Circular Economy
Question for Short Debate
1.46 pm
Asked by Baroness Jones of Whitchurch
To ask Her Majesty’s Government what steps they are taking to promote the principles of the circular economy, based on the re-use, repair, refurbishment and recycling of existing materials and products, to protect the environment, give new growth opportunities and avoid waste.
Baroness Jones of Whitchurch (Lab): My Lords, I am very grateful to noble Lords who have put their names down in such numbers to join in this debate today. It reinforces an increasing view that this is a concept whose time has come. I am also very grateful to organisations such as the Ellen MacArthur Foundation, WRAP and the Green Alliance, who have taken the seed of an idea and fertilised it into a fully-grown, evidence-based new business model.
It starts from a simple principle. Current consumption is linear. Companies use raw materials to make products which are sold to consumers who then discard them when they are no longer valued or useful. The circular economy replaces that model with a virtuous circle, replacing the concept of waste with the concept of disassembly and reuse, so that materials are used again and again. It is a simple principle, but one which could transform industrial and service processes for the future.
Why is this transformation so necessary? At a global level, the challenge of providing food, clothing and shelter for a growing population is becoming ever more pressing. The global population is set to increase from 7 billion to 9 billion by 2050, many of whom will be joining the new middle classes, with new levels of consumption. In the next 20 years we will need 40% more energy and water, and three times more material resources. In 2010 some 65 billion tonnes of raw materials entered the economic system globally. This is expected to rise to about 82 billion tonnes by 2020.
Meanwhile, scarce supply and increased demand are driving up prices. As the Green Alliance has said:
“Over the past decade world food prices have doubled, metal prices have trebled and energy prices have quadrupled”.
Yet at the same time as that is happening the UN estimates that, for example, electronic waste, globally, is increasing by 2 million tonnes a year, with less than 16% of it diverted from landfill. This results, globally, in landfill mountains of potentially recyclable materials worth some £34 billion. This includes huge quantities of precious metals and rare earths which are really needed for future production.
Clearly, this is not sustainable because we are running out of resources and because the extraction and use of those scarce resources is having a major detrimental effect on climate change. This is a global problem to which businesses, environmentalists and politicians are finally waking up. It is a global problem which the circular economy can help to resolve.
It also has unique and specific applications in the UK. We currently recycle less than 50% of our waste and are in danger of missing our EU recycling targets for 2020. This is exacerbated by complex and inefficient collection systems, with more than 300 different systems across the UK, which even the Minister, Rory Stewart, has described as absurd.
At the same time, we have failed to develop robust markets for recyclable materials, so they do not achieve their true market value. For example, a couple of years ago, I was excited to visit a new factory in Redcar which was taking recycled plastic bottles and creating new plastic materials from them. However, that factory subsequently folded because it could not guarantee a regular-quality waste stream of plastic bottles and it could not compete on price with virgin materials. That clearly does not make sense. Recycled glass and paper businesses suffer the same challenges of maintaining quality and markets.
Yet, at the same time as that is happening, manufacturers are being rocked by the fluctuating price volatility of raw materials, making profitability and growth projections difficult. This is why there is a growing realisation of the opportunities that the circular economy can deliver. It flows from necessity but also heralds innovation, creativity and the potential for competitive advantage.
What does that mean in practice? The businesses in the forefront of this revolution realise that they have to design products differently. There is much talk about designing out waste completely. New products will be designed for a longer life, with easily available spare parts and repair. For example, I recently heard a Samsung executive setting out its plans to strengthen its product repair offer to consumers, training a new generation of service engineers and delivering a local and responsive service to them. New products might be leased rather than sold, with the advantage that the raw materials go straight back to the original manufacturer for stripping out and reuse rather than via any third parties. New products might consist of innovative new materials that are less environmentally damaging. For example, Jaguar Land Rover recently reported that it is experimenting with sustainable flax and cashew nuts as a replacement for plastics in some of their fittings. New products might be designed with reuse in mind. For example, IKEA now claims that 98% of its home furnishings can be recycled and it has established a take back service for used mattresses. New business models are often product sharing rather than purchasing. I say this as a contented member of the City Car Club, a car-sharing scheme in Brighton which is now expanding nationwide.
I give these examples not to suggest that the problem has been solved or that a sea change has taken place but as an indication of some of the radical new thinking which is now occurring. However, these
developments and opportunities need to be nurtured and championed, and I look forward to hearing from the Minister as to how the UK Government intend to do this.
It is not only business opportunities we need to recognise but the enormous consumer benefits which can accrue from more sustainable business practices. For example, a recent report estimated that this has the potential to create somewhere between 200,000 and half a million new jobs depending on the rate of expansion. In addition, business would need to develop longer relationships with their customers and provide a higher quality of service. The practice of building in premature obsolescence would end, bringing down costs. Trends in consumer behaviour through leasing or sharing products rather than purchasing them would provide more customer choice. Of course, the ultimate consumer prize is that we would all live on a healthier and more sustainable planet.
However, consumers also need help to think about consumption in different ways, to value goods because of their function rather than because of any fashion or brand support and to reject a throwaway economy. Governments can play a role in this and I look forward to hearing from the noble Lord how he thinks his department might help.
What else can the UK Government do to facilitate these changes? First, at UK level, we recently mentioned in a previous debate the excellent work that WRAP has done on food waste, but it is also creating ground-breaking voluntary agreements with manufacturers and retailers in electronics and textiles through the electricals sustainable action plan and the Sustainable Clothing Action Plan. I commend the Government for continuing to fund these initiatives, although, as the Minister will know, their funding has been considerably reduced, which means that the sectors in which they can work are limited.
Secondly, as the Minister will be aware, the EU has produced its revised circular economy package which, when adopted, can provide crucial leadership and leverage for ongoing work. I am sure we could entertain ourselves at the expense of the EU leave campaigners by pointing out how reliant on the EU we are to drive forward the UK waste and resource efficiency agenda, but I am taking it as read that, certainly among noble Lords joining in this debate, we can all agree on that matter.
The EU circular economy package is a great step forward. It provides vision, an action plan and proposals on eco-design which will build in repairs, durability and recyclability. It also calls for economic incentives for greener products and signposts additional funding from the Horizon 2020 and structural funds. It specifically builds in EU targets for recycling 65% of municipal waste and 75% of packaging waste, and sets a maximum of 10% of goods going to landfill by 2030.
Perhaps I may ask the Minister for an update on the UK Government’s response to the EU draft. How will the Government’s emphasis on less regulation and greater subsidiarity affect our implementation of that package? Do we welcome the specific targets in the package? Are we confident that the UK Government would meet them?
I am pleased that the noble Lord, Lord Gardiner, is replying to this debate because I know that he shares many of our ideals. However, to be successful, the principles have to be embraced across government, particularly in BIS and the Treasury. I hope that he can reassure us that the Government are embracing these issues across government and are serious about adopting them. I look forward to his response.
1.57 pm
Baroness Jenkin of Kennington (Con): My Lords, I am grateful to the noble Baroness, Lady Jones, for introducing the debate and for setting out so clearly the background, the challenges and the opportunities. The noble Baroness was my predecessor on the board of WRAP and I look forward to the day when I know as much about this subject as she does. She described accessibly the way in which we look at the circular economy. However, for many people the term is confusing and most of them will prefer to look at it as a make-do-and-mend principle, particularly in their own homes.
In the short time allotted to us today I am not going to talk about the European Commission’s circular economy package; about the waste industry, which is examining its business in the light of the new models; or about big business, which is studying opportunities and challenges.
I hope that, as in the previous debate on food waste, we might hear from the noble Lord, Lord Young, with some tips about how he and Lady Young promote the circular economy in their own home. Ways of doing things which may come naturally to us need to be shared with a new generation, which finds it easier to chuck than to reuse. When I was a girl growing up, before tights were invented, we were taught to darn our own stockings—that is the circular economy. I now use laddered tights—clean ones—to filter through the pith and pips when making marmalade and recycle the residue into my compost bin. Again, it is my own personal, household circular economy. I had a beautiful pink hat which I bought in a charity shop. I wore and wore it until eventually I thought, “I cannot wear that pink hat anymore because they will all think that I’ve got only the one hat”; so, at a reception at a constituency event, when a lady came to me and said, “I so admire your pink hat”, there was no one happier than me to give it to her knowing that it would be loved and reused. That is the personal circular economy
The circular economy is about valuing our products differently and creating a more robust economy in the process. By assessing how we design, make, sell, reuse and recycle products we can work out how to get the maximum value from them, both when they are in use and at the end of their life. So, what does this mean in practical terms? As a company, how do you move to more circular models? Where are the new business opportunities? Like the noble Baroness, I strongly recommend a good look at the WRAP website for tips and advice about helping to access the business benefits of a circular economy. As a resource for understanding the closed-loop economy it cannot be bettered.
A cursory google shows how many innovative social enterprises and businesses are being launched. The Restart Project, for example, is a social enterprise which encourages people to repair their broken electronics
to extend their lifespan and prevent electronic waste. It hosts restart parties in London where you can bring your gadgets and find out how to fix them, together with their repair coaches. So far, these events have prevented over 43 tonnes of carbon dioxide in London alone. I wish there were time for more examples.
This is an agenda with great appeal to young entrepreneurs, especially in the social enterprise space. Knowledge of what is available, both to consumers and to those who wish to innovate in this space, needs to be shared more widely. I urge my noble friend the Minister and others to do what they can to vigorously embrace, communicate and promote this agenda.
2.01 pm
Lord Whitty (Lab): My Lords, when economists first started talking about the circular economy some people ridiculed it as a bit of utopianism, as if we were going back to pre-commercial agriculture, when plants seeded themselves and everything was reused. After all, that was a biological circular economy. Once agriculture came to be traded, however, there were always opportunities to dump side costs and waste onto other parts of the economy and onto the environment. The linear economy which has developed since those days has all of those opportunities.
A couple of years ago I was involved in one your Lordships’ sub-committee’s studies of food waste. We discovered that, 20 years ago, studies indicated that food waste arose in three roughly equal parts: on the production, distribution and consumer sides. We then discovered a considerable improvement in the efficiency at the distribution end. Much of that was for real: there were genuine processing and logistical improvements by supermarkets. However, much of it was simply shifting the cost of waste—and waste itself in some cases—down to the consumer or up to the farmer and small producer. The supermarkets were able to do that as a result of their dominant power. That is what the linear economy ends up doing.
There are standards for dealing with food waste but we have not yet got a situation where the food industry itself has changed the way it operates. The food chain needs to be circular, not linear. That applies to many other sectors as well. There are huge numbers of potential applications of the concept of the circular economy, not just in small and innovative businesses but in many large and complicated ones as well.
In metal-based sectors, we have already seen some large companies designing components so that they can be repaired, reused, refurbished and remanufactured and not, as has been the case for most of the last century, with built-in obsolescence. In the textile and clothing sectors there is a rather older pattern, where discarded clothes are not only reused through the second-hand market—or the “already loved” market, as it is now called—but also as fibre in upholstery, and for near-permanent use in insulation. The latter saves substantially on extraction in the mineral sector.
It can also apply in the energy sector, where decentralised CHP-based networks, use genuine biomass waste—waste from local forestry, food and agricultural produce, not waste imported across two oceans—by
circulating surplus heat through commercial and domestic district networks. They save twice over through the use of sustainable feedstock and by reducing the need for the extraction and carbon-creating use of fossil fuels.
The waste-management system itself needs to become more circular and rational. The 300 different systems that my noble friend referred to are very evident—my local tip is on the border of two district health systems with different separation and collection systems.
The circular economy is not some hippy utopian dream of a lost Arcadia but a better way of organising our economy with less waste, less costs, less depredation from extraction and fewer greenhouse gas emissions. In adopting it we can save the planet as well.
2.05 pm
Baroness Miller of Chilthorne Domer (LD): My Lords, I congratulate the noble Baroness, Lady Jones of Whitchurch, on her excellent introduction, which gave a very good flavour of the opportunities offered by the circular economy. It promises a future with great environmental gains but not having waste will also enrich the entire economy. I can think of no better example of this than anaerobic digestion.
At its best, anaerobic digestion takes local farm waste and turns it into soil conditioner and fertiliser, as well as biogas which can be used as energy to run a farm’s tractors or heating to heat local houses. The problem is that the Government are not measuring the benefits correctly. On anaerobic digestion, for example, they are looking only at energy without appreciating that it is also a very low-carbon process; nor are they considering what can be done for soil by using not artificial fertiliser but waste to recondition it. They need to measure everything within that circle in a ranking system, rather than having silos for measuring energy, the level of carbon emission and waste reduction. It all needs to be measured as a whole.
If that happened, the Government’s attitude to, for example, the renewable heat index would change. This is because the measurements have encouraged the use of bigger plants at the cost of smaller, more local ones. That is inefficient because it requires more transport and for maize to be grown specifically for use in the plants instead of utilising waste. As the noble Baroness, Lady Jones, mentioned, food waste is collected in an inefficient way or not at all at the moment. If the Government’s attitude changed, that problem would disappear.
The start made by the anaerobic digestion community is really good. They have moved from about 40 plants six years ago to 170 now. But that is despite a lot of Government obstacles. The Government should be encouraging this industry. It has the ability to provide for up to 30% of domestic electricity or gas consumption and deserves to have their full weight behind it.
2.08 pm
Baroness Young of Hornsey (CB): My Lords, I, too, am grateful to the noble Baroness, Lady Jones of Whitchurch, for securing this debate on such a critically important subject and also for her support for the All-Party Parliamentary Group on Ethics and
Sustainability in Fashion. I would also like to thank colleagues from Julie’s Bicycle, Hubbub and the Centre for Sustainable Fashion, especially Anna Fitzpatrick and Professor Dilys Williams, for their support and excellent briefings.
