HC Deb 30 July 1971 vol 822 cc1029-35

Resolved, That the Housing Subsidies (Representative Rates of Interest) Order 1971, a draft of which was laid before this House on 21st July, be aproved.—[Mr. Channon.] Motion made, and Question proposed. That the Housing Subsidies (Representative Rates of Interest) (Scotland) Order 1971, a draft of which was laid before this House on 20th July, be approved.—[Mr. Younger.]

2.15 p.m.

Mr. Gregor Mackenzie (Rutherglen)

I would have supposed that, in the normal way, we should have had some explanation given to the House of this matter. I appreciate that it is not a full House, and that it is not overflowing with Scottish Members. There is probably good reason for that, since because of the Upper Clyde Shipbuilders situation a number of my colleagues are very properly in their constituencies in Scotland dealing with that very important question. I had hoped that we might have had, as in the normal way, an explanation from the Under-Secretary of State, but perhaps I might ask one or two questions after he has given his explanation to the House.

2.20 p.m.

The Under-Secretary of State for Development, Scottish Office (Mr. George Younger)

I am very glad to respond to the suggestion made by the hon. Member for Rutherglen (Mr. Gregor Mackenzie), to explain briefly what lies behind the Order.

The Order is made under Section 2 of the Housing (Financial Provisions) (Scotland) Act, 1968. It has exactly the same background and serves exactly the same purpose as the companion Order for England and Wales which my hon. Friend moved a moment ago, and which has been passed by the House, with the addition of a reference to the Scottish Special Housing Association. As in England and Wales, the Order is required, and its content largely determined, by existing legislation on housing subsidies.

The consultations required by the Act have been carried out. The local authority associations, the Scottish Branch of the National Federation of Housing Societies, the development corporations of the Scottish new towns and the Scottish Special Housing Association have accepted the rates proposed in the Order.

The rate for local authorities, which applies also to housing associations, will be 8.48 per cent. As for local authorities in England and Wales, this is lower than the rate specified last year, by 0.81 per cent. This, of course, reflects a decrease in the actual representative rate of borrowing by authorities during the past year. The rates for the new towns and the Scottish Special Housing Association are 9.19 per cent. and 9.32 per cent. respectively—rather higher than last year's figures of 9.02 per cent. and 8.84 per cent. respectively. This directly reflects their actual borrowing rates.

The calculation has been done on the same basis as before, and there are in the Library copies of the memorandum prepared by the Scottish Development Department on the calculation of the local authority rate, which gives full information about amounts, sources of borrowing and the interest rates applying.

The difference between the rates specified for local authorities and new towns in Scotland and those in England and Wales simply reflects differences in the methods, amounts and timings of borrowing; there is no difference in principle.

The Order is necessary for the operation of the subsidy arrangements established in the Scottish 1967 Act, now consolidated in the 1968 Act, in respect of houses completed in 1971–72. The calculations have been done on the same basis as in earlier Orders, and have been agreed by the appropriate recipient authorities or their associations. I commend the Order to the House.

2.22 p.m.

Mr. Gregor Mackenzie

With the leave of the House, I first thank the Under-Secretary of State for explaining the Order so courteously. I am sure that this will be appreciated by the Scottish local authority associations which are concerned about this. Despite my researches, I could not find a copy of the document explaining the method of calculation in the Library this morning, and this places me in a little difficulty. It is normal practice for this to be done.

Last year my concern and that of many of my hon. Friends—and this applies also to my own burgh chamberlain and others—was that for many years we had been told by the hon. Member for Crosby (Mr. Graham Page) that he would like to see many changes, particularly on back dating. These propositions were put by my hon. Friend the Member for Greenock (Dr. Dickson Mabon) last year to the Under-Secretary of State for Scotland, whose explanation was that because the Government had been in office for only a few weeks it had not been possible to introduce legislation to make these changes. I am not saying that all the burgh chamberlains in Scotland were greatly disturbed by this, but they felt that if there were to be changes they would like to be apprised of them and would like to know what the future holds on representative rates of interest, and this is particularly true of Lanarkshire.

The Government have had a full year in which to make the changes forecast by the hon. Member for Crosby the urgency of which was expressed by him from time to time. I do not think the Under-Secretary of State would claim that the Scottish Standing Committee has been overworked during last year, but that is his problem rather than mine.

Is this the last time that an Order of this kind will be put before the House of Commons? In the last few weeks we have had a welter of paper on the subject of local government finance. We have had the White Paper on Housing Finance and a Green Paper on Local Government Finance, and we know that there is to be a Housing Bill.

It is a pity that this debate should be on a Friday. It would have been useful to have a debate in which the Under-Secretary would have been able to say how he sees the future of these subsidies. Since we know now that houses are not to be subsidised but people are to be subsidised, what will be the changes? Perhaps the hon. Gentleman will expand on this subject.

2.25 p.m.

Mr. Younger

I am glad to respond to the hon. Gentleman's request. He said that he had been unable to find a copy of the document relating to the calculations. I gave instructions for copies to be placed in the Library. If copies have not been placed in the Library, I am sorry, and will make inquiries to see why this has happened.

