House of Lords
Monday 24 May 2021
The House met in a hybrid proceeding.
Prayers—read by the Lord Bishop of Blackburn.
Arrangement of Business
My Lords, the Hybrid Sitting of the House will now begin. Some Members are here in the Chamber, others are participating remotely, but all Members will be treated equally. I ask all Members to respect social distancing and to wear face coverings while in the Chamber, when speaking. If the capacity of the Chamber is exceeded, I will immediately adjourn the House. Oral Questions will now commence. Please can those asking supplementary questions keep them to no longer than 30 seconds and confined to two points. I ask that Ministers’ answers are also brief.
We have confirmed £12 billion over the next five years, which will be the largest investment in affordable housing in a decade. This includes our new £11.5 billion affordable homes programme; around half of its delivery will be for social and affordable rent. We expect our new programme to deliver around 32,000 social rent homes, double the number of the current programme.
I thank the Minister for his reply. House prices have been rising steadily because of demand-side subsidies by the Government for owner-occupation, yet the National Housing Federation estimates that almost 4 million people need the security of a home for social rent because they cannot afford to buy. I ask the Minister whether he thinks that the Government have got their priorities right.
My Lords, of course I think that we have got our priorities right. We are focusing on building homes of all types and tenures. That includes affordable and social rent and, importantly, giving people the opportunity to buy and own their own home.
My Lords, will the Minister also recognise that what is aggravating the lengthening waiting lists and undermining any future social housing target is a net loss of existing social housing stock, due to sales on the open market by certain social landlords; demolitions masquerading as regeneration, resulting in a net loss of social housing; and developers wriggling out of their commitment to social housing quotas? What are the Minister and the Government going to do about those factors?
Does the Minister accept that, if house prices rose by 2.1% in April—the highest monthly increase since 2004—making homes more affordable is simply not working? Those 4 million who are waiting for homes deserve a better answer. If this Government are all about levelling up, why are all the subsidies currently pushing up house prices? Would levelling up not be more achievable and better value if a greater subsidy were redirected into social housing?
It is not all about demand-side subsidies. We have pointed out that the Government are committed to increasing the supply of affordable housing and are investing over £12 billion in the affordable housing programme over the next six years, which is the largest investment in affordable housing in a decade.
My Lords, we all agree that more social homes should be built and I welcome my noble friend’s statement, but does he agree that, for every one family housed in a newly built home, roughly eight are housed in the relet of existing stock? In addition to building more new homes, will my noble friend promote home ownership schemes for existing social tenants who want to move out and buy, thus freeing up a home for those in housing need?
I agree with my noble friend that social mobility and social housing are critical, and that social housing can and should be a springboard into home ownership. We will look at promoting many of the schemes that he outlines, including our offer for shared ownership.
I declare my interest as a trustee of the Nationwide Foundation. The Affordable Housing Commission found that 72% of social landlords are concerned that the Government’s planning reforms could lead to fewer social rented homes. Given that social housing is one of the best ways of reducing poverty, will the Minister agree that any proposed planning reform should ensure that social rented accommodation is not only protected but its availability increased?
My Lords, I do not accept that characterisation of our planning reforms. They look to simplify the developer contribution through a new infrastructure levy that I am sure will capture the land value uplift so that that can be put into social and affordable housing.
My Lords, I refer the House to my relevant interests as set out in the register. Can the Minister explain why, when asked about social housing, he often refers to affordable housing? They are not the same thing. We need a greater percentage of government spend on social rented homes to address the chronic shortage of homes for people on low incomes. Many of the affordable homes he talks about are just not affordable for these people.
My Lords, I was very clear in my original reply that this programme will deliver approximately double the number of social rented homes, but there are also ways to provide subsidised housing that gives a discount on the market price, which is the definition of affordable rent.
Following on from the noble Lord, Lord Kennedy, by centrally imposing an assumption that around 50% of the programme will be used for home-ownership schemes, the Government are preventing local authorities and social housing providers delivering what is most needed: social housing for rent, including accessible and adaptable homes. Will the Minister consider the case for expanding the social rent element of the programme to reflect the ability of families to pay their rent, especially those with disabled members, who are much more likely to live in relative income poverty than those without?
My Lords, echoing the words of the noble Lord, Lord Young, does the Minister agree that family housing has been in short supply in major new developments, where the building of smaller units has meant that families are continuously in need of proper housing? Will he therefore ensure that all future developments take this on board? Will the Minister also ensure that units for people with disabilities are made to the highest possible standard? My own experience on visiting these is that often, they are not.
Has the Minister considered the Affordable Housing Commission’s proposal for a fund to enable private landlords who want to exit the market to sell to housing associations or councils, which can carry out the necessary upgrading and re-let the property at affordable social rents, thereby achieving a much-needed increase in social renting and saving public funds spent on unsatisfactory temporary accommodation, while rescuing private landlords who want to sell up?
My Lords, the Affordable Housing Commission’s September report proposed a fund to support social housing landlords to acquire both existing private sector stock and new-build stock from private developers. Through the affordable homes programme, we already allow social housing providers to use grants to acquire from developers market-sale properties that are above their existing planning requirements.
My Lords, the Minister’s initial Answer was a masterpiece in obfuscation—he referred to affordable housing, but the Question quite clearly relates to social housing. The Minister has also referred twice to 32,000 additional social housing units. May I draw his attention to the relative success of the Conservative Governments in the early 1950s, when they built more than 200,000 social housing units? They did so because they gave a leading role—the powers and the finance—to local authorities. What we need is a thoroughgoing council housing programme to get the number of social houses that we require.
My Lords, in the last 10 years we have built more affordable homes than in the previous 10. We have seen around 148,000 homes built specifically for social rent in the last decade, and through this programme we are proposing to build more. The real revolution that has occurred is in the number of council homes: councils have built 29,993—nearly 30,000—affordable homes in the last decade, up from a paltry 2,994 over the previous 13 years. That is a record to be proud of.
Fire Safety: Leaseholder Bankruptcies
It is not possible to make such assessments because it will depend on a professional fire risk assessment of individual buildings and the extent to which costs might be met by or recovered from developers, contractors or building warranties. In addition, we are unable to assess the potentially wide range of individual factors that could lead to people either losing their home or declaring bankruptcy due to additional costs.
I thank the Minister for his reply. The Institute of Residential Property Management estimated the cost of non-cladding fire safety defects as between £26,000 and £38,000 per lease, depending on the height of the building. These are huge costs that will bankrupt residents, even within the Government’s grant and loan scheme. Will the Government consider including these specific defects in the provisions to exclude ordinary upgrade and maintenance costs in their forced loan scheme?
My Lords, I point out that our approach prioritises action on the risks of unsafe cladding, which is what accelerates fire. The costs for remediating this, and the risk posed by it, are high. We are putting in unprecedented sums to cover those costs.
My Lords, when does the Minister think the Prime Minister will take action to honour the promise he made in the House of Commons, when he said:
“We are determined that no leaseholder should have to pay for the unaffordable costs of fixing … defects that they did not cause and are no fault of their own”?—[Official Report, Commons, 3/2/21; col. 945.]
My Lords, the Government have now committed more than £5 billion to the remediation of unsafe cladding. That will ensure that remediating the most risky element of a building will be covered in its entirety for those in high-rises and a substantial part of it for those in buildings of medium height.
My Lords, living in accommodation of whatever height with flammable cladding and other fire hazards is not the residents’ fault; they are the victims. Four years after Grenfell, does the Minister accept that natural justice requires speedy government action to right this appalling wrong and make these homes safe, with the bill being paid by those whose culpable negligence caused the problem in the first place?
My Lords, I accept that leaseholders are victims and recognise the need to strengthen redress so that we can go after the people responsible for the shoddy workmanship. That is something we will bring through as we announce the building safety Bill shortly.
My noble friend is right. We believe that developers should contribute and make buildings safe without passing the costs on to leaseholders. There have been a variety of announcements by developers: Bellway has announced a cladding removal fund of £46.8 million, Persimmon one of £75 million and Taylor Wimpey has pledged £125 million. The Government have also announced a gateway levy on high-rises, as well as a developer tax that will raise £2 billion over 10 years.
My Lords, I refer the House to my relevant interests. Given the answer to the previous question, will the Minister provide any valid reasons at all for the Government expecting innocent leaseholders to pay the huge costs of remediating cladding and non-cladding fire safety defects, while those who created the problem—the developers he just mentioned—get off virtually scot free?
My Lords, we are very clear that we expect building owners to make buildings safe and not to pass on costs to leaseholders where possible. We have provided a substantial sum of money to ensure that the costs of cladding will be affordable for those in medium-rises and that those in high-rises will not have to contribute to the remediation of the most dangerous element of the building.
My Lords, the Government’s promise of a building safety Bill to reduce the possibility of future Grenfell-type disasters is welcome, but does the Minister agree that it is an acknowledgement of past national failure to ensure adequate fire safety standards, and that it should be the responsibility of the Government rather than of individuals to meet the cost of urgently needed safety improvements to existing property?
My Lords, I recognise that this crisis has built up over many decades and that the Government have a duty to step forward and help to a degree, but we must recognise that government funding does not absolve building owners of their responsibility to ensure that their buildings are safe. They should protect leaseholders where they can.
My Lords, the Government have said that they need £15 billion for the remediation of wall cladding. As the Minister rightly said, the Government are putting in £5 billion, but the levy they are seeking to raise from developers will provide only £2 billion over 10 years. It is capped at that sort of figure. When and how will the gap be filled?
My Lords, I have mentioned the provisions made by major developers, which run into many hundreds of millions. The Government have also instituted a proposal for the gateway 2 levy. We need to watch this very carefully, but we have already committed more than £5 billion, which is an unprecedented sum, to make these buildings safe.
My Lords, I will take the Minister back to what he said about the role of developers. Following the United Kingdom’s departure from the European Union and the changes to public procurement rules, what consideration have the Minister and the Government given to banning developers which refuse to mediate their own defective buildings from bidding for public contracts?
My Lords, obviously we take into account whether developers are good partners. There are many national schemes they will want to access for their businesses. We monitor very closely the number of defective buildings and whether the developers step up and contribute. That will be a factor in their future relationships with government at every single level.
Will the Minister acknowledge that, by kicking this scandal down the road, the political crisis surrounding who pays for fire safety defects has not gone away but intensified, while the financial demands on blameless home owners who are unfortunate enough to be leaseholders are escalating way beyond cladding? Will the Minister specifically investigate the spiralling costs of the enforced requirement for waking watch patrols provided by private security firms, whose efficacy is, to say the least, contested? I note that the average cost to individual leaseholders is an extra—unaffordable—£400 a month even before the huge remediation bill drops through the letterbox.
My Lords, I was asked to carry out a waking watch review on behalf of the Secretary of State some months ago. The noble Baroness is right that it is a significant cost for leaseholders. This is why we created the £30 million waking watch relief fund, which will help between 300 and 400 buildings put a fire alarm in place and benefit between 17,400 and 26,520 leaseholders, who will no longer have to pay those high interim costs for waking watches.
During the passage of the Fire Safety Bill, the Minister repeatedly assured your Lordships that measures to protect leaseholders from cladding remediation costs would be coming forward in the building safety Bill and so would be out of place in that Bill, and at his fourth attempt, a majority of the House gave him the benefit of the doubt. Can he now confirm that the draft building safety Bill will be amended by the Government to achieve that comprehensive protection for leaseholders, or will he again leave it to your Lordships’ House to do it for him?
My Lords, I will not pre-empt the publication of the building safety Bill, save to say that we recognise the importance of strengthening redress, otherwise the bill will fall either on the taxpayer or the leaseholder. That redress issue is being addressed in the Bill.
My Lords, I declare my interests as set out in the register. Would the common-sense way out of this problem not be for the Government to buy out those leaseholders facing bankruptcy and, when the premises have been made safe, to let them to the thousands of people wanting rented accommodation?
I thank the noble Lord for that creative idea. We will take it away and ponder it. In reality, we must recognise that the only three ways of helping leaseholders are by providing an additional grant, providing a financing scheme—of which we will provide details—or levelling a tax on the polluters, namely the developers that caused this problem in the first place.
Post Brexit: Small Service Businesses
To ask Her Majesty’s Government what assessment they have made of the impact of the United Kingdom’s departure from the European Union on small service businesses dependent on mobility between the United Kingdom and the European Union; and what support they have offered to such businesses to preserve their incomes and jobs.
My Lords, the Government are committed to supporting SME owners from all parts of the UK. My colleague, Minister Scully, recently formed an SME action group, which meets regularly to discuss key issues. The EU-UK Trade and Cooperation Agreement supports small services businesses, ensuring that many business visitors can stay in the EU for 90 days of any six-month period without requiring a work permit. BEIS is currently expanding GOV.UK guidance on member states’ immigration systems.
My Lords, numerous small UK providers of cross-border services, based in the EU, EFTA and the UK, have found their businesses under existential threat following Brexit, including IT consultants, translators, exhibition organisers, tradespeople, sailing-holiday providers, ski instructors, journalists, artists and, of course, musicians, to name just a few. They find it hard to get clarity on the rules now governing their activities or on where to get help to resolve issues. What guidance can the Minister offer to such service providers to help them find ways of saving their businesses and their livelihoods, and will the Government consider setting up something similar to the EU’s Your Europe Advice and SOLVIT services to support them?
The noble Lord makes a good point. This is a complicated area. We are upgrading existing GOV.UK guidance on the immigration systems of EU and EFTA member states to help businesses adjust to the new requirements. The first tranche of these guides is available now, and from 1 January 2021, for short stays of up to 90 days in any 180-day period, UK nationals will not need a visa when travelling to and within the Schengen area to undertake a limited range of activities.
Now that a free trade agreement with the EU is in place that enables the selling of equipment into Europe, what discussions have been held that would aid the removal of the 90-day restriction that is an impediment to UK experts being able to service the equipment or machinery that has been sold?
I declare an interest as I practised European law in Brussels. Can the Minister explain the situation regarding the freedom to provide services, in particular family law, under the EU-UK Trade and Cooperation Agreement? I understand that this is not covered. What would the situation be if a solicitor or an advocate in this country wanted to represent a member of the family living in the European Union? How would the agreement apply to that? Also, can the Minister and his department urgently address the availability of insurance for small firms and solicitors post Brexit and post Covid?
My Lords, does the Minister understand how grave the mobility problem is for the musical community, many of whom have earned nothing for the last year and are now struggling with piles of forms and visa fee demands? Did I understand him to say that they could work and be paid in that 90-day period? Illness often means that, in both directions, players and singers must be able to move at short notice.
As the noble Lord is aware, having raised this a number of times, we are working closely with the music industry to help musicians adjust to the new trading relationship. Bilateral conversations have established that some touring activities are possible and, under certain conditions, without visas or work permits being required. We have created landing pages on GOV.UK to provide guidance to musicians on these areas.
Further to the question from the noble Lord, the TCA contains no overarching agreement with the EU on short-term work relating to our creative industries and, despite what the Minister says, no bilateral or reciprocal agreements are being signed at the moment. What assessment have the Government made of the impact that this will have on our services trade, which in 2019 was worth over £534 billion?
As I said, we are working closely with the sector and across government to consider how we can help resolve these issues. I understand the noble Lord’s point. This has been very damaging to the creative industries. It is hard to quantify the impact at the moment. Given the pandemic, not many people are travelling anywhere, but we will monitor the situation closely.
My Lords, the noble Lord, Lord Frost, admitted last week to our European Affairs Committee that the Government rejected the EU’s offer of a visa waiver system whereby arts and culture workers, such as musicians, could tour on the continent without a mass of red tape. The Government now seem to be trying to reach bilateral deals with individual EU countries, but this may well be blocked by Brussels. What effective strategy do the Government have to give mobility to a sector worth billions to our economy?
The proposals from the EU were complicated and would not have resolved many of these issues, so the noble Baroness should be wary of believing some of the propaganda she reads. We tried to reach a comprehensive agreement, but our proposals were rejected by the EU. I know that she will find this hard to believe but that is what happened in practice.
My Lords, the nuances of the TCA mean country-by-country understandings for business travel. The CBI, of which I am president, welcomes the recently published guidance from the Government. However, do the Government agree that, as travel restrictions ease, government support should be provided to help businesses, particularly SMEs, navigate these complex new requirements? Do the Government also agree that the UK and the EU should work together to make these processes as efficient as possible?
I agree with the noble Lord, and we are doing exactly that to support SMEs. The Government have announced a £20 million SME Brexit support fund. We have also established a network of 38 growth hubs to support businesses, one in each local enterprise partnership area in England, and will continue to offer whatever support we can to business.
My Lords, already hit by Brexit and Covid, small businesses have suffered a decline in their post-Brexit exports because of increased paperwork and shipment delays. The Federation of Small Businesses found that by the end of March, almost a quarter had suspended sales to Europe. Some companies have given up on trade with the EU or Northern Ireland altogether. Can the Government urgently use the provisions of the trade and co-operation agreement to ease post-Brexit burdens on small businesses?
My Lords, the increased costs and complexity of post-Brexit touring, about which we have heard, are particularly acute for the many micro-businesses in the cultural sector which do not have access to the resources or specialist skills needed to navigate multiple regimes in EU states. Can the Minister say what further discussion there has been about the establishment of a new creative export office to provide expert advice and support since Ministers first mooted the idea in February? Can he say what the remit of this office would be?
The noble Baroness makes some very good points, and I know that she has raised this point about the provision of services before. Regarding the creation of the creative export office, I will speak to my colleagues in DCMS who have responsibility for this and write to her with the details.
My Lords, I told my colleagues that I would try to sweep up any questions the Minister did not answer, but I have so many to choose from that it is difficult. However, in at least two of his answers, he has been very critical of the EU. In answer to the noble Baroness, Lady Ludford, he implied that the EU was not being sincere or constructive in practice and, in his answer to the question from my noble friend Lord Hain, he said that the EU is not a willing partner in discussion. We cannot carry on like this. We have left the EU. That is it: we have left. The consistent inability to do deals, to talk to the EU and to accept that it might be a willing partner and that the problem might be with us is very difficult. Will the Minister try to answer those two questions again please?
As I said to the noble Baroness, Lady Ludford, the UK’s proposals on input from the sector were repeatedly rejected by the EU and the EU’s proposals would not have addressed many of the sector’s concerns. They were non-binding and did not include touring.
My Lords, some members of the local business association in my town of Richmond are reporting that Brexit has driven up running costs by 10% to 15% since January. Can the Minister tell me how they are supposed to stay competitive in the global marketplace and where the much-promised level playing field is?
The level playing field in the context of the TCA refers to horizontal regulations governing business. In areas of competition, labour and environmental and climate law, our regulatory environment will no longer be determined by EU rules. We are free to set our own policies and, with the will of this House and the other place, we can make ourselves as competitive as we possibly can by adjusting those regulations.
Environmental Land Management Schemes
My Lords, I declare my farming interests as set out in the register. Our approach to environmental land management is the cornerstone of our new agricultural policy. Work to deliver the schemes continues at pace. In March 2021, Defra published plans for piloting the sustainable farming initiative, which opened for expressions of interest. All successful agreements will come into force from October 2021. Preparations to pilot the new local nature recovery scheme and to launch early landscape recovery projects continue. They are expected to start from next year.
My Lords, it is a pleasure to welcome the Minister to the Dispatch Box at such an important time for British farming. I declare my interests as a Devon farmer. Does the Minister agree with His Royal Highness the Prince of Wales that farmers face a unique triple threat from decreased basic payments, increased trade and an uncertain transition to sustainable farming under ELMS? Do the Government accept that the uncertainty over the details of that transition is bad for farmers and, more particularly, worse for the environment?
Like the noble Earl, I certainly recognise the need to provide further certainty. That is why in November we published the agricultural transition plan, which set out in detail how we will phase out direct payments and will support the sector to contribute to environmental goals and to be profitable and economically sustainable without subsidy. Since then, we have launched the initial farm resilience fund, opened the Countryside Stewardship scheme to further applications and published a consultation on delinking and the lump-sum exit scheme. More than 2,000 farmers have applied to pilot the sustainable farming incentive. Across the summer, we will provide further information on early rollout of the sustainable farming incentive, the farming in protected landscapes programme and our tree health pilot, and we will announce the successful applicants for the farming resilience fund.
I welcome the Minister to his new role. Will he confirm that the results of the ELMS trials will be available to all and, in particular, that it will be possible to compare like-for-like soil types and typographies? Will he also confirm the possibility of carbon credits being applied more broadly across existing woodland and coppice, as opposed to the present eligibility for new woodland planting only?
I am grateful for the kind comments of welcome. I am living proof that you can boil cabbage twice: it is very nice to be back at the department. We are introducing three schemes that reward the delivery of environmental benefits: the sustainable farming incentive, the local nature recovery scheme and the landscape recovery scheme. The noble Lord is entirely right to talk about the importance of soils. They are fundamental to the first two schemes. As far as carbon credits are concerned, this is a huge opportunity for the farming community, particularly in getting some private sector investment to supplement farm incomes. I hope that we can have a clear system that will operate very soon for farmers to access.
My Lords, I, too, welcome the noble Lord, Lord Benyon. I do not know about his cabbage, but he certainly knows his oats, and he is particularly welcome for that reason. I remind the House of my farming interests. A recurring theme in the feedback from the ELMS trials so far is the need for free advice about eligibility, especially for smaller farms. Will the Government make that a priority and also ensure that the requirements of the scheme are written in plain English rather than in environmental jargon, which has contributed to low take-up in some of the earlier schemes?
