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Pay to stay is the worst kind of policy

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It’s a truism that every policy has unintended consequences. However, if the implementation of pay to stay next year proves to be a disaster, ministers cannot say they were not warned.

Introduced under the Housing and Planning Act in a bid to increase the amount of rent paid by high-earning council tenants, councils will only get to keep a small proportion to cover admin costs, with the rest going to the Treasury.

Yet this week research for the Local Government Association found the policy would raise just a fifth of the £365m ministers have estimated it will generate. The association also warned councils did not have the time or capacity to gather and process details of tenants’ income in time for implementation in April.

Southwark LBC has called for responsibility for identifying eligible tenants to be passed to the HMRC and warned that it offers a disincentive to work: potential unintended consequence number one. Southwark also highlighted the issue of self-employed people. With affected households set to see their rent rise by an average of £1,065 a year there is a clear incentive to under-report your income: potential unintended consequence number two.

On the face of it, the pay to stay policy sounds reasonable enough: you earn more, you pay more. Yet under the government’s definition a high-earning household is one where two people in London are working full time and earning the minimum wage; that’s hardly living the high life at the taxpayers’ expense.

There have been a few cases of high-paid, high-profile individuals living in council houses, including, infamously, the late union boss Bob Crow who remained in his North London home while drawing a salary of £145,000. In 2014 then-communities secretary Sir Eric Pickles claimed there were 5,000 tenants earning more than £100,000 a year. Yet this is such a tiny fraction of the more than 1.6 million council homes in England as to be negligible. Sledgehammers and nuts come to mind.

The truth is at this point no-one really knows how many council properties are home to households that could reasonably be considered wealthy. However, while there is a social case for mixed communities, if there were significant numbers of council households living it up while tens of thousands of families languish on housing waiting lists you can be sure councils would have noticed and be clamouring for something to be done. It’s the very worst kind of policy; one that tackles a problem that doesn’t really exist.

Pay to stay came under sustained attack in the Lords, with peers winning a concession that rents would rise by 15p for every £1 they took home over the high earning thresholds of £30,000 or £40,000 in London. This likely accounts for the difference between what the government estimated it would raise and what the LGA’s Savills research has found.

The government accepted this compromise rather than lose face by abandoning the plan. But with the complications in implementing the policy far outweighing any gain, financially or socially, the government should do the decent thing and abandon it.

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