HC Deb 19 July 1967 vol 750 cc2041-61
Mr. Speaker

I understand that it is the wish of the Opposition to take the two Housing Subsidies Orders separately.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Robert Mellish)

I beg to move That the Housing Subsidies (Representative Rates of Interest) Order 1967, a draft of which was laid before this House on 5th July, be approved. I am sorry the Opposition have desired to take the Orders separately, because I would have thought the two could have been taken together as they are so intertwined. I would have thought it right o deal with them together, but if they want to take them separately—

Mr. H. P. G. Channon (Southend, West)

I think it may be convenient to the House to take them separately, because here will be a number of questions I should like to put to the hon. Gentleman, and my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) will have some questions to put to the Scottish Ministers on the Scottish Order. I do not think that this will delay the House.

Mr. Mellish

I am sure we will do all we can to accommodate the Opposition in this matter, which, I know, is not controversial.

These Orders have been eagerly awaited by the recipient authorities because the amount of basic subsidy which they will receive for the years covered by the Order cannot be calculated till the representative rates are determined. I should like to give the House a brief explanation of the background to the Order—although I shall deal now only with the Order for England and Wales as it is desired to take the Scottish one separately.

The House will know, the representative rate under the new form of housing subsidy meets the difference between, first, the loan charges on the aggregate approved cost of houses completed in each financial year at a representative borrowing rate; and secondly, the loan charges which would have been incurred at a fixed borrowing rate of 4 per cent. The representative rate is related to the rates of interest paid in the financial year immediately preceding that in which the houses are completed. There are two reasons for this. First, most expenditure on a house is incurred in the year before it is completed. Secondly, it will be helpful for authorities to know the representative rate for any financial year as soon as possible in that year.

I should like to say a word about consultation with recipient authorities. There are three types of recipient authority under the Act, local authorities, new towns, and housing associations. As required by the Act, the Minister has consulted with them, or with their representative bodies, before making the draft Order. These consultations covered both the method of calculating the representative rates and also the rates for the three years specified in the draft Order. The recipient authorities are not required to agree formally with the Minister's proposals, but, naturally, I am pleased to inform the House that they have accepted both the method of calculation and the proposed rates, on the understanding that the method of calculation will be reviewed from time to time as may be necessary. Separate rates are specified in the Order for new town development corporations and the New Towns Commission, on the one hand, and local authorities and housing associations on the other.

As to new towns, a separate rate for new towns is necessary because the whole of their borrowing requirements is met by advances from the Consolidated Fund at a rate of interest fixed by the Treasury. Since the same rate was in force throughout 1965–66 and 1966–67—that is, 6 per cent.—this is the rate specified in the order for 1966–67 and 1967–68. No rate is specified in the English Order for new towns in 1965–66 because new towns are not eligible for retrospective subsidy and we know that no new town houses approved on or after 25th November, 1965, were completed by 31st March, 1966. So 6 per cent. is the rate which is paid here by the new towns.

As to the local authorities, the rates for local authorities and housing associations differ from the rate for new towns because they obtain their borrowing from different sources. Local authority borrowing is a very complex mixture of long-term and short-term borrowing. We have, therefore, been compelled to make an unavoidably complicated calculation based on extensive financial data in order to arrive at the representative rates, and copies of the documents, Mr. Speaker—which, I am sure, you will have read, and which explain the method of calculation we have adopted—have been placed in the Library, and I have no doubt that the hon. Gentleman the Member for Southend, West (Mr. Channon) will have read and understood every word of them and understood the method and the simple approach we have taken.

As to housing associations, the representative bodies of the associations, the National Federation of Housing Societies and the National Association of Almshouse Trusts, have undertaken to obtain from their members details of their actual borrowing for the current financial year. This will enable the Minister to decide whether there is a case for a separate rate for housing associations in future years. In the absence of such information the same rate has been specified for housing associations as for the local authorities.

I should like to say a word on the general issue of the new subsidies and what now the new level of subsidies will be and what the additional cost will be to the Exchequer. I gave some figures to a private meeting last week, which appeared in the Press in a very muddled form. Some Press reports said that the average cost of a three-bedroom local authority house had gone up by so much since the Bill was first introduced that the cost of subsidies this year would be £20 million more than was originally estimated. This was such a muddled account that it is difficult to sort out, but I am going to try to do so.