My Lords, we recognise that our changes will be challenging for some farmers. I know that Exmoor farmers, in particular, are close to the noble Baroness’s heart. The scheme that we have introduced will provide funding so that farmers can access support provided by organisations with relevant experience which are already known and trusted in the farming community. The scheme will focus on assisting farmers to make the right decisions for themselves, their families and their business through effective discussion and planning. I hope that we can keep that in clear English.
My Lords, I, too, welcome the noble Lord, Lord Benyon, to his first outing at Oral Questions and look forward to working with him. There has been publicity around payments to elderly farmers to encourage them to retire but little about the encouragement being offered to younger people to enter farming. Can the Minister say how many farmers have applied for the grant to retire and how many new entrants have come forward?
My Lords, it is early days on the lump sum payment for farmers to retire. It is proposed that the scheme will come in next year and will involve two years’ basic payment scheme amounts on a reference year budget. It is intended to encourage to farmers to have a dignified exit where it suits them and their business. This will also encourage new entrants who, I hope, will see a future in farming and will be assisted by the Government in trying to enter a business which has been all too difficult for young people to enter in the past. I promise to keep the noble Baroness informed on this because I know it is of great importance to her and the House.
My Lords, I, too, welcome the noble Lord to his position. Does the Minister agree with the assessment that granting tariff- free terms to Australia, and potentially New Zealand, undermining, in particular, small family farms, means that we have to make the same concession to the United States and Brazil? How are the Government ensuring that the design of ELMS considers external factors rather than being purely domestic in focus?
I thank the noble Baroness for her question and her welcome. The Government are committed to trying to assist farming through this transition period. She will be aware of the manifesto commitment that all our trade negotiations will not compromise our high standards of environmental protection, animal welfare and food standards; that is still the position. We need to make sure in ELMS that we are not just looking at the minutiae of a different support scheme and trying to migrate from area payments to a new form of support, but recognising the wider implications to the farming community and the international effects of commodity prices and the like. I am absolutely with her on this; I want to work with ministerial colleagues and others to try to make sure that this works.
I, too, welcome my noble friend to the Front Bench. Can my noble friend the Minister tell me what financial incentives, if any, will be offered to farmers to encourage them to practise minimum-till disciplines for crop-growing—a method that the GWCT has proven is most beneficial in the improvement of soil structure, earthworm populations and moisture retention?
I entirely agree with my noble friend that our soil is a vital resource. I hope he will agree that our sustainable farming incentive scheme provides a range of opportunities for farmers to be paid for protecting and enhancing the quality of their soil, including the management of tillage. Two of the eight standards that will be piloted are focused specifically on soil management: the arable and horticultural soils standard and the improved grassland soils standard, which both include actions to reduce tillage on at-risk soils at the intermediate and advanced levels of ambition.
My Lords, I declare my interests as set out in the register. Please can the Minister—whom I congratulate on his appointment—tell us what steps will be taken to protect good agricultural land from being taken out of food production to accommodate environmental impact measures such as biodiversity, net gain, offsetting and other schemes that might affect food production? What are the Minister’s views on the establishment of a land use register to ensure national food security?
I am grateful to the noble Lord. I think he will be reassured that, in moving from area payments to a more nuanced system of supporting environmental activities, farmers will be encouraged to farm their best land as best they can and look at those corners of fields and other parts of their farm that are less productive and are economic only because of the basic payment scheme. I hope he will see that kind of, if you like, market-led push by the Government as moving in the right direction. As far as a register is concerned, that will have to happen as part of further schemes, which will require local authorities, or local government at some level, to be involved in their rollout.
My Lords, I join in the words of welcome to the Minister. Some 30% of farmland in England is let to tenant farmers. Published survey evidence reveals a lack of confidence and willingness among them to participate in the SFI pilot. Their association spokesperson said that
“tenant farmers are concerned that DEFRA does not fully understand or appreciate the diversity of land management models that exist within British agriculture”
“the pilot may not be able to fully test out the implications of the scheme for the tenanted sector.”
How do the Government plan to ensure that this is not the case?
We have had about 2,000 requests to enter the sustainable farming initiative pilot; we will probably go with around 1,000 of those, starting from October this year. We intend to have a wide geographical base as well as a wide group of different farm sizes; this will certainly include tenant farms, and we are working with the Tenant Farmers Association to achieve that.
Higher Education Cheating Services Prohibition Bill [HL]
A Bill to make it an offence to provide or advertise cheating services for higher education assessments.
The Bill was introduced by Lord Storey, read a first time and ordered to be printed.
Elderly Social Care (Insurance) Bill [HL]
A Bill to establish a publicly owned body to provide insurance for homeowners at cost against selling their homes to pay for elderly social care and for connected purposes.
The Bill was introduced by Lord Lilley, read a first time and ordered to be printed.
Post Office Update
The following Statement was made in the House of Commons on Wednesday 19 May.
“With permission, Madam Deputy Speaker, I would like to update the House on changes to the Post Office Horizon IT inquiry. Over a 20-year period the Post Office Horizon computerised accounting system recorded shortfalls in cash that were allegedly caused by sub-postmasters, leading to dismissals, recovery of losses and, in some instances, criminal prosecutions. I know that Members across the House are aware of the terrible impact that this has had on affected postmasters and their families. The life-altering implications of these accounting errors cannot be overstated.
The Post Office Horizon IT inquiry, led by Sir Wyn Williams, was launched in September 2020 as a major step towards righting the wrongs of the past. The inquiry was established on a non-statutory basis to enable the chair to work quickly to establish a clear account of the implementation and failings of the Horizon computer system over its lifetime.
On 27 April I made an Oral Statement to the House following the decision by the Court of Appeal on 23 April to quash the convictions of 39 postmasters who had been convicted for Horizon-related shortfalls. As I said then, the Government recognise the gravity of the court’s judgment and the scale of the miscarriage of justice that it makes clear.
Sir Wyn and I are both of the view that the context for the inquiry has changed in the light of the judgment by the Court of Appeal and that now is the right moment to convert the inquiry to a statutory footing. Therefore I can now inform the House that, with the agreement of the Prime Minister, I will convert the inquiry to a statutory footing on 1 June 2021. I have also agreed that Sir Wyn will now have more time to undertake his work. The inquiry is now expected to report in autumn 2022 rather than summer 2021.
Together, these changes will give Sir Wyn the powers and the time that he needs to conduct an in-depth analysis of the decision-making processes that led to the Horizon scandal. He will be able to compel organisations to provide documents and witnesses to give evidence, under oath if necessary. It is now for Sir Wyn to consider his next steps, and I expect that he will provide more information on his proposed approach soon. In the short term the inquiry will complete its planned engagements through May, but public hearings that had been expected to take place in June will be delayed.
I have always said that the inquiry should proceed quickly to get the answers that postmasters and their families are seeking. Sir Wyn has gathered a lot of evidence from key parties and engaged with many affected postmasters; I have therefore asked that he provide a progress update to his original timeline of summer 2021, to make public the progress to date and any initial findings. I hope that still more affected postmasters will choose to engage with Sir Wyn as he continues his work on a statutory footing.
The inquiry’s overarching aims—to ensure that the right lessons have been learned and to establish what must change—will remain. However, there will be some changes to the terms of reference in the light of the Court of Appeal judgment. I have today notified the House of the updated terms of reference in a Written Ministerial Statement.
I thank Sir Wyn for his quick progress on the inquiry to date and for taking the time with me in recent weeks to consider the next steps for it. I am pleased to confirm that he has agreed to remain as chair of the inquiry for the next phase.
Finally, I note that converting the inquiry to a statutory footing and proceeding over a longer period will of course have cost implications, but I assure colleagues across the House that they are being fully considered with my colleagues in HM Treasury.
The Horizon saga has wrecked lives and livelihoods. We cannot undo the damage that has been done, but we can establish what went wrong at the Post Office and ensure that nothing like it is ever allowed to happen again. The events surrounding the dispute have long been shrouded in darkness, and this Government are determined to bring them into the light. The landmark Court of Appeal judgment changed the context for the inquiry. Following it, the Government did not hesitate to act to give the inquiry more teeth and equip Sir Wyn with more powers. To affected postmasters and their families, my message is that we are listening and we will get to the bottom of this appalling affair. I commend this Statement to the House.”
My Lords, no one who knows this story can feel other than shame that a government-owned institution, the Post Office, oversaw—nay, facilitated—the biggest miscarriage of justice that we have seen, with nearly 1,000 false prosecutions as well as bankruptcies, prison and unemployment all flowing from the actions of Fujitsu and the Post Office, and indeed from the lack of action from the Post Office’s shareholder, the Government.
The Minister knows we are delighted that the inquiry will now be statutory—though somewhat bemused that it has taken a month for the Government to reach that conclusion—and that a progress report will be made public, but there remain other concerns. First, while we agree with the Statement that
“We cannot undo the damage”,
we can move faster and with generosity on the question of compensation. Perhaps the Minister can explain why the inquiry will not cover compensation, and assure us that speed will be of the essence in beginning to help those so badly affected by this sorry saga. Can he update the House on the appointment of a new Post Office director to handle compensation and ensure that this will not replicate the disgraceful Windrush scheme?
Secondly, there is the major issue of the lack of accountability of those who were deeply implicated in the lies and lack of openness that led to the prosecutions and the delay in dealing with the results. Michael Keegan was Fujitsu’s chief executive when the company was telling the Post Office that Horizon was fine and when its staff were even appearing in court as prosecution witnesses against the sub-postmasters. He does not appear to have suffered any penalty and indeed is now a Crown representative at the Cabinet Office, where he oversees the Government’s relationships with suppliers. Given that Fujitsu continues to work with the Post Office, a £42 million extension to the Horizon contract having been agreed with the Post Office last month, can the Minister assure the House that Mr Keegan would have had no role in any such decision?
We continue to worry about the role that Fujitsu played in covering up concerns about Horizon and in facilitating the blame-shifting to sub-postmasters and their subsequent prosecutions, actions for which the company appears not to have paid a penny in compensation. What discussions are taking place in that regard?
The Post Office, which now wants taxpayers to take on its liabilities over this issue, has still not explained why no one questioned how it was that a vast cohort of upright citizens—people selected and trusted to run sub-post offices and handle public money—all at the same moment became petty thieves, as if a dishonesty virus had suddenly taken hold. Did nobody notice? The management incompetence at the highest level, as senior directors watched unlikely criminals paraded in court, still beggars belief.
I turn to the Government, the Post Office’s only shareholder, which somehow failed to spot what journalists, the noble Lord, Lord Arbuthnot, and finally the court did: that the Post Office was abusing its power over postmasters, failing to question Fujitsu and prosecuting a swathe of unlikely thieves. Will the Minister acknowledge the Government’s failure of oversight and due diligence, with drastic consequences both for individuals and for taxpayers?
We welcome the fact that the inquiry will now be statutory, but my plea to the Minister is: will he ensure that in parallel to the inquiry the Government themselves take a close look at how they oversee not just the Post Office but all expenditure, personnel and IT decisions to ensure that there is sufficient curiosity, challenge, openness and honesty, so that taxpayers’ money and people’s lives are never again put at the risk of a saga like this one?
My Lords, let us remind ourselves of the human scale of this outrage. Starting more than 20 years ago, the Post Office prosecuted nearly 1,000 sub- postmasters and sub-postmistresses based on incorrect information from a recently installed computer system. Some went to prison following convictions for false accounting and theft, many were financially ruined, and some have since died with the shame of this still hanging over them and their families.
As we know, a subset of those people were acquitted and, as we discussed around a month ago, the Government have asked Sir Wyn Williams to inquire into this episode. We are of course pleased that the lid is beginning to be lifted on some of these issues. Speaking on 28 April about suggestions that the inquiry was underpowered, the Minister was very clear:
“Given that all parties so far are committed to co-operating, we remain of the view that a non-statutory inquiry is the right approach.”
“However, if Sir Wyn does not get the co-operation he requires, then all options are on the table and we will not hesitate to act.”—[Official Report, 28/4/21; col. 2324.]
Today we are discussing a new Statement that says the context of the inquiry has changed, hence the move to a statutory basis, but it cites the successful appeal as that context. That is strange as the results of that appeal were available on 28 April. So what has actually changed? What has caused the department to change its mind? For example, has the co-operation of which the Minister spoke evaporated? If so, who is now no longer co-operating?
I do not think the noble Baroness, Lady Hayter, or I are surprised that this change has had to happen. Like her, we welcome it as a small step in the right direction, but I point out that on an already tight schedule this has not helped. On 28 April the Minister said he expected the report in the summer, and in your Lordships’ House the Minister was adamant that this deadline could be met. Now the inquiry report is delayed. What will take the extra time? What has caused that delay? Will the new deadline of the autumn be met?
As the Statement suggested, the terms of reference for Sir Wyn have been amended. As we do not have the benefit of tracked changes, can the Minister please outline for the record and for your Lordships the principal changes in those terms of reference? If we look overall at the terms of reference, the overriding problem is there for all of us to see: six clauses, each set out with very passive language. “Assess”, “understand” and “acknowledge” are all good words, I will admit, but they are not an indicator that this inquiry has any way to identify culprits. They are not the words of a robust bringing to book. Even if he wanted to, Sir Wyn will not be able to go beyond those terms of reference as there is no wriggle room. If this is the only inquiry, I fear it is not going to be a satisfactory one.
For example, section B of the terms of reference uses the words
“to establish a clear account of…the implementation and failings of Horizon”
and the Post Office’s use of that information—the latter are my words, not those of the ToR. Given that this inquiry is essentially a fact-finding mission, what will the Government do with the facts when they get them? Further, it seems to be focused largely on the failure of the Horizon system and not that of Post Office management—and, as we know, this case was compounded by what appears to have been an intentional decision by the Post Office not to disclose material that undermined its case. So where in the terms of reference will this issue be tested and judged?
As in other cases, there are two levels of failure here. The first was an excess of trust in the system and technology; the second was the failure to deal with the consequences of this when the facts became apparent to some people within that organisation. This inquiry is set up to learn lessons from history but not to deal with the legacy of this past. With these terms of reference, I do not see how this inquiry will establish culpability from these facts, and how it will be the means to deliver resolution to the sub-postmasters and sub-postmistresses and their families over whom this case hangs. I do not see it as a route to compensating these people. So, while it is a step forward, I can understand why former sub-postmasters are demanding a judge-led inquiry into this scandal. I have a great deal of sympathy for their demand.
I thank the noble Baroness, Lady Hayter, and the noble Lord, Lord Fox, for their comments. Let me say from the start that I completely share their outrage about this scandal, as I think they both know. It has been going on for many years, under many different Ministers and Governments, and we should all accept our share of the responsibility for the dreadful way these poor people were treated. Nobody who saw them emerging on to the steps of the High Court a few weeks ago could have failed to have been moved by what they had to say.
Turning to the many questions that the noble Lords asked, as I said, this Government deeply regret that this situation has occurred. Since it was launched in September 2020, the Post Office Horizon inquiry has made swift progress. The inquiry’s chairman, Sir Wyn Williams, and his team have heard from many affected postmasters and gathered evidence from key parties, including the Post Office, my department, UKGI and Fujitsu.
The noble Lord, Lord Fox, asked about the changes to the terms of reference. It is clearly critical that the inquiry is able to look at exactly what decisions were made and why, in relation to the Horizon prosecutions, so that lessons can be learned. The terms of reference have changed to clarify that the inquiry can investigate the Post Office’s decision-making in taking action against postmasters, including pursuing prosecutions and a fairly aggressive legal strategy, and in particular of course it can investigate the cases of those whose prosecutions have now been quashed.
The noble Baroness, Lady Hayter, asked about accountability. Let me be clear, for the avoidance of doubt, that the inquiry can make findings of fact and make recommendations. With regards to accountability, as noble Lords will understand, matters of criminal and civil law remain for the courts, as only the courts can make such judgments. However, they and other bodies can draw on the findings of the inquiry when considering these issues. It is therefore now for Sir Wyn to establish what happened, what went wrong and why it went wrong. We can then consider whether more needs to be done in the light of those findings.
The noble Lord, Lord Fox, asked about the timeframe for the inquiry. The deadline for the final report has now been extended to autumn 2022, to take account of the new statutory nature of the inquiry, but we are expecting a progress update later this summer. The changes to the inquiry’s timeline mean that Sir Wyn will have more time to determine exactly what went wrong at the Post Office during this period and to make sure that a situation such as this cannot happen again.
The noble Lord, Lord Fox, and the noble Baroness, Lady Hayter, both raised the issue of compensation. I know that many postmasters, and Peers across this House, have called for further compensation for those who have been caught up in this situation. Those whose convictions have been quashed, with a settlement amounted in the group litigation, are of course outside the scope of the inquiry. But, as I said previously, the Government are keen to see that all sub-postmasters whose convictions are overturned are fairly compensated as quickly as possible. We will ensure that we work with the Post Office to make this happen as quickly as it is possible to organise.
The noble Baroness, Lady Hayter, referred to Fujitsu. She will be aware that two Fujitsu employees are still the subject of a police investigation. However, so far Fujitsu has co-operated fully with the terms of the inquiry. I confirm to the noble Lord, Lord Fox, that all actions of the Post Office, including its fairly aggressive legal strategy, can and will be examined under the terms of the inquiry.
My Lords, last week the Minister, Paul Scully, said:
“We want to ensure justice and fair compensation for all who have been affected”.—[Official Report, Commons, 19/5/21; col. 721.]
He did not limit that to those whose convictions had been overturned. Does my noble friend accept that this must mean reopening the settlement of the group litigation order? Please will he stop using the words “full and final settlement” to describe a settlement which was not just and not fair?
Let me again pay tribute to the work that the noble Lord has done, both in the other place and here, in seeking to draw attention to this scandal. He was well ahead of many people in seeing the true extent of this horrendous scandal but, as I have previously said to the House, the December 2019 settlement was between the Post Office and a group of sub-postmasters. Both those parties were legally represented; the Government were not a party to this litigation, nor to the settlement that was agreed, and we still believe that it would not be appropriate for the inquiry to reopen or review such a settlement, which was agreed in the courts.
Perhaps I may take the question put by the noble Lord, Lord Arbuthnot, a little further and probe the Minister. I would like to ask about the scale, scope and timeframe of compensation; the Minister touched on it a little, but perhaps I could dig a little further. As we all know, Her Majesty’s Government are the sole shareholder in the Post Office, which has ultimate responsibility for where the compensation lies. Can the Minister set out in a bit more detail the scale and scope of the compensation discussed between Her Majesty’s Government and the Post Office? Importantly, can he put a bit more meat on the bones of the timeframe? We all know that this compensation for sub-postmasters and sub-postmistresses is so well deserved.
I agree with the noble Lord and understand his impatience. The Government are keen to ensure that postmasters whose convictions are overturned are fairly compensated. But I am sure he will understand that it is for the Post Office to consider the next steps in this case, in the first instance. I therefore regrettably cannot provide him with a timescale for this process or make commitments on funding at this point, but I can assure the House and the noble Lord that we are eager to see that this happens as speedily as possible.
My Lords, this shocking injustice, perpetrated by the Post Office, has left a sour taste in the mouth of many people and badly damaged public trust in a national institution. Sadly, this comes at the same time as the Post Office is playing an ever more important role in helping people to access cash and other banking and financial services, particularly in poorer and less well-served communities. So what plans do the Government have to rebuild trust in the Post Office, particularly in its management culture, and provide greater direction in the way that it runs its affairs while the inquiry takes place? Can the Minister confirm that the Post Office will continue to play a key role in the new access to cash banking hub pilots, to protect people from the impact of bank branch closures?
The noble Baroness makes some very astute observations and I agree with her; the Post Office is a vital access point for customers to deposit cash, enabling the Government’s financial inclusion agenda and ensuring that many small businesses can benefit from accessible, convenient and local ways of depositing cash. The Post Office has seen significant growth in the use of this facility in recent years and it is particularly important for more vulnerable or remote customers in the context of bank closures, so it is very important for it to carry on with this work. She is also right to point out the need to rebuild the trust of the public.
My Lords, I congratulate the Government on extending the remit of the inquiry, but I am afraid my sympathies are with my noble friend Lord Arbuthnot. I do not understand why all those affected cannot be compensated, nor why we are not asking Fujitsu to stump up. Has my noble friend seen the report in Computer Weekly of 19 February, in which a developer said that
“senior managers at Fujitsu were aware that an important element of the Horizon system did not function correctly and could not be fixed”
and that, when this product was launched,
“no design documents, no test documents, no peer reviews, no code reviews, no coding standards”
Surely these people are victims of gross incompetence, both on the part of the Post Office and by a corporate organisation which is still working for the Government. Why it it not being properly held to account and stumping up, instead of relying on the taxpayer?
We are actively discussing the next steps with the Post Office, including the best process for ensuring that fair and swift compensation is provided. As I said, it will be for the Post Office to determine the next steps but, as I have said repeatedly, we want this to be done as quickly as possible. Regarding Fujitsu, I have considerable sympathy for the points the noble Lord made, but compensation from Fujitsu is a contractual matter between the Post Office and Fujitsu. I hope all options are being examined. It is for the Post Office to lead on the compensation process, but I assure my noble friend that Ministers are closely following this process.
My Lords, I welcome the Government’s U-turn and I agree with what the noble Lord, Lord Arbuthnot, said about compensation. Will the inquiry also look at issues such as the way the Post Office’s actions left some remote, rural villages without a post office for months? This includes one example I know of where the post office was closed without notice on pensions day, leaving a number of pensioners and vulnerable people stranded without any proper explanation, help or apology.
The next stage of the inquiry will continue to hear from affected sub-postmasters to understand what impact the Post Office’s actions had on individuals and local communities. I do not know the specific example the noble Baroness refers to, but if she wants to write to me about it, I will certainly get her a more detailed answer.
