My Lords, I will, if I may, take this opportunity to reiterate our overall position on this policy. I wrote to noble Lords about this earlier this afternoon and I would like to take the opportunity to set out the key points on the Floor of the House. I hope that noble Lords will indulge me, but I will not take interventions at this stage, because I hope that many of the questions will be answered as I make my way through my opening statement.
The policy is about fairness, and our view is that social housing at lower rents should be provided to those households that need it most. Households that decide to remain in social housing but can pay more should be expected to do so. At the same time, the Government are making home ownership more accessible to tenants both of local authorities and of housing associations through the right to buy and shared ownership.
In Committee, I reinforced the Government’s commitment to ensuring that the policy is designed fairly and that work always pays. On this basis, I gave three reassurances: first, that we would introduce a taper to ensure that it would always be in the tenant’s interest to increase their earnings; secondly, that we would exempt those on housing benefit entirely; and that we would allow local authorities to retain the reasonable costs of administering the scheme.
In Committee, many important points were made. The noble Baroness, Lady Hollis, asked how the policy would work alongside universal credit. The noble Baroness, Lady Lister, spoke eloquently about the importance of ensuring that the policy is applied fairly for social tenants. The noble Lords, Lord Kerslake and Lord Best, both raised concerns about the level of the thresholds and how we mitigate those through our choice of income taper.
We have listened carefully to those arguments and to the views expressed by tenants and local authorities. We agree that people in receipt of certain state benefits should not be caught and that there should be an element of protection for those households on incomes close to the thresholds. Rents should rise by a reasonable amount and protect those work incentives. Following our consideration of the views and arguments, I can outline today much more policy detail that we intend to put into regulations. I hope that that will reassure noble Lords.
First, I can say more about which households will be affected. The policy will affect households with an income of more than £31,000 outside London and £40,000 in London. This would mean that households with two adults each working 35 hours a week on the national living wage would be below the threshold. In addition, I can confirm that no household in receipt of universal credit or housing benefit—this is the point that the noble Baroness, Lady Hollis, made—will be subject to the policy. This makes absolutely clear that this policy is not aimed at households on the lowest incomes, or at those households on incomes above the thresholds in areas of very high market rent that may qualify for these benefits. I hope that this will reassure the noble Baroness in particular about the link with universal credit. It also means that there will be no extra burden on the taxpayer, who would need to fund the increase in housing benefit or in universal credit to cover the rent.
This link to benefits is further reinforced by our proposed definition of “income”. I think that the noble Lord, Lord McKenzie, alluded to this. We want to define this as “taxable income”. When determining whether a household’s income is over the threshold, this means that we will take into account employment earnings, pension income and investment income, but not child benefit, disability living allowance or tax credits. This will protect many families on incomes close to the thresholds. Taken together, these announcements on income thresholds, the exclusion of households on universal credit and the definition of “income” make it absolutely clear that there will be no impact on families on low incomes.
Secondly, I know that there have been concerns about how much additional rent a household might have to pay. In Committee I said that we would use a taper to ensure that households did not face a very large increase in rent as a result of a small increase in income. I can confirm that we are proposing a taper of 20%. This will mean that for every additional pound someone earns over the income threshold, they will pay an extra 20p towards the rent. In determining the level of the taper we have looked closely at a range of tapers in use, including universal credit, to ensure that
tenants’ rents are increased in an affordable way, while maintaining the principle that those who can pay a little more do so. The taper ensures the principle of affordability and of protecting incentives to work.
A household outside London on £32,000 a year will pay less than £4 a week extra and a household in London with a taxable income of £42,500 will pay less than £10 a week. A household outside London with an income of £40,000 would pay around £35 a week. The households that I have just described would be in the top 40% of household income. At a 20% taper level, most high-earning social tenants would pay no more than 20% of their income in rent—much less than the average household in the private rented sector and lower than the 33% of income often used by housing providers as a rule of thumb for what is considered affordable.
