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John Bibby on the implications of the summer Budget 09/07/2015

The Chancellor's summer Budget contained a number of surprises for stock retained councils that no one saw coming:

 

  • The announcement that rents in the social rented sector will be reduced by one percent per year for the next four years
  • The compulsory introduction of "pay to stay" requiring higher income social housing tenants to pay market rents and for councils to handover to the exchequer the additional rents collected
  • A review of the use of lifetime tenancies in social housing "to limit their use and ensure households are offered tenancies that match their needs and ensure best use is made of social housing.

 

The expected cuts in the welfare budget were included although perhaps not entirely in the way anticipated; most notably the Benefit Cap expected to be reduced from £26,000 to £23,000 was in fact reduced to £20,000 outside London.

 

ARCH Policy Adviser, Matthew Warburton, has produced a briefing on the housing implications of the summer Budget. However, as ARCH CEO I will comment on a few of the key measures:

 

The surprise announcement that rents paid in the social rented sector will be expected to fall over the next four years, by one percent per year, is on face value good news for council tenants. However. it represents a complete U-turn on the current social rent policy and one that will seriously impact on rental income forecasts included in councils 30 year Housing Business Plans and may force councils to review plans for future investment in the housing stock, in housing services and in particular in new council housing. Conversely, the Chancellor also announced that councils will be forced to charge higher rents to households with incomes of over £30,000pa (£40,000pa in London) and handover the additional rent to central government.

 

Council landlords will now need to plan for a significantly reduced rental income and, alongside the previously announced plans to force them to sell off vacant "high value" council housing and hand over the capital receipts to central government, this will represent a significant threat to councils' 30 year Business Plans.

 

All of this is a far cry from the position councils hoped for when the self-financing prospectus "Council Housing - a real future" was published in March 2010 with the promise that the new self-financing regime would give councils and their tenants local control over their housing stock, the rent collected from it, and how that rental income would be re-invested locally. The promise under the self-financing prospectus that "not a single penny will go to Whitehall and not a single penny will subsidise other councils" will now seem somewhat hollow to many councils and their tenants and at odds with the government's wider promise to devolve more powers from Whitehall to local government and the regions. 

 

The government's previously announced proposals to force councils to sell higher value housing, linked to new proposals to increase rents for the relatively higher earning tenants and handover the money raised to central government to help cross-subsidise payment of Right to Buy discounts to housing association tenants represents a significant shift back to central control from that envisaged when self-financing was introduced just over three years ago.

 

For a significant number of council tenants too, the proposals in the Chancellor's Emergency Budget this week could represent an even greater challenge to their own household budgets.

 

It was estimated that 46% of those affected by the current Benefit Cap of £26,000pa would be living in the social rented sector and, for those council tenants in receipt of welfare benefits, the Chancellor's plans to further reduce the cap on total household benefits to £20,000 (£23,000pa in London) will undoubtedly give rise to huge angst in many households affected by this significant reduction in the Benefit Cap. Coupled with the changes to Tax Credits announced in the budget, many working households will now need to rethink their household budgets and, despite proposed increases in the minimum wage and tax allowances, some could find their household incomes significantly affected by these changes. As always the devil will be in the detail!

 

One major concern for working families living in council housing will be the impact of the proposal that those with household incomes in excess of £30,000 will be expected to pay a much higher market or near market rent - under a new compulsory "pay to stay" policy.  Again the devil will be in the detail and much depends on exactly what household income is to be taken into account and how landlords are expected to collect this information. ARCH will want to study these proposals carefully to assess their impact.

 

However, it is worth noting that the government's own forecasts show that the impact of the announced changes of personal tax, welfare and the National Minimum Wage/National Living Wage will mean that a dual earning family - a couple with two children each working 35 hours per week for the new National Living Wage will have a net income of £33,730 by the end of this parliament - way over the £30,000 threshold beyond which they might be expected to pay a market rent.

 

The government's original consultation paper on the "Pay to Stay" policy, issued in June 2012, talked about "high earning council tenants" being those with household incomes of over £60,000pa and estimated that the value of sub-market rents on social housing was worth £3,600pa. Some working households with much lower earnings could therefore find themselves facing the cliff edge of a significant hike in their council rent which may prove a disincentive to taking on additional overtime, earning bonuses or seeking promotion.

 

The government have also announced a review of the use of lifetime tenancies in social housing to limit their use and ensure households are offered tenancies that "match their needs and ensure the best use is made of the social housing stock". Further details of this review are to be announced but it remains to be seen whether this review will mark the end of secure tenancies as we know them.

 

The announcements in the summer Budget herald huge challenges for stock retained councils in managing their HRA Business Plans and maintaining the level of services and housing investment set out in those plans. Councils face the prospect of significantly less rental income than planned, the loss of housing stock through sale of high value voids and Right to Buy as well as potential increases in rent arrears as the welfare reforms kick in and higher market rents are charged.

 

Tenants will need to understanding the impact of these changes on their tenancies and their own household budgets.

 

The new government has heralded a major change for council landlords and their tenants and all of a sudden the future of council housing does not seem as bright as it did when councils entered into the new system of financing council housing just over three years ago.

 

The ARCH Board will want to make the case to government on behalf of its members and tenants. Once councils have had the opportunity to fully consider the impact of these changes, we would welcome your views and comments and details of how these changes will affect your business plans and the services you provide. 

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