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
- 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
- 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.
ARCH's full response.
ARCH has now submitted its response and argues
- 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.
- 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.
- 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
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
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
- 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
- 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
- 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
- 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.
ARCH's full response.