Housing and Regeneration Bill

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Clause 23

Powers to borrow
Question proposed, That the clause stand part of the Bill.
Sir George Young: I have one or two small points. Looking at subsection (1) about the short-term borrowings of the HCA, will those fall within the financial limits referred to in clause 26 or will they be outside the £2,300 million that is set as the financial limit? Perhaps the Minister could clarify whether they are within the overall limit.
Subsection (1) refers to the short-term management of the HCA’s finances. In the days when we used to have bank managers and I used to talk to them, I often found that their interpretation of a short-term arrangement was somewhat different from my own. I wonder whether there is a definition of a short-term arrangement that would make it absolutely clear whether borrowing fell within subsection (1), or whether it was on a longer term arrangement.
Turning to subsection (2), which is more serious for long-term borrowing, I am intrigued about the HCA’s rather restrictive line of credit. It has to borrow either from the Secretary of State or the European Investment Bank. I am not one of those in my party who gets frantically excited about matters European, but it would be helpful to have an explanation of why the European Investment Bank, alone among many other banks, has the privileged status of being the only one that can lend serious money to the HCA.
Mr. Wright: I will be short and sweet. In respect of the right hon. Gentleman’s first point about whether short-term borrowings will fall within limits as per clause 26, I can confirm that they will. On his point about the restricted nature of the agency’s borrowings via the Secretary of State or the European Investment Bank, may I point out to him that that is deliberate and in common with former arrangements with organisations such as English Partnerships to ensure that we are not compromised in respect of public borrowing requirements and state aid? I hope that that reassures the right hon. Gentleman.
Question put and agreed to.
Clause 23 ordered to stand part of the Bill.

Clause 24

Loans by the Secretary of State
Question proposed, That the clause stand part of the Bill.
5.45 pm
Sir George Young: I want to reflect on what the Minister said just before he sat down, because it may come up again under clause 25. It would be helpful if he could explain something about clause 24. I ask the question out of ignorance. I assume that the HCA will get some cash from the Government as well as having access to loans. Am I right in thinking that the money that it spends will not just be raised by borrowing, but that there will also be a cash budget for the HCA? If so, in what circumstances will the money spent by the HCA be spent out of the cash that is voted to it by the Government and in what circumstances will the money that it spends have to be recovered by a loan, either from the European Investment Bank or the HCA?
In respect of clause 2, when the HCA has to pay interest to the Secretary of State, presumably on the long-term borrowing, it would be helpful if the Minister could confirm that that is the arrangement under which the Housing Corporation and English Partnerships are funded. I should be interested to know the rate of interest that the predecessor organisations have to pay to the Secretary of State on the money that is outstanding by way of loan.
Mr. Wright: I am grateful, I think, to the right hon. Gentleman for his questions. I shall give the Committee examples of instances in which the agency needs access to its finances but that is not possible. In such circumstances a loan from the Secretary of State may be the best way forward. I can confirm to the right hon. Gentleman that the agency will receive a grant; it will not raise money solely through borrowing. We expect that the vast majority of spending by the agency will be funded by the grant and that borrowing will probably not be the norm.
The agency needs flexibility in order to achieve its objectives and a grant will be available from central Government. That flexibility is important to ensure that it can have a loan if necessary, which is very much in keeping with former regimes. For example, until 1998 the Housing Corporation provided loans to registered social landlords to help to develop new social housing. Those loans were funded by short-term borrowing from the national loans fund; the corporation’s remaining loans portfolio, which covers core ownership loans and guarantees, is part-funded by short-term borrowings from the national loans fund, which is at present about £1.4 million. The reason for the borrowing is purely historical, as all loans were funded by borrowings.
The right hon. Gentleman wanted to get a flavour of how often that sort of borrowing takes place. English Partnerships has never borrowed or received a loan from the Secretary of State. As I said a moment ago, the Housing Corporation’s borrowing is largely historical but remains current in that respect. The Department did not provide any grant in aid as financial assistance to fund redemption of the loans in the Housing Corporation’s loan portfolio. Any borrowing from the new town development corporations was funded from the national loans fund.
The proposal provides flexibility and another source of reasonable and prudent funding, but it will probably not be the norm in how the agency funds its activities.
Question put and agreed to.
Clause 24 ordered to stand part of the Bill.

Clause 25

Guarantees by the Secretary of State
Question proposed, That the clause stand part of the Bill.
Sir George Young: I have another short intervention on loans that are guaranteed by the Secretary of State. The Minister said that in an earlier life he was an auditor. That means he has removed the excuse of ignorance for the question that I am about to put to him. Will the guarantees given by the Secretary of State under this clause score so far as the public sector borrowing requirement is concerned? Will they form part of the calculation towards the golden rule? The clause makes it quite clear that if the Secretary of State gives a guarantee, Parliament has to be told about it, so the information will be in the public domain. It would be helpful to know whether the guarantees given under this clause will go towards the total liability of the Government and therefore score against the PSBR and the Chancellor’s golden rule?
Mr. Syms: As we discussed under clause 22, the HCA can give guarantees or indemnify the projects. Under clause 25 would this be under the financial limit of £2,300 million or above it? In other words, it is possible to have a cash borrowing limit for the HCA but have additional liabilities on its balance sheet. How would that be treated?
Mr. Wright: I will answer the hon. Gentleman first because that is the easier question. The £2,300 million is the absolute limit. Everything is contained within that. In respect of the right hon. Gentleman’s question, I was a very bad auditor which is why I had to become a Member of Parliament. I cannot provide a great deal of clarification on his very pertinent point about the golden rule. If he allows, I will look into that and try to find inspiration in the short to medium term and then respond to him and provide information to the Committee.
Question put and agreed to.
Clause 25 ordered to stand part of the Bill.

