Social Housing Speed Read – Pay to Stay consultation response

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Background

The policy was announced in last year’s budget with the purpose of achieving two of the Government’s main policy aims: to reduce welfare benefit costs and to encourage home ownership.

Under the policy, families or individuals with a total income of £40,000 a year in London, and £30,000 outside the capital, will have to pay the rental market rate in the private sector rather than the lower social rent.

The Chancellor, George Osborne, estimated that the pay to stay policy will save the Government £250m a year and affect 10% of social housing tenants. However, the issue remains particularly contentious.

The consultation ran for 6 weeks from 9 October to 20 November 2015 and sought views from local authorities, housing associations and other interested parties.

The Government believed that six weeks would provide sufficient time for considered responses. In relation to housing authorities and Local Authorities, the Government received 232 responses (46% of the total responses).

The consultation

The response is divided into two main sections; supporting work incentives and administrative costs. The following questions were two of the three put forward:

Question: “How income thresholds should operate beyond the minimum threshold set at Budget, for example through the use of a simple taper/multiple thresholds that increase the amount of rent as income increases?”

Answer: The Government wants to ensure that the policy supports work incentives, and can confirm that a taper will be applied above the minimum income thresholds. Further detail on the operation of the taper will be set out in due course but we would design this so that households at the lower end of income above the proposed threshold will see their rent rise by only a few pounds each week. The Government will also consider how the taper system will work alongside Universal Credit and will bring forward further detail as this is rolled out.

Commentary: there is no straightforward answer as to whether a taper system or multiple thresholds system will be simpler. In relation to the taper system, landlords will have to rely on tenants being open and honest about their income on a regular basis (particularly self-employed tenants) which will increase the complexity and cost of administration. Also, when will the ‘further detail’ be provided? In relation to a threshold system this would be easier to administer, however, it could create detrimental incentives to tenants as they may attempt to limit their earnings due to there being a ‘tipping point’.

Question: “Based on the current systems and powers that Local Authorities have, what is your estimate of the administrative costs and what are the factors that drive these costs?”

Answer: The Government will allow local authorities to retain a reasonable amount of administrative costs. The amount that can be retained will be subject to further discussions with the sector about what a reasonable level would constitute.

Commentary: Most of us would agree that Local Authorities and Housing Associations are in the best positions to provide estimates regarding administrative costs. The general consensus is that it will be expensive and time-consuming to administer. The burden will involve establishing local market rents for differing property types, tracking income and adjusting rent, varying tenancy agreements and tackling tenancy fraud. For Housing Associations the most prevalent issue will be reducing the variations of tenancy agreements which could be achieved by addressing the scheme to new tenants only, however, this is not in the consultation. Also, what constitutes ‘a reasonable level’?

Conclusion

The impacts of the pay to stay policy will be hardest felt by social landlords and their tenants. Despite the policy being introduced with the intention of reducing benefit payments and encouraging home ownership, in practice it introduces a complex and expensive scheme that remains ambiguous in areas.

Although the Government has sought opinions from the relevant interested parties, there is little confidence that the scheme will be delivered in a way that is to the benefit those most greatly affected by it.

If you have any questions on Pay to Stay and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.