I beg to move,
That this House has considered the financial effects of building safety remediation on leaseholders.
It is a pleasure to serve under your chairmanship, Mr Stringer. I am grateful to have the opportunity to directly address the Minister on some of the ongoing financial impacts of building safety remediation—what has come to be known as the cladding scandal—on behalf of leaseholders in Birmingham, Ladywood, and all over the country.
Last week, we saw the five-year anniversary of the Grenfell disaster. It was a truly horrific tragedy that claimed the lives of 72 people. No one who saw that building aflame or the images on the news will ever forget them. It has left a mark on not just those affected but the whole country. The inquiry into that disaster is ongoing. I have a real concern that it may prove to be one of those cases, which we have seen too many of in this country, of justice delayed being justice denied, and that, while the inquiry may result in new procedures, those responsible for the events that led to that disaster may not be held directly to account. We live in hope and I send my solidarity—I am sure everyone present will agree—to the loved ones of those who perished at Grenfell.
The impact of Grenfell has extended much further than most of us could have imagined. That tragedy has exposed a shocking litany of regulatory failures and, in my view, outright negligence, which has led, as I say, to what we now call the cladding scandal. We have gotten a little too used to calling it a scandal when we consider the huge impact it has had on my constituents and people all over our country. It has exposed huge issues in building safety. My experience has been that just as I get my head around one part of the problem, many more present themselves—I am sure that that has been the experience of the Minister and his predecessors.
The cladding scandal has cost many of my constituents their peace of mind. It has cost them financially and wiped out life savings. It has left people languishing in the stress of knowing that the building where they live, raise their family and go to sleep every night is unsafe and poses a real fire risk. It has brought many to the brink of a complete mental and physical breakdown. I have sought to support my constituents and have dealt with many of the issues they have raised with me over the many years since this scandal was revealed. We have been campaigning together ever since, along with other leaseholder action groups that have sprung up all over the country. I am particularly grateful to the UK Cladding Action Group and the Birmingham Leaseholder Action Group, as well as other groups across the country, which have relentlessly supported leaseholders. Of course, many of them are leaseholders themselves trying to press the Government to act.
The Government have passed new legislation, and I state at the outset that I recognise how much the Government have moved from their original position, and I welcome many of the changes. However, and it will not surprise the Minister to hear me say this, I do not consider the new cap, which means that some leaseholders will pay some money towards the cost of remediation, to be fair, because they have done nothing wrong. This is not, and should not be, on them—not any part of it, not even at a capped amount. They should be spared any financial contribution. I regret that there is no direct assistance in the Building Safety Act 2022 for leaseholders who have already paid towards remediation work. There is the possibility of redress through civil action but the Act does not offer any direct assistance.
Nevertheless, the main provisions of the Building Safety Act, which received Royal Assent on 28 April, come into effect next week and the landscape in respect of leaseholders will change. However, as the Minister has already heard from me and other hon. Members, getting to this point has taken far too long. The Government have resisted acting in respect of many of the issues that MPs have been raising from the outset, only to concede that space some years later.
I remember my first pieces of casework relating to the cladding scandal, when Government Ministers and officials were still distinguishing between aluminium composite material cladding and non-ACM cladding. All of us involved in trying to seek redress, including Members of Parliament from across the House and leaseholders all over the country, pointed out the unavoidable truth that non-ACM cladding was just as dangerous as ACM cladding and would have to be removed from all the buildings where it was present. Originally, the Government held their ground and maintained the distinction, but then gave ground and bowed to the inevitable acceptance that non-ACM cladding would have to be removed.
In fact, most of the topics on which the Government have had to give ground represent issues that have been campaigned on from the start by all the groups I have mentioned, and by the Levelling Up, Housing and Communities Committee as well. We have come a long way, but these five years have taken a very heavy toll.
I congratulate the hon. Lady on securing this important debate. I speak on behalf of many of my constituents in Woking, Surrey. As well as the direct costs of remediation, many leaseholders have difficulties getting insurance or face huge premiums of three, four or five times more than they would have been historically. That also brings the possibility that people cannot sell their flat if they wish to move. Is the hon. Lady looking to the Minister and to the Government for further reassurances on those financial impacts as well?
The hon. Gentleman is absolutely right. I will be coming on to the issues in relation to insurance later in my remarks. May I take this opportunity to say how refreshing and positive it has been to be able to work with Members from across the House? That has been the House at its best and I am sure that is the reason why we have been able to make so much progress in the Building Safety Act. I hope we will continue to work together on the ongoing financial impacts, and I hope to persuade the Minister to give further necessary ground. I will come to the matters of insurance very shortly.
Many hundreds of people in my constituency have been affected and have been living with the consequences of the cladding scandal for five long years. With work having started on some of these buildings, if people are very lucky they may finally be able to live in safe buildings in about five years’ time. At best, we are looking at an entire decade of normal life being wiped out for people caught up in this scandal. Even that timescale, with people losing a decade of their life, will be out of reach for many thousands of people in our country.
