The government has launched its consultation on the new compulsory Pay to Stay scheme for England. The consultation is open to anyone with an interest in these proposals and will last until 20 November 2015. There is actually only four pages of any real content in the document and I strongly suggest that everyone takes the time to read it, says Chris Deery, head of ICT at Solihull Community Housing.
I work in housing IT and I have very much a systems perspective on this issue. I will leave it to others to debate the moral and ethical issues. But I believe that actually making the scheme work in an effective and efficient way will require an IT solution and it is that viewpoint that I would like to contribute to the debate. To that end, I have been consulting the Capita User group to understand the impact from an IT systems perspective (Capita represents around 110 housing providers using its housing management system).
The following points in relation to the consultation document have been raised:
The user group strongly believes that the proposed start date of April 2017 is unachievable from an IT systems perspective. They believe that the assumption, on page eight of the consultation document, stating, “We expect that local authorities already have systems and processes in place that could be modified to operate the pay to stay policy” is incorrect. Local authorities, ALMOs and housing providers will need to make major changes to their existing systems. These changes are likely to be complex, will need considerable testing, and staff working in RSLs will require training on how to use the new Pay to Stay functionality. In the first year of the scheme, it is likely that the cost of making these changes will be greater than any additional revenue collected.
Capita and its customers will need at least 18 months from the point when the government publishes the details of the new scheme and the format of any interfaces to HMRC systems before they will be able to implement the necessary systems changes. This means that even if the government was able to issue detailed specifications for how the scheme will work and agree the necessary changes to HMRC systems by January 2016, we would still not be able to implement the Pay to Stay scheme until June 2017 at the very earliest. In reality, because the detail of the new Housing and Planning Bill could change during its passage through parliament, it is likely that the details of how the scheme will work won’t be known until next summer.
The government has two specific areas that it seems to be looking for information about. The first is how the scheme can support incentives to work and the second is what the expected level of additional administrative costs will be for RSLs in calculating and collecting the additional income. This second question will be very difficult for landlords to answer because most have no idea what percentage of their tenants are actually earning over the £30,000 (£40,000 in London) threshold. But the government estimates that approximately 9 per cent of all social housing tenants in England will be paying a higher rent as a result of this change. But I think that the actual number of tenants affected could be higher than this; it is possible that any tenant who does not receive any element of housing benefits could be affected by this measure.
Maintaining the incentive to work
First, I would like to make a proposal in relation to the first question concerning maintaining the incentive to work. This proposal assumes that HMRC will not provide details of the actual earnings of individual tenants; instead for each tenancy, HMRC should provide a Pay to Stay ‘multiplier’. This would be a number by which the normal social rent is multiplied in order to calculate the Pay to Stay rent. The actual values of the multipliers would be decided by HMRC and could easily be changed at any point without having to make changes to the various housing management systems.
Let’s take a very simple example of a fictional property outside London where the market rent is £1,000/month, the affordable rent is £800/month and the social rent is £600/month. If the annual household income was £30,000 or less, then the multiplier value would be 1.000. Therefore, if we multiply the social rent of £600 by the multiplier of 1.000, we get a Pay to Stay rent of £600. In other words, the household would not be expected to pay any increase in its rent.
However, if the household income was £50,000/year in the example in the table below then the multiplier would be 1.360. This would give us a Pay to Stay rent of £600 X 1.360 = £816. Therefore, a household with a combined income of £50,000 would be paying close to the Affordable Rent figure.
| Social rent | Pay to Stay multiplier | Pay to Stay rent | Household income | Annual increase |
|---|---|---|---|---|
| £600 | 1.000 | £600 | £30,000 | 0 |
| £600 | 1.090 | £654 | £35,000 | £648 |
| £600 | 1.180 | £708 | £40,000 | £1,296 |
| £600 | 1.270 | £762 | £45,000 | £1,944 |
| £600 | 1.360 | £816 | £50,000 | £2,592 |
| £600 | 1.450 | £870 | £55,000 | £3,240 |
| £600 | 1.540 | £924 | £60,000 | £3,888 |
| £600 | 1.630 | £978 | £65,000 | £4,536 |
| £600 | 1.720 | £1,032 | £70,000 | £5,184 |
Note: the first row represents household incomes of £30,000 or less, the second row represents £30,001 to £35,000, the third row represents incomes between £35,001 and £40,000, etc.
The above is only a simple example. In some of the more economically-deprived areas of the country, the cost of private sector rents is actually a lot closer to social rents than it is in London. The government has a view that social rents are typically set at about 60 per cent of the market rent. But this is not always true; for example, at the time of writing, a one-bedroom council flat in the B37 postcode area is being advertised for £85.70/week or about £343/month (allowing for rent free weeks) by Solihull Council.
In the same postcode area, another one-bedroom flat is being advertised at £400/month on the Rightmove property website. This is a difference of only £60/month. This means that the social rent in this postcode area is already about 85 per cent of the full market rent. If the difference between social rent and market rent is small then it becomes very important that the systems used are highly efficient and administrative costs are kept to a minimum.
HMRC would need to keep a table similar to the one above for every postcode area in England. The exact values of the multiplier would be decided by HMRC, but it should be easily possible to set these values so that a household is always better off working and to ensure that social housing doesn’t actually end up costing more than private rented accommodation.
