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The summer Budget: ARCH Member Briefing 09/07/2015



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.




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.

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