First, as regards the increase in building costs since the Bill was introduced in November 1965, the increase in house construction costs last year was about 7.7 per cent., about the same as in recent years, and this was partly attributable to the increase in local authority housing standards. The average construction cost of a two storey, three bedroom local authority house, excluding G.L.C., housing was £2,579 in 1965 and £2,782 in 1966, an increase of £200—due partly, as I have said, to rising standards.

But, of course, subsidy is payable not only on construction cost but on the all-in cost of new housing, including land, roads, sewers, professional salaries and fees. The average all-in cost of a three bedroom house today is about £3,500, on which the basic subsidy this year will be £78 15s. for local authorities and £61 18s. for new towns, at their fixed rate of 6 per cent.

In our earlier debates on the Bill we often quoted the examples of a £3,000 house, on which the basic subsidy, assuming a 6½ per cent. borrowing rate, would be £67; and a £5,000 flat, of which the basic subsidy would be £112. These were simply taken as straightforward examples of how the new type of subsidy would work. We never suggested that they were statistical averages. We reckon that this year the average all-in costs of all local authority dwellings, houses and flats combined, in England and Wales will be about £3,800, including land. On this, the basic subsidy in 1967–68, at the rate of 6.52 per cent. specified in the Order, will be £85 10s. 0d. for local authorities and £67 3s. for new towns.

As regards the additional cost of the new subsidies in 1967–68, we said when the Bill was first introduced, in November 1965, that this would be about £3 millions for England and Wales. But, of course, this did not include the cost of retrospection as there was no provision for this in the original Bill. When the Bill was reintroduced last November we revised the estimate to £10 million to cover the cost of retrospection—that is, about £5 million —and to allow for increased costs and standards over the previous twelve months or so.

Our current estimate is £11 millions, which is based on a more accurate assessment of house completions this year. But I must emphasise that the total subsidy payable in any one year is not closely related to increases in costs in the previous year, since subsidy is payable on houses completed in the current year, and these may reflect tender prices over the past two or three years.

The total cost to the Exchequer of housing subsidies in 1967–68 will be about £100 million for England and Wales, compared with £82 million in 1966–67. This increase, of £18 million, reflects the rising local authority housing programme and the new rates of subsidy. If the 1961 Act had continued in force, we reckon that the extra cost this year over last year would have been about £7 million. So, as I have said, the new subsidies will cost an extra £11 million this year. The subsidies will bring in much-needed relief to those authorities which are taking on an expanded programme of house building to modern standards and I therefore commend the Order to the House.

10.24 a.m.

Mr. H. P. G. Channon (Southend, West)

My first duty is to thank the Parliamentary Secretary for the way in which he introduced the Order and for giving me so much information prior to the debate. I assure him that I have read all the relevant papers. I have marked them and studied them—but whether I have learned anything from them I am not sure.

I thank the hon. Gentleman for making a concession to the Opposition at an earlier stage, and that has allowed this debate to take place. On that occasion an Amendment was moved by my hon. Friends, and on Report the Government moved an Amendment which turned the Order into an affirmative Resolution. It is only right that we should be assured that we can have an annual debate on a matter of this importance. I agree with the hon. Gentleman that today may not be the most exciting occasion, this being the first time that we have debated this matter. However, it is impossible to say what may happen in the years ahead.

I am glad that, on this first occasion, there does not appear to be any violent disagreement about the rates of interest that have been chosen. I recall asking the Government in Committee if they could give us details of the representative rate for 1965–66 and 1966–67, and in my view those statistics should have been readily available. However, the Government did not come forward with that information, although I see from the papers which the Minister has sent me that before the Committee stage debate the Ministry of Housing and Local Government already had detailed calcula- tions about the possible representative rate for 1965–66 and 1966–67.

These extremely interesting papers, which contain a good deal of detailed calculations, show that, at the time, it was thought likely that the representative rate for 1965–66 would be 6.21 per cent. and that for 1966–67 it looked as if it would be 6.39 per cent. I notice, however, that when the Order was finally made, those rates were brought down, for 1965–66 to 6.19 per cent. and for 1966–67 to 6.35 per cent. I would be grateful if the Minister would say what took place to change the calculations that had previously been made. I agree that it is not an enormous difference, but in the latter case it is reasonable to say that it is not totally insignificant and that it will marginally penalise local authorities rather than be to their benefit.

