§ Order for Second Reading read.
§ 4.10 p.m.
§ The Secretary of State for the Environment (Mr. Peter Shore)
I beg to move, That the Bill be now read a Second time.
This Bill has two major objectives. It gives effect to the proposals outlined in the Green Paper to help first-time buyers and it provides for an increase in the financial limits governing the Housing Corporation's power to guarantee loans to housing associations.
The House will recognise that this measure reflects the Government's commitment to assist both those who wish to become owner-occupiers and those becoming housing associations tenants. I emphasise that this is a measure spanning both owner-occupation and renting.
I emphasise it because this is, as I have come to recognise, one of the major issues which divides—in my view, wrongly—this House. While the Government and the Opposition are both in favour of widening owner-occupation, the Opposition have an open and extraordinary hostility to social renting. They have somehow persuaded themselves that there is no longer a need for public rented housing and that the first aim of Conservative housing authorities is to cut local authority housebuilding and even to dispose of existing stock. Theirs is an ideological and unbalanced view of housing need and contrary to all the evidence we have of the continued shortage of rented housing at rents which people can afford.
For our part, we believe that there must be continued provision for both major tenure groups.
Let me remind the House that one of the major findings in the housing Green Paper of last June was the number of people living in circumstances which are just not acceptable by contemporary standards. There are probably about 1.8 million households in England and Wales forced to live in these poor conditions, and they represent the hard core of housing need. We have indeed made immense improvements in the past 1025 25 years in our national housing condition by increasing housing supply with more than 8 million new houses and by modernising about 3½ million more. In the first tour years of this Government, progress has been strongly maintained. More than 1,160,000 homes have been completed in Great Britain in the past four years, more than 200,000 homes demolished or closed under slum clearance and some 700,000 homes have been approved for improvement with the aid of grant. But a substantial problem still remains. We must tackle it, we can tackle it and we shall tackle it.
Against this background the Government put forward in the housing Green Paper their basic housing objectives: first, to ensure that the most pressing needs of individuals and areas are tackled urgently and effectively and, secondly, to make it easier for more people and their children as they grow up to get the kind of homes that they want. Here we are indeed conscious of the growing numbers who are both able to become and who wish to become home owners. Both these objectives—not just one—will be served by this Bill and by our housing policies generally.
On the first objective—meeting the most pressing needs—it is, of course, to local authority and housing association provision which we must look for the major contribution. In spite of constraints which the world recession and the continuing economic crisis have imposed, gross public sector housing investment under this Government has consistently remained above the boom year of public expenditure under the last Conservative Government. The latest Government expenditure White Paper—Cmnd 7049—projects a steady growth of housing expenditure into the 1980s. The House will know that allocations have very recently been made to local authorities under the new housing investment programme system and the authorised capital expenditure represents an increase of £100 million in real terms over the last year.
It is also by using the HIP system that we have been able to concentrate our resources in areas of housing need and to deploy those resources better to reflect local conditions. Equally the Housing Corporation and housing asso- 1026 ciations are playing their part, particularly in the stress areas, to supplement the activities of local authorities so that those who are at present living in deplorable conditions have better and earlier prospects of getting the housing they need. The second part of the Bill, which increases the guarantee facilities of the Housing Corporation will, of course, assist housing associations in their valuable role.
§ Mr. Michael Latham (Melton)
Will the Secretary of State confirm that the Green Paper envisages a steadily diminishing number of public sector housing units in the next five years?
§ Mr. Shore
I shall not confirm that at all.
Regarding the Housing Corporation provision, in constant price terms expenditure is running at double the level that it was in 1973–74. In terms of local authority housing, we are maintaining our programmes at a high level. These will inevitably reflect the increasing input of local authority plans which come through the housing investment programme system.
§ Mr. Michael Morris (Northampton, South)
Is not the real truth that not only the financial provision but the units of accommodation in the next five years suggest a cut-back.
§ Mr. Shore
If there are cut-backs coming in housing, I fear that the main cause will be not the allocations made by the Government but those which are forced on the public programme by the doctrinal, obsessive and excessive approach by the Opposition and their denial of need for local authority rented accommodation. That is the major concern of the Opposition. I am trying to persuade them to open their minds and to recognise that both major sectors have as important a part to play in future as they are playing now.
Turning to the second aim—making it easier for more people to get the kind of homes they want—there is a strong trend, and one which we welcome, towards the growth of owner-occupation. Not everybody, of course, wants to be an owner-occupier. There will always be a need for a substantial, well-managed rented sector. But the desire for home 1027 ownership, as the past 25 years so clearly reveal, is both strong and growing.
This Government and their Labour predecessor in 1964–70 have directly assisted in this growth. A major example was the introduction of the option mortgage scheme some 10 years ago which made home ownership possible to so many people with modest incomes.
§ Mr. Frank Allaun (Salford, East)
Does my right hon. Friend accept the criticism that the Bill, though useful, does not help those in the greatest housing need—those in the poorest areas, the inner city areas, who cannot get loans from building societies and have to go to money lenders and fringe banks and have to pay up to 25 per cent. interest? Will he do something in Committee to help such people?
