§ 4.0 p.m.
§ Mr. Michael O'Halloran (Islington, North)
I am grateful for the opportunity to raise the important subject of the housing cost yardstick. The Minister will be aware that I will relate my remarks to the London Borough of Islington. In the short time available, I will be as brief as possible. Otherwise. I should have included other boroughs in London which have much the same problem as we have in Islington.
Mr. John Wheatley introduced the Housing (Financial Provisions) Act in 1924, but the problems of municipal housing are, I regret to say, still with us. Various Governments have over the past 50 years tried to solve the problem. Undoubtedly, a lot has been done but still many problems remain.
The London Boroughs Association is equally concerned about these problems. In common with the central Government, it has a mutual interest in building adequate homes at a reasonable cost. Had the concept operated in practice as planned, there might have been little cause for complaint from the councils faced with the task of obtaining tenders within the prescribed limits. However, continuous inflation over the last four years has rapidly reduced the cost limits below those involved in building to the required standards, and quite apart from other changes four increases in regional variations have been necessary.
The Secretary of State for the Environment announced on 2nd November 1972 that the problems of London and a number of other cities were such that he was prepared to grant special yardstick allowances for individual schemes in areas of particular stress where local conditions made this necessary. This seems to have been acceptance of the London boroughs' contention that tenders could not be secured within the prescribed limits.
The task of local councils like Islington, and their architects, has been further complicated by the unwillingness of three major Departments of State to uplift their yardsticks and by the refusal of the Department of Health and Social 985 Security and the Department of Education and Science to adopt regional variations.
Under the Housing Subsidies Act 1967, local housing authorities were given permission to accept tenders for housing schemes, providing that the cost was not more than 10 per cent. above the yardstick. It was accepted at that time that most schemes would come within the yardstick and the 10 per cent. tolerance would be used for including higher standards in excess of Parker Morris. Where any part of the 10 per cent. tolerance was used it would not be eligible for subsidy. This principle has been continued under the Housing Finance Act and where schemes exceed the yardstick, a contribution must be made from the general rate fund to the housing revenue account to cover the revenue cost.
When introducing the yardstick procedure, the Government announced that they would review the figures from time to time and take account of changes in cost levels, design practice, and so on, and increases were announced which affected Islington as follows. The effective date of 1st April 1969 showed that the increase was 6.66 per cent. On 1st May 1972, it was 9.33 per cent.
For the last quarter of 1972 the comparative index for costs of construction over the country as a whole had reached 153 and in London the situation was much worse. During this period, construction costs have been rising steadily and rates in bills of quantity show more than a 50 per cent. increase over the comparative rates in May 1972.
Since May 1972 the procedure used by the Department of the Environment for approving tenders is to allow a market factor addition to the yardstick. The addition is granted separately for each individual scheme and is allowable for subsidy under the Housing Finance Act. The Department claims that this system has the advantage of flexibility because if schemes are treated individually difficult cases can be given special consideration.
The system creates problems for the council, however, as the control which the fixed yardstick provides has now been lost. In the past, schemes could be 986 costed at preliminary design and final design stage. If it was clear that the yardstick could not be achieved action could be taken before it was too late. Under the present system the final yardstick is not known until the tenders have been received and a market factor allowance has been negotiated with the Department of the Environment. This means that at the time when changes may be made to a scheme it is difficult to know whether the scheme will meet the yardstick at the end of the day.
Another problem relates to the amount of the market factor allowance. It would seem from recent approvals that, after negotiating the market factor allowance, schemes are coming out close to the higher level of tolerance—10 per cent. above the yardstick. Some of this excess is accounted for by the higher standards—full central heating, better facing bricks, larger floor areas—and the borough architect feels that, as acceptable standards of dwellings have advanced since the Parker Morris Report, the basic yardstick should be increased to take account of many of the items which are now regarded as higher standards. Although the extent to which higher standards apply is in some cases a matter of judgment, it can hardly be claimed that all the unsubsidised expenditure is represented by higher standards. The council, therefore, is having to bear a proportion of unsubsidised expenditure on all schemes in order to maintain the housing programme.