The two main advantages of this proposed approach are:
- Landlords do not have to be given access to confidential data about tenants’ earnings.
- HMRC can easily increase or decrease the value of the multipliers to achieve their strategic objectives. So, for example, the multipliers above assume a constant rate of increase throughout the household incomes. But if HMRC felt that the amount of increase should be greater for the higher salaries, then it could easily achieve this by altering the values.
Administrative costs
I would now like to return to the second question about administrative costs. It seems to me that the administrative costs break down into two elements:
The first element is the cost of gathering income data about tenants and calculating and charging the extra Pay to Stay element of the rent. As mentioned earlier, one of the starting assumptions listed in the government’s consultation document is, “We expect that local authorities already have systems and processes in place that could be modified to operate the pay to stay policy. The additional administrative resource that is likely to be required is staff time in operating the scheme”. I believe that this assumption is probably wrong. Section 79(4) of the new Housing and Planning Bill says, “The regulations may provide for interest to be charged in the event of late payment”. This means that housing management systems would need to be able to calculate the interest due on some elements of rent but not others. In addition, housing management systems would need to be able to hold different rent values against a property in the same financial year. I am not aware of any of the major housing systems that are currently able to do this.
The majority of the cost, at least in the first year, will be around making fairly major changes to the way housing management systems work. Some, but not all, software suppliers may do this work for free if it is a legal requirement. But even if they could provide a free upgrade to their housing management systems before April 2017, the landlord will still incur considerable cost in testing and implementing the new system. April 2017 may seem like plenty of time to amend existing systems but it really isn’t. January 2018 seems like a much more practical target date.
Section 76 of the new Housing and Planning Bill says:
(1) Rent regulations may give a registered provider of social housing the power to require a tenant to provide information or evidence for the purpose of determining whether the registered provider is obliged by the regulations to charge a specific level of rent and what that level is.
(2) Rent regulations may require a registered provider of social housing to charge rent at the market rate to a tenant who has failed to comply with a requirement.
(3) Regulations made in reliance on subsection (1) may, in particular, make provision about: (a) the kind of information or evidence that may be required; (b) the time within which and the manner and form in which the information or evidence is to be provided.
But for me, the idea that landlords should try to gather information about household earning directly from their tenants is completely impractical for a number of reasons. I am also worried by the idea that if the tenant fails to provide earnings information, we should just assume that they have higher earnings and charge them the full market rent.
Section 77 of the same act is a little bit more positive from my perspective. It says:
“HMRC may disclose information for the purpose of enabling a registered provider of social housing to determine whether it is obliged by rent regulations to charge a tenant a specific level of rent and what that level is.”
So that means we probably could get some sort of interface with HMRC’s systems. The consultation document states, “We do not expect, for example, that rents will be adjusted frequently” and “Income means taxable income in the tax year ending in the financial year prior to the year in question”. This suggests that rents will be set for the entire financial year. But many tenants have incomes that fluctuate and it seems to me that a monthly interface file from HMRC is a practical solution and in line with the way universal credit works. The consultation document accepts, “However, there will be choices over how social landlords respond to changed tenant circumstances, for example, where a household is subject to a sudden and ongoing loss of income”. You might think this relates only to someone losing their job or having their hours cut. But we are talking about household income, and the make-up of a household can change quite frequently, such as grown-up children moving out and then back in again at a later date, or relationships breaking up and new ones formed with new partners with or without children. Keeping track of who lives in a property is complex and most landlords simply don’t bother trying. If landlords are expected to keep track of who is living in their properties then the cost of doing this could be considerable.
The second element of the cost is the cost of actually collecting the extra rent. The administrative costs of collecting the additional Pay to Stay element of the rent will differ from one tenancy to the next. For example, if a tenant pays promptly via direct debit then the cost would be very low. However, if they pay late by cash or cheque then the costs are likely to be much higher. I believe that if the administrative costs are to be kept to a reasonable level and any money returned to the Exchequer, there will need to be an agreed point when the local authority writes off the Pay to Stay debt and the responsibility for collecting it transfers to HMRC.
The consultation document states that the scheme will probably work in the same way as the existing voluntary scheme works. That is to say, a “household means the tenant or joint tenants named on the tenancy agreement, and any tenant’s spouse, civil partner or partner where they reside in the rental accommodation. Where several people live in the property, the highest two incomes should be taken into account for household income”. This means that one of the people responsible for paying the Pay to Stay element of the rent might not actually be named on the tenancy agreement. The final responsibility for collecting revenue for the Exchequer should therefore always rest with HMRC.
The consultation document says, “A full impact assessment will be published at a later date. It will be important for that work to be informed by the questions in this consultation on the administrative costs of the policy”. The second reading of the Housing and Planning Bill in the House of Commons is scheduled for the 2 November 2015, more than two weeks before the end of the consultation period.
I feel strongly that everyone who has any ideas about how this scheme can be made to work efficiently should respond to this consultation. There are a lot of creative and committed people working in social housing and the quality of the government’s impact assessment document will depend to a great extent on the quality of the housing sector’s responses to this consultation. So, please take the time to read the consultation document and make constructive suggestions for how we can work with the government to make the scheme work.
Chris Deery is head of ICT at Solihull Community Housing.