My Lords, the sheer size and scale of this miscarriage of justice is quite difficult to believe—that in this day and age an organisation such as the Post Office was allowed to continue doing this year in, year out. I pay tribute to my noble friend Lord Arbuthnot for the way he conducted the campaign, both in this place and the other place. In welcoming the fact that this has now been turned into a statutory inquiry, I think the Government have a responsibility to speed up the compensation to those who were treated appallingly by both the Post Office and, in turn, as the Post Office was owned by the Government, by Governments of all colours.
My Lords, the Minister is making a valiant attempt at defending the split between the Government as a shareholder and allowing the Post Office to conduct its own operations in relation to compensation. The path we are currently going down is only adding insult to injury. To say that the outcome of the inquiry can be used for future compensation claims and further civil action simply delays wrong being put right. I urge the Minister to reconsider this and not hide behind the operational and shareholder split on this issue.
I assure the noble Baroness that I am not trying to hide behind anything. I totally accept that the Government need to accept their share of responsibility, as do the Post Office management and Fujitsu, but all these matters will be brought out. That is what the inquiry is for: to determine what went wrong, what lessons can be learned and who was responsible. So we need to wait for that inquiry. But as I have said, we want to ensure that the compensation process proceeds as swiftly as possible.
My Lords, I am sorry but the Minister’s answers on compensation are simply not good enough. Surely the Government must fully admit to their own culpability? Throughout the shabby and shameful persecution of innocent sub-postmasters, the Permanent Secretary in the department was the Post Office’s accounting officer and a government representative sat on its board. It is no good just passing the buck. The Treasury must fully fund an extremely generous compensation scheme to atone for a criminally negligent failure of ministerial and Permanent Secretary responsibility.
I am not trying to pass the buck to anybody; I have accepted all the responsibility that falls on my department and on Ministers present and previous. The inquiry will draw all these facts out in due course. I say to noble Lords that it is for the Post Office to continue with this process. The Government will accept their share of responsibility when it comes to that, but we need the Post Office to get on with it and we want it to do so as soon as possible.
My Lords, over the weekend I checked in with my friend Rita Threlfall, one of the 555 claimants who brought the successful action against the Post Office in 2019 but received scant compensation. She is rightly concerned that some victims are being treated differently from others. Does my noble friend the Minister agree that we should be insisting on fairness and equity for all those wronged in this appalling injustice? Can he assure me that everything will be done to create a level playing field for all those who suffered? There is a danger that the Post Office will be responsible for a system where there is a first class and a second class. How can my noble friend the Minister ensure that this applies only to its stamps and not to its people?
As I have said to other noble Lords, we are discussing the next steps with the Post Office. I agree with my noble friend that that needs to include the best process for ensuring that fair and swift compensation is provided to those sub-postmasters whose convictions were quashed, but it is for the Post Office to decide on the next steps.
My Lords, I thank the Minister for updating the House on this industrial miscarriage of justice. On 28 April, I, along with other noble Lords, asked for the powers of the inquiry to be increased. I am delighted that the Government have acted decisively in converting this into a statutory inquiry. Can the Minister confirm that the Government will press the Post Office to include Fujitsu in any liability for compensation? In the light of the Statement mentioning that a criminal investigation is going ahead, can the Minister confirm this will give certain witnesses the right to remain silent? Does this not somewhat inhibit the scope of the inquiry?
The noble Lord refers to the ongoing Metropolitan Police investigation into two Fujitsu employees following a referral from the Director of Public Prosecutions in response to the findings of the Horizon issues judgment. I see no reason this should cause problems with Fujitsu co-operating with the inquiry, as the company—notwithstanding the announcement of the police investigation—has already fully indicated its willingness to co-operate with Sir Wyn and the inquiry. As I have said in previous answers, the matter of compensation from Fujitsu is a contractual one between the Post Office and Fujitsu.
My Lords, some of these wrongful convictions go back to 2003—a wait for some of nearly 20 years for justice. The delay can be explained in part by the Post Office cover-up and its contesting of cases for as long as possible. However, this is also an egregious, systemic failure of the criminal justice system. What is being done to stop it happening again, especially with regard to the digital evidence rule that made it easier for the Post Office to bamboozle courts, with regard to judicial capacity to test the reliability of computer evidence and with regard to the power of self-interested entities to bring private prosecutions? Where were the lawyers?
There were lots of lawyers involved in this case; some might think that there were too many. However, the noble Lord makes some very good points about the operation of the justice system. As I have indicated in previous answers to this House, I have received personal assurances from the Post Office that it is no longer pursuing any private prosecutions and will not do so in future. This is indeed an egregious scandal; there are many lessons to be learned from the inquiry, and we will learn them.
My Lords, I echo the welcoming of the extension of the inquiry. I also echo the tributes to my noble friend Lord Arbuthnot for his work on this issue. This was an affront to justice and compensation is urgent. There is a clear feeling across the House that the sense of urgency perhaps needs to be increased by a level or two. More than £100 million of taxpayers’ money was spent on criminal prosecutions of innocent people that were investigated, managed and conducted by the Post Office itself—marking its own homework. Can my noble friend assure the House—I believe that he may have just done so in answer to the previous question—that private prosecutions will not be used as a fast-pass ticket to jump the queue to the criminal courts by companies with deep pockets? This would mean that we could learn lessons in this case so that, generally speaking, wealthy private companies would not be able to bring private prosecutions or we could review their ability to do so.
I have given the noble Baroness an answer about the Post Office pursuing private prosecutions. I reiterate that it has no special powers in this regard: the power to bring private prosecutions exists across the piece and is used by a number of other organisations. The Post Office has assured us that it has no plans to pursue any further private prosecutions. The issue of private prosecutions generally has been studied extensively; indeed, a committee of this House looked at the issue and recommended—I will correct this for the noble Baroness if it is not right—that the power should remain. However, I repeat that the Post Office will not be pursuing any more private prosecutions.
My Lords, the Minister referred to the fact that the Government were actively discussing this issue with the Post Office. Can he confirm whether that means that the Government will take full responsibility for the compensation for all those post personnel, including those from Northern Ireland, who were so wrongly maligned and convicted?
The noble Baroness is of course right, and I assure her that the Government are keen to see that all sub-postmasters with quashed convictions are fairly compensated. The noble Baroness will understand that this question is being followed closely by the Treasury; the Post Office as a company is 100% owned by the Government, so we are following it and the financial implications very carefully.
Leasehold Reform (Ground Rent) Bill [HL]
My Lords, first, I declare my residential and commercial property interests as set out in the register.
This Bill will lead to fairer, more transparent home ownership for thousands of future leaseholders. It represents part of the most significant changes to property law in a generation and should be welcomed by all across this House. The Bill is intentionally narrow in scope and exists to put an end to ground rent payments for new residential properties with long leases—those in excess of 21 years.
The Bill’s measures have been informed by consultation with the public and the leasehold sector. We consulted on proposals to reduce future ground rent in October 2018; that consultation received more than 1,200 replies, which have informed the Bill and its implementation approach. I extend my thanks to all those who have made invaluable contributions to the process of bringing this Bill forward, as well as to those who engaged with me ahead of today. We can all agree that this has ensured that the Bill will be even more effective in delivering on its promise to ensure that, for the first time, ground rent in residential long leases will have no financial element. I look forward to further engagement with noble Lords across the House in the coming weeks.
The Bill is only the first part of a two-part legislative programme to reform the leasehold system. Further leasehold reform will follow later in this Parliament and will redress a range of issues facing leaseholders. Taken together, this programme of reform delivers on our manifesto commitment to improve the leasehold system for generations to come.
I am pleased that the Bill is now before the House. It is an integral part of Government’s broader reform to create a housing marking that works for everyone. This includes improving leasehold as a system of home ownership. There are an estimated 4.5 million leasehold dwellings in England and 235,000 leasehold properties in Wales. In England, that represents almost one in five of the total housing stock. Leasehold has always been a common form of ownership for flats: more than two-thirds of leasehold dwellings are flats and the rest are houses, which equates to 3.1 million leasehold flats and 1.4 million leasehold houses in England.
We know that leaseholders face a range of problems, such as a lack of transparency in an often opaque system and high charges when buying or extending a lease. We have been consistently clear on our ambition to take forward a comprehensive programme of reform to end these unfair practices in the leasehold market. We are committed to helping existing and future homeowners by banning the sale of new leasehold houses, giving freehold homeowners the same rights as leaseholders to challenge unfair charges and closing loopholes to prevent unfair evictions.
On 7 January, the Secretary of State announced a package of leasehold reforms covering enfranchisement valuation and 990-year leases. This is the first part of our response to the Law Commission’s reports on leasehold and commonhold. We will respond to the Law Commission’s remaining recommendations in due course. In addition, we know that commonhold does not work as well as it could. That is why we have established the Commonhold Council—a partnership of industry, homeowners and government—to prepare the market and consumers for the new, widespread take-up of commonhold; the first meeting of that council took place last week. Our reforms will ensure that leasehold is a fairer and more transparent system for homeowners.
I am aware of the concern that many noble Lords will have for existing leaseholders. The package announced in January by the Secretary of State will result in substantial savings for existing leaseholders, particularly those with fewer than 80 years left on their lease. For existing leaseholders, we will increase the length of lease extensions to 990 years, which is a significant improvement on the current length of 90 years for flats and 50 years for houses. Existing leaseholders can currently pay a premium up front in exchange for extinguishing or buying out the ground rent and extending their lease.
We will also abolish marriage value, cap the treatment of ground rents at 0.1% of the freehold value and prescribe rates for the calculations at market value. A new online calculator will make it simpler for leaseholders to find out how much it will cost them to enfranchise.
We know that some leaseholders have faced serious problems with high and increasing ground rents, which is why we asked the Competition and Markets Authority to conduct an investigation into potential mis-selling and unfair terms in the leasehold sector, including the problem of onerous ground rent. The CMA carried out a detailed investigation into these practices. Its report, published in February last year, estimated that doubling ground rent has affected more than 18,000 lease-holders. In March this year, the CMA informed developers that they may be in breach of the law. This is a very serious issue indeed, and the Government strongly welcome the CMA’s efforts to bring justice to home owners affected by unfair practices.
On the specific issue of ground rent for future leaseholders, historically, leases would require a ground rent payment of no or little financial value. This payment was often used to form the contract between the leaseholder and freeholder, and what might be known as a “peppercorn ground rent”, but the leaseholder received no tangible service in return for this limited ground rent payment.
Since the early 2000s, we have seen an increasing number of properties sold with leases that require significant financial ground rent payments from leaseholders. We have seen little consistency in when and how much ground rent is charged—and, still, no tangible service in return. Thousands of leaseholders bought homes for which the ground rent started at hundreds of pounds a year. These payments were subject to increases, some doubling more frequently than every 20 years. Unfair practices relating to ground rent have damaged the reputation of the leasehold system, but, fundamentally, we know that ground rents are frequently not transparent and have caused substantial difficulties for some leaseholders. With this Bill, we are legislating for the first time so that new residential long leases have no financial demand for ground rent. In new leases, ground rent will be set in law at a genuine “peppercorn rent” level. This means that nothing more than an actual peppercorn can be sought from leaseholders, if indeed any ground rent is sought at all.
Let me be clear: this Bill is not an attack on freeholders. They play a clear, central role in the property market. However, by ensuring that ground rent in new residential long leases does not impose a financial burden, we are removing an opaque charge faced by home owners and making home ownership more transparent and fairer for future generations. We are ensuring that the costs associated with home ownership are clear and easily understood, and that high charges with no tangible service in return can never happen again. Institutional investors will be able to benefit from their existing investments, but in future they will find alternative investment elsewhere. I fully expect investors to adjust their business models to account for this change. Crucially, the benefit to future home owners will be significant.
I turn to the key provisions of the Bill, which apply to future long leases exceeding 21 years of dwellings in England and Wales. The Bill will mean that if any rent is demanded as part of a new residential long lease, it cannot be for more than one literal peppercorn per year. As is the case now, there will be no obligation on a freeholder to charge or collect a peppercorn, and following this Bill we do not envisage that in practice freeholders will ask their leaseholders to pay a peppercorn in rent.
It is not our intention to put barriers in the way of freeholders collecting payments needed to maintain the building and provide tangible services to leaseholders, but it is unacceptable if freeholders attempt to find loopholes and ways around this legislation. We have tussled with the notion of closely defining the meaning of “ground rent”, and of a “rent”, and concluded that a fixed definition could lead to workarounds by those who wish to avoid the legislation. That is why the Bill includes a wide definition of “rent”: to deter attempts by freeholders to charge what is effectively a ground rent by another name.
For the same reason, the Bill also bans freeholders from charging an administration fee for the collection of a peppercorn rent from long residential leaseholders. Leaseholders will have the right to apply to the first-tier property tribunal if a prohibited rent or administrative charge is paid.
There are some exemptions in the Bill. It does not apply to leases used only for a business purpose. As my noble friend Lord Young of Cookham has previously pointed out, the Bill includes a slightly different definition of a business lease from the one used for business tenancies in the Landlord and Tenant Act 1954. We have carefully considered how to define business use for this Bill. As a result, we have crafted a new definition to ensure that residential leaseholders are protected, and commercial landlords can still collect rent from their tenants. For mixed-use properties, the residential use must significantly contribute to the business purposes of the lease for the exemption to apply.
Statutory lease extensions for flats are unaffected by the Bill because they are already restricted to a peppercorn rent. Statutory lease extensions for houses—for which no premium is currently paid—are exempt and can continue to include a ground rent higher than a peppercorn, but we intend to reform this later in this Parliament. Leaseholders extending through the voluntary process are also exempt and will be able to choose to continue to pay ground rent for the remaining period of the existing lease instead of paying a large up-front sum. However, the peppercorn limit will apply to the new, extended lease.
Clause 2 provides for applicable community housing leases also to be exempt. This allows a community land trust or a co-operative society to collect rent to provide services for their community. Community housing schemes that promote the supply of new housing to meet local need and where residents contribute towards the cost of shared community services are very different from ground rent for long residential leases where no clear service is provided in return.
The Bill also makes special provision for home reversion equity release plans and homes bought using a rent-to-buy arrangement. It is important that such specialist financial products can continue, maximising choice for home owners over how they finance their property purchase. This exemption ensures that such specialist financial products that rely on rent can continue, giving home owners choice over how they finance their property purchase. Clause 2 is clear that to benefit from this exemption, home reversion plan products must be regulated by the FCA.
The Government believe strongly in the benefits of home ownership. It is right that we should do everything we can to support people from all backgrounds to realise their ambition to own their own home. We believe that shared ownership has a vital role to play in offering a route into home ownership to those who would otherwise struggle to buy a home. By purchasing a share of a property, aspiring home owners can overcome the income and deposit barriers that may stand in their way. Under the shared ownership model, landlords can collect rent on their share of the property and this Bill will allow them to continue to do so. Once the leaseholder has purchased 100% of the property, the rent will be limited to a peppercorn. The Bill does not amend any other aspect of shared ownership.
It is only right that older residents also benefit from the Bill and are no longer burdened by a financial demand for ground rent. That is why it will also apply to retirement properties. I acknowledge that the Government had originally announced that the retirement housing sector would not be covered by the legislation. In recognition of that, the Bill will not affect retirement properties until after 1 April 2023, giving the retirement sector additional time to transition.
The Bill proposes a number of enforcement measures that offer a strong deterrent to any freeholders and their managing agents who try to get around its provisions and in doing so it protects leaseholders. Enforcement will be the duty of local trading standards authorities. Trading standards do a good job of enforcing current regulations and have an excellent understanding of their local areas. District councils in England will also have the power to enforce this Bill if they choose to do so. Enforcement authorities will be able to retain the proceeds of any penalties they impose to meet the costs of their work relating to residential leasehold property.
In terms of sanctions, freeholders who charge a non-peppercorn ground rent on regulated leases will face financial penalties of between £500 and £5,000. The penalty applies per lease, so freeholders of multiple properties could receive higher penalties if they breach the legislation multiple times. In addition to any financial penalties, enforcement authorities and the tribunal can order the freeholder or their agent to refund any prohibited rent within 28 days. Leaseholders who have paid prohibited rent or administrative charges can also apply to the First-tier Tribunal for recovery of the rent or to determine if the charge is payable. Enforcement authorities may also help a leaseholder apply to the tribunal. This help can include conducting proceedings or giving advice. I believe that this enforcement and penalty regime has been set at an appropriate level to act as an effective deterrent.
These measures will deliver an important and meaningful improvement to the leasehold system for future generations of home owners. We recognise that the system as it stands is not working for all leaseholders, which is why we are committed to an ambitious programme of reform. The Bill is an important first step, and with noble Lords’ support we will see it made into law with speed. By banning ground rent for future residential long leases, while delivering on our commitment and making the leasehold system fairer and more transparent, the Bill will make a real difference to thousands of future leaseholders across England and Wales. I commend it to the House and beg to move.
My Lords, I welcome the Bill although, as the Minister might expect, with some caveats. But I welcome the way in which he introduced it and the context in which he placed it. Four years after it was promised in 2017, a leasehold reform Bill has reached this House—and it is an important start to remove what the Minister called the massive and increasing disadvantages that leaseholders have to contend with. The law has until now not been on their side, and this helps redress that.
We recognise that leasehold reform has been in process for decades. The Law Commission has done its work after endless investigations and consultations, but the Minister will know that, along with many others in this House, I am disappointed that the Government have not been able to bring forward the full range of leasehold reforms that we were promised. The Minister spoke about bringing them forward later in this Parliament. Inevitably, my first question is: what does that mean and can he be more specific? As we know, this Bill will deal with new leases only.
However, the Bill is a start in addressing the scandals and abuses that leaseholders have faced for years. As the Minister said, the problem is that leaseholders receive no clear service in return for these ground rent payments and it is not always clear what costs leaseholders will have to pay when they purchase their home. How very true. A survey for Propertymark, which has been campaigning for leasehold reform for years, found that 57% of leaseholders had no idea of the escalating costs they would face and, tragically, 50% were first-time buyers. Had they known, 93% said that they would not have chosen a leasehold home. They certainly had no idea that their ground rents could double in 10 years. This has been a real scandal, documented throughout by the Leasehold Knowledge Partnership, which has charted years of distress and anxiety among leaseholders.
While we have to wait for that bigger scandal to be fixed, we can welcome the Bill as incredibly important, not least because it abolishes ground rents and therefore cuts off the income stream that underpins the current leasehold system. If investors are not incentivised to buy up leaseholds for their ground rents, that removes the risk they will appoint managing agents who see leaseholders as little more than cash cows. Once that happens, there is a prospect that buildings may start to be run in the interests of the people living in them, as opposed to the interests of investors who see them as little more than accounting entries. It is a systemic change, which can root out abuses throughout the system, and I welcome it as such.
However, inevitably, I have some questions for the Minister. What is the Government’s estimate of the number of homes that will actually be affected when the Bill is enacted in 2023? Given that leasehold properties are not evenly distributed across the country, which areas of the country will benefit most? Secondly, how will the Bill interact with the Government’s plans for reinvigorating commonhold, which we certainly welcome. How will the timetables overlap? I ask this because, if the Government succeed and synchronise the introduction of commonhold plans with this Bill, it is possible that there may be none or very few residential leaseholds to which the Bill will apply because most flats will surely be sold as commonhold.
Thirdly, given that the Bill will become law in 2023, what does the Minister think the effect of knowing that ground rents are about to be abolished will be on the housing market for leasehold homes?
The Minister raised the question of the definition of rent, and I would like him to clarify what he said when he winds up. Does the Bill intend to force future leases to be redrafted to restrict the definition of rent? As he knows, the problem is that many modern leases define rent as including ground rent and service charges and sometimes building insurance. Will that continue or will it be changed? The argument is that, if you exclude them from the definition of rent in strict form, the landlord cannot take advantage of the forfeiture. I would be most grateful for an answer on that point.
The Minister referred to enforcement. The problem is that this is going to be left to the trading standards departments. How realistic is that? He must be aware that those departments are chronically underfunded and under huge pressures, as are other local government departments that have been stripped out, such as planning and conservation. It is really unlikely that local authorities will get involved, not least on the grounds that leaseholders are better off using civil claims to recover prohibited ground rent. What plans do the Government have to encourage local authorities to ramp up the capacity of the local trading standards?
In conclusion, let me return to those not helped by the Bill. It is significant that the property associations welcome the Bill. Indeed Mark Hayward, the chief policy adviser at Propertymark, has said that the legislation will
“go a long way to help thousands of homeowners caught in a leasehold trap”.
However, it has called on the Government to extend the provisions on ground rents to those who already hold a leasehold property to create a “level playing field”.
Power has been in the lands of the freeholder for far too long. Aggressive and escalating ground rents continue to be a scandal against which there is no redress. I know that the Minister understands and appreciates the work of the Leasehold Knowledge Partnership, so he will know of the countless cases it has collected. For example, recently there was a story of a lady living in south London whose ground rent is threatening to reach £1 million in the next 50 years at the rate of escalation. The problem is that in some ways—and this lies at the Government’s feet—the situation of leaseholders has gone on getting worse. The cladding scandal is, of course, in a class of its own, but the extension of permitted development rights is another way in which the rights of leaseholders to protect themselves and their homes against ruthless developers are being lost as upward extensions are permitted outside the protection of normal planning law.
I hope that the Minister, while he basks in the welcome given to the Bill, will also reassure us that the Government are only too aware of its limitations, and the imperative to act fast to protect current—as well as future—leaseholders, who have waited patiently but in increasing anxiety for so long.
