Sir George gives warning on affordable housing
8 Jan 2003
Speaking in the House of Commons, Sir George warned the Government that changes in the rules on capital receipts would make it difficult for teachers, nurses and policemen to find affordable housing in Hampshire.
Sir George's speech follows:

Sir George Young (North-West Hampshire): The hon. Member for Leeds, West (Mr. Battle) made a thoughtful speech about the needs and challenges of local communities on the one hand, and the resources of Government on the other—a subject on which he has strong and clear views. I do not share his optimism that the Bill will unlock the new vision that he described, but he delivered his speech with great conviction. I hope that he will excuse me if I do not follow him down that path.
Another new year, another Local Government Bill. I find this a Bill without any theme. Bits of it are deregulatory and welcome; bits of it are highly regulatory and less welcome. Bits of it are decentralising, but most of it is centralising. Even the general secretary of the Labour party made a speech last month criticising the amount of ring-fencing and the use of specific grants, and said that the Government have not done what they could to reverse the trend.
Not only does the Bill suffer from having no theme, but in parts it is very boring indeed. Many of the clauses contain unexciting provisions that the Department has been trying to get on to the statute book for some time—I believe that I recognise one or two from my days there a decade ago. Ministers should not claim too much for the Bill. I fear that it will not re-ignite interest in local government, as the hon. Member for Leeds, West suggested. It will not bring forward a fresh generation of local councillors or increase the turnout in May's elections, and our debate this evening may not engage the attention of the nation's press. However, there are some important points that need to be made.
Before turning to the detailed provisions, I shall pick up something that the Minister said right at the beginning. It is worth making the point that he has a more benign environment, where local authorities are not challenging the elected Government of the day. In the 1980s, a few local authorities decided to take on the Government. Commissioners were put into Norwich, which refused to implement the right to buy. Councillors were threatened with suspension for not fixing a legal budget. The Government contemplated suspending Lambeth and Liverpool as they faced financial meltdown. Indeed, some of the provisions in the Bill dealing with the evasion of capital controls date back to those days of confrontation—confrontation certainly not sought by the Government of the day. The present Government are fortunate that local authorities are more compliant now and more willing to work with the elected Government than some of the more bloody-minded and extreme authorities that were around in the 1980s, so the background for a Local Government Bill is more favourable.
I welcome in general terms the thinking behind clauses 1 to 11 relating to capital finance. The clause in the original draft Bill that would have allowed the Secretary of State to require non-housing capital receipts to be paid to the government has been withdrawn. That is appreciated. The major change brought about by this part of the Bill is the duty in clause 3 imposed on a local authority to determine how much money it can afford to borrow. That is a welcome change, providing more scope to incur short-term borrowing costs on investment in projects that will be self-financing in the medium term, either by saving running costs or by enabling the generation of capital receipts.
I wonder whether clause 4, which nationalises, as it were, local authority debt, is really necessary. Surely the Government do not anticipate a return to boom and bust. I thought that we had so many golden rules, so many self-correcting mechanisms, and so many independent monetary regulators that an economic crisis was unthinkable. It is not quite clear how the country's economic interests would be challenged by clause 3. Is local government to be singled out for special treatment if and when the crisis comes? Will the Government's own capital programme be subject to the same sort of restrictions as those envisaged for local government?
Ministers may have overestimated the impact of clause 3 on the freedom to manoeuvre of many local authorities. Given all the pressures on budgets and the necessity of increasing the council tax way beyond the rate of inflation to get the investment in social services and education that the Government want, I do not think that local authorities will conclude that they can use the freedom under clause 3 to afford additional costs for servicing borrowing that is not backed by Government grant. Certainly in Hampshire, where we got the minimum cash uplift in grant for next year, and where a big increase in council tax is inevitable, there is no scope to go on a capital spending spree.
The position is made more uncertain because the Government have yet to decide how to support new local authority capital investment—whether by capital grant or by revenue grant towards borrowing costs. Knowing how the Treasury operates, I see a risk. Once the Government no longer have to approve local authority borrowing, they may well no longer provide adequate grant aid for capital investment, so further burdens may be placed on the council tax payers.
Clauses 7 and 8 seem to introduce one rule for local government and another for central Government. We are told in the notes that local authorities used to engage in innovative deals to evade controls on borrowing. Clauses 7 and 8 will stop that. We are told that the definition of a credit arrangement will rely on the accounting concept of long-term liabilities. I hope that the same concept will apply to Government borrowing, and that where the Government stand behind Network Rail, the private finance initiative for the tube, or the channel tunnel rail link, those long-term liabilities will also be brought within the definition of borrowing controls. What is sauce for the local government goose should be sauce for the Chancellor's gander. Clause 18 is also relevant because it stops local authorities getting round capital controls by operating through companies that they own or influence. Network Rail is a similar ruse used by central Government.
Clause 11 deals with capital receipts, and I have several concerns about that. I am not sure that the new system is fairer for different groups of council tax payers than the old one. It is indeed the case that housing capital receipts accrue faster in the shire districts, where the right to buy has taken off, than in the inner cities, where the right to buy has generated less in capital receipts. Under the old system, we dealt with that by obliging the shire districts to use the right-to-buy receipts to pay off debt, and we increased the borrowing powers of the inner-city areas so that they could invest in housing. Under that regime, ratepayers in the shire districts benefited because their local authorities' debt was paid off. Under the new system, if I have understood clause 11(2)(b) aright, the cash receipts are to be paid directly to the Secretary of State. If that happens, there will be no benefit to the ratepayers who provided the capital asset in the first place. I think that that needs explaining, as it strikes me as unfair.
There is a second problem with the proposed new regime. It will hit constituencies such as mine hard because housing costs are high and more affordable homes are desperately needed for teachers, nurses, policemen and other key workers. The proposed pooling of housing capital receipts destroys the current regime, under which the capital receipts of Test Valley borough council and Basingstoke and Deane district council are focused on local housing priorities. If the Minister looks across the south, he will see that approximately two thirds of the affordable development programme funding comes from local authority social housing grants; only one third comes from the Housing Corporation's ADP. Pooling the capital receipts knocks away the foundations of the local affordable housing programme. In no way will the Housing Corporation make good the deficit, because it has a regional agenda and has already stated that it will direct its future funding at specific areas of growth such as the Thames gateway.
Prior to the transfer of its housing stock, Test Valley council could produce only 30 affordable housing units a year through the Housing Corporation's ADP. With a combination of the local authority social housing grant and the ADP, it now produces 100 affordable housing units a year. That increase in investment in the provision of new dwellings was one of the main reasons why the council decided to take the route of large-scale voluntary transfer. However, if it can no longer access its capital receipts, the affordable housing programme will dry up.
Indeed, the change compromises the basis of the deal with the local authority tenants. Part of the deal and understanding with tenants was that the money received from the sale of the housing stock would be used to provide affordable housing in the borough. As has been mentioned in relation to part 2, the Government have underestimated the impact on future large-scale voluntary transfers. The programme may die, as there will be little motivation for any council to consider LSVT if one of the major benefits of the capital receipt is removed. I have deep concerns about that part of the Bill.
Even if the Government could claim that part 1 is deregulatory—I have some doubts about it—they certainly cannot say the same about part 2, which creates a wholly new and unnecessary regulatory burden with controls on the adequacy of reserves and the monitoring of budgets. The Bill would be improved if the whole of part 2, which contains clauses 25 to 30, were omitted.

