Higher earning tenants living in social housing in England will pay a higher level of rent to continue living there, under new proposals unveiled by the UK government.

Published for consultation last week, the plans will see households with a total income of more than £40,000 in London and over £30,000 elsewhere pay a rent at market or near market levels.

The programme will build on the current ‘pay to stay’ policy which is available to local authority and housing associations to operate voluntarily. Social landlords will be required to administer the policy.

Housing minister Brandon Lewis said the move will put an end to the situation where higher-income social tenants benefit from taxpayer-funded subsidies of up to £3,500 per year.

Instead, social rents would increase as tenants’ incomes rise above this threshold – meaning those in real need continue to pay a subsidised rent, while continuing to ensure that work always pays.

Mr Lewis said: “It’s not fair that other hard-working people are subsidising the lifestyles of higher-earners to the tune of £3,500 per year, when the money could be used to build more affordable homes. ‘Pay to stay’ will ensure that those tenants on higher incomes who are living in social housing have a rent that reflects their ability to pay, while those who genuinely need support continue to receive it.”

The government said the money saved by councils by removing this subsidy will help contribute to its £12 billion of welfare savings, and housing associations will be able to retain the additional income raised to help support their role in providing new housing.

Westminster estimates that there are currently more than more than 40,000 social rented tenants with household incomes in excess of £50,000 per year; and a further 300,000 with incomes over £30,000.

Chartered Institute of Housing deputy chief executive, Gavin Smart, said: “It’s important that the government is looking at how ‘pay to stay’ will work in practice – we’re concerned that it could prove to be quite complex and expensive for social landlords to administer. There is a risk that it could make social housing too expensive for people on relatively low incomes – for example, a couple who both earn £15,000 a year would be subject to this policy outside London – so we would favour a graduated increase in rent as people’s incomes rise. The policy will need to be designed very carefully to make sure it is not discouraging people from either finding work or securing a better paid job.”

Mr Smart said local authorities should also be able to keep the extra income generated, rather than return it to the Treasury.

He added: “We think it’s important that any extra income raised is retained locally so it can be reinvested for the benefit of local tenants and residents.”