It is impossible for any hon. Member to criticise the detailed figures which the Government have put forward and which they have supported by a wealth of extremely complicated detail. I pay tribute to them for the considerable trouble to which they have gone to make these statistics available. Although I understand that the local authorities have been fairly quick off the mark as well—and I understand that that is one reason why, at the end of the day, the representative rate for 1966–67 is 6.35 per cent. rather than 6.39 per cent.—the only general criticism I have to make of the representative rate, from advice given to me, is that this is an extremely complicated method of making calculations and that it is equally difficult to understand. I hope that it may be possible at a future date for the Government to devise a simpler system that would be equally fair; though I agree that that would not be an easy task to perform.

How will the subsidies be paid? I understand that they will be paid half-yearly. Will all local authorities receive the subsidy for the retrospective years or must they wait until the Order is passed? How will this be administered in the years ahead?

I hope that the House realises—as my hon. Friends and I tried to explain on many occasions during the passage of the housing subsidies legislation—that these new subsidies represent an enormous open-ended subsidy commitment and a vast expenditure of public money. These subsidies last for 60 years, although the Minister has taken power to reduce them after 10 years. I remind the Parliamentary Secretary that when we took similar powers we were criticised for doing so. I have criticised these subsidies in the past for being insufficiently selective, and I stand by that criticism.

I was grateful for the hon. Gentleman's explanation of the cost of the subsidies. It was forecast in the Explanatory Memorandum that the extra cost was likely to be £10 million in 1967–68. The Parliamentary Secretary said that the total cost this year is likely to be about £100 million, which will continue at this rate for 60 years.

Mr. Mellish

This very much depends on the number of local authority houses that are built. If the present Government stay in office for the next 60 years, I have no doubt that it will continue at £100 million a year.

Mr. Channon

It is most unlikely that the party opposite will stay in power for anything like that number of years. Indeed, I very much doubt whether the hon. Gentleman and I will be debating this Order on the last occasion. I want a guarantee that we shall have a similar debate next year.

I do not know what discussions are going on in Government circles about the future of the social services, and I want the hon. Gentleman to tell the House this morning that there is no question of any change being made in the level of housing subsidies, or at least in the working of the housing subsidies, in the immediate future, and that the system will not be changed in the interim period.

The hon. Gentleman knows that there are two things which govern the amount of money which local authorities receive and can use, the representative rate of housing subsidies and the cost yardsticks. Can the hon. Gentleman say what review, if any, is taking place of these yardsticks? There is already evidence in certain areas, particularly in London, that the yardsticks are far too restrictive. I hope that the hon. Gentleman will look at this again, and will be able to say something about it this morning.

The hon. Gentleman fairly admitted that the National Federation of Housing Societies and the National Association of Almshouses had some reservations about the representative rate which had been chosen by the Government. Their reservations stem, in particular, from the fact that they have been given the same representative rate as local authorities. I am advised that at the moment most housing societies are paying about 7⅛ per cent. for their money, and, as the House knows, the representative rate is 6.52 per cent. They have to pay well over the Public Works Loan Board rate.

I take the point which the hon. Gentleman made when this matter was debated on Report when he said: …some housing associations receive gifts of capital or obtain their capital from various sources at preferential rates of interest. This is especially true of charitable societies."—[OFFICIAL REPORT. 8th March, 1967; Vol. 742, c. 1647.] I accept that, but these are, on the whole, a small percentage of housing societies. The Minister has power to make separate rates, and I am grateful to him for the assurance which he has given that he will look at this again next year when the housing societies put forward the case which they will have been able to prepare during the course of this year.

Today we have three rates which are generally agreed for the three years. I have not dealt with the development corporations or the Commission for New Towns. They have a separate rate of 6 per cent. and there is no possible dispute about that.

