Draft Housing (Tenancy Deposit Schemes) Order 2026
I beg to move, That the Committee has considered the draft Housing (Tenancy Deposit Schemes) Order 2026. It is a pleasure to serve with you in the Chair, Sir Desmond. The draft order was laid before the House on 8 September 2026. This Government promised in our manifesto to transform the experience of private renting. In addition to the greater security, rights and protections that we have given private tenants through our transformative Renters’ Rights Act 2025, improving how tenancy deposit schemes work is a way that we can further deliver on that promise. As things stand, when tenants provide a deposit as a security for any breach of tenancy terms, the landlord is required to protect it through a Government-approved tenancy deposit scheme. That means that renters can feel confident that their deposit is safe and secure, and that at the end of the tenancy, it is returned to the tenant and/or landlord in accordance with the appropriate outcome under the scheme. When tenants and landlords disagree over the amount due to each party, the schemes also offer free and independent dispute resolution. Custodial tenancy deposit schemes are delivered via concessionary contracts, whereby administrators fund the service from interest earned on deposits, rather than receiving payment from Government. Custodial schemes hold more than £2.5 billion-worth of tenants’ money on which they accrue interest. The interest is retained by the scheme administrators as revenue, unless arrangements are in place for part of it to be paid to the tenant. As part of improving the tenancy deposit system, the Government want to unlock the value generated by the schemes and expand the ways in which it can benefit tenants in the private rented sector. Ultimately, that will mean better value for both tenants and the taxpayer. The draft order will enable the Secretary of State for Housing, Communities and Local Government to receive part of the interest accrued on tenancy deposits protected under a custodial tenancy deposit scheme. Currently, the legislation allows interest to be retained by the scheme administrator, subject to scheme arrangements, providing for part of it to be paid to tenants and/or landlords. I want to be clear that the order does not remove those options. It adds flexibility by introducing a new power that may be used in combination with one or both of the existing options, for example where high interest rates mean that the interest generated by the scheme as a whole considerably exceeds the costs of running the scheme, after allowing reasonable returns to scheme administrators.<span id="4" class="column-number" data-column-number="4"></span> The draft order does not itself require any payment to be made to the Secretary of State, nor does it prescribe how such amounts must be determined. Those matters will be determined through future scheme arrangements established via procurement and contractual processes. What the measures do is to allow the Secretary of State to take account of market conditions, scheme performance, operating costs, value for money and the need to maintain an effective, free service for tenants and landlords, while avoiding disproportionately high profits being made by scheme administrators. The draft statutory instrument is intended to provide flexibility for future arrangements with administrators of custodial schemes. The Secretary of State’s intention is that, if the new power is exercised, the Secretary of State would use any funds received towards programmes or activities that benefit tenants in the private rented sector. The Secretary of State will be transparent in publishing the amount received from the scheme, the programme or programmes funded, and any metrics demonstrating the value delivered. Any arrangement for interest to be paid directly to the Secretary of State will be subject to agreement from His Majesty’s Treasury. Future arrangements will continue to allow scheme administrators to keep part of the accrued interest to cover the cost of the free service that they provide to tenants and landlords. That amount should be sufficient to enable the scheme to provide a safe and effective service that safeguards tenants’ deposits, to meet its key performance indicators and to make a reasonable profit if it is a private sector entity. Future arrangements may also provide for part of the accrued interest to be paid directly to tenants, where it is decided that that is appropriate. To conclude, the draft order will give the Government additional flexibility to determine how the interest accrued by custodial tenancy deposit schemes is distributed, so as to ensure a fit-for-purpose scheme that will ultimately benefit tenants in the private rented sector and the taxpayer.