Housing and Regeneration Bill

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Clause 269

Exclusions from Subsidy Arrangements
Question proposed, That the clause stand part of the Bill.
Mr. Robert Syms (Poole) (Con): I am sorry, as we are making good progress, to slow things down a little.
Clause 269 deals with housing revenue account subsidy and, although it is only one clause, it is quite an important element of the Bill. I am not sure that we have learnt an awful lot about what Government plans are in relation to the subsidy. I want to draw the Minister a little bit more on what the Government want to do in this area.
In the oral evidence session, the Local Government Association representatives said that in principle they would like to see some reform, particularly where money is taken from some local authorities to subsidise other local authorities. In the current year just under £3 million will go from the Poole housing partnership into the national subsidy arrangements, which is £12.03 per tenant per week. Housing is a problem in Poole and one would prefer at least some of those resources to stay in the local area.
The Library has provided me with the information, Mr. Gale, that in 2006-07 the total subsidy under the housing revenue account subsidy arrangements was £707,727,683, of which £562,492,298 came from the Government. The point of my concern is the £115,235,385 that came out of some local authorities to subsidise other local authorities.
All parties accept that need has to be a major element in the provision of housing and there are special problems in central London and some of our bigger cities, but I do think that the Government should explain why they are taking money paid by tenants in rent out of some areas to subsidise rent-paying tenants in other areas.
There are some anomalies. I have the list that shows what the Government call the negative subsidy entitlement, which is the money that people put in. We are not necessarily talking about leafy suburbs putting money into the arrangements.
I shall pick up a few examples. In 2006-07 the London borough of Barking contributed just under £11 million of its tenants’ rent to the national subsidy scheme. I seem to remember that there was a question relating to housing and the British National party in the borough of Barking in east London. One wonders whether putting £11 million into a national subsidy scheme from rents paid by the tenants in that area is a sensible idea.
In Bolsover, just under £4 million goes from council tenants into the national scheme; in Castle Morpeth it is £500,000; in Chesterfield it is just under £3 million; Chester le Street contributes £1.8 million. Those are not necessarily the leafiest areas. From the tenants of Durham, £1,671,546 was used to subsidise people elsewhere. I am not familiar with Durham, it may be a very leafy place in the north-east, but I suspect that there is a need for those funds. I can tell the hon. Member for Ealing, Acton and Shepherd’s Bush that Hillingdon contributes £8 million to the arrangements. Welwyn Hatfield gives under £12 million. That is quite a lot of money from a relatively small town.
I would really like the Government to set out their plans. The largest element of subsidy comes from the taxpayer. If housing need is the key matter, it is right that the taxpayer should fund it through the national system of taxation, but £115 million comes from contributions from the majority of districts and boroughs, in order to subsidise relatively few but, I suspect, quite needy authorities.
I would like to know how the Government want to proceed under the clause. They evidently have some thoughts about reforming the system. I cannot see an argument for taking money paid by some tenants in rent—although perhaps not in some areas that have their own problems, such as ex-coalfield areas—and using that money principally to subsidise some of our large cities and central London. The Government should look at reforming that situation. Given the amount of money, even to express their intention of phasing out the subsidy over a period of years would be helpful for authorities that are making a contribution to the national pool. When I talk to my own housing authority, I am told that if the money were allowed to remain locally it could help deal with voids in maintaining properties, and could also be an income stream for new build.
If we accept the principle of localism—that it is better that money raised locally remains local—there is not a strong argument for taking the £115 million in 2006-07 that I have mentioned from authorities in subsidy arrangements. I know that there is concern among not only Conservative but Liberal Democrat and Labour authorities about the way the scheme operates. I do not think that it is particularly fair, and I hope that the Government can clarify under clause 269 what sort of proposals they will be making for reform.
Andrew George: I congratulate the hon. Member for Poole on initiating the debate on this matter. There is certainly a perceived injustice among those authorities that lose out under the measure. Given that there is also a perceived lack of transparency in the way in which resources to be transferred between authorities are calculated, those authorities that lose out under this measure have little motivation to comply. All the incentives, in fact, work against a just system; the justice of social housing finance needs to be clearer. Those authorities that are losing out, as the hon. Member for Poole quite rightly identified, clearly wish to have the matter addressed. I hope that the Government will address that point on Report and perhaps make clear how that perceived injustice will be corrected.
Dr. Roberta Blackman-Woods (City of Durham) (Lab): I welcome the Government’s intention to look at the housing revenue account, and I am very grateful to the hon. Member for Poole for carrying out such assiduous research into my constituency. It was enormously helpful, so thank you.
A number of councils have signalled that it would be very helpful if they could spend surpluses in their revenue accounts locally. It could transform their ability to carry out repairs and bring houses up to the decent homes standard. It could also create reinvestment in local social housing. I thank the Minister, therefore, for considering the matter, and look forward to what he has to say about changes that might be made.
