My Lords, I rise to move Amendment 104C. In doing so, I declare my interest as chair of Peabody and president of the Local Government Association. I will also speak to the other amendments in this group that have been tabled in my name, so I hope that noble Lords will bear with me if this takes a little time. I also support the amendments in this group tabled by other noble Lords.
These amendments are all consequential on the Government’s new policy, announced in the July Budget, that social rents should be reduced by 1% per annum in England for the next four years, starting in April 2016. It is therefore appropriate that I say a few words about this policy as background to and rationale for the amendments I have tabled. The policy represented a complete reversal of the previous coalition Government’s policy, announced as part of the 2013 spending review, that rents would rise by the increase in the consumer prices index—CPI—plus 1% for a period of 10 years.
It is instructive to note that this formed part of the infrastructure report Investing in Britain’s Future, which accompanied the spending settlement report. The joint foreword to that report from the Chancellor and the Chief Secretary to the Treasury began:
“Britain at its best is a country that invests in the future”.
In his speech introducing the report to the other House, the Chief Secretary said:
“Our housing associations have told me that they can do more. To do that, they need certainty on rents, alongside public investment. So today I can provide both those things: I can guarantee that social rents will be set at the consumer prices index plus 1% out to 2025”—
note the word “guarantee”—
“and I can provide £3 billion more capital over three years from 2015 to deliver 165,000 new affordable homes”.—[Official Report, Commons, 27/6/13; col. 467.]
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I have quoted that at length to emphasise that this proposal was part of infrastructure planning and governing for the long term. The clear rationale was to provide long-term certainty on rents in order to boost
private investment and to enable housing associations to do more on the supply of new affordable housing. There were, of course, some trade-offs: the previous policy of so-called convergence towards common rent levels was ended, and the increase was less than the previous RPI-based formula. Overall, though, housing associations welcomed the certainty that it gave them and the ability to plan ahead.
In the event, that guarantee has lasted just one year. This does not say a lot for government guarantees. Commenting in November, when it published its report on the cuts to social rents, the Institute for Fiscal Studies’ senior research economist, Robert Joyce, said:
“Recent policy on social rents displays a worrying lack of consistency”.
It is hard to disagree with him.
The consequence of the new policy is that rents will be 12% lower at the end of the four years than they would otherwise be, had the previous policy been continued. In financial terms, the IFS calculates that rental income for social landlords will reduce by £2.3 billion per year by 2019-20, with £1.3 billion coming from housing associations and a further £1 billion from local authorities.
When making the announcement, the Government highlighted the benefit of lower rents to tenants. In reality, as the IFS report makes clear, the policy largely represents a transfer from social landlords to the Exchequer. Of the £2.3 billion saving through lower rents, fully £1.7 billion will be offset by lower benefit entitlements. For the two-thirds of tenants who are on benefits, there will be no direct gain.
Another justification put forward for the policy was that housing associations and local authorities need to become more efficient. There is undoubtedly scope to improve efficiency in the management of social housing, including in my own association Peabody. Indeed, the role of the regulator was strengthened under the last Government to help secure the delivery of this. However, the savings made were intended to be reinvested in greater supply, continuing reductions in grant rates and improved services for tenants. They will now go towards meeting the shortfall in rental income.
In reality, the primary, if not sole, purpose of the rent reductions was to deliver a contribution towards the £12 billion in welfare savings. This is ultimately for the Government to determine, but it will come at a price, and it is important to be aware of that. We cannot yet say exactly what the impact of the new rents policy will be on affordable housing supply. We can say that the uncertainty created with lenders by the policy reverse is likely to increase the costs of borrowing.
Housing associations and local authorities, committed as they are to new supply, will work hard to limit the damage. However, the Office for Budget Responsibility has calculated that the cumulative effect of the Government’s new policies, including the rent reductions, will be that housing associations will build 43,000 fewer properties over the life of this Parliament. This is a significant loss at a time when we should be looking to housing associations to build more, not less. For local authorities, the rent cut will effectively
end the planned council investment in new building which was beginning to emerge following the self-financing settlement.
