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The noble Baroness said: My Lords, first, I thank all noble Lords who are participating in the debate. It seems that once again housing is becoming a major political issue. To their credit, the Government have done a great deal to tackle rough sleeping, but that is just a small, although highly visible, part of the problem. For many people, the misery of living in temporary accommodation, in overcrowded or unsuitable conditions, is a daily reality. There are also those who live with the constant worry of rising rents or overly ambitious mortgage payments.

The Government's housing policy is now clearly biased toward affordable housing for purchase and not social housing for rent—that point will be made in more detail by my noble friend Lord Oakeshott when he sums up. However, this is not just a preoccupation
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of the Liberal Democratic Benches: in an article in Inside Housing in May 2005, it was reported that Shelter is very concerned about decisions made by Ministers in 2003 to tilt the balance toward intermediate and key worker housing at the expense of social housing for rent.

This evening's debate is about one key area of social rented housing—that provided by the local authorities in this country. There are some 3 million council tenants in the UK. The Audit Commission estimates that around 12 per cent of households live in council properties. ODPM figures in 2002 estimated the value of the stock at over £100 billion. It was estimated that 100,000 of those homes were in need of urgent improvement, at a cost of around £19 billion.

Since 1988, all governments have promoted what is, in effect, the privatisation of council housing. The financial playing field has been tipped to ensure that the only way to get additional investment to tackle repairs and improvements has been to require tenants to accept one of three options: stock transfer, PFI or an arm's-length management organisation. At no point in the process of moving public financial support and funding from council housing to the housing association sector has there been any real public debate on the matter.

The present housing finance system discriminates against local authorities in three main ways: first, the Government siphon off rental income and capital receipts from councils but not from housing associations; secondly, the Government write off overhanging debt when stock is transferred, but not for local authorities that want to keep their stock; and, thirdly, if the stock is in poor condition and has a negative valuation, the Government pay a dowry to subsidise the transfer, but will not give any sum to councils to improve that stock. Also, funds are available to ALMOs that are not available to those authorities that wish to keep the management of their housing in-house.

In short, housing stock that was built and improved over the years at public expense is being transferred to registered social landlords with the historic debt being transferred back to the public purse through national government. In 2003, the National Audit Office showed that for each house transferred the public pay an extra £1,300 in subsidy. If the historic debt for council houses could be written off, as it is in stock transfer, councils could invest that money in improving existing stock and building new stock.

The Government spend public money subsidising the two other options: arm's-length management organisations and PFI. Councils opting for PFI receive credits from the Government to pay to a private company not only to cover the capital and interest costs of private borrowing, but to reflect the higher costs of private investors and the fact that they have to make a profit. The payback for the Treasury is that that takes the borrowing off the balance sheet.
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However, these schemes are proving increasingly difficult and unpopular in local authorities. The Chartered Institute of Housing has noted that:

What is the experience of tenants after their stock has been transferred? It is usual to offer a five-year rent guarantee, but that does not apply to new tenants and a home that has been renovated or significantly improved can be subject to higher rents. The National Audit Office has shown that 17 per cent of transfer associations have broken their rent guarantees, so it is no wonder that tenants are sceptical about promises that are made to them during the debates and campaigns on stock transfer. Fifteen out of the 20 fastest-increasing housing association rents are in districts which have undergone large-scale housing transfer.

There is also a huge loss of localism. Councillors are now unable to respond to tenants' requests in a meaningful way, which is a source of frustration to councillors, who wish to be responsive to constituents' problems and, of course, to the tenants themselves. There is also a potential loss of synergy between housing and other related sectors, such as education and social services, once housing is moved out of the local authority sector.

Housing associations are now going through a period of consolidation and merger. As they get bigger and more remote, tenants lose still further the sense of local accountability. In many cases, the new registered social landlord is not bound by the promises that were made to the tenants on the original transfer, as was highlighted in an article in Housing Today this month. Tenant involvement is not what it seems: where tenants are on the board, they discover that their legal obligations are to the registered social landlord and not to the tenants, which was a point made very clearly by the Audit Commission in its report Improving Services Through Resident Involvement. A number of studies have shown that there has been no significant improvement in tenant satisfaction with the new regime, despite all the money that has been thrown at it.

We have to wonder what on earth is behind all this. It is not as if the Government can argue that council housing requires a massive public subsidy. In fact, as I shall show, the situation is quite the reverse. In 2003-04, right-to-buy receipts were £2 billion. Councils kept £0.7 billion and the Government gave them back another £0.7 billion for housing investment, so the Government kept £0.5 billion. That is something of an improvement since 1997 because, until then, councils could not use right-to-buy receipts at all unless they were debt-free.

Currently, many councils are investing right-to-buy receipts in non-housing projects. For example, Tower Hamlets has used £100 million in the past decade for IT projects and a new civic centre. On these Benches, we would be the first to say that councils should be free to invest where they wish. However, it is clearly not the case that taxpayers are in any way subsidising council house dwellers—quite the reverse. The same is true on
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the revenue side. Councils are legally obliged to ring-fence the housing revenue account and cannot use the general fund to subsidise housing, but they can, and often do, do it the other way round. In 2003–04, council house tenants paid an average of £2,650 in rent and received £1,773 in services. The Audit Commission notes that as council house rents increase and become equal to those of housing associations, the subsidy system will further redistribute revenue on a national basis, thus weakening still further the landlord-tenant relationship.