After COP 21, we cannot fail to be aware of how much intellectual and practical energy and commitment we need to bring to bear on the huge environmental challenges we face. I want to make three brief points. First, the clothing and textile industries and we, their consumers, have a big problem. Secondly, there are a range of strategies developing to mitigate the environmental impact of the sector, including circular economy solutions. We should note that, on the upside, fashion can make a really positive, creative intervention in debates about action on the environment.
Thirdly, and perhaps most importantly, circular or closed-loop initiatives are just one part of the picture. We need a fundamental rethink of current business models. Two compelling fashion facts from WRAP: approximately £140 million worth of clothing goes into landfill every year in the UK alone; and we send 700,000 tonnes of clothes to be reused or recycled every year. This is not just an issue for high street fast-fashion outlets. More expensive clothes are regularly discarded after little wear and workplace uniforms are another area of great concern.
Four fundamental design models in the circular economy apply to fashion and many other goods. One is designing for longevity, where clothing is designed and made to last and valued for that quality. The second is designing for leasing, where digital platforms enable consumers to lease or rent clothes. The third is designing for reuse in manufacturing, where clothes are returned to the maker for a range of purposes. The fourth is the type of design that recaptures materials, transforming them into newly recycled, raw material. The emphasis is in designing in circularity from the start rather than trying to bolt it on top of existing design paradigms. Initiatives such as the Sustainable Clothing Action Plan and the Sustainable Apparel Coalition have proved useful mechanisms for bringing together some of the significant players in fashion to address these key issues.
On the role of government, whenever we have held APPG meetings on the subject, we hear two main pleas of relevance here. The first is for clarification of existing regulatory frameworks, regarding, for example, landfill taxes and their use, penalties for pollution and so on. The other is a request for government-backed incentives, particularly for fashion SMEs that will invest in and encourage the research and development of more sustainable practices in the clothing sector. We should not be too gloomy, I guess, as there is evidence that progress is being made, some of which has already been mentioned—for example, repair, recycling, leasing and so on.
I finish by reiterating an earlier point on how these issues represent for me just one major aspect of a much broader set of issues that encompass poverty, inequality, social injustice as well as environmental degradation. We cannot expect to be able to buy our way out of the problems we face.
2.12 pm
The Lord Bishop of St Albans: My Lords, my thanks also go to the noble Baroness, Lady Jones of Whitchurch, for this important debate on the circular economy.
I want to spend just a few moments highlighting the economic and environmental impact of planned obsolescence—this has already been referred to —particularly in technological goods, which we know is used by companies to drive growth and ensure a steady supply of return customers. It is a business model that relies on technological products needing to be upgraded and/or replaced at regular intervals, whether because they go out of fashion, have a limited lifespan, or are difficult or expensive to repair.
The model of consumption of regular upgrading and replacing is so deeply ingrained within our national consciousness that nowadays we hardly even question it. We toss out the old and bring in the new at an alarming rate, and, of course, at great cost to the individual customer and, indeed to the environment. Not only that but it is incredibly wasteful. It is estimated that there are probably 125 million old mobile phones languishing in the top drawers of British households, many of which contain metals that are becoming increasingly scarce in the natural world. From every angle, whether economic or environmental, this approach to consumption is simply not sustainable in the long term, not least when we look at population projections and the way in which other communities and nations are expected to modernise and therefore need modern technology.
What we ultimately need is a fundamental shift in manufacturing and design, so that products are once again designed for longevity, and where upgrades and repairs can be done without needing to buy replacement goods. This, of course, will come about only with pressure from consumers. Therefore, it is encouraging to see a number of green shoots emerging in this regard. I have previously highlighted in this Chamber the work of the Dutch social enterprise, Fairphone. However, there are surely ways in which government can incentivise manufacturers to move in this direction. I know there are movements in this regard at both domestic and European level. I was particularly interested to read of French laws that require manufacturers in France to inform consumers how long products will last and guarantee them for two years. Can the Minister inform the house whether this is something that Her Majesty’s Government have looked at and whether we might learn from that, and build upon it, as we seek to address this crucial area?
2.15 pm
Lord Suri (Con): I thank the noble Baroness for securing this debate. This is an issue of great salience today, when the growth opportunities of tomorrow lie in the circular economy, and in a society that produces less waste and pollution than the current one. It is clear that bold thinking will be required from many spheres of civil society, not just public spheres. The Government have made some good strides towards making sure that renewable technology can achieve the necessary levels of efficiency for it properly to replace fossil fuels in the future.
One such example is the recently privatised Green Investment Bank. I believe that the progression of this concept provides a useful road map to the future of the circular economy. The bank started off as an idea in the Commons Climate Change Committee, and became an eponymous banking identity in the last Parliament. While being more of a fund than a bank, it has shown itself capable of making significant investments, such as an £11 million biomass plant in Port Talbot, among others. Crucially, it is profitable, as of the last financial year. This is important because encouraging the circular economy must be done in a way that does not put extremely high burdens on taxpayers, and it must be liable to market forces in order to fulfil that. The Business Secretary has put forward plans to part-privatise the bank in the future, and I look forward to this, as it will be able to access more capital and international investment, and continue its good work on a much larger scale.
We can see from this example that it is very possible for a commercially viable project—rather than the Government—to lead the future. Of course, the third sector and government will play a role, but I expect that businesses will drive the change. As in this case, government should play a nurturing and supportive role. This can be done in a variety of ways, possibly with a wider range of subsidies or grants to incentivise research and development in renewables.
As a businessman myself, I know that the private sector will want to have the biggest possible role in the growth markets of tomorrow, and so I encourage the Government to look at more ways of supporting businesses in their endeavours to create more sustainable technologies.
2.18 pm
Lord Giddens (Lab): My Lords, I had a pink hat once but I struggle to relate it to the circular economy.
The idea of the circular economy was first mooted by the economist, Kenneth Boulding, in the 1960s. Nature, Boulding pointed out, is an endless recycling machine, in which nothing is ever wasted. Why not develop an economic model on this basis? So far the notion has made little impact on industrial civilisation as it spreads voraciously across the face of the earth. That civilisation is based largely on a sort of mindless consumerism and profound environmental pollution. A step change of global proportions is needed. The circular economy could play a fundamental part in such a step change if it could be rapidly generalised. The idea has recently been endorsed by no lesser authorities than Meryl Streep and Susan Sarandon and—almost as important—the EU and the Chinese Government, as well as by the mainstream of economic orthodoxy in the shape of the World Economic Forum.
The only major economy to have made significant advances so far is Japan, where it has been driven mainly by immediate self-interest rather than by environmental considerations, since the country is so short of indigenous mineral resources. Japan recycles fully twice as many of the materials used in its industrial production as Britain does. Many of these, significantly, are used in making the same product that they were
derived from, hence meeting the technical definition of the circular economy. The fact that positive environmental outcomes can be achieved through self-interest, however, is precisely one of the reasons why the circular economy could have wide appeal. It has direct implications for business at a time when widespread economic stagnation is prompting a rethink of existing business models. I have spent much of the past two years studying the digital revolution, which could help create huge advances in circular economic production that need not be confined to the richer countries. The digital revolution, unlike any previous fundamental advances, has gone straight to the poorer countries of the world. Their processes of industrialisation could in principle be far more sustainable than those of the industrial revolution.
I have two questions for the Minister: first, does the idea of the circular economy have any traction in economic thinking in this country and is anyone in the Treasury interested, because that is where it counts? Secondly, what is the Government’s response to the work of the Ellen MacArthur Foundation, which has been far and away the global pioneer on this issue?
2.21 pm
Lord Rees of Ludlow (CB): My Lords, I add my thanks to the noble Baroness, Lady Jones, for introducing this debate and I also acclaim the inspiration of Ellen MacArthur in pushing this subject up the agenda. The goal is of course to conserve resources, to reduce the scale of mining and similar activities, to save energy and, as a by-product, to reduce CO2 emissions.
Dealing with food and organic waste is in principle straightforward. Most can be recycled or burnt for fuel but, better still of course, we should create less of it. Far less tractable, however, is the recycling of plastics. Here, cutting consumption must be the priority. Promoting the reuse of plastic bags is in itself merely a token gesture. Overall plastic debris is a growing problem; if this cannot be addressed as global growth continues, we will end up with as many plastic bottles in the ocean as there are fish. There need to be incentives to ensure not only the greener operation of buildings and consumer products, but greener design as well. Cambridge’s department of engineering has published some interesting ideas on this. To take one example, it points out that, when a building is demolished, some of its elements—steel girders and plastic piping—will hardly have degraded at all and could be routinely reused. Moreover, girders could be more cleverly designed so as to offer the same strength with less weight, thereby saving on steel production.
Advances in technology allow continuing improvements in appliances and vehicles, but these objects should be designed in a more modular way so that they can be readily upgraded by replacing parts, rather than thrown away. To echo the right reverend Prelate the Bishop of St Albans, we need to value long-lasting things and to put pressure on producers and retailers to highlight durability. We need to repair and upgrade rather than replace. Regulations, especially in the EU, are helping but they will not gain full traction unless the public mindset changes. Attitudes to, for instance, smoking and drink-driving have transformed in recent decades. We need a similar change in attitude so that the
manifestly wasteful consumption of materials and energy—Chelsea tractors, brightly illuminated houses, slavish following of fast-changing fashions, and the like—become regarded as naff rather than stylish.
Finally, let us remember that the issues in this debate have long-term global resonance. By 2050, the world’s population will have risen to 9 billion. We surely hope that by then there will be a narrower gap between the lifestyle that we in privileged societies enjoy and that available to the rest of the world. This cannot happen if developing countries track our route to industrialisation. They have to leapfrog to a more efficient and less wasteful mode of life. The world’s people will only achieve a sustainable future via a lifestyle that is, for all of us, far less profligate of energy and resources than ours is today. This goal is not anti-technology; its achievement will demand more technology, but differently directed technology and a great deal of innovation. We and the rest of Europe can surely lead in this enterprise, to the benefit not only of ourselves but of the rest of the world.
2.25 pm
Lord Young of Norwood Green (Lab): My Lords, I, too, thank my noble friend for introducing the debate. I will try to rise to the challenge. The noble Baroness, Lady Jenkin, mentioned tights, which we cut up and use as plant ties. Cotton, if it is good quality, gets absorbed into Lady Young’s quilts, one-sided printed paper is always cut up and recycled, and the carcass of the chicken goes into the stock pot for making soup. So there are a few things that we in the Young household do.
Most of the good points about the importance and value of the circular economy have already been made. I would like to put only a couple of other points to the Minister. First, has any thought been given to ensuring that we have a circular economy and industrial strategy operating at a LEP or local authority level, or to introducing the subject into schools and colleges? Lots of ideas come from young people.
I listened carefully to the right reverend Prelate the Bishop of St Albans about technology. I have a bit of a problem; I am replacing good-quality lightbulbs. Why? Because I can buy LED bulbs that have come down in price and that dramatically reduce power consumption. I hate wondering what I am going to do with them—I will not do anything with them because I cannot think of an alternative use. It is a balancing act. I think that the same could be said of a significant number of household appliances; when you think of the power consumption of old-fashioned televisions, washing machines, refrigerators and so on, there is something of a problem there. Though that is not to argue against longevity; the idea of being able to repair items is fundamentally important.
On the recommendations that came from the Environmental Audit Select Committee in the Commons, can the Minister inform us whether the Government intend to adopt those recommendations, which seem to be valid, including the idea of providing incentives to companies to become more efficient and to ensure that the products that they produce have greater longevity? These are obvious things that we have been talking about for years. There is so much variation on mobile
phone chargers—or chargers for any bit of equipment—but we still do not seem to have cracked that problem and persuaded manufacturers of the benefit of standardisation, so that every time another phone is introduced, there is not another variation of phone charger. So there are lots of opportunities for us to create a genuinely circular economy. It is a no-brainer in terms of job creation and environmental benefits and I look forward to the Minister’s response.
2.29 pm
Lord Teverson (LD): My Lords, I, too, thank the noble Baroness, Lady Jones, for this debate. She mentioned Jaguar Land Rover and I think that we were both at an event where JLR talked about its new innovations. But what it did not do was to shout about the fact that 70%—this is a well-known statistic—of Land Rovers ever produced are still operating on the roads, not just here but across what was the British Commonwealth and the rest of the world as well. But as the noble Lord, Lord Young, said so well, no doubt many of them from the early days are now extremely energy-inefficient by current standards.
There are two big challenges: population growth, and rising income and consumption expectations within the world. They can be solved in only two fundamental ways. One is the decarbonisation of energy and greater energy efficiency. The other is the circular economy and ensuring that our consumption does not outpace the ability of our planet to replenish those resources. That is why the circular economy is absolutely essential. Within a more international framework, it surprised me how few people have heard of the circular economy, so one of the great imperatives is to get that concept far better understood. It may have been invented in the 1960s but the understanding of it is still very small.
I was absolutely delighted that the European Commission, having junked or disposed of the original circular economy package has come back with another—I hope improved—version of it. Surely if there is something important that Europe can do, and do well, in a single market of half a billion people it is to take this area forward in terms of culture, in the way that industry works and in the competitiveness of the European economy. So with the Government being enthusiastic about Europe and the European Union for the first time in a long while, I challenge the Government and the Minister to take this area forward.
