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Mr. Dewar: I hope that I shall not have to interrupt the right hon. Gentleman again, but before he finishes will he deal with the potential savings? A question in Hansard on 15 December 1994 asked the Secretary of State to
"estimate the annual savings in a full year to social security expenditure from withdrawing income support assistance with mortgage interest payments from new mortgages after October 1995 for nine months assuming that ( a ) all income support claimants with new mortgages are affected".--[ Official Report , 15 December 1994; Vol. 251, c. 794 .]
The savings amounted to £18 million. Perhaps I have misunderstood, but if that is right it would seem an extraordinarily small figure.
Mr. Lilley: That is simply because we are applying it to new mortgages. As the new mortgage builds up, savings will grow. We expect, within a relatively short time, the savings from the measures that I have mentioned today to amount to £200 million a year--
Mr. Lilley: Correct, but most people are back in work within nine months. New mortgages are covered: existing mortgages are not, but over a 25-year period every mortgage will be covered. It will take time to build up--
Mr. Dewar rose --
Mr. Lilley: No, I am sorry. I want to get on to the interesting aspect of the debate, which was the failure of the Labour party to mention its policies to help those at risk of repossession. I know that my hon. Friends, whatever their views, are all determined to help such people. There seemed to be no determination by the Labour party to improve cover for those who are at risk.
Opposition Members have offered nothing. To extend income support for mortgage interest to everyone, including the two thirds of home owners who are not eligible at present, would cost an enormous amount. The costs have already risen from £31 million in 1979 to £1.1 billion now. The Labour party has not recommended--rightly so--extending such cover at the taxpayers' expense; but it is not the cost that puts off Opposition Members. It is the fact that they have another policy that does not bear on the issue but which would in itself be hugely expensive.
The hon. Member for Greenwich (Mr. Raynsford), Labour's housing spokesman, advocates a mortgage benefit for those in work. By definition, it could not help the jobless. According to the National Association of Citizens Advice Bureaux, this idea would cost the taxpayer £600 million a year. The hon. Gentleman was at least unusually forthcoming about how he would pay for it. In an interesting interview in the magazine Roof , produced by Shelter, he said:
"I do think a mortgage benefit scheme has substantial advantages. If part of its costs were met by further phasing out of MIRAS, so be it. I will talk to my Treasury colleagues about this."
Mr. Raynsford: Perhaps the right hon. Gentleman will read the earlier part of that interview, in which I talked about how the Government were already phasing out MIRAS, with no benefit to home owners. In that part of the interview I deal with ideas for providing more effective help for home owners who are not helped by MIRAS. Throughout his speech the right hon. Gentleman has criticised the present arrangements because of the lack of such help, but he has the gall to criticise the Labour party for having no positive proposals.
Mr. Lilley: So Labour's housing spokesman admits that these are the Labour party's proposals. They cost £600 million, and they would be paid for by a further phasing out of mortgage interest relief. It is a major step forward to have got that out of the hon. Gentleman.
Mr. Lilley: I will have to look that up. I have no doubt that it would be a large number. It would be a means-tested benefit. It flies in the face of the criticisms that the rest of the shadow social security team has of means-tested benefits; that is an interesting but not unusual contradiction. I will look up the numbers and reply to my hon. Friend.
The hon. Member for Garscadden is not alone--he is not a maverick on this. The Commission for Social Justice made a similar proposal to extend income support to people in work on low incomes. Its proposals were helpfully costed by The Independent , with help from the Institute for Fiscal Studies, a member of which sat on the commission. They show that the mortgage benefit to low-earning home buyers will cost between £600 million and £700 million. It is part of total identifiable proposals in the commission's report that add up to £7 billion a year.
It is financed by what are euphemistically called "savings". The specific one that seems to be related to mortgage benefit is the abolition of mortgage tax relief--again--raising between £2.5 billion and £3 billion a year. In addition, the abolition of the married couple's allowance and tax on child benefit would in total raise more than £6 billion in extra income tax, paid by the income tax payer to finance the identifiable policies of the commission.