In an ideal world, the best course would be to return to governing for the long term and to reinstate the previous policy. However, I recognise that it would not be realistic to confront the policy head-on. Therefore, the amendments I have put forward seek to have ameliorating effects on that core policy.
The first two of my amendments, Amendments 104C and 104D, seek to reduce the period of rent reduction from four years to three. By the fourth year, 2019-20, the Chancellor anticipates that he will be in budget surplus. In the circumstances, it is hard to see the logic for continuing the rent reduction policy. Taking one year off has a significant impact on the long-term financial effect on social landlords.
My third amendment, Amendment 104E, seeks to do three things. First, it would reduce uncertainty by putting it beyond doubt that the previously agreed policy of CPI plus 1% will be returned to. Secondly, it would commit the Secretary of State to a review of the impact of the policy. Thirdly, it would use the review to establish whether social landlords should have greater flexibility to set social rents themselves. Let me take each of those in turn.
The initial indication from Ministers following the announcement was that the rent reductions had been calculated to offset the higher level of increase in social rents above market rents for the previous four years, so the idea was to recover a higher level of rent increase. On that basis, rents could and should be anticipated to rise again in line with the original plan of CPI plus 1% at the end of the four-year period. Subsequent to this view being expressed—I understand at the behest of the Treasury—the signalled intention to return to CPI plus 1% after four years was not referred to again.
This ambiguity has greatly added to the uncertainty for housing associations and lenders. Some housing associations are developing plans assuming a return to CPI plus 1%; others are planning on the basis that it will not return. The impact of this uncertainty on future investment plans is considerable, and it affects both the plans themselves and the viability of individual schemes. Amendment 104E therefore seeks to clarify this point and confirm it in the Bill. If this is the Government’s intention and unforeseen circumstances then arise that require them to reconsider, it would of course be open to them to bring forward fresh legislation, but, crucially, the amendment would make the intent clear to housing associations and local authorities so that they could plan ahead with greater certainty.
As I said earlier, this is a complete departure from previous policy on rents. The impact assessment talks about high balances and the potential for efficiency savings, but puts no figure on the potential impact. We therefore have to rely on the OBR estimate of that impact, which is that the number of new houses will fall. Given the radical departure involved, it seems to me to make absolute sense for the Government to commit to review the impact before they make any other decisions.
It also makes sense to see whether greater flexibility for social landlords could be achieved in setting rents more generally, something the National Housing Federation has long argued for. In a world where the Government are supporting greater devolution to local government and reduced regulation of housing associations, it seems to me very centralist for increases in social rents to be determined nationally.
Amendment 108A specifically relates to properties designed to meet the needs of disabled or elderly people and seeks to exempt them from the rent reduction. Housing that specifically meets the needs of elderly and disabled people is rightly exempted from the right to buy for local authorities. In the previous Government, Ministers proudly championed their investment in new housing to enable older and disabled people to live independently for as long as possible. Such affordable, supportive housing is designed to be accessible and aid independent living by having, for example, very few or no stairs, cupboards at reachable height for wheelchair users and adapted bathrooms that are easy to access for older and disabled people. Boris Johnson said when the 2013 programme was announced:
“It is essential that we increase the supply of purpose built, quality homes for older and disabled Londoners if they are to have a real choice in how and where they live”.
There is currently an insufficient supply of such housing for what is a growing number of people in need of it. It follows that we should not do anything that puts the supply of such new housing at risk, particularly as it involves higher capital costs and, ultimately, future maintenance costs. Exempting these properties from the reduction would send a clear signal that the Government continue to see the provision of such purpose-built properties, with the opportunities they provide for independent living, as a priority for government.
I fear that the Government’s new rent policy has created considerable uncertainty in the market and reduced the capacity of social landlords to invest. It has undermined the long-term ambition articulated so clearly by the former Chief Secretary to the Treasury, Danny Alexander, to create a stable platform for new affordable supply. However, the Government have now set their course and are unlikely to be diverted from it. I hope, though, that they will carefully consider the amendments that I have put forward, along with others, and seek to mitigate its impacts. I beg to move.