I am glad that no one has suggested that the smaller local authorities have been penalised, which was the fear of some hon. Members during the Committee and Report stages of the Bill. As the hon. Gentleman said at the time, the fact that they borrow more from the P.W.L.B. may help rather than penalise them, but this is something which must be watched each year.

This while extremely complex system places a great burden of responsibility on the treasurers of local authorities, and, as my hon. Friend the Member for Northants, South (Mr. Arthur Jones) said in Committee, on a scheme of £1 million a mis-assessment of ¼ per cent. might cost a local authority as much as £2,500 a year for 60 years. The House will be aware that there are many years in which interest rates fluctuate considerably. In 1958 there were five changes in the Bank Rate. This year there have been three changes in the Bank Rate, all welcome ones in a downward direction, but whether they will continue in this way must be a matter of speculation in the House.

No serious objections have been made to these rates by the local authority associations, but if the interest rates fluctuate widely, different local authorities will find that they will receive different treatment. Some will do well, and others will do badly. I think that the whole system is one of extremely rough and ready justice, and that in the future some local authorities will find that they have not done as well as they had hoped.

I welcome and warmly support the Order, and the fact that agreement must have been reached in the extremely complicated negotiations which must have taken place.

10.35 a.m.

Mr. Frank Allaun (Salford, East)

On behalf of my colleagues crowding these benches this morning, I would like to congratulate my hon. Friend the Joint Parliamentary Secretary for what he has done. It is the realisation of something which has been pressed for ever since interest rates went up in about 1956. I warmly welcome my hon. Friend's statement, which will do a lot to help people living in intolerable circumstances.

There will always be further demands, and there are two matters in respect of which pressure will be exerted. My hon. Friend explained this morning that the rate is 6½ per cent. for local authorities, and it is quite anomalous that housing associations will be able to buy property at 4½ per cent., the new rate which we welcome, whereas local authorities who buy property, very much needed in many cases, will still have to pay the 6½ per cent. rate. I am sure that this is an anomaly which time will remove.

Since the Housing Subsidies Bill was first introduced, there has been a big reduction in interest rates. There have been three reductions in the Bank Rate. It has come down by 1½ per cent. and market rates are tending to come down, too. The subsidy given by the Govern- ment is therefore less than was expected when the Bill was introduced. As my hon. Friend knows, there will be further pressure if this downward trend in interest rates continues—which we hope it will—for a further reduction below 4 per cent. in respect of interest charges to local authorities.

10.37 a.m.

Mr. Mellish

With the permission of the House, perhaps I might reply to the hon. Member for Southend, West (Mr. Channon), and my hon. Friend the Member for Salford, East (Mr. Frank Allaun).

My hon. Friend knows that in Committee I gave an undertaking that if borrowing rates came down to 5 per cent. we at the Ministry would look at the matter again. I went no further than that then, and I repeat it this morning. I hope very much that the situation will arise in which borrowing rates come down to such levels, but because the Bank Rate comes down it does not automatically follow that the borrowing rate changes. The 6½ per cent. rate has been the prevailing borrowing rate for some time, in spite of fluctuations in the Bank Rate. I say to my hon. Friend that when the happy day arrives when the Bank Rate comes down to 5 per cent. we will discuss the matter with the local authorities concerned.

The hon. Member for Southend, West asked a number of questions, and I shall do my best to answer them. He talked about earlier figures in another document. I think that the document to which he referred was the first draft of a Memorandum which we sent him earlier in the year to show the method of calculation. The rates were later recalculated before we contacted the associations. We did, the sums on a slightly different basis in the original draft. I assure the hon. Gentleman that there is nothing mysterious about this.

The hon. Gentleman asked for an assurance that the present method would not be changed before next year, would not like to give this automatic assurance, because local authorities may ask us to reconsider certain points of assessment, and it is therefore in their interests that I should not say that what we have done here in the way of calculation will remain for ever and a day.

Mr. Channon

I appreciate that. I am asking the Government for an assurance that the Housing Subsidy Act will not be amended during the next 12 months.

Mr. Mellish

The hon. Gentleman is now asking me to commit the whole Government. This Act has only just gone on to the Statute Book. It has only just got under way. Speaking as the Minister responsible for this matter, I can say that I see no immediate likelihood of any change being made. We have only just got this Measure on to the Statute Book, and started to find out how to work out the calculations. I do not think that the hon. Gentleman need be too worried about this.