My Lords, I draw the House’s attention to my relevant interest as a vice-president of the Local Government Association and a member of Kirklees Council.
The basic tenet of the Bill is to be welcomed. The excellent briefing by the House of Lords Library states very clearly the intention that
“freeholders or landlords will no longer be able to make financial demands for ground rent. It seeks to do this by establishing that new, long residential leases are only permitted to charge a peppercorn rent (which has zero financial value) … In addition, the bill would prohibit the charging of administration charges relating to peppercorn rents. The bill would also establish a civil penalty regime for those who charge a prohibited rent”.
The Bill sets out the 26 clauses needed to enact that intention.
The Bill is, therefore, both technical and detailed, and I am sure that other noble Lords will be able to use their expertise to probe and challenge different aspects of the Bill and whether it achieves its stated intention. In her excellent contribution, the noble Baroness, Lady Andrews, has already started to challenge and probe the meaning of the clauses in the Bill. I concur with all the questions she asked; they are both relevant and important.
As the Minister said in his opening speech, there are 4.5 million domestic properties with leasehold agreements, of which approximately 3 million are flats and 1.5 million houses. This is, therefore, not a niche issue but one which affects millions of people. My attention was first drawn to an impending scandal when it was reported in local Yorkshire media some three or four years ago that new-build houses had been bought with the new owners seemingly unaware that the developers had attached a spiralling ground rent charge to the property. As the Minister has stated, the Competition and Markets Authority became involved. The situation has been likened to the mis-selling of PPI. An individual case was highlighted in a report in the Independent this weekend. There, the annual ground rent for a one-bed flat in London, purchased for £170,000 in 2018, was to double every five years. In 20 years’ time, the ground rent will have risen from an affordable £1,050 per annum to a completely unaffordable £16,800. Such abuse is the scandal that the Bill seeks to prevent, by permitting only a peppercorn ground rent and banning administrative charges on ground rents, thus closing any further legal loophole through which leaseholders are at the mercy of unscrupulous freeholders. This is welcome news, but it does, of course, penalise those freeholders who have acted responsibly and not exploited the situation.
The additional huge gap in the Bill is its failure to address the situation of existing leaseholders faced with spiralling ground rent costs. This means that leaseholders—often, but not always, first-time buyers—could be left with costs spiralling to unmanageable levels and their property becoming unsellable. The failure of the Bill to deal with past abuses of ground rent and service charges will leave existing leaseholders in a worse position, because it will create a housing market where new-build properties, with zero ground rents, will be far more attractive than those with spiralling ground rents. Who in their right mind is going to purchase a property with those extortionate additional costs attached to it? Then there is what I define as a scam, which some freeholders are using: the so-called informal lease extension, which also includes clauses of doubling ground rents. Using this approach, freeholders agree to an extension, not of 90 years, which reduces ground rents to zero, but, say, of 125 years, which then has within it clauses which double ground rents every five or 10 years. That is an abuse by some freeholders that has to be prevented.
There is a theme in this Bill, which I have challenged before in relation to the Fire Safety Bill: existing leaseholders being left to hang out to dry or, more exactly, of the Government wringing their collective hands, offering empty promises and absolutely failing to take action to protect those who have been completely failed by existing legislation, by highly profitable developers and by freeholders who have lost all sense of integrity. The challenge for this Bill, as in debates on the Fire Safety Bill, is: what are the Government going to do for the innocent leaseholders? The scandal of flammable cladding and fire safety defects, which the Government have contrived to avoid, is happening on their watch. The scandal of spiralling ground rents hitting leaseholders is happening on their watch. This Bill could have been used to provide wider protection for leaseholders: both the innocent victims of the cladding scandal and construction crisis and, now, those who are victims of abuses and unscrupulous behaviour by some freeholders. Will the Minister outline to the House what effective action is being proposed by the Government to provide redress for those leaseholders who are innocent victims in both these scandals? I look forward to the Minister’s reply and to further stages of debate on the Bill.
My Lords, I draw attention to my interests, as set out in the register, in various businesses associated with property, including long leasehold property, though, I hasten to add, not including residential ground rents. As the Minister has already made clear, this is the first part of a two-stage reform process. I am sure that this afternoon the House will hear many issues raised which relate to stage two and there will, no doubt, be a very deep debate about that stage of the reform programme before we move to it. I shall attempt to focus my comments today on stage one—the Bill before the House.
As the Minister indicated in his opening remarks, this issue has been on the Government’s agenda for some time. When I was serving in the previous Government, it was a live issue in 2018 and 2019 and some considerable time and energy was spent looking at the wider issues of leasehold reform. Residential ground rents have been around for many hundreds of years. It is fair to say that, until relatively recently, residential ground rents themselves have not been the major cause of concern. Service charges, management practices and the broader operation of the leasehold property system have occasioned some concerns, but ground rents themselves generally did not.
Unfortunately, over the last decade or two, as the previous two speakers have outlined, we have seen an increasing practice of ground rents being used not as a nominal annual payment but as a substantive and escalating one. That has been an abuse which clearly has to be tackled now; it has rendered the need for radical reform unavoidable. I note the CMA investigation into the practices of doubling ground rents. I also pose the question: where were the conveyancers of these innocent leaseholders who apparently did not understand the nature of the transaction they were entering? I hope that the relevant bodies will also be looking at whether conveyancers did their job properly during these processes.
So I accept that there needs to be reform; I accept the need for the abolition of long leasehold ground rents; and I say to the Minister that I think that the Government’s current approach of seeking to abolish ground rents rather than leasehold in its entirety—is a much more practical solution. But I want to ensure that the measure is narrowly focused and does what it intends to do.
The Government have, I think, made clear that narrow focus, and that the Bill is targeted at long leaseholds where, typically, a substantial premium is paid by the purchaser of the leasehold interest. The noble Baroness, Lady Pinnock, talked about an example where a premium of £170,000 had been paid for the property, yet there is a recurring ground rent— maybe doubling regularly—that will in future become a substantial payment to be made annually on top of the initial, substantial purchase price. The Bill will make that recurring payment a peppercorn only, so that, in effect, the premium paid for the acquisition of the lease becomes the only payment for the effective purchase of the right to use the property for the duration of the lease, with no further payments due.
The second stage of the Government’s reform programme will deal with rights to extend leases in such a way that, in practical terms, the premium paid at the outset of the lease will deliver almost the same outcome for the leasehold property occupier as the purchase price delivers to a freehold purchaser.
My purpose in intervening today is to ensure that the stated narrow intention of the Bill is delivered in the outcomes. But the Bill does not, as the Minister has already acknowledged, define ground rents, although I think in discussion we all know what is meant by them. The Bill in fact reduces all rents on long leases, whether they are ground rents or not, to a peppercorn. That was not my understanding of the Government’s intention for the Bill. So, if person A buys a freehold residential property and lets it to person B for 25 years at no premium at all but an annual rent of £5,000, that rent, as I understand it, would be reduced to a peppercorn—and that would deliver an unjust outcome. Person A would not receive the rent they legitimately expected to receive. Person B would enjoy the occupation of that residential property for 25 years without paying a single penny at any stage, either as premium or as rent. That is not, as I understood it, the intention of the Government’s legislation.
In an alternative example, a fund might invest in build-to-rent properties but not want to manage and operate them itself, so might grant a 25-year lease to an operating company that would then let the properties on assured shorthold tenancies to occupiers. But, again, unless the business lease exception in Clause 2 applies, I fear that the rent in question could be reduced to a peppercorn.
I am hoping the Minister will be able to clarify and confirm, in his winding-up speech, that where there is no substantial premium paid, and where the consideration for occupation of the property is wholly in the form of an annual, quarterly or monthly rent, it is not the intention of this legislation to abolish that rent—and I hope the Minister will be able to explain how that can be made clear to participants in the market.
There is one other point I seek to clarify: home finance leases, as the Minister has said, are excepted by Clause 2. Clause 2(8) also provides that a lease will be excepted if, inter alia,
“it meets any further conditions specified in regulations made by the Secretary of State.”
If the Government have any plans to bring forward such regulations, it would be helpful if they could publish them in draft. If they do not have such plans, it would be very helpful if the Minister could make that clear, so that any blight placed on the market by the possibility of imminent further regulations is removed.
I support this Bill and the purposes that have been stated to lie behind it. I look forward to the Minister’s clarifications on the points I have raised. Subject to it being clear that the Bill does what we have been led to believe it is intended that it should do, I will be happy to support it and engage in the substantive discussion on the second stage of reform in due course.
My Lords, I welcome the opportunity to debate this Bill and in doing so refer to 45 years of professional interest in the matter and my interest as the first chairman of the Leasehold Advisory Service. Although I have personal interests in residential and commercial lettings, they do not include long leasehold and, as a technician, I take no particular position for or against it. I, too, am a vice-president of the Local Government Association.
First, to positive matters: I pay tribute to the Government for moving to tackle some of the known problems and abhorrent abuses with long leaseholds—especially that of escalating ground rents. For years, I have advised clients against taking on such leaseholds, so that maybe makes me part of the problem. But I do think that much swifter action could have been taken to deal with them—but there we are. I welcome the measures. I also welcome the actions of the CMA. But, before we get too excited, I would just point out that 18,000 escalator rents, as I would call them, equate to 0.4% of all leasehold ground rents.
Anything that speeds up the leasehold transaction process is, of course, good for market confidence. So dealing with unnecessary delays is also extremely welcome. However, I do need to point out some procedural shortcomings here. There is an overwhelming case for remedies, so it is utterly extraordinary to me that the department should have chosen to conduct its consultation via SurveyMonkey. The department then found it necessary, on analysis, to allocate a significant proportion of the responses to a category entitled “General comments that did not answer the question”. Undaunted, but finding there some muddle in responses on leaseholders’ payments for various things, it then resorted to regression analysis to resolve the confusion. I suggest that this is not an appropriate way to conduct consultation on such an important matter, and I feel that in this instance it damages the credibility of the process.
The Government also make the point that leaseholders see no benefit from the ground rent they pay—but it is ostensibly for the use of the shared bits they do not own outright. The same could be said of any rent under any lease—or, for that matter, many taxes—so I regard that argument as potentially disingenuous and unhelpful.
I acknowledge that this is the first part of a two-part approach, but I believe that from the consultation there was a clear expectation that other evils would swiftly be dealt with, such as unjustified charges for rent collection, the fees for consent, unfair rent charge situations and more—all of them abuses at the expense of leasehold and freehold homeowners. There was no reason to delay tackling at least some of these, and it is a disappointment that we have an indeterminate wait for action in some of these areas, which has already been mentioned. I am not sure why the whole process needs to be so convoluted and multistage. The means chosen to achieve the Bill’s ends are complex, and complexity leads to loopholes, avoidance and unintended consequences. A part-reform is always hazardous, and this should be a more coherent and thoroughgoing package.
Between muddle and confusion stalks another character, known as dishonesty. Those with a pre-disposition towards fleecing homeowners are not guided by ethical or moral considerations, and there is no knowing what they may dream up next. This might also explain why the Law Commission’s consultation produced minimal responses on intermediate interest—those lying between the freehold and the long leasehold. To me, it is obvious why: sharp practitioners tend to keep their own counsel and their powder dry.
A preference for keeping things simple prompts me to ask why, more generally, there could not be a statutory redefinition of “quiet enjoyment”, a covenant for which is embedded in every leasehold either expressly or by statutory implication. What is there not to like in specifying that this means no unfair, unjustifiable, oppressive, opaque or deceitful activities?
I now turn to some areas where the Bill may have gone more seriously awry. First, as was pointed by the British Property Federation and the noble Lord, Lord Hammond, the Bill would prevent the granting of any residential long lease at a rack rent. It also makes some complex provisions for mixed-use exemptions, but I am far from clear that these and the meaning of “significant contribution” would actually work or be free from challenge. I expect market sentiment to be negative. This may be unintentional but, if not, I ask the Minister to explain it.
Secondly, the timeframe for providing lease information is tight—potentially unreasonably so. I will leave the point at that.
Thirdly, the proposal to render ground rents under long lease as valueless is not a free bet. In any large and complex building in which individual flat owners have ownership over a small portion only and no direct contractual relationship with each other, there is a need to govern how the common parts—the fabric of the building, its services, its uses and the environment in which it sits—are organised. This and the conduct of the respective interest holders vis-à-vis each other and the building they occupy do not happen by accident but by the legal construct of a lease and the enforceability of governance.
If long leaseholds are the time-honoured, legally understood and principal means for procuring occupation and title in a physically subdivided building, they will continue to be a feature for many years to come. It therefore matters that they function effectively and command confidence and that both tenures be made fit for purpose, with freeholders who are motivated, competent, of substance and, above all, engaged. This measure does not consolidate this parallel need, which I fear is sadly out of scope. As I have observed in separate correspondence with the noble Baroness, Lady Grender, and others—I look forward to her speech later—if you think a greedy landlord is a nadir, you have not encountered a clueless, ineffective or inactive one.
The Bill would reduce the freehold rental value in future long leasehold tenure to nil. I may have missed it, but I do not see that the Bill mandates what happens to the truncated rump of freehold interest and the remaining important functions attached to it. What is to stop cost recovery and these being the vehicle for the very same unfair practices we all want to prevent, or to stop these freeholds falling into the hands of unscrupulous entities, perhaps becoming of negative worth or being bankrupt, with significant implications for leaseholders? We are not necessarily dealing with decent people in the ownership of these assets, so to my mind the remaining freehold should be parked permanently in a safe and competent pair of hands. I invite the Minister to explain why he does not feel that this can happen.
There is also the risk of a wider message getting about that residential long leasehold is intrinsically bad. That is untrue, and in so far as it may be intended to accelerate lacklustre commonhold or support some political platform, there is a need to be very careful that market sentiment does not downvalue wholesale—the investments of more than 3 million homeowners, many of whom are already under severe stress due to fire safety matters. I cannot overstate the importance of this.
Should commonhold take off—I wish the work of the Commonhold Council well—it will likely be many years before it is the main form of apartment tenure. Running two systems is inherently problematic for market confidence, and I did not detect from its briefing that UK Finance, the sectoral voice, views this differently. The Law Commission refers to the divergent interests of freeholder and leaseholder. Insurers, building managers, safety regulators and even fellow leaseholders often have divergent interests, yet come together for specific reasons of mutual convenience and necessity. Commonhold may improve this but it will not make these issues disappear altogether.
I end by thanking all the bodies that sent me briefings, as well as the Minister and his staff for responding to my queries and offering to arrange a meeting. I hope that, with good will and understanding, we can improve this Bill.
My Lords, I very much welcome this Bill. I am no property expert but I have explained my interest in the Bill—I hope, as other noble Lords have said, that there will be at least one more. I welcome the Government’s statement, I think from 11 January this year, accepting the recommendations to introduce legislation to allow residential leaseholders to extend their leases at zero ground rents for 999 years or to buy it out. This is welcome. Although this Bill does not cover that, it sets some useful pointers—I hope—on government thinking. I declare an interest as living in Cornwall and the Isles of Scilly.
To some extent, it seems that this Bill just covers the easy bits. I hope I am wrong about that, because the noble Lords who have already spoken raised some interesting issues that are way beyond my competence. My understanding—I am sure the Minister will correct me if I am wrong—is that this applies to new build, but does it cover conversions from shops or houses cut into several smaller bits? I suspect many people will wish for some element of retrospectivity in this, but that is probably impossible.
I will concentrate my remarks on Clause 23, which concerns the Crown lands of the Duchies of Lancaster and Cornwall. I am pleased to see that no exemptions are mentioned here. That is really good. However, there is potential for some people who might seek to delay or wriggle out of the spirit and letter of this Bill, which applies not only to this Bill but—hopefully—to the next one as well. I have been seeking assurances from the Duchies of Cornwall and Lancaster and the Crown Estate, for when it comes to the next piece of legislation, about the statements in paragraph 7.150 of the Law Commission report that
“the Crown has given an undertaking to Parliament that, in most cases, it will act ‘by analogy’ with the legislation to give its leaseholders the same rights that they would enjoy if their landlord were not the Crown.”
It goes on to suggest that the commitment is disapplied when the property is in or near
“historic Royal Parks and Palaces”
or has some
“long historic or particular association with the Crown.”
I have been writing to all these groups for comment. I noted that the Law Commission report states that many consultees had negative experiences in negotiating with the Duchy of Cornwall, compared to no problems with the others. I am sad to have to agree with them. I wrote to the Duchy in January asking for its views on this report and whether it intended to follow the examples of the Crown Estate and the Duchy of Lancaster. Four months later, I have not yet had a reply, in spite of several reminders. This leads me on to the situation that the Duchy claims to be in the private sector. My first question, then, is why it should be treated any differently to other private sector organisations.
But then we have the issue, which noble Lords know well, that Ministers have to seek the consent of the Prince of Wales and the Queen. From the Prince of Wales’s point of view, it is odd that the Duchy of Cornwall should have to give consent to a Bill in which it presumably has a commercial interest. Have the Government applied for consent in this case from the Duchy of Cornwall and the Crown? If so, what changes were made to the draft document as a result of either of these questions? This situation seems to be of such concern to some Ministers, and certainly to the Crown, that they do not like even to put this in writing; they have to do it by phone so that there is no record of it. Frankly, I find this pretty non-transparent.
But the Duchy is in a different position from that of the Crown Estates or the Duchy of Lancaster. As I have said, it claims to be in the private sector. But it has all these special privileges—such as Crown immunity, special tax status and free legal advice from the Treasury Solicitor—which other private estates do not enjoy. I think that the lawyers will be rubbing their hands in glee after some of the discussions in this debate today. But this is not the point. This Bill—and, I hope, the subsequent one—provides an opportunity to ensure that the Duchy behaves in the same way as the Crown Estates and the Duchy of Lancaster. All communications should be transparent, and it should not seek special privileges for its property in a manner which is out of line.
To conclude, I will give one example. Somebody I know very well lives in a Duchy-leased house in St Mary’s on the Isles of Scilly. There is nothing special about his house; it happens to be next door to a castle built by the military 200 or 300 years ago. I do not think the Duchy has any title to that at all, and it will not even discuss with him the idea that he could buy the freehold. His house is not historical; it is nothing very special. It is probably a 1960s building. This example is so that all these organisations can agree with what the Law Commission suggests in its report and have the minimum exemptions.
My final question to the Minister is: when do we expect the next Bill? He would expect me to ask that. I am sure he will not give me an answer, but it would be nice to know. I hope to explore some of these issues in Committee.
My Lords, like other noble Lords, I welcome the Bill before us today. Although the scandalous problems currently facing leaseholders in homes covered in dangerous cladding materials will not be alleviated by it, as my noble friend Lady Pinnock so eloquently spelled out, and it will not in any way improve the lot of existing leaseholders faced with escalating ground rents and spurious charges for routine paperwork—as the noble Earl, Lord Lytton, so comprehensively set out—it will nevertheless be a small step forward, and I welcome it. It will, at least to an extent, provide protection in future for new leaseholders from predatory third-party owners and landlords, who are often in it solely for the steady cash flow and income—in fact, not a steady but an escalating cash flow and income. They have very little or no interest in providing even a notional service to those who pay the fees.
So far as it goes, so good. We shall look to move the Bill forward expeditiously—not least because, like other noble Lords, we want to see the Minister honour what he said in opening this debate: publishing the Government’s response to the Law Commission’s report, tabling the second further leasehold reform Bill as soon as possible, and then beginning to tackle some of those existing abuses and malpractices blighting the leasehold sector. But we will also look for some meaningful assurances from the Minister about the timetable for that further reform; I suspect that the answer the noble Lord, Lord Berkeley, will get is, “shortly”. But we need some assurance that real progress will be made—not just shortly, but pretty much immediately. We will also want to examine carefully the safeguards—or, rather, the lack of safeguards—in the Bill for leaseholders against unscrupulous landlords. They will be working hard to find loopholes to exploit in yet more imaginative and lucrative ways to restore their missing cash flow.
I think there is a bigger question for the Minister. If, as the Law Commission has shown and multiple sources of evidence attest, the current leasehold model is fundamentally unfair and inequitable, why is he merely tweaking it in this legislation and introducing a peppercorn rent to neutralise it, rather than going where the evidence leads and abolishing leasehold for new contracts altogether in favour of commonhold? I hope the Minister will explain why the Government are being so timid and cautious in the Bill.
What are the good parts of the Bill, and where could it achieve more even within its limited ambition? First, the proposal to end escalating leasehold charges is long overdue and very welcome, and with it an accompanying regime for monitoring and punishing recalcitrant landlords. For once, the Government propose to give the new power of enforcement to local councils, which is a welcome recognition of their role in the communities that they serve. But the Minister will be well aware—the noble Baroness, Lady Andrews, made this point as well—that local authority trading standards departments have been comprehensively de-fanged, not just by painful cash cuts but by a powerful deregulatory policy drive, coming out of central government departments, for light-touch enforcement of those regulations. That provides no incentive for the diligent use of their existing powers, let alone a commitment of limited resources to a new task. What assurance can the Minister give us today that new funding will come alongside the new powers? I suggest to him that the transfer of any fines which are levied to the budget of trading standards will fall very far short of the costs of investigation preceding that.
Of course, the Minister has a stock answer on funding: funding for any new burdens will be taken into account in the next local government settlement. But if a local council faces a deficit of millions in providing social care, £1,000 or £2,000 for trading standards provides no guarantee of improved capacity. What priority does the Minister attach to ensuring that rogue landlords are prevented from exploiting loopholes in the new arrangements once they see the ready sources of income that they are exploiting dry up?
