Welfare Reform and Work Bill

Debate between Baroness Blackstone and Lord Triesman

Tuesday 12th January 2016 Lords Chamber

[Baroness Blackstone (Lab)]

My Lords, in speaking briefly to these amendments I declare an interest as the chair of the board of the Orbit housing association group. I want to pick up on something that the noble Lord, Lord Horam, said. Everybody involved in the world of housing associations is acutely aware of the need to be efficient and get good value for money. I certainly am and I am sure that the noble Lord, Lord Kerslake, and others in the House who are involved in them are. A four or five-year reduction in rent is just not the best way of securing such efficiencies. It really is taking a sledgehammer at something and, as the noble Lord, Lord Kerslake, said, the right way to do this is through good internal management and effective and good external regulation.

The intervention in the housing market to legislate for rent reductions in housing associations and local authority properties is not the kind of intervention that you would normally associate with a Conservative Government. I was brought up to believe that Conservatives and the Governments who represented them believed passionately in the working of the market. Moreover, the kind of direction from the centre that this would entail sits very awkwardly with the Government’s claim that they are in favour of greater devolution to the regions and to local government. It is the reverse of that. It is also entirely inconsistent with their avowed aim to increase housebuilding. As the noble Lord, Lord Scriven, has already indicated, we are not going to alleviate the crisis in the supply of housing, especially for first-time buyers and those in desperate need of social housing for rent, with this sort of approach.

On the one hand, the Government want to reduce rents to cut the amount being shelled out on housing benefit; on the other, they want more houses to be built by housing associations and, I believe, by local authorities. If they want the second of those objectives to be achieved, they really should not introduce policies which greatly undermine that goal. We have already heard that it is estimated that the 1% rent reduction over the next four years will lead to a loss of £3.85 billion in rental income for housing associations. The noble Lord, Lord Scriven, has already cited examples of chief executives in the sector saying that in these circumstances they cannot go on with their housebuilding programmes, which ought to be focused on social housing. Put another way, as the noble Lord, Lord Kerslake, said, it will result in a 12% reduction in average rents by 2021, compared to today’s forecasts. Perhaps the Minister could be really honest with us and tell us what effect she thinks this will have on housing association housebuilding. Please do tell us that clearly.

The cost to local authorities is estimated to be £2.6 billion by 2019. This amounts to what it would cost to build 19,000 new homes over the four-year period. Unless local authorities and housing associations are able to make a substantial contribution to the Government’s extremely ambitious targets for new houses between now and the next election, which I and many other Members of this House of course welcome, those targets are highly unlikely to be reached. Again, I would like to hear the Government’s view on the effect of this legislation on their housing targets. They are trying to do one thing with one hand, as the noble Lord, Lord Scriven, said, and something quite different with another—and the two do not come together very well.

I do not want to repeat what other speakers have said on these amendments. But I strongly support what all speakers, particularly the noble Lords, Lord Kerslake and Lord Best, and my noble friend Lord Beecham, have said about particular kinds of housing associations having great problems with what is proposed here. For those reasons, I strongly support the amendments in this group, all of which seem to me to propose wholly reasonable adjustments, which the Government ought to be able to make without too much difficulty. I hope to hear a positive response from the Minister when she replies.

[Lord Triesman (Lab)]

My Lords, I also declare an interest, which is on the register, as a director of a housing association. I share the point that the noble Lord, Lord Scriven, made very eloquently: if you had to categorise the most gripping social problems that we face, among them would be the problems of people either not having any kind of decent housing or being shifted routinely from one low-cost house to another, and all the things that we know are correlated with that, such as worse health, worse educational prospects for the children and less likelihood of families staying together and of intergenerational relationships being sustained. It is a critical problem.

The noble Lord, Lord Horam, tried to say how we can balance the competing issues around this. I make the point to him that it is critical—it has become ever more critical—to understand what the sources of finance are likely to be for building new, affordable and social homes. Not all housing associations are the same. There are some very big ones which have been capable of launching own-name bonds and have done reasonably well in attracting new capital into their building programmes. There is a very much bigger group in the middle—perhaps the overwhelming majority of which would, I am quite sure, be categorised as efficient and among which there has certainly never been a default—which cannot launch an own-name bond as it is not financially within the scope of what they are capable of doing. Then there are very many smaller ones which come under the sorts of pressures that the noble Lord, Lord Best, and others have described.

The middle group is by far and away the biggest of the groups and the one which is most challenged in finding sources of relatively inexpensive capital to build new buildings. We all know that the shortage of such buildings is enormous and the task for those housing associations is therefore profound. The empirical evidence is very clear that most of them have run out of any real capability to raise additional funds from the banking sector, not least because the banks have gone through a period of considerable turmoil in their lending and the amount of risk that they are prepared to take, because they are subject to Basel III and other ratio-controlling mechanisms when it comes to what they will or will not lend. I know that housing associations in that middle group which go back to their bank often find that the bank, rather than wanting to talk about new investment, wants to renegotiate the terms of the debt relating to past investment. It is a fundamental disincentive.

One thing that has interested me most of all in the last couple of years of close involvement with a housing association is where the money for new building will come from. It frequently comes from what, rather like my noble friend Lady Blackstone, I had always thought was within the domain of Conservative policy up to the hilt. They look for areas of potential private investment, but the private investment in this sphere and segment is very particular. It has to be long term, because none of these are short-term projects, and it will inevitably be at very low rates of return. In short, it is a classic annuity investment. Classic annuity investments appeal to particular kinds of investors. We have found, for example, that the people who understand the need in this country most readily and are prepared to make investments of this kind are the Scandinavian pension schemes. It has been those people who think in the very long term and about low rates of return, because their aim is to provide a sustainable, long-term but pretty marginal annuity income. That is one of the most limited spheres for raising money for new buildings that you can think of, but it is now becoming increasingly vital. Unless they can plan over a period of time what the return will be, what I have described as a very small return becomes no return and they cease to invest. Of course the CEOs and others in housing associations then say they are not going to build, because the last door has been closed.

I hope noble Lords opposite will forgive me for taking such a directly capitalist approach, but I do. I am an entrepreneur. I look at these things and try to work out how it is you can potentially fund things that are socially vital. I ask the Government to think again—perhaps by saying the four years is four years and there is no excuse for going beyond it—about whether they really want to build these homes and whether they will produce the conditions in private market circumstances which will overcome the barriers. There is a very straightforward yes or no answer to that. If the Government want to overcome them, they should not impose something which makes it impossible for investors to fill the gaps that the banks have now left.