Mr. Lilley: The hon. Gentleman had an opportunity to inform the House about his policies, but he did not do so. He cannot object if I fill in for him. The hon. Member for Manchester, Withington (Mr. Bradley) can tell us more later.
As the right hon. Gentleman is so concerned about the importance of MIRAS, and he will remember the 1992 Tory election manifesto, which I know he takes seriously, because it has stopped him doing all sorts of things, for example, to child benefit, I ask him whether he still stands by the promise in it--that Conservatives will maintain mortgage tax relief? Does that mean that he can guarantee that there will be no further adjustment downwards, and that it will be restored to its 1992 rate, at the first possible opportunity?
Mr. Lilley: It is clearly compatible with what the Government have done and is incompatible with what the hon. Gentleman proposes. It is a bit rich of the Labour party to criticise a reduction in the value of something that it proposed to abolish.
The position taken by the Labour party on the issue is irresponsible in the literal sense of the word. Labour is irresponsible in its criticisms, its scaremongering and talking down of the housing market. It is irresponsible in ignoring the real problem, which we seek to address: to provide greater and more comprehensive cover for those who are unprotected by income support for mortgage interest. It is irresponsible in that it will not even tell us whether it will reverse our plans should it ever get elected. It recklessly proposes extra costs and refuses to tell the
Column 510House in detail about them. It is irresponsible in that it does not recognise that individuals should play a part and accept some personal responsibility for housing finance, who in general do not object to doing so.
The cost of mortgage protection must be borne by someone. There is no logic that says that that someone should always be the taxpayer. Our proposals will mean that everyone--it is fewer than one third at present--who takes out a new mortgage should be properly covered against unemployment. They will mean fewer defaults and repossessions and a healthier market. Far from taking protection away, we are making it more likely that future borrowers are adequately protected. I recommend these measures to the House.
Mr. John Denham (Southampton, Itchen): The Government amendment moved in the name of the Prime Minister says that the House "believes that the Government's proposals will lead to the development of more comprehensive, less costly insurance cover". That doctrinaire statement and the speech by the Secretary of State might be excusable from someone who had just landed in this country from another planet or who had just come out of business school full of free-market theories, but it could not be said by somebody with experience of the workings of the Financial Services Act 1986, or with responsibility for the workings of the Act, who had to oversee the disaster in the sales of personal pensions from which so many people are suffering, into which so much money will have to be poured and which has not yet begun to run its course.
The faith that the Government have placed in the way in which the insurance market will respond to their proposals is completely misplaced in a number of specific areas: first, the likely cost to be borne by home owners who must insure their mortgages; secondly, the consequences of the Government's determination not to regulate the market in the insurance policies that will be sold to cover the loss of income support for mortgage payments; and, thirdly, the area, scope and availability of cover for people wishing to buy their own homes.
On cost, it is interesting that, in 1993, home owners paid premiums totalling £220 million on mortgage protection policies, yet only £150 million was paid out on those policies. That suggests that some 30 per cent. of the premiums is absorbed in the cost of selling, marketing and administering the policies, and the profits of the insurance companies. One year's snapshot figures do not necessarily tell the whole tale, but I suggest that that sort of excess shows that it is an inefficient way in which to insure against anything.
Mr. Jenkin: The hon. Gentleman is right to say that one year's snapshot figures do not necessarily tell the whole tale. They cannot possibly, because the insurance industry is necessarily cyclical and there will be years when it pays out more than it collects in premiums, and those are offset by the years when the industry collects more in premiums than it pays out. A single year's figures are completely misleading.
Mr. Denham: The hon. Gentleman will agree that, throughout the insurance industry, the cost of administration and marketing of private insurance policies is vastly greater than the cost of administering those that are run through the state social security system, and the
Column 511cost of selling the policies means that home owners will be paying not only the cost of their own insurance but the great costs of administering and running the system. I believe that that makes it an inefficient deal for home owners at the best of times.
The second point on cost has been raised, but as far as I am aware it has not been answered: people will now be left with a period of three months in which no cover will be available to them from the state or from the typical mortgage protection policy. I have not yet heard an explicit statement from the Government as to whether that three months is to be paid by the individual, from separate savings which they must make, or whether the Government blithely assume that mortgage lenders will absorb that three- month shortfall without moaning about it. I suspect that it might be the latter, in which case it is not surprising that building societies are talking about ending their agreements on repossessions.