Mr. Andrew Love (Edmonton) (Lab/Co-op): I, too, welcome clause 269. In future years, I think that we will look back on it as possibly one of the most important parts of the Bill. As I understand it, it will provide the ability to exclude housing authorities from the housing revenue accounts subsidy arrangements, for either some or all of their properties. That could be done not just for existing properties but for those yet to be built, which is quite an important consideration. I look on that as a decentralisation measure that will give housing authorities more local control over decisions on future investment and critically—I shall come back to this—over decisions on income received and, in particular, on the setting of rent levels.
As the hon. Member for Poole mentioned, the clause also maintains the current national redistributive system, which, as a London Member, I support, given the particular difficulties in London and in urban areas in general. That system ensures that the share of overall housing resources nationwide is maintained. When people say to me, “The big London authorities, and in particular some of the inner London authorities, receive a subsidy of about £15 per tenant”, I point out that rent levels in inner London are significantly greater than in almost any other part of the country.
The aim is to maintain the fiscal neutrality of the redistributive system, and we could get into the equations for net present values and all the rest. However, I shall focus on the important point. According to figures from 2005, 82 per cent. of housing authorities control 63 per cent. of the stock and they receive no subsidy from the system. So they could choose—one hopes—to opt out of the current subsidy arrangements. However, some of those authorities are concerned that the additional debt that they will have to take on through the net present value calculation will make it difficult for them to exercise that choice on their current incomes. Will the Minister address that point? What lessons has he learnt that could assist authorities that wish to exercise their right to exclude themselves from the HRA arrangements?
In welcoming the clause, my second question to the Minister is about the pilot schemes that are in place with a number of local authorities. Can he give us a reassurance that he will continue to look at the issue and, where possible and where value for money can be achieved, he will welcome more council house building as a contribution to the country’s overall need?
11.30 am
Grant Shapps (Welwyn Hatfield) (Con): I rise to thank my hon. Friend the Member for Poole for his great research and for initiating a debate on this subject. This is an incredibly complex area and the other day I heard the Minister for Housing acknowledge that complexity. Once we start talking about negative subsidy arrangements, the mind starts to boggle, not just for lay people like us, but for the housing officers and finance officers in councils up and down the country who scratch their heads to try to get to the bottom of these very detailed arrangements. It is clearly a matter that requires Government attention, and I was pleased to hear the Minister for Housing give an undertaking to do that the other day. I am curious as to why it is not included within the current legislation—perhaps the Bill could have gone further in starting to resolve the problem.
It is incredibly difficult for local authorities. My hon. Friend the Member for Poole mentioned my own constituency of Welwyn Hatfield—a small borough in what I am sure the Government believe to be leafy Hertfordshire. In fact, it is a place with very significant housing needs. One of my wards, Peartree ward, is one of the most deprived and I would challenge the Minister, or anyone else, to come to Welwyn Hatfield and visit that deprived ward and not to come away believing that it is an area with significant need.
Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): The hon. Gentleman alluded to the complexity of the housing revenue account subsidy system. Does he recognise that the fact that Welwyn Hatfield is not a recipient of subsidy is a reflection of the historical pattern of the provision of the housing stock by a new town development corporation that did not result in the local authority having to acquire the same level of debt, and therefore entitlement to subsidy, that would apply in other areas? It is purely because of those historic circumstances that his authority does not acquire subsidy. It is precisely that pattern which relates to the debt of individual authorities, and therefore subsidy entitlement, and which has created a framework that looks so bizarre.
The modern-day reality is that not only does a council such as mine find itself in extreme financial difficulty as a result of the complexities of the negative subsidy arrangements, but this year in particular, the arrangements have not been made known to local authorities in order to allow them to plan. That is unacceptable. As I understand it, they would usually have a good idea before the new year. This year the announcements have come much later. I ask the Minister to recognise the problems that that creates in setting the council tax for the year ahead.
It is widely acknowledged that there are problems with the current system. I welcome the Government’s view on reviewing the process and look forward to the Minister’s further comments on the subject.
Mr. Wright: I have enjoyed this debate. I agree with my hon. Friend the Member for Edmonton when he says that, of all the clauses in the Bill, this will be highlighted as one of real historic significance. I know that officials always faint when I start saying this, but, as a former borough councillor, I am very excited to say that this is the return of the council house. We are trying to remove from local authorities the disincentives to build homes. I shall just turn around and check whether any officials have fainted.
However, as a former borough councillor, I am excited by the fact that local authorities will have a direct role, where it proves value for money, in the delivery of an increased supply of housing in their area. That is a tremendous challenge, but it is also a tremendous opportunity, and, as a Minister with responsibility for housing, I am pleased that I have been able to help facilitate it by pushing the Bill forward.
