The UK Government has been urged to rethink it’s ‘Pay To Stay’ policy, as research by Savills for the Local Government Association (LGA) reveals that more than 70,000 social housing tenants could face rent hikes averaging £1,000 a year.
Government plans to increase rents for those deemed to be earning high incomes come into force next year (2017), but the LGA warn the controversial policy would cause stress to families and add further costs to councils.
The LGA says any financial return the government hopes to achieve through ‘Pay To Stay’ is likely to be far less than predicted, adding the policy “is likely to be unpopular with tenants and result in high levels of costly appeals and challenges”.
‘Pay To Stay’ will impact on households with annual incomes of £40,000 and over in London and £31,000 in other parts of England. Those affected would be required to pay market or near market rents, with figures from the Institute for Fiscal Studies estimating the policy will impact upon 10% of social housing tenants. Tenants on housing benefit and universal credit will be exempt.
Households with incomes above the threshold will see rent increases tapered, with every £1 they earn above the threshold resulting in 15p increase to their rent. Councils previously had the option of charging near market rents to only those earning £60,000 or more a year.
Opponents of ‘Pay To Stay’ say it essentially amounts to a “tax on aspiration”, because workers nearing the threshold are likely to reduce their hours to offset any pay rises in the hope of escaping the policy.
Other findings include:
- 70,255 households will earn above the £31,000 income threshold outside London and £40,000 inside the capital.
- 9.3% of households living in council housing in the south east will see their rent increase along with 7.7 per cent in the east of England and 5.3 per cent in the north east.
- Average monthly rent uplifts would be £72 for households outside of London and £132 a month inside. Affected households will see their rent increase by an average of £1,065 a year.
- Increased rents are expected to generate just £75 million annually, before making deductions for significant administrative costs. Originally the Government had forecast returns of £365 million in 2017/18.
Cllr Nick Forbes, LGA Senior Vice Chair, said: “Savills projects Pay to Stay will affect thousands of social housing tenants across the country, with the average affected household seeing their rent rise by £1,065 a year.
“For families this will cause anxiety, uncertainty and costs. For councils it will generate bureaucracy and new administrative costs and complexities. And at the end of it, for Government, it will generate nowhere near the financial return it had originally expected.
“Pay to Stay sounds straightforward but it is a policy with initially unseen complexities, and which could generate large numbers of costly legal appeals and challenges from tenants.
“The Government has committed that councils will be able to keep reasonable administrative costs. In many local areas, these costs will outweigh the additional rent collected leaving little or no extra income for the Treasury to keep, and leave the councils out of pocket.
“Pay to Stay risks becoming an expensive distraction from our joint ambition to build more homes
“We urge new government ministers to take this opportunity to allow councils to decide whether or not they will introduce Pay to Stay for their tenants and to keep the additional rent to invest in new and existing homes, as will be the case for housing association tenants.
“At the very least, it should delay implementation to allow for approaches to be tested and piloted, and to provide councils with the support to implement the policy with minimum disruption.”
A government spokesperson told the Guardian: “It’s simply not fair that hard-working people are subsidising the lifestyles of those on higher than average incomes, including tens of thousands of households earning £50,000 or more.
“Pay to stay better reflects tenants’ ability to pay while those who genuinely need support continue to receive it. It means households earning £32,000 would see rents rise by just a couple of pounds a week.”