The hon. Gentleman also asked about supplementary payments. The Ministry made special arrangements for councils to submit advance subsidy claims before enactment, and as a result the payment on account of the new subsidies began within a week of the Bill receiving the Royal Assent. These payments were made prior to the Order, and classed as extra statutory. They are being made with Treasury approval, and the Ministry's appropriation account for the Housing Vote for 1967–68 will include a note of the amount paid on these forms. In fact, we took action the moment the Bill received the Royal Assent to start paying money in advance, and we have carried local authorities with us on this and have obtained their good will.

The hon. Member asked about yardsticks. We have already given an assurance that yardsticks will be considered within six months if it is felt by any individual authority that there are doubts about them. In any case we are committed to a review within 12 months. It would be sad if it were not clearly understood by local authorities that the whole purpose of bringing in these cost yardsticks was an attempt by my Minister and my Department to obtain a measure of control over cost. It is the duty of every local authority to do its best to make sure that every scheme promoted comes within these cost yardsticks. We believe that they are generous enough for that.

I concede that there may be individual difficulties with certain schemes, and I have recently read of an architect bitterly attacking these yardsticks, wholesale, because they do not happen to fit in with his ideas. I am afraid that, like everybody else, he will have to try to make these yardsticks work. If he does not think that they will work, he will have to prove how and why. We are quite determined to see that they are given every chance of working.

As the hon. Member will know, if the cost yardsticks work, it will mean that local authorities will know in advance that any scheme coming within their limits will automatically be approved by the Ministry, thus avoiding a great deal of delay. We will consider any scheme individually within six months, and the whole principle of yardsticks will be considered within 12 months.

As for housing associations and the representative rate, the hon. Member knows that there is a great deal of good will on both sides in the matter. Only a few housing associations will receive the charitable concessions. We have asked them to give us details of the cost to them of the interest rates charged in the current year. They have willingly agreed to do this and, acting on their figures, we shall be as generous as we can, within the terms of the Act.

Question put and agreed to.

Resolved, That the Housing Subsidies (Representative Rates of Interest) Order 1967, a draft of which was laid before this House on 5th July, be approved.

10.42 a.m.

The Minister of State, Scottish Office (Dr. J. Dickson Mabon)

I beg to move, That the Housing Subsidies (Representative Rates of Interest) (Scotland) Order 1967, a draft of which was laid before this House on 14th July, be approved. Since the Scottish Order is very much on the same general principles as that for England and Wales, I do not propose to go over it in detail. In the Library there is a comparable Scottish analysis, similar to that referred to by my hon. Friend the Parliamentary Secretary in relation to England and Wales, which I hope the hon. Member for Moray and Nairn (Mr. G. Campbell) and other hon. Members have read. I hope that, like me, they will agree that the working party of the local authority associations and the Scottish Development Department has done very well in this work and that the way in which it has carried out the analysis not only of interest rates, as referred to in paragraphs 3 and 4, but of weighting, in paragraph 5, is very commendable. When we read paragraph 8, on subsidies, we see that it has applied itself vigorously and come to the right decision.

I will not go into all the points of analysis unless I am asked to, but I want to draw the attention of the House to the differences between the Scottish and the English Orders. The local authority representative interest rates show some marginal differences. These relate to the different mixture and timings of borrowings as between English and Scottish authorities. The English and Scottish rates are the same for 1965–66. The Scottish rate is .01 per cent. higher in 1966–67 and .04 per cent. lower in 1967–68.

The second difference is that the Scottish Order specifies a separate rate of 6 per cent. for the Scottish Special Housing Association. There is no English equivalent. We all recognise that the Scottish Special Housing Association is a kind of floating new town. It seeks to build over 5,000 houses a year, as, for hat matter, do the individual new towns of Scotland, running at about 1,000 each. That is their aim. The Association is in the same position as the new towns, receiving Exchequer advances at the same rate of interest fixed by the Treasury.