That brings me to what the Bill does not do for new leaseholders. Here I draw on the briefing from the Building Societies Association and the Leasehold Knowledge Partnership in particular, and I thank them for their assistance. The Bill as drafted does not protect leaseholders from any of the many other imaginative charges that landlords sneak into leases. Unfair transfer fees on sales, grossly excessive charges for permission to improve the home, or imposed contractual duties to take out insurance with the landlord’s preferred provider—none of these will be captured in the Bill. In case a prospective purchaser was inclined to nitpick when presented with a leasehold contract to sign, a requirement to use the landlord’s nominated solicitor helps keep things firmly under his control. I suggest to the noble Lord, Lord Hammond of Runnymede, that that may be one reason why so many people sign those contracts. They are not necessarily getting the top level of advice that they should be, and which I am sure the noble Earl, Lord Lytton, would be providing them.
There is nothing to prevent an unscrupulous landlord continuing with all these highly profitable strategies with new leasehold tenancies in future, not to mention treating residential car parking places as “commercial” and so beyond the reach of the new restrictions altogether. Woe betide any leaseholder who falls into arrears with any of these imposed charges; their lease may be forfeited and their home lost. The Law Commission was clear that this practice is unfair and disproportionate, and yet such a term can and certainly will continue to appear in new leasehold contracts after this Bill becomes law if we do not amend it.
This is far from a complete list of serious omissions from the Bill as it stands, but it all points to a failure to comprehensively reform the sector and tackle well-known and easily preventable abuses. In Committee, my colleagues and I hope to obtain from the Minister some clear assurances and, if necessary, some amendments to the Bill, to ensure that, at least in respect of these matters, leaseholders are given the protection they deserve.
My Lords, I declare a personal interest as someone who pays ground rent on my flat in London.
I congratulate my noble friend the Minister on his usual courteous and full explanation of the Bill. I just do not know what he has done to draw the short straw again, but I suspect that he will get as much hassle from this House on this Bill as we saw with the Trade Act, China and the Fire Safety Act. However, I shall support it, inadequate though it is, because it is a small step in the right direction and because I have never before been involved putting lipstick on a pig, which the Bill attempts to do.
Before one can judge the merits, one has to look back at how we got here with these things called leasehold and ground rents. I do not mean just looking back at the 2017 consultation, nor the Commonhold and Leasehold Reform Act 2002, nor the 1993 leasehold reform Act, nor even the Leasehold Reform Act 1967. No, to understand where we are coming from, we have to go back a bit further than that—right back 1,000 years to the 11th century and the Domesday Book of 1089, which uses the term “freeholder” for the first time. The term “leasehold estates” appears a few decades later.
Medieval or feudal law was not concerned with hard-working families trying to get on the property ladder; in those days there was no concept of levelling up in Hartlepool or Rotherham. Land meant power in the Middle Ages, and powerful families wanted to retain ownership of their land while maximising their earnings from it. Thus the concept of leasing was established to allow serfs to work a plot of land, for a fixed period, on the basis that they would pay “in kind” by providing food and services to their master further up the social order. Thus, the common law of the landlord-tenant relationship evolved in England during the Middle Ages, based on a feudal social order and an agrarian economy, where land was the primary economic asset and ownership of land was the primary source of rank and status.
Let us roll on 1,000 years, and what has changed today? Nothing of real substance. We may buy a property but find that we are still vassals of a landlord who does nothing for us. We sit in this place as noble Lords and most of us are life Barons, but for those of us who are leaseholders, like the 4.6 million of our fellow country men and women, we are still just feudal serfs paying our masters for nothing in return. I suggest that the whole leasehold system is rotten to the core and has no place in a modern property-owning democracy.
Ground rent is even worse and can be traced back to Roman times, when the solarium, or ground rent, was payable by the lessee of a piece of land. I rather liked studying Roman law as a student in Scotland many years ago and learning, through the Institutes of Gaius and Justinian, how to manumit my slaves. Little did I realise on moving to England and buying a flat, that England still had that Roman equivalent of slavery with its servile property laws, whereby we are bonded to the master for 999 years, paying for nothing in return. It is therefore no surprise that the Normans brought the concept of ground rent to England and, following the 1290 statute of Quia Emptores, the landlord had complete control over the tenant.
I simply do not understand how such an iniquitous system can have survived for 800 years. In the last century we had radical reforming Governments, and even socialist Governments, but we still have a 1,000 year-old feudal law with regard to property ownership. Will the Labour Party opposite bring forth a new Wat Tyler or Jack Straw—the old Jack Straw, of the Peasants’ Revolt—and lead a revolt against ground rent? I hope it will, because I will be tempted to—or rather, I certainly shall—support it.
The Bill seeks to amend 800 year-old rules of common law. I like common law and respect it—it is one of the greatest systems of law in the world—but as far as the property rights of England are concerned, it has long outlived its moral justification. In this Session of Parliament we will debate Bills dealing with the challenges of the technological age: policing the internet, creating an advanced technology organisation, telecommunications infrastructure—all the stuff of the modern age and the future. Then let us look at this Bill. Clause 4(3) states:
“In this Act a ‘peppercorn rent’ means an annual rent of one peppercorn.”
What in the name of God are we doing in 2021 legislating with terminology such as “peppercorns”, a term invented in the late 16th century? Nothing demonstrates how archaic, obsolete and unlevel is our society like the iniquitous system of leasehold and ground rent surviving and prospering to this day.
The Minister hit the nail on the head when he said in his letter to all Peers:
“Ground rents are a charge that leaseholders pay with no clear service in return from freeholders. Unfair practices relating to ground rent have damaged the reputation of the leasehold system and caused substantial difficulties for some leaseholders. We believe that people’s homes should be theirs to live in and enjoy, not designed as an income stream for third party investors.”
There was never a truer paragraph—my noble friend is absolutely spot on—so why must millions of leaseholders be exempted from the Bill and still have to pay for no service?
We have a situation in which all future serfs will be freed from bondage but existing ones must still pay the master. I thought it was quite instructive when my noble friend said in his opening speech that the Government had decided not to define “ground rent” because—I paraphrase slightly—unscrupulous freeholders would use every underhand trick in the book to find a way round it. That is the problem we face: it is not about the innocent, decent freeholders but the unscrupulous ones.
I was going to put down an amendment to abolish ground rent completely, but I understand that landlords could complain to the European Court of Human Rights that they had been deprived of their property rights. Well, we cannot have that, can we? Since the Government like peppercorns, I suggest that we should have a full packet of them. Thus, I will invite the House to support an amendment so that all ground rents, including all present ones, become peppercorn rents. If future leaseholders need to be protected from being ripped off for no service in return, to use the Minister’s words, existing leaseholders are even more deserving of being protected. The Government might say that it is unfair to interfere with the income received from property, but the Government do that all the time when they take up to 12% stamp duty, 28% capital gains and 40% of your money when you die.
In conclusion, therefore, there is no fundamental new principle in limiting the charge of ground rents to a peppercorn. Landlords would not be deprived of their property rights, although in all morality they should be; they would just get a lower income in peppercorns—although that may rub salt in the wounds. Let us build those 300,000 homes per annum as a bare minimum, and let us give existing home owners proper rights to their homes, free from a feudal serfdom system that should have no place in a modern society.
My Lords, I declare an interest as a vice-president of the Local Government Association. It is of course a pleasure to follow the noble Lord, Lord Blencathra. I will sign his amendment to make all ground rents peppercorns, so I ask him to get it tabled as soon as possible.
Many years ago, when I was on the London Assembly and sitting on the housing committee, an officer from Newham Council said that there are many more incompetent amateur landlords than rogue landlords, and plenty of rogue letting agents managing properties poorly on their behalf. In fact, the noble Earl, Lord Lytton, said that much more forcefully. Personally, as a feudal serf of Lambeth Council—albeit that I own my flat, to which it holds the leasehold—I would like to say that not all leaseholders are incompetent; Lambeth Council is superb.
But when we do have rogues and incompetents, councils are hopelessly underresourced to tackle them. I am concerned that the Bill adds more statutory enforcement powers to local authorities without any corresponding increase in funding for them to carry out those functions. Enforcement officers are inevitably faced with choices about which issues to prioritise and will usually have to focus on the worst cases. I noted what the Minister said about being able to recoup costs and that sort of thing, but that sounds to me like a complete failure. The Government need to start seeing housing enforcement as an investment in levelling up the country’s housing stock. Those bad or incompetent landlords act as a drag on our housing. They suck up scarce housing supply, they fail to invest to maintain it and then they sell it back to renters at unjustifiable rates. Local authorities are on the front line in tackling that problem but, without a significant uplift in their resources, they will continue to struggle.
Ground rents on long leases are inherently exploitative, and the Bill recognises that. The noble Lord, Lord Blencathra, called it a timid Bill. I sense that he will probably not vote against it, but the fact is that it needs updating and improvement. It acts only on future leases, as other noble Lords have mentioned. We need to think about what will happen to leases that people are tied into that could last anywhere from 100 to 1,000 years. People are already seeing spiralling ground rents. Although there is a legal process to challenge this, it is quite difficult. For example, there are supermarket companies which own the land on which a block of flats is built, with the supermarket on the ground floor. We have seen cases where the supermarket then uses the leases of the flats as cash machines to fund improvements that really benefit only the supermarket company and, because they have some negligible benefit to the owners of the flats, it becomes very difficult to challenge. It is wrong for people’s homes to be used to subsidise big business like that.
There is a notable exception to this exploitation of leaseholders, and I am very pleased that the Government have included it as an exemption in the Bill. That is the exemption for community housing leases where the landlord is a community land trust or a co-operative society. That is an excellent thing to put in the Bill. As community land trusts and co-operatives exist to serve their community and their members, the usual exploitative nature of the landlord/tenant relationship falls away. There are housing models that should be encouraged, and I should be very happy if the Minister would share his thoughts and plans to support community land trusts and co-operatives to tackle Britain’s housing crisis.
I must say that I am really looking forward to Committee, because noble Lords who have already spoken in this debate brought up a host of issues that will clearly mean a lot of wonderful amendments to the Bill to make it the best Bill it could possibly be—and obviously that will be very exciting.
My Lords, I must start by declaring an interest as somebody who pays a ground rent. It is not a peppercorn—it would probably buy a few kilos of peppercorns—but I cannot claim to find it too onerous.
The Minister began his remarks by saying that the Bill is intentionally limited in scope, but I can only echo the words of the noble Lord, Lord Blencathra: why is it so limited? It is clearly ludicrous at this stage to be talking about a peppercorn rent. Clause 4(3) states:
“In this Act a ‘peppercorn rent’ means an annual rent of one peppercorn.”
That may explain why weights and measures will be policing this, presumably to check whether the peppercorn is of a certain size and weight. Otherwise, the whole thing is so outdated.
For new properties, the Bill is of course a good move, but existing ground rents need to be addressed. The Competition and Markets Authority estimates, as others have cited, that 18,000 leases have a doubling ground rent clause that applies between every 10 and 15 years. The Minister acknowledges that this is a serious issue. Simple mathematics shows why. If the ground rent is just £200 a year in year one but doubles every 10 years, by year 41 it will be £3,200. By year 71 it will have reached £25,000 a year. No wonder, then, that ground rents are now marketed as profitable investments. According to one of the organisations promoting such an investment, it is possible to generate a return of 5% to 10% a year on a ground rent. Where else can one find such a return without risk and without delivering any service? This is clearly too antiquated.
Of course, one can argue that those who buy leasehold properties with onerous ground rents are subject to the rule of caveat emptor. The noble Lord, Lord Hammond of Runnymede, was eloquent on this subject, and hoped that conveyancers who failed to point this out to their clients would be brought to book. Certainly, there are lawyers out there who are trying to bring such cases and trying to get potential clients interested in such a move. But caveat emptor does not have to apply in every case. Just as the Government moved to protect consumers from onerous interest rates on payday loans, for instance, ground rents now could and should come into the category where people need to be protected by the state.
Clause 2(5) states that statutory extensions will not be subject to these provisions. Why should that be the case? A long lease, many will tell you, is as good as a freehold. Would not this legislation have been the opportunity to demonstrate that, by dealing with the anomaly of escalating ground rents in leases that are being extended under statutory provision? Perhaps reform could go further. Given the existing rights to extend leases, would it not make sense to insist that new properties sold with leases of 99 years or more should be sold with a share of freehold?
Ground rents come on top of service charges. When will the Government move to deal with the malpractice of many landlords in imposing greedy service charges? Far too often, contracts are given to related companies at prices which are really robbing the tenants. These problems often affect new-build properties as much as existing ones—another reason why insisting that a share of freehold should be included in the selling price makes sense. Then the people living in the properties can get themselves together and organise the management of the block.
It is notable that developers of retirement homes have been particularly averse to this legislation. Could that be because they are some of the worst offenders on service charges, yet they argued that they need ground rents as well. They claimed that the ground rents went towards looking after the communal areas—but surely service charges can provide that, and clarity over service charges is what is required in all these situations. So, finally, when will the Government move to make service charges an area that they monitor very carefully and take action on?
My Lords, I declare my interests as set out in the register. It is a great pleasure to follow the noble Baroness, Lady Wheatcroft, and I agree with many of the points she made, not least on the antiquated, archaic references to “peppercorn rents”. The Minister referenced how it was not expected that anybody would enforce the provision for payment of a peppercorn. Let us hope not, because if they did, the only people who would benefit would be the sellers of peppercorns, and goodness knows what shortage may be occasioned by everybody claiming and enforcing that provision. It is archaic and has no part in legislation in the 21st century.
I thank my noble friend for setting out the proposed legislation as clearly as he did; it was most helpful. Its purpose, in a nutshell, is clearly to abolish ground rents on long leases in future. I strongly welcome that and this legislation, although I think it could go further, as other noble Lords have indicated. I hope it ends the iniquitous practice, particularly of late, of claiming indefensible ground rents on property that is freehold in all but name and, in recent years, increasing—sometimes doubling—these charges from year to year. That is clearly indefensible. As referenced early on by the noble Baroness, Lady Andrews, Liam Spender, in a valuable article on the subject, said that leaseholders are too often treated as “cash cows” by some disreputable freeholders. That practice must surely end.
I understand why the legislation is not retrospective on rights that are vested long ago. I clearly see dimensions related to the European Convention on Human Rights and so on. That is reasonable. However, I want to probe with my noble friend why the disreputable practice of late of imposing unjustified ground rents is to continue. Since the Government’s declared intention is to render it illegal, why should there be an indulgence, possibly for a further two years, towards those who are putting this in contracts now? I cannot see why that needs to be the case or that the human rights argument applies in relation to it.
Further to that, I have read that it is suggested that the provisions will not be brought into force until 2023, in about two years from now. Can my noble friend indicate why that is the case, if it is? In short, when do the Government intend the Secretary of State to bring the provisions into force, under Clause 25 of the Bill—assuming that it passes according to the programme set out by the Government?
The Bill is relatively short and straightforward, but I would like to tackle some other points with my noble friend and seek his views on the Government’s intention. First, he referred to rent not being defined, because it may lead to exploitation and loopholes being sought. I do not follow that argument; I cannot see why a definition would do that. There are definitions of rent under other provisions and no cross-reference to them in this legislation. I do not think there is a definition of rent or ground rent, except in the most general terms, in this legislation. I cannot see how that is helpful. It is not, for example, clear whether a freeholder making a provision to fix buildings insurance for the leaseholder is within the definition of rent. If it is not, it presents a loophole. As I say, this is not at all clear and I wonder whether my noble friend could provide more information about the thought given to that and the possible loopholes that may arise from there not being a definition, which I can clearly see may be the case. I hope that, on reflection, the Government bring forward an amendment to add a definition of rent to the legislation, because there are clearly practices that could be exploited by a disreputable freeholder, in much the same way as we had action on tenant fees legislation to list procedures that could be permitted. I ask the Government to give some more thought to that.
A second and related area is the permission fees sometimes imposed in such agreements—for example, for keeping a pet—when drawing up the relatively straightforward paperwork that may be needed when permission is needed under the agreement. Again, has any thought been given to restricting the exploitation of such a provision, in the same way as for the provisions that I have just mentioned? These necessary considerations could improve this legislation.
Lastly, I reference an overriding point that has been mentioned by others, including my noble friend in his introduction, on the enfranchisement of existing long leases. Clearly, if that legislation is long in coming, there is the possibility of a two-tier market in leaseholds, which—
We appear to have lost the noble Lord, Lord Bourne. I think he was coming to an end anyway, so we will go to the noble Baroness, Lady Bowles of Berkhamsted.
My Lords, it is impossible to speak on leasehold matters without acknowledging the dire situation of tenants in properties with defective fire cladding, as has been ably explained by my noble friend Lady Pinnock. It is an extreme example of how leaseholders have been exploited, wronged and left to carry the financial can, and help is overdue.
I welcome the Bill’s intentions to make leasehold fairer and less exploitable, but I regret that it does not do more now. I fear that, without simultaneously plugging loopholes and dealing with legacy matters, it leaves traps and legacy exploitation in its wake. Although it tackles unfair ground rent, it leaves intact freeholders being able to impose transfer fees and other charges. The briefing from the Building Societies Association says that this could be a charge of 0.25% of the sale price, but assignment fees still run at 12.5% at the Castle Village retirement complex in Berkhamsted, and they are similar in many other places.
Ground rents have been rising unfairly in recent years but any income stream related to property, whether from ground rents or estate service charges, is often sold on, traded as a securitised income stream and disconnected from originating responsibilities, assurances and real-life implications. It becomes securitised misery with householders, too distant to be considered fairly, just being treated as commodities and cash cows.
Similar problems have crept into freehold purchases on new estates, with home owners gouged by estate charges and rents, and freeholders not yet having the same rights and protections even as leaseholders. The Building Societies Association gave examples of estate charges of £1,000 per property for maintenance of a 250-property new estate—you can bet that soon escalates—and of ground rent charges seemingly linked to RPI, but with a minimum increase buried in the appendix and frequent reviews, every five years. There are also many reports of estate management companies being slow to provide information during resale or making charges at every turn for doing so.
I looked up some reviews of Trinity Estates, a company that is designated to take over the management of a Taylor Wimpey estate being built now in Berkhamsted, but that manages many others too. “Stay clear” is the message of the reviews, and “hard luck if you are already trapped”. When it comes to later transfers, it seems that Trinity charges £300 just to provide information in response to solicitors’ questions. Others report that, despite paying substantial maintenance charges for gates, they still get a bill every time any work is done on them and that threatening letters follow rapidly, sometimes even after payment.
Estate management company misery is still set to trap hundreds of thousands more every year with the new building that is now happening. Surely all service-type charges, whatever they are called, urgently need to come under a cost-related umbrella, whether to leaseholders or freeholders and whether masquerading as ground rent or something else. Some building societies will not lend where charges are onerous, because it erodes value. In some instances, changes get made, but not everybody has an escape possibility. New-build estate charges are a recent development, councils nowadays not routinely adopting responsibility for roads. As the Building Societies Association briefing points out, there is no council tax discount for those in new builds who do not have adopted roads. I have sympathy with the funding plight of councils, but everybody has been let down by the system that has been allowed to develop and, really, it should stop.
Leasehold is feudal and outdated. It is the only system under which total forfeiture of an asset is allowed when the debt may be only a small part. That is a threat that is waved around to frighten, even where no longer applicable, because it is all in the documentation. If it were invented today, I do not see how it would escape the human rights provisions on confiscation. Frankly, it must be brought to an end. The Law Commission has already consulted on this and found widespread consensus.
I acknowledge that there is more legislative expectation, but can the Minister guarantee that it will stop the estate charge-type scams for freeholders and will help already trapped leaseholders and home owners? When it comes to the largest purchase people make, there simply is not adequate consumer protection. That is what was said regarding PPI, but in comparison that looks mild; PPI never threatened homes.
Like others, I share the concern that councils will not be able to be proactive enforcers. Perhaps a general leaseholder and estate charge ombudsman would be an option. Going to law should not have to be the only effective option, but in the end only comprehensive legislation can stop and reverse the egregious creep of modern feudalism and exposure to extortion now endemic in housing. Will the Government’s future legislation ensure that all aspects are tackled as a matter of urgency?
My Lords, I congratulate the Government on bringing forward this Bill, with its central proposition to get rid of ground rents for leaseholders. These charges represent payment of “something for nothing” and, when capitalised and sold on, have netted an undeserved windfall bonus for the housebuilders. As the Minister noted, some of the housebuilders have exhibited greed and a complete lack of transparency in charging ground rents that escalate alarmingly.
My maiden speech in your Lordships’ House, nearly 20 years ago, was in the Second Reading debate on what became the Commonhold and Leasehold Reform Act 2002. I expressed the view that this legislation would mean that commonhold would, in time, largely replace conventional leasehold, to the great benefit of occupiers. How wrong I was. Commonhold has never taken off because the oligopoly of volume housebuilders has prevented its growth by offering only leaseholds with ground rents that give them spurious additional profits.
I greatly welcome the imminent end to ground rents. This will enable a much-needed reawakening of the commonhold model, and I am delighted that the Minister has set up a task force to explore the next steps for commonhold. Of course, ground rents will remain problematic for existing leaseholders, so we must look forward to the Government introducing measures to help these occupiers too.
I have two, more specialist points. First, there are some different considerations relating to ground rents for developments exclusively for older people. I declare my special interest as co-chair, with Peter Aldous MP, of the All-Party Group for Housing and Care for Older People. There is a dearth of purpose-built accommodation designed specifically to provide the manageable, accessible, comfortable and sociable retirement accommodation for older people wanting to “right-size” and avoid loneliness and isolation. I am keen, therefore, not to undermine those companies selling well-designed new retirement homes.
