The government has just published it’s response to its consultation on ‘Pay to Stay’, the policy which will make Council Housing tenants subject to pay up to the level of a market rent if their household income1 is £30,000 and above, £40,000 in London. The consultation was only on “the design of certain aspects of the policy” rather than on whether or not the policy itself should be introduced.

It asked just three questions:

QUESTION 1A – How income thresholds should operate beyond the minimum threshold set at Budget, for example through the use of a simple taper/multiple thresholds that increase the amount of rent as income increases. (Download a PDF here paytostayresponse or read on below)

QUESTION 1B – Whether the starting threshold should be set in relation to eligibility for Housing Benefit?

QUESTION 2 – 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?

In what is surely one of the briefest responses to a consultation we have learned that:

  • A taper will be applied above the minimum income thresholds. “Further detail on the operation of the taper will be set out in due course but we would design this so that households at the lower end of income above the proposed threshold will see their rent rise by only a few pounds each week. ”

  • The Government agrees that it should not be the case that those who are in receipt of housing benefit should be subject to increased rents, as the rent rises would simply need to be covered by the taxpayer. Households in receipt of housing benefit will therefore be exempt from the policy.”

  • The Government will allow local authorities to retain a reasonable amount of administrative costs. The amount that can be retained will be subject to further discussions with the sector about what a reasonable level would constitute.

The operation of a ‘taper’ means that people earning just above the threshold won’t find themselves facing a massive increase. However, we don’t know how shallow or steep the taper will be. Reports in the media suggested that the full rent would be charged at £50,000. We won’t know until the Minister issues regulations.

The taper will make it more complicated for Councils to keep up to date with changing information as the circumstances of the tenant change; consider somebody doing irregular overtime. In practice it may only be possible to check on an annual basis.

‘High earners’ in receipt of housing benefit

That the government has had to concede that people in receipt of Housing Benefit will not be subject to ‘pay to stay’ shows how absurd was it’s assertion that this was a policy for ‘high earners’. As Shelter pointed out two adults working full-time on the minimum wage would earn £27,000. Moreover, it is said to be a means of ‘supporting work incentives’. Yet anybody in receipt of housing benefit would be stupid to take a promotion or pay rise if it would put them above the level at which they would cease to qualify for housing benefit or be subject to ‘pay to stay’ and face increased rent. Some ‘work incentive’!

What constitutes a ‘reasonable level’ of costs for Councils having to carry out an ongoing assessment of tenants’ income is a thorny question. We shouldn’t expect the government to be too generous. Whilst Housing Associations can keep all the extra money they take in from ‘pay to stay’ the government decided that it was going to take the money Councils took in to go towards paying off the national debt! So it won’t want to relinquish too much of that.

The myth of “subsidised” rents

‘Pay to stay’ itself is based on the false premise that “housing in the social housing sector offered at subsidised rents should go to those people who genuinely need it .” Council rents are in fact not subsidised. They are lower than market rents because they were not built to make a profit as housing is in the private sector. There was an element of subsidy in the distant past but that was at a time when mortgages were subsidised as well. Indeed at times the subsidy for home owners was higher than the subsidy for tenants.

Today, the Housing Revenue Account under which Council housing operates, receives no subsidy whatsoever. Indeed in 2012 when a new Council housing finance system was introduced Councils were burdened with extra ‘debt’ which was not the result of actual borrowing but was a product of ‘creative accountancy’ by the Treasury. Ironically, today the only subsidised rents are those paid for by housing benefit, and the government is proposing to exclude recipients of it from being subject to ‘pay to stay’!

The policy was originally introduced as a voluntary one with a household income of £60,000. Hardly any local authorities introduced it, Tory ones included, because they considered it to be an onerous administrative job, not worth the effort. So the government which talks of ‘localism’ and ‘giving power back’ to the localities, has introduced yet another central government diktat.

One of the consequences of ‘pay to stay’ is likely to be that anybody who faces increased rents is likely to take advantage of ‘right to buy’, if they can secure a mortgage. This will mean that Councils will lose even more income as the rent they take in declines. Since rent (and service charges) are the only income which Councils take in then they will have less resources for the maintenance of their shrinking housing stock.

Martin Wicks

March 11th 2016

1Either an individual or two earners.