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Social Security (Housing Costs Special Arrangements) (Amendment) Regulations 2009

My Lords, I start by thanking the noble Lord, Lord Freud, for bringing forward the Motion, which has given us a chance to discuss the issues. I have listened with great interest to the points that have been made. I am bound to say that I found the contributions a little unbalanced. In particular, it was difficult to understand the criticism about process. There was no great recognition of the substance of the regulations. Perhaps I can start by explaining why the Government introduced the regulations. The changes to the support for the mortgage interest scheme were announced on 2 September 2008 as part of a major cross-government package of new measures to meet the challenges in the housing market at that time. Doing nothing would have increased the risk of homeowners losing their homes. Although we initially intended the regulations to come into force in April 2009, we decided to bring forward their introduction to January 2009 in the light of the increasing and fast-moving effects of the economic downturn. We thought it important that working-age benefit customers with mortgages got that additional help as quickly as possible. The changes were therefore in place from 5 January 2009. The changes doubled the capital limit for loans up to which support for mortgage interest is payable from £100,000 to £200,000 for new working-age customers. They reduced the waiting period for mortgage help for new working-age customers from 26 or 39 weeks to 13 weeks from 5 January 2009, and they also introduced a two-year time limit on the payment of support for mortgage interest for some income-based JSA claims—I will come back to that point in a moment. In addition to those changes, the Chancellor announced in the Pre-Budget Report in November 2008 that the standard interest rate would be maintained at 6.08 per cent for six months. The standard interest rate is used to calculate the amount of help available by applying it to the eligible capital outstanding on a customer's mortgage. The rate applies to all support for mortgage interest customers, both existing and new, including those claiming pension credit. In the Budget of April 2009, the Chancellor announced a further extension to the 6.08 per cent rate for a further six months. In last December’s Pre-Budget Report, he announced another extension of that rate until the end of June this year. He also said that we intend to move towards a fairer, more affordable approach that more closely reflects the mortgage interest rates being charged to customers. That will help to ensure that support for mortgage interest is appropriately targeted as housing market conditions improve. Of course, we always keep arrangements under review to ensure that they work well. For example, some customers have always had interest rates below the standard interest rate, but we have recently started to receive increased volumes of inquiries about access payments of support for mortgage interest. As a result of the standard interest rate, people receive more support for mortgage interest than is needed to cover their actual interest payments. I am pleased to use this opportunity to tell the House that we will lay regulations tomorrow to ensure that support for mortgage interest payments made to lenders can be applied only to customers’ mortgage accounts. Establishing that central principle in legislation reflects our overarching policy that support for mortgage interest is intended to help to prevent repossessions, and that any excess SMI should be used to reduce the mortgage liabilities for individuals, and thus future cost to taxpayers. Fundamentally, by introducing these measures we wanted to provide help for homeowners at a time of great pressure for many of them. We believe that it was right as a matter of urgency to protect those most at risk of losing their homes. Although I agree that it is always helpful fully to understand the likely impact of any regulations, there are circumstances when that is simply not possible. At the time, given the changing economic situation and the pressure on the financial system, there was concern that a waiting period of 39 weeks was too long. Many customers may have been subject to foreclosure proceedings before they became eligible for support. The capital limit of £100,000 was outdated, given that by 2008 the average house price in the UK was closer to £200,000. Without reform to those elements of SMI, many families may have found that the support that they would have received would have been too little, or too late, to prevent their home being repossessed. We stand by the decision to introduce the regulations swiftly. If we had not introduced them as soon as possible, customers would have had to wait until April 2009 to benefit from the changes. Instead, as a result of our action, customers benefited from the changes from January 2009, at a time when the effects of the economic downturn were being felt by many hard-working families. That was the right action to take. By introducing the whole package of measures, we estimate that we have provided an additional £700 million in support to about 220,000 households at risk of repossession. We believe that that support, as part of a wider package of measures, has helped to keep the number of repossessions lower than was originally feared. It should also have helped to prevent a considerable number of families falling into arrears with their mortgage accounts, which, in many cases, may have led to long-term financial difficulty or being forced to sell their home. The changes have been broadly welcomed by all key stakeholders. There is widespread acknowledgement that they have been effective in supporting the poorest homeowners in the recession and preventing repossession. The Council of Mortgage Lenders said in its budget submission last week: ""We believe that a combination of lender forbearance, low interest rates, lower than expected unemployment during the recession"—" I will not dwell on today's encouraging figures— ""and a variety of government schemes has helped keep mortgage possessions in check and will continue to do so. Having originally forecast 75,000 possessions in 2009, similar to levels seen at the depth of the last recession, our recently published data showed that there were, in fact, 46,000 cases during the year. We have predicted 53,000 possessions in 2010 but have already said that, while we cannot be complacent about mortgage payment problems, our forecast looks a little pessimistic"." A number of other stakeholders have acknowledged that the changes have had a real impact in supporting homeowners and preventing repossessions. They include Citizens Advice, the Building Societies’ Association, Advice UK, the Money Advice Trust and Shelter. To introduce the regulations as quickly as we did, it was necessary to bypass our statutory consultee, the Social Security Advisory Committee. The department values highly the contribution made to policy development by SSAC. We of course take into account views expressed by commentators on consultations undertaken by the committee. We are committed to consultation processes. We believe that stakeholders and others outside DWP have an important contribution to make to the formulation of policy. However, in this instance, after careful deliberation, the Secretary of State decided not to refer the regulations to the Social Security Advisory Committee, in accordance with the statutory provision, because he believed that it was inexpedient to refer the proposals, due to the urgency of the matter. That decision was not taken lightly. Had we followed the normal process, the introduction of the regulations would