Red flags flying over Right to Buy

How can people who can’t afford the rent suddenly afford to buy?

To recap in case you missed it, a joint investigation by Inside Housing and BBC Radio 4’s File on 4 found that 16% of Right to Buy sales by 10 councils were to tenants on housing benefit.

This is not in itself evidence of fraud: the 721 tenants concerned could have got money from their family or from a third party. But it is seen as a ‘red flag’ of potential fraudulent activity and a particular cause for concern in the councils with the highest levels of sales to tenants on benefit:  Dudley (37%) and Westminster (29%) and Croydon and Birmingham (who each estimate around half).

And it’s one aspect of a fraud problem that should also set the alarm bells ringing about the 1.2m tenants who are about to get a form of Right to Buy from housing associations that will not have the same expertise as local authorities in detecting fraud and money laundering.

This was just one part of a bigger investigation of Right to Buy fraud that looked at companies looking to cash in and criminals attempting to launder drugs cash.

Alan Bryce, former head of counter fraud at the Audit Commission, told File on 4 that fraud detected so far could just be the tip of the iceberg. His latest Protecting the Public Purse report for 2015 found that Right to Buy fraud has increased by more than ten times since sales were ‘reinvigorated’ with increased discounts in 2012 and has doubled in the last year. In 2011/12 there were 38 fraud cases worth £1.2 million but by 2014/15 there were 411 worth £30.2 million.

He made the crucial points in the programme that this is just detected fraud and only one method of calculating the value of the fraud. He told the programme:

‘The value of that fraud we currently estimate at the discount that was being obtained, worth over £30m. That’s just detected. Far more than that is getting through the system.’

He added that the ‘real loss’ was the full value of the council homes ‘and we’re not really measuring that’. With new social housing costing £150-£170,000 per home to build and far more than that in London:

‘If you think about that in terms of the volume of fraud we’re talking about, actually we’re saying that really the loss to the taxpayer is running into several billions of pounds each year. If we as taxpayers had to pay to replace those properties that’s £3, £4, £5 billion – I could easily make that argument. If you think about that in terms of the actual value that would suggest that that is one of the single highest annual fraud losses anywhere in the UK public, private and voluntary sector now.’

His 2015 report estimated 3% of Right to Buy sales in London are fraudulent and 1.5% in the rest of the country. And it included this warning about the future:

‘Legislative proposals to extend RTB to housing associations is likely to result in similar levels of RTB fraud to that encountered by councils. However, with a few notable exceptions, housing associations do not have the counter-fraud capacity or capability equivalent to councils to tackle such fraud.’

Worse still (though not mentioned in the programme), every single case of Right to Buy fraud among housing association tenants could effectively be a double fraud because their discount will be paid for by the forced sale of a council home.

With government eyes on the referendum, no minister was available for comment. The DCLG told the programme it took fraud ‘extremely seriously’ and had set up a Right to Buy working group to identify measures to stop it.

Setting up a working group is now taking something extremely seriously? Really?

In fairness, the DCLG statement in Inside Housing also refers back to £19m invested in anti-fraud measures and the Prevention of Social Housing Fraud Act 2013 but this had a broader focus on tenancy fraud, not just the Right to Buy.

And if some of the issues raised in File on 4 sound familiar, that’s because they are.

To take one example: that central issue of sales to tenants on housing benefit. Several readers commented on Inside Housing’s story this week that the government could if it wanted legislate so that tenants on housing benefit are not eligible for the Right to Buy.

But four years ago, I blogged about the potential impact as the ‘reinvigorated’ policy was about to be launched. My main focus was on the promise of one-for-one replacements but I also looked in detail at the impact assessments for the policy.

The draft DCLG impact assessment, published in December 2011, included an estimate of how many sales would be to tenants on housing benefit. This was important in making the financial case for the policy, since each successful purchase would lead to housing benefit savings as tenants become owners.

Here’s what it said:

What this shows is that the DCLG assumed that the equivalent of 15% of purchasers would be on full housing benefit. This would be made up of a larger number of tenants on partial housing benefit.

Compare that to the 16% figure that raised red flags about fraud this week. It’s not clear whether that means full or partial payments.

What does seem clear though is that Right to Buy sales to tenants on housing benefit of pretty much the same level were part of the DCLG plan from the very beginning.

To take another, a series of local case studies in the programme included companies leafleting tenants in Westminster offering to put up the money for them to buy their home and making huge profits. The Sunday Timespublished a story on assisted purchases in Westminster two years ago, with investors relying (perfectly legally) on councils undervaluing RTB properties.

Labour councillors demanded an inquiry at the time but nothing that I can find seems to have happened since. Let’s hope Labour’s John Healey has better luck calling for answers this time.

File on 4’s Whose Right to Buy is it Anyway? is available on iPlayer Radio. 

Originally posted on June 23 on Inside Edge 2, my blog for Inside Housing