My Lords, I rise to move Amendment 103A and to speak to Amendment 104AZA, which are in my name and that of my noble friend Lord McKenzie of Luton. In doing so, I remind the Committee of my declared interest as a senior independent director of the Financial Ombudsman Service, in case it proves relevant to the later debate. I will speak at
slightly greater length than I have recently because there are some quite complex issues involved and I need answers to questions. I hope the Committee will bear with me.
At present, owner-occupiers receiving income-related benefits may claim additional help towards their mortgage interest payments in the form of support for mortgage interest, or SMI. The payments are normally made direct to the lender and are intended to ensure that someone who is struggling to pay their mortgage does not end up having their home repossessed, causing misery to them and leading, most likely, to their claiming larger amounts in housing benefits to rent an alternative home. This Bill will end the SMI scheme and empower the Government to create a loan scheme as an alternative, with the loan secured by a charge against the property. I understand that the intention is to have the scheme administered by the DWP, with the recovery run by a third-party organisation which will be able to charge fees to claimants to cover the cost of administering the loan scheme.
In the impact assessment, the Government argue:
“Without the policy change there is an incentive for households to allow the taxpayer to take the burden of their mortgage without taking steps to repay it themselves”.
The only way to get this benefit is for your income and savings to be so low that you qualify for a means-tested benefit such as income support, jobseeker’s allowance, ESA or pension credit. The idea that people poor enough to qualify for those benefits could pay off their mortgage but are choosing to allow the taxpayer to do it instead seems unlikely. At present, claimants have to wait 13 weeks from first claiming a qualifying benefit before they can apply for SMI. That waiting period is to be extended to 39 weeks, and Amendment 103A seeks to restore the 13-week waiting period. The Minister will doubtless say that it had previously been 39 weeks, under the last Labour Government, but in 2009 the then Government brought it down to 13 weeks as a result of the economic situation.
Peers may have seen the helpful briefing from the Money Advice Trust, StepChange, the Building Societies Association and the Council of Mortgage Lenders, all of which strongly support this amendment to retain the 13-week period. As they put it:
“Lenders and advice agencies alike know from experience that early intervention is the key to resolving financial difficulty”.
They say that the Bill’s extension of the waiting period to 39 weeks risks making it “significantly more difficult” to resolve mortgage problems. The change would mean that claimants would be well over six months in arrears with their mortgage by the time SMI kicks in. As those organisations point out, two separate pieces of research, commissioned for DWP and DCLG, show the 13-week period has been effective in holding down arrears and repossessions—which, after all, is of course the point of the scheme.
In its evidence on the Bill in another place, the Council of Mortgage Lenders said:
“If the waiting time is extended, as planned, we believe that it will result in more cases of repossession … Extending the waiting time will only cause additional consumer detriment”.
It points out that interest rates have been so low for so long that probably 2 million borrowers have never experienced a rate rise. It is our view that the market is far from stable and that this is a very bad time to increase the waiting period, especially at the same time as abolishing the grant scheme and moving to a loan option.
Amendment 104AZA seeks to retain the SMI grant scheme for claimants who are in receipt of pension credit—in other words, our poorest pensioners. This is what I like to call the reverse Salisbury/Addison amendment: we are helping the governing party to fulfil a manifesto commitment which seems temporarily to have slipped its mind. The Conservative manifesto explicitly said that a Tory Government would protect pensioner benefits. Yet almost half of those getting SMI are of pension age and a disproportionately high number of claimants are pensioners. In fact, the impact assessment says that,
“SMI claimants are considerably more likely to be over pension age than mortgage payers in general”.
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In its briefing, Age UK notes, “Older people will be very reluctant to agree to an increasing debt on their property. So even if they have equity in the property, they will not consider the loan. Instead, people may restrict essential spending, putting themselves at risk”. This cannot be viewed as a way of dealing with a temporary problem in the case of pensioners. We must assume that people of pension age will not be going back into work, so their finances are unlikely to improve—indeed, quite the reverse. If so, the only effect of this policy is essentially to mount a raid on what is usually the only asset of poor pensioners. It is also their safety net in case they need to release equity for care or other emergencies. People who have paid into the welfare state all their life so that it could protect them in bad times and in old age will now be told that their home is not there for them.
I have a number of questions for the Minister. On access to the loan scheme, can he assure us that anyone in receipt of a qualifying benefit will be entitled to a loan, whether or not they could have expected in future to have enough equity in their home to act as security for the debt? Secondly, where will this charge come in the order of priority if other debts are secured against the property? I imagine that the noble Baroness, Lady Manzoor, will deal with this point when speaking to Amendment 104, but there must be a concern that if this were to outrank claims by other lenders, especially for local authority care costs, that could have significant consequences for the ability of older people to access essential services. A similar question exists in relation to older people who may wish to use equity release to fund house repairs or care costs as the NHS and local authority funding continue to be squeezed.
Thirdly, if the loan exceeds the equity, could that mean that when the property is sold, the claimant is left with literally nothing? Could an estate find that there was not enough left to pay for the funeral of the deceased? Did the Government consider, for example, having a cushion left untouched, in the way that you are allowed to have some savings when you apply for housing benefit or pension credit? Fourthly, if the loss
of SMI means that someone will no longer be entitled to pension credit, will they then lose access to passported benefits, such as cold weather payments or help with health costs or access to funeral payments from the social fund?
Fifthly, and most importantly, people will need high-quality advice to help them work out whether it is in their best interests to effectively mortgage their property, with charges being added on to the debt and interest accruing, potentially for decades. It might be better in some cases to find another source of cash if they have access to one. It may or may not be the best thing for a claimant to hang on for help for 39 weeks if they may never be able to manage it, so people will need high-quality advice.
I understand that the advice will not be regulated because it is government advice, but I have some very specific questions. First, will the advice to the claimant be free? Will it be tailored, personalised advice from qualified advisers—in other words, not just generalised guidance but specific advice on whether that person in those circumstances should consider taking this out? Thirdly, during the debate in another place, the Minister said that DWP would administer and provide loans but that the advice and recovery would be provided by a third party. Is that still the case? If so, will the advice providers be independent of the body operating the loan scheme and those charged with recovering the debt? In other words, can we be assured that there will be no conflict of interest? Is there any redress for customers in the case of bad advice causing them detriment? Will a face-to-face option be available, at least for vulnerable clients?
The reason I have gone into this in such detail is that effectively all the Bill does is to abolish the grant scheme and empower the Government to create a loan scheme, but there is no detail. The Delegated Powers and Regulatory Reform Committee expressed concern at the fact that the draft regulations for the SMI loan scheme are not available to the House, given that the plan is that the scheme be set up by negative resolution.
The Government’s argument in the memorandum was that the negative procedure is appropriate because the primary clause will have been fully debated as part of the Welfare Reform and Work Bill, including debate on the contents of the regulations which will be made under this power. But regulations are there none. That is why I particularly want answers to these questions, despite the lateness of the hour.
Finally, have the Government been persuaded by the DPRRC and will they agree, as it recommends, that all regulations under the clause will be subject to the affirmative procedure? If so, will the Minister bring forward a government amendment to this effect at Report? I beg to move.