Dealing with the potential cliff edge of income thresholds in a manner that does not create perverse incentives for people to refuse pay increases.

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1 Date: 20th November 2015 Your Ref: William Richardson Enquiries to: Finneguela O'Brien Housing and Adult Social Care London Borough of Town Hall London WC1H 9JE Tel Dear Sir Response to DCLG Pay to Stay Consultation The London Borough of is deeply concerned about the disproportionate negative impact these proposals will have in London and on in particular, due to the very high local market levels. We are committed to targeting the council s limited housing resources to those in the most pressing need and we are concerned that the Government s proposal is to money out of the affordable housing sector altogether through a new stealth tax on council tenants and redirect it for other purposes. The proposed 40,000 income threshold could even affect a two household family earning the living wage and push them into relying on benefits. The availability of affordable housing is vital to the workings of businesses and a vibrant London economy. This policy risks penalising people who want to improve their circumstances and sends the wrong message that social housing should be reserved solely for people with low incomes. It makes no administrative sense for 150+ councils to individually collect this tax and we can only conclude that this is being proposed because of political nervousness about raising taxation on this group through conventional means. In London, and especially in Inner London, these proposals will have a disproportionately greater adverse impact on the individual working households affected, because of the much greater disparity between affordable levels and the extremely high al values in the private sector. We would like to see the detailed assessment that has informed the Government s equalities impact assessment on this policy development. We have grave concerns about the diffeial impact on households based on their diffe composition i.e. a single earner versus a two earner household in very diffe tax and benefits positions. We have previously raised serious concerns about the practicality of the proposed policy and for the following reasons we have not n up the opportunity under the Localism Act to implement such a policy to date: There would be significant costs associated with monitoring social housing tenants incomes and circumstances and varying their levels. Ignoring household outgoings could lead to hardship and challenges e.g. where a household is caring for a disabled child or adult. Dealing with the potential cliff edge of income thresholds in a manner that does not create perverse incentives for people to refuse pay increases. The potential disincentive to work or on more working hours for household members if household income was approaching a threshold.

2 The significant administrative additional costs of identifying market al values for 22,000 properties and keeping these up to date and dealing with challenges from residents. The unaffordability of the very high market s in our borough even for higher earners. The proposed starting threshold of 40,000 is far too low. The Mayor s upper income thresholds for eligibility to intermediate housing are, for example, 71k for 1 and 2 bed properties and 85k for 3 or more bed properties. The potential loss of social housing through tenants affected by Pay to Stay possibly being more inclined to exercise the right to buy rather than pay a market, reducing still further the supply of affordable housing. In the absence of any meaningful consultation on such a significant policy change from the government, we have discussed your proposals and consultation document with over 50 tenant representatives, through our consultative district management committee process and at two separate public meetings attended by over 100 people. There was widespread opposition to the whole Pay to Stay concept and a desire to challenge the legality of the proposals. Amongst many thoughtful and specific concerns e.g. about carers and people on low incomes, issues were also raised about the impact on ordinary working people and many suggested that they would consider reducing their working hours to afford to keep their. The answers to the specific questions posed in the consultation follow. Q1: 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 as income increases. Thresholds and tapers do not incentivise work. The scheme can only incentivise work if it provides s that are affordable to working families in. A threshold that is set too low will act as a perverse incentive to decline opportunities to receive increases in pay, additional working hours or to start work in larger households. The proportion of earnings used for that is affordable is debatable and has been the subject of much academic research but most concludes that 30% to 40% may be affordable. In, the market (GLA 2 bed borough ) is 465pw which is unaffordable for anyone earning 40,000pa gross. The table below shows that a couple with two where the combined income is 40,000 would be spending 69 their income on for a two bed flat. If they have older, of diffe sexes and are living in a three bed flat, a market would up virtually all of their income (96%). For a single earner on 40,000 the situation is even worse, as pay per week is 582, 60 a 1 bed and 112% of a 3 bed. The measures impact disproportionally on single pas as they only benefit from one tax free personal allowance. Clearly a market at an income level of 40,000 is unaffordable; income has to increase to over 60,000 for for a 2 bed to up 50% or less of pay.