I want to bring some of the ongoing issues to life for Members and the Minister by using an example in my constituency: the development at Islington Gates. There are 141 flats in the development, which is now described as an orphan block. The original developer, Midlands and City Developments, went into liquidation in 2007, and Miller Construction, which built the block, was bought out by Galliford Try in 2014. The remediation works at Islington Gates come in at a total of £9 million. Some 80% of that—£7.2 million—relates to the removal of the non-ACM cladding that covers the building. The remaining 20%—£1.8 million—relates to additional defects that were discovered and revealed as a result of the scandal, including deficiencies in fire compartmentation and other measures. As per the new rules in the Building Safety Act, the £1.8 million will need to come from the developer and, through the cascade effect that the legislation envisages, could be passed on to the owner and potentially to leaseholders, up to the value of the new cap.
Let us consider the issues relating to the ongoing work for cladding remediation. The bid that Islington Gates submitted to the building safety fund for cover was accepted, but the payments came in later than anticipated, creating huge cash-flow problems that have further exacerbated the crisis for many of my constituents.
I congratulate the hon. Lady on securing the debate. Many developers set up ground rent payment arrangements that will be very profitable in the long term, in view of the escalation of ground rent, and they set up service companies that sit underneath the main development company. Given the huge profits that developers make from those arrangements, does she agree that we need to do more to hold the developers to account, and that although the lifting of the current cap was welcomed, it should be lifted further?
I completely agree with the hon. Gentleman. I see no reason to maintain a cap. If we have conceded the principle that leaseholders are not to blame, that developers have made a lot of money out of these developments and that there is money available for the Government to go after on behalf of taxpayers all over the country, they should do so, and they should protect leaseholders from any additional costs.
I am concerned that the building safety fund still adopts a “computer says no” approach in cases such as those of Islington Gates, where eligibility for the fund has been accepted, the works are under way and the initial payment has been made. Administrative errors can lead to delays in further payments for the works, and that causes a huge amount of unnecessary stress. People are putting up with living in buildings that are completely covered and have no natural light. They are putting up with living inside a building site, so they have all the noise and dust of that, and the general loss of normal life and the amenities that we all have a right to expect. This work is unavoidable and necessary, but it is in everybody’s interest that it takes place as quickly as possible, so leaseholders have a chance of living a normal life soon.
Every time the BSF causes an additional delay—that is completely unacceptable— if it has accepted eligibility, works are under way and the initial payment has been made, there should be an expectation that money will be got out the door as quickly as possible for all additional payments. If administrative issues need resolution, they can be dealt with after the cheque has been paid. We have already established eligibility, and it is not as though my leaseholders are going to run off with that money. There is no risk to the taxpayer. Will the Minister say something about the BSF’s approach, and will he make sure it does not add to the stresses and strains that my constituents face?
In respect of non-cladding defects—£1.8 million is required to make Islington Gates safe—the Government have made it clear in statements about the legislation and in press releases on their website that they expect developers to take responsibility for any building developed by any company within their corporate group, including cases where they acquire the original developer of the building. That would mean that the £1.8 million liability for Islington Gates falls on Galliford Try, which bought Miller Construction, the original builders.
Unfortunately, Galliford Try insists that it has no obligation to pay, and none of us has been able to do anything to persuade it otherwise. My constituents have been campaigning, and I have written to Galliford Try. We have done everything that we can think of to try to persuade it that it must meet its liabilities, do the right thing and put up the money to remediate the non-cladding defects revealed at Islington Gates. I understand that in a meeting with some of my constituents, civil servants from the Minister’s Department confirmed that Galliford Try is the correct entity to pursue for the cost of those remediation works.
I want to press the Minister on just what we are supposed to do now that Galliford Try refuses to pay. It denies any and all liability for the £1.8 million. Will the Minister explain the role he envisages for the Department’s recovery unit, and whether the Department would front up that money and then go after Galliford Try itself? How does he see the new legislative landscape for remediation contribution orders working in respect of leaseholders such as those at Islington Gates? My view—I think it is shared by many Members across the House—is that innocent leaseholders should not have to stump up any more money and then wait for redress at some unknown point in the future. That money should be made available now from the correct company, which should hold the liability to begin with.
I turn to insurance costs, which the hon. Member for Woking (Mr Lord) mentioned. Much attention has been paid to the cost of remediation, waking watches, alarm systems, sprinklers and other measures, but it was clear to me from the start from my constituency casework that the cost of insurance was a major problem. In my constituency, premiums jumped in buildings affected by the cladding scandal. At the Jupiter 1 development, residents saw a 1025% increase in their insurance premium, from £40,000 to £450,000. King Edwards Wharf saw their premium jump from £50,000 to £450,000. Islington Gates used to pay £36,000 and saw that jump to £320,000.