Mr. Raynsford: Does the right hon. Gentleman care to recall the similar provisions relating to local authority housing revenue accounts that his Government—and possibly even he as a Minister—introduced? They were very similar in many respects to those in part 2, which relate to general local authority funding. If he wishes to do away with part 2, why did he introduce similar measures relating to housing?

Sir George Young: My speaking notes contained a section on part 2 that I skipped over because of time pressure. The Government have produced no evidence to show that the controls in clauses 25 and 28 to 30 are necessary other than for a few poorly performing local authorities, and nor am I convinced that the controls would have much impact on such authorities. They simply impose further central prescription on the setting and monitoring of budgets. For most local authorities, existing financial reporting arrangements are wholly adequate.
On clause 78, which deals with bands, I have a lot of sympathy with the points that have been made about the need for a new band at the lower end of the scale, where a number of properties are caught up in a band that is too broad. I have deep reservations, however, about the introduction of a new band at the top end. In the south-east, where house price inflation has taken off, people would suddenly find themselves in a new band and discover that their bills had increased without any change in their circumstances or the services that they receive. If the Government continue piling pressure on the council tax payer, they may find that the consensus on the council tax as an acceptable means of funding local government disappears. In that case, they would be in choppy waters indeed.
I welcome clauses 87 and 88, which deal with housing strategies, although the housing strategy for many local authorities in the south-east will have to be revised because of the impact of the new capital receipts regime. I pause over clause 89, which implies that tenants of indifferent local authorities are to be doubly penalised. First, they have to put up with a bad landlord, but secondly, their housing revenue account will get less subsidy from the Secretary of State because of their having a bad landlord and their rents will therefore be higher. I would like to attend the meeting at which the Minister explains that measure to the tenants of a Labour-controlled inner-city authority.
Clause 90 makes a major change to the housing revenue account, but leaves unaddressed the grievance of tenants in that regard. It is indeed the case that better-off tenants resent subsiding less well-off ones. The notes on the clause criticise the current arrangements because they are not well understood. The trouble is that they are only too well understood by the tenants who have looked at them. They want the subsidy that is provided to less well-off tenants through housing benefit to be removed from the HRA so that their rents can decrease. Clause 90 achieves the first objective but not the second. Housing benefit is taken out of the housing revenue account, but an identical sum is instead paid to the Secretary of State. I doubt whether tenants will derive any comfort from the fact that their rent is no longer going to their neighbour, but to the Government. I believe that we considered that solution, which in my time involved something called negative E7s, and rejected it as more difficult to explain to tenants than the current system. I wish the Minister good luck with that.
I should like to make two short final points. First, I hope that the Government will look again at the impact of pooling on the housing programmes of authorities in the south-east, where there is a desperate shortage of affordable housing currently funded by the local authority social housing grant and where that may be removed. Secondly, notwithstanding the fact that there may be only six Standing Committee sittings on the Bill, my interest on Second Reading does not extend to serving on that Committee.
 
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Copyright Sir George Young Bt. 2015