I will give examples of two schemes recently approved, showing the proportion of unsubsidised expenditure. Scheme HDA33 at Compton Street—8.80 per cent. Scheme HDA70 at Hillside—5.78 per cent. This means that a local authority like Islington, with a large programme, is building up a tremendous future commitment of unsubsidised expenditure. I will give figures to show how, if the current situation continues, the annual cost to the council will accumulate. In 1973–74 it will be £45,000, in 1977–78 it will be £233,000 and in 1982–83 it will be £541,000.
To place this commitment in the context of the effect on housing expenditure as a whole I will give figures of the net deficit expected compared with the rate equivalent. In 1972–73 the net deficit will be £1,117,000 and the rate equivalent 987 will be 5.80p. In 1982–83 the net deficit will be £15,327,000 and the rate equivalent 34.06p.
The view of Islington Council is that the Department of the Environment should up-date the yardstick to take account of current and future building costs and improved standards so that the yardstick may resume its original function of acting as a realistic instrument of cost control. The new yardstick should be subject to frequent review to keep pace with rising costs and changes in acceptable standards.
It may be thought from my arguments that Islington is a bad area, but it is not. As the Minister knows, the council has more than 5,000 new homes in the course of erection, some of which are almost complete. Parts of our borough have become very fashionable. A shell of a private house today will fetch anything from £20,000 to £60,000. An acre of land costs approximately £250,000, and, as the Minister well knows, we have no available land for housing in Islington.
Three years ago I raised in the House in a similar Adjournment debate the need for Holloway Prison to be rebuilt outside Islington. This would have given us approximately 11 acres, but the Government of the day did not accept my arguments and thus lost for ever an opportunity of obtaining available land which we badly need.
Islington Council housing today is of the highest standard and has been praised by some of Europe's leading architects. When I mentioned earlier that private homes can cost from £20,000 upwards, the point I wanted to stress in this connection is that the average working man is quite unable to purchase such a home. Even if he has £1,000 or £2,000 available, the building societies or even the local councils are unable to help. Indeed, to those who are unable to buy such homes no help is given by the Government, barring a very small amount in tax relief. The Housing Act 1972 may in some small way have helped boroughs such as Islington, but, on the other hand, 50 per cent of our council tenants are now in receipt of rent rebates or rent allowances One must, therefore, ask what is the real problem involved when, in face of the rising costs in rents, we at the same time give half our tenants some form of 988 supplement. Figures supplied to me by Islington Council show that rent rebates now cost £500,000 and rent allowance £120,000, and—if the present trend continues—Islington Council by 1982 will have to find £2 million for rent rebates and a rent allowance of just over Eli million.
Because of the escalation of the "lump" system in building, inner London has suffered a great deal through scarcity of craftsmen. In fact, some contractors will not accept work from Islington Council because it insists on the employment of trade union labour.
The recommendations put forward by the London Boroughs Association seem very worth while. The one that interests me most involves a yardstick that is capable of automatic adjustment, since it appears that both the present Conservative Government and their Labour predecessors seem to be committed to the yardstick method of control. In such conditions the modification required is the introduction of a system of automatic adjustment in line with rising or falling costs. The prescribed limits could then be subject to automatic adjustments based on either specially-designed index or, after suitable modifications, the Department's index of the cost of new construction. This would cover increased costs under fluctuation contracts and thus attract the appropriate subsidy by allowing the actual expenditure up to the adjusted yardstick limit.
I am aware of the Minister's concern about the housing position in inner London. I am endeavouring in this debate to bring home to him the problems facing our council of Islington. I hope that when he replies he will take into account the special needs of the borough and the points outlined in my argument. We undoubtedly require financial help to overcome the very severe problems which we face in Islington.
§ 4.15 p.m.
§ The Under-Secretary of State for the Environment (Mr. Reginald Eyre)
I am sure that we are all grateful to the hon. Member for Islington, North (Mr. O'Halloran) for raising this important matter in the House today. Before dealing with the specific points he has made let me say at once that the Government are anxious to do all they can to help 989 local housing authorities in their efforts to improve housing conditions in their areas.
