The Summer Budget (implications for councils with
housing)
Issued: 8 July 2015
Issued by: Chancellor of the Exchequer
Key
points:
- The government will legislate to freeze working-age benefits,
including tax credits and local housing allowances for four years
from 2016/17 to 2019/20, and to remove the automatic entitlement to
housing support for new claims for Universal Credit for 18 to 21
year olds. This is expected to save £4,010million pa by
2020/21
- The household benefit cap will be reduced from £26,000 to
£20,000 (£23,000 in London). This is expected to save £495million
pa by 2020/21
- £800 million will be provided for Discretionary Housing
Payments over the next five years
- Local authorities and housing associations will be expected to
reduce rents by one percent a year for four years from 2016/17.
This is expected to save £1,445million pa in HB payments by
2020/21
- A compulsory Pay to Stay scheme will require local authority
and housing association tenants with household incomes above
£30,000 (£40,000 in London) to pay market or near-market rents.
Local authorities will be required to pay the additional rent
recovered to central government, but housing associations will be
able to invest it in new housing. There will be consultation on the
details of this reform in due course. Payment of additional rent
collected by councils is expected to contribute £365million pa from
2017/16 falling to £240million pa as tenants move or exercise their
RTB
- The government will review the use of lifetime tenancies in
social housing
- Certain tax advantages available to buy-to-let landlords will
be phased out over four years saving £665million pa by 2020/21
- Further steps in relation to City Deals for Greater Manchester
and the Liverpool and Leeds city regions were announced.
Background:
As expected, the summer Budget set out the Conservative plans to
reduce the public deficit by an average of 1% a year and eliminate
it by 2019/20. This will be achieved, in part, through cutting
welfare spending by £12 billion by 2019/20. It will also be
achieved by freezing most working-age benefits for four years,
including tax credits and local housing allowances, limiting child
tax credits from April 2017 to at most two children, and limiting
benefit entitlement for 18-21 year olds. The household benefit cap
will be reduced to £20,000 (£23,000 in London). Those in work will
benefit from continuing increases in the National Minimum Wage
together with, from April 2016, a non-compulsory National Living
Wage for the over-25s, set initially at £7.20 per hour (compared
with a NMW of £6.50). This is expected to rise to £9 by
2020.
Councils and housing associations will be required to cut rents
by one percent a year for four years from 2016/17, but tenant
households earning more than £30,000 (£40,000 in London) will be
required to pay market or near-market rents through the
introduction of a compulsory national Pay to Stay scheme. Councils
will be required to pay the additional revenue to central
government, while housing associations will be able to invest it in
new housing. The government will consult on detailed proposals in
due course, and it is likely that enabling legislation will be
included in the Housing Bill expected in the Autumn.
Mortgage interest tax relief for owner-occupiers was phased out
in the early 1990s, but has continued to be available for
buy-to-let purchasers, including at the higher rates of tax in
relevant cases. The government plans to phase in limitation of
relief to the basic rate over four years, beginning from April
2017. There will also be changes to the way landlords can charge
maintenance costs.
The Budget also announced further devolution of powers to the
Greater Manchester Authority, including creation of a Land
Commission. The government is also working towards further
devolution deals with the Sheffield City Region, Liverpool City
Region, Leeds and West Yorkshire, and in Cornwall.
ARCH
Comment:
Councils' HRA business plans will be hit hard by the rent cuts
announced in the Budget together with the impact of the benefit
cuts on the ability of many tenants to pay their rent. It is only
two years since the same Chancellor proposed a ten-year rent
settlement based on CPI + 1% to enable councils and housing
associations to plan for the future, yet neither his speech nor the
Budget report contain an acknowledgement of this U-turn. Councils
now need to plan for significantly reduced rental income, alongside
the previously announced plans to require sale of higher value
property and this will inevitably have a knock-on effect over
councils' 30year business plans.
Consultation on the detail of the planned compulsory Pay to Stay
scheme will be important, as there are obvious difficulties with
the proposal to lower the income thresholds so dramatically - the
original consultation on the voluntary Pay to Stay scheme classed
higher income council tenants as those with household incomes of
£60,000pa or more. Far from affecting only the wealthiest tenants,
a family with two full-time earners on the National Minimum Wage
already has a total income over £27,000 and would pass the £30,000
limit during this Parliament if the National Living Wage is
implemented as planned. Households earning just under the threshold
would have a powerful disincentive to increase their earnings if
they were to face a rent increase averaging £75 per week as a
result. Charging market rents for households in receipt of incomes
above £30,000 may also encourage an increase in Right to Buy by
those affected.
The impact on the private rented market of the restriction of
finance tax relief for buy to let landlords to basic rate tax (to
be phased in from 2017) will need to be monitored. There is
speculation that landlords may seek to mitigate their losses by
increasing rents and/or may withdraw from the market freeing up
accommodation for home ownership. Either way there may be
additional pressure on council homelessness teams.
The introduction of compulsory "pay to stay" and the review of
lifetime tenancies may increase turnover in the council stock
making it difficult to create stable communities and of course any
increase in voids may trigger disposals under the proposals for
compulsory sale of "high value" stock.
Click to view the full summer Budget
report.