I will make four very quick points to the Minister. First, I believe that in the past Defra has not been that engaged in this area, so will it become far more engaged? Secondly, the noble Baroness, Lady Jones, mentioned eco design. Surely this is an area where British industry could really thrive. Will the Government help it to lead in that area? Thirdly, in negotiating the transatlantic trade treaty—the TTIP—do we need to bring the circular economy into such negotiations, if only to defend our package against other sides? I will very much welcome that agreement if it is made, but do we need to take it into consideration there? Finally, I echo the mention by the noble Lord, Lord Rees, of the marine environment, where pollution by plastics is a major challenge that needs to be resolved.
2.32 pm
Lord Gardiner of Kimble (Con): My Lords, I am most grateful to the noble Baroness, Lady Jones of Whitchurch, for securing this debate and introducing it so comprehensively. It is a great privilege to respond to this debate because we all share a common cause; we want Britain to have the best natural environment anywhere and encouraging a more sustainable, circular and efficient approach to resource use must surely help deliver this ambition. The Government consider it essential that we move towards a more circular economy and we are working together with business, industry, civil society and the public to achieve this aim.
The Government have a leadership role in facilitating that transition through better regulation, fiscal incentives such as the landfill tax and supporting innovative approaches—for example, circular business models where customers purchase a service rather than the product itself. The noble Lord, Lord Young of Norwood Green, mentioned schools and colleges. I think that we will increasingly see a lot more young entrepreneurs coming through as designers, with schools and colleges encouraging what will be such a core part of the future UK economy.
In 2013, the Government introduced the waste prevention programme for England, setting out roles and actions to move away from a “make, use and dispose” approach towards a more circular economy where materials are kept in circulation for longer. The noble Lord, Lord Teverson, mentioned the Land Rover and the noble Lord, Lord Rees of Ludlow, rightly emphasised its durability. We can surely say that, over generations, that vehicle has been extremely durable.
Reuse, repair, refurbishment and recycling are all vital elements. Regarding waste prevention and reuse, in the charity sector alone in 2012, organisations generated an estimated £430 million from reuse—so its value to society and the circular economy is considerable. To leverage the value from this, government can provide the leadership, incentives and knowledge to move towards a more circular approach. But everyone has a role to play in making the best use of our materials and resources by preventing waste, recycling efficiently, and dealing with waste properly.
Businesses surely will be the key driver to this. I have mentioned young entrepreneurs but my noble friend Lord Suri mentioned business more generally, which will be engaged in driving this. The Government must provide support but I note the strictures of the noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord Giddens, about cross-government engagement. I can assure your Lordships that officials from across government, including from the Treasury and BIS, meet regularly to consider and co-ordinate government action in this area. Defra has obviously had a very considerable amount to deal with but this can be done only if we work across government.
To this end, Defra has started a number of voluntary agreements in conjunction with WRAP to incorporate circular-economy thinking, such as the Courtauld 2025 agreement that WRAP is on the brink of agreeing with industry. The noble Lord, Lord Whitty, comes to this with considerable experience, as was shown in our earlier deliberations about food waste. I am really
pleased that we have seen the successor to the Courtauld commitment, which was the beginning of something that is now seen as a no-brainer. It was obvious, so why were we not doing it before? So there have been considerable advances there—but, as in all these cases, we need to do more.
The noble Baroness, Lady Jones of Whitchurch, mentioned the Electrical and Electronic Equipment Sustainability Action Plan and the Sustainable Clothing Action Plan, which bring together manufacturers, retailers and charities from across the electronics and clothing sectors to achieve resource efficiency savings. The noble Baroness, Lady Young of Hornsey, made powerful points about how the fashion world can make such contributions to the circular economy, and she was absolutely right to be positive and suggest the real progress that is being made. There is always more to do but we need to encourage business. We need to ensure that people in the fashion world understand that what they do is tremendously important, not only for their sector but for us all.
We are working, for instance, with the PaintCare initiative to address regulatory barriers to the manufacture of paint. This is going to be an important example. Through such initiatives, we can all aim to reduce the use of virgin materials and instead treat waste as a valuable resource in a more circular approach. My noble friend Lady Jenkin of Kennington leads by her own example, and we all very much look forward to the contribution that she will make to the very important work of WRAP.
We can see the successes of the circular economy already. The resource and waste management sector has grown faster than the wider economy over the past two decades. In the UK, the core waste sector and wider repair, re-use and leasing activity contributed £41 billion gross value added and supported 672,000 jobs in 2013. I noted what the noble Baroness, Lady Miller of Chilthorne Domer, said about anaerobic digestion. I was at a presentation in the other place on AD, as she may have been, and very interesting it was, too. I have had a wonderful visit to the AD plant at the Adnams brewery in Suffolk, which reuses all the residue from the brewery. That is a great example. The Government have provided support for anaerobic digestion and published a strategy for growth in the sector in 2012. More recently, WRAP has published reports on the use of digestate from the process, helping farmers applying this to their land. So, again, there are all sorts of encouraging advances.
The noble Baroness, Lady Jones of Whitchurch, also highlighted the importance of developing new business models. This is something that your Lordships have more generally considered as we move forward. Indeed, the Government are funding a project exploring the sustainability benefits of pushchair rental. Pushchairs can be reconfigured or upgraded as the baby grows, and the used models can be refurbished for further use by a new customer. The Argos national gadget trade-in service, developed with WRAP’s support, incentivised the return of unwanted mobile phones and tablets for reuse in exchange for vouchers. The returned items are refurbished and resold. All these initiatives not only provide businesses with new opportunities and innovation
but transform the relationship with consumers. Consumers can therefore benefit from more choice, convenience and better-performing products.
Action is being taken not just domestically. Internationally, we have been working to promote resource efficiency in fora such as the G7, where the UK is recognised for encouraging a circular-economy approach. I was interested particularly in what the noble Lord, Lord Giddens, said in his references to Japan, and I would be interested to hear more.
The noble Lord, Lord Teverson, and the noble Baroness, Lady Jones of Whitchurch, referred to the EU draft circular. We are indeed assessing the commission’s proposals and will be finalising the UK position in discussion with other departments, devolved Administrations and other stakeholders. We want to make sure that we end up with measures that are right for the UK, ensuring that the whole circle is considered and not just the individual parts. I was particularly interested in what the right reverend Prelate said about French regulation. We will certainly be looking at that example, and if I have anything further to report I will get back to him as speedily as I can.
We still generate roughly 200 million tonnes of waste annually across the UK. We must reduce this and do more to ensure that waste that cannot be prevented is reused. The noble Baroness, Lady Jones of Whitchurch, highlighted the challenges in increasing levels of recycling. Currently, we recycle 44.9% of waste from households, and we are committed to meeting the EU target of 50% by 2020. But, of course, we need to go further. The Government continue to work with local authorities, WRAP and businesses to promote best practice. This includes the Recycle Now campaign and industry initiatives such as Pledge4Plastics, promoting plastic recycling by householders. I was very much struck by what the noble Lord, Lord Rees of Ludlow, said about plastics, and I am particularly mindful of what the noble Lord, Lord Teverson, said about marine pollution, which is appalling.
We believe that local authorities are best placed to develop recycling arrangements in their areas. With our support, WRAP works with them to recycle more and to make recycling easier for householders. Clearly, there are opportunities to improve recycling and to reduce confusion for householders through greater consistency and partnership working between authorities. Indeed, my ministerial colleague Rory Stewart has highlighted the benefits that we can obtain from reducing the variety of collection systems so that we have a smaller number of models based on best practice. Surely, the key to success is in making things work for local authorities and also making them easier for the public.
Developing and securing sustainable end markets for recycled materials is key to ensuring that the UK meets its statutory recycling targets. I believe that the UK has come a long way over the past few decades in how we view and handle waste. We must continue to embed a more circular approach in all parts of our economy. As I said at the beginning, I am most grateful to the noble Baroness, Lady Jones of Whitchurch, who has brought to this debate so much of her experience, particularly serving on WRAP, which is key. So many innovative ideas and initiatives have come through
WRAP’s work that I would like to take this opportunity to acknowledge and congratulate not only the noble Baroness but all those who worked with her and continue to work now with my noble friend Lady Jenkin of Kennington, because this is going to be tremendously important. It has also given me an opportunity to listen to the many good examples and the experience that your Lordships have brought to the debate in so many ways. I hope also that your Lordships will understand that there are so many exciting economic and environmental solutions on which the Government are leading and on which we need and want to do more.
The circular economy undoubtedly has enormous advantages, opportunities and economic benefits. Indeed, earlier at Question Time—last week, I believe—so many of your Lordships acknowledged the work of the Ellen MacArthur Foundation. I very much welcome the important work of that foundation, which works on rethinking, redesigning and building a positive future for the economy. I am very grateful for the foundation’s valuable input into Defra’s sustainable resource management forum, providing valuable insight into the implementation of the circular economy in our country.
The noble Lord, Lord Teverson, asked about TTIP. Given the enthusiasm we have for the circular economy, we must use any opportunity we have on design. Clearly, what we are doing and need to do on design is essential. There is so much possibility. I was fascinated by what Jaguar Land Rover is doing with cashew nuts: that is the first I had heard of it. So many things will start to come through, and we need to be the catalyst to encourage that to come through.
I can assure your Lordships that the ministerial team at Defra is passionate about this. Much progress has been made and, by working together, we must achieve more in the years to come, because this is for the benefit not only of the people of this country but of our environment and the world environment.
Housing and Planning Bill
Committee (3rd Day) (Continued)
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38: Clause 2, page 1, line 12, leave out from “a” to end and insert “price no higher than is affordable to a household receiving the median local household income, with affordability to be determined by the relevant local authority,”
Lord Beecham (Lab): My Lords, I shall also speak to Amendments 39, 39A and 40 in this group.
“There is no specific shortage of social housing, or private rented accommodation, or homes for first-time buyers, but an overall shortage of inexpensive housing across all tenures. Government solutions … are all a step in the wrong direction … Boosting homeownership should not be a policy aim in its own right. The government’s aim should be to improve affordability in general”.
These are not my words. They are contained in a briefing which I have just downloaded from my computer from that unregenerate Marxist body, the Institute of Economic Affairs—which tells us something about the peculiarity of the Government’s position.
Amendment 38 addresses the critical issue of affordability. In an earlier debate, I declared that affordability is an elastic concept, and we debated at some length the implications of that condition on Tuesday. Rather than beginning with a figure reflecting current house price averages—unaffordable to a large proportion of the population and varying widely not just between London and the rest of the country but within London and, as we have heard already in some areas, within other parts of the country—the approach comes to the issue from the other end. The criterion for affordability should be the income levels of the potential beneficiaries of the scheme. I am afraid I will cite figures again from my own authority: in Newcastle, the average two-bed property is marketed for £135,000 and the average three-bed for £160,000—those are existing stock. The discounted prices under the starter homes scheme would therefore be £108,000 and £128,000. As we have heard in relation to other figures which have been quoted, new-build properties would presumably cost more than current average prices. In any event, either would be out of reach for the majority of applicants on the city’s housing register and for a sizeable proportion of other people seeking to purchase a property. In the existing areas of what we call lower-quartile properties—flats or terraced houses—the average asking price is around £78,000, or £92,500 for slightly bigger homes.
The scheme we are debating today has little to offer in places such as Newcastle. By contrast, in areas of higher value in the city and elsewhere, its potential would be limited to those with higher incomes, who will in addition benefit of course from the ability to cash in eventually not only on the 20% discount but, as my noble friend Lord Campbell-Savours pointed out in some detail this morning, on any rise in house prices. At the top end, there is clearly the potential for very large windfall gains to arise from the scheme, amounting to well in excess, in some areas, of £100,000—ironically, enough to allow the lucky first-time buyer in London to invest in a buy-to-let property in Newcastle of the kind I have described.
It cannot be fair to facilitate, after only five years, such significant untaxed gains for buyers whose incomes are likely to be substantially higher than those of people buying cheaper properties.
Lord Campbell-Savours (Lab): Once again I express the need for us to see, at a very early stage today, this document that sets out the Government’s estimate of regional demand, based on the number of people who have applied. We need to see those figures and where they are coming from. If they are available in the Chamber now, why can they not be circulated during this debate?
Lord Beecham: I cannot answer that question, of course. I am not sure the Minister will be able to either, but she will have a little more time—probably quite a lot of time—to perhaps get some information from the Box.
My Amendment 38 indicates that the starter home should be sold at a price not higher than that which would be affordable to a household on the local median income rather than creating an artificial discount
irrespective of the means of the buyers. That seems a more sensible approach. Amendment 39 looks at the position in a slightly different way, and deals with the length of time in which the 20% discount applies. The Bill provides for a five-year period, after which the property can be sold and any gain accrues to the original purchaser. Amendment 39 would retain the 20% discounted price in perpetuity, so that the property would always be sold at 20% less than what by that time would be the market price. The benefit of the 20% discount would therefore go to successive purchasers of the property, which would remain at a discounted price, rather than it effectively disappearing into the pockets of the first lucky first-time buyer.
Amendment 39A would extend the categories of properties which might be purchased, by including properties bought under a rent-to-buy agreement as well as those purchased directly. This seeks to cater to buyers who might find it difficult to obtain or service a mortgage by allowing them to participate in the rent-to-buy scheme; it could be extended to shared-equity purchases. The Minister might look into these possibilities before we return to these issues on Report. The thrust of the amendment is that prime consideration needs to be given, in terms of affordability, to the means of the buyer and not simply to the price of the house. That is cardinal to achieving greater access to genuinely affordable houses on the private housing market. Accordingly, I beg to move.