Although I know of serious complaints in times past about service charges from the less reputable of these housebuilders, their ground rents can represent “something for something”. When the freeholds are sold on to investors, the sum raised can pay for the capital costs of more spacious communal areas: perhaps a meeting room with kitchen facilities, shared garden areas and so on. While these capital costs could be funded by a higher purchase price, there is a sensitivity that the total price may then deter some purchasers. Moreover, as I read it, the Bill means that these extra costs could not be covered by any form of ongoing charge, any addition to the service charge. So meeting the additional costs of extra space and amenities could be problematic.
This is compounded by the issue of timing for sales of retirement housing schemes. Because the Bill provides a breathing space right through to April 2023, most of the homes where a site has already been acquired will be sold before the ban on ground rents becomes law, so, in negotiating the land purchase, the developer can take account of the absence of any ground rent. But the sales process is often very slow for retirement properties, as I know from experience in housing associations that have sold retirement homes, because older people are much harder to please than young buyers. They will take their time before committing themselves to a purchase. Almost always, and very properly, they want to inspect their potential home when it is fully finished, rather than buying in advance after seeing a show home. They may even want to meet up with the scheme’s manager before taking a final decision.
This means that there will be some retirement housing developments that have not been fully sold out by April 2023, but for which the land had been bought in good faith, with planning consent, before the Government’s decision to end all ground rents was announced in January 2021. In these cases most of the apartments in a retirement development are sold, but a handful are yet to go. Where that happens there will be the anomaly of most occupiers continuing with a ground rent, but later purchasers living next to them not paying these charges. Could the Minister see whether it might be relatively simple to incorporate an amendment to the Bill that exempts from the ban on ground rents that small number of retirement apartments where the developer/housebuilder had started construction works by January 2021 but has still not sold all the apartments by April 2023?
My final issue concerns the property agents handling leaseholds: the estate agents who sell them and the managing agents who collect the ground rents. I had the pleasure of chairing the MHCLG working group on regulation of property agents—RoPA—which, as requested by the then Housing Minister, reported in July 2019. We raised concerns about leasehold and freehold charges, and we made recommendations to government for improvements to this unregulated sector to protect consumers and raise standards.
Improving the lives of leaseholders depends not just on the legal framework, of which the ground rent issue is an important aspect, but on the performance of the property agents who, day by day, manage the properties. Indeed, these managing agents are in the front line of the new arrangements for fire and building safety, for which other legislation is before Parliament and which will involve spending billions of pounds, much of it public money, on leasehold property. Although there are some highly professional and thoroughly commendable firms of managing agents, shocking tales abound of managing agents who behave badly, often with leaseholders ignorant of the misdemeanours because of a lack of clarity, transparency and accountability on the part of the agents.
The RoPA report spelled out exactly how this sector could be properly organised and regulated to protect consumers by licensing agents, requiring qualifications and adherence to a code of practice. Our report was unanimous and came from a group representing the key professional bodies, trade associations and consumer representatives. I believe that the Government remain committed to professionalising this sector, and it would be very helpful if the Minister could tell the House where his Ministry has got to in progressing the RoPA 2019 recommendations.
In conclusion, it is great that the Government are now on the case and taking forward significant improvements for leaseholders. This is the start of an important journey, with more yet to come.
My Lords, it is a pleasure to follow the noble Lord, Lord Best, who has a wide knowledge of housing—especially housing policy matters. I remember meeting him some years ago when I was the then Minister for housing in Northern Ireland.
This Second Reading of this small piece of housing finance legislation provides an opportunity for the Government to set out how they intend to fully reform the leasehold provisions within the legislation in England and Wales. Instead, in this instance the Government have chosen to deal with the reform of ground rent. Although this is welcome, it represents only part of the change that is required and is a missed opportunity for the Government to fully address and embrace the needs of communities within the wider housing field.
Last week your Lordships’ House debated the Queen’s Speech; there was much reference to the need for building better for the communities and societies of the future in the post-pandemic phase. A better way to do that is through greater accessibility to social and affordable housing; the sustaining and provision of new jobs; investment in skills and training; the provision of decent homes and a reformed welfare/social security system; regeneration of our towns and cities, and investment in the rural economy. All those sectors are interlinked, and central to them all is the provision of affordable and social housing so that communities have a kick-start as we rebuild out of the marginalisation and disadvantage created by the pandemic. Housing provision offers communities and people a safe basis on which to rebuild their lives following the pandemic, and homes provide that necessary foundation and security to individuals and families.
However, and as a matter of regret, the Government in many ways are still ensuring that the housing market is geared towards the developer and have offered reform only of ground rent, which is referred to by this leasehold Bill. I ask the Minister: where are the other components required in leasehold reform that were promised? In July 2017, the then Conservative Government under Prime Minister May ran a consultation seeking views on measures to
“tackle unfair and unreasonable abuses of leasehold”;
in particular, the sale of
“new leasehold houses and onerous ground rents.”
In December 2017 the Government published their response to the consultation and stated that they would seek to bring forward legislation
“as soon as Parliamentary time allows, prohibiting new residential long leases from being granted on houses.”
The Government also stated that ground rents allow developers to maximise their profits, despite consumers seeing no clear benefit from them. Consequently, they also reaffirmed that they would introduce legislation so that ground rents on newly established leases of houses and flats were set at a peppercorn rate. I recognise what other noble Lords have said—that such a provision could not be retrospective—but could a time limit not have been placed on that to ensure that, in many cases, exorbitant ground rents are truly tackled?
Furthermore, the Government asked the Law Commission to review leasehold enfranchisement to make it easier, quicker and more cost effective for leaseholders to buy their freehold or extend their leasehold enfranchisement. The consultation ran until January 2019 and in July 2020 the Law Commission published its findings. It identified problems with leaseholds and made several recommendations, and in January this year the Secretary of State, Robert Jenrick, stated that the Government would bring forward legislation to set future ground rents to zero in the next parliamentary Session—hence the Bill under discussion today. He stated that it would
“be the first part of major two-part legislation to implement leasehold and commonhold reforms in this Parliament.”—[Official Report, Commons, 11/1/21; col. 11WS.]
The Minister has today referred to the commonhold forum that has been established, which I understand he may chair. In that respect, can he indicate the timeframe for this legislation, which would involve enfranchisement and the whole area of commonhold?
I note that this legislation has been welcomed by the property associations and the Conveyancing Association. Notwithstanding this fact, the property associations have called on the Government to extend the provisions of the Bill to those who would be exempt from it as drafted. Why was the legislation to extend the provisions on ground rents not extended to those who own a leasehold property? Maybe the Minister could provide answers to those questions, which have already been referred to by previous noble Lords in the debate.
I am reminded of the words of the noble Baroness, Lady Andrews, in last Monday’s Queen’s Speech debate:
“There was nothing on the scale of leasehold reform that we were anticipating. Yes, ground rent reform is important, but it is the low-hanging fruit of leasehold reform.”—[Official Report, 17/5/21; col. 408.]
This percipient statement clearly highlights what is not in the ambit of leasehold reform but needs to be, thus highlighting the importance of a more all-encompassing reform of leaseholds. The noble Baroness, Lady Andrews, referred to those issues today in her speech.
There is a need to correct the injustices faced by leaseholders locked in unfair contracts and faced with rip-off costs. The leasehold model needs to be totally reformed to include some of the following provisions: to impose a cap on ground rents for existing leaseholders at 0.1% of the property value up to a maximum of £250 a year; to set a simple formula for leaseholders to buy the freehold to their home, or commonhold in the case of a flat, capped at 1% of the property value—I ask the Minister whether that will be included in future legislation on commonhold; to crack down on unfair fees and contract terms by publishing a reference list of reasonable charges, requiring transparency on service charges and giving leaseholders a right to challenge rip-off fees and conditions of poor performance from service companies; and to ensure that residents are given greater powers over the management of their homes, with new rights for flat owners to form residents’ associations and by simplifying the right to manage. Can the Minister indicate when the Government will be prepared to bring forward supplementary legislation to reflect the foregoing points, which would encompass a total reform of the leasehold system?
I suppose I am a little envious, from a Northern Ireland perspective, because there is not much set out here in terms of leasehold. Rules on leaseholds are set out in individual contracts and there is no regulation of service charges in Northern Ireland. I will be pursuing this legislation—and, I hope, subsequent legislation—with the Minister for housing in Northern Ireland. But, in the meantime, can the Minister indicate whether discussions have taken place with the devolved Administrations—notwithstanding the fact that all matters to do with housing are devolved—about the content of this legislation and future reforms of the leasehold sector?
I have posed several questions to the Minister and look forward to his response.
My Lords, like others who have spoken, I very much welcome this Bill. It is another step along the road of reform that, as my noble friend Lord Blencathra said, began in 1967 with the Leasehold Reform Act, which gave tenants of houses the right to buy the freehold. That was followed in 1993 by the Leasehold Reform, Housing and Urban Development Act, which gave leasehold tenants of flats the right collectively to buy the freehold.
I modestly remind the House that I put that piece of legislation on the statute book nearly 30 years ago. The junior Minister who skilfully piloted it through your Lordships’ House was my then youthful noble friend Lord Strathclyde. This was subsequently amended by the Commonhold and Leasehold Reform Act 2002, which introduced commonhold. In my view, the destination of this journey should be the eventual elimination of leasehold. Here I agree with my noble friend Lord Blencathra, who spoke without restraint a few moments ago about the feudal form of tenure, which exists nowhere else in the world and has no place in a modern society.
Switching metaphors, the Bill before us today is the appetiser for the main course—a more comprehensive piece of legislation to remove some of the inequities of the present leasehold system, which I look forward to and, along with other noble Lords, hope will not be delayed too long. I accept what my noble friend the Minister said right at the beginning: that we should not use this piece of legislation to shoehorn in parts of the more substantial legislation that I hope will follow soon. I applaud the role that my noble friend the Minister has played behind the scenes in moving this whole debate forward. While I am delighted that many builders such as Barratt Homes have abandoned ground rents and are establishing resident management companies, not all are following—hence the need for the Bill.
As many noble Lords have said, although the Bill has “Ground Rent” in the title, nowhere in the Bill is this defined; I will refer to that again in a moment. However, given that “Ground Rent” is in the long title, the Government could have included in the Bill the Law Society’s recommendation that existing leaseholders should be able to buy out ground rents. At the moment, they can in effect extinguish the ground rent but only by extending the lease, which of course involves paying a premium. Many may not be able to afford this but they could buy out the ground rent on the basis suggested by the Law Commission. Might my noble friend include that as a government amendment in Committee, which I am sure would be very popular?
As I said, the Bill does not define “ground rent”; this was raised in the Zoom meeting that the Minister was kind enough to hold with a number of us last week, and it is being raised again today. Clause 22 is headed “Interpretation”. It tells us what a dwelling and a peppercorn rent are, but not what ground rent is. Instead, it says that
“‘rent’ includes anything in the nature of rent, whatever it is called.”
That is very broad and, as my noble friend Lord Hammond said, may capture other elements that are not ground rents. What it calls a “permitted rent” is defined in Clauses 4 to 6, but that definition may go wider than ground rent.
The Explanatory Notes say that the Act is intended to capture any payment under a lease which does not impose an obligation on the landlord to provide a service, but this is not in the Bill. However one defines ground rent—there are definitions in the Law of Property Act 1925, and the Law Society in its helpful briefing for this debate suggests another definition—it is important that ground rents do not reappear under another name. Could this happen by specifying a fixed service charge rising in line with inflation to cover the landlord’s expenses in arranging buildings insurance? This point was made by my noble friend Lord Bourne before he was excommunicated. As the law currently stands, fixed service charges cannot be challenged by leaseholders, but they could be used by freeholders as the basis for secured lending, thus perpetuating the ground rent investment industry. Also, as my noble friend Lord Hammond said, in modern leases and modern case law, rent often has a broader meaning, including ground rent and service charges. Perhaps, as the noble Baroness, Lady Andrews, suggested in her speech, the Bill intends all future residential leases to be drafted so that only the peppercorn rent is described as a rent. Perhaps my noble friend the Minister could deal with that in his wind-up.
I am also concerned at one of the exceptions in Clause 2(1)(b), which my noble friend mentioned in his opening speech. The right in the Bill does not extend to premises where the nature of the business purposes demised by the lease as a dwelling
“significantly contributes to the business purposes”.
In the case of a block that has offices on the ground floor but flats above it, where there is a head lease, does this mean that the flats are excluded from the provisions of the Bill? Speaking from memory, the 1993 Act excluded from enfranchisement premises where more than 25% was non-residential; I wonder why that definition is not used here.
On the commencement date, the noble Lord, Lord Best, made a valid point about retirement homes in the process of being sold, where there was the risk of a two-tier system of ground rents. Hopefully, Wales will move at the same pace as England, but I see that the Bill allows a separate commencement date. Perhaps the Minister can clarify.
I was going to end by saying that I did not see why we needed three days in Committee but, having listened to today’s debate, I am not sure that three days will be enough. However much time is spent in Committee, I hope that this will not delay too long the arrival of the Bill on the statute book.
My Lords, the noble Lord, Lord Thurlow, has withdrawn so I call the noble Lord, Lord Bhatia.
My Lords, as almost the last Peer to speak, I have decided not to speak from the notes that I had prepared for this event. There have been some excellent speeches on the Bill. I mention that of the noble Lord, Lord Best, in which he shared his excellent experience in this field. His reference to retirement homes was very well articulated and I fully agree with what he said.
The noble Baroness, Lady Gardner of Parkes, has withdrawn so I call the noble Baroness, Lady Grender.
My Lords, as many noble Lords have said, this Bill is most welcome. I thank the Minister for the meeting that he held with me last week, but I think all of us would recognise that this is a first tentative dip of the toe into the vast lake that is leasehold reform. We all hope and are impatient to see the full-blown dive, and we want it to come soon.
It was five years ago that the Leasehold Knowledge Partnership warned the Government of the pending ground rent and leasehold scandals; that was before the tragedy of Grenfell and before the pandemic of the past year, cited as the reason for the latest delay. I believe that we should pay particular attention to its recommendations regarding this Bill; it wants this Bill as a first small step. We must beware the powerful lobby of freeholders and investors who will try to widen the Bill then find loopholes to change it; we should pay attention to the Leasehold Knowledge Partnership’s recommendations with great care.
It has taken too long; the timetable outlined by the noble Baroness, Lady Ritchie of Downpatrick, was helpful with respect to the history of this. This Leasehold Reform (Ground Rent) Bill cannot come soon enough for the leaseholders of tomorrow. As many noble Lords have mentioned, this of course leaves the question of what happens next to the 4.5 million current leaseholders who have been treated as commodities or income streams to be sold to the highest bidder in a feudal system—as brilliantly explained by the noble Lord, Lord Blencathra—in what I will describe as “the peppercorn peroration”. The system, reinvented by wealthy Victorian landowners, is almost unique in the world, in which third-party ground rent investors or landlords often sit in direct conflict with the interests and needs of the leaseholders—the families and individuals who have bust a gut to own a home but, sadly and tragically, been screwed by the small print.
The noble Baroness, Lady Bowles, shared one example of charges of £1,000 per property on a 250-unit site with five-year reviews, while the noble Baroness, Lady Wheatcroft, shared an example of service charges. On Friday, on BBC Radio Four’s “You and Yours”, a lady called Jane Hewland, who bought in 2006, described how she started with service charges of £12,000, which are now £30,000 per annum. I appreciate that, for Boris Johnson, this is an annual takeaway bill, but it is the equivalent of an annual salary for a health worker. The noble Baroness, Lady Pinnock, also described an extraordinary figure that rose from £5,000 to £16,000 on a £170,000 flat in London.
Ever since the attempt in 2002 so ably described by the noble Lord, Lord Best—I am sure I am not the only Peer in this House who is reassured that he has got something wrong, given that he is such an expert in this area—to encourage more commonhold, it has been clear that, in this so-called free market, the people who are not free are the leaseholders themselves. Indeed, government incentives, subsidies and ideology have pushed people into home ownership with unclear leases and hidden charges. Little wonder that the Leasehold Advisory Service, a Government-funded body, has found that 57% of leasehold purchasers have regretted becoming owners—or alleged owners, because of course they have soon discovered that they are not. As one leaseholder said to me last week, “With the fire safety costs and the additional charges for leaseholders, England is the very opposite of a free-market home-owning economy”. Jane Hewland put it this way: “You own nothing, you control nothing and going to court means you end up paying all the charges”.
I therefore support the strong words of my noble friend Lady Pinnock and the noble Earl, Lord Lytton. Alongside my noble friend, I will continue to test every sinew of each law coming through this place to ensure that leaseholders—who, as she always says, did nothing wrong and everything right—get a fair deal when it comes to cladding and the fire safety issue. As she also says, clearly we are dealing with highly unethical freeholders. I also welcome the reform of the regulation of property agents suggested by the noble Lord, Lord Best, and look forward to hearing the Minister’s response on that issue.
I place on record my thanks to the Leasehold Knowledge Partnership, the National Leasehold Campaign and the Building Societies Association for their briefings on the Bill. It is clear from the charities that fight for the rights of leaseholders that this legislation is welcome, albeit a small step. The particular advantage that we in the Lords have is that across parties and with the Government we can sometimes, in Committee and in more informal discussions, have useful conversations that will rule out loopholes and tighten some of the language. This was particularly successful for the then Tenant Fees Bill under the strong leadership of the noble Lord, Lord Bourne, and I hope we can repeat that exercise with this issue so that the fears of the noble Lord, Lord Young of Cookham, about three days of Committee may not come to pass and we can find some easier ground.
We need this legislation soon so that we can get to the main Bill with greater reforms. It is a good first step to strip out of the market the ability for a third party to acquire a freehold and levy charges, so Clauses 3 and 4, which make the permitted rent a peppercorn rent, have our support, although I look forward to hearing the Minister’s answer to the excellent question from my noble friend Lord Stunell and the noble Baroness, Lady Andrews: in the face of all the evidence, why are we settling for this? That said, it is also welcome that there will be no administration fees for the cost of collecting that peppercorn rent. This is an achingly slow process. When it was changed in Australia in the 1960s, it took decades for the inherently unfair system of leasehold to be removed.
In Clause 5, we will look at whether there are some unintended exceptions of shared ownership, and will watch to ensure that a developer cannot use this clause to circumvent the original intention of the law.
In Clause 8, what support will local government have to enforce these changes? I particularly note the comments of the noble Baroness, Lady Jones of Moulsecoomb, and my noble friend Lord Stunell. Will the Minister perhaps consider some pump-priming to get enforcement started? He will already be aware of the current abysmal failure to register rogue landlords, so what can be done to improve enforcement and resource it in the first stage? After all, it is a bit of a chicken-and-egg situation.
That takes me on to some of the things that are missing from the Bill. In his opening remarks, the Minister confirmed that informal lease extensions can continue and can be chosen to include a ground rent for the remaining period instead of a larger up-front sum. There is significant concern that freeholders will put in massive multipliers when offering informal lease extensions just to make the premium look more attractive and lower. In other words, in the period running up to the introduction of this Act, what kind of dodgy deals are going to be done to extend leases where the consumer will come a cropper?
The current, almost barbaric, system of forfeiture for a level of arrears that bears little relation to the overall value of the property is, as my noble friend Lady Bowles said, the only system under which total forfeiture of an asset is allowed when the debt may be only a small part. I look forward to hearing from the Government that there are further reforms on this in the pipeline, particularly following the Law Commission’s recommendations. I wonder whether we should try to put this into primary legislation.
I also look forward to further news regarding the CMA’s enforcement action, particularly against Countryside and Taylor Wimpey for their use of terms that double the ground rent every 10 or 15 years. It is suggested that this breaks consumer protection law. Can the Minister clarify whether it is the Government’s intention to tackle this issue in primary legislation or to wait for the courts if the CMA’s action fails?
We also all wait with some interest and impatience to hear the results of the deliberations of the Commonhold Council set up by the Government and chaired by the Minister. Frankly, as we have heard from almost every speaker, until that thorny issue is concluded, until we end a system almost unique in the world and until we follow in the footsteps of Australia, Scotland, Canada, New Zealand and the USA—to name but a few—the claim that these are the most significant reforms will at least be on hold.
I stress the words of the noble Earl, Lord Lytton, and my noble friend Lady Pinnock, who asked about the unintended consequences of a two-tier system in the market where long leaseholds end up having a bad press and cannot be sold on by the people who own them.
Also missing from the Bill are unfair terms and conditions, unfair estate charges, the imposition of unfair insurance, as described by my noble friend Lord Stunell, redress schemes and commission fees. These are all things we will want to examine in Committee, as well as some of the late changes in transparency of reporting, which Opposition Peers successfully introduced in the final stages of the then Tenant Fees Bill. Therefore, we will look for opportunities to have, for example, a register of reasonable charges, enabling consumers to understand fair pricing and challenge unreasonable costs.
Like the noble Baroness, Lady Andrews, and the noble Lords, Lord Bourne and Lord Young of Cookham, we will also want to explore further how clear the definition of rent is. The Explanatory Notes say that the Act will capture any payment under a lease that does not impose an obligation on the landlord to provide a service but, in modern leases and case law, rent may have a broader meaning. I thank the Law Society for its briefing and concerns on this issue; I also thank Liam Spender of the LKP for his helpful blog on this matter. I look forward to the Minister’s clarification of the use of “assured shorthold tenancies” as described by the noble Lord, Lord Hammond of Runnymede.