Another difference is that we have quoted the representative rate of interest, in paragraph 2 (b) of the Draft order for the financial year commencing 1st April, 1965, for the new towns and the S.S.H.A. This is not the case with the English Order. They have chosen to work over two years. This is because the English are applying different formulae in relation to retrospective grants than we do in Scotland. At this stage we in the Scottish Development Department are not quite certain of the number of houses to which this may apply in the new towns and in respect of the S.S.H.A., but we think it should be specified so that the retrospective rates of subsidy are applied by the Government to building by the S.S.H.A. and the new towns in that year, as they have applied them to those local authorities who had built houses at that time.

There are these three differences, and I hope that if there are any questions for me to answer the House will permit me to reply.

10.46 a.m.

Mr. Gordon Campbell (Moray and Nairn)

First, I thank you, Mr. Speaker, and the Government for allowing this Order to be taken separately. There are Scottish points to raise, to which it would be more appropriate for the Scottish Minister to reply. When we considered the relevant Clause of the 1967 Scottish Act in Committee—the Clause which has now become Section 2—we had a long discussion on subsection (3) and the word "representative". We all agreed that the rate of interest could not be an average of the rates over the relevant financial year, because it would depend on the difference between long-term and short-term borrowing and also on the rates at which most loans had been raised, as opposed to what the rates had averaged over the year.

For example, it could be that, by chance, most of the borrowing had been done during two main periods of the year, in which case the rates which had applied during the rest of the year would have been less relevant. Therefore, the word "representative" has been left to the Secretary of State to interpret. He has been given discretion, in consultation with those concerned—including the recipient authorities—to decide what the rate should be. As this governs the size of subsidy it is important, and, like my hon. Friend who spoke in the English debate, I am glad that the Government have agreed to the affirmative procedure, so that we can discuss this matter in the House every year.

I note that the rates which the Secretary of State has determined for the three years covered by the Order have been accepted by the bodies concerned, but that they want periodical reviews of the method of calculation which has been applied in this case. I agree with that. I hope that the Government have an open mind on the matter and are not completely wedded to the present method of calculation.

I also note that, as in the case of England and Wales, the Scottish branch of the National Federation of Housing Societies is not happy about being put into the same group as the local authorities in Scotland. I would like the Minister to tell us more about this. Are the Government prepared to move them to another group, or to a separate group of their own, or are they determined to keep them with the local authorities in future?

On the general question of grouping, the Act allows for different representative rates to be determined by the Government for different categories of recipient bodies, including different categories of local authority. In Committee my hon. Friends and I attached considerable importance to this. All the local authorities are put together in this Order. But small local authorities might have had to borrow at higher rates of interest than large ones and perhaps the hon. Gentleman will make it clear that the Government are prepared to separate the authorities into different categories if they consider that there are grounds for doing so.

Mr. Mellish

indicated dissent.

Mr. Campbell

This may not be the case in England—I see the Parliamentary Secretary shaking his head—but the Scottish Minister of State will recall that the Government appeared sympathetic to this during the Bill's passage and I understood him to agree to it in Committee.

There are only two groups in the Order —first, the local authorities and the housing associations, and second, the S.S.H.A. and the development corporations. The reason is clear for the second grouping, which borrows wholly from the Exchequer at a separate rate of interest, but I should like to know more about the dates. Section 2(3) of the Act refers to "the preceding financial year", but the first group has a financial year starting on 16th May. In many local government matters in Scotland, the Scottish financial year starts in May, but this can cause confusion, particularly over the second group, for which the financial year starts on 1st April.

It may be difficult to move different categories from one group to another if they have different financial years. For example, housing associations might be adversely affected, depending on when their financial year started. The financial year seems to start on 1st April for all categories in England and Wales, so this is a particularly Scottish point.

Would the hon. Gentleman also explain why the Scottish Order was laid and then suddenly withdrawn from the Vote Office and reissued last Friday? I have a copy of the original and one of the later Order which show that it is the dates which have been altered. Both groups in the original Order had a financial year beginning on 16th May, but in the second Order the dates for the second group were changed to 1st April. Is this simply a misprint, or is there doubt or controversy about the dates, and about what financial year should apply to different bodies?

10.54 a.m.

