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The ARCH annual report for 2015-16 is now available to view.

 

Download it here.

ARCH response: 'pay to stay' consultation paper 24/11/2015

The Department of Communities and Local Government (DCLG) issued a consultation paper on 9 October 2015 on proposals announced in the government's summer Budget to introduce a mandatory 'pay to stay' scheme. This scheme requires so called high income council tenants and housing association tenants to pay higher rents to continue living in their homes.

 

ARCH issued a briefing to its members on the consultation paper which set out details of the proposed 'pay to stay' scheme; under which tenants living in social housing with a total household income of more than £30,000pa (£40,000 in London) will have to pay a rent at market or near market levels.

 

Councils and housing association landlords will be responsible for administering the scheme and collecting any additional rent due from their tenants. While housing associations will be able to retain the additional income raised to reinvest in their housing, council landlords will be required to pay over the extra money collected to the government to contribute to the £12billion savings in the welfare budget.

 

Council landlords will be allowed to recover any reasonable administrative costs before they are required to return any additional income from increased rents to the exchequer. As housing associations will be retaining the income they receive from higher rent payments to invest in new housing, they will be expected to absorb the administrative costs.

 

The scheme will come into effect in April 2017 and, according to the Impact Assessment issued with the Housing and Planning Bill 2015, the DCLG says that by 2017 these changes will affect over 440,000 hardworking tenants who will be expected to pay much higher market or near market rents.

 

The Consultation paper hints that the government may be considering some form of taper with rents increasing incrementally depending by how much the household's income exceeds the £30,000 (£40,000 in London) threshold and the consultation paper asks two specific questions:

 

  1. How income thresholds should operate beyond the minimum thresholds for example by use of a simple taper or multiple thresholds that increase the amount of rent as income increases and whether the starting threshold should be set in relation to eligibility for Housing Benefit; and
  2. Based on the current systems and powers that local authorities have, what is the estimate of the administrative costs and what are the factors that drive these costs?

 

ARCH invited its members to submit their views and comments to help inform the ARCH response to the Consultation paper. The ARCH Board discussed the response at its meeting on 16 November.


Read ARCH's full response.

 

ARCH has now submitted its response and argues that:

 

  1. The policy as set out in the summer Budget statement would be unlikely to deliver the public expenditure savings assumed by the government. Therefore the aspiration in paragraph 8 of the consultation paper that the detailed design of the policy should be able to deliver the same savings is unrealistic.
     
  2. There is wide regional and local variation in the gap between current council rents and market rents that council properties would attract, such that in a significant number of local authority areas it is unlikely that the additional income collectable would justify the additional costs of administering a 'pay to stay' scheme.
     
  3. In other areas, however, a scheme that raised rents to 80% of market levels for those with household incomes of over £30,000, and 100% of market rents at £40,000 and would lead to a substantial increase in rents causing considerable hardship  and would have significant and perverse impacts on work incentives.

    A tapered increase of rents with household income would be fairer and reduce to some extent the adverse impact on work incentives, but would be likely to add significantly to the administrative complexity of the scheme and the associated costs of administration.

    On balance, we would prefer to see the proposed "higher earning" income thresholds raised so that rent increases are only required of those tenants better able to afford them.
     
  4. The proposal for higher thresholds in London so that tenants with £40,000 household income pay 80% of market rent, and the full market rent would only apply to tenants with household income of £50,000 or more, goes some way towards mitigating the impact of the larger gap between council and market rents in London; but this would still leave many tenants facing unacceptably high rent increases. However, tenants in some high-value areas outside London would face substantial rent increases at the lower income threshold of £30,000. We conclude that a single threshold for England outside London is inappropriate and the scheme should provide for local thresholds set according to local housing market conditions.
     
  5. The government plans that the National Living Wage should reach £9 an hour by 2020. On this basis, a household including two earners working 35 hours a week would have an annual income of £32760. We do not believe that dual earning households on National Living Wage can credibly be described as "high-income", and that any "high income" threshold for the scheme should be set above this amount in all areas, and increased annually in line with planned increases in the National Living Wage.
     
  6. We argue that the thresholds set for each area should also be no less than the income necessary to access owner-occupation in the same area  with assistance where necessary through schemes such as starter homes, Help to Buy etc.
     
  7. We see no credible justification for requiring the additional income raised from councils operating the 'pay to stay' scheme to be paid to Central Government. We accept the importance of reducing public expenditure, but would point out that equivalent savings, and more, could be realized by not applying the proposed social rent reductions in part or in full to some or all of those tenants not in receipt of HB. We would be happy to accept arrangements through which the government could be reassured that the additional income would be used to support much-needed housing investment before allowing it to be retained.

 

Read ARCH's full response.

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