This year the calculations have been done on exactly the same basis as previously. As the hon. Gentleman probably knows, the calculations are based on the amounts and the periods of borrowings, on which information is supplied quarterly by a sample of 50 authorities. These authorities are representative of all the main types and sizes of authority in Scotland, the largest and the smallest. We can be sure that the calculations that are made and the averages that are struck are representative of the actual borrowings during the past year of all the main types of local authority in Scotland.

In this calculation the amounts of the borrowings are weighted to bring them approximately equivalent to a 60-year basis, and a weighted average rate is struck for all borrowing over the period of reference. This is known as the representative rate. A detailed analysis of the calculation of the local authority rate is contained in the Explanatory Memorandum prepared for the consultations with the local authority associations. This is the document which should be in the Library.

The hon. Gentleman referred to the remarks made in our equivalent debate last year about the need for possible changes in the system. I should perhaps have mentioned earlier that this will be the last time that a Representative Rates of Interest Order will need to be laid before the House. The system will be replaced by the entirely new system of housing finance which we discussed upstairs last Tuesday and Thursday mornings.

The Order is important because it will apply to houses built by local authorities in Scotland, the subsidy for which will be calculated on this representative rate of interest, which come into the calculations before the change to the new system. It will be very significant, in that all the amounts of these subsidies will be part of the initial starting point at which local authorities will enter the new system. This is why it is desirable for local authorities to press on and submit as many housing schemes as possible between now and 1st December, which is the time for submission up to which this representative rate of interest will apply. This will enable the local authorities to have them all taken into account as a starting point for their progress towards the new housing finance system.

There would be no point in making changes now, as the whole system is being completely changed and this will be the last Order of its kind under this system, which will, subject to legislation passing through the House, be superseded by the new system. The Order will last right through, in the usual way, to the end of March next year, and there are no other particular differences in it.

This is the first time that a representative rate of interest has gone down rather than up from one year to another. The reason is that borrowing by local authorities has been rather cheaper last year than in previous years, and is a reflection of the start towards lower interest rates which has taken place during the last year or two. We cannot be sure that this trend will continue, but that is why, for the first time, the representative rate has gone down.

Dr. J. Dickson Mabon (Greenock)

We all welcome the Order, but I cannot quite follow the hon. Gentleman's argument. There are swings and roundabouts with these Orders, and we try to compensate one Order with another. Therefore, whether this Order is succeeded by another is important to its validity. I cannot quite follow the hon. Gentleman's statement that there will be no Order after this to make up for any mistake in calculation that there may be. I take it that transitional subsidies will take over from Section 6 and that Orders will flow from this one. But how are we to compensate for errors innocently made, as they can be, under this Order?

Mr. Younger

Errors are a different matter which could be raised at any time. Perhaps I should briefly explain what will happen to the system, though this is perhaps something into which we cannot go into detail now.

Any houses submitted for approval to the Scottish Development Department before 1st December will have subsidy calculated exactly as under the present system, using this representative rate of interest, and the total amount of money due to each authority under this Order or previous Orders, and moneys that are still due under previous subsidy arrange ments on previous houses, will be aggregated to a global sum for each authority, and that sum will be the starting point for the subsidy which the authorities will get under the new system.

Thereafter, the new rent rebate subsidy will come in under the new system, and as the rents go up so will the rent rebate subsidy go up according to the requirements of each local authority. The three other forms of subsidy that I mentioned yesterday in the Scottish Grand Committee—rising cost subsidy, slum clearance subsidy and high cost subsidy will also come in——

Dr. Dickson Mabon

It is the date that puzzles me: why 1st December?

Mr. Younger

Perhaps I had better first finish what I was saying. It is from the point of total aggregation of present subsidies that the progressive annual reduction of the present subsidy will take place year by year until an authority has reached the balancing of its housing revenue account and full dependence on those four new subsidies.

It is obviously necessary for us to tie in the dates of the present and the future systems. At present, as the hon. Gentleman knows very well, a local authority gets no subsidy on a house until the house is completed. So if we were to let that position continue as it is, there would not be an incentive for authorities to get on with building now because the houses they would be starting would be completed after the present subsidy finished.

We are therefore altering the rules. Obviously, houses completed by March next year will be included in this Order, and it will probably be necessary to extend this period by about six weeks because there is a six-weeks' gap between the end of March and the normal local authority financial year in May. But there still remains the question of the changing of the timing of payment of subsidy, so that instead of saying that only completed houses will be paid the subsidy on completion, exceptionally for the transition period it will be paid also on houses submitted by 1st December this year. In other words, houses completed to 31st March next and, perhaps, a little beyond that, and houses submitted by 1st December will come under the new system, and that will be the starting point of subsidy for each local authority under the new system. This is a rather complicated matter, but I have tried to make it clear.

Question put and agreed to.

Resolved, That the Housing Subsidies (Representative Rates of Interest) (Scotland) Order 1971, a draft of which was laid before this House on 20th July, be approved.