This has clearly been demonstrated in recent months. Additional public expenditure resources have been allocated to housing at a time when we have had to moderate the demands for public expenditure in other fields, and two White Papers have been presented setting out new policies and initiatives that we are taking over the whole housing field. The White Papers make it clear that the local housing authorities have a crucial rôle, involving not only new council house building but helping the voluntary housing movement to complement authorities' own efforts in the rented sector, in house and area improvement, in slum clearance, in helping people to owner occupation and, more generally, in other measures to improve the environment and social conditions. I fully understand the hon. Gentleman's feelings when he describes the situation in certain parts of the borough of Islington.
One of the primary housing responsibilities of every local authority must continue to be the provision of rented houses to meet the needs of its area.
Our work on the Action Group on London Housing shows clearly how concerned we are, and rightly so, to find solutions to the immense problems still facing London.
The hon. Member complained that Islington is having to pay exorbitant prices for housing land and that this is causing an excessive burden on the rates. I recognise that the shortage of land, and the consequent high price, is one of the main difficulties facing us in our efforts to solve London's housing problems. It is for this reason that the Action Group on London Housing, under my chairmanship, has been concentrating its efforts on finding more land—with some success, as will be revealed in the next report, which I hope will be published before the House rises for the Summer Recess.
Much of this land, of course, lies outside the crowded inner boroughs, and I think it is common ground that boroughs like Islington must continue to export some of their population in order to rehouse the remainder in decent conditions.
990 We must continue to look to Outer London to help with this "rippling out" process, as well as to dockland and the new expanded towns. However, Islington still needs to buy land for housing development and redevelopment within its own boundaries, and the Government recognise this need, and the cost of meeting it, by paying substantial subsidies under the Housing Finance Act 1972 towards the acquisition of sites. I understand that approval has been given to the acquisition of sites costing as much as £235,000 per acre.
Many London authorities benefit enormously from the Housing Finance Act, which concentrates Exchequer assistance on the areas where there is a continuing need to build on a substantial scale. Islington, for example, made rate fund contributions equivalent to a 9p rate to its housing revenue account in 1969–70, 1970–71 and 1971–72. The Housing Finance Act, by increasing the total amount of Exchequer subsidies paid to Islington from £1,860 million in 1971–72 to over £4 million for 1972–73 and 1973–74, has cut this contribution from the rates to about a 4¼p rate for 1972–73, and the authority's estimate in its claim for subsidy shows that it is expected to reach only a 5¼p rate for 1973–74.
As to the other long-term figures that the hon. Member has quoted for Islington, they must be based on assumptions on which I cannot comment and they could be affected by a number of factors in the years ahead. I think he will accept that those I have given show clearly that Islington is doing far better under our new housing finance system than it would have done under the former system. The point that I want to stress is that the general objective of channelling assistance to where it is really needed is being achieved.
As regards the cost of administering the rent rebate and rent allowance schemes, local authorities have a special responsibility towards their own tenants and a general responsibility for assessing the housing needs and problems of their area. As rent rebates and allowances contribute towards housing costs, we believe that they should be administered by the local authorities. The cost of administering discretionary rent rebate 991 schemes before the Housing Finance Act was met by local authorities.
But we propose that the cost of administering the rent rebate and rent allowance schemes should, from 1974–75 onwards, be relevant expenditure for rate support grant, and for 1972–73 and 1973–74 we are allowing authorities whose costs are higher than a basic figure to count the excess costs for rising costs subsidy.
Turning now to the housing cost yardstick, which is a very complicated matter, I believe we have dealt with this in the most practicable way possible in present circumstances. The scheme, as the hon. Gentleman acknowledged, was introduced by the previous administration. We have increased the basic yardstick figures by amounts varying from 23 per cent. to 43 per cent. since June 1970. The last general increase in the figures was in May 1972.
The movement in tender prices since then has not been a steady one. During the last half of 1972 tender prices for new local authority house building schemes began to move in a very erratic fashion. A study by the Department showed that there was no consistent pattern even within the same region or, indeed, between adjacent London boroughs. Some authorities were receiving tenders in line with the basic yardstick while in other areas tenders were much higher. A general increase in the basic cost yardstick figures, which the hon. Gentleman advocated, would not have been a satisfactory answer. What was wanted was some means of giving flexibility to the system.