This one clause provides the necessary legislative changes to enable us to implement two important and inter-related policies. First, as hon. Members have said, it will allow us to exclude the whole of a council’s stock from the housing revenue account subsidy system, subject to agreement with the respective council. This is generally known as self-financing. Under the arrangement, the council would in future keep all its income from rents and other charges rather than paying surpluses or receiving subsidies based on a set of allowances. That will allow local authorities to service debt in order to build new council houses.
Hon. Members have mentioned the six pilots. Evidence from them seems to suggest that self-financing could provide a range of benefits. I shall highlight just some of them. The pilots have suggested that there is the potential to deliver more efficiencies, to deliver better asset management, to lever in more private investment and, crucially, to create opportunities for local authorities to add new supply.
Several hon. Members have spoken about how short-term planning does not help anybody in moving forward with council stock. The hon. Member for Poole spoke about that extraordinarily well—in that respect, he crossed the Floor. The modelling seems to suggest that we could have efficiencies of some 10 to 20 per cent. from better planning of investment and repairs. For example, moving from piecemeal, reactive maintenance to a more planned longer-term cycle of major and minor repairs could help cut costs.
I was taken with the hon. Gentleman’s discussion of the fact that the HRA subsidy system is a national system based on how much there is to spend, how much there is a need to spend and how much money local authorities need to maintain and repair their stock. I am conscious of the fact that there are local considerations to take into account. The pilots seem to suggest that self-financing could provide a direct link between what people pay in rents and charges and what they receive in services. Therefore, it could allow future decisions to reflect local choices and increase local accountability.
There is more ability and more scope for better strategic asset management, including a better phasing of replacements, disposals and major estate remodelling schemes to meet changing local needs, and, crucially, there is more scope for increased investment. The pilots suggest something like a doubling of projected levels of capital investment over 30 years through things such as private finance, additional prudential borrowing and additional rents from new-builds and reprovision. So there is great potential that we need to tap into, and I am keen to do that.
Secondly, the clause will enable us to exclude specified properties within a council from the HRA subsidy system, including future properties. Again, this will be subject to agreement with the council. It will be used to allow councils to apply to exclude new homes added to the HRA in future.
No provision is made within the HRA subsidy allowance for financing the capital costs of new council housing. The Bill’s provisions will therefore enable councils, subject to entering into an agreement, to keep the full rent from a new home and to use the element not needed to meet the running costs to help finance the costs incurred in providing that new home.
The amount of extra money that that will give the council will depend on the type of housing provided, but on average, as we have mentioned in relation to the redistribution element, the subsidy system assumes that running costs are equivalent to about three quarters of the rental income. The remainder is pooled and redistributed to support HRA debt in councils across England, but in the future could be used to finance the debt incurred in providing the new homes. Again, there is tremendous scope and potential there.
In many cases, it will still be better value to join up with a registered social landlord to deliver the new housing in order to benefit from the levering in of private finance. Where a council wants to do its own development and give direct provision, the clause will ensure that, as with an RSL scheme, the business case can be made on the basis of the full return from the investment. That will make a significant difference, which we think will encourage more councils to consider that option. I suggest that it is an extremely exciting era.
Alongside the provisions in the Bill, the Government believe that we need to look more widely at the system for financing council housing. I pay tribute to what the hon. Member for Poole said with regard to that. The hon. Member for Welwyn Hatfield mentioned my right hon. Friend the Minister for Housing, who last week during oral questions on the Floor of the House mentioned that after we discuss the RHA subsidy system we need to lie down with a wet towel around our heads, and she is absolutely right. That is why she announced a review of the HRA subsidy scheme on 12 December. I have provided copies of that statement for members of the Committee so that they are fully aware of what is going on. The written ministerial statement that my right hon. Friend provided sets out the form and purpose of the review.
We need to address the concerns that the hon. Member for Poole mentioned. I do not want to pre-empt the finding of the review during its early stages, but I think that we need to establish a long-term, sustainable system for financing council housing that enables councils to plan, not for the short term, but effectively for the long term. The current system relies too much on short-term funding decisions that are based on an assessment of short-term expenditure needs. It is in no one’s interests for that to continue.
I agree with the hon. Member for Welwyn Hatfield that the annual subsidy determination process has become more difficult as we balance competing and conflicting interests from tenants, taxpayers, landlords and government. We need a longer-term settlement that is fair, as far as possible, to all of those groups, and the review will help us to achieve that.
I do not want to say much more on this significant clause. It has been an incredibly interesting debate and we are entering an exciting era that has a longer-term perspective on the HRA system. We need to get things exactly right on competing and conflicting priorities. As my hon. Friend the Member for Edmonton mentioned, moving away from an era when we were building 245 council houses a year to one when we will build several thousand a year at least is an important step that will help improve housing supply and ensure that we address the country’s acute housing needs. That will ensure that council housing can have a direct role in the provision of housing if there is the political will for it to do so and if it provides value for money. This is a great opportunity and I am grateful for the opportunity to speak about this.
Question put and agreed to.
Clause 269 ordered to stand part of the Bill.
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