Localism Bill

Lord Shutt of Greetland Excerpts

Wednesday 7th September 2011 Lords Chamber

I do not propose to press Amendments 39 and 43 today. However, I reserve the right to test the view of the House when Amendment 45 is called, in the event that we do not receive a coherent and satisfactory answer on this very important point.

[Lord Shutt of Greetland]

My Lords, I thank the noble Lord, Lord McKenzie, for speaking to his amendments, the first of which is Amendment 39. Clause 155 provides a power for central government to make determinations providing for the calculation of a settlement payment in relation to every council that retains its own housing stock. This payment is a mechanism for adjusting each council’s housing debt to a level which it can sustain after meeting the costs of managing and maintaining its stock. It will leave every council in a position to finance its own housing stock from its own rental income without need for subsidy. The clause sets out that these determinations may be calculated according to a formula, and that this formula may include variables relating to income, expenditure needs and levels of existing housing debt.

The methodology that we will use to calculate these settlement payments has been extensively tested and refined with local authorities through two public consultations. It has also been the product of joint working with local authorities and others working in the sector. Subsequent to these consultations, we have issued two detailed policy documents this year confirming our intentions to make full reforms based on the key principles set out in these consultations. These policy documents include the models we will use to value the stock and working drafts of the determinations that we will issue. We will publish a further consultation in November on the final proposals, when we have the latest data.

It is therefore fair to say that this policy has been subject to unusually high levels of public scrutiny and debate. In valuing the business, the expenditure needs are rooted in unit costs identified in independent research which was itself published for consultation. The income assumed is that set out in the Government’s national social rent policy. The settlement payments will reflect the difference between the value of each housing business and its existing housing debt. Where the debt is greater than the valuation, the Government will pay the difference to the council. Where the valuation is higher than the debt, the council will pay the difference to the Government.

The amendment which the noble Lord seeks would remove a degree of discretion available to the Secretary of State in setting the assumptions upon which the determinations will be based. This is unnecessary, as the assumptions will be based on the best information available at the time and have been extensively tested and consulted on. In addition, the determination setting out each settlement payment will be subject to a further consultation this autumn, during which councils will be able to correct any errors. Therefore I trust that this amendment will not be pressed.

On Amendment 43, Clause 157 sets out the practical provisions under which settlement payments should be made. It gives a reserve power to the Secretary of State to charge interest or recoup costs incurred if councils make their settlement payments after the time specified in the determination. I have described these as reserve powers as we do not expect to use them due to the excellent track records councils have in meeting their financial obligations. The noble Lord’s amendment would establish reciprocal arrangements whereby the Secretary of State would make additional payments where any sum payable by the Secretary of State to particular local authorities was not paid on time. I can assure you that the Government will make its payments to local authorities on time.

That sounds grand, so I thought I would check it out a bit further. Presently housing revenue account subsidy is paid in 10 instalments in the year, and is paid on time. When councils receive regular revenue support grant, it is paid and it is paid on time. On the rare occasions, for some technical reason, it has not happened on time, the Government have voluntarily paid compensation. The determination setting out the payment date will be issued by the Government and detailed arrangements for the day have already been set out by the Department for Communities and Local Government in the policy document Self-financing: Planning the Transition, which was issued this July. Therefore, I do not believe that this amendment is necessary, and I trust it will not be pressed.

On Amendment 45, we had some discussion on these areas on Monday and we already debated the power we are taking to set a cap on housing debt as part of our reforms. As I noted previously, Clause 158 is not a minor or technical part of these reforms, it is integral to protecting the Government’s central fiscal priority—to bring public borrowing under control. I understand that many councils do not want a centrally imposed limit on their ability to borrow for housing, but our reforms must not risk undermining national fiscal policy on public debt. Self-financing will give local authorities direct control over a rent income stream of around £6 billion a year. This could potentially be used to finance a large increase in public sector debt. It is not possible to say confidently how many councils might choose to borrow more but we know that councils will start out under self-financing with much less debt per dwelling than housing associations with similar costs and incomes. It is just not possible to take the risk that this deal might drive a big increase in public sector debt.

Noble Lords have asked why the prudential borrowing rules are not sufficient to protect against this. The prudential borrowing rules have worked very well but, as I said previously, our concern is not that local authorities will act in ways that are imprudent locally, it is that in aggregate these borrowing decisions may be unaffordable nationally. The amendment tabled by the noble Lord would remove this specific cap on housing borrowing and replace it with a power for the Secretary of State to issue guidance or regulations under the Local Government Act 2003. The Act does include powers to cap the debt of individual local authorities, but these are,

“for the purpose of ensuring that the authority does not borrow more than it can afford”.