It was for this reason that on 2nd November last we announced special yardstick allowances for individual schemes where local market conditions made this necessary. These more flexible arrangements have now been operating for eight months and, by and large, I think it is fair to say that they have coped reasonably well with a difficult and complex situation. They have certainly enabled the great majority of local authorities to keep their housing programmes going.
Taking England and Wales as a whole, the number of dwellings in tenders accepted by local authorities in the first five months of this year was 19 per cent. up on the same period last year. For 992 London, the same comparison shows an increase of nearly 27 per cent., while less than 5 per cent. have had to be rejected on grounds of cost. There will of course be cases where tenders received by local authorities are higher than can be justified by market conditions alone; and I know that in some cases it has not been possible for schemes to go ahead. But this would presumably happen under any system of cost control.
As regards Islington itself, the hon. Gentleman will be glad to know that no scheme which has been put to the Department has been refused a market allowance sufficient to enable the scheme to proceed. In fact, market allowances, some of them very substantial, have been given for 11 schemes, totalling 1,321 dwellings.
I do not think the council would disagree that the allowances have been realistic. Certain costs have been left to the unsubsidised tolerance, but these have I think been identified in discussion between officers of the council and the Department as attributable to frills and which subsidy was not intended to cover.
There may, of course, be some room for argument as to what constitutes a frill, but the general basis is clear. Expenditure reckonable for subsidy purposes has to be related to the Parker Morris standards. The hon. Gentleman was accurate when he referred to this. If a local authority wants to provide something higher than that it is open to do so within certain limits, but it would be wrong for this to be reckoned for subsidy. The Government at the centre have to be fair to all local authorities and treat them alike. It is important to channel subsidies to where they are needed, and the basis of allocation must be equitable throughout the country. The Islington schemes cover a wide range of tolerance from 2 per cent. to 10 per cent. and are a fair reflection of the cost of these unsubsidisable items in each case
In some cases where even a realistic market allowance—I assure the hon. Gentleman that we do our best to see that the market allowances that we give are realistic—may not entirely close the gap between the basic yardstick and the lowest tender, an authority is faced with 993 a difficult decision. Should it go ahead. making such use of the unsubsidised tolerance as may be necessary? Or should it wait and go out to tender again later?
While fully recognising the difficulty of such a choice for the local authority, I do not think it would be right for the Department to try to avoid it by giving a market allowance which, after careful examination, it believes to be excessive. We have a duty to the taxpayers, and we cannot, therefore, subsidise housing regardless of cost. Local authorities take the same view about their responsibility to ratepayers.
The hon. Gentleman also referred to difficulties for local authorities in securing really competitive tendering in a situation where the construction industry has a very high load. I know that some London authorities are having great difficulty in compiling tender lists and are having to approach quite a large number of contractors before they can do so. I should not attribute that to the yardstick, but it would be useful to have specific evidence of the reasons why contractors appear reluctant to tender for public sector housing work. In an effort to identify the real sources of difficulty the Department has commissioned the National Building Agency to make a survey. The GLC and a representative sample of the London boroughs have agreed to co-operate.
There are great pressures on the construction industry, and it has been faced with problems since the slump that it suffered in 1969 and 1970. The shortages of skilled men are to a large extent the result of output falling in 1969 and 1970 when many men left the industry 994 and training was cut back. The shortages, though important, are probably not very high in absolute numbers, but despite the shortages, output is very high, and if it continues at the present rates will be at a record high in 1973.
Training and recruitment are now very important. The Government's Training Opportunities Scheme is now making a major contribution to the industry and is to be expanded. In 1972 it produced 5,000 trainees in construction skills. This year the figure will be 6,500, and in 1974 it will be 8,500. But this substantial Government effort is additional to the main responsibility of individual firms, and groups of firms, to train the numbers of skilled men needed in the future. Matters are improving. The 1972 figure for the number of apprentices taken on for all construction trades—27,000—was, according to the Department of Employment, the highest for some years. What is now needed is the maintenance of that increased momentum.
The hon. Gentleman referred to the "lump". I should like to speak at length upon that subject, but I merely say that the matter is being carefully studied and discussions are taking place which I hope will result in a much improved situation.
The question of the control of prices in the construction industry is difficult. This is a large, fragmented and dispersed industry, and prices—
The Question having been proposed at Four o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at half past Four o'clock.