New Housing Supply
Debate between Heidi Alexander and Clive Betts
Mr Betts
On the second point, I can see the problems. I do not think that we went into that issue in detail. I have been involved in such bodies in the past, and the important thing is to recognise that, yes, there can be issues and to try to resolve them right at the beginning. I will say a little more about housing associations in a second if the hon. Gentleman will allow me.
We looked at real estate investment trusts, which are close to the Minister’s heart—or perhaps not quite so close. We wondered why, after years of having them, no one seemed to be using them, certainly not for housing purposes. We had some challenges about how the Treasury treats investment and trading profits for tax purposes and whether that could be changed. It appears that the Government have gone a bit cold on REITs and do not see them as a solution, but I am sure that we will hear more from the Minister.
On social housing, there was a recognition—we might have different views about its appropriateness—that the Government had cut social housing funding over the comprehensive spending review period by 60%. Effectively, the Government are relying on housing associations in particular to increase rents towards 80% of market values on new properties and perhaps on existing properties to help to fund their balance sheets. Rents are rising to take up the slack from the reduced social housing grant that is available.
The National Housing Federation and housing associations told us clearly that they were concerned that this model would not last much beyond 2015. They did not think that was workable in the long term. They asked for some certainty about what would happen, so that they could enter into borrowing arrangements. The Minister for Housing told us in his response that he accepted that point and that the Government would look at it closely. It would be helpful to know what the Government’s response is now, because it is clearly an issue.
Moody’s has downgraded the credit ratings of 26 housing associations, and we are getting to the tricky issue of direct payments, which the Select Committee considered. The National Housing Federation certainly told us that it thought that a number of associations would end up paying more in borrowing costs because of the associated problem of rising arrears. We welcome the Government’s commitment to the pilots, which are going ahead, and we have had further information during our more recent inquiry into the impact of welfare reform on local authorities. We will reach some further conclusions about the direct payment issue. Clearly, the Government must be aware of the impact on housing associations.
Returning to the point the hon. Member for Meon Valley (George Hollingbery) raised a few moments ago, the Committee recognised that there are a number of ways to get more leverage from housing association assets, and people gave evidence on what they were doing in that regard. It is interesting that only yesterday the G15, the 15 big housing associations in London, made an announcement about a common investment vehicle to raise money to enter the private sector housing market. That is one way in which the solidity of their balance sheets is helping them to raise money for a purpose that should, in the longer term, be self-funding. These are interesting ideas.
The Committee also looked at the housing grant. The so-called grant is sat on the books of housing associations and is counted as a debt. Changing that to a genuine grant or equity could release a lot of funds for investment, and is clearly supported by the housing association movement. We suggested that the Government look at that, because we recognised that there could be problems with overloading some associations in some circumstances with too much debt. Nevertheless, we thought that in principle it was an idea worth considering. We hope Ministers will look at it, because some of the stronger, more robust housing associations might want to pursue it. We have to be cautious, however. What might be right for associations such as the G15 in London, where the private market is buoyant and rents are appropriately high, will not be right in other parts of the country where there is not the same ability to leverage funds. We have to be careful and recognise that a one-size-fits-all solution is not necessarily available.
The Committee looked at the role of local authorities. They have not been great contributors to new house building in recent years, and we ought to change that. We welcome the housing revenue account reforms, because they give local authorities the opportunity to take investment decisions, but why, of all the investments made by local authorities, is housing the only form of investment that is controlled beyond prudential rules? Why is it different? It is a ring-fenced account. It should be in the other direction: it is a safer form of borrowing for authorities. It is not only the Local Government Association, but councils such as Westminster, Kensington and Chelsea and Hammersmith and Fulham that are saying, “Get rid of the artificial cap that has been put on housing revenue account borrowing. Why is it there? Why can we not rely on the prudential rules that are in place for all other forms of local authority borrowing?” Ministers always have fall-back powers under the Local Government Act 2003 if they need them. Why can that not be relaxed to allow more borrowing and building?
