House of Commons Library

Social housing: 'pay to stay' at market rents

Published Tuesday, November 22, 2016

This House of Commons Library briefing paper provides information on the ‘pay to stay’ scheme in England under which social landlords can charge tenants with an income of over £60,000 market or near market rents. The Government included measures in the Housing and Planning Act 2016 to make higher rents compulsory in due course for council tenants earning over £40,000 in London and £31,000 elsewhere. On 21 November 2016 the Government announced that the mandatory pay to stay scheme would not be introduced. Councils and housing associations will retain discretion over whether or not to implement higher rents for tenants with higher incomes.

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The current discretionary scheme

Following a consultation exercise in 2012 the Coalition Government gave social landlords in England the discretion to charge market or near market rents to tenants with an income of £60,000 or more a year. It was argued that high income families should not be paying social rents (typically half the market rent) when they could afford to pay more. The scheme is known as ‘pay to stay.’ It is unclear how many social landlords have implemented this approach.

Respondents to the consultation exercise raised concerns over:

  • administration - social landlords do not gather information or monitor tenants’ incomes;
  • affordability – affected tenants could face substantial rent increases;
  • the potential work disincentive effect; and
  • residualisation of the housing stock as higher earners are incentivised to move out.

Compulsory 'pay to stay' & lower income thresholds

As part of the Sumer Budget 2015 the then Chancellor announced that the discretionary ‘pay to stay’ scheme would be made compulsory (in England) and that new, lower, income thresholds would be introduced. These thresholds were set at £40,000 in London and £31,000 elsewhere. Local authorities would have been expected to repay the additional rental income to the Exchequer ‘contributing to deficit reduction’ while housing associations would have been able to use the additional income to reinvest in new housing. Following the declaration by the Office of National Statistics (ONS) at the end of 2015 that housing associations are public sector bodies, the Government announced that pay to stay would be discretionary for these landlords.

Measures to introduce a mandatory pay to stay scheme for local authorities were included in the Housing and Planning Act 2016. Detailed provisions were to be  set out in regulations. A consultation exercise, Pay to stay: fairer rents in social housing, was conducted between 9 October and 20 November 2015, the results of which were published on 8 March 2016: Pay to stay: fairer rents in social housing - consultation response. The Government confirmed that a taper would be applied above the minimum income thresholds and that households in receipt of Housing Benefit would be exempt from paying higher rents. The taper was expected to operate so that affected households would pay an additional 15p in rent per week for every £1 received in taxable income above the thresholds. The Government’s aim was to implement the mandatory pay to stay scheme from April 2017.

Commentators echoed concerns raised during the 2012 consultation exercise.

The withdrawal of the mandatory pay to stay

On 21 November 2016 the Housing Minister, Gavin Barwell, announced that the Government had decided not to proceed with a compulsory approach and that local authorities and housing associations “will continue to have local discretion.”

 

 

Commons Briefing papers SN06804

Author: Wendy Wilson

Topics: Housing, Housing supply, Social rented housing

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