§ 5.30 p.m.
§ Baroness Trumpington
My Lords, with the leave of the House, I shall repeat a Statement made by my honourable friend the Minister of State for Social Security in another place. The Statement is as follows:
"With permission, I wish to make a Statement on the arrangements for the payment of mortgage interest through the supplementary benefit system. As the House will know, eighteen months ago, in the Green Paper Reform of Social Security the Government declared their intention to examine arrangements for reducing supplementary benefit help with mortgage interest. This was confirmed last December in the White Paper. We said then we would discuss with building societies and others how we might take this forward.
"In May, following these discussions we referred proposals to the Social Security Advisory Committee for consultation. The main change was designed to limit the amount of benefit payable during the first six months only of a claim to supplementary benefit. We have now considered the report of the advisory committee and other comments and laid draft regulations before the House today that embody the Government's decisions. The committee's report has also been laid together with the Government's response to it.
"The Government have decided to proceed with the principle of limiting supplementary benefit assistance for mortgage interest but to make two significant modifications to our consultative proposals. First, the period in which only half the mortgage interest payable will count in assessing entitlement to supplementary benefit will be reduced from the six months originally proposed to four months. The regulations actually refer to 16 weeks. Thereafter the full amount of mortgage interest due will again become eligible for payment. Secondly, we have accepted entirely the SSAC's recommendation that action should be taken to avoid creating a mortgage interest trap and the draft regulations have been amended to achieve this. This will help some people to qualify for supplementary benefit payments after 16 weeks who might otherwise not have been able to qualify at all.
"The draft regulations also include changes to tighten up the payment of benefit in cases where a home is also used for business purposes, where the mortgage includes a business loan, or where a home is unreasonably expensive. The SSAC have supported all these proposals and we are carrying them through. Our intention is to bring the changes into operation on 26th January 1987.
1189 "There will be an opportunity to debate the regulations shortly but there are several matters I wish to draw to the attention of the House concerning the main change. First, it will only affect new cases. Secondly, the changes will mainly affect short-term claimants. Fifty per cent. of unemployed people leave the register within three months. Thirdly, the draft regulations reflect several important safeguards and improvements. No one over 60 will be affected; those whose claims are longer lasting will get full help after 16 weeks and extra help with interest on any arrears arising from this restriction. There is also a linking rule between claims to protect people who go on and off benefit and a special disregard of income from mortgage protection policies. Fourthly, the reduction in expenditure will be about £23 million compared with £30 million under the original proposals. Finally, we shall be encouraging and helping claimants to make early contact with their lenders to avoid difficulties.
"I should like to stress to the House that the SSAC have acknowledged in their report that the changes should not bring significant financial hardship to the majority of claimants affected. They were of course commenting in the context of the six months' restriction and not the lesser 16 weeks now proposed. Moreover, the Building Societies Associations have indicated that they will respond to changes sympathetically and responsibly. These are welcome and important assurances. I hope therefore that, with the safeguards and concessions I have described, the House will recognise that the Government have struck a fair and reasonable balance between the borrower, the lender and the taxpayer".
My Lords, that concludes the Statement.
§ Baroness Jeger
My Lords, I thank the Minister for repeating the Statement. I am especially glad that the noble Baroness has told the House there will be an opportunity to debate these regulations. I can assure her that I shall be as brief as I possibly can, not only because I am very much opposed to Statements turning themselves into debates but also because we have been promised a full debate. Also, there is another very important subject before your Lordships later this evening.
Perhaps I may ask one or two questions in order to clarify the Statement. I welcome, as do all of us, the reduction from six months to 16 weeks referred to in the Statement. I understand from the Statement that the Government reckon there will be a saving of about £23 million as a result of this change. Will the Minister tell us how much an average family on supplementary benefit will lose in these circumstances? I have been given a figure of approximately £8 per week. That is quite a lot for a family on supplementary benefit to find out of their existing benefit, especially as they will also be trying to pay something off the capital.
I appreciate what the Minister said about approaches to the building societies, but there are many people whose mortgages come from banks, finance houses and second mortgages. Will the 1190 Minister tell us whether there have been any sympathetic conversations with those other organisations?
I should also like to ask whether, in estimating a saving of £23 million as a result of these changes, the Government have taken into account that there may be increased homelessness following the difficulties in getting building society interest paid. It seems to me that that should not be overlooked. The figures I have from the Building Societies Association show that in 1979 they repossessed 2,530 properties as a result of failure to keep up payments. By 1985 that figure had risen to 16,590. Homeless families in bed and breakfast accommodation or other emergency accommodation are accounted for to the extent of 10 per cent. by people whose homes have been repossessed as a result of mortgage failures. I feel it is essential that in a fuller debate we should look at this question. There are causes and effects which must be taken together. It seems to me that we are in danger of increasing repossessions, leading to more expense and misery.
Perhaps I may also ask the Minister whether there will be any consideration for special hardship. Without going into too much detail, I am thinking of deserted wives who suddenly find themselves in trouble because their errant husbands have left and fallen behind with the mortgages.
I will not take up further time of the House today. many of my noble friends and I are very apprehensive lest there may be greater hardship and homelessness and all these attempts to make a property owning democracy extend itself may result in hardship and homelessness for some of our people.