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab): I have to inform your Lordships that if this amendment is agreed to, I cannot call Amendment 39 owing to pre-emption.
Lord Best (CB): My Lords, it is time for the Cross Benches to join in. Amendment 41A is in the names of the noble Lords, Lord Kerslake, Lord Cameron of Dillington and Lord Beecham, as well as my name. It also relates to this key component of the Bill—the Government’s flagship policy of starter homes—and is all about reducing demand for this new product so that starter homes are not such a cuckoo in the nest. Just to reiterate, these are homes for first-time buyers under 40 sold at a 20% discount, with the costs borne by housebuilders, who in return are now excused the normal requirements to provide a percentage of affordable rented or shared-ownership homes and to pay a community infrastructure levy.
I preface my remarks with an overarching comment on where we have got to in relation to the starter homes initiative. If only starter homes were all additional to the affordable rented homes that would otherwise be provided, I am sure there would be far less concern. However, they would then of course need to be funded separately, instead of replacing accommodation for those on lower incomes. What would that cost? If the average discount was something around £40,000, the total cost over five years for 200,000 of these homes would be £8 billion. The Government have already pledged something over £2 billion to assist with the programme, leaving under £6 billion—rather more than £1 billion a year—to be found if only the scheme was intended to add starter homes while serving the same number of people. However, this is not where we are.
On Tuesday we talked a lot in Committee about the losers from this policy: the people who would have obtained those rented or shared-ownership homes that will not now be built. Today we are talking more about the winners from the starter homes policy and whether this scheme is rather more generous than it needs to be. Who are these winners, and does the nation get value for money from rewarding them in this way? A big group of beneficiaries will be those of my generation. This is not because I am under 40, but because the starter homes initiative will benefit parents of buyers, since the bank of mum and dad will not need to be drawn upon so heavily. Over a quarter of first-time buyers have been dependent on this source of funds, so a lot of parents can now draw a sigh of relief that government will pay instead.
Secondly, of course, the main gainers from the policy will be those lucky buyers who can receive up to £112,000 towards their purchase in London and up to £62,500 elsewhere. These discounts take the form of grants after five years; the purchaser can then keep all the money alongside keeping 100% of the increase in the property’s value, of course. That is great for these buyers.
Owner-occupation does indeed provide a level of security, a source of pride, an encouragement to maintain and improve the home, and a degree of freedom that renting does not. But because these discounts represent a hefty subsidy to the buyer at the expense of a relatively worse-off household, who will not now get the affordable rented home which starter homes have replaced, we need to ask whether this trade-off represents good value for money for the nation.
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Now comes a rather startling additional factor, to which some reference has been made today: the Housing Minister has stated his hope that buyers will be able to combine the new 20% starter homes discount with the current 20% Help to Buy interest-free loan. In London that Help to Buy equity loan is now to be set at 40%, meaning that a London buyer with both a starter homes discount and a Help to Buy interest-free loan would get 60% off their purchase price. So the buyer of a property costing, say, £500,000, would actually pay only £200,000, getting the other £300,000 from the government schemes.
I note that I am addressing some of the questions that came to the noble Lord, Lord Campbell-Savours, at 3 am. This level of support to one young person— 60% of the cost of a London apartment—is surely over the top, sympathetic as I am to their desire to escape very high rents in London. It provokes a sentiment expressed by an American colleague: “If the cream is too rich, the cat dies”. Enabling anyone under 40 who can raise a mortgage of £200,000 to buy a property costing £500,000 sounds like a recipe for rapid inflation of property prices and some weird distortions in the market. The Help to Buy scheme’s 20% equity loan has already been criticised for increasing demand more than supply, but it has not been remotely as generous as the 40% interest-free equity loan plus the new starter homes 20% discount. I wonder whether the Bank of England has a view on this. It is that cash discount which really takes the package to absurd
lengths. Unlike the Help to Buy equity loan, which after five years attracts 1% interest, rising annually thereafter, and must be repaid at its new value whenever the home is sold, the 20% starter homes discount simply converts into an outright grant. This means that it is the culprit for making the cream too rich.
In terms of value for money for the taxpayer, these hefty grants benefit just the one initial purchaser, if they stay for five years or more—and they are unlikely to move out any earlier, since they would then forfeit this huge windfall gain. The next buyer then pays 100% of market value and obtains no benefit from the initial subsidy. By contrast, if the same level of grant had been used for an affordable rented or shared-ownership home, rather than for the starter home that replaces it, the benefit of the initial grant would have gone on indefinitely, helping all future occupiers. We should bear in mind that there is a lot of dead weight here: currently, tens of thousands of households become first-time buyers without generous grants. In future no one, whatever their income or the wealth of their parents, will be advised to buy a new home without collecting a starter home grant. So the gains to society from this redistribution are short-lived and benefit only one buyer, who may, or may not, need the money.
Concern about the cost and displacement effects of the starter homes initiative comes not only from those who worry about the displacement of affordable rented accommodation. The mortgage lenders are worried by the dangers of distortion to the market. The Council of Mortgage Lenders says that the starter homes offer to potential buyers,
“is likely to stimulate excess demand including from those who may already be able to use existing schemes, and will increase the potential for driving up house prices”.
The Building Societies Association says:
“Our concern is that the 20% discount is just there for five years. We think it should be built in”.
In another words, it should be there in perpetuity to assist other buyers later on.
As others have noted, lenders also have the problem that no one knows how to value a product that comprises both a property and a large cash reward in five years’ time. Jones Lang LaSalle, a valuation expert, envisages real difficulties, as noted by the noble Lord, Lord Campbell-Savours. I have the quote from it that he was seeking:
“80% of Market Value sounds simple; but what is the Market Value of a home where conditions are attached to its purchase”?
The bonus of 20% after five years certainly ups the real value, but by how much? The housebuilders, too—who might be expected to support any measure that raises the demand for, and increases the prices of, the homes they build—are equally alarmed. They want stability and consistency; they see the dangers of people clamouring to buy because of the huge rewards from the big bonus of a non-repayable discount. This rich cream may push up prices initially but is likely to have a depressing effect on both adjacent new homes and on the second-hand market all around, where no such bonus is available. There may be a further depressing effect when the big numbers of starter homes are five years old and come back on the market with no discount. The major housebuilders developing the really large
sites will still be selling new homes in five years’ time. If they have to compete with a glut of resales by starter home buyers, this undermines their forward planning. I know that some of the big players feel they would have to move away from building anything for the first-time market except starter homes, and that might mean a decline in their overall output of new homes.
Already an impact may be beginning to emerge, as people postpone any buying decisions until the starter homes deal is available to them. Meanwhile the fact that the first timer collects all the subsidy for themselves after five years is particularly problematic for landowners wanting to make land available to help local people, as we shall hear on later amendments. A key criticism therefore, and I think it is a universal one, of the starter homes model is that if the one-off windfall is too advantageous—if the cream is too rich—the positive features of this initiative will be completely undermined.
I come to the solutions, or at least the partial solutions, to the problems which the starter homes initiative raises. There could be tough eligibility criteria, limiting access to people not able otherwise to purchase at all; and/or to people such as teachers, NHS staff or other key workers who are needed in the locality. These are ways of securing public benefit from the initiative while dampening the excess demand.
Amendment 41A seeks to get better value from the starter homes proposal by retrieving a proportion of the subsidy on a sliding scale over 20 years when the buyer sells up. I certainly commend the alternative suggestion that there should be a covenant on resales in perpetuity, to lock in the 20% discount to keep helping future buyers. That would convert the discount into an interest-free loan, to add to the support available under the Help to Buy scheme. If that approach fails to find favour, however, my amendment, supported by the noble Lords, Lord Kerslake, Lord Cameron and Lord Beecham, provides an option which I hope appeals to the Government. Under the proposition in this amendment the purchaser would repay the 20% discount less one-20th—that is, less than 1% of the original figure—for each year of occupancy. Therefore someone who left after 10 years would retain half the discount and pay back the other half. Purchasers are still helped to buy by the discount, still keep some of it and still get the capital gains on the whole of that proportion of the value; but they cannot walk off with all the subsidy after a five-year term.
Lord Campbell-Savours: That is an area that confuses me. When we talk about repayment, who is actually being repaid? I cannot work it out.
Lord Best: The Bill and my amendment leave open whether repayment would be to the local authority where the home has been built—which I would support—or to the Homes and Communities Agency, to be used for housing elsewhere.
By making the offer a little less generous—by making the cream a little less rich—the excessive stimulus and distortion of this market is reduced, I hope, and the cost to the nation in losing out on affordable rented homes is made a little easier to bear.
Lord Kerslake (CB): My Lords, I support Amendment 41A, spoken to so ably by the noble Lord, Lord Best. I declare my interest as chair of Peabody, president of the Local Government Association and chair of the London Housing Commission.
The focus in our debate on Tuesday was on the impact of proposals on social rented housing. As the noble Lord, Lord Best, has said, there is a price to be paid in the current model for that sort of housing. We also spent considerable time debating the one-size-fits-all approach to planning that is envisaged to support starter homes. Today we have focused on starter homes as a product in itself; indeed, we might say that we have spent most of this morning on what might be described as product design, and the Committee might agree that this has been a rather unsatisfactory process. The reason why this is the case is quite clear: with starter homes we are going from a prototype to full production by missing out the stages in between, so it is hardly surprising that we are struggling to make sense of something that, in truth, has not been fully designed.
If we ourselves are confused, struggling with this, frustrated or indeed concerned, it may be some consolation to the Committee that such confusion, concern and frustration are shared equally by the house builders and lenders. Before we come to the amendment, it is important to explain the context for why this issue is so difficult for them and for us. There have been products to help first-time buyers to access home ownership for 30 years now. It is not a new concept; it has been around under both Governments as something that they aspired to achieve. The aims have been twofold. The first has been to help people with the deposit. People often have the income to enable them to pay the mortgage but not essentially the wherewithal to pay the deposit on the property. That was one key element of helping people into home ownership. The second reason why we went down the road of promoting home ownership products was to sustain demand, particularly following the financial crash in 2007. So there were two reasons why, as I say, Labour Governments as much as Conservative ones have gone down this route.
Up to 2013, the cost of these products came essentially from departmental budgets—in this case CLG and, before that, the ODPM. Because budgets were tight, accessibility to these products was constrained and in fact linked to income, as was talked about earlier. That was our basic model prior to 2013. In 2013, though, it was established by the Treasury, and there was some very clever thinking on this, that in fact these forms of support, in the shape of equity loans, could be regarded essentially as financial instruments and held against a third-party asset. As a financial instrument, they scored as debt but not as deficit. The Chancellor therefore thought that he could expand them in a pretty unconstrained way, so income requirements came off and the size and value of the property that you could buy went up substantially.
That was a crucial shift to making these schemes much more widely available. In fact, in 2013 a large sum was assigned—it was expanded to £10 billion later on—to take this through to 2020. In addition to that, there was £12 billion to support an additional product, Mortgage Guarantee, which underpinned mortgages. So there were two products that effectively
helped people to get over the deposit problem, Help to Buy and Mortgage Guarantee. Since 2013 there have been something like 126,000 purchases using one or other of those products, and £3.8 billion of government money has been put alongside that. I cannot say how many of those people who bought are under 40 because I do not think those data are held, but I am willing to bet that a large number were in that age category.
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I say all this because it raises the question: what market gap are we trying to fill here? We have an existing product that helps people to access the market. If there is an issue of home ownership, it is essentially because of the wider issue of supply and house prices rather than the absence of what has been a pretty effective product that has worked very well for those who have purchased. This is a crucial point in our debate and in how we think about the amendment.
That set of products, Help to Buy and Mortgage Guarantee, was introduced very quickly and very well, partly through the skills of the department and the Homes and Communities Agency but also because they were building on existing products that involved equity loans. Starter homes is an entirely different product because it does not give people a loan linked to the value of the property; essentially, as the noble Lord, Lord Best, has said, it gives them a significant cash benefit. When you give people cash benefits of such generosity in this form, you are likely to see distortions of the market and issues of fraud. That is a logical consequence. The reason why we could be confident about equity loans not creating the same problem was that they were a loan that the individual would ultimately pay off, rather than getting a cash gain. This should drive and inform all our thinking on this product.
I have talked here about the issue of what this product is and why there are concerns about it, but we should also work harder on the issue of who benefits from this product. I am very fortunate to have had some advance information from a forthcoming publication from Shelter on this, which I think will become the definitive publication on the question of who can access this product. I shall give the House the numbers for London. In terms of market sale properties, the estimated annual household income that you would need in order to purchase a market property in London now is £83,000. That makes a market sale property inaccessible to 90% of private renters; on Shelter’s calculation, 90% of private renters in London could not access market purchase properties. For London Help to Buy the figure becomes an income of £68,000, but it is still inaccessible to 80% of private renters. Starter homes, at the medium price for houses in London, not at the cap that has been talked about, requires an estimated annual household income of £62,000 and in fact is inaccessible to 70% to 80% of private renters. Shared ownership scores better but is still an issue because of difficulties in accessing mortgages, and you have to pay the rent on the bit that you do not own. You would still have to have an annual household income of £38,000, and in London it would still be inaccessible to 68% of the population.
I give noble Lords all these figures to put it beyond doubt that, at least in London, those who will benefit from this gift are a very small proportion of private renters. As we have heard, outside London the position is much more complex but, in summary, in the areas where there is high demand, such as the south-east, the east and the south-west, it would be reliably available only for those who were high earners—that is, in the 70th percentile. It would be out of reach in those high-demand areas for people on average incomes; and, in fact, for virtually the whole of the country, those who are on low incomes will not be able to access the starter homes product. It is crucial to have this sense of how big the gift is and who will be able to benefit from it.
