FINANCE OF COUNCIL HOUSE BUILDING (Hansard, 13 January 1971)

§ Mr. Frank Allaun (Salford, East)

I beg to move, That leave be given to bring in a Bill to enable and encourage local authorities to finance the building of council houses out of their own revenue, in order to relieve tenants and ratepayers of interest charges on long-term borrowing for house building. A strong case does not depend on the length of the presentation and I intend to be brief. It is my purpose to demonstrate the intolerable burden of interest charges and how it could be reduced by financing part of the future housing programme out of annual revenue rather than by long-term loans.

An average council house or fiat today, including land, is costing £5,000 to build. How much does that home cost by the time interest has been paid on it for 60 years, the usual period, at the current 81 rate of interest, which is 9⅞ per cent. at the Public Works Loans Board rate? What is the total cost of that house? It is no less than the truly staggering sum of £29,730. That is the ultimate cost of a single council house or flat. Of this total, £24,730 goes in interest to the investors. In other words, six times the original sum borrowed has to be repaid, with consequences which I intend to show.

These figures are amazing but accurate. They are not my figures. They have been provided for me by Mr. William Shaw, the highly expert, experienced and respected Salford City Treasurer. But, of course, they apply to any council in the country.

What does all this mean in terms of weekly rents? The interest charge alone amounts to £7 18s. 6d. a week on such a house plus £1 12s. 1d. weekly repayment of the original loan. Adding a typical repairs and management charge of 10s. a week, the total unsubsidised rent comes to £10 0s. 7d., plus rates, which may be £1 a week or more. This means that approximately 16s. out of every £1 rent goes to pay for not the bricks and mortar and timber and building workers' labour but interest to the investors. That is why the rents of new council houses are so high.

No doubt it can be pointed out that a good part of this colossal rent is reduced by a subsidy from the Government; thank goodness for that! Without the subsidised loans provided by the Labour Government's 1967 Act, council house building would have come almost to a stop in this country. But I wish to make the point as strongly as I can that if it were not for the onerous interest charges, the subsidy would not be necessary. It is not the council tenant who is being subsidised but the moneylender.

Even so, the subsidy does not by any means equal the interest charge. The tenant, even with his present subsidised loan at 4 per cent., may have to pay over 60 years £4 5s. a week interest plus £1 12s. 1d. repayment of the original capital plus 10s. for repairs and management. Thus the subsidised rent comes to £6 7s. 1d. a week, plus rates. This is utterly outside the capacity to pay of several million heads of families whose take-home pay is less than £18 a week.

82 Furthermore, it is generally believed to be the present Government's intention to end the 4 per cent. loans and remove subsidies entirely, except for certain sections such as the aged, the disabled and the slum clearance tenant. So shortly the thraldom of exorbitant interest charges will become still more apparent.

Who suffers this burden? Mainly it is the council house tenant. Second, to a lesser extent, it is the taxpayer who provides the £190 million a year in subsidies—taxpayers of course include millions of council house tenants—and to a smaller degree, ratepayers in those authorities where there is a contribution to council housing out of the rates. This imposition of fivefold interest charges is so heavy that it cannot be allowed to continue.

Let us consider in contrast what happens when we build a motorway or a battleship. It is paid for out of annual revenue by cash payment, cash on the nail. Not a single penny goes on interest, for the Government make the payment out of taxation. If we can pay for motorways and battleships in this way, why not for houses, too? Why should we have to pay five times as much in the long run for housing? We could build six houses for the price of one by avoiding interest charges by this method.

I realise that with a Private Member's Bill such as this the mover is not permitted to involve Government expenditure, and so I have not attempted to do so. I will say only that this principle of financing houses out of revenue rather than by long-term loans applies even more importantly to the Government than to the local authority. It would be a tremendous, though relatively cheap, contribution towards ending the desperate housing shortage if the Government provided the worst housed towns with a considerable sum out of taxation to build houses which would be entirely interest-free and, therefore, extraordinarily cheap.

Returning to local govenment finance, I readily concede that neither councils not the Government could finance the whole of the year's housing programme out of revenue. The sum involved would be too great to many people's minds, though not, I admit, to mine Last year's council houses started cost just under £800 million compared with arms expenditure of three times that sum. Instead of proposing that all council houses 83 be built out of annual revenue, I am proposing that part of the programme be financed in this way. The great saving involved on those houses could be spread over the whole pool of a council's houses.

In Leeds—and this is a small example—the City Council for a number of years put aside about £100,000 each year from revenue with which it bought houses on sale in the market which the council wanted to use for its own tenants. It would be possible to create, from rents obtained in this way, funds for further interest-free building.

There was the famous case of the L.C.C. which under Herbert Morrison wanted to build a bridge over the Thames but was refused loan sanction by the Government. Morrison then persuaded the L.C.C. to build the bridge out of revenue, and this was done. Admittedly, if inflation continues it will reduce the real cost of the repayment of instalments in the years ahead. Nevertheless, the gain to the borrower is surely more than offset by the loss incurred through having to repay interest five times the original sum as well as repaying the original loan.

It may be asked whether councils do not already possess the necessary powers. Unfortunately, they do not. They are limited to £1 for every existing house in their housing revenue account. For example, in an average sized city such as Salford, with 13,000 council dwellings, only £13,000 a year can be spent in this 84 way, and that is a trifle. There are further limitations restricting the use of this sum, so that it becomes even smaller. The original purpose of this general direction was to reduce the administrative work involved in seeking specific Ministerial directions for permission over small sums. If councils wish to spend more than is permitted on this basis, they have to seek the specific approval of the Minister.

I feel confident that, whatever action may be taken on this Bill, the ultimate outcome will be to reduce the burden of interest in some way along the lines outlined. The history of the next decade will, I believe, confirm this confidence.