3 gross income pa a single earner with 2 2B, 465 couple, both earning pay for 1B, 355 for in pay for couple, 2 earners, 2 pay for 2 bed, 465 in pay for 3 bed, 650 in 40, % % % 96% 50, % % % 81% 60, % % % 69% 70, % % % 61% 80, % % % 56% 90, % % % 52% 100, % % % 47% By way of a further example, two people earning the new National Living Wage in London ( 9.15ph) and each working 45 hour weeks would between them earn 42,822. If they were required to pay significant additional there would be no benefit to increasing income above 40,000. The imposition of the policy would, to the contrary, cause them to reduce their hours, robbing London of crucial labour and thwarting their aspirations. There are limited alternative options for impacted families, especially at the lower income levels. The average value of a sold under s Right to Buy scheme is curly 299,000, ( 340,000 for a 2 bed) which is unlikely to be affordable for a family on less than 70,000, even with the discount. Starter Homes, too, even at the proposed initial price cap of 450,000 in London, would also be completely out of reach for households earning less than 100,000. Through the planning system Starter Homes are also likely to reduce the new intermediate, social and affordable housing available to local people who need this type of housing to live in. The impact of these combined policy changes is that they will make it less likely that tenants who are curly unemployed will up work opportunities in the future. Whilst we do not agree with proposed policy changes, following measures could mitigate some of the most severe impacts: Residents cannot be left in a situation where they cannot afford the new or any other option. Any income threshold should be substantially increased and e.g. set at a level where Starter Homes become affordable alternative options for families. The definition of in London is defined as a maximum of 60 market and less for larger properties. This would broadly align it with the Local Housing Allowance for. The table below illustrates when salary levels begin to become affordable for s at 60 market value.

4 gross income pa couple, 2 earners, 2 2 bed, 465 in 2B at 80% 372 2B at 60% bed, 650 in 3B at 80% 520 3B at 60% , % 55% 41% 96% 77% 58% 50, % 46% 35% 81% 64% 48% 60, % 40% 30% 69% 55% 42% 70, % 35% 26% 61% 49% 37% 80, % 32% 24% 56% 45% 33% 90, % 29% 22% 52% 41% 31% 100, % 27% 20% 47% 38% 28% Any taper runs the risk of disincentivising work and progression, the extent to which this is the case would depend on the steepness of the taper. We are strongly opposed to the implementation of a taper that introduces further means-testing through a scheme that the council will be expected to administer at considerable cost to the public purse. Q2: Based on the cur systems and powers that Local Authorities have, what is your estimate of the administrative costs and what are the factors that drive these costs? Our view is that this system should not be run by more than 150 Local Authorities. The proposed system will rely heavily on HMRC data to determine who is liable to meet additional housing costs, with the intention that the income it generates is returned to the treasury. As such is makes no economic sense for this to then be administered individually by so many councils as a middle man taking data from a government department to collect an income on behalf of another government department and then return the proceeds to them. To do so would be hugely inefficient and as such we recommend that the system is administered through the tax office. Council has 22,000 tenants and even if we were able to use HRMC data unaltered dealing with queries and challenges would be a significant administrative cost. There are a number of other factors that drive costs: How income data will be provided to social landlords. Collecting data is an administratively-burdensome task. The Housing & Planning Bill outlines additional powers for local authorities to collect this data, but clarity is required on how this will work and interact with existing tenancy agreements. The Bill also suggests that HMRC data can only be used for verifying incomes. How cur income data would be. If data is provided by HMRC (subject to relevant information sharing and data protection protocols), it is likely that data would not be cur. The approach to valuing property to identify market al. Whether this policy is applied to existing social tenants, which could require renegotiation of tenancy agreements The number of reviews required to be carried out per financial year. E.g. based on income changes. Number of appeals. We would require further guidance in how appeals are dealt with to establish consistency for tenants.

5 Specific IT systems and the cost of amending their functionality for the purpose of this policy. The Housing & Planning Bill suggests that, where a tenant does not provide income information, they may be charged full market. This raises concerns for tenants with support needs and how they would be supported An initial estimate of costs is detailed below but without any details of the scheme these calculations must be heavily caveated: Initial set up costs 000 IT set up costs (integration with existing systems, development of online self-assessment, website etc.) 150 Advice and visiting services 100 Validation/investigation/Appeals 100 Rental valuation costs 200 Mail outs and leaflets 25 Development of guidance and communications 20 staff training 5 Total (one off) 600 Ongoing costs PtS assessments, revaluations and dealing with significant changes 200 Running costs 50 Total (ongoing) 250 Also estimated Additional costs of arrears recovery, court costs, increase in RTB applications, complaints OVERALL TOTAL c. 250,000 c. 1.1m If you would like to discuss any of the above please do not hesitate to contact me. Yours sincerely, Rosemary Westbrook Director of Housing and Adult Social Care Councillor Pat Callaghan Cabinet Portfolio holder for Housing