This week, Jane Hewland, who I mentioned earlier and who was on “You and Yours”, will receive a bill of around £30,000. She has a flat with no facilities and no garden, and has had no explanation and no warning in advance. For her, and for millions of future leaseholders like her, we need to get on with this Bill and get to the main issue of the current 4.5 million leaseholders as soon as possible. Yes, these are baby steps, or piglet steps for the purposes of the noble Lord, Lord Blencathra, but I look forward to them being fully grown—and soon, please.
My Lords, I refer the House to my relevant interests as set out in the register, namely as a vice-president of the Local Government Association, a non-executive director of MHS Homes Ltd and chair of the Heart of Medway Housing Association.
The Minister will have heard the speeches of all noble Lords who have taken part in the debate today. I think it is fair to say that everybody welcomes the Bill as far as it goes. I entirely accept that progress is being made and it is welcome, but—there is always a “but”—the issue that noble Lords have mentioned is the pace of reform, which is slow. In fact, it is really, really slow, and it is regrettable. This Bill could do so much more than it is doing.
My noble friend Lord Berkeley asked whether this Bill is doing the easy bits. Sadly, it is doing exactly that. The Government have form here. On a lot of legislation, they like doing the easy bits and making announcements about what will come down the track, but in many cases we are still waiting for what is coming down the track. I am reminded of the Housing and Planning Act 2016—a dreadful piece of legislation. Thankfully, Theresa May got rid of most of it, but regarding the rogue landlord database, which the noble Baroness, Lady Grender, just mentioned, the Act was passed in 2016 and five years later we are still waiting for the legislation to make that publicly available. I hope that we get some progress and are not just kicking the can down the road.
Perhaps the Minister can give us some more detail about when we can expect the more substantial legislation dealing with the real issues, such as the 4.5 million people today who are struggling with unsatisfactory leases. Leaseholder problems are nothing new and neither is the call for the reform. However, the problems have got worse. The Bill’s major failure is that, if you have problems with your leasehold property today, there is nothing here to help you.
The noble Lord, Lord Hammond of Runnymede, made a very fair point about conveyancers and the advice that they gave to leaseholders. I hope that the Minister responds to the noble Lord’s points.
The noble Earl, Lord Lytton, raised the issue of the consultation flaws. I have raised issues about inadequate consultation many times. Again, I hope that the Minister responds to those questions.
The noble Lord, Lord Blencathra, in a most enjoyable speech, set out why the Government must act urgently. We got it all: the Romans, the Normans, the Doomsday Book, the Peasants’ Revolt, Wat Tyler—the only one missed out was Lord Mayor Walworth. However, although it was enjoyable, the noble Lord’s serious point was that reform is desperately needed and long overdue. This goes back so many years. I hope that the Minister takes that on board. We must ensure that this leasehold type of property ownership has had its day and that the Government are marking that, and that this is the start of the process to end that. If that is what we will hear from the Minister, I will be very pleased, because if you are a leaseholder, you can be trapped in very unfair terms and must go on waiting for that leasehold reform, which is unacceptable.
Many noble Lords have described the Bill as “timid”. The Bill is good as far as it goes, but it could do so much more. Why is it so timid and what is the time scale for a more substantial piece of legislation? When will we see it in this House? It would be good for all of us to know, because this Bill is a missed opportunity, and in that sense it is a failure. The noble Baroness, Lady Ritchie of Downpatrick, made these points.
My noble friend Lady Andrews pointed out the huge problems that people face when they buy a leasehold property and then see their ground rent double, as well as other onerous charges. We have heard several times of people being “ripped off”, which is totally unacceptable.
I will be pursuing several issues in Committee and on Report. I hope to persuade the Minister and the Government of the merits of my case, and I am sure that the Minister will want to do the same, but if not, I am happy to divide the House on Report regarding certain issues. Here are some of the issues that I will be interested in looking at. We will be exploring whether we can remove the ground rent from existing leaseholders and put into the Bill a requirement for the Government to begin that work and get a timetable for it to go forward.
There is also the issue of unfair terms and conditions beyond ground rents, which is not addressed anywhere in the Bill. I am talking about unfair terms and conditions such as transfer fees imposed by freeholders on the sale of a leasehold property, which are totally unfair and unjustified.
Another issue is leasehold forfeiture, which has been talked about already today. That is a process whereby somebody can lose their property for a small debt, which is totally unacceptable and needs to be dealt with. The concept is disproportionate in relation to the potential debts involved. The Bill could have been used to stop that practice and put in place a more proportionate system to address issues of debts owed, but it does not do that.
I am also not convinced that the penalties in place to deal with rogue freeholders who seek to illegally charge leaseholders a fee beyond the peppercorn go far enough. Is the maximum fee of £5,000 the right amount? Should there not be an extended sliding scale for repeat offenders?
One of the clauses refers to getting the fee back that has been charged to a leaseholder illegally. If the fee has to be paid back, that is good but I would like to see some interest and compensation for the leaseholder if it was charged to them illegally. I would also want to see larger-scale fees charged to companies that do that, because they probably need to be deterred. If their fee is only ever £5,000, they might well get away with it in some places and think, “Actually, this is worth taking the risk.” We need a much larger fee to deter people from behaving like that.
Another problem the Bill does not address is what people and companies will seek to do to get around this ban on ground rents. By that, I mean a whole new raft of additional fees, special provisions and other charges—generally, rip-off revenue streams which freeholders might seek to place on the leaseholders. These types of fees will be of no benefit to the consumer or leaseholder; it is unfair if they are just cash cows. What will the Minister do to stop this becoming a reality? Let us be clear: some of these organisations have lots of clever people. Their lawyers will sit down and say, “Right—this has been banned, but what can we do to get around it by doing something else?” What are the Government going to do about this? Otherwise, we will be here in a few months’ time saying, “That’s great, but what about these charges?”, and people would be no better off. The noble Lord, Lord Stunell, referred to this in his contribution.
The noble Baroness, Lady Wheatcroft, rightly highlighted the problem of service charges. I have spoken to many leaseholders over the past few months who have been asked to pay a really unfair level of service charge. I often wonder how much these charges reflect actual work done and how much they are a sort of management fee, where they do not get a lot for them. Again, we are not dealing with that and it is disappointing, as the Bill could have dealt with those things as well.
The noble Lord, Lord Bourne of Aberystwyth, highlighted the permission fees. Again, that is another example of leaseholders being ripped off and seen as cash cows.
The noble Lord, Lord Best, spoke about the risk of rogue property agents and others acting in an unscrupulous manner. Often when we legislate in this House, it is not to deal with the good people who play by the rules but to deal with the rogues—the people who just push their luck and pull strokes. How are we going to deal with that, when it is really important? It is not about good businesses but the rogues who will behave badly. The noble Lord, Lord Young of Cookham, mentioned those points in his contribution as well.
This has been an excellent debate with lots that we can generally agree on. There is also a lot to get our teeth into during our Committee and Report stages. I hope the Bill will be given three days, or maybe a bit longer. As we can see from this debate, lots of issues will need addressing. I hope that the Minister will have an open mind—I am sure he will—and want to engage with the House. I think we all want the same thing here; we know there is a problem and are trying to sort it out. It is just that we are a bit more frustrated and maybe want to get it done a bit quicker. We have raised serious points that need to be addressed in the Bill, even given its narrow provisions, so we ensure that when it becomes an Act it is a good one and does what the Government seek to do. With that, I look forward to the Minister’s response and our deliberations in the next stages.
My Lords, I am grateful to all noble Lords for their very valuable contributions and for setting my expectations for the depth of scrutiny in Committee. It has been extremely helpful to hear all noble Lords’ views.
I pay tribute to my noble friends Lord Blencathra and Lord Young, who in many ways set out the historical context for this modest first step in the Government’s programme of leasehold reform. It has taken nearly 1,000 years to establish landlord and tenant law. We started with the Domesday Book of 1089 and then gravitated to the Middle Ages and the feudal system, when the words “freehold” and “leasehold” were formally established. I am surprised that my noble friend Lord Blencathra did not mention copyhold, the form of tenure whereby a serf received a copy of the manorial roll as an indication of where they should live—so they had absolutely no rights at all. That was true serfdom.
In his speech, my noble friend Lord Young showed the relatively recent steps that we have taken. In the year of my birth—1967—nearly 54 years ago, the first Act was passed, and we saw the legislation that he brought in in 1993 and, obviously, the Commonhold and Leasehold Reform Act 2002. That is a little over half a century to reform, so I argue that reform of a system that has taken over 1,000 years to establish is not—and can never be seen as—a quick fix. Certainly, I prefer the description of the noble Baroness, Lady Grender, of this as a small but significant step, as opposed to the metaphor used by my noble friend Lord Blencathra, which I will not repeat.
To return to some of the points made, the noble Baronesses, Lady Andrews, Lady Pinnock, Lady Ritchie of Downpatrick and Lady Wheatcroft, and the noble Lords, Lord Berkeley, Lord Stunell and Lord Kennedy, all pushed for an indication of when wider leasehold reform would take place. Essentially, the Law Commission has made it very clear that bringing in the more detailed legislation will take at least a year, so, ideally, we hope to get this through quickly—notwithstanding the depth of scrutiny in Committee—so that we can bring the second step of the legislation in the next Session of Parliament. That is our objective; of course, events may take place that steer us away from that, but we certainly want to move at great speed to establish that very important second stage.
The Government are committed to reforming the leasehold system. It is complex, and it will take time to get the detail right because, as referenced by the noble Lord, Lord Best, commonhold has not taken root, even though it was introduced and established in 2002. We want to get it right this time: this is very much a first step in getting leasehold reform to work and in the widespread adoption of commonhold.
The noble Baroness, Lady Pinnock, the noble Lord, Lord Stunell, my noble friend Lord Blencathra and many others mentioned and asked about existing leaseholders, who are unhappy with ground rents that their lease requires them to pay. We understand these difficulties and have been working with industry to get existing leaseholds with onerous ground rent terms changed to a better deal. We are pleased that the Competition and Markets Authority is taking enforcement action in relation to two key issues: first, tackling certain instances of the mis-selling of leasehold property; and, secondly, addressing the problems faced by homeowners due to high and increasing ground rents.
It should also be noted that, where existing leaseholders have a complaint about a conveyancer, solicitor, property developer, estate agent, freeholder or management agent, there are existing routes to redress. We have worked with trading standards, which have published comprehensive information for leaseholders to access the right support.
In January 2021, we announced the introduction of a cap on ground rents in the enfranchisement valuation process. This will make it more affordable for leaseholders to purchase their freehold or extend their lease. As we set out in January, we will bring forward those further reforms in this Parliament.
This is not the Bill to address the costs of historical fire safety defects, as raised by the noble Baroness, Lady Pinnock. We will look at measures to strengthen redress and the building regime for high-risk buildings as part of the building safety Bill that will come before Parliament later this year.
Many noble Lords, including the noble Baronesses, Lady Andrews and Lady Grender, and my noble friends Lord Hammond, Lord Young and Lord Bourne, all raised the definition of ground rent. In drafting this legislation, we considered at length whether closely to define the meaning of “ground rent” or “rent”. We concluded that such a definition would likely do little more than offer a fixed target from which a nimble operator could diverge at ease. That is our principal concern. To avoid this, the Bill adopts a flexible definition of rent, which relies on its naturally understood meaning and includes anything in the nature of rent, whatever it is called. I understand that there are some concerns around this, but I can confirm that the Bill applies only to properties that can be considered long leasehold tenure with residential use. I am happy to meet noble Lords again to discuss the matter further. My noble friend Lord Hammond of Runnymede gave an interesting “person A to person B” example involving passing on a shorter lease of some 25 years where no premium was charged and then establishing a rent. He asked whether that would be covered. We recognise my noble friend’s concern and can be clear that it is not our intention to cover market rents and restrict those to a peppercorn. The Bill is forward-looking, so current investments are protected, and it applies only to leases of over 21 years. However, I would be happy to meet him and discuss these concerns further.
My noble friend Lord Hammond also mentioned the publication of regulations. There is no secondary legislation in relation to home finance plan leases. Clause 2(8)(b) is a reserve power which will be used only if abuse occurs and the Secretary of State needs to specify further conditions to deter such abuse. We have no plans to introduce conditions on the sector.
My noble friend Lord Young mentioned buying out existing ground rents. He will forgive me if I say that it was an issue also raised by my noble and learned friend Lord Mackay of Clashfern. Leaseholders of flats can already buy out their ground rents. Leaseholders of houses can do it by buying their freehold, which I appreciate can be prohibitively expensive. In January, we announced plans to reform the valuation process, which will cap how rent is treated and reduce the premium to be paid. The Law Commission has made specific recommendations in this area, mentioned by my noble friend, which we are currently considering.
Many noble Lords, including the noble Lord, Lord Stunell, and the noble Baronesses, Lady Bowles of Berkhamsted, Lady Andrews and Lady Grender, mentioned the important issue of resources for trading standards. We are very clear that funding for new burdens and new requirements will be taken into account in future local government settlements—I know that response was predicted by the noble Lord—but enforcement authorities will also be able to retain the proceeds of any penalty imposed by them. Penalties can be up to £5,000 per breach. If someone is doing this multiple times, they face that fine on multiple occasions. I am sure that we can explore in Committee whether we consider that to be enough, but that is currently what we have set, and it can be applied multiple times to an individual who perpetrates the breach on many occasions. We will publish guidance to local authorities and trading standards to help them enforce the Bill and work closely on implementation.
The noble Lord, Lord Best, an expert on retirement housing, asked whether the transition period was long enough. We believe that those who purchase retirement homes should benefit from the same reform as other future leaseholders. Including retirement properties in the Bill means that they are not exempt.
That does not change the way in which other types of charges such as event fees can be used in the retirement sector, but I am happy to discuss this further with the noble Lord, as he brings a wealth of experience, including in the regulation of property agents. I thank the noble Lord for the invaluable work that he led in that area, with the publication of the report on the regulation of property agents. We welcome the working group’s final report. The recommendations are with the Government for consideration, and we are committed to ensuring that those living in the leasehold sector are protected from abuse and poor service and to raising professionalism and standards among property agents.
The noble Baronesses, Lady Wheatcroft and Lady Ritchie of Downpatrick, raised unreasonable or egregious service charges. We believe very strongly that any fees and charges should be justifiable, transparent and communicated effectively and that there should be a clear route to challenge or redress if things go wrong. The law is clear that service charges must be reasonable and, when costs relate to work or services, the work or services must be of a reasonable standard. We will continue to be very vigilant on that matter and will consider any other measures that we need to take as part of our second step on the road to leasehold reform.
The noble Lords, Lord Stunell and Lord Kennedy, referred to other abuses. I point out that the Bill as drafted covers administrative fees so that we can stop freeholders who charge fees for the collection of a peppercorn ground rent, which would be frankly ludicrous, as it is a peppercorn that we do not even need to see levied. We will continue to look at fees such as those mentioned by the noble Lords, Lord Stunell and Lord Kennedy—transfer fees, permission fees and transfer charges. We welcome the report from the noble Lord, Lord Best, that looked at those issues, and we are considering his recommendations.
The noble Baroness, Lady Bowles of Berkhamsted, mentioned the estate charges scam. We intend to legislate to give freeholders on private mixed-tenure estates equivalent rights to leaseholders to challenge the reasonableness of estate rent charges, as well as the right to apply for the First-tier Tribunal to appoint a new manager to manage the provision of services covered by estate rent charges. It is important that there is a level playing field.
The noble Earl, Lord Lytton, asked why we should not bring about a statutory redefinition of “quiet enjoyment”. We have not looked at the statutory definition of quiet enjoyment as part of the legislation; the Bill does not affect rights to charge and receive ground rents for commercial premises in mixed-use development when the lease for the commercial premises is held on a separate lease from the residential part of the development.
The noble Lord, Lord Berkeley, wanted some clarification on the scope for new leaseholders’ conversion of houses into flats and retail into housing. I can provide the assurance that the Bill will apply to all new residential long leases, including in those instances exceeding 21 years. That includes those new leases created as a result of subdivision or conversion of properties. He also asked whether we had applied for consent from the Crown and, specifically, the Duchy of Cornwall. I can say that consent was sought and granted in writing from the Crown and the Duchy of Cornwall, and no changes were made.
The noble Baroness, Lady Ritchie of Downpatrick, wanted to know about the Government’s discussions with devolved Administrations, especially Northern Ireland. I point out that the legislation applies to England and Wales only. However, early discussions with Northern Ireland officials took place to help to inform the development of the policy.
I hope I have done my best to cover the principal points. This is necessarily tightly focused legislation which will improve the leasehold system for future home owners. The Government are therefore keen to get this Bill on the statute book as quickly as possible so that the new measures can take effect. I will be grateful for the support of noble Lords in achieving this.
This is only part of the start of an ambitious package of leasehold reform, with further legislation on a wider set of measures to follow later in this Parliament. As I have indicated, this will come in the next Session, I hope. This Bill is small, but it is vital and it is a step towards the better, fairer and more transparent leasehold system that the Government are committing to delivering. Therefore, I commend it to the House, and I beg to move.
Bill read a second time and committed to a Grand Committee.
Arrangement of Business
The following Statement was made in the House of Commons on Thursday 20 May.
“With permission, Mr Speaker, I would like to make a Statement about the future of rail.
The railway is one of the nation’s proudest and most enduring innovations. Almost 200 years ago the first line opened—the Stockton and Darlington in County Durham. Within decades, the railway’s iron web stretched across the nation, carrying trains that transformed our economy and society. From steam icons such as the “Flying Scotsman” and the “Mallard”, to the high-speed intercity 125, which became the stalwart of Britain’s railway for 45 years, this country was built by the railway.
In the 19th century, rail helped to make us so productive and turned us into the workshop of the world, and rail powered our great Victorian cities and shaped our economic geography. Rail opened up vast, long-distance travel for ordinary people, transforming opportunity for the masses. Just as rail moulded our past, so will it shape our future. No other form of transport can bind the nation so effectively and help us to level up our country, bringing new jobs and investment to regions such as the north and the Midlands, as we build back from Covid.
However, for rail to play that key future role and reach its true potential, the industry requires radical overhaul. The Government are deeply committed to rail. We are spending tens of billions on modernising rail infrastructure, electrifying existing routes, updating signalling stations, renewing train fleets, building new lines, and making up for decades of underinvestment, but there are problems that investment alone cannot solve, such as too many delays, too much confusion for passengers, and different parts of the industry not working together.
The part-privatisation of the railway in the mid-1990s successfully reversed its long-term decline. Private sector involvement has seen passenger numbers more than double, rising more quickly than in most of Europe. Passenger travel is safer, and our country is better connected, with billions invested in new, modern trains and upgrading our stations—investment that would not have happened under nationalisation. However, the industry is fragmented, it lacks accountability, and it is lacking in leadership. The chaotic timetable change of three years ago this week demonstrated that point, as did the Government being forced to step in to take over failing franchises. Those are just some examples of how the railway was not working, and of how it was neglecting its greatest, most precious asset: the passenger.
Today I am proud to announce the beginning of a new start for the railway in Britain. It is the biggest shake-up in three decades, bringing the railway together under a single national leadership, with one overwhelming aim: to deliver for passengers. The new public body, Great British Railways, will own the infrastructure, run and plan the network, organise the timetable and set most fares. It will be one organisation, accountable to Ministers, to get trains running on time, make the customer experience as hassle-free as possible, and bring the railway into the 21st century, a single, familiar brand, with united accountable leadership.
We are going to sort out and simplify ticketing. Instead of having queues at stations for wads of paper tickets, we will roll out convenient, modern ways to pay and book—smartphones and contactless—and a new Great British Railways website for selling tickets across the network. We will welcome independents continuing to compete in the ticket retail market, particularly where they can grow new markets, recognising the value of private sector innovation. Pay-as-you-go will be more widely accepted, and flexible season tickets will be introduced next month, saving money for an increasing number of people who do not commute five days a week. At the same time, “turn up and go” tickets, conventional season tickets and Britain’s comprehensive service will all be protected.
Although Great British Railways will manage the network, we must not ignore the contribution that the private sector continues to make. This is not renationalisation, which the Government continue to believe failed the railways. Rather, this is simplification. While Great British Railways acts as the guiding mind to co-ordinate the whole network, our plan will see greater involvement of the private sector. Private companies will be contracted to run the trains and services, with fares set by Great British Railways. It will work more like London buses and London Overground, delivered by private companies but branded as a single national service.
The operators will be rewarded for providing clean, comfortable, on-time services, and our reforms will unleash opportunities for them to innovate, helping us to change the way tickets are sold and the way data is used, so that passengers can plan their journeys more easily. These contracts will lower the barriers and bring in new entrants, including community rail partnerships and other innovative bidders operating on branch lines. That will make the competition process easier and will be good for taxpayers and passengers.
In England, we will work to bring the railway closer to those who use the services, and in Scotland and Wales, we will continue to exercise the current powers under devolution. Close collaboration with Great British Railways will help to ensure that delivery improves across the services and provides consistency for passengers across the country.
This is also about changing the culture of our railway. Covid has shown the very best of the railways. Ticketing staff, engineers, drivers, guards, cleaners, signallers, maintenance workers and timetablers have all played their part in keeping supplies, vaccines and essential workers moving, and for that we owe them a debt of gratitude. They have shown us what can be achieved when this industry comes together, and we want to strengthen that.
Simpler structures and clearer leadership will make decision-making much more transparent and will remove the blame culture. There is far too much bureaucracy focused on establishing who is to blame rather than finding solutions. For example, all delays greater than three minutes have to be allocated to someone for financial penalties to apply. Until recently, under the delay attribution rules, when a train was delayed by being hit by a bird, who got the blame depended on the size of the bird. A small bird was the fault of a train company and a large bird the fault of Network Rail. Of course, trains are expected to withstand, say, a sparrow, a pigeon or maybe even a smallish duck, but not a swan or a goose.