We should be clear that, unlike Help to Buy, which could be funded through financial instruments, this effectively requires direct cash from government—either in the form of a direct grant to housebuilders or of benefits forgone in relation to affordable housing. Effectively, as taxpayers, we are directly paying for the full cost of this subsidy.
This amendment does not wholly address all the issues that I have raised. It is arguable that a better route for the Government to have gone down would have been to improve and tweak Help to Buy, as they are now doing in London, rather than to introduce a wholly new product that requires direct government funding to make it work. However, we are where we are; it is in the manifesto and we have to accept it.
The amendment does address quite a few of the problems. First, as my noble friend Lord Best said, it can address dead weight. You are not giving people something; they only have to wait five years to get the full benefit from it. It will prolong the period in which they would have to wait to get that benefit. Potentially, going for in perpetuity would mean they would not gain it at all.
Secondly, it creates a genuinely differentiated product. This is a big issue for the housebuilders because they say, “On one site over here we have built no starter homes; on another site over there we have built starter homes. Which are people likely to go for”? It is absolutely clear. So you can create a genuinely differentiated product. It is a lot fairer. You do not simply give a huge amount of money to people already on higher incomes. As my noble friend Lord Best said, you can hold the affordability for a much longer period—potentially in perpetuity.
It creates what I would call a tradeable product. If somebody chooses to leave after 10 years—according to the amendment we have tabled—then they would effectively give up or pay over half of the 20%, based on the market value at that point. That money could go into the local authority and could provide it with an incentive—which the Government are seeking—to support starter homes. It creates a direct financial link and it repays at least some of the money that the Government have put in to making this scheme work.
Given we are where we are with starter homes, in my view this is a massively better way of delivering them. It is fairer, a more distinct offer and could genuinely address a need that might be out there. I want to ask the Minister why we have not done a
proper options appraisal on the option of 20 years tapered over the period, or indeed in perpetuity. It would help the Committee if noble Lords could see a proper cost-benefit appraisal of these alternatives.
Lord Young of Cookham (Con): My Lords, before I speak briefly on Amendment 39A, I want to touch on the point that both the noble Lord, Lord Kerslake, and the noble Lord, Lord Best, raised about the issue of dead weight. This is something that has dogged housing policy for a very long time. There is dead weight in the right to buy in that many local authority tenants might have purchased without the discount. There is dead weight in transferable, portable discounts. In both these cases, Administrations of all colours have taken the view that the overall benefits of the policy of promoting home ownership and diversity of tenure have justified a bit of dead weight. In the earlier debate a number of suggestions were put forward to minimise the risk of dead weight in that, in so far as this product is oversubscribed, there is a way of prioritising. In his speech, the noble Lord, Lord Best, mentioned a number of ways of doing this. The noble Baroness, Lady Hollis, mentioned one. There was one in an amendment and I mentioned others. If there is an excess of demand, one can tackle the issue of dead weight by prioritising it to those for whom the dead weight issue is not there because they would not be able to afford it without it. Or they are moving out of social housing and therefore freeing up a tenancy. I take the point about dead weight but there may be ways through. It is something that has been there for a long time.
I turn to Amendment 39A, in the name of my noble friend Lord Lansley, who is in Brussels today. During the debate on Chapter 1 on Tuesday, a number of noble Lords suggested that we should have had this debate on definition first before we had the debate on Clause 1. I note with some satisfaction that we have now moved from line 11 on page 1 to line 12—so progress is being made. My noble friend Lord Lansley was seeking to stretch the definition of starter homes to include Rent to Buy. In her winding-up speech, my noble friend the Minister referred to the definition of the starter home. She said that Clause 2 talks about the criterion for a starter home and then went on to define it. When pressed for a slightly tighter definition, she said:
“That is fine. I just thought I would set that out now. I know we will be talking about it later”—[Official Report, 1/3/16; col. 766]—
in response to what my noble friend Lord Lansley said about Clause 2.
At the moment we have a product—Rent to Buy—which is a hybrid, in that it sits between affordable renting and affordable home ownership. It is a product aimed at those who are renting but who cannot afford a deposit. In return for paying a lower rent, they are allowed to purchase their home after a set number of years. Under the current definition of a starter home, the insertion of the word “purchase” means that they would be excluded in that they have not—
Baroness Hollis of Heigham (Lab): The noble Lord, Lord Young, said that in return for paying a slightly lower rent, they would effectively acquire an equity
stake. Does he not mean a slightly higher rent as part of the Rent to Buy process?
Lord Young of Cookham: I am reading from the briefing from Rentplus:
“The affordable rent to buy tenure addresses this, enabling tenants to save more through paying lower rents and allowing them to purchase their home after a set number of years”.
In other words, the money is put on one side to enable them to buy the product at a later date. That is from Rentplus, and I am very happy to let the noble Baroness have the briefing. It was debated in another place and, in response to a question, the Minister replied:
“Higher income tenants in a Rent to Buy scheme will not face increased rent under proposals for pay to stay. This is because the rent they pay is an intermediate rent”—
this may answer the noble Baroness’s question—
“which is excluded from social rent policy”.
The purpose of the amendment is to see whether this product—and there may be other products, such as shared ownership—will qualify as starter homes under the definition. Or, if it does not qualify under the current definition, whether the definition could be looked at so that products that promote home ownership will be included in the starter homes definition. We had a bit of this debate on Clause 1. I hope it will not be so narrowly drawn that a number of worthwhile products, such a Rent to Buy, will be able to score as starter homes. Again, just looking at the brief from Rentplus:
“Affordable rent to buy is a new ‘hybrid’ housing tenure, sitting between affordable rent and intermediate housing. The tenure enables working households to save for a deposit whilst renting at an affordable rate (80% of market rent …) allowing tenants to purchase their home after a set number of years”.
I hope that explains to the noble Baroness what the product is. I am surprised that, given her interest in housing, she may not have come across this particular product.
I very much hope that, in her response, my noble friend can give some comfort to those aspiring home owners who cannot access a deposit which is necessary for starter homes but who are seeking to enter home ownership through a different route.
Baroness Bakewell of Hardington Mandeville (LD): My Lords, I will speak to Amendment 46. I support all the amendments in this group and the comments that were made by the noble Lords, Lord Kerslake and Lord Best. I support the Government’s aim to provide more homes for those who cannot currently afford them, but fear that the time-limited discount of 20% will be seen as unfair by those not able to access it, and will be unlikely to increase the housing supply in the future.
I do not support the discount remaining in place for the limited period of five years. This is a very sizeable discount, as other noble Lords have explained, and it should be enjoyed by others looking to gain access to the housing market in the future. This is a discount which should be available in perpetuity so that the same home can be within the reach of others, despite the inevitable rise that inflation will cause to the price of the property over its lifetime. Have the Government thought about what will happen if a purchaser fails?
Who will get the discount if that initial purchaser defaults? Perhaps there is a bit of a perverse incentive for a lender to repossess after year 4.
Why should the first purchaser receive the discount, live in the dwelling for five years and then sell it, keep the discount and the uplift in the value of the house due to inflation and not pass that discount on to the next person? This discount is to be funded from local taxpayers, via the sale of high-value council homes. I feel certain that those taxpayers would wish their hard-earned money to be used wisely and to be recycled wherever possible.
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The Bill proposes that starter homes can be resold or let at open-market value five years after the initial sale. The restrictions on resales and letting at open-market value should be in perpetuity, as is often the case in many council-run, low-cost home ownership schemes, or extended to a longer period—for example, 20 years—to discourage speculation and enable more households to benefit, generating maximum returns from public investment. Further delivery of starter homes through the planning system will create significant burdens on council planning teams, so they should be fully funded by reforms granting local planning authorities the flexibility to set planning fees locally.
Like others in your Lordships’ House, I have received many briefings from a variety of organisations, all saying more or less the same thing. The 20% discount should not be a one-off. It should attach to the property in perpetuity and it should not be a one-off windfall for the first purchaser. I have heard the Minister’s rationale for the discount being a one-off but I regret that I am not convinced, and neither are those who have contacted me on this issue.
None of those lobbying believes that this policy will help to solve the housing crisis the country is currently undergoing. My preference is for a discount in perpetuity. Failing that, I support the sliding scale proposed by the noble Lords, Lord Best, Lord Kerslake, Lord Cameron and Lord Beecham, in their amendment. I urge the Minister to encourage the Government to reconsider this aspect of the Bill.
Lord Horam (Con): My Lords, I will comment very briefly on the remarks made by the noble Lord, Lord Kerslake, who made a significant point about the existing instruments we have to help people in this situation—the Help to Buy method and so forth. He made the point that this is a financial instrument and therefore the debt/deficit equation, which is so important to the Government, is resolved by using these sorts of methods. As he pointed out, no fewer than 126,000 people, with total costs of £3.8 billion, have been helped by these methods.
The simple point is that it has not been enough. As the noble Lord also pointed out, you have to have an income of no less than £83,000 to be able to afford a house in London, and 90% of people cannot do that. So the plain fact is that we need to do more—which is what Government are trying to address with starter homes. We dealt two days ago with the question of whether we are helping the right people when we addressed the question of whether you can help people
who are in a different category but who are even more disadvantaged than people who might benefit from starter homes. We dealt with that issue—or at least we tried to. Now we are dealing with whether this is the right kind of instrument in the circumstances to deal with the fact that we have a crisis, particularly in London, and the present instruments do not help enough. That is the fundamental point.
Lord Kerslake: I am grateful for the opportunity to come back on this point. The noble Lord is entirely right to say that we need to do more—there is no question about that. I strongly hold the view that we need to put a lot more into the building of new housing. If there is an issue about the existing products, as there was in London with Help to Buy, we should look to revise and amend the products themselves rather than introduce a new product which essentially competes in the same market and, instead of giving people a loan to help them with their deposit, gives them a very substantial gift. I am most concerned about that issue. I said that we had to make choices about priorities and doing more. As my noble friend Lord Best said, we have this cash, so I would put it into affordable rented accommodation. Nothing you will do in relation to these products will make housing accessible for people on middle or low incomes. We have to build an awful lot of houses for an awfully long time before they will benefit.
Lord Horam: I entirely agree with that. My way would be to recognise that the sort of lift in the cap on borrowing for local authorities, for example, is perfectly acceptable in the context of the Government’s overall economic strategy. If you look at what is now being said worldwide by the International Monetary Fund and the OECD, at the moment they are calling for more capital investment of this kind, and there is no better capital investment than housing. It is interesting that insurance companies, for example, are now going into the build-to-rent market in a fairly big way in London, because the sort of regular, sensible rents you get from that sort of market precisely match the sort of income streams they need to service insurance bonds. That is a very interesting development, which I am sure the Government will welcome and which shows how the market, if left to itself, can itself resolve some of these questions.
To digress for a moment, the reason that insurance companies are going into this area is not only that it is a very interesting way of solving their problems but that the price is high enough for them to be able to produce buildings at a cost which enables them to rent them out to young people at a price they cannot afford. So the very high price is producing a supply consequence which is very favourable. None the less, the noble Lord is right that what is proposed here is a new product, and there is always a danger with a new product that it will lead to distortions of the market. If you try to interfere in a market situation with a product that has not been thoroughly thought-through, you risk unintended consequences—and that is what we are worrying about in this situation.
If that is the case, Amendments 38 and 39, put forward by the noble Lords, Lord Kennedy and Lord Beecham, are frankly impractical. They are not the
way to deal with this problem. They are putting into the system the local authority having to decide what the level of affordability is in a particular area, when the market already decides what affordability is in a particular area. Frankly, therefore, I do not trust local authorities to second-guess the market as to what the right level of affordability is.
Secondly, on the idea of having a discount in perpetuity, as the noble Lord, Lord Campbell-Savours, rightly pointed out, how on earth do you value it in the future? Indeed, how on earth do you value it now? There is no way you can value something which has been separated from the rest of the market, which is determined by market forces, and which has a value discount attached to it. You cannot do that—there is no way an accountant could work that out over a period of time and make any kind of sense of it. Inevitably, if you try to put in something in perpetuity, it will disappear into the general market in due course, probably in some way you do not expect.
So the right answer is the amendment put down by the noble Lords, Lord Best, Lord Kerslake and Lord Beecham—two minuses and one plus, from his point of view—whereby you pull back some of the discount over a period of time from the people who benefited from this government largesse. You are achieving what you want to do, which is to get them into a new house and to start a home and so forth, but you are pulling back some of the advantages you gave to them to achieve that.
However, I point out that even that has its impracticalities, because you will be asking them to pay back rather a large amount of money at some stage unknown—they do not know when and you do not know when—in the future. That could be a very considerable amount of money. I do not know how you would do this over a period of time and whether you would do this in one lump sum or whatever it may be, and you and they do not know what their circumstances will be. So there are impracticalities even with this. None the less, we have to have some measure by which you can pull back some of the advantages you are giving to people under this new model, and the Government have to think very carefully about how they handle this.
Lord Shipley (LD): My Lords, I am a signatory to Amendment 46. I want to refer to the report from Generation Rent, which was published earlier this week and found that public subsidies proposed by the Government will help comparatively few people. That is because very few people in the private rented sector will be able to benefit from the scheme, and the 200,000 people who stand to benefit could receive a huge dividend if they sell up after the five-year discount period expires, with the potential for six-figure profits individually. We have heard a great deal about this but these are very large sums of money.
