Paying the price for Pay to Stay – Part 2

Originally published on March 22 on Inside Edge 2, my blog for Inside Housing

This concluding part of my blog on Pay to Stay follows up more clues on how the government wants the policy to work. Part 1 focuses on how the tapers will work plus issues about the assessment of incomes and market rents.

Just to confuse things even further, a statutory instrument on social housing rents published on Friday stipulates that the four-year 1% rent cut that applies from April 2016 does not apply to households with incomes of more than £60,000 (in the current or previous year). This is a reference to the existing voluntary Pay to Stay and I assumed at first it simply meant that the relatively few landlords who have implemented it would not reduce the rents of ‘high income’ tenants who are already paying higher rents. However, it seems that as drafted it means that landlords would have to exclude all tenants with an income of more than £60,000 from the cut  – even though there is currently no obvious way for them to find them all. Appropriately enough the regulations come into force on April 1.

The Housing and Planning Bill makes Pay to Stay compulsory for local authorities but reduces the household income thresholds to £30,000 outside London and £40,000 in London. Any increased rental income has to be paid to the Treasury. It remains voluntary for housing associations. Here are five more issues raised in the Lords.

6) Will the thresholds be uprated?

As I’ve blogged before, this was the assumption in the impact assessment. It said that behavioural impacts such as people moving or reducing their income or exercising the Right to Buy would outweigh all of the money raised from the initial group of tenants paying higher rents. The only way that the policy stacked up financially was that more and more tenants would be caught in by ‘fiscal drag’ over time as the thresholds stayed the same. Logically this means all tenants in full-time work will eventually be paying higher rents. This question was asked in the Lords committee stage debate last week but not answered.

7) How will it be administered?

Lord Best said that the impact assessment assumed councils’ costs would amount to £15 per case. Bristol put the figure much higher at £36 but that was at the moment with systems in place for housing benefit:

‘When universal credit comes in, Bristol will be in a different position and will have to have new staff. New computer programs will have to be written to handle all of this, and they are bound to go wrong. An appeals system will probably be needed to follow this through, which costs serious money. The phrase “reasonable costs” will need a little bit more work.’

A system that copes with fluctuating incomes and household circumstances fairly will inevitably be complex – and therefore costly. The Bill says that the secretary of state ‘may’ allow local authorities reasonable costs of administering the system but peers want that changed to ‘must’.

Another minister, Baroness Evans, pledged that ‘we will reimburse all reasonable costs’ and she also acknowledged that the problem of areas where the income raised would be less than the cost of the administration was ‘an important consideration’.

Peers were also worried about income verification. As things stand, tenants would declare their income and local authorities would be able to check the details with HMRC. Tenants who repeatedly refuse to declare their income could be charged a higher rate until they provide the evidence.

However, as Baroness Hollis pointed out, that means ‘the income of every adult living in council housing, not having come forward voluntarily for HB—a million or more people—may have to be disclosed by HMRC to local authorities’. In turn that means private contractors like Serco and Capita having access to highly sensitive personal data.

She argued that there were already huge problems with the administration of housing benefit and tax credits and things will become even more complex under universal credit:

‘It will be a nightmare. As local authorities said in response to the very perfunctory consultation exercise as reported by the Government, their systems are not designed to do any of this. The Government breezily say that they can keep their administrative costs. But the system will crash—constantly.’

8) What about housing association tenants? The Bill only makes Pay to Stay compulsory for council tenants (housing associations were taken out because of worries over ONS classification) but the government seems to expect a voluntary deal with housing associations along the same lines as the Right to Buy. Here’s what Baroness Williams had to say:

‘We want as many housing associations as possible to operate a voluntary policy, and my department is taking forward discussions with the National Housing Federation and housing associations to ensure that the majority do so. Early indications are that housing associations are interested in adopting a voluntary policy and, as these conversations develop, I will bring forward more detail.’

Later on she added that:

‘Housing associations will be free to decide on the most appropriate level of rent, although we hope that the majority will copy the approach of the taper that will apply to local authority tenants. The housing associations we have spoken to have suggested that this will be the most likely scenario.’

9) How much will it raise? When Pay to Stay was first announced in the Summer Budget last year the receipts were estimated at £365m in 2017/18 and just over £1bn over the next four years:

Jules Birch blog 22nd March graph 2

This year’s Budget documents forecast much lower receipts of £260m next year:

Jules Birch blog 22nd March graph

Despite this, the receipts over four years add up to exactly the same. Hmm.

In between times, the policy was made voluntary for housing associations but that should have no impact on the receipts because they were always going to be allowed to keep the extra rent. The other thing that’s changed since is the reclassification of associations as public sector.

However, more detailed Policy Costings for the Budget break down the different elements. The Treasury estimates making Pay to Stay Voluntary for housing associations will raise £315m around £1.3 bn for the Exchequer over the next four years. This is linked to associations borrowing against the increased income but potentially borrowing less because it’s voluntary.

However, the document also assesses the costs of introducing the taper, estimating that this will reduce the amount going to the Treasury by £90m in 2017/18 and £365m over the next four years. Something is going on here that I don’t fully understand.

10) What about shared owners and the Right to Buy? Baroness Williams confirmed that they would be exempt from Pay to Stay on their rent alongside people in Rent to Buy schemes. A small ownership stake seems to neutralise the government’s arguments about ‘fairness’ to private tenants. The Right to Buy also transforms ‘subsidy hog’ tenants into worthy recipients of a discount of up to £100,000 off the price of their home. The minister hinted several times that high-income tenants should ‘think about buying’ and this not-so-hidden agenda may be one reason why the estimates above keep changing.

In summary, it all seems a complete mess. The government is creating a new means test and income tax rolled into one that only applies to council tenants. Tenants may not be facing the huge rent hikes they feared but there will still be significant increases. It’s far from certain how or if it will work, how much it will cost to implement and how much it will raise for the Treasury.

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