My Lords, I support Amendments 72, 75 and 78 in this group and in doing so declare my interests as chair of Peabody and president of the Local Government Association. The amendments would leave with individual local authorities the decision on whether to increase rents for higher-income tenants, to give them the discretion not to implement the change if income was exceeded by the costs and to enable them to retain this additional income at local level. This would put them in exactly the same place as the Government now propose for housing associations.
As the Bill has progressed, it has been increasingly clear that the pay-to-stay proposals are a back-door form of taxation. Application of the increased rents is mandatory regardless of local circumstances. Local authorities will collect the money, but the Chancellor gets to keep the income. How else could you describe this other than as a locally collected tax? The argument that we are doing this because of higher-income tenants subsidising those on lower income simply does not add up. We know that, following the un-ring-fencing of the housing revenue account, housing revenue accounts must now be balanced without government grant.
I use the term “higher” here because we are not talking about high income. The proposed thresholds, which we will talk about further in the next group of amendments, are for household incomes—this is the crucial point—of £30,000 outside London and £40,000 inside London. A couple in London, one working as a teaching assistant and another working as a caretaker, will come above the threshold. By no stretch of the imagination can these be seen as highly paid positions.
Jan Sweeney and her husband, who live in north Kensington, fit this description precisely. Jan wrote to me and I had the opportunity to meet her subsequently. When they started out in north Kensington many years ago, it was not a particularly attractive place to live, but they made it their home. They have never claimed benefits and have made a positive contribution to the community. They do not go on expensive holidays or own a car. They are just at the stage where the children have grown up and they have some money available to go out for the odd meal and treat the grandchildren.
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With sky-rocketing house prices in London, there is no prospect of them buying in their area. Equally, market rents in their area are £400 a week. When we come to vote on this, it is worth being aware of the people we are likely to penalise through this policy—people like Jan Sweeney and her husband. The average household income in the UK is around £30,000. In London, it is around £40,000. These thresholds may be high for council tenants, but they are not high in the country as a whole—in fact, they are near the average for this country.
If we look at taxation policy, the threshold for an individual before income tax rates go from 20% to 40%, will, from April 2017, be £45,000. Many people doing ordinary jobs will be deemed under this policy to have high incomes. If the taper—which I will come to later—is 20p in the pound, their effective taxation rate will be at a higher-income rate of 40p in the pound, even though in income tax terms we define them as basic-rate taxpayers. That smallish group of people will be paying a higher rate of tax at £10,000 lower than those to whom income tax applies.
The Government are committed to a taper, which is welcome. We have still to confirm—we may hear this today—what that taper is. The illustrative options were 10p and 20p and I think it is likely to be 20p, as the Minister has signalled. The modelling by the Institute for Fiscal Studies suggests that with a taper of 20%, some 30% of households would have to pay the full market rent, so not a small number will end up paying the full market rent, even on a taper of 20p in the pound.
On the Government’s own impact assessment, the number of people affected across both council and housing association tenants is around 350,000 or 7% of the total. But to collect the money from that relatively small number of tenants, local authorities, and indeed housing associations, will have to ask every tenant what their position is in relation to their income. That is a huge administrative burden for what is a relatively small number of council tenants. In every respect, it is an inefficient way of raising tax. More to the point, neither local authorities nor housing associations are geared up to be tax collectors.
The cost of the collection compared with the potential income is disproportionate and in some places—hence the reason for the amendment—we need to take a view that it would be uneconomic to collect it. We have still to establish, even though we are now on Report in the House of Lords, how the information on income will be provided to local authorities by HMRC. We have still to establish how we will deal with changes in household income to keep this policy fair.
All of the above would strongly argue for a voluntary scheme as originally envisaged in the Localism Act. Higher rents could be charged for households who are on genuinely higher salaries—the figure in the Act was £60,000 or above. This is a much smaller number of people, perhaps of the order of up to 34,000. Indeed, thinking about the origins of this policy, Bob Crow was on a salary of £145,000—somewhat different from £30,000 and £40,000. Crucially, if we adopted this voluntary approach, we would learn from a localist model how best to deliver a fair and workable system
in such a complex and sensitive area. We will debate the thresholds and the taper in more detail in the next grouping. In the mean time, I urge noble Lords to support the alternative, localist, voluntary approach set out in these amendments.