It is estimated--I believe that it is widely accepted--that the increased cost of these policies over the lifetime of a typical mortgage will be between £7,000 and £8,000 per home buyer. That all points to the design of an inadequate system of cover, which would be more expensive to home owners, who are now the majority in our society, than other ways of insuring cover collectively through the social security system.
The National Association of Citizens Advice Bureaux, among others, has called for a reform of the Financial Services Act, because it believes that the regulation of the sale of mortgage protection policies has proved inadequate. The Secretary of State asked us to rely yet again on codes of conduct and self-regulation that have so demonstrably failed in the sale of personal pensions and other products. Proper regulation of the sale of mortgage protection policies is essential under any circumstances, but to move into an enforced extension of the market to all home owners over time without regulating it properly is grossly irresponsible.
Such products suffer from arbitrary exclusion clauses. During the last recession, many of those who had mortgage protection policies found that the policies were withdrawn once the insurance company realised that somebody might face redundancy. In coal mining areas and other areas where redundancies were widely mooted, insurance companies tore up the policies just at the moment when people were likely to want to claim on them. The codes of practice that we have been offered so far will not ensure that those policies remain in force when they are needed.
Inappropriate policies may be sold. After all, on paper, people would require a policy that replaced the interest payments that the Government are taking away. Yet it is likely that, just to show that I do not take everything that the building societies say at face value, faced with a captive client, the building societies will be tempted to say that insurance is necessary and to sell a policy vastly more expensive than the client needs in order to cover the interest payments that the Government are taking away.
The Secretary of State asserted that there would be a fall in the costs of commissions and fees charged by the sellers of insurance policies. But it is interesting that, in parliamentary answers, Ministers have said that they have no intention of regulating to require the disclosure of commissions and fees at the point of sale of the policies.
Column 512For the past three weeks, anyone selling a personal pension policy has had to disclose fees and commissions. Yet when it comes to the sale of mortgage protection insurance, no such disclosure will be required, nor will there be any requirement to show that alternative and perhaps cheaper sources of insurance might be available. It is easy to see how the new home buyer, possibly a first-time buyer who is quite unsophisticated in the financial services market, will be at the mercy of the building society agent who is not only providing the mortgage but under instructions to sell the insurance policy as well.
There will be no regulation to cover the widespread problem that most of these policies are invalidated by a short period of return to work. A person who is covered may claim on his policy. After nine months he may receive the job seeker's allowance. Within 14 weeks he may be forced back to work through threat of loss of benefit, but into a short-term or temporary job--the sort of job that the Secretary of State has made it clear people will be forced to take or they will lose their benefit.
Immediately, under most of the policies, people will make themselves uninsurable for future purposes. When the temporary or short-term job that they have been required to take comes to an end after a few weeks or months, they will be without cover. There has been no explanation from the Government about how they will cope with such a situation. It is impossible to cope with that without effective direct regulation of the industry.
The third area to which I wish to refer concerns the scope of the policies that are on sale. That seems to be the point at which the whole exercise becomes an article of faith rather than a rational analysis of what the market is likely to be. Currently, 19 per cent. of home owners are on short -term contracts, are self-employed or are part-time workers. But 36 per cent. of the work force are in those relatively insecure categories and most people believe that the number of people in self-employment, in part- time work and on contract work is likely to grow.
The reality is that some of those people, probably a substantial number, will no longer be able to enter into home ownership because of the difficulties or the risks of obtaining mortgage protection cover.
As a statement of faith, it is right to say that insurance cover will be available. Insurance cover is always available for anything at a price. But the one thing that the Government have ruled out is any regulation to ensure that insurance cover is available at a reasonable price for everybody. In replies to me, Ministers have ruled out the regulation of premiums.
We know, because it is there in all other forms of insurance, that the insurance industry is disaggregating its client group more and more every year. It simply is not realistic to believe that insurance companies will be happy to spread the risk of insuring against unemployment equally across those in secure employment and those who are in the most marginal part-time and short-term work.
