The Government will not ‘bail out’ the Deposit Protection Scheme, it has emerged.
The DPS is the only custodial scheme to protect tenants’ deposits in England and Wales, and funds its running costs out of interest rates earned by banking the deposit money.
When it first won its contract to operate, there was already concern that interest rates – at around 5% – were already on the low side.
A clause was therefore built in to ensure that if interest rates were to become so low that the scheme could no longer fund itself, then the shortfall would be made up by the Government.
However, last August, with interest rates having plunged to an unforeseeable 0.5%, this clause was scrapped.
Housing minister Grant Shapps made the revelation in the House of Commons this week.
Answering a parliamentary question, he said: “The three tenancy deposit protection schemes are operated by private companies under service concession agreements with my Department. All three schemes are designed to be self-financing.
“The service concession agreement that was 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.
“That guarantee was removed as part of a revised agreement negotiated in August 2010 which also incorporated a four-year extension of the original agreement.”
He said that neither of the two insurance based tenancy deposit protection schemes’ agreements had ever been underwritten by the Government.