to be assessed.

3.18. Data security aside, the administration of the policy would be very complex. Landlords would need to identify correctly which household members’ income should be included in the calculation. Non-tenant partners of tenants, who have no contractual relationship with the landlord, would be required to declare their income in relation to a property in which they have no legal interest. Landlords would need to assess market rents for all their properties. The calculations would not be one-off - both rental valuations and tenants’ liability would need to be reassessed periodically. Many people’s earnings have become much more unstable in recent years with the growth in self-employment and zero-hours contracts. Some tenants’ incomes may fluctuate significantly over the proposed thresholds. Very frequent reassessment would be highly burdensome for landlords and tenants. Less frequent reassessment would risk unfairness and hardship as tenants who had lost income struggled to pay their higher rent, while those with higher incomes were paying less.

Wrong in principle

3.19. The policy is, in any case, wrong in principle. Social housing is not means tested welfare, and there is no need for it to be so. Beyond housing, the Government pays for a whole array of public services which are free, or charged well below cost, at the point of use. Any suggestion that higher income families should pay higher charges for NHS prescriptions or dental care would be laughed down, right across the political spectrum.

3.20. George Osborne’s claim (in his July 2015 Budget speech)that "it’s not fair that families earning over £40,000 in London, or £30,000 elsewhere, should have their rents subsidised by other working people" is plain wrong. Rents are not subsidised. They are set at levels which pay in full for the management, maintenance and renewal of properties and the debt interest on landlords’ borrowing. Many landlords indeed generate a surplus which is used to pay for investment in new homes or to support services like money advice and welfare to work.

3.21. Moreover, the Government is, at the same time, providing actual housing subsidies to people earning far more than these incomes. Examples would include the Help to Buy scheme for first time buyers, and the funding the Government announced in the 2015 Autumn Statement to private developers to sell Starter Homes at 20% below market values (£38,000 a unit, which will not be repaid if the home is sold). There is no limit on the household incomes for these schemes.

3.22. It can be no surprise that 60% of tenants surveyed by TPAS said that "Pay to Stay" is wrong in principle. It is not consistent with other aspects of housing or welfare policy, and it penalises people who have the good fortune to get on and not be crippled by this country’s perpetually unaffordable housing.

3.23. One affected tenant suggested a much better policy solution for these problems:

"My rent would almost double. As a sole occupant, I would struggle to afford this and may need to consider leaving my home to share a house. Rather than paying to stay, I want to see private rents regulated so that I can afford to rent on the private market rather than being restricted to social housing or house shares."

4. Case studies

Stacie Lewis (from Guardian article, 16 November 2015 http://www.theguardian.com/commentisfree/2015/nov/16/pay-to-stay-housing-scheme-penalise-disabled-people-george-osborne)

4.1. Stacie has been receiving cancer treatment and unable to work for three years. Her husband is a teacher, earning just over the £40,000 a year threshold for "pay to stay" in London. Their daughter, May, is severely cognitively and physically impaired, and has epilepsy.

4.2. Until they moved a month ago into a social rented home, in Herne Hill, south London, suitable for their needs, for six years they lived in a first floor privately rented property, and had to carry May upstairs on the way to and inside their flat. Now Stacie says: "We get to wheel May straight in. We don’t have to carry her everywhere she goes. To say it has transformed our lives is an understatement."

4.3. If their rent increased to market levels, they would have to pay over £30,000 a year in rent – over three quarters of Stacie’s husband’s pre-tax income. Nor, on his income, could they obtain a mortgage for a property likely to cost around £800,000, aside from mortgage lenders’ likely reluctance to lend when Stacie is so seriously ill.

The trainee teacher

4.4. A trainee teacher has contacted SHOUT. She is worried that, if she starts work as a teacher, her earnings will take her household’s income over the "Pay to Stay" threshold. Her likely choices are to move out of the family home (which she does not want to do) or not to take a teaching job.

4.5. Someone contacted TPAS in a similar position: "Our rent will increase from £568 a month to £1000. The two highest earners are myself and my daughter, I will have to kick my daughter out to be under £30,000, she will have to rent a flat and claim housing benefit. Where's the sense!!"

"Pay to Stay" and start claiming benefits

4.6. A couple with two children in Bedfordshire living in a housing association property earn £15,000 a year each. They currently receive Child Benefit and Child Tax Credits only, and pay childcare costs of £100 a week. "Pay to Stay" would result in their rent going up to £186 a week, nearly £10,000 a year, a third of their pre-tax earnings. Though they would have to find most of the cost from their modest income, they would be able to claim nearly £2,000 a year in Housing Benefit. So, as well as a dramatic adverse effect on their living standards, "Pay to Stay" would add to the welfare bill. If one of them switched to working part time, they would stay on their current rent and not need to claim housing benefit, but would pay less tax and receive more Child Tax Credit.

"Pay to Stay" and access to alternative housing options

4.7. The Jones family lives in Deptford. Mr and Mrs Jones both work full time and between them earn just over £40,000. "Pay to Stay" would push their rent from £110 per week to £300 per week. Depending on the security of their employment they may be able to raise a mortgage but with properties valued at £300,000 they could not buy even with a Right to Buy discount. They would also struggle to purchase shared ownership at £120,000 in their area. So they would simply have to pay the additional rent or move away. Moving away would mean giving up their school places, (free) childcare and potentially their jobs so does not appear to be an option. They are trapped.

December 2015

Prepared 3rd December 2015