Lord Shipley
Main Page: Lord Shipley (Liberal Democrat - Life peer)Growth and Infrastructure Bill
Lord Shipley Excerpts
Lord Shipley
“Definition of indebtedness
(1) The Localism Act 2011 is amended as follows.
(2) For section 171 substitute—
“171 Definition of indebtedness
(1) A local authority shall determine and keep under review the amount of housing debt held by that authority.
(2) A determination under this section must have regard to the duty to determine an affordable borrowing limit under section 3 of the Local Government Act 2003 (duty to determine affordable borrowing limit).
(3) A determination under this section must have regard to any guidance issued or approved by the Secretary of State and this may include provision requiring a person making a determination under subsection (1) or (2) to have regard to one or more specified codes of practice, whether issued by the Secretary of State or another.
(4) A local housing authority may not hold debt in contravention of a determination under this section.
(5) In this section “housing debt”, in relation to a local housing authority, means debt—
(a) which is held by the authority in connection with the exercises of its functions relating to houses and other property within its housing revenue account, and(b) interest and other charges in respect of which are required to be carried to the debit of that account.””
Lord Shipley
My Lords, the amendment would help to solve three problems: the urgent need for more social housing; the lack of growth in the economy; and the need to boost the construction industry. It is supported by a number of organisations: the Local Government Association, of which I declare my vice-presidency, Shelter, the Home Builders Federation, the Federation of Master Builders, the Chartered Institute of Housing, the National Housing Federation, London Councils and, crucially, the National Federation of Arms-Length Management Organisations, ALMOs. All urge a relaxation on borrowing by local authorities to enable them to build up to 60,000 more homes over five years.
Last year saw the lowest house completion rate since 1923. The Government urgently need to get more social homes built and there should be absolutely no reluctance to build them. The shortage is now being exacerbated by the underoccupancy or bedroom tax. Many people on low incomes want to move to a council home with fewer bedrooms but too many are unable to do so because the homes do not exist. The numbers on housing waiting lists, the rising demand for temporary accommodation and high rents in the private sector all point to the social and economic benefit of building more homes at below-market levels. This amendment would help to build the homes that people want to move into.
The question is whether it is affordable for local government. Councils have the capacity to build more homes, given that council housing is now self-financing. They could raise £7 billion. This could be done if the Government removed the borrowing cap on housing revenue accounts, relying instead on a prudential borrowing code to guarantee that only sustainable investment gets the go ahead. Many councils have successfully used prudential borrowing and have shown that they can manage such borrowing without risk. The Local Government Act 2003 already empowers the Secretary of State to cap any local authority which undertakes risky borrowing.
I understand the need for the Government to be careful about public borrowing levels. However, relaxing the housing borrowing cap need not be counted as public sector borrowing any longer. The UK uses a much wider measure of public debt than other countries. Council housing is a trading activity and international regulations already permit this to be discounted from government borrowing levels, although unfortunately the UK does not currently adopt such an approach and I remain puzzled as to why it does not. Council housing has been self-financing since April last year, and that is welcomed. The average debt on a home is just over £17,000. There is clearly scope for additional borrowing against the asset represented by the existing housing stock.
This is an opportune time for the Government, with the support and input of partners such as CIPFA and the Local Government Association, to produce a new, additional, prudential borrowing code, focused on borrowing undertaken specifically through the housing revenue account. The prudential code framework is a successful model that has worked well and supported councils to manage their borrowing sensibly. A similar model alongside strong backstop provisions already in legislation—the 2003 Act—would be an effective safeguard on borrowing through the housing revenue account.
I spoke on this matter in Committee and this new clause differs slightly from that tabled in Committee to emphasise that local authorities must have regard to government guidance such as a new prudential borrowing code. Ministers raised concerns in Committee that removing the housing borrowing cap could jeopardise the Government’s deficit reduction programme. This amended new clause, alongside a new, tailored prudential borrowing code, discussed by providers and authorised by HM Treasury, would offer a compromise approach to the Government that could address the concerns of Ministers.
Advice has been received that there would be no adverse reaction from the capital markets. This is because the increase in borrowing would be comparatively low and, in any case, the sums involved fall well below the size of the OBR’s forecasting errors on local government debt. This amendment offers a major opportunity to build more homes, to cut waiting lists, to get builders building and to drive growth. I beg to move.
Lord Jenkin of Roding
My Lords, I support the amendment moved by the noble Lord, Lord Shipley, to which I have added my name. I imagine that my noble friend on the Front Bench will have seen the letter published in the Financial Times this morning under the heading, “Give councils freedom to build homes”. In addition to the list of organisations which the noble Lord, Lord Shipley, quoted at the beginning of his speech, this letter is signed by 13 separate organisations, which one might say cover the whole field of housing all the way from the Home Builders Federation to Shelter, and including, as just mentioned by the noble Lord, Lord Shipley, the National Federation of ALMOs—arm’s-length management organisations. They make this important point in the letter:
“Investing in housing not only helps tackle the housing crisis, which requires us to double the number of national homes and build 249,000 homes in London alone by 2020, but also stimulates economic growth and creates jobs. Building 60,000 homes would add 0.6 per cent to gross domestic product and create 19,200 jobs. For every £1 invested by the public sector in construction, 56p returns to the exchequer”.