Thirdly, I know that noble Lords have been keen to ensure that we implement this policy in a way that does not penalise the parents of adult children who live at home, perhaps while they save to buy their own home. With that in mind, I can now confirm that “household” will be defined as the tenant, any joint tenants and their spouses, partners or civil partners. Within a household, only the incomes of the two highest earners will count. This means that the incomes of non-dependent children will not count unless they are named on the tenancy agreement—and, even then, only if they are one of the two highest earners. I reaffirm at this point that no household in receipt of universal credit or housing benefit will be subject to the policy. As I said earlier, the policy is not aimed at households on the lowest incomes or households on incomes above the thresholds in areas of very high market rents which may qualify for these benefits.
Finally, I can confirm that in the first year local authorities will return the actual amount of money they raise through the policy: the Government will not set a formula. However, we will return to this issue after the first year, when more information is available, to decide on the best approach. I understand that noble Lords are keen to scrutinise the detail of this carefully. As announced in Committee, I have accepted a recommendation from the DPRRC to make the secondary legislation subject to the affirmative regulation procedure. I am sure that this will be welcome news to your Lordships. There will be some further policy questions to address before we debate regulations but I want to take the opportunity to clarify some points of detail which I know the House had concerns about in Committee.
The noble Baroness, Lady Hollis, and the noble Lord, Lord Campbell-Savours, raised some important points about private companies having access to individuals’ income data. I assure noble Lords that the data-sharing powers in the Bill will be limited to data shared between HMRC and local authorities and HMRC and housing associations. The Bill contains strict conditions over how that information can be used and there is absolutely nothing here that enables further data-sharing with third parties.
There was some debate about admin costs. It is still the Government’s position that local authorities will be able to retain a reasonable amount of admin costs. I know that there was some confusion about this
language in the previous debate. It is the Government’s intention that the costs should be covered but we are working with local authorities to fully understand the costs they will face in setting up and running the policy. It is important that we do not unfairly reward local authorities which are running inefficient systems. I can also confirm that regulations will not expect local authorities to collect where the administration costs would not be covered by the returns from this policy—a number of noble Lords made this point.
Before I conclude, I want to say something about the approach for housing associations. The decision on whether to operate a policy will be voluntary for housing associations. The Bill contains a requirement that where a housing association wants to operate a voluntary policy it must publish details of that policy and have an appeals mechanism in place. This is not a control but a sensible protection for tenants, but where housing associations operate a policy they can retain any funds raised and use them for investment in new social housing. We will continue to work with housing associations to help them put policies in place where they wish to do so. I hope that the details I have set out, though rather lengthy, demonstrate that the Government have listened to concerns raised by this House. Our proposals strike a balance between the need for fairer rents in the social sector and the need to ensure that the policy is applied fairly to tenants.
I now move on to the amendments. Government Amendment 73A allows us to make exemptions for those households in receipt of housing benefit and universal credit. Our proposed definition of income will ensure that payments from tax credits, child benefit and disability living allowance will not count towards the calculation of income. I hope that this will provide an element of reassurance for those in receipt of these benefits who may be close to the threshold. Of course, noble Lords will spot that this does not mean that everyone receiving disability living allowance, for example, will be outside the scope of the policy. If their income is high, they may be asked to contribute more. I am sure that there will be strong views on this, and I should make it clear that other exemptions could, of course, be made in the regulations. I know that noble Lords have particular concerns about the impact on certain groups of people—for example, the noble Baroness, Lady Lister, spoke eloquently about those with caring responsibilities or those who have suffered at the hands of a partner through domestic violence. We take this very seriously. I welcome further views on this, so that we can take forward further consideration of the evidence in advance of the affirmative regulations.