Compared with today's costs, some cheaper policies will be available for those in the most secure employment. It is intrinsically unlikely that anything else would happen. But that would be balanced by a sharp and prohibitive rise for those who are clearly in insecure employment. That would be sufficient to bar altogether a substantial and growing number of people from entering
Column 513the housing market. That is an extraordinary policy aim for a Government who have always said that they back home ownership. On grounds of cost and the efficiency with which insurance is provided in our society, this is a mistaken move. The Government's refusal on dogmatic grounds to regulate the very industry that they seek to promote is inexcusable and irresponsible. The damage to the aspiration of becoming a home owner of people who would rather have full-time permanent employment but cannot find it will be devastating.
Mr. Nicholas Winterton (Macclesfield): It is always a pleasure to follow the hon. Member for Southampton, Itchen (Mr. Denham). He has raised a number of important issues, but I hope that he will forgive me if I do not follow his line of debate.
Members on both sides of the House, either in their speeches or interventions, are seeking to concentrate on the inequities for certain specific groups inherent in the proposals that we are debating today. But as chairman of the Manufacturing and Construction Industries Alliance, I am personally deeply concerned about the impact of the proposals on the housing market.
I am grateful to my right hon. Friend the Secretary of State for spending a considerable amount of time with me earlier this week when we had a full and frank discussion on the matter. We covered many if not all of the issues that have been covered so far in the debate. My right hon. Friend is aware that I have met representatives of the Council of Mortgage Lenders, the Building Societies Association and the Association of British Insurers and the chief executive of the building society whose head office is located in my constituency, the Cheshire building society, an extremely efficient, progressive and fast-growing building society.
I remind my right hon. Friend that the Conservative Government were returned to power at the last general election in 1992 on a manifesto which pledged:
"The opportunity to own a home and pass it on is one of the most important rights an individual has in a free society. Conservatives have extended that right. It lies at the heart of our philosophy." That commitment, the promotion of home ownership, advocated by the Conservative party ever since it took office in 1979 and even before that, has transformed, particularly since 1979, the political complexion and the very structures of our society, and has proved to be, as I said to my right hon. Friend earlier this week, a winning formula.
People from lower income groups who had in the past felt alienated, marginalised or ignored by the main political parties could, albeit often after struggling to make ends meet, finally buy a stake in the property- owning democracy, a stake which often brought them into the Conservative fold for the very first time in the history of our party and gave my party the electoral boost that it needed. Ownership of property brought people enhanced self-respect and a stake in society, creating both a sense of responsibility and greater social stability--something in which I fervently believe; I hope that my party believes in it too.
Column 514Today, sadly, as we examine the Government's record in recent years, that commitment to a property-owning democracy and to home ownership--that pledge--seems a little ragged. Mortgage interest relief at source--MIRAS--is being phased out in what I consider to be a Treasury-driven exercise: it was reduced from 25 per cent. to 20 per cent. last April, and will fall to 15 per cent. in April this year. There has been no increase in the £30,000 ceiling since 1985, nearly a decade ago.
Notwithstanding the comprehensive speech made by my right hon. Friend the Secretary of State, the Government's latest proposal to reduce mortgage interest support for home owners who lose their jobs carries a number of serious risks for those people, and also represents yet another nail in the coffin of the housing market and the property-owning democracy for which I stand.
Mr. Winterton: Let me tell my hon. Friend that the housing market is showing signs of weakness which reflect a lack of confidence, job insecurity and the prospect of further MIRAS reductions in April. That was confirmed only last night at a dinner that I had the pleasure of attending, when the Governor of the Bank of England told me openly and honestly, "The housing market is flat; the housing market is weak; there is indeed a problem."
The timing of my right hon. Friend's proposals is particularly unfortunate, and is likely to cause still more house purchases to be deferred. Indeed, figures relating to sales negotiated and new inquiries for the first weeks of this year already reveal that we are set for one of the worst years for house sales for some time. That is very bad news for the economy, because the housing market can influence a wide range of economic activity. Moreover, the implementation of such confidence-dampening measures causes a hiatus after their introduction. I need only cite the ending of double interest relief in August 1988 and the ending of the stamp duty moratorium on 19 August 1992.
