Hilary Armstrong, the Housing Minister, will tomorrow launch a radical initiative to stop landlords unfairly confiscating their tenants' money. She will announce plans for an "independent deposits board" which will hold down payments in a national trust fund until the tenants leave the property.
Figures show that there are 600,000 private tenants in Britain. They put down pounds 240m between them last year. Government research, commissioned by the Housing Minister, found that almost one quarter of tenants have had their deposits unfairly withheld.
The minister wants landlords and tenants' groups to set up a national rent scheme voluntarily. But she has said that she will introduce a parliamentary Bill if they do not co-operate.
She wants a scheme that is fair to landlords and tenants and isolates the crooks from legitimate businessmen. She will tell organisations representing the two sides to begin talks next week under the guidance of the Housing Ombudsman.
She will receive the backing of the National Association of Citizens Advice Bureaux (Nacab), which helps tenants who have been swindled, as well as legitimate landlords' organisations.
"The private rented sector is a very important part of the housing market," said Ms Armstrong. "If tenants have a bad experience, it colours their view of renting for the rest of their life. We want to see the industry developing a voluntary scheme at this stage but we will introduce legislation if a voluntary scheme fails. We might suggest that they start with some pilot schemes we can monitor."
The new scheme will mirror systems in other countries, including Australia, where deposits on private residential properties are lodged with a rental board in the first week of the tenancy. In New South Wales, non-compliance is punishable by substantial fines.
A recent study by Nacab found that as many as half of private tenants find they could not recover their deposit money at the end of their tenancies.
The report by Nacab shows examples of the behaviour of "unscrupulous landlords". For example, a west London man who paid a cleaning company to clear up his flat when he moved out was subsequently charged pounds 390 by his landlord to cover cleaning costs.
There are currently no rules on how much landlords can levy as a deposit, how the money should be held and how much they are allowed to withhold. But under the new scheme, an independent panel will arbitrate in the event of a dispute between landlord and tenant. It will aim to hand over the money within weeks.
At present, the only recourse for tenants who feel they have been swindled is through the Small Claims Court. But the chances of success are slim: only 54 per cent of those who go to court get their money back.
The details of the scheme have still to be finalised. But it will be self-financing, with administrative costs paid for from interest on the money held.