The Deposit Protection Service is costing taxpayers £12.7m, it has emerged.
The revelation about the ‘bail out’ came in a reply to a question in Parliament, asked by Chris Kelly, Conservative MP for Dudley South.
He asked about financial payments or guarantees that had been made or underwritten by the Government when it renegotiated its agreement with the DPS in August last year.
The DPS was set up as a free service, being funded out of the interest paid on all the deposits that it banks.
However, while the original agreement was set up at a time when it could never have been envisaged that low interest rates would fall to 0.5%, the agreement did provide for a guarantee of Government support if necessary.
This week, answering Mr Kelly’s question, housing minister Grant Shapps revealed that the original agreement would have left the taxpayers liable for over £30m by next year, when the original contract was due to end.
Shapps revealed that a new, revised agreement was drawn up. This removed the guarantee and all associated liabilities, and incorporated a payment of £12.7m. The revised agreement also extended the original agreement by four years.
The DPS has been invited by Letting Agent Today to comment.
News of how much the DPS is costing taxpayers may come as a shock to the Scottish government, which is introducing compulsory tenancy deposit protection.
It has banned insurance-backed schemes such as the TDS and Mydeposits in favour of services such as the DPS, which physically remove tenants’ money from landlords and agents for the duration of the tenancy.
The full exchange in the House of Commons is below:
Chris Kelly: To ask the Secretary of State for Communities and Local Government –
(1) pursuant to the answer to the Hon. Member for Selby and Ainsty of 5 April 2011, Official Report, column 855W, on tenancy deposit schemes, what financial payments were made or underwritten by his Department as part of the revised agreement negotiated in August 2010;
(2) what the estimated shortfall arising from low interest rates was that resulted in the revised agreement negotiated in August 2010;
(3) if he will place in the Library a copy of the revised agreement of August 2010, redacting any commercially confidential elements to facilitate disclosure.
Grant Shapps: A service concession agreement that was originally agreed by the previous Administration with the custodial tenancy deposit protection scheme contained a guarantee that the Government would meet any shortfall arising if approved fees were not covered by the interest on deposits held.
As a result of the low interest rates that emerged due to the financial turmoil in 2008 and 2009, this agreement left the Government – i.e. taxpayers – liable for a shortfall under that guarantee which was estimated to reach over £30m by the end of the contract in 2012.
In May 2010, the Coalition Government inherited this unacceptable situation and looming liabilities. Following extensive negotiations in summer 2010, the guarantee and all associated liabilities were removed as part of a revised agreement which also incorporated a payment of £12.7m and a four-year extension of the original agreement.
The new agreement has been designed not only to remove future and current liabilities for Government and secure the best deal for taxpayers, but also to safeguard the ongoing viability of the custodial model of tenancy deposit protection and safeguard the interests of tenants.
Hon. Members and the broader public will rightly wish to scrutinise the poor decisions of the last Administration. The new agreement was made in the form of a letter amending the original, flawed agreement. Redacted copies of both documents will be deposited in the Library of the House in due course.
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Comments
If Tenants are so in need of having their deposits protected then why should it not be they who pay the admin fee, make the registration, perform the whole tedious and mind numbing process of choosing a 'lead tenant' and submitting alternative contact details for them, then supplying the landlord with a copy of their rights under the scheme and chasing them for a signature on a copy of a certificate and pestering them to return it or going round to their house to pick it up with a view to forfeiting three months rent to the landlord if they fail to comply within a given time frame? I for one would be very happy to support government funding of such a scheme.
The system in a mess. Anybody living in nthe real word knows that any Government department is incapable of managing anything.
"My deposit " is the worse not responsible to any one & make rules as they go along to suit them e,g why should a Landlord renew the deposit protection when a tenant renews ??? The deposit is the same, the tenats are the same. In fact by the end of first period of tenancy the risk reduces as by than there is a working relaytionship between the landlord & the Tenants.
The whole system is to be scrapped or open to competation.
the are far more bad, no - lying, cheating, scamming, abusing, destroying, drug factory setting up, tenants out there than there are bad landlords!!
And when you try to take them to court the judge gives them a slap on the wrist & order to pay 50p per week. then you have to shell out thousands£ more to find where they have disappeared to....
there ought to be a data list for landlords with all non payers & bad tenants on it. i would sign up to it.
i lost tens of thousands over the years....
Beware agents claiming to use mydeposits - tens of thousands of pounds worth of deposits are still missing as a result of Richard Davies and Ben Pickering (Conservative) (formerly trading as Romeo Bater in London / Wandsworth) keeping and spending tenant deposits. (NB. Company has since been dissolved after a flirtation of reformation as Basil Hawkins with Davie's girlfriend/wife Gemma Pickering at the helm) and landlords and tenants are out of pocket, all aided by the poor government endorsed set up that is mydeposits. From a good landlords point of view, it seems ridiculous that millions of pounds of public money is effectively being wasted on trying to combat bad landlords who, at the worst extreme, don't even participate in the DPS anyway. To add insult to injury those landlords taking cash only rents are not even paying tax either!
The scheme is to stop unscrupulous LLs' riping off the tenant I own 12 properties and the horror stories I hear from some of my tenants are bad -usually it always involves landlords that insisted on the rent been cash only -a warning sign!
new zealand has a similar scheme I wonder how they managed to do it.
I was a supporter of the proposals but yes the agents now charge me an admin fee BUT worst is one agent put the deposit with MYdeposits their scheme is vulnerable to abuse BE WARNED the agent never gave Mydeposits my details then failed to pay the premium and has dissappeared with the funds !!! I finally got a copy of a letter sent to the tenant but to late
If the scheme is costing the goverment money it should be scrapped as its not working and its only added yet morecoststo honest landords that didn'tneed it in the first place
We know the enormous cost of this scheme. What would be nice to know is the benefit: the reduction in the number of deposits illegally retained by landlords and agents. I suspect that, in fact, this reduction is very low.
I know that administration fees charged by letting agents has increased, and more and more landlords are being forced to use agents because of the heavy burden of legislation arising fromt he 2004 Housing Act. The services these agents charge are not cheap; the cost of them is ultimately born by the tenant as generally landlords simply cannot afford to accept any less rent.