Once a train has collided with said bird, it creates an industry for debate, argument and litigation. Network Rail and train operators currently employ a stunning 400 full-time members of staff known as train delay attributors, whose sole job is to argue with each other about whose fault the delay is. There is even a national attribution board—a sort of supreme court for the railway—which looks at these disputes and, in one case recently, had to rule on whether a pheasant is a small or large bird. It is completely bonkers. This is the sort of thing that will end. As soon as possible, under our reforms, everyone, including the train operators, will be tasked to work towards common goals and manage costs. We will create a more financially sustainable railway, saving money for the taxpayer. Rail services will be better co-ordinated with each other and better integrated with trains, buses, bikes and trams.
This new plan for the railways, three years in the making, is not about ideology. I am more interested in fixing problems, getting things done and creating the public services that people want. This plan is therefore about delivering for passengers—an ambitious but common-sense blueprint for a more customer-focused, more reliable and growing railway. As we head towards the 200th anniversary of rail’s inception, the network faces perhaps its biggest challenge with the collapse of passenger numbers during Covid. This new rail revolution will restore trust and pride in Britain’s railways, secure it for the long term and ensure that it plays just as formative a role in our future as it has done in our past. I commend this Statement to the House.”
Television has given us “The Great British Bake Off”, “The Great British Sewing Bee”, “Great British Menu” and “Great British Railway Journeys” as programmes for our delectation and entertainment. Now the Williams and Shapps plan, determined not to be outdone, but hardly in a display of originality, is offering us Great British Railways. The Secretary of State is at pains to tell us that the proposed changes for our railways, extending the role of the public sector, are simplification not renationalisation. The changes may not mean full public ownership but they are certainly a further step closer to it, and would make the final switch easier, which is no doubt why the Secretary of State doth protest so much.
The plan does a demolition job on the failed, fragmented privatisation of our railways and the insuperable problems it has created, which the Secretary of State now admits can no longer be allowed to continue. The plan is basically a statement of hope and assertions about what the proposed new structure and Great British Railways will deliver. The shadow Secretary of State has already written to Grant Shapps with questions on 15 initial specific points and we await a detailed written response. I will, though, make a few points now.
The plan makes great play of 400 jobs that exist to determine the allocation of blame for delays. The need to do this will seemingly disappear under Great British Railways. Yet the Government talk about incentivising train operators to run services on time. Whether that also means penalties for running services late is not clear. Either way, there will presumably still be a need to determine where responsibility for a delay lies, since it would hardly be appropriate to attribute to a train operator, on a management contract with incentives to run services on time, responsibility for a passenger train delay caused by a track or signalling failure or another operator.
We need to know far more about how the proposed incentives regime will work and its potential rewards and for whom. Even Great British Railways is going to be incentivised. The plan refers to the perverse effect of incentives under franchising arrangements. We could be in danger of going down that same path again, despite the repeated assertions in the plan to the contrary. Train operators will continue to bear cost risk, but there will be incentives to run trains to time, to run clean trains, to run safe trains, to run high-quality services, to manage costs, to attract more passengers and to work with other railway organisations for the greater good. It will be some bureaucracy that will be needed to devise, manage and supervise that sort of regime if these are more than token gesture incentives—and all because the Government are not prepared to countenance Great British Railways operating the rail services itself.
That is also why the plan represents change from what we have at present, rather than the transformative, generational change that the Secretary of State wants us to believe. There is little more than a passing reference in the White Paper to the rolling stock leasing companies. No case has been made for why, almost alone, they need to continue in their present form, or indeed at all, in a situation where Great British Railways will have ownership of the railway infrastructure and assets, apart, it seems, from the rolling stock. This is despite the plan asserting that the new structure will increase Great British Railways’ purchasing power and economies of scale, and bemoaning the fact that we have so many variations in rolling stock.
Likewise, from reading the White Paper one would hardly know that we have elected metro mayors with responsibilities over transport. Giving metro mayors much greater responsibility, certainly for local rail services within their areas, and the associated resources, is not something that appears to be being entertained. It looks as though Mr Grayling’s boast as Secretary of State that he would not hand over control of rail services to a Labour mayor may still inform the Government’s claimed non-ideological approach.
We will need clarity on what specific responsibilities and powers are being transferred from the Department for Transport to Great British Railways, and what specific railway responsibilities and powers are being retained or created within the department. Likewise, we will need clarity on the impact of the proposals on the powers of the devolved Administrations. I assume that the transfer of undertakings regulations will apply to all staff transferred from their existing employer to Great British Railways or any other railway organisation. Legislation will be required to implement some of these proposals, not least in relation to the creation, governance, roles and responsibilities of Great British Railways and other statutory bodies whose remit is changed.
The plan refers to financial resources covering five-year periods. One assumes that also applies to Great British Railways. Those resources need to be guaranteed if service levels and quality are to be maintained and improved, and rolling programmes of investment sustained, but the plan does not make it clear whether that will be the case or how. We are already hearing noises that the Treasury is demanding significant savings. Indeed, the plan asserts that the new structure and working procedures will save £1.5 billion.
I pay tribute to the role and work of railway staff during the pandemic. I hope the Government are determined to see our railways make a full recovery from its effects and then develop further, because the plan blows a bit hot and cold on this. The foreword says:
“Much of the old demand will return … This government profoundly believes in the future of the railways. Without them, our cities could not function … We are growing the network, not shrinking it.”
Yet tucked away in the section of the plan on “Empowering rail’s people”, it states:
“The future of the sector hangs in the balance.”
That is a very different tone. Which represents the Government’s true thinking and intentions will become clearer when we find out whether the emphasis of these changes is on achieving a rapid reduction in costs, at all costs, or on growing the network and recognising that the value of our railways to the quality of life of our citizens and the economic well-being and strength of our country extends far beyond the content of a Treasury financial spreadsheet.
My Lords, I strongly welcome this long-overdue plan for reform and thank Keith Williams for his work on this. My only regret is that it has taken this long to get here. The industry has been crying out for reform for many years; one in three trains was late in the last year before the pandemic and two-thirds of contracts since 2012 have been awarded to single bidders—hardly a sign of a vibrant, competitive industry.
However, unlike some, I do not believe that the answer lies in a return to British Rail, which ended in stagnation and closures and as the butt of rather predictable jokes. This Statement harks back to the glory days of the 19th century, but the last 60 years have all been a bit of a mess. For a long time, the Transport for London contract structure has been touted as the answer, with the appropriate balance of risk for private contractors yet a fully integrated service. However, Transport for London has said publicly that it took it two decades of experience to get to the ideal contract model.
This is welcome, but it does not mean it will be easy—I do not for a minute imagine that the Minister thinks it will. The sheer scale of the thing is a problem. Great British Railways will be a massive organisation, bringing together Network Rail, many other DfT functions and some of the Rail Delivery Group functions. Currently DfT has three director-generals to cover rail services alone. The new organisation will be enormous and complex, and freedom from direct government interference will be essential for success.
The first problem is that, despite the name, Great British Railways is not really British, because it does not cover most of Scotland, Wales, Northern Ireland or London. Those have devolved services. So, my question is an important one: how will GBR liaise and link in with those other services? It is essential that that link is smooth and coherent. And what about the devolution of services to local authorities, which has been encouraged lately? Local authorities can add a great deal to the standard of service. There must be a role for them in order to raise the threshold. I rather feel that the word “Great” will be at the mercy of headline writers the first time something goes wrong—but I think there is the potential to get a coherent picture of the whole, so long as devolution is taken fully into account.
In interviews, the Secretary of State has indicated the likelihood of fare rises. First, how much power will the Department for Transport have to intervene and dictate fare rises? Secondly, is it wise to raise fares at a time when the Government are trying to reduce emissions and rail services are desperately trying to attract passengers back after the pandemic? Fares are up 50% in real terms since 1997; they are the most expensive in Europe. I welcome the details on flexible season tickets and other long-overdue innovations, but the Government predict savings of £1.5 billion within five years—so are fare rises justified?
The Minister will tell us again that taxpayers have subsidised the railways to the tune of billions of pounds in the last year. In fact, they have subsidised train operating companies, not the passengers themselves. Taxpayers also subsidised Eat Out to Help Out, but the Government are not expecting restaurant customers to pay more now to refill government coffers. So I put in a plea: rather than raising fares, now is the time to reduce them for a short period, to lure people back on to the railways and, as new travel and working patterns emerge, to encourage new leisure rail users?
Finally, freight. The combination of recentralisation, better co-ordination and the current lower passenger numbers provides a big opportunity for bold steps to improve and increase freight services. But that needs capital investment, too; will we get it?
I thank the noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson, for their generally—I think—fairly positive welcome for these proposals. The noble Lord, Lord Rosser, had a long list of Great British XYZ, and perhaps I may say, as we come out of restrictions, I feel we have a Great British bounce back coming along. So, what are we going to do about our railways and Great British Railways, which will be one of the “Great Britishes” that will be so important to us as we go forward?
The noble Lord, Lord Rosser, seemed to be a little bit muted on the subject of the changes we have proposed. I do believe that we are proposing a once-in-a-generation change. It will be a massive transformation of the current way our railways operate, and it will lead to very significant improvements in service to passengers. But the noble Baroness, Lady Randerson, is absolutely right: it will not be easy. This is a national infrastructure with national services; it is hugely complicated now and will continue to be in the future. We know that. It will not be easy.
So the scale of transformation will have to be taken in bite-size pieces, and we will have to think about how the development of these phases will happen. Andrew Haines, who, as we all know, is the current chief executive of Network Rail and a well-respected industry leader, will be developing these interim arrangements for Great British Railways. It is important we do that. We could not have done it before because we had not announced the White Paper, and we will be establishing phases for the delivery of Great British Railways and all the phases that have to happen in between. We will be working collectively and collaboratively with the sector, and that is really important.
On the DfT side, I am well aware that there are an enormous number of very talented people in rail. We will continue to support Great British Railways as much as is needed in the short term. The DfT will establish the rail transformation programme, which will assist Andrew Haines and the wider sector as we make these changes.
The noble Lord, Lord Rosser, talked about how the blame for delays will not disappear. I agree. I asked exactly the same question about big birds and little birds, and whether you could be blamed for one and not the other. I am reassured that it will be vastly simplified and will not be as complicated and long-winded as it is now.
The noble Lord went on to mention the incentives regime. It is important that we have a really firm and accountable incentives regime, because we must lift the quality of services for the passenger. Therefore, we will incentivise high-quality, punctual services. We will ask operators to manage costs and to attract passengers. From a ministerial perspective, we will hold Great British Railways to account and it will hold the holders of the passenger service contracts to account via statutory powers and the ability to issue binding guidance—for example, on any of the elements the noble Lord mentioned.
We believe that there should continue to be private sector investment in rolling stock, but the noble Lord highlighted the slight tension that exists. We will ask Great British Railways to take a strategic approach to the overarching issue of rolling stock. It will look at supply chain sustainability, for example, and how to generate high-value jobs in the UK, but the TOCs will still be responsible for procuring value from the market and improving the passenger experience when the trains are running.
Devolution is a very important part of improving our transport system. I am speaking specifically about devolution to the local transport authorities. That would include the metro mayors. We are extremely keen to work with the metro mayors on devolution. The White Paper publication is a significant landmark as we start the process of these implementing reforms, but it is obvious that they cannot be devolved immediately. We will work together to think about how the structures with the metro mayors and the smaller local transport authorities will work and where they will be able to take a greater level of control of the services in their area.
Scotland and Wales are both extremely important in this regard. Both will exercise their existing powers and be accountable for them. The infrastructure is, of course, all owned by Great British Railways, with the exception of some of the valley lines in Wales, and we will work in partnership with Transport Scotland and Transport for Wales. We would expect a good relationship with them, because it is so important for the services to improve.
Great British Railways will have a five-year business plan, which will be drafted in the context of a 30-year strategy. It will set out the infrastructure funding settlement for that five years and the level of operational subsidy. This will give certainty and stability to the network as a whole.
The noble Baroness mentioned fare rises. I suspect that my Secretary of State would not rule them out, but we have to simplify the current mass of ticketing options and prices and the endless bits of paper that you have to carry around with you. We will look to introduce more pay-as-you-go, more contactless payment and more digital ticketing as soon as possible.
The noble Baroness mentioned some short-term incentives to get people back on to the trains. The Department for Transport has commissioned Network Rail to look at this. It has set up the rail revenue recovery group, which we will look to for advice on short-term and long-term interventions on fares. This links back into the recovery in demand, because we want people to come back to the trains and we hope that the number of passengers will grow further. Financial sustainability is linked to demand but not necessarily on a very firm basis, because it depends on how much passengers are paying.
Therefore, it is the case that we have to make sure that our railways are financially sustainable in the long term. On one side, we will look at how we can improve services to passengers, as well as at fares, and on the other side we have to look at how we will modernise the system with regard to some areas where there might be changes to the ways in which people work. We want to develop skills and perhaps use them more effectively within the system. That will be up to the industry, working with the unions, to develop the best and most highly-skilled workforce that we can for our industry.
I hope that I have been able to answer the questions asked by the noble Lord and the noble Baroness. I thank them genuinely for their positive engagement, and I am sure that there will be more questions to come. I look forward to comments and questions from all noble Lords, and I hope that they will consider joining me at the all-Peers briefing section with the Rail Minister on Wednesday.
My Lords, I remind the House of my interest as chair of the West Anglia Taskforce. Does my noble friend except that this railway, having only two tracks, demonstrates the impossibility of satisfying the competing needs of Transport for London, Hertfordshire and Essex commuters, freight operators, the advanced industries around Cambridge and the operators of Stansted Airport? Will the creation of GBR offer a better prospect for the restoration of the two extra tracks that were torn up after the Beeching report?
My noble friend raises an important point and highlights why Great British Railways is so desperately needed, in that we have so many different operators and indeed types of train services—be they passenger or freight—trying to access limited track in certain areas. It is the case that we will continue to invest tens of billions of pounds into the railways on new lines, trains, services and electrification; we want to provide the stable foundation for innovation and future investment. My noble friend mentioned the Beeching closures. The £500 million Restoring Your Railway Fund remains open, and any ideas should be forwarded to that fund.
[Inaudible]—the experience, particularly of Southern, has been blighted from time to time by industrial disputes. What involvement have the rail unions had in helping to formulate these new plans? Post Covid, many people may continue to work part-time from home, reducing passenger numbers below the 2019 figure of 1.8 billion per year. What assessment have the Government made of this likely reduction?
On the first issue raised by the noble and gallant Lord, Keith Williams met with the general-secretaries on a number of occasions while he was carrying out this review. As I previously mentioned, we need to create an efficient and sustainable railway; that is in the interests of passengers, taxpayers and the workforce as a whole, so we will of course continue to work with the unions to achieve that as we take these reforms forward. On future demand, we are confident that people will return to the railways, and in line with the road map we will continue to work closely with the sector on measures to enable people to come back again, and to come back quickly. This includes the introduction of a flexible season ticket, which will be introduced across the network and which will make it easier for those people who commute, say, two or three days a week. It will make that more cost effective for them, and that will be introduced to coincide with the final step of the Government’s road map out of lockdown.
My Lords, I draw attention to my interests as set out in the register. I welcome the Williams report, but we should recognise the very great changes that were brought about by privatisation. Up until 1992, the number of people using our railways was 700 million. In 2019, it was 1.9 billion. That was a tremendous success, which was partly brought about by engaging with the private sector so that we got better services across our railway network. While I accept the necessary changes that the Secretary of State and my noble friend have set out, will my noble friend also acknowledge the very important part played by the private sector, and will she say that the private sector will be very much seen as partners in the way forward?
My noble friend is absolutely right: during privatisation, passenger numbers more than doubled, so the involvement of the private sector has had a transformational impact on the way that we run our railways today. This Government want to keep the best elements of the private sector. We want to keep its capacity for innovation and work with it to drive growth in the railways. We will do that by having these new contracts for passenger operators, with strong incentives to run very high-quality services.
My Lords, I believe it is very important that a clear distinction is made between what Ministers do and what Great British Railways does. It is important that they do not tread on each other’s feet, because that will lead to disputes and trouble. A clear financial target, preferably for three or five years so that the industry can make trade-offs without constant Treasury interference, will give the freight railway a chance to do what it does best. An electrified freight railway will make huge inroads into the amount of fuel we burn with lorries. Lastly, we need to follow best practice in using data to improve the passenger experience. Do not level down to the standards of the worst performer; rather, level up to the standards of the best.
Those were some very interesting observations from the noble Lord, who is clearly well versed in the railways. He is right that we need to make sure that Ministers’ responsibilities are separate from those of Great British Railways, which is why we are proposing strong levers to hold them to account, but will not meddle in the day-to-day running of the organisation. So there will be statutory powers and the ability to issue binding guidance in specific areas, which will be important.
The noble Lord mentioned planning, and I have already pointed out that there will be five-year business plans within the 30-year strategy. He also mentioned freight, which is a very important part of this. It is often a forgotten area of the railways, and we believe that it will benefit from the national co-ordination that Great British Railways will bring. His last point was on data, which is one of the key areas where we feel that we can improve customer satisfaction. Historically, data has been held by the train operating companies and not shared as well as it should have been. By putting all this data and responsibility for revenues within Great British Railways, we will necessarily bring together all the data. We believe that from that we will not only simplify tickets but think of better ways to use that data to provide more value-for-money services for passengers.
My Lords, as a frequent user of Transport for Wales and GWR from west Wales to London, I very much welcome this Statement. It is good to see the travelling passenger put at the forefront, in ticketing and the adoption of modern, flexible ways to pay. I note the comments that close collaboration is promised between Great British Railways and the devolved nations. Can the Minister perhaps elaborate on how the new ticketing system will integrate, for ease of use by the travelling public, with the payment systems of the now nationalised Transport for Wales and the proposed south Wales metro scheme? What conversations have the Government had with the Welsh Government on this?
Our engagement with Transport for Wales and the Welsh Government has been very significant and over a long period, both at ministerial and official levels. Next, we want to develop a joint working agreement with Transport for Wales and Great British Railways, so that all issues around fares, not only within Wales but for cross-border services, can be considered in the round. We would like them to join us in sharing data and using the single website and app to purchase tickets. We cannot force them to do that, but we look forward to having a close working relationship as we take this forward.
Does the Minister agree that rail fares are already far too high—the highest in Europe—but that if they are to be kept at a reasonable level, it is necessary for railways to carry more passengers? This means increasing the capacity and more investment. Are the Government willing to put in the necessary investment? Of course, this would also be highly desirable from an environmental point of view. I understand that Chiltern Railways—which in my experience has always been very efficient—has in fact put in a lot of investment in recent years. I wonder what lessons there are to be learned from its example.
I think there are lots of ways to attract passengers back on to the railways, and investment in improving capacity is one of them. Of course, that is why the Government are investing many billions of pounds in HS2, which will release capacity on other lines to enable more short-distance services to be put into place. But it is not just about those mega-projects; it is about the small and urgent network capacity upgrades that we can make, and the Government continue to look at these. I reassure the House that the RNEP—which sets out which projects the Government will take forward over what sort of timeframe—will be published soon, and that will set out all the schemes under consideration.
Does the Minister accept that we have spent many years listening to Conservative Ministers extolling the virtues of franchising, yet the White Paper acknowledges, in effect, that the franchising system has been an expensive failure, the abolition of which is long overdue? On rail freight, what actions will Ministers take to ensure the future success of the rail freight industry if we are to achieve a meaningful transfer of freight from road to rail and reduce the number of heavy goods vehicles on our roads? Will Ministers reject the RHA’s incessant demands for bigger and heavier lorries on our overburdened road network? Does the Minister agree that, properly encouraged, rail freight could make a significantly greater contribution towards the Government’s carbon reduction targets?
I cannot agree with the noble Lord that franchising has been an expensive failure. We have seen an enormous growth in passenger numbers as a result of the involvement of the private sector, and I think that has given us a really firm foundation from which to go better. However, rail freight is a topic that we can probably agree a little more on. I believe that it will benefit from this national co-ordination, as I said earlier, and we will consult closely with the freight industry to find out what challenges it has and how we can help it by making changes. We will introduce a new rules-based track access regime, which will have a statutory underpinning. That will be relevant for both freight and open access operators. We believe that that will yield more goods going by rail freight, and we will engage with the industry to make sure that this is the case.
My Lords, train operators run many stations. If a train operator such as LNER runs stations well, enhancing facilities to support customers and promote its services, would it not make more sense to contract it to continue to do it, rather than doing what the Government propose in this White Paper, which is to transfer station management entirely to this behemoth of an organisation—Great British Railways—where it may well be administered from some distance away? We would end up with two lots of staff on the platform, with one administered from a great distance.
The noble Lord raises an interesting point about stations. Stations are a great asset, particularly in local communities, because sometimes they are not just railway stations. Certainly, I would like to see many more of them being developed into integrated transport hubs where we could have buses and active travel interventions as well, so that they connect much more into transport for the local community. Obviously, how station ownership and operation will pan out in the future will be subject to a fair amount of work. For example, some of them may end up being run by local government or local transport authorities, and we will be able to say more on that in the levelling-up White Paper.
Can my noble friend confirm that the key objectives of privatisation—which could have been called the “Young-Major plan for rail”, had modesty not intervened—will be retained? These objectives are: no monopoly in the train operating industry but new entrants encouraged; the capital costs of the passenger rolling stock and freight rolling stock borne by the private sector, not the public purse; and passenger service contracts being constructed to reward efficiency, quality and passenger growth. None of those characteristics is available under full nationalisation.