Lord Kerslake
Main Page: Lord Kerslake (Crossbench - Life peer)
Lord Kerslake (CB)
My Lords, I rise to speak to my Amendment 59ZA, which proposes a new clause after Clause 63. We now move in earnest to the issue of financing the extension of right to buy. We have had a long debate about the extension of right to buy under the voluntary scheme for housing associations and we now consider how this will be financed. In moving this amendment, I should declare again my interest as president of the Local Government Association and chair of Peabody.
The issue we have been grappling with is that, whatever people may feel about the extension of the right to buy, there is deep disquiet, as we have heard from all parts of the House, about the mechanism for financing that extension. This is a crucial issue because it concerns a lot of people. Given a choice, everybody, including perhaps the Minister, would want to decouple these two policies that have been put together: the extension and the high-value sales. My amendment would enable that to happen without a huge additional burden on the government deficit.
My amendment would replace grant funding of the discount in voluntary right to buy with an equity loan. That equity loan would sit alongside the current right-to-acquire discount that is available for housing association purchases. The loan would be similar in kind to that of Help to Buy for private, newbuild sales: it would be a loan that stands behind the mortgage as security and is interest-free for five years, after which a lower rate of interest is paid. The right-to-buy loan would be funded by the Government. As we discussed in the last Committee day on this Bill, equity loans are regarded as financial instruments and therefore score as debt in the Government’s accounts but do not count towards the annual deficit, in contrast to direct funding from government. The coalition Government approved a budget of just under £10 billion to support Help to Buy up to the year 2020, so already a significant amount of money has been set aside to cover equity loans. In this instance, the equity loan would be up to the discount that is available under the current right-to-buy policy for local authority stock. Therefore, it would replace the grant funding that is currently proposed.
I put forward this amendment for the following reasons. First, under the current proposals, as a number of noble Lords have already said, a central government policy is being funded by a levy on local government. The recent report of the House of Commons DCLG Select Committee, an all-party committee, rightly took exception to this, arguing that if the Government want to do something, they should pay for it. Funding the discount in the way proposed in my amendment would address this issue: local government would no longer be required to fund a central government policy.
Secondly, the amendment would address the fact that, incredibly, even at this late stage, we do not have a set of numbers that add up in terms of the receipts that would be achieved, the replacement of local authority sales, the two-for-one policy in London, the funding of the discount as well as a contribution to the £1 billion brownfield regeneration fund. Indeed, an independent report from the Chartered Institute of Housing suggests that this is not possible. Shelter has calculated that there would be a shortfall of £2.45 billion in the financing. If it is correct that the numbers do not add up—as I have said, this late in the process, we still do not have a set of figures that demonstrate that they do—a number of things are likely to happen. First, demand may be managed through restricting eligibility. In the current pilot, a person has to have been a resident for 10 years. So the first potential option is to restrict demand by eligibility. The promise that people could have a “right” to buy will no longer be a right; it will be a right if they have lived in their property for 10 years. The second option for managing this imbalance in funding is essentially to have a policy of saying, “If we’ve run out of money for a given year, you can’t buy in that year, or even the year after”, so there will be a waiting-list policy to make the sums balance. That is equally problematic as far as potential purchasers are concerned. A third option is for the levy on local authorities to be set high—higher than would truly be acceptable and eating not just into absolutely higher-value properties, as a number of noble Lords have said, but into relatively higher-value properties; in other words, into the very core of stock that becomes vacant for local authorities. So a third way in which demand might be managed is essentially by levying a very high sum that goes beyond what any of us would reasonably call high-value properties. The last option, which I suspect will form part of the policy, is that instead of local authorities being truly funded on a like-for-like basis, they will get a proportion of the value of the new property and will have to borrow the rest. In the current right-to-buy policy, that is a third—the proportion may or may not be the same. Local authorities will then need to borrow. One reason why a number of local authorities struggle with the replacement policy is that they do not have the borrowing capability within their caps.
I suggest to noble Lords that any one of these options will be problematic. If we restrain demand, we will cause very unhappy housing association tenants. If we put a huge charge on local authorities, we will denude them of even the very limited remaining capacity for re-lets they have on vacant properties. So we start with a policy where, at the moment, any analysis in the public domain that I have seen suggests that the numbers do not add up. The alternative of the equity loan would avoid this difficulty.
Lord Young of Cookham (Con)
Could the noble Lord explain the theology of the public financing of his proposal? I think he said at the start that this would not add to the deficit, but it would add to the PSBR. If that is right, is it the case that if the Government wanted to stay at the current level of PSBR in order to fund his ingenious proposal, something else would have to give?