Brindley House was in the terrible position of being the first building in the whole country without insurance when it was impossible to get cover for it for a period of time. The Minister will know that placed all leaseholders, and everybody else who was connected to the building, in default of their mortgage or rental agreements. That was a terrible stress. When insurance cover was eventually obtained, it jumped from £46,000 to £322,000.
Those are shocking increases in insurance premiums. It is clear to me that the calculation of the premiums did not take into account the risk in those buildings and, in particular, the measures that leaseholders have taken to reduce risk in their buildings. In each building, hundreds of thousands of pounds has been spent on state-of-the-art alarm systems and other measures, such as waking watches, to bring down the risk of a catastrophic fire. None of that was reflected in the insurance premium. The more residents have paid for risk mitigation, the more their insurance premium has gone up. It would have made no difference whether they had done those works or not. I think that that is a total con.
I first wrote to the Financial Conduct Authority and the Government at the beginning of 2020, and it has taken two years for a little bit of investigation to be done. I welcome the fact that the Secretary of State wrote to the FCA to ask it to look into the matter, but if that had been done in 2020, we would be much further into the investigation into the behaviour of the insurance sector. I dare say that if the insurance sector had known that there would be Government-level scrutiny of the premiums, two years-worth of unjustifiable insurance hikes might not have been visited upon my constituents and people all over the country.
This problem requires much more than a slow-paced inquiry. I would like the Government to take much stronger action much more quickly so that we are not still talking about the cost of insurance premiums some years hence. The reality is that insurance companies have made money twice over out of the cladding scandal, first from the policies they used to indemnify the so-called professionals and the building industry as a whole—let us be honest, they will not be called to pay out on those policies; nobody envisages that insurers will pick up at the tab for this scandal—and, secondly, because they have gone on to charge thousands of people eye-watering sums to insure those buildings. They have given people no credit for the money they have spent making their buildings safer to live in while they wait for the final works to be completed. It is unconscionable. The Government should intervene to seek financial redress for affected constituents. If the additional cost of insurance were included in the cap brought in by the Building Safety Act 2022, many people would be much closer to that £10,000 anyway, and they would be protected from additional costs. I wonder whether the Minister might address that point and see if there is any possibility of including insurance payments within that £10,000.
The Secretary of State’s letter to the Financial Conduct Authority asked for suggestions to achieve widely available and affordable cover for leaseholders. That letter should have included some additional asks, one being that the FCA should consider redress for the insurance hikes that are taking place. It is clear to anybody from the outside who is paying attention to the effect of the cladding scandal, and making a fair assessment about its financial impact, that the insurance companies have gained excessive profits from the building safety crisis. They should be required to contribute to the remediation costs, on the basis that they covered the actions of the developers that failed to comply with building safety and have since received increased premiums as a result thereof. Nothing less will do.
We should look to the insurance companies for further assistance in covering the overall costs of remediation, which will, in the end, fall on the taxpayer in some way, shape or form, especially if more and more developers do not live up to their responsibilities. It is high time the Government added insurance companies to the list of people that they need to go after in order to recover some of the costs of this scandal. I look forward to hearing what the Minister has to say about that.
It is a pleasure to serve under your chairmanship, Mr Stringer. I thank the hon. Member for Birmingham, Ladywood (Shabana Mahmood) for organising this important debate and for noting the fifth anniversary of the Grenfell disaster.
The hon. Lady has been a powerful and effective advocate for leaseholders in her constituency who, like those all over the country, have been caught up in a mess not of their making, and one that they should not be held responsible for. She is right to highlight the very human cost that people have suffered from fear of the places they live in and call home, and from worrying about whether they are safe. I thank her for continuing to hold the Government to account for our role, particularly given that we promised to strengthen our support for leaseholders and restore confidence and proportionality to the market.
I will come on to the case she raised in a moment, but I first want to emphasise that the Government are on the side of leaseholders. We are making good on that sentiment with our sweeping set of reforms to building safety, the mortgage and lending market, and building insurance—reforms that will help to put things right, with far-reaching legal and financial protections for leaseholders who have been affected by this crisis. At the same time, we are forcing building owners to step up and fix the cladding issues that, in many cases, they helped to create.
I would like to say a bit more about each of those reforms and how we are addressing the issues that the hon. Lady has raised. I thank her for writing to the Secretary of State about the issues at Islington Gates. First, I recognise—we as a Government recognise—that the situation is unjust and unfair for leaseholders living in Islington Gates.