In short, the housing market--which has not yet participated in the more general economic upturn--seems set to head further downhill into the doldrums. That is not due to high prices, lack of desire to own a home or a shortage of quality homes in all income ranges; it is due almost entirely to what I would describe as a series of Treasury-inspired blows which have left house builders punch drunk from the impact of what genuinely appears to be an attack on home ownership.
"We suspect that a long list of factors such as rising interest rates, poor job security and the announced changes to income support for mortgage payments, would incline individuals to stay out of the housing market, and explain a static market. None of our official witnesses gave us cause to change our mind."
Column 515Let me inform my hon. Friend the Member for Colchester, North (Mr. Jenkin) that the Treasury Select Committee--chaired as it is by my long-standing and respected hon. Friend the Member for Hazel Grove (Sir T. Arnold), a former vice-chairman of the Conservative party--is not a maverick voice, but a credible commentator that has wisely sounded a serious warning to the Government at this time of consultation.
The fear of a reversal in the Government's attitude to home ownership is not only in the minds of observers. It was the Minister for Local Government, Housing and Urban Regeneration himself who sounded the warning in a recent interview with the magazine Roof , which has already been mentioned. He said:
"I don't think there is some undiscovered new wave of owner-occupation which is about to burst upon us, quite frankly. Most people still do have that as a natural aspiration"--
this is the section that I consider important--
"but I don't personally attribute any moral superiority to owning a house".
Wise words, perhaps, in some people's view; but they relay a grim message about the Minister's own approach to home ownership.
Mr. Winterton: No, indeed it does not--although I do not have a copy of the entire report with me; I shall certainly look at it after the debate to see whether that is specifically spelled out. Of course we want a stable housing market and low interest rates, because they are desirable for a sound economy.
Let me refer my hon. Friend to statistics produced by the House-Builders Federation, which show that the number of weekly site visitors so far this year is dramatically down on the figures for last year and the year before- -and both those years were bad. Moreover, weekly net reservations also show a dramatic reduction on the past two years. I am glad to say that the federation produces its figures very quickly. Those, I think, are serious warnings.
Let me also tell my hon. Friend the Member for High Peak (Mr. Hendry), who is sitting behind the Minister--I assume that he is the Minister's parliamentary private secretary--that January and February are usually good months for the housing industry. The figures are therefore quite serious, and I hope that they will be noted by my right hon. Friend the Secretary of State.
The Council of Mortgage Lenders now predicts that, as a consequence of the change in income support for mortgage interest,
"mortgage arrears will rise and repossessions are likely to increase in 1996".
Let me point out to my right hon. Friend that that may bring us dangerously close to a general election. Furthermore, the council predicts that, given the current economic climate and political approach, there is never likely to be an upturn in the housing market. The social implications of such a position are grave. The new proposals will again place a smothering pillow over the slumbering face of confidence in the new housing market. They will discriminate against households and individuals wishing or needing to move house. As The Times put it on 1 December--it is important to note the views of these commentators--
Column 516"crucially for the Government's fortunes, it will further heighten middle-class insecurity. Home ownership, house prices, economic security and middle-class support for the Tories are inextricably linked".
I share that view. I invite my right hon. Friend the Secretary of State not only to reaffirm his commitment, and that of the Government, positively to promote home ownership, but to tell us clearly how that is to be done.
I do not intend to go into the details of the proposals, because that has already been done by the hon. Member for Glasgow, Garscadden (Mr. Dewar) and will no doubt be done again by other speakers. The essence of the social injustice, however, lies in the fact that--as the Prime Minister proudly boasted in a written answer to me just a few days ago--
"Owner-occupation in the United Kingdom has risen from just over 54 per cent. in 1979 to over 66 per cent."--[ Official Report , 23 January 1995; Vol. 253, c. 25 .]
That is important.