I find the arguments in favour of modifying and lifting the housing cap really quite overwhelming. I recognise that my noble friend on the Front Bench has very little option but to defend the existing policy and I do not blame her for that—she is a loyal member of the coalition and that is exactly what one would expect. I therefore address my remarks to the Chancellor of the Exchequer. It will rest with him, in his Budget in a few days’ time, to convince the country that he really has a strategy for growth as well as a strategy for cutting the deficit and, eventually, reducing the debt. I cannot think of any better way for him to convince the country, and large numbers of people who are currently looking for housing of various sorts—not just affordable housing but housing they wish they could find if only it was available—that this strategy actually does mean benefits for the country. It would be something that would considerably lift the spirits of all those who are deeply concerned, as I am, about the level pattern of GDP under the present circumstances. It is a very uncomfortable position for a developed country to be in. One can understand why we have got here but, as well as reducing the deficit, we must attain a proper strategy for growth. I am convinced that my right honourable friend the Chancellor of the Exchequer accepts that.
Many policies—I will not weary the House with reciting them all—have been introduced with the objective of trying to restore growth to the economy, but here is one which evidence shows, really conclusively, could have a really quite dramatic effect on what is a hugely important area of our national life, namely the provision of houses. The building of houses has declined substantially over recent years. Although, as my noble friend has pointed out, council housing is now self-financing, the fact of the matter is that councils have huge resources but are not entitled to borrow against them, even though they would of course be subject to the general restrictions on borrowing that apply to all of the public sector—this is a special restriction that applies to local authorities and housing. I cannot see that it is justified and issue a plea to my right honourable friend at the other end of the Palace to please look at this extremely carefully. It would be a valuable addition to his armoury and would go quite a long way to convincing the country that he is genuine about searching for growth.
Lord Shipley
My Lords, I am grateful for the unity of views across your Lordships’ House. I am very disappointed by the Minister’s response although I am aware that agreeing to this amendment is not actually within his gift today because it is a matter for the Treasury and, specifically, for the Chancellor. I hope, however, that the strength of feeling demonstrated today will be taken seriously by them.
The Minister talked about the importance of reducing the national deficit, and we can agree with that. The point is that housing revenue account borrowing, because it has been ring-fenced since April 2012, need not count as part of the national deficit. I find it strange that the Government can promote sales of owner-occupied housing, where the average debt is £111,000, but with local authority housing, which has an average debt of only £17,000, they deem borrowing against the asset of those houses to be a challenge to the national deficit. There does not seem to be any logic in the Government’s position. I make no apologies for saying so, because housing revenue accounts are now ring-fenced and should not count as public sector debt. If the Government have a concern about the borrowing plans of any local authority, they have the power now, under the Local Government Act 2003, to cap that authority. However, they should not cap an authority which can use the prudential borrowing powers effectively.
I am finding it very hard to understand what the disadvantage is of this amendment, but I am at least grateful to the Minister for having clearly spelt out the Government’s position. I know that discussions are going to continue on this matter outside your Lordships’ House, and I shall continue to press the case—I hope with the support of all sides of your Lordships’ House—for relaxing the housing borrowing cap for local authorities. In the mean time, I beg leave to withdraw the amendment.
Lord Shipley
My Lords, I have a question for the Minister about timing. There are three separate contributors to a policy that the amendment seeks to address. One is the report of my noble friend Lord Heseltine, to which we hope there will be a response quite soon. Separately, there is the request in this amendment that, within one year of the second round of city deals being completed, a report would be produced. That could take us through to the autumn of 2014. Then, quite separately, there was the Deputy Prime Minister’s commitment at the end of October, which I quoted in Committee, when he said of the second wave:
“while it’s too early to talk exactly about what a third Wave might look like, I very much see this as a step in a journey”.
We have all these things. It seems that there might be an opportunity for a round table discussion over the summer once some of the timing of some of these matters is a bit clearer.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply. We agree with the Government about the progress of city deals thus far. However, the amendment is about completing arrangements so that councils that feel left out at the moment can be reassured that a process is under way, a requirement on the Government to report back. It does not require the Government to produce exactly the same solution for every council; it recognises that there will not necessarily be arrangements for absolutely every council in the land. We are trying to ensure that councils that at the moment feel uneasy about the concentration on urban areas, and are feeling left out, are reassured. If the Deputy Prime Minister says that that is a step along the way, that is fine, but why not accept the amendment, which imposes an extra obligation on the Government to make sure that what has happened so far is just a step along the way?
Having heard the Minister’s reply, and not wishing to divide on an issue where we have some fundamental agreement about the core cities programme, I think the Government are unwise not to accept this fairly modest request for a further obligation to look across the piece. Accordingly, I would like to test the opinion of the House.