As I have said, our concern is not that a council would borrow more than it can afford, it is that in aggregate councils may borrow more than the country can afford. The bespoke powers we are taking ensure that this cap will apply only to housing debt and not to any other borrowing by local authorities. Indeed, I have some sympathy with the intentions but I have to resist the amendment and I trust that it will not be pressed.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his very detailed, if predictable, reply. In relation to Amendment 45, I honestly do not think that he has reasonably addressed that point about the power that already exists with the Secretary of State being able, for national economic reasons—which is why he wants it in this clause—to set limits in relation to the borrowing of money by local authorities. That power is there. Why is an additional power needed? I do not think that the noble Lord has dealt sufficiently with that point.

As regards Amendment 43, as I understand it the proposition is that should the Government be late with their payments for technical or any other reasons, as has happened albeit infrequently in the past, they will make a voluntary payment. Is that on the record and what we are dealing with here? The amendment simply seeks to enshrine that formally in legislation. But, as I have said, I will not push that point if the noble Lord is putting on the record that in those circumstances the Government anticipate keeping local authorities whole.

[Lord Shutt of Greetland]

That would be the anticipation but the idea is that the Government pay on the dot at the appropriate time.

[Lord McKenzie of Luton]

Of course it is. One would hope that they do and I accept that overwhelmingly they have, under the current subsidy system. But it is good to have that clearly on the record.

As to Amendment 39, I recognise and understand that there has been extensive consultation around these important provisions and that there is more to come. I was seeking to get a better view on the extent to which there may still be disagreement challenges over the technical aspects of how the settlements are proposed. What is the process for settling that? Consultation is all very well but it is a question of how the Government respond to that if there are at least residual challenges about those calculations. As I have said, I do not propose to press Amendment 39. We will see where those future consultations and discussions lead us. I made my point in relation to Amendment 43 and we have something on the record.

I am inclined not to push Amendment 45 today, although I urge the Minister to give us a better explanation of why proposed new subsection (4) is not sufficient to cover what the Government seek to achieve. Without that, I give no guarantee that I will not seek to bring that point back at Third Reading.

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[Lord Shutt of Greetland]

My Lords, I thank the five noble Lords who have spoken and I pay tribute to the noble Lord, Lord Best, and his work in housing over many years. The business of the amount gained when houses are sold and how the money is used is a subject that many of us have been debating for most of our years in public life.

What we have here is a total, and there are trade-offs in this element of the Bill. Although I understand the intention behind proposed new Clause 51, which is to end the surrender to central government of 75 per cent of receipts from the sale of right-to-buy and similar houses, and although I appreciate councils’ disappointment that we have not been able to end the policy, its continuation is necessary to help with the country’s huge fiscal deficit. The Government have ensured that the viability of the self-financing settlement is not affected by the decision. We are compensating local authorities for loss of rental income from future right-to-buy sales. To do this, we have included a forecast of right-to-buy sales in our valuation. The level of debt that authorities will take on has consequently been reduced in our latest estimate, as the noble Lord, Lord McKenzie, indicated, by £862 million. In addition, all councils will still retain 25 per cent of receipts. They will also be able to retain 100 per cent of receipts from other sales to spend locally on affordable housing or regeneration. It is worth noting that receipts generated from right-to-buy sales have rapidly declined, sales being now about 5 per cent of what they were at their peak.

I hope the noble Lord will draw some comfort from the fact that we issued a consultation on 25 August, which set out proposed amendments to the regulations governing the use of receipts arising from the disposal of council housing assets. We have proposed to amend the regulations to make it clear that the requirement to surrender 75 per cent of receipts to central government shall apply only to receipts arising from right-to-buy sales or sales that are right-to-buy in all but name: that is, sales to existing council tenants. Sales at market value to other purchasers could then be retained, provided they were spent on affordable housing, regeneration projects or paying off housing debt. I trust that that is helpful and, bearing it in mind, that the amendment will not be pressed.

[Lord McKenzie of Luton]

The Minister said that the Government were reducing the level of debt that local authorities would otherwise take on because of this policy by some £860 million. Does it follow that central government debt is correspondingly £860 million higher than it would otherwise have been, and how does that help deficit reduction?

[Lord Shutt of Greetland]

I might have to think that one through, because I see the contra. On the other hand, there is only one central Government. The problem that we have all along is that some 170 local government entities are involved in housing. At least you know where you are with central government and that £862 million. The position can be entirely different in local government.

I would like to think that there will be a time when this policy is not in place. However, as I indicated, it is no longer the big deal that it was, given that so many former council houses have been sold and the amounts coming in are nothing like they were at their peak, when this Government were not in business.