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I am grateful to the noble Lord, Lord Best, for his Amendment 73, which seeks to place a 10% taper in the Bill. I share concerns about mitigating the impacts on households close to the threshold and protecting work incentives. The taper level of 20% that we are proposing should be considered not in isolation but alongside our commitment to exempt households in receipt of some of the benefits about which I have spoken today, as well as our definition of income, which will exclude a wide range of other benefits from the calculation. Taking all these factors into account,
my view is that the 20% taper level strikes the right balance between mitigating the impact on households, preserving work-based incentives and ensuring that tenants who can afford to pay more do so. However, I reinforce the practical impact of our taper. At 20%, this will mean that for every £1,000 earned over the threshold, the rent increase will be just under £4 a week. This means the average proportion of income that a tenant would pay in rent would be around 15%. This would still be considerably below the commonly used rule of thumb that a maximum of one-third of income should be spent on housing costs, and far lower than the average PRS equivalents.
Amendment 76, tabled by the noble Lords, Lord Kerslake and Lord Kennedy of Southwark, and Amendment 77, tabled by the noble Lord, Lord Foster, and the noble Baroness, Lady Bakewell, both seek to put higher income thresholds in the Bill. The Government’s preferred option of setting the income thresholds at £31,000 and £40,000 respectively represent the starting point at which tenants who earn above average incomes should start to contribute a little more. The taper will be applied to ensure that for every £1,000 someone earns above the threshold, the additional rent would be lower than £4 each week.
Amendment 77ZA, tabled by the noble Lords, Lord Beecham and Lord Kennedy of Southwark, seeks to increase the income threshold every three years to reflect the consumer prices index. I am happy to return to this at Third Reading if we can reach a consensus before then because I share the noble Lords’ concerns about mitigating the impacts on households close to the threshold and protecting work incentives both now and in the future. We must have a policy that is fair, but it goes too far to place the amendment in the Bill.
Amendments 77A and 77B have been tabled by the noble Viscount, Lord Hanworth, and I shall speak to both of them together. I assure noble Lords that we will use regulations to set out the circumstances in which rents should be reviewed, both when a household falls below the income thresholds or when income drops by a certain amount. We must have a policy that is fair. There will be obvious circumstances—for example, when someone loses their job. There must be an incentive to declare the correct income under the policy. Our view is that the best way of doing this is for local authorities to be required to raise rents to the maximum available in an area where there is a persistent failure to engage with the policy. However, I want an approach that is fair. We will issue clear guidance to local authorities on the steps they should take to contact tenants before this sanction is applied. If the sanction does have to be applied, then local authorities would be required to reset the rents to the correct level once a subsequent declaration is made. I hope I have provided some reassurance on these points. We can, of course, return to this aspect of the policy once we have the regulations.
The noble Lord, Lord McKenzie, asked, on the point about declarations being made annually, what happens if someone’s income changes suddenly or several times in the course of one year. I have asked for clarification on whether this would be similar to the
arrangement on tax credits where one is expected to notify the authorities as soon as possible when incomes change. I understand, from a whisper across the Chamber, that this policy would work in a very similar way, but I will write to the noble Lord to clarify it further.
Amendment 77C, tabled by the noble Viscount, Lord Hanworth, seeks to provide protection for the tenant and to ensure that increased rents are subject to an appeals mechanism. We will be putting such a mechanism in place, in regulations. Further work is needed on the role and scope of appeals, but I give a commitment that we will bring forward detail for the debate on the regulations. I would welcome the views of noble Lords on the scope of appeals.
Amendment 78, tabled by the noble Lords, Lord Kennedy and Lord Kerslake, would permit local authorities to retain the increased rental income from this measure, rather than surrender it to the Exchequer. As I have made clear, this policy will make an important contribution to the Government’s manifesto commitment to reduce the deficit. I have already given a commitment that local authorities will be able to retain a reasonable amount of the costs of operating the scheme, subject to the conclusion of work with local authorities to determine what an appropriate figure might be.
I have just spotted that the noble Lord, Lord McKenzie, asked about whether the specified description referred to tenants or households. It refers to tenants.
I hope that, with those words, noble Lords will feel able not to press their amendments. I commend the government amendment to the House.