have been delayed by many months—which, as I have explained, would have put homeowners at risk. Ideally, we would have consulted publicly on the regulations before they came into effect, but, on balance, we thought that it was important to get help to people as quickly as possible. We subsequently referred the regulations to the Social Security Advisory Committee in January 2009, and it decided to consult on them. We responded to that consultation in December last year. The regulations came into effect on 5 January. They clarify how some of the temporary rules that I have described operate in practice and correct a few anomalies in the earlier regulations. They also implement a Social Security Advisory Committee recommendation regarding what we refer to as excess income over requirement cases. This will ensure that the new rules introduced in January 2009 are extended to customers who first claim a relevant benefit on or after 5 January 2009 but who are not entitled to that benefit until the support for mortgage interest component becomes payable. Jobcentre Plus staff are contacting customers who are affected by this amendment—that is one of the points that the noble Lord raised—so that where appropriate they can receive the more beneficial help. However, as this cannot apply retrospectively, the department is setting up an extra-statutory scheme to address any potential shortfalls, of which it will publish details in due course. The noble Lord, Lord Kirkwood, gave the impression that, simply because there was a bit left in the budget, the department was happy to have lots of extra-statutory payments floating around. That is not the case. There was a situation and there was a policy objective. It was not possible to do this retrospectively so we did it through the extra-statutory route. A very clear policy underpins the approach that was taken. I stress that all these changes were introduced on a temporary basis in response to the economic downturn and will be reviewed when conditions are more favourable. The purpose of this policy is to support people who lose their jobs in the current economic downturn and to prevent repossessions. This package of measures needs to be assessed against that. We have committed to conducting a full evaluation of the reforms to the support for mortgage interest component by the end of 2010. The aim of the evaluation is to assess the impact of the various changes introduced in January 2009—for example, assessing the number of people affected and the associated costs, as well as investigating the impact of particular subsets of the SMI population. I will try to deal with the points that were made, but I hope that noble Lords will forgive me if I do not do so in the order in which they were raised. The noble Lord, Lord Kirkwood, referred to training for officials on process, as did the noble Lord, Lord Freud. We fully accept the point about the need for adequate training. We have introduced more training. The Permanent Secretary has stressed its importance, as I do, because the point is well made. The noble Lord, Lord Freud, referred to the complexity of the benefits system. We have discussed that before and talked about what we have done in seeking to make it less complicated and to simplify it. The reality is that moving towards a more straightforward system takes time and there are costs along the way, but we share the aspiration of a single working age benefit. Both noble Lords referred to the Explanatory Memorandum. The reference to the Command Paper in the Explanatory Memorandum was intended to be removed but was unfortunately overlooked. The department has responded to the Social Security Advisory Committee’s reports by way of Command Papers for many years, but officials were advised at a late stage that it would be appropriate for the department to respond by way of an Act paper. As Act papers are not numbered, the reference should have been deleted. Also, as Act papers are not published on the OPSI website, the link should have been amended to say that the papers are available on the Stationery Office website. I would be happy to write to noble Lords further if that would help on that point. The noble Lord, Lord Freud, asked about the number of people involved in what he described as errors. Here we are dealing with the cases involving excess income over requirements and the adjustment of the arrangements that causes extra-statutory payments to be applied, rather than the specifics of the regulations. The total number of people listed on the clerical records kept by Jobcentre Plus offices is 2,263. The noble Lord asked about some of the detail of training. I do not have that detail to hand. However, the department holds a regular forum for stakeholders, including welfare rights organisations. Where training is required, we discussed how it can best be delivered. He also asked about the cost of error. We do not have the cost because we do not know how many people will subsequently become entitled until we assess the new claims. The noble Lord, Lord Kirkwood, asked about the introduction of a two-year limit for JSA customers. I think that the import of his remarks was that it sets a worrying precedent. I stress again that the package of measures is temporary and has a time-limiting aspect; it is not intended to set a precedent. The entire package will be reviewed once housing market conditions are more favourable. We did not decide to make these changes lightly, or to bring them in quickly, but difficult times called for swift action. The current data show that 96 per cent of claimants leave JSA within 24 months. The first time at which this requirement could impact on a JSA claimant would be January 2011. The noble Lord, Lord Kirkwood, said that there was no baseline for evaluation. The scale of the downturn meant that it would have been inappropriate to wait to fully develop an internal evidence base before introducing reforms, but officials are currently developing an integrated package of monitoring and evaluation to determine the effectiveness of reforms and are due to report by the end of 2010. The noble Lord also asked whether officials guided Ministers strongly enough if Ministers wanted to do something more expeditiously than the system provided for. My experience is that officials are pretty robust in helping Ministers to understand what is practical and what is not. He also referred to the longevity of Ministers in the DWP, which I found slightly disconcerting because I have been in the DWP for more than three years. The trouble is that all the others have been promoted, which is rather worrying. The noble Lord, Lord Freud, asked how many pieces of legislation we have produced that correct errors or make changes that need to be made because of technical deficiencies. I do not have those data to hand but I am not sure whether they are as extensive as he might think. I do not think that the data are collected particularly, but no doubt if someone has time on their hands they can dig back and see what the number is. The noble Lord, Lord Kirkwood, referred to what goes on in the Dog and Duck on a Friday evening. Preventing a claimant from flipping to get the benefit of extended provisions should have been provided for, and the amended regulations now ensure that that is covered. Having said all that, I hope that the noble Lord will not press his Motion. I accept that there are lessons to be learnt from this process, but the fundamental issue is that the Government sought to bring in a package of measures early to help people who were at risk of having their homes repossessed in quite extraordinary financial circumstances. We were right to do so, even if in the circumstances it was not possible to dot all the "i"s and cross the "t"s along the way.