§ Lord Banks
My Lords, I should like to join in thanking the noble Baroness for repeating the Statement made in another place. I am bound to say that we on these Benches are also unhappy about this proposal. We are glad, as was the noble Baroness, Lady Jeger, that the period of reduction is to be reduced from six to four months. We also note that the reduction is to apply only to newcomers. I should like to ask the Minister whether it is correct, as the noble Baroness, Lady Jeger, said, that the new cases will lose an average of £8 per week, as compared with now, and that it will be greater in particular cases? Also, is it correct that as a result most claimants will fall into arrears? We know that evictions have been increasing in recent years. Will they not be further increased by this measure? The Statement says that the saving will be £23 million. In view of the drawbacks, is it worth making this particular saving in a social security budget of £44 billion?
I mentioned during the debate which we have just concluded that the cost of mortgage interest relief is £4,750 million and that if that were reduced to the standard rate, a saving of £320 million could be made. I should like to ask whether that proposal has the support of the building society movement. The Statement says that the building societies will respond sympathetically, but what was their reaction to the proposal?
Finally, who else was consulted? For example, was the National Association of Citizens' Advice Bureaux 1191 consulted? It would seem important to have the benefit of the advice of those people who are themselves giving advice to people faced with these problems.
I have pointed out to the Minister my first reactions but, like the noble Baroness, Lady Jeger, I want to consider the details very carefully when the regulations come before the House.
§ Baroness Trumpington
My Lords, I shall do my best to answer both the noble Baroness, Lady Jeger, and the noble Lord, Lord Banks. They are both perfectly right: there will be an opportunity to discuss these affirmative regulations, and the question of when will be a matter for the usual channels.
As regards the increase in homelessness, the effect of the proposals must not be exaggerated. Only a tiny proportion of mortgages are seriously in arrears. The proposals will increase the average family's mortgage arrears by £170, which is not over-significant when compared with the average 25-year mortgage debt and the £12 billion interest and £12 billion capital repayments made to building societies in 1985. Indeed, SSAC acknowledges that the original, harsher proposals would not have led to significant financial hardship for the majority of claimants.
The Government acknowledge that lending organisations will need to operate proposals sensitively and they are confident that they will do so. Various bodies have been consulted on this issue—for example, the Halifax Building Society. I cannot answer for the particular body to which the noble Lord, Lord Banks, referred, but numerous bodies were consulted and the answer that we received was that they would deal with the matter sympathetically. I remind your Lordships that when the miners went on strike, no mortgage payments were made but the miners were not dispossessed of their homes. The building societies acted extremely responsibly during that time.
As regards the special position of people suffering hardship, I point out that I have a note on wives but not on husbands. I hope that that is not sexist! However, as regards the position of people suffering hardship—for example, lone parents and the sick and disabled—the Government's decision to reduce the restriction period from six to four months and to avoid the mortgage trap will lessen the impact on all claimants. Those such as lone parents, the sick and the disabled, whose claims may be long term, will have their full interest met after four months, plus any element attributable to capitalised arrears. The Government will look carefully at the operation of the changes to see whether more needs to be done and would advise all claimants to contact their lender at an early stage. The arrangements for the department, with the claimant's consent, to notify lenders that benefit is being paid will greatly assist.
The noble Lord, Lord Banks, asked about whether it was worth making the saving of £23 million. My answer is most certainly yes. The Government are seeking to establish a fair and reasonable balance among the lender, the borrower and taxpayer; the proposals are not just about saving money. I have been passed a note and I am happy to say that the citizens' 1192 advice bureaux were among the organisations that were consulted.
I am sure that I have been asked other questions. However, there is just one other point that I should like to bring out and it concerns a question raised by the noble Baroness, Lady Jeger. I have already said that the average family will have £170 added to its outstanding mortgage loan if it remains on benefit for the full 16 weeks. However, many claimants do not stay on benefit that long: 50 per cent. of unemployed people go off the register within three months. I suggest to your Lordships that we return to this matter on another day.
§ Lord Houghton of Sowerby
My Lords, I should like to ask the noble Baroness whether the building societies have been brought into the heart of this matter. Are not the Government being far too lenient with them? Are they to remain aside like a lot of moneylenders, without feeling some responsibility for a situation which arises from the relations between moneylenders and borrowers? Are not the building societies, or some of them, racing too hastily in the market for unsecured loans and other financial services and not paying enough attention to the trail of distress which is being left behind by overlending?
It seems to me that the building societies, which are amply provided with funds to deal with distress, callously rejected the proposal which I put forward during the passage of the Building Societies Bill that either building societies should be given permission, or the Building Societies Commission should be given authority, to request building societies to create distress and hardship funds.
When I was connected with the movement we had such a fund and nobody was allowed to fall into any situation which involved serious peril to the home and property. Will the Government tackle the matter? they are dealing now with a great many societies that want to be in the moneylending market on a very large scale. If the nation is to continue borrowing and borrowing, those who lend should take some responsibility for the consequences.
§ Baroness Trumpington
My Lords, I should prefer not to embark on a debate on the rights and wrongs of the building societies. I merely say to the noble Lord that it is surely wrong for anyone to enter into a mortgage commitment on the understanding or otherwise that help will be available from state benefit if he falls on hard times.