The consequence is that the scheme will increase inequalities between those who own property and those who do not, and there will be a lack of any sense of fairness between those who can afford a subsidised starter home and those who cannot, driving social inequalities wider and deeper. I wonder whether that is really what the Government want to achieve.
I should like to ask the Minister whether the Government are committed to the statement in Conservative election manifesto that starter homes will be exclusively for first-time buyers. The point is that when the homes are sold on after five years or later, there is no guarantee from the Government that they will be bought by first-time buyers. So these are starter homes for first-time buyers but theoretically only for five years; after that, the benefit that had accrued from defining them as homes for first-time buyers will be lost.
I am still puzzled by the Minister’s statement before the lunch break to the effect that it may well be possible that starter homes will be sold as second homes. I keep thinking about those parts of the country that are short of housing and where starter homes may be important in providing additional opportunities for people. The prospect that they may be sold and lost to the next generation who could take up starter homes I find particularly disturbing.
We need clarity from the Minister. If housing affordability fails to improve, future first-time buyers will find it very difficult to get on to the housing ladder, so having a discount which carried on in perpetuity would help the Government to keep their promise.
Lord Campbell-Savours: I am sorry to intervene but I cannot understand how this would work. I am not trying to be critical in any way; I only want to know how it would work. Can the noble Lord give us an example of a property purchased at a discount under this scheme? What would happen at its first sale? How would the price be determined? What would be the position of the estate agent selling the property? Would a valuer be involved? I am trying to understand the mechanism here. If it worked then it would be reasonable to consider it but, like the noble Lord, Lord Horam, I cannot see any mechanism that would make it work. Can he please explain?
Lord Shipley: I agree with the noble Lord. I am as concerned as he is about these matters. Of course, I had assumed that there would be a role for the valuation system. There may be a role for local authorities, or there may be a role for both. That system exists in relation to council tax valuation, for example, but it seems to me that to prevent market abuse—the noble Lord, absolutely rightly, discussed that before the lunch break—we have to be clear about this, otherwise there could be a problem with how properties are valued. For that reason, in my view there has to be an independent valuer.
This would operate in exactly the same way if there were a taper, going down 1% a year over 20 years, or if the 20% discount applied in perpetuity, but there are ways in which that can be done by using local government and the valuation system. I do not wish to say much more. In this group—
Lord Beecham: In terms of the perpetual restriction, does the noble Lord think that it would be possible to discount the sale price by the 20% on every sale for perhaps 20 years or in perpetuity so that no money changed hands? The sale price would be paid, and as far as the buyer was concerned the property would be priced in competition with other kinds of property. I
would have thought that that would be a mechanism to secure the preservation of the 20% discount.
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Lord Shipley: My Lords, that is a very helpful intervention and it could well be one way in which we could proceed. However, we are in Committee on the Bill and I would have thought that the Government would be able to explain this to your Lordships’ House, as opposed to individual Members of the House having to come up with proposals for the Government to consider when the Bill has now been in front of Parliament for many months.
There are two approaches in terms of Amendment 46: our approach is the “in perpetuity” one and another one involves tapers. Some further thought has to be given to that. The noble Lord, Lord Kerslake, rightly identified that the Government have not presented any options for consideration. There has been no cost-benefit appraisal and I am very surprised about that. If there has not been, there should have been.
The issue of avoiding dead weight also seems to be very important. I concede entirely that occasionally dead weight will apply, because the overall gain is greater than the loss on dead weight. However, if there is too much dead weight, it means that some are being subsidised at the cost of others.
I agree entirely with those noble Lords who have said that the priority should be affordable rented housing, as so very many people cannot participate in buying starter homes because they either do not have the deposit or do not have the ability to repay the mortgage. I hope the Minister will respond to what the noble Lord, Lord Kerslake, called a gift, and the noble Lord, Lord Horam, referred to using the words “government largesse”. We have to be very clear who is getting the financial advantage here. At the moment, I believe that we are driving a deeper wedge in terms of social exclusion.
Lord Cameron of Dillington (CB): My Lords, I put my name to Amendment 41. I was going to list the range of various abuses that I felt the starter homes regime would be open to, but that has been done with much greater expertise and experience by my colleagues, my noble friends Lord Best and Lord Kerslake, and, indeed, with greater eloquence.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Williams of Trafford): My Lords, I thank the noble Lord for giving way. I just do not want to happen today what happened on Tuesday. Amendment 41 is in the following group, but I am very happen to listen to him and to respond.
Lord Cameron of Dillington: I do apologise; I meant Amendment 41A.
The point that everyone has made, including the noble Lord, Lord Campbell-Savours, who I did not mention just now, is that the moment you falsify a market, there will always be someone looking to make a turn. If the Government are experimenting with a new product, I am certain that financiers and traders
will be very quick to find new ways of taking advantage.
To my way of thinking, starter homes do little, in the countryside at any rate, to solve the urgent housing problems of those many families in real need. The other big shortfall of starter homes, when compared with, say, shared equity, is their transiency. Unless we continue to build, let us say, 50,000 starter homes every year in their currently proposed incarnation, not only until 2020 as promised by the Government but ad infinitum, then their very small benefit to society will in each case be lost after only five years.
The lack of affordable housing in this, our very crowded island, is not a short-term problem. I cannot see it diminishing, so we need something more permanently fixed in the affordable sector than starter homes as currently planned. By way of a compromise, to assist starter homes to give a little longer-lasting benefit and to avoid, as has already been said, some of the possible abuses, I believe that Amendment 41A is worth serious consideration by the Government.
Baroness Hollis of Heigham: My Lords, might I ask the Minister a question following the powerful speeches from the Cross Benches today? Can she explain why the financial instruments we currently have would not address the problems that she has identified? I think we all agree that we need to increase the supply of housing and that we want more people to have the choice of which tenure they occupy given basic affordability rules. We would also wish to avoid huge discounts being a one-off gain for a select few who then pocket them, with the gain being permanently lost to subsequent generations coming behind them. As the Minister has outlined it, those three objectives are incompatible with each other.
My question is to some extent triggered by the comments made by the noble Lord, Lord Kerslake: why is the equity loan system not an appropriate way forward to be expanded? Why should government not assist people with an interest-free equity loan for the 20%, the equivalent of the discount? At the time of sale, that 20% would be repaid, and could then be made available to be attached to a new home or any existing home so that there is a continuing pool of money coming back from the 20% equity loan to finance the next generation? It may well be attached to a starter home, or it may be that, in some places, there are no starter homes but, none the less, there are modest Victorian terrace houses which would attract the same potential buyer? Certainly that would be the case in Oxford and Cambridge and so on.
Can the Minister explain what is wrong with the existing instruments? Why would that not help encourage demand in a way that strengthens the supply side, extends purchase to people who are currently struggling, and recycles that money into—as the noble Lord, Lord Cameron, said—continuous generations of would-be purchasers? What is wrong with that? Why should we not do that? Why is that not the simplest way forward to build on what we have? I have been studying this darned impact analysis: not a single figure about cost, number of people or the ultimate effectiveness of the discounts is anywhere to be found. Can the Minister explain why we need this way of meeting objectives that most of us share?
Lord Campbell-Savours: I shall very briefly intervene on this occasion just to say that I only wish that Amendment 89L in my name, a very controversial amendment that comes much later in our proceedings, could have been taken at this stage. It would have provided a very different approach to dealing with this matters. But of course we will not come to my amendment for another three weeks, I understand; it is at the very end, by which time everyone will have made their mind up.
I think that if we are to go down this route, Amendment 41A in the names of the noble Lords, Lord Best, Lord Kerslake, Lord Cameron and Lord Beecham, is the perfect solution. In my view, it deals with the problem of excess profit-taking; it provides for the discount system and, if you are acting honourably, you are not penalised in any way. That is the compromise that Ministers should seriously consider. I know that promises were made in the manifesto, but that amendment does not compromise the commitments that were given. It still provides for the 20% discount system which the British people were promised was on offer. I hope that the amendment is very seriously considered.
The Earl of Lytton (CB): My Lords, I have sat on my hands for a considerable while since we started in Committee this morning. I speak to an intriguing amendment, Amendment 41A. Before doing that, I will try to peel back some of the skins of the increasingly complex onion that we appear to be dealing with.
The first thing to realise is that the housing market is potentially a very volatile animal, and has an enormous number of different subset markets—as we have heard, different parts of the country operate in very different situations. I know that your Lordships’ Select Committee on National Policy for the Built Environment heard evidence that, in certain parts of the country—not the north-east or the north-west— the market simply has not returned to anywhere near pre-peak levels of value. However, I leave that to one side.
Earlier, the Minister cited a gap in the market. I question which market we are referring to. Apart from believing that the gap is vanishingly small—we have heard some reasons why other products would effectively fill it anyway; and apart from the means being adopted to plug it in the Bill being vanishingly transient; and, furthermore that the limited category of people whom this type of starter home would actually benefit is, to my way of thinking, irrelevantly small in the overall scale of things, I have to wonder where we are trying to get to.
We need to be clear about whether society will provide lasting sectoral benefit to that proportion of the population that any social society is bound to try to assist. In that, I include people who may have been property owners at some stage, have fallen on hard times and, for whatever reason, have to depend on the state. When you are dealing with free markets, that sort of thing happens. There will always be a proportion of people—I do not pass judgment on how significant or insignificant—who cannot afford to buy and almost certainly cannot afford to pay a market rent. Are we going to assist those people, or to provide an increasing focus on a windfall gain for the few, without reference to the needs or actual means of the few who will benefit? I question what we are doing here.
In introducing Amendment 41A, the noble Lord, Lord Best, identified that the discount and loan assistance taken together is a huge transfer of asset. It is much bigger than the headline 20% figure that we are led to believe applies under starter homes. As the noble Lord, Lord Young, observed on Tuesday, developers are keen on this. Yes, indeed— they would be. Who would not be as an alternative to the affordable housing regime under Section 106, with the uncertain outcomes and unpredictability that that involves? I am not in the least surprised about that. Purchasers of starter homes would also be keen. Who would not be, offered a windfall gain for the asking? I wonder whether we should be devoting quite so much time and effort to this ephemeral social benefit.
When dealing with the question of housing and the impecunious, I am reminded of a gentleman who once said to me, in connection with council house sales, “If I had that sort of cash, I would put it to a better use than buying this place”. I hope that we do not build the sort of place that he was referring to, but I wonder whether, in circumstances of strapped resources in the public domain, we should be funding the ephemeral and assisting those who have access to a deposit that enables them to gain this discount in the first place. There is certainly no gain to the social budget on the sale of a starter home. The mortgage gets paid off, presumably, and the balance of it goes off down the road with someone to their next home. Or, if they have succeeded in being parted from their money, it goes to someone else—some financier who may have come in on the back of this scheme. It was mentioned earlier today that there is absolutely no end to the ingenuity of financiers of all sorts, regular and irregular, who would jump on this bandwagon and might usefully talk people round into doing business with them on the basis that they would share in some of the largesse being provided by society at large.
I believe that doing more here includes retaining a significant element of social benefit of some sort, and it is a matter for debate how much that should be, for society at large—unless of course you believe that the market will do everything, which of course it will not and cannot. History shows us that it does not.
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I turn to the point made by the noble Lord, Lord Horam, who questioned the means of assessing the value of some of these discounted and other types of what might be called interim ownership of one sort or another. My profession is full of guidance on this. There are many mechanisms for dealing with various social assets of one sort or another. Whether it be an opportunity cost or a replacement value, there are mechanisms for getting at it. They may not be perfect and they may not be precisely what you would look at in terms of market value, but they are not insignificant ways of dealing with assets, whether they be on a balance sheet or the assets of private individuals. That is something we need to consider.
The noble Lord, Lord Shipley, referred to the fact that a number of people cannot participate in the purchase of a property. I made the point earlier that there will always be that sector, so I very much agree with that sentiment. But fundamentally, the need to
build more houses altogether and to have a suite of tenures is what we must concentrate on. But there are dangers in that too. If it is inferred, as I rather suspected the Minister did earlier, that while building a lot more houses under the Government’s policies would serve over time to ameliorate the huge year-on-year increases in house prices in some areas, which they might or might not, building houses is not the only factor. It is also about jobs, communications, infrastructure and removing the blocks both locational and structural. Much of that has to be provided by public sources such as local authorities and government departments. That is one of the reasons why we should not allow all of the social benefit to just disappear into some sort of market transaction. There is a proper function in devoting this through public means where, in particular, market influences fail.
There are, as I have observed elsewhere, including with one of my children, few votes in the amelioration of house price increase. I ask your Lordships to think about this. Who would vote for a static or slow-growing house price market? Certainly not the Treasury or mortgage lenders, business lenders and insurance companies; absolutely not existing homeowners—oh no—and not property marketers and pension funds either. Developers and housebuilders would say no. They along with landowners like consistently rising values. Be careful what you wish for in balancing out supply and demand to get a form of equilibrium. If we ever did reach that situation, I question what kind of economic world we would be looking at and what would happen when one of the most significant economic drivers in our country actually started to falter. There is a very fine line between a market that is moving forward rapidly and apparently successfully and one that suddenly grinds to a halt. We have seen that in other sectors as well as in the housing sector in the past.
There is a lot of overconcentration on starter homes, which gives the appearance, if it does not reflect the reality, that we are abandoning other things. The Minister has tried to make out that there is no such abandonment; why, then, the particular obligation on local authorities to foster starter homes? Is that not skewing the balance? If we proceed as the Government suggest I can see a starter home market forming its own little market sector bubble in which the purchaser may well find that the benefits—the cream to which the noble Lord, Lord Best, referred—may have actually evaporated when it comes to reality.