Mr. Hugh D. Brown (Glasgow, Provan)

The coal dust in my lungs after a night shift in the House will prevent me from speaking too long, but I do not apologise for allowing more time for the farmers' lobby to assemble. I have not read the document in the Library, which may or may not put me at a disadvantage. My hon. Friend did not explain the difference between the representative rates in England and Scotland in 1966–67. What effect, if any, does the amount of industrialised building have on this calculation, which is obviously a cost factor of considerable importance?

Why the difference in Scotland between local authorities and new towns and the S.S.H.A., which applies in England and Wales? Is this a simple assessment of the subsidy to new towns? Presumably, if the Treasury gives money to new towns at 6 per cent. and cannot raise it at 6 per cent., there is some concealed subsidy. I do not object, but does it account for the enormous pressure on new towns, if not to balance the books, at least to try to do so? Does it also account for the pressure on the S.S.H.A. to keep down its deficit to about £2 million?

As to the effect of the calculations on the rent interests which are demanded by the Government, I have never opposed investigating the revenue side of housing expenditure, because we are always arguing that some money should be supplied by the central authority, but I am very concerned about the pressure on the S.S.H.A. in the light of its contribution to Glasgow's housing. For example, the association intimates that there will be further rent increases in 1969–70, in spite of the fact that the new towns have apparently been trying to avoid them during that period. Another anomaly is that, on a difference of a £5 per week wage level, the rent charged can vary by as much as £1. In other words, 20 per cent. Of—

Mr. Speaker

Order. I am afraid that we cannot discuss rent and variations of rent on this Order.

Mr. Brown

I accept your guidance, Mr. Speaker, but I am commenting on the fact that the representative rates charged to local authorities and new towns and the effect on housing revenue has a bearing on what happens in housing finance generally. This is something which causes great concern because we do not seem to be getting the benefit of the undoubtedly generous increases in subsidies. Therefore, in the light of the guarantee of a review of yardsticks and of cost and, therefore, of rates of interest, it is high time that we worked out an overall rent policy which is fair to everyone—

Mr. Speaker

Order. I do not object to the views which the hon. Gentleman is expressing, but he cannot express them on this Order.

Mr. Brown

I am not trying to be difficult, although I must admit that I am not very bright—or not as bright as usual. The acquisition of property by local authorities raises the rate of interest charged to a person who buys property, obviously by taking advantage of another good Government scheme, the option mortgage scheme. I am anxious that, in this annual review, we do not get too tied up with complicated formulae, which are obviously difficult for Ministers to understand. I will read this document in the Library.

I welcome the Order, which is an enormous boon to Scottish local authorities and hope that my observations will be borne in mind.

10.59 a.m.

Dr. Dickson Mabon

Many good speeches have been ruined by looking at a memorandum beforehand, but my hon. Friend the Member for Glasgow, Provan (Mr. Hugh D. Brown) would be well advised if he were to go through the excellent document prepared by the Scottish Development Department in conjunction with the Working Party of the Scottish local authorities. I give the assurance that we are anxious to keep the Working Party in being. It does a great deal of work and it will keep this matter under review. Therefore, we readily accede to my hon. Friend's request about periodic reviews. I was glad to hear the comments of the hon. Member for Moran and Nairn (Mr. G. Campbell) about the representative rate and the way in which it has turned out.

I should say to my hon. Friend the Member for Provan that I can give a revised version of the turnout figures, which is the whole point of this exercise, in relation to Scotland. The Exchequer housing subsidy commitment for new housing in Scotland totalled £27.3 million in 1966–67. We estimate that the commitment will rise to about £25.8 million instead of £25 million in 1967.68. I have been asked whether we were getting the benefit of the subsidy which was intended. If we assume a representative rate of 6½ per cent. to 1970–71, our estimate is that we would be paying, not £30.2 million, as I indicated in an earlier debate, but £35.8 million. Clearly, we are going considerably further than we intended when we introduced the Bill. I think that that meets my hon. Friend's point about how the Measure is working.

My hon. Friend complained about one rate being down vis-à-vis the English. However, he ignored the fact that another rate is up vis-à-vis the English. But taking them together the fact is that there is this difference in Scotland compared with the position in England, namely, that Scottish local authorities are able to borrow 40 per cent. of their requirements from the Public Works Loans Board at a lower rate while most English authorities are limited to 30 per cent. That is one of the reasons for the lower Scottish rate for 1967–68. Although it seems marginal, it is significant that that is so.

