The Northern Housing Consortium (NHC) welcomes the opportunity to submit evidence as part of the consultation on pay to stay. The NHC is a leading voice for housing in the North of England.
Our submission is informed by contributions from our members and from our roundtable discussion with members and the Department for Communities and Local Government (DCLG).
We will address our response based on the following:
- How income thresholds should operate beyond the minimum threshold set at Budget, for example through use of simple taper/multiple thresholds that increase the amount of rent as income increases.
- How the scheme can support incentives to work?
- Based on the current systems and powers that Local Authorities have, what is your estimate of the administrative costs and what are the factors that drive these costs?
It was clear from member feedback there remains a great deal of concern that the pay to stay policy may be seen as both a disincentive to work and a move towards targeting social housing towards lower paid households and away from the ethos of mixed communities espoused in the past.
One respondent noted “currently, proposals for Pay to Stay perhaps send the wrong message that social housing should be reserved for people with no or very low income only. We do support the desire to incentivise work. However, we are concerned that Pay to Stay may erode mixed income communities and further stigmatise and marginalise social housing as ‘accommodation of last resort’.”
There were further concerns raised about the capacity of housing providers to set up, administer and maintain records of tenant’s information. There were some submissions that noted that the consultation assumes that local authorities already have the systems to acquire, process and maintain income data when, in some cases, they do not. There were concerns expressed by housing associations that they will have to set up systems at cost which will likely not provide any return even when the increased rents paid by those paying higher rents are factored into the equation.
How income thresholds should operate beyond the minimum threshold set at Budget, for example through use of simple taper/multiple thresholds that increase the amount of rent as income increases.
The need for fair, flexible tapers to the £30,000 threshold was something expressed across all of our submissions and is something the NHC would welcome. There was an almost unanimous agreement among those who submitted that the tapers should be as simple as possible both for the benefit of tenants and the benefit of the relevant authorities who will be required to retain income details.
Some respondents noted that the current, voluntary arrangement for pay to stay with a threshold of £60,000 was sufficient. One respondent suggested that the £30,000 threshold set by the Government should “be raised to the level prescribed in the current discretionary scheme (£60,000) as set out in the Guidance on Rents for Social Housing (May 2014) in order to avoid penalising hard working low to middle income earners” They also suggested another policy whereby the threshold could “be set locally, with the threshold linked to the earnings levels that would enable access the local owner-occupied market through incentives such as the Starter Homes Initiative and Help to Buy Schemes etc.”
One council noted in their submission that as a result of the taper system, advertising vacant properties would raise issues in relation to advertising vacant properties as rent would potentially be different for the same property depending on the level of income earned by the household applying. This is likely to be highly confusing to existing and prospective tenants.
The need for fair, flexible tapers is essential. A system whereby the level of rent is graduated based on total household income would be the best system. There needs to be safety mechanisms within the design of the system to ensure that those with fluctuating incomes are not unfairly penalised and that housing providers are not wasting staff time by making minor adjustments based on these unpredictable fluctuations.
How the scheme can support incentives to work?
One example given by a major Northern council about how the pay to stay regime could act as a disincentive suggested that “under the current benefits system, where a tenant takes a full time job and earns £292.12 net per week (£17,500 gross pa) they will lose their Housing Benefit and Jobseekers Allowance, but will get a small amount of working tax credits making them £102.83 per week better off overall. Should their partner then take a full time job earning £232.87 net per week (£14,000 gross pa), they would lose some tax credits and move onto market rent. Although the higher rent would mean that they would get some Housing Benefit, they would be only £40.78 per week better off despite both working full time.”
From April 2016 a household composed of two working age adults each working 39 hours a week at the National Minimum Wage (£7.20 per hour) would, between them, earn £29,204 placing them just below the £30,000 threshold. However, as is common with workers on the minimum wage, this crude figure excludes overtime and bonuses which, among NMW workers, are common. The blunt cap of £30,000 could mean these workers affected by this could essentially have a disincentive placed on them to work extra hours. One response noted that a way around penalising those on the national minimum wage, the thresholds as proposed (£30,000/£40,000 in London) should be index linked to rises in the National Minimum Wage and National Living Wage from April 2016 onwards.
It is common for those earning NMW or in jobs with variable hours to see their incomes fluctuating quite rapidly. Therefore, in addition to tapers, we would encourage the Government to consider some mechanism that would not punish those households with fluctuating incomes that fall around the threshold.
The definition of “the highest two incomes” as specific in the consultation paper contains no specific definition of income. There is thus a vast amount of confusion over the impact of the policy. It is only in the impact assessment of the Housing and Planning Bill 2015 currently before Parliament that there is a definition provided.
The impact assessment notes that ‘household income’ will be defined the same as ‘gross annual household income’ (GAHI) which is defined as “the annual income of the household reference person and (any) partner plus any other household members. This includes some income from private sources (regular employment, self-employment, government schemes, occupational pensions, private pensions and other private income), state benefits/allowances and tax credits as collected on the EHS survey…”
We have assumed that, given the EHS survey asks tenants to include child tax credits and other tax credits as part of their income, that state benefits/allowance and tax credits will be included as part of the £30,000 threshold.
We would recommend if this is the case, that these state benefits be excluded from the £30,000 threshold so as not to act as a disincentive to taking more hours or seeking a role with higher pay. NHC members are concerned that – for example – a household with two working age adults each earning £15,000 a year with one child (and thus in receipt of both child tax credit and child benefit at £4,367 as of November 2015) would be subject to an effective threshold of £25,633 on their earned income after tax credits are accounted for in the household’s income.