The market is so complex and full of price differentials—in terms of finish, the style of house, whether there are white goods or none, or carpets or none, and so on—that the only bit of the Amendment 41A where I think that the noble Lord, Lord Horam, has a point is that as we get down to the smaller percentage equity that remains, as it is written off, we get to the point, at about 10% or a bit less, where we cannot distinguish it from any other factor in the marketplace. In other words, it becomes impossible to value that sort of consideration among a basket of maybe 50 different price-sensitive elements that make up a house price.
I am superficially attracted to Amendment 41A. I am very attracted to the idea of retaining a significant element of social benefit in the public sector, because I
think the public sector needs it. There is a very good economic reason. It is not a sort of exit strategy; I have no remit to say, “Public sector good, private sector bad”—I do not take sides on that—but I can see, as vice-president of the LGA, as a former president of the National Association of Local Councils, and as a practising chartered surveyor, that this is something where the role of the state and the role of local government, as part of the community, is a very strong element in favour of strengthening and bolstering that and having a better focus. It is not going to do it if there is a progressive siphoning away of what is, in fact, the chief milch cow behind this, which is the housing market.
At the moment, the housing market finances many things. It is, as I have said, a main driver of our economy, and we will not get affordability unless we have good and consistent market-level sales at significant profit. So I think that there are real issues that the Minister needs to consider carefully, with her colleagues, how we square this particular circle, because we have gone into a lot of detail here and I think we are losing sight of the bigger picture.
Lord True (Con): My Lords, I apologise: council duties earlier this week led me to miss the extremely interesting discussions about the relationship between starter homes and affordability. I hope that I will be able to make a contribution to that at Report, because clearly there are issues there. I also missed the early stages this morning, but I have listened with tremendous interest all day, as always, to your Lordships on these questions. Clearly, there are issues that need further discussion. What I heard from the earlier extremely extensive intervention from my noble friend on the Front Bench was that she was open to reflect on all the things that noble Lords have been saying.
The noble Lord, Lord Kerslake, with all his authority on the Cross Benches, made the fundamental point, which we have to bear in mind, that this is a manifesto commitment. That was almost the first thing that the noble Lord, Lord Kerslake, came in with. So this House has a duty, in my submission, starting from that point, to look at practicalities and ways forward here, some of which have been put before us in these interesting amendments.
Baroness Hollis of Heigham: My Lords, I accept the point about the manifesto commitment—we came in in 1997 in the same way. But what we then did was, where possible, to go for a White Paper to flesh out the details of how it would be done and used the responses to that White Paper to shape the regulations behind the drafting of the Bills. Would the noble Lord agree that that is the most appropriate way forward in this case?
Lord True: My Lords, I respect the noble Baroness. We have heard from her many times today and if she would allow me to pursue my remarks I will try to pick up on that point among others. I have been patient. As a general principle—I have said this many times in your Lordships’ House—policy-making should be progressive. We should have Green Papers, White Papers and so on. But that practice was eliminated in the years when Mr Tony Blair was Prime Minister of this
country; it disappeared. So I will not take strictures on that point. Perhaps we could form an alliance and move back, but we are dealing with the situation that we have now.
We do have an artificial market at the moment. I would not choose this particular instrument if I was selecting the first XI to bat for England in solving the housing problem. But we have an artificial market at the moment, parts of which are caused by matters we do not address—for example, the growth in population. The biggest distorter is the London market, because there has been an exceptional rise in London’s population. Currently there is no planned instrument to address or control the problem, and that will lead to continuing high pressures on housing.
Another distortion in the market, generally supported across the parties, is the artificial depression of interest rates. If you depress the cost of acquiring or holding a good, the capital value of that good will increase. At the moment we have an artificial situation in which low interest rates relate to capital costs. The problem then for young people who are trying to save for a deposit or acquire a house at a time when capital values are high is that they have had to live during a period in which, for a time, there have been, effectively, negative interest rates for savers. Now there are minimal interest rates for savers. It is extremely difficult in the exceptional and artificial market that we have now for young people to save. I do not want follow the interesting and reasonable points that have been made about people with high capital assets, but it is not easy to save for a deposit when prices are moving away.
So it is perfectly logical and understandable that the Government wish to look at an instrument of this kind that would help people seeking to be first-time buyers. It may not be perfect. In exceptional local authority areas where capital values are high I would like to see further discussions about exceptions and so on, but it is not unreasonable that an instrument of this kind should be considered. The fact that it may be a skin graft when perhaps the market needs heart surgery is not necessarily material because skin grafts are important and useful and do help certain people.
Your Lordships have reservations of different kinds and I am interested in the arguments that have been put forward. I do not agree with those who say that we do not need this instrument. There is nothing in it which threatens the existence of other instruments that have been commended, some of which also cause distortions in the market. So we should go on in a constructive way, look at this proposal—which was put before the British people and voted for—and, for all its imperfections, see if we can make it better. Maybe some of the suggestions made today will contribute to that, maybe they will not—but that is what your Lordships’ House is here to do.
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Lord McKenzie of Luton (Lab): My Lords, while listening to this debate I have been trying to get my mind around the mechanics of how some of this might work. Perhaps the Minister might comment. It seems to me that on day 1 the discount is met by the
developer, not by the Government or the purchaser. Other things being equal, you would expect that discount to be represented as a charge against the property. If nothing else changed, should that property be sold it would be sold at market value and the vendor would have an obligation to account for the discount—presumably, in this case, to the Government. If Amendment 41A were accepted, the detriment of that charge would gradually reduce over a number of years, and if there were a disposal there would be a smaller amount to be repaid.
The issue arises as to who the amount gets repaid to—who the charge is discharged in favour of. The Government presumably get some sort of windfall along the way. If they do not, how does it work? Should there be a residual recovery of the charge, who would get the benefit of it? If the charge is written off on the basis of Amendment 41A over a period, in a sense there is nothing to recover. It seems that that is a mechanism to address the issue the noble Lord, Lord Horam, and my noble friend Lord Campbell-Savours were pursuing about how the market will work. It would be relatively straightforward if that were the mechanism.
But where are the Government in this in terms of scoring against public expenditure? They do not take a hit on day 1, but do they anywhere along the line? Presumably not if the discount is on some basis fully written off. But if it is not and it is recovered by the Government, that has got to be reflected somewhere. Perhaps the Minister can help us with that.
Baroness Gardner of Parkes (Con): My Lords, I really like Amendment 41A but I believe the money should go to the local authority in which the property is based, to be used for further housing benefit or whatever else is needed. Local authorities are very hard pressed for funds and all the local communities benefit from anything that goes to them.
It is not at all unreasonable to ask for a certain amount to be repaid. It would be just,
“1% for each year of occupation”—
or is it 1/20th? That is where I am slightly lost. If you occupy a property for 20 years and pay 1% for each year does that mean—my maths are not good enough to work this out—that you have reduced the whole lot at the end of 20 years? If you have not stayed the whole 20 years do you pass it on to the next person, so say after five years that person has a 15% discount, which they can then keep for 15 years? And will they lose that when they pass on the property? I believe that is what is intended. It seems to be the fairest amendment which has been put forward on this.
Lord McKenzie of Luton: I accept entirely that the recovery could be by the local authority rather than the Government.
Baroness Williams of Trafford: My Lords, I thank the noble Lords, Lord Kennedy and Lord Beecham, for Amendments 38 and 39, and the noble Baroness, Lady Bakewell, and the noble Lord, Lord Shipley, for Amendment 46. I will address them together.
I am very clear that starter homes are a new product. They are a manifesto commitment designed to serve a pressing new need. Clause 2 sets out the key parameters: a starter home is available to first-time buyers,
under 40—the very gap that the noble Earl, Lord Lytton, referred to—at a minimum discount of 20% of market value and are subject to a price cap.
The proposed amendments would replace the minimum 20% discount on the open-market value with affordability criteria based on average local household income. Any discount would remain in perpetuity. This amendment would remove the 20% discount on local market values. I cannot support that as 20% is a minimum discount and, if they wish, councils would be free to negotiate with developers for a higher discount if that was best for the area. There is evidence that they do that at the moment for affordable housing.
Much was said at Second Reading and on Tuesday about the affordability of starter homes. Research on affordability by Shelter and Savills for the Local Government Association was based on median house prices in each region. I question whether first-time buyers access the market at average house prices, as I pointed out the other day. Starter homes will be valued to align with local house prices for first-time buyers aged under 40. We are working with the sector and professional bodies to ensure that a transparent process is agreed for valuation.
The noble Lord, Lord Kerslake, talked about the Shelter report, which is not out yet—he must be a very important person, as I have not seen it yet. I will be interested to see it when it is published but I must point out that we all agree that London is expensive. I do not think that anybody denies that. In response, I would point out that we estimate that starter homes will be accessible to those with a gross household income of £45,500 in the south-east, as I added up badly yesterday, and of £39,500 in the east of the country.
Lord Campbell-Savours: The noble Lord, Lord Kerslake, challenged the Government’s figures on this question of affordability. I think that he quoted a figure of 68% in one case, which is different from the figures that the Government are giving. The Minister said that she was going to have a look at the report. Will she come back at the next stage, when she has seen that report, and give us an explanation of why there is a difference in the stats?
Baroness Williams of Trafford: I can, my Lords. We can all argue about statistics and, given that I have not seen the report, it is very difficult to make a comparison of the different figures. However, I will do so.
Lord Kennedy of Southwark (Lab): In her earlier remarks, the Minister said that authorities could negotiate a higher discount on the property with developers. If they can do that, why can they not negotiate a lower discount as well?
Baroness Williams of Trafford: Because the whole point of the starter home is that it will be available at a discounted level to those under the age of 40. I will give the noble Lord the workings out of why that was arrived at. I am guessing that it was derived for a similar reason to that for the affordable homes discount, which has now been going for many years.
Lord Kennedy of Southwark: That is very helpful, thank you. We used to hear from the Benches opposite about how local authorities knew best but it has all gone very quiet now. I am thinking of the Localism Act, which was never mentioned again from the Benches opposite.
Baroness Williams of Trafford: I do not think that anything changes there. Nobody would promote any louder than I the view that local areas know best but local areas also know that government have certain expectations of them, and it has ever been thus.
The noble Lord, Lord Campbell-Savours, asked me for a breakdown of demand. I elected earlier on to provide that in due course and I will write to him. I do not have it at my fingertips at this point.
Lord Campbell-Savours: Will it be there next week?
Baroness Williams of Trafford: I will try for next week and see what is in the art of the possible.
We have examined the affordability of homes to those who are currently in the private rented sector. If they were to buy a new-build property in the lower quartile of the first-time buyer market outside London, up to 60% of households which are currently renting privately would be able to secure a mortgage on a starter home, compared with 45% who could buy a similar property—
Lord Campbell-Savours: That is the figure being challenged.
Baroness Williams of Trafford: That is the figure being challenged and we will return to it later but in the absence of seeing the report and its figures, I cannot comment on that report at this time.
Lord Beecham: Can I remind the Minister of my request to see a comparison of newly-built first-time purchases and any other housing that might be bought by a first-time buyer? I suspect that there is a difference.
Baroness Hollis of Heigham: I take it that the letters will be circulated to all Members taking part in the debate?
Baroness Williams of Trafford: Absolutely, and they will be placed in the Library. I have the implied first-time price of new build—not the demand figures—by region, which might temporarily satisfy noble Lords. In the north-east, it is £138,000; in the north-west, it is £144,000; in Yorkshire and Humberside, it is £144,000; in the east Midlands, it is £152,000; in the West Midlands, it is £148,000; in the east of England, it is £220,000; in London it is £356,000—no surprises there; in the south-east, it is £352,000; in the south-west, it is £179,000; and in the whole of England it is £216,000. I hope that is all right as a starter for ten, but I will endeavour to get those demand figures for next week.
Within London, up to 47% of households that are currently renting privately would be able to secure a mortgage on a new-build starter home—in the lower quartile of the first-time buyer market—compared to 37% who could buy a similar property now, priced at
full market value. This demonstrates that starter homes, at a 20% discount, will provide a genuine opportunity for home ownership for many more households and help them to get a lasting foothold on the property ladder. The noble Lord, Lord Best, talked about the equity loan scheme as being a discount; the very nature of its name implies that it is a loan—it has been extended to 40% in London. But the whole of the debate so far has talked about the inaccessibility of the housing market, particularly for first-time buyers, and London is a really hot case in point. Either we want Londoners to access the London market or we do not—I think that all noble Lords do want Londoners, particularly the young ones, to access the London housing market.
The noble Lord, Lord Best, also said that Help to Buy distorts prices and drives down supply. A government research report that came out last week stated that, actually, Help to Buy does not distort prices but drives up supply. Government research found that 43% of additional new homes built were as a result of Help to Buy. It has, understandably, been an extremely popular product.
Lord Best: I am not saying that the current 20% Help to Buy support has not been helpful in the marketplace. What I am saying is that the increase from 20% to 40% Help to Buy assistance in London, coupled with a 20% discount—that is where the discount comes in, a cash discount—adds together to 60% of the value of the property. The Minister is right to say that I commented that others have criticised the 20% Help to Buy support—I think we have yet to see it, but we can guess that 60% help to people buying in the form of 40% Help to Buy plus 20% discount really is an extraordinary level of assistance to people, much as we sympathise with their need to move out of rented homes if they can.
Baroness Williams of Trafford: I thought that the noble Lord had said discounts, so I apologise if I misheard him. I think I need to reiterate that point: the 40% Help to Buy loan equity plus the 20% discount do not add up to a 60% subsidy. Effectively, 40% of that 60% is in fact a loan and has to be paid back.