I want to be crystal clear on where the Government stand on this kind of situation. We expect—no ifs, no buts—developers to do the right thing and take responsibility for the buildings that they have developed. Most of the industry recognises this expectation and, equally, recognises the need to do the right thing by leaseholders. That is why more than 45 developers have signed a pledge to do exactly that. As I speak today, we are turning those pledges into legally binding contracts. We would expect such contracts to cover any building developed by any company within their corporate group, including complex cases where they acquired the original developer of the building.
As hon. Members would expect, my Department will work closely with pledge signatories to agree the list of buildings covered by their pledge, and we have pushed developers in the sector to take ownership of remediation work. We have always recognised that there will be complex situations, as is the case with Islington Gates, where the water has been muddied by acquisitions, corporate restructures and other changes. I commit to the hon. Lady that we will follow up at the earliest opportunity to see whether the development of the building can be attributed to one of the pledged signatories. I assure her that I will take a very personal interest in helping her with this case.
If it cannot be attributed to one of those companies, this case will inform our thinking on which further companies should be asked to sign this pledge. I assure her that even if the developer of Islington Gates is not in the initial scope, the remediation of the unsafe cladding will be fully grant-funded. The remediation of unsafe cladding on this building is being funded through the building safety fund—£6.8 million has been allocated for this work so that leaseholders are not paying for the works to the cladding. However, I take on board the point she has raised in this debate. We must listen to and learn from the experiences that she has highlighted. I want to ensure that we understand more about the issues that have been discovered here, and ensure that the building safety fund is run efficiently. I will raise those points with my noble Friend Lord Greenhalgh.
I welcome the Minister’s commitment, and I do appreciate it. I look forward to speaking to him in detail about the particular circumstances at Islington Gates. I am sure that my constituents will have heard and appreciated his recognition of the situation as unfair and unjust. Could I press him on how he sees the recovery unit working, in terms of the carrot-and-stick approaches that we might take with developers that still fail to live up to their responsibilities?
The hon. Lady is right; this will probably be one of those early cases within the Act where we need to test this. That is why I am keen to work with her, so that we can ensure that officials in the Department fully understand the specific issues relating to the case, as it may well also apply to other cases, and we can roll that out further.
The hon. Lady will know that we have introduced many protections relating to non-cladding defects under the leaseholder protections within the Act. I assure her and residents of Islington Gates that no qualifying leaseholder in a building taller than 11 meters or five stories will face bills to remediate dangerous cladding, and that the bills for non-cladding remediation will, as she said, be capped at a maximum of £10,000. Those cost protections will come into force on 28 June, and costs already paid out in the last five years, including for interim measures such as waking watch, will count towards that cap. I reiterate that we are protecting leaseholders, in law, from that date. Leaseholders no longer have to worry about being landed with excessive bills that they cannot afford.
We will not stand by and allow developers and contractors who have created these defects to get away with it. Significant new powers in the Building Safety Act will allow those who created building safety defects to be held to account. We are retrospectively extending the limitation period under the Defective Premises Act 1972 to 30 years, giving new powers to courts to remove the protection afforded by shadowy shell companies and special-purpose vehicles, and creating new powers to hold construction product manufacturers to account.
Remediation orders and remediation contribution orders will allow the first-tier tribunal to force firms to fix—and pay to fix—their buildings. We have introduced those powers so that legal action can be pursued against developers, contractors, manufacturers and freeholders. The Department’s own recovery unit has been established to pursue firms who fail to do the right thing, including through the courts. Leaseholders deserve accountability from those who built the buildings and those who have owned and exploited them.
I am conscious of time, but I will quickly touch on the insurance issue, because I know that hon. Members have mentioned it. We are working tirelessly with industry to unlock that market. Where individual buildings have struggled to access cover, we have worked with industry to highlight the issues, and we have seen the British Insurance Brokers’ Association place those risks through its members. I offer my full support if such help would prove to be useful to the hon. Lady’s constituents.
To address the lack of affordable and adequate buildings insurance, we have been working closely with the Association of British Insurers to develop solutions, and my colleague Lord Greenhalgh met the association last month to discuss progress on an insurance pool. The Secretary of State received an initial report from the FCA on 10 May as part of its ongoing review, the findings of which will be critical to developing a full understanding of the issues in the market.
The FCA will consider all routes, whether enacted by the regulator, Government or industry, to ensure leaseholders get the value for money that they deserve. I understand the many concerns that the hon. Member for Birmingham, Ladywood has raised. We must bring proportionality back into the system, and I know that the Secretary of State takes this very seriously.
On the point that the hon. Lady made about including insurance payments in the cap, that is obviously something that I cannot commit to right now, but I will certainly take it back to the Department. However, I do take this very seriously, and we will take the recommendations very seriously. No solution is off the table when it comes to getting back to a competitive and fair insurance market for leaseholders. As I said at the beginning, I am happy to continue to work with the hon. Lady, and with other hon. Members who may have constituents affected by this, as we roll out the benefits of the Act.
Motion lapsed (Standing Order No. 10(6)).