Because a couple on low incomes are unlikely to be able to manage without child benefit and this cannot be discounted from a household’s income, there will exist an effective threshold for earned income (through full time, part time or other work) of £25,633 for those households receiving child benefit and child tax credit. Such an anomaly in the design of the policy will lead to the potential for a poverty trap to develop.
An interesting point raised by one respondent was whether or not a student loan was classed an income. At the time of sending, we were still awaiting confirmation from the Department of Communities and Local Government about this.
Based on the current systems and powers that Local Authorities have, what is your estimate of the administrative costs and what are the factors that drive these costs?
The feedback we received about administration costs and the on-going costs of implementing the proposals were mixed. Many expressed concern about the funding of these measures; the on-going technicality of maintaining records (if and as incomes vary) and the increased costs providing this administration would have on existing budgets and staff time.
From a Northern perspective, it was highlighted by one respondent that the policy was a London and South East focused policy as, generally speaking, there was little difference between social and market rents in the North of England. Because of this lack of difference between the two, the costs of the administration of this policy would far outweigh the additional income generated for some northern landlords.
One respondent from a local authority noted that the consultation assumed that local authorities already have the systems and processes in place to operate the pay to stay policy but said that this is not the case for them. They noted that as a registered provider of social housing, the local authority does not keep personal records, including income details, of its tenants other than when they first apply for a property and are placed on the housing list. They noted that this data is likely to be obsolete by the time a prospective tenant is offered a property and would likely serve no purpose.
This was mentioned by another respondent who noted the sharing arrangements local authorities already had in place “relate to Housing Benefit or Local Council Tax Support (LCTS) and are not linked to housing management systems which will present an additional cost to the local authority.” Hence, there will likely be a significant capital outlay by local authorities to establish systems and software to collect tenant income data.
One local authority respondent noted that the proposed policy would need significant investment in resources, including software and staffing costs, where it to proceed in order to collect, store and maintain the income details of all tenants, their partners and other family members/residents. There was further concerns raised about calculating the cost of putting the systems and processes in place to administer pay to stay without clear guidance on the powers available to local authorities, the type of scheme they would have to administer and the number of staff required to fulfil any statutory obligations regarding the policy.
One large local authority noted that “as a principle we believe it is grossly unfair that Councils should be treated differently from Registered Providers in that any additional rent generated by Pay to Stay is not kept by the Landlord, unlike Registered Providers who will be able to keep the extra income generated”. It was suggest there should be parity across councils and registered providers so that both are able to keep the receipts from increased rents.
There were significant concerns expressed across all submissions about maintaining income records for those on zero-hours contracts, flexible contracts and temporary contracts.
Within this, there were concerns about responsibility for information. If inaccurate information was recorded, who would be liable for this? Additional concerns were raised by one respondent who cited an example of the USA where a similar policy is in place. They noted that staff often on a quarterly basis has to verify incomes by pay slips and noted that this system was plagued by fraud. She asked what steps would be in place to prevent fraud in the system.
On the costs of administering the policy, very few respondents could make a sensible estimate of the costs of administering the pay to stay policy without further detail on the way in which the arrangements will work. One ALMO respondent noted that “arrangements in which the housing provider was responsible for checking the validity of declarations of income made by tenants, or exchanging data with HMRC if they agree to be involved would be time intensive”. They continued that they “hoped that the definition of allowable staff costs will not be so restrictive that legitimate costs of administering the new arrangements cannot be recovered.”
Another ALMO members suggested that “costs will depend upon how much responsibility lies with us to collect the information.” They noted that a data sharing arrangement would mean lower costs but cautioned that “if responsibility rests with us to advise tenants of the changes and collect the income details from them then costs will be significantly higher.”
On the practicalities and costs of calculating initial market rent for in scope properties, it was noted by one respondent that “using average data per post code area based on property type and size would be the least costly” They went on to state “however if we are expected or wish to use the same valuation process as that for new build or right to buy this would incur significant time and cost. This is currently £150 per site for new build and £120 per property for right to buy. Considerable resource would be required to divide stock into appropriate sites so cost cannot be identified currently but based on individual valuations and c500 properties this would be an initial cost of £60,000. Of course this would increase if non responders were moved to market rent.”
Those respondents that made estimations of costs – initial and on-going – noted that, on the whole, the costs for the development of systems of information sharing would likely far outstrip the increased income from rents falling under the pay to stay measures. For many northern landlords, in areas where there is little real difference between market and social rents, this would be especially so. Many northern landlords are very concerned that the administration of this policy will, in effect, lead to money spent establishing systems from which there will be no real gain.
One respondent noted that ‘very conservative estimates’ of per annum costs would be around £156,000 a year based on valuation costs, information gathering from tenants and staff costs for 1 FTE additional resource.
An issue raised by some stock-holding local authorities already set to lose income from the rent reductions and loss of income due to the sale of high value homes, was that this measure will further impact on their ability to self-finance their housing work.
It is clear that there exist many concerns about this Bill. As articulated in detail above there remain real worries about the workings of the policy, particularly with regards to acquiring and managing tenant income information; the ‘cliff-edge’ design of the £30,000 threshold as it currently stands as well as around unintended consequences about disincentives to work.
There was also clear disharmony around the disparity between local authorities and housing associations with the latter being unable to keep the receipts from higher rents while the former can.
There was unanimous approval within the submissions to get more people through fair, flexible and forward-thinking incentives but real concern about the unintended consequences in the Bill.
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