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?
The most
important aspect, and one that has not really been touched on, is the
desire of many local councils to build new houses to meet the housing
need
in this country. Estimates are relatively modest. As we know, for quite
some time there has been no real council house building—there
have been a couple of hundred houses here or there, but effectively the
councils do not make a contribution. This measure will enable a modest
increase to something in the region of 2,500 to 3,000 council houses,
which I welcome, although I accept that it may be just the
start. 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.
Grant
Shapps:
I am grateful to the right hon. Member for
Greenwich and Woolwich for that intervention. His knowledge and
interest in the detail of housing is recognised across the House. He is
absolutely right about the historic nature of the formation of what are
effectively two new towns—Welwyn Garden City and Hatfield.
However, to say that today’s residents must for ever pay for
some historic creation of housing a long time ago—last year in
2006-07, the negative subsidy amounted to close on £12 million,
and this year it is even more—is, I think, unfair on current
residents of a borough such as mine and many others across the country.
We must eventually recognise that it is unfair to continue paying out
in support of some notional argument about the way in which the housing
was originally created.
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.
Of course, we have to
recognise, as my hon. Friend the Member for Edmonton mentioned, that
even the full income from a social rent will not be enough to service
the debt to finance the provision of the new
home. In every case, as has been mentioned in our consideration of the
Bill, we would expect a council to provide land on which to build the
homes and there could be scope for a community land trust to help push
that deal forward. Further capital subsidy might be provided from some
of the capital receipts. 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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