Lord Kerslake
The noble Lord’s interpretation is correct. Because there is a third-party asset against the expenditure, it shows as debt on the Government’s balance sheet, but it does not show as deficit spending. That was the means by which the Government were able to rapidly expand the Help to Buy initiative; it does not score as expenditure in the traditional way. If the Government were to fund this initiative, they could either take a view about how much they are likely to spend on Help to Buy—and as I said last time, something like £3.8 billion of the £10 billion has already been committed in terms of Help to Buy, so there is still some headroom there—or, alternatively, they could look at whether they would take additional debt on to the balance sheet. Those are the two choices. We are between a rock and a hard place here. We are tying together two policies which, on the face of it, at best, it is a struggle to add up. The alternative is to go straight on to deficit. That is a third option which allows the Government to deliver the opportunity in a way that does not destroy the Chancellor’s intentions in relation to the deficit.
Lord Stunell (LD)
My Lords, I support the amendment that the noble Lord, Lord Kerslake, put to us and commend to the Minister the devastating critique he made of the Government’s financial options. I invite her to have a good night’s sleep and come back and tell us how she thinks the Government could best respond to it.
I will pick out one particular element of what the noble Lord put to the House: the impact on what he described as richer areas, the probability that high-value homes in the local authority and housing association sectors would be most prevalent in the same place, and that those places would have higher property values in general. As he mentioned, London is the outstanding example, but we need to remember that “high-value areas” is always a relative concept. I come to this House from Stockport, which is one of 10 boroughs in Greater Manchester. As the Minister will be very well aware, it is one which might be described as “well off” among those 10, as would the borough of Trafford.
As a borough, we have a higher proportion of right-to-buy sales because we have more attractive property to sell. We have a waiting list that means that for every remaining council house there is another family waiting to go into it. Anything that reduces that stock and makes a replacement policy more difficult is to be very much regretted and will certainly lead to increasing pressure. If we add on top of that, as the noble Lord outlined, that there is likely to be something not far off forced confiscation of void properties—exceptionally so in Stockport compared with other Greater Manchester boroughs—the impact is increased and multiplied.
As well as the very thorough and detailed rebuttal that the noble Lord, Lord Kerslake, gave of the scheme and the various cul-de-sacs into which the financial planning might take it, there are some real additional problems, in particular for what we might describe as the richer areas, or the areas that have higher housing markets relative to those nearby. If one looks at one other aspect of the Government’s plan that is not yet revealed to us—what they mean by “high value”, whether that is within an authority, across Greater Manchester, across the whole of the north-west or across the whole country, and whether it is an absolute or some kind of relative figure—all these things can compound the problems highlighted in this aspect of the plan.
I hope very much that the Minister can respond in a helpful way to the amendment. If she takes some time to do so, fair enough, but a helpful response is essential.
Lord Beecham
Well, yes—it might bring it to a rapid end. It does appear to be a very useful way forward. I also endorse my noble friend Lady Hollis’s reference to Help to Buy as another avenue through which it should be possible to assist people into home ownership without making difficulties either for local authorities, or, more importantly, for other people who are in need of rehousing. I hope that the Minister will be sympathetic to the amendment.
However, I am slightly puzzled by the description by the noble Lord, Lord Kerslake, of the difficulties of replacing homes on the basis of the numbers being very hard to achieve. I think he said that something like 5,000 a year would be needed to replace and it was difficult to see how that number could be built. That 5,000 houses would be something like 2.5% of the Government’s annual target of 200,000.
Lord Kerslake
My Lords, if I can just explain, this is from the National Audit Office report. Part of what the NAO has looked at is the impact of the reinvigorated right to buy. Has one for one actually happened? What the NAO report essentially says is that the equivalent number that the Minister has referred to comes from comparing three years of build, effectively, against one year of sale, because local authorities have had three years in which to build. However, if one looks at the rate at which sales are accelerating, the rate at which build numbers have to accelerate is very rapid indeed. The analysis concludes that essentially, in order to make the one-for-one policy a reality over time, you effectively have to achieve a fivefold increase in the rate of build. I commend the report to the noble Lord for him to read because it sets out this issue in very clear terms.
Lord Beecham
Am I wrong about the numbers? I thought the noble Lord referred to a figure of 5,000 cited by the NAO. I am not saying that it is his figure.
Lord Kerslake
The key point I am making is contained in the following sentence, which I will read out again:
“To meet the target of replacing the roughly 8,512 homes sold in 2014-15 by the end of 2017-18, however, would require quarterly housing starts”,
to go from their current rate of 420 a quarter to 2,130 a quarter. In other words, we would have to speed up by five times to achieve a true one-for-one policy.
Lord Beecham
That sounds like a lot, given the record of the last few years. However, when I was first elected to the council in Newcastle in 1967, the city council built 3,000 council houses in a year. That was one authority. It cannot be beyond the capacity of the construction industry to achieve this, given the resources to invest. I obviously concede that it cannot be achieved overnight because we are starting from next to nothing, but over a three-year period I would have thought we could build—literally—up to that sort of figure, given the investment.