Heidi Alexander (Lewisham East) (Lab)
Is my hon. Friend aware that in lifting a cap, local authorities could deliver 600,000 new homes over a five-year period if additional borrowing was available to them? Sorry, that should be 60,000.
Mr Betts
I would be more supportive of the 600,000 figure, but we probably cannot deliver that with the money available. My hon. Friend is absolutely right. She anticipates the “Let’s Get Building” report produced by the National Federation of ALMOs, the LGA and the Chartered Institute of Housing, among others. It makes the point that if the cap was lifted the amount of borrowing local authorities could enter into would rise from £2.8 billion to £7 billion. That would allow the building of 60,000 homes and put a lot of people into work. It just seems to be a simple solution. It does not require the Treasury to go out and find any money to subsidise that borrowing, because it is a ring-fenced account, a trading account, and Ministers need to accept that.
The Committee’s report suggests that some authorities may not want to go ahead, because they do not have a housing need. Why can there not be a swapping or trading of borrowing amounts between local authorities? The Government allow and encourage sharing between local authorities on a whole range of areas, so why not on this too? We raised with them the possibility—we did not say they should definitely do it—of changing Government borrowing rules in respect of the general Government financial deficit. To return to our visit to the Netherlands, the Dutch Government guarantee housing borrowing for housing associations, yet it does not count as Government borrowing. It is a problem in this country that Treasury restrictions weigh heavily on local authority borrowing, particularly in this area.
We welcomed the proposed new models of governance for arm’s length management organisations, which, with more tenant involvement and more co-operative-type structures, could borrow in the private markets, as housing associations do. We also made recommendations concerning the right to buy—about trying to ensure one-for-one replacements and about how the Government could help facilitate that—and giving more freedom to local authorities in terms of discounts in areas of great housing stress and to housing associations that might want to enter the right to buy, where they think it right for their portfolios—that comes back to the point about using portfolios in a way that benefits housing associations. We face the great challenge of moving to a better situation in which we subsidise building, not benefits. That is a long-term problem going back to the 1980s—and even earlier—and the change from subsidising the building of homes to subsidising the high rents of people living in those homes. That is a major challenge for all of us.
Local Government Finance Bill
Debate between Heidi Alexander and Clive Betts(12 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Betts
Absolutely. We just do not know. All the power and the decision making are going to Ministers in a completely opaque way. We have a right to ask certain questions.
The Government initially introduced the principle because the comprehensive spending review, in placing limits on local government spending as a whole, created a problem for them. It was and is quite possible, with the rise in business rate linked to inflation, for the business rate and council tax collection after 2013-14 to amount to more than the spending control totals. The Government had to find a way of dealing with that problem, but there is no reason why it need continue after the current comprehensive spending review round. In future, the Government could make an assessment of the likely increases in business rates on the basis of their new system and accommodate that within the spending control totals, thus removing the need for set-aside altogether.
I understand the difficulties that the Government have got themselves into in the current spending round, but why continue the principle after that? In amendment 45, I have tried at least to raise the possibility of not allowing the set-aside to become an ongoing, potentially increasing amount of money that is decided by Ministers for ever and a day.
Heidi Alexander
London Councils describes the existence of the central share beyond the current comprehensive spending review period as
“a cynical attempt by the Government to limit the extent to which local government can benefit financially from the growth it will drive through its economic development activity and engagement with the business community.”
Does my hon. Friend consider that to be a fair assessment of what the Government are doing?
Mr Betts
What the Government are doing is twofold, because two problems are being exacerbated by the set-aside. By limiting the amount of money in the local government system, they are reducing not only the incentives for councils but their own ability to do some redistribution. If they did not use the set-aside and allowed more money to remain in the local government system, they might be able to resolve the conflict caused by their attempt to do two things with one tax. The less tax that they have in the system and the more restrictions they impose, the more that conflict will come into play—the conflict between the retention of money to encourage investment and more growth, and the need for redistribution and the mechanism enabling it to take place.