The cost of building does not affect the interest rate under this system. Therefore, the point of my hon. Friend the Member for Provan about industrialised building is not well taken. The industrialised building component is rising in the new towns—

Mr. James Dempsey (Coatbridge and Airdrie)

In calculating the annual cost of a house, one makes a charge in respect of the Public Works Loan Board and the interest rate paid. This is set against the receipts and payment account in respect of that house. I am therefore unable to understand why my hon. Friend says that it is not reflected in the cost of the house.

Dr. Mabon

I appreciate that point, but my hon. Friend is talking about the representative interest rate, which is the statutory phrase we are discussing in connection with the Order. If my hon. Friend looks at, for example, paragraph 5 of the Memorandum, he will see how the different fractions are made up and the six different methods of borrowing and how the Committee arrived at what it called, and what we call in the Order, the "representative rate of interest". But that is not determined by the cost of building. My hon. Friend will recollect Clauses 2 and 3 of the Bill which referred to subsidy being money on the aggregate cost of the acquisition and development of the land as well as building on the land. That is an entirely different and novel concept from all previous housing subsidies Bills in Scottish local government. That is why the existence of an industrialised building component does not change the determination of the calculations on the representative rate of interest.

I know that I have not explained the matter properly, but I commend the Memorandum to my hon. Friend. It is not easy to read, but it is well worth reading. This will be a continuing debate which we shall probably have each year.

I understand the position of housing societies in Scotland. It is right that it should be recorded that they are not terribly happy about the present decision. But we are not binding ourselves in any way. If housing associations require a separate rate of interest, we will consider the matter during the appropriate financial year.

It was not doubt, uncertainty or controversy, but a downright mistake that the original Order was tabled quoting a similar date—16th May—in respect of New Towns and the S.S.H.A. It had been forgotten that they have a different financial year from local authorities. Therefore, the Order was withdrawn and the draft Order which we are discussing was put in its stead. This is a discrepancy in Scotland. I do not know whether we shall ever put it right or get into line with the English—I do not know whether we should—but this is why we propose a change. If the housing associations say that they want another financial year—not 1st April or 16th May—to be considered, we shall consider it. I hope that that meets the point that has been raised.

We have an open mind about how to deal with the housing associations next year. How we will deal with them in the succeeding Order next year depends on the evidence about borrowing which we obtain.

Mr. G. Campbell

May I raise one point to ensure that I know how far the hon. Gentleman's statement goes? Does it mean that the financial year period for Scotland will start on 16th May unless the bodies have been borrowing from the Exchequer completely?

Dr. Mabon

No. When the Order is applied in August, we will start paying in November in respect of the financial year from 16th May, which is the commencement of the financial year of the local authorities. It is true that in the retrospective section we go back to houses approved on 1st January, 1965, but that is a calculation which we make in respect of the financial year 1964–65. If the hon. Gentleman looks at paragraph 8 of the Memorandum he will see the point which I am trying to make. The retrospective subsidy will amount to about £700,000 a year in Scotland for 60 years. That is the result of the new Clause which we have introduced in the revised version of the Bill.

It is possible to prescribe different rates for different kinds of local authority. I said to the hon. Gentleman that we were not being doctrinaire in saying that there had to be one category. When we discussed the matter with the local authorities, they were absolutely convinced that they did not want that at the present time. England did not want this either. There could be a great deal to be lost as well as gained by having this separation. However, we will look at the matter again to see whether the authorities as a whole would like some sort of division.

The essence of the whole housing subsidy structure and the fact that we have succeeded in getting this far with these very ccmplicated orders and obtained the confidence of the local authorities and many ethers involved in the housing drive is that they are able to construct five year programmes. It is incumbent on hon. Members opposite to make it clear that they do not disagree with this system, and that they want to see it continued in some form, and to ensure that if it is changed it will be more generous than ever before. If they make it clear, those concerned need have no fears about the future. The House would be well advised to commend the Order.

Question put and agreed to.

Resolved, That the Housing Subsidies (Representative Rates of Interest) (Scotland) Order, 1967, a draft of which was laid before this House on 14th July, be approved.