Baroness Hollis of Heigham: In that case, why does the Minister think she needs a 20% discount on top of a 40% equity loan—which is, frankly, an interest-free bridge, if you like—which then gets repaid and recycled on to the next, so that, as the noble Earl, Lord Lytton, said, it is not just a one-off windfall for the lucky first-time accessors to that particular property?
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Baroness Williams of Trafford: My Lords, I think I have been over the arguments many times. As I say, this is a new product introduced by the Government, a manifesto commitment to help that demographic which has been so disenfranchised by the buyers’ market, and it will help those people to get on the housing ladder. I know that we disagree, but everyone in this Chamber has talked about the particular difficulties of London, and that is why the equity loan guarantee scheme is being extended to 40% in London.
The restrictions imposed by permanent discount can make it more difficult to sell and to move on—I have gone through that earlier today. If a property can only ever be sold at a discount, can the owner easily move upwards to a larger home or to a new area? We want to ensure that the opportunity of home ownership comes with future choices and mobility, and not with more constraints. This is central to our vision for first-time buyers: a genuine discount that provides a genuine opportunity for the long-term future. As I have said, this is particularly important for young people, and we intend that starter homes will continue to be provided until 2020 and well beyond—obviously, we cannot commit a future Government to the priorities of the current Government, but that is our intention. A new supply of starter homes will become available for future first-time buyers, who will benefit from the same opportunities as the earlier buyers.
I will now turn to Amendment 41A, which introduces an alternative to the Government’s five-year restriction on sales, and the in-perpetuity model put forward under Amendment 46. This proposes that a 20-year taper is attached to starter homes where a buyer secures an uplift in value of 1% for every year of ownership. However, under this amendment, a couple in their mid-30s buying a starter home as their first house would need to stay there until their mid-50s to realise the full uplift in the value of their property. This seems like a significant restriction on their future mobility and does not support our ambitions for starter homes. Such long-term restrictions would make it more difficult to sell and move on. If the property is sold at a discount, can the owner easily move upwards to a larger home or to a new area? If people find it more difficult to move on, I question whether long-term restrictions will benefit future occupiers.
Lord Campbell-Savours: Would not such people still get the benefit of house price inflation, irrespective of the discount?
Baroness Williams of Trafford: My Lords, they would. But the principle behind the Government’s initiative is that within a few years people can start to move up the property ladder, but we want to help them to move on rather more quickly than the noble Lord suggests.
Baroness Blackstone (Lab): My Lords, I am puzzled by what the Minister is saying. There are hundreds of thousands of young people who have had to buy a small flat early in their lives, at the point when they need to have housing. Very often they have got married and they may have a baby. They then have a second child. They make some savings and move to something larger. They do not have big discounts. So why is the Minister saying that this very small group of people should have such a very large sum of money thrown at them? It really is very difficult to understand.
The Minister has said throughout this debate that she is concerned that other forms of housing and tenure should all be provided with support as well, yet everything she says in response to this debate suggests that starter homes have become of such enormous significance to the Government’s policy that very large sums of money are being promoted to be provided for
a relatively small group of people who will, very often, not be the really poor or even middle-income young people but relatively well-off young people. I cannot understand why the Minister thinks that, when it comes to wanting to move to a larger house, this group is not capable of doing what everybody that has been in this group before without a starter home benefit has been able to do? It just does not add up. It is also incredibly inequitable. In fact, the whole scheme is incredibly inequitable. I would have thought that the Government would want to look at the distributional consequences of a scheme of this sort: not just the costs and benefits, as was suggested earlier by the noble Lord, Lord Shipley, but who benefits and who does not benefit. The Committee deserves to know something about this, and we have not been told.
At face value, it looks to me as if a large number of people, including young people who want to buy homes, are going to get nothing out of this while a very small number are going to get a great deal and will continue to get a great deal. The Government and the Minister refuse to see that a perpetuity provision such as that proposed in this group of amendments would help to counter some of the criticisms that Members of the Committee have given in the debate this afternoon.
Baroness Williams of Trafford: My Lords, the noble Baroness asks who will benefit. Young people will benefit, and history shows us that it is young people for whom home ownership has been out of reach.
Lord Kerslake: There is a critical point here, which has perhaps been missed. When a couple or an individual seek to buy, they will make choices about what they can afford and, accordingly, where they can buy. In some situations, they will choose somewhere, as was said earlier, of lower value, because that is what they can access by way of mortgage; in other places they will gofor somewhere of higher value but with a discount offered. They will make a choice about their purchase at that point. What they are essentially doing, when you put a second charge on a property, is making a trade-off between the discount—and the length of the discount—and the price they have to pay. That is what they are doing.
If you make it five years, anybody will go for that, whether or not they need it, as that will be the only way they can access the property. If you make it 20 years, it is much more likely to be the people who genuinely cannot access full market value who go for the property. This is a crucial point. If you really want to avoid deadweight squeezing out the people who might be able to purchase only with the discount, you have to have a longer taper than five years.
Baroness Williams of Trafford: My Lords, I think we are going to have to disagree on this. The noble Lord, Lord Campbell-Savours, made the point that owners would get the uplift from house price inflation. However, that could be the other way round, as after five years, a house could be worth less. The housing market is cyclical—prices go down as well as up—so there will not necessarily be an increase in the house price after five years.
Lord Campbell-Savours: So people in this particular group who might be subject to deflation are again picked out to be treated specially: they will have their deflation subsidised by others.
Baroness Williams of Trafford: My Lords, this is all relative. When house prices come down, the next house up on the ladder will also be cheaper. Under the proposal of the noble Lord, Lord Best, after five years the couple in question would benefit from a quarter of the discount. I accept that after 20 years they would benefit from the whole discount. I know there is not agreement in the Committee about this, but we want people who work hard and want to move up the housing ladder to be able to do so.
Lord Kennedy of Southwark: We all want people who work hard to move up the housing ladder, but the problem here is that this is such a small group of people.
Baroness Hollis of Heigham: Can the Minister explain something? I think most of us would sympathise with trying to find the best way to help people into owner-occupation, particularly given the pressure of house prices. We could argue whether it should be equity loans, starter home discounts of 20% or anything else, but why this sudden fixation with mobility for people who are no longer first-time buyers but second-time buyers and maybe, subsequently, third-time buyers to be free of any discount so that they can enter the market without having had to save, as my noble friend said, in the way that everybody else has? Why do the Government consider it to be part of their responsibility to help people become second-time buyers?
Baroness Williams of Trafford: My Lords, housing is an issue for government and there is a huge demand on housing in this country. This scheme is not to the exclusion of other products—I must stress that it is not as though we have switched off the tap to all other products. Sitting on these Benches, one might think that there were no other products on the market, but there are. This is one way of helping that demographic for whom home ownership has been so out of reach.
Lord Kennedy of Southwark: I asked a Question this week about people on the living wage for whom homes are out of reach—people who are trapped in the private rented sector. This is not helping those people.
Baroness Williams of Trafford: I did not disagree with the noble Lord. I pointed out the various things that were available, such as shared ownership and affordable rented properties.
Lord Campbell-Savours: There is Section 106.
Baroness Williams of Trafford: There is Section 106, if it is viable for the scheme. There is £20 billion going into the housing market, of which £8 billion is for starter homes. It is one of a number of parts of the jigsaw, but the Government are very keen to promote it. We do not shy away from that: we want people to get on and move up in a reasonable time.
Baroness Hollis of Heigham: But why?
Baroness Williams of Trafford: For all the reasons I have outlined, because of the gap in the market. However, if people find it more difficult to move on, I would question whether long-term restrictions would benefit future occupiers. Allowing first-time buyers to benefit from a genuine discount will increase the vibrancy of the housing market, while the next generation of first-time buyers will benefit from new starter homes coming through the planning system in years to come.
Those homes will provide first-time buyers with the opportunity to move up as their family grows—as the noble Baroness said—or their circumstances change. We are consulting on the five-year restriction for affirmative regulations shortly, and will consider all responses carefully.
Our proposals would prevent starter homes being sold on the open market at full market value for a period of five years after they were first purchased by a first-time buyer. We believe this is important to ensure that starter homes are sold to those who are genuinely committed to living in an area and not to those who would simply wish to sell to secure financial uplift. We want to be clear that a starter home could be sold during the first five years of occupation—that point relates to the question of the noble Lord, Lord McKenzie—but it could be sold on only at 80% of market value to a qualifying first-time buyer. Therefore no money moves anywhere during this period. After that time, the property may be sold at full market value. This proposal will be set out in affirmative regulations following consultation.
Lord Shipley: My Lords, could the Minister please explain who would be responsible for assessing market value?
Baroness Williams of Trafford: My Lords, as I said this morning, we would expect an independent valuation to take place. That would be the fairest way to do things. A number of noble Lords have mentioned that this afternoon.
Our consultation will provide the best opportunity to test our proposals with the sector, including developers and lenders. We need to wait for the outcome to ensure that post-sale restrictions can work well in practice. Introducing tapered discounts over such a long period is complicated and including them in the Bill would limit the flexibility to make adjustments to the way they work in practice if necessary.
On Amendment 40, I assure noble Lords that it is not our intention to allow those people who buy a starter home to become buy-to-let landlords. We will ensure that letting restrictions are included in our regulations. The aim is to provide a place to live in, not a place for absentee landlords to profit from.
Unfortunately, restrictions to any legislation will not prevent gaming at the local level, but I assure noble Lords that we are working with builders, lenders and local government on the best possible mechanism. We will consult on the details for the regulations in a technical consultation to be published shortly.
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Lord Campbell-Savours: I ask the Minister to imagine a sale where a house is being sold on the second occasion. After the valuer has said, “This is the value of the property and that is the discount, so you have to sell it at this price”, a person buying finds that he is one of eight people who all want that property. Is there not a danger that one of them will come along and say, “I’ll give you an extra £3,000 but don’t tell anyone about it”? Are those not the conditions that are going to exist in reality? Estate agents will be party to it, too. They will say, “Yes, that’s the price, but I understand that Joe Bloggs is prepared to pay you a few extra bob round the back to make sure that he gets the deal as against the other seven in the queue”.
Lord Beecham: For “fixtures and fittings”.
Baroness Williams of Trafford: The noble Lord makes an extremely valid point and I will ask about what the mechanism would be there. People will be queueing up for these homes anyway because they are going to be appealing for first-time buyers, but I will ask about the precise mechanism by which that would work—whether, effectively, there is competition in the market. That is a valid question.
Lord Kennedy of Southwark: My noble friend indeed makes a valid point. If people went on to do that, it would be fraudulent activity, so I presume that there would be appropriate penalties. People need to know that, if they behaved like that, they would get caught and pay a heavy price.
Baroness Williams of Trafford: I do not disagree. We would not want to introduce a system that was fraught with potential fraud.
Baroness Hollis of Heigham: But the easy way around that is that you pay £20,000 or £25,000 for the white goods and the carpets. There is no problem in doing that; it is easy.
Baroness Williams of Trafford: My Lords, I turn to Amendment 39A, which would enable Rent to Buy products to be considered as starter homes. We know that there is an appetite among housing providers and developers to deliver more home ownership in new and innovative ways. We know that we need a wider range of products to assist young first-time buyers to access home ownership when a generation is increasingly being priced out. The Government are supporting people who cannot afford a discounted purchase outright through the separate schemes that I have mentioned, such as Rent to Buy, Help to Buy and shared ownership.
Our commitments through this spending review will provide households that cannot yet afford a home on the market but aspire to home ownership in the medium term the opportunity to save for a deposit. It is a good product and, like other valuable products that support access to home ownership, affordable Rent to Buy can be considered by councils as part of their wider affordable housing requirements for their area. The clause will not prevent those developments from coming forward.
This is a new product. Our manifesto was clear that we would build 200,000 starter homes and this is central to our housing ambitions. The electorate will expect us to deliver on our commitment. The starter homes policy is a product for outright purchase that gives people the benefit of home ownership and, importantly, helps them to achieve a step up the ladder. I have tried to answer all noble Lords’ questions.
Lord Kerslake: Before the Minister sits down, I understand that Shelter will publish its data very shortly. I was keen to have the latest data for this debate. It would be helpful if the Government could also publish not just their data but the underlying assumptions behind them so that we could have a true like-for-like comparison.
Baroness Williams of Trafford: I can say to the noble Lord that we will certainly request that—he has been teasing us all afternoon. I am looking forward to seeing that report and I am sure that we will debate it in full, comparing those data and the Government’s data. I ask noble Lords not to press their amendments.
Lord Beecham: My Lords, I express the thanks of the House to the noble Baroness. She has had a long, difficult and, if I may say so, lonely day in terms of support. Over the lunch break, I suggested to her that she should have a word with the Whips’ Office to ensure that somebody else could take some of the load of replying to the debate. Perhaps the noble Lord was sent in for that purpose, but I do not know how well he would have been prepared for it. For the rest of our discussions on the Bill, I hope that the noble Baroness receives more visible and audible support. It is unfair for her to have to deal with all these complicated matters on her own. I compliment her for her patience and good nature, if not for the policies that she is supporting.
In speaking to his amendment, the noble Lord, Lord Best, came out with a rather delightful phrase:
“If the cream is too rich, the cat dies”.
It is not quite appropriate in this case because, effectively, the cat is the public purse. The public purse suffers because money is being pumped into this scheme—and it is not just the public purse, but other potential uses for that funding in the housing sector. So it is a rather strange cat that we are looking at.