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Social housing rent changes to raise £5bn for exchequer

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The government will cut social housing rents and review lifetime tenancies as part of a raft of major reforms outlined in today’s Budget.

Chancellor George Osborne told MPs that social housing rents would fall by 1% a year for four years from 2016.

The Budget document estimated this would raise £4.3bn from 2015-16 to 2020-21 in reduced housing benefit payments. However, there was some uncertainty over the figure because rents are affected by inflation.

The policy is a reversal of the previous government’s pledge to allow rents to rise by 1% above the consumer price index measure of inflation from this year and is likely to have a significant effect on the business plans of councils and housing associations.

However the Office for Budgetary Responsibility estimated that the rent cut would reduce the number of affordable homes build by 14,000 from 2016-17 to 2020-21. This includes a predicted fall of 4,000 new affordable homes built by housing associations in 2019-20. It said about 37,000 affordable homes were built by housing associations in 2013-14, so a 4,000 home fall on that number would be a reduction of 11 per cent.

The Budget document also said there would be a review of the use of lifetime tenancies in social housing “to limit their use and ensure that households are offered tenancies that match their needs, and ensure the best use is made of the social housing stock”.

The chancellor also confirmed previously trailed plans that social housing tenants earning over £30,000, or £40,000 in London, would have to pay a market or near market rent for their home from 2017.

The Budget document said under “pay to stay” local authorities would repay the additional money they got from the tenants to the Exchequer and that it would be used for “deficit reduction”. However, housing associations could reinvest the additional rent from their tenants in new housing. The idea will be explained further in a forthcoming consultation.

The Budget document claimed the move could “raise up to hundreds of millions of pounds in additional rental income for housing associations”. The Budget document estimated that “pay to stay” would raise over £1bn between 2017-18 and 2020-21. But it said there was “high” uncertainty around this figure as, for example, some tenants might exercise their right to buy or move out of social housing.

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