Clause 26

Financial limits
Alistair Burt: I beg to move amendment No. 3, in clause 26, page 13, line 2, leave out ‘£2,300 million’ and insert ‘£1,000 million’.
The Chairman: With this it will be convenient to discuss amendment
No. 4, in clause 26, page 13, line 5, leave out ‘£3,000 million’ and insert ‘£1,500 million’.
Alistair Burt: The aim of the amendment is to elicit from the Minister an explanation of why the financial limits are as they are. I should be grateful if he could set that out.
Lembit Öpik: I just want to highlight the complete pointlessness of subsection (3). Subsection (1) states:
“The current borrowings of the HCA must not exceed £2,300 million.”
Subsection (3) states:
“But an order under subsection (2) may not specify an amount of more than £3,000 million.”
As the Minister said himself, what is to stop anybody through an order changing the legislation to any amount at all? There is no prospect of subsection (3) doing anything useful. The amendments offer different sums. I think that the amount the HCA spends will end up being far in excess of £2.3 billion or indeed £3 billion. If it gets its momentum and if the house building programme that we need in this country is to benefit significantly from the investment through the HCA, the sums will have to be far higher than what has been put forward here.
The Minister, being so keen to maintain a frugalness of content in the Bill, needs to explain why subsection (3) is there. There may be an administrative reason. Perhaps there is a standard precedent in legislation of which I am not aware. But in the absence of those, while subsection (1) is meaningful, because it indicates some initial HCA borrowing limit, subsection (3) is meaningless, because it could be changed at any time.
Sir George Young: I have a simple question for the Minister. He referred to the borrowings of the organisations that will form the HCA—the Housing Corporation, English Partnerships and the Commission for the New Towns—and I think he said that there were some outstanding borrowings in some of those organisations. Will those borrowings be rolled into the borrowings of the HCA, or will the HCA start with a blank sheet of paper so that the £2,300 million will refer only to liabilities that it itself incurs? Will it have responsibility for the debts of its predecessor organisations?
Mr. Syms: I wish to make a similar point. Evidently, the organisations to which my right hon. Friend referred already have an external borrowing limit. Is the £2,300 million new money or is there a sort of net difference? Are these additional resources or are they the resources of the organisations that are forming the HCA? What are the external limits of English Partnerships, of the Housing Corporation and of the Commission for the New Towns? What I am trying to get at is this: is it new money or is it reannounced?
Mr. Wright: That was an interesting point about borrowing limits, certainly from my point of view as a former auditor and accountant. I reiterate what I have said in earlier discussions. The power of the homes and communities agency to borrow is an important part of its financial powers, because it gives it additional flexibility. I refer to borrowing either on a short-term basis from anyone or on a longer-term basis from the Secretary of State or the European Investment Bank.
Let me clarify the point made by the hon. Member for Poole. The amounts that we are proposing for the borrowing limits of the HCA are those currently available to the Housing Corporation. Those amounts were increased from those originally allowed in the Housing Associations Act 1985 by the Housing Act 1988. The agency will be a bigger agency than the Housing Corporation. It does not seem reasonable to expect the new agency to do more than the combined roles of its constituent parts while at the same time restricting its ability to borrow to less than that of its constituent parts. We have taken the view that retaining access to this amount of borrowing is reasonable, given the breadth and wide variety of work being undertaken by the new agency. It seems reasonable; it does not seem excessive. It will not be the main source of its funding. I therefore hope that the hon. Member for North-East Bedfordshire will withdraw the amendment.
Alistair Burt: I may well do that, but before we leave the amendment, can the Minister give an indication of what the main sources of funding will be for the HCA? Where will it get its money from?
Mr. Wright: The main source of funding, as I thought I had made clear earlier, is grant in aid from central Government. That will be the main source of funding, I imagine, that the agency receives. I hope that that clarifies the matter.
Sir George Young: I may have missed this, but I did not catch from the Minister whether the HCA would take over the existing liabilities of the organisations from which it is composed.
Mr. Wright: My strong understanding is that the existing borrowings will be transferred to the new agency. It is essentially a residual rump from former borrowings. I am sure that if I have got that wrong, I will be corrected, and I will make the Committee aware of that, but that is my strong understanding. It is a residual rump that is not material, but I am happy to provide clarification if I have got that wrong.
Alistair Burt: I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 26 ordered to stand part of the Bill.
5.59 pm
Sitting suspended for a Division in the House.
6.14 pm
On resuming—
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