Despite this negative subsidy, the fact is that, on the whole, tenants prefer to remain in local authority stewardship. Of the 360 local authorities that owned property in 1988, 136 have transferred their stock and 224 have retained their homes. This is despite the financial incentives given by the Government. In my own county of Suffolk, a ballot will be held on council housing in the Lowestoft area. Many tenants, supported by their Labour MP, oppose stock transfer. They do not understand why this Government are prepared to give £11 million extra for improvement to their houses if they transfer.

Many authorities that gave evidence to the House of Commons Select Committee said that they had pursued stock transfer only as a means of reaching the decent homes standard. Given the antipathy among tenants towards stock transfer, the Government will have to reconsider how they will bring these homes up to standard without stock transfer. Otherwise, they will be consigning many thousands of people to houses which do not meet the decent homes standard. The Government are blackmailing tenants into accepting either landlords that they do not want or deteriorating living conditions. For a Government who are committed to reinvigorating local democracy, that is an extraordinary state of affairs. For this Government, choice is said to be a key element in public service reform, so I beg them to allow council tenants to have that choice.

7.49 pm

Lord Whitty: My Lords, I welcome the debate initiated by the noble Baroness, Lady Scott. I regret to tell my Front-Bench colleagues that I largely agree with her speech. While the Minister will know that I am normally convinced by the Government's arguments, at least to the extent of voting for them, I find it very difficult in relation to housing. This debate will perhaps allow us to clarify the Government's long-term thinking on council and social housing.

On the one hand, we have clear and desirable government commitments and objectives on sustainable communities, affordable housing, the rights and involvement of tenants and lessees and key worker provision, as well as a substantial programme of refurbishment and decent homes, on which the Government are to be congratulated. The Government also have strong general policies on tackling poverty, on reducing the dependency on social security, on choice and on more flexibility for local authorities. Yet our housing policy seems to cut across all those objectives.
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The likely outcome, particularly in inner cities and rural areas, is a deep polarisation of our communities and housing provision.

The need for social housing, even in an era of high levels of property ownership, is self-evident. Even if we approach the 80 per cent target which the Government have set, there are still substantial numbers of people needing rented accommodation at some time in their lives. In any case, how can they get into home-owning given today's house prices? Roughly speaking, average house prices across England and Wales are seven times average income. In areas of housing stress, the figure is much greater than that. In Kensington and Chelsea, as the noble Baroness, Lady Hanham, will know, it is 24 times the average income. In rural areas such as West Devon, it is 13 times the average income; in the Cotswolds, again, it is 24 times the average income. There is no way that the ordinary working family can get into housing on that basis. In those rural and inner-city areas, private rents are two or two and a half times the level of council rents. We therefore need affordable social housing, yet the implication of Government actions in relation to council housing cuts across that.

We all know that local authorities are not always the best landowners, but there are also many good local authorities. Their stock is, by and large, well built and has, for many decades, been the main source of affordable housing. Now, Government policy seems to be fourfold: first, to have no new build in council housing; secondly, as the noble Baroness said, to get as much across into private ownership or management as possible; thirdly, to raise rents closer to market levels; and, fourthly, to cap the ability of tenants to buy their way out by buying their own homes. The outcomes are no affordability, little flexibility, the end, ultimately, of mixed neighbourhoods, tenants and lessees having fewer rights to involvement than they had with local authority housing, either through ALMOs or private stock transfer landlords, and local authorities with fewer levers to meet housing need.

On the building front, there was a time when we built over 100,000 new council houses per year. Last year, we built just 131. The shortfall is not made up by RSLs, despite the inducements for them to build. The RSLs now build 22,000, whereas as late as 1990 they, together with local authorities, built 35,000. Do the Government really intend that there will never again be local authority new build?

Why is there a shift of stock in so many areas away from local authority management and ownership, wherever possible? There are bad local authority landlords, but is not clear to me, to put it mildly, that alternative ownership is invariably beneficial or that alternative management gives the tenants or lessees any more rights than they had under local authorities. In many cases, despite some good ALMOs, the reality has proved to be that the degree of involvement is significantly less. The noble Baroness has gone through the economic absurdity of these arrangements and why the Government are pressing local authorities and their tenants to opt for a private sector solution.
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In many ways, that does not seem acceptable to the tenants themselves. It certainly undermines the role of local authorities.

On affordability, I spoke in the debate that was initiated by the noble Baroness on the rent restructuring programme. The rent restructuring formula is designed to take into account average incomes, property values and private rents, to equalise RSL and local authority rents. In the long run, the net effect will be that, in inner cities and rural areas with housing stress—certainly for new tenancies, since existing tenancies are partly cushioned—only people on housing benefit will actually be able to live in council housing. There will be no key workers and no families just above the poverty line. Only the very rich or the very poor will be able to live in either our inner cities or desirable country areas. Can the Government not stop or, at least, slow down that process of rent restructuring and assess the degree to which we are moving to that social calamity?

Policy on social housing ought to offset the failures of the market, not reproduce them. It seems that the policy is partly due to a regrettable centralising tendency by governments of both persuasions to take more and more responsibility, power and assets away from local authorities because a few of them are failing badly. I would be greatly reassured if the Minister could indicate that that is not in fact the policy objective and that the outcome of social housing policy will, indeed, be to continue a strong social housing sector in which council housing and the role of local authorities in assessing their own housing needs in the light of local housing circumstances are the dominant theme.

7.56 pm

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