[Lord Best]

My Lords, the housing revenue account is often compared to the Schleswig-Holstein question. Of the only three people who understood it, one had committed suicide, one was in a madhouse and one was in a monastery. Following the debate on the housing revenue account today has been a bit like that.

I am very grateful to noble Lords who have spoken on this. The noble Lord, Lord Whitty, made two fundamental points. First, if only we had kept the receipts during the past 30 years, we could have built a lot of houses and renovated a lot more. That money has evaporated. If we could get that changed henceforth, that would be thoroughly commendable. The noble Lord also made the point that if local authorities had been able to sell vacant properties on some of their estates on the open market, they could have introduced people on different incomes and created mixed-tenure estates, which would have been better socially for everyone concerned. However, there is absolutely no reason why local authorities would do that, because they would lose all the money that they received from the sale and could not then replace the home that they had sold. I am very grateful for that intervention and for those of the noble Lords, Lord Beecham and Lord McKenzie.

I shall certainly bank the very important point that in respect of sales outside the right to buy—the voluntary sales by local authorities—the intention is that in future the levy will be lifted. That could be quite a significant change in the future. The leader of the London Borough of Hammersmith & Fulham, Councillor Stephen Greenhalgh, is very much in favour of this. He explained to me that he has properties which, going back to the days of municipalisation, are scattered in some streets and are now in need of substantial repairs or improvements, although they are also very valuable. Rather than spend a great deal of money on some of those properties when they become vacant, it would be much better for Hammersmith & Fulham to sell them on the open market and not spend the money on the repairs. That money would be recycled, getting two or three flats elsewhere for the price received for those properties in Parsons Green or wherever they happened to be in Hammersmith & Fulham. Therefore, the Minister’s concession here may open some opportunities for councils to take in receipts to recycle in a very meaningful way, and I am very grateful for that concession.

In relation to the right to buy, we live to fight another day. For the moment, I beg leave to withdraw the amendment.

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[Lord Kennedy of Southwark]

My Lords, the amendment proposed by my noble friend Lady Hollis is most interesting and has considerable merit. She has considerable experience in the local government and social housing sectors. Where tenants want to make major improvements or improve other amenities, I can see the case for this being financed by an increase in the rent paid on the property. My noble friend makes compelling points in particular regarding fuel poverty and green energy and also dealing with the issue of housing benefit. If the Government are not able to accept the amendment, will the noble Lord at least agree to take it away and reflect on it? It could be explored further and perhaps introduced at another time following discussion with relevant departments.

[Lord Shutt of Greetland]

My Lords, I thank the noble Baroness and the noble Lord for their contributions. It is more complicated than I thought. The amendment is clearly about additional facilities requested by the tenant, yet the points made by the noble Baroness have been about solar panels and, basically, energy. Clearly the amendment is about any form of enhancement required by a tenant. All I would say on the detail is that my noble friend Lady Hanham has shown me a letter that she wrote to the noble Baroness, Lady Hollis, on 9 August offering to discuss this matter. She may not have got the letter or something may have gone wrong, but this offer has not yet been taken up. My noble friend Lady Hanham would be happy to discuss the matter and that could well be a helpful way forward. I cannot give a commitment on where that would lead, but I think it would be a good thing if that offer were taken up.

I cannot accept the amendment because it would allow landlords complete freedom to charge rents above the target rent for particular properties in order to fund the cost of additional facilities. This would lead to an unacceptable rise in the housing benefit bill. There are two types of landlord to whom the amendment could apply: local authority landlords and housing associations. Both sectors are able to exercise some flexibility over rent setting but are subject to important constraints. In the case of local authority landlords, there is the “limit rent”, which is the maximum that the Department for Work and Pensions is willing to pay in housing benefit. This cap is vital to control the welfare bill. For housing associations, a direction on rent is set each year by the regulator in order to achieve a degree of consistency in rent levels across the sector and to protect the housing benefit bill. Noble Lords may not be aware of this, but for two-thirds of all tenants in council and housing association properties, the rent comes from housing benefit. So it clearly would be significant.

The noble Baroness’s amendment would remove an important control by Government over rents, which they will largely pay for. While this could pay for some improvements, it would result in uncontrollable increases in the housing benefit bill that we can ill afford. Furthermore, there would be no assurance that the taxpayer was obtaining value for money from the additional public expenditure. For this reason, I must reject the amendment. Councils and housing associations can charge affordable rents of up to 80 per cent of market rents as part of an agreement with the Homes and Communities Agency to build new homes. The extra rent must be used entirely to fund the new homes, which will produce a housing benefit saving as they are still at rents below those charged in the market.

I hope that, in the circumstances, the noble Baroness, Lady Hollis, will take up the offer from my noble friend Lady Hanham and that on this occasion she will not press her amendment.