In keeping with their political vision of society the Government have enticed and encouraged into the property market many council and housing association tenants and many people who are on low incomes. Now they appear to be withdrawing from those groups the safety net of support, however inadequate it is. The policy has gone seriously awry for the most vulnerable, although I appreciate and support the steps that are to be taken to limit interest relief, where it is available, to a maximum value of £100,000.
There is now a clear and deliberate policy emerging from those who advise my right hon. and learned Friend the Chancellor to stifle the housing market. Such Treasury mandarins--and I include the Governor of the Bank of England--continue to display an irrational fear of the childhood bogeyman of inflation which was rooted in social and economic conditions that no longer apply because our economic recovery is export driven. They see the housing market as a smouldering fire of intolerable price rises.
I do not want to see a return to the ludicrous, spiralling house prices of the late 1980s, but more movement and more confidence are prerequisites for growth in the economy as a whole and of the electoral prospects of my party. If we are committed to stimulating such growth, let the next Budget give a real, but responsible boost to the market by increasing MIRAS again from 15 to 25 per cent. for first-time buyers. It should be up to a maximum of £50,000 for a period of, say, five to 10 years. I hope that my right hon. Friend the Minister will convey that message to the Chancellor. He should abolish the tax on prudence and responsibility which he imposed in his Budget when he introduced what I would describe as new and completely unjustified taxes on insurance premiums.
The proposals are well intentioned, but at this time they amount in practice to a betrayal of those on low incomes, the self-employed, people on short-term contracts and others who are struggling to have their stake in the property-owning democracy. I believe, and I hope that I am right, that it was Sir Winston Churchill who spoke about the need for a safety net for those who fall off the ladder of life. I respected him and I believe that when he said that he meant it. Society has a responsibility for those who through no fault of their own fall off the ladder of life. In this period of consultation I say to my hon. Friend
Column 517that the proposals are poor economics, they are weak housing policy and they are bad politics. I shall not be able to support them in the Lobby.
Ms Liz Lynne (Rochdale): I am pleased to take part in the debate, although I realise that my speech and those of other hon. Members will probably have no effect whatever on the Government. Their policy is ill considered and will depress the property market, as the hon. Member for Macclesfield (Mr. Winterton) has said. In the long term it will cost jobs. At the same time as the Government are introducing the measure they are penalising the rented sector by cutting housing benefit. The policy will be an absolute disaster and the Government must do a U-turn before it is too late.
In his letter to all hon. Members, the Secretary of State for Social Security stated that mortgage interest benefit had risen from £31 million in 1979 to £1.1 billion today and that reform was clearly essential. It is indeed essential, but he should have gone on to say that the reason for the need for reform is the mess that Tory policies have created over the past 15 years. The letter said that from October existing borrowers who were not on income support would get no benefit for two months, 50 per cent. for four months and 100 per cent. thereafter.
Many, although not all, of those people will get into debt. The letter states that for new loans after October people will get nothing for nine months, but I should like the Secretary of State to clarify that. I have been led to believe that those who take out mortgages after the Budget statement will not get benefit for nine months.
These are not reforms--they are cuts. If the Minister were serious about reform, he would look at the underlying reasons for the problems and listen to people who have pointed to Government policies over the past 15 years. I was not against some of those policies, such as the right to buy, which was introduced by Mrs. Thatcher. But the Government have been responsible for economic mismanagement, the boom and bust of the 1980s, record unemployment and a record recession. Their employment policies are designed to encourage people to accept low pay and part-time work and contract work, which many people are now accepting. That is leading to insecurity in employment and in the housing market.
Those factors are linked and lead to higher mortgage interest benefits, but instead of looking at them the Minister is considering cuts. In the past four years, 250,000 homes have been repossessed. The figure is coming down and that is welcome news. I hope that it will continue to come down, but I am afraid that this policy will lead to even more repossessions.
Some 1,250,000 mortgages are greater in value than the value of the homes that they represent. The available statistics show that the growth in the number of people buying homes between 1984 and 1991 was in the so-called blue collar sector--the people who have faced more unemployment. The Government tried to persuade them into home ownership through the right-to- buy scheme.
The Government must realise that unemployment is not usually the fault of the unemployed. Yet the proposals make it look as though that is what the Government think.