Lord Kerslake
I am conscious of the late hour but I will make one last point. I think the NAO report is on to something and I commend it to colleagues to read. It is saying essentially that it is a question of the ability to find both the land and the finance. Under the current right-to-buy policy, local authorities get to keep only a third of the receipts for any of the additional sales made. They have to borrow the balance to make the numbers add up. That in turn creates difficulties because it bumps up against their cap on HRA. So there are three reasons why the policy is challenging in terms of delivering one for one. The first is to find the land in higher-value areas to achieve true like for like, as I said earlier; the second is to get the momentum of construction under way; the third—this is crucial—is to make the finances work, given that you have to borrow and you have a cap on your borrowing.
Lord Beecham
The cap is imposed. It is not a cap that the authorities choose. That is in the Government’s hands. If they altered that, local authorities—and, indeed, housing associations for that matter—could gear up to provide the relatively modest number that we are talking about against a government target of 200,000, which is any case inadequate, over the next few years. So I think that the noble Lord is being a little conservative in his approach—heaven forfend—and I would have thought it would be more ambitious to look to the Government to facilitate that greater rate of replacement. However, that does not in any way invalidate the amendment to which he is speaking, which is in a rather different context. I certainly support that, but I hope the noble Lord will not let the Government get away with using his other comments to get off the hook in facilitating the number of houses we need.
Lord Kerslake
I will have one last go at this. The point I was making is that it is often said that we are now achieving the delivery of the one-for-one policy. We are not. That is the definitive point I am making. Indeed, that is what the NAO says. The delivery of the one-for-one policy is very difficult to achieve in its current form. You would have to change fundamentally the way you think about the financing, and you would go back to the question of whether the numbers add up.
Baroness Williams of Trafford
My Lords, I thank the noble Lord, Lord Kerslake, for both his endeavours and his amendment, which proposes an equity loan scheme for housing association tenants in place of the voluntary right-to-buy discount. I understand that part of the reason for introducing this amendment was to reopen the debate about the funding of the right-to-buy discount.
An equity loan, by its nature, is not a discount and has to be repaid by the tenant. This is a very different offer—more akin to the Help to Buy scheme than to an extension of the right-to-buy scheme. This will inevitably make home ownership less attractive to the very tenants we are trying to reach: those on lower wages who are being priced out of home ownership because of high house prices.
We had a clear manifesto commitment to extend the right to buy to housing association tenants, and the voluntary agreement with the sector will give 1.3 million families the chance to purchase a home at right-to-buy level discounts. Our extension of the right to buy is about offering housing association tenants the same opportunity as council tenants. Providing equity loans to tenants, as proposed under this amendment, would not provide the same offer to them. We have been clear that housing associations will be fully compensated for the right-to-buy discounts offered to tenants and that this would be funded through the sale of vacant local authority high-value assets. They will be fully compensated. There are billions of pounds locked up in local authority housing assets. It is only right that when they become vacant they are sold, enabling the receipts to be reinvested in building new homes and supporting home ownership through the right to buy.
Baroness Williams of Trafford
My Lords, the equity loan is not a discount. It is an equity loan. It is an entirely different mechanism. The discount gives an upfront reduction, whereas with an equity loan after five years you would have to start to repay it with interest. It is not comparing like with like. They are two different mechanisms.
Lord Kerslake
My Lords, I am very conscious of the hour, so I will keep this very short. I will make three points. First, the amendment was tabled in a genuine effort to deal with what I think is one of the most substantive problems with the Bill in its current form: namely, the decoupling of the right-to-buy opportunity from the means of funding it, which remains a running sore through the Bill which has not been resolved. It is a running sore because it is unfair and because we do not yet know—and, indeed, I think there are big doubts over—whether the numbers work.
Secondly, as the noble Lord, Lord Campbell-Savours, said, we have already departed from an absolutely like-for-like policy for housing associations and local authorities. That bridge has been crossed in what is in front of us now. It seems to me that the critical policy intent here was to give people in housing associations the opportunity to buy. The amendment does that, but it does not do it in a way that causes huge ructions and difficulties in other ways.
My third and final point is that it is clearly possible to deliver one for one in a different world. That was not the point I was making. The point I was making was that according to the numbers that we have, which have been tested by the NAO, we are not delivering one for one in the current arrangements. I have no confidence that we will do better on it given that nothing else changes within the proposals. So I ask the Minister to revisit this. I am confident that it is technically doable. It fits with the intent of the Conservative Party manifesto and it addresses some real difficulties with the Bill in its current form. Having said all that, I will of course not move the amendment.