§ Mr. Shore
We can discuss that problem in Committee. I am certain that if people in inner city areas are going to money lenders—indeed, there is evidence that that is so—the best way to help them is to provide a route towards owner-occupation with regular and responsible lending institutions of the kind that the Bill will encourage. We shall not overlook that problem. As my hon. Friend said, it can be discussed further in Committee.
Those who wish, as we do, to see this trend continue must tackle four connected problems. There must be an adequate supply of mortgage money; the cost of mortgages must be maintained at a reasonable level; house prices must not be allowed to explode and—something quite new for this country, at any rate—there must be some special help for those wishing to buy in getting together the necessary deposit. These problems have not proved easy to surmount, as the record of the last Conservative Government so vividly illustrates.
The supply of mortgage money during the early years of this decade was notoriously erratic. Enormous sums were lent in 1971 and 1972, but the brakes were jammed on during 1973. When we took office, there was not just a shortage, but a famine of mortgage money. It was left to us to provide major assistance to house purchasers through the building society movement and the local authorities by lending to both on a massive scale. Since then we have made good progress in providing for stability in the flow of funds 1028 and in developing an effective support lending scheme to encourage down-market lending. I do not want to claim—if I did, I should be contradicted—that all the problems here are solved, but compared with what went before, a great deal of progress has been made.
The cost of mortgages cannot be insulated from the general run of interest rates in the economy. When we came to power in March 1974 the mortgage rate stood at 11 per cent. It did go to 12¼ per cent. for six months, but it has now come down step by step to its lowest rate—8½ per cent.—for over four years. I am sure that this is something which the whole House will welcome.
If the Leader of the Opposition had become Prime Minister in 1974 her rash pledge to maintain mortgages at 9½ per cent. would have cost over £600 million in additional public expenditure. I do not like to think what would have happened to other housing programmes in order to sustain that promise.
§ Mr. Michael Shersby (Uxbridge)
Does the Secretary of State agree that a large part of that money would have been offset by the savings on subsidies to council-owned property which otherwise would have been occupied by owner-occupiers?
§ Mr. Hugh Rossi (Hornsey)
Does the Secretary of State agree that the large figure that he mentioned as the cost of keeping mortgages at a 9½ per cent. ceiling would have cost that amount if the Conservatives had followed the absurd economic policies which this Government have followed and which caused mortgage interests to go up to an all-time high of 12½ per cent.? He knows that we would not have allowed that to happen.
§ Mr. Shore
The mortgage rate was at 11 per cent. when we took over at the beginning of a period when we, like all the other industrialised countries in the world, began to experience the immense shock and disturbance that the quadrupling of oil prices in 1974 inflicted upon us. It is foolish to say that the economy 1029 would have been somewhat better managed by those wise men who led the economy to the condition which it reached at the beginning of 1974.
I want to talk about house prices. The early 1970s saw unprecedented increases. Prices rose by 13 per cent. in 1971, by 31 per cent. in 1972 and by 35 per cent. in 1973. In the four years between 1970 and 1974, house prices in Britain doubled. In the four years since 1974—that is, the four years of this Labour Government—they have gone up by 29 per cent. The record speaks for itself and every owner-occupier in the land should take due note.
§ Mr. Rossi
Does the Secretary of State agree that house prices remained relatively steady in recent years because no one could afford to pay 12½ per cent. mortgage interest? It is only when interest rates are reasonable that demand is created and prices go up. If the Secretary of State read the Royal Institute of Chartered Surveyors' report published yesterday he would realise that house prices are on the way up.
§ Mr. Shore
House prices are not a reflection of mortgage interest rates. That was not the reason for increased house prices. The reason was the Conservatives' total failure to impose financial discipline, the ludicrous policy of turning on the monetary tap, the growth of secondary banking and the grievous undermining of the financial institutions. I do not wish to turn this into a major macroeconomic debate. If I did, the hon. Member would have cause to regret it.
I turn to the heart of this measure. The intention is to help with the accumulation of the deposit—to help the first-time home buyer. In devising the schemes now before the House I have had two main aims—first, to help into home ownership a number of people who are now just on the margin, at present frustrated but who would be able to buy if a 1030 little additional help were given to them at the right time; and secondly, to ease the burden in the early years on those who can now just afford to buy, but often with considerable difficulty.
Many of the beneficiaries of my scheme are likely to be young couples. Most of them will generally have been living with their parents or moving from private rented accommodation. Many would have experienced great difficulties—indeed sometimes hardships—in amassing a sufficient sum to meet the deposit and incidental expenses necessary for buying a home for the first time. My hope is that this Bill will make that struggle less difficult. For some young couples it will make the difference between being able to buy and having to stay in often unsatisfactory private accommodation, or having to remain with their parents, perhaps in difficult domestic circumstances—circumstances which are far from ideal.
The scheme which is outlined in the Bill has been devised after intensive consultation with the savings and lending institutions. I believe that our proposals—which incorporate simplifications emerging from the discussions—will enable everyone to know precisely the benefits that they will receive and the conditions that they have first to fulfil. They will not impose undue administrative burdens on the institutions who will be carrying them out.
I should now like to spell out the essence of the scheme which is contained in Clauses 1 and 2 of the Bill. A first-time purchaser must buy a house on mortgage—and below a specified house price limit. The scheme covers not only orthodox house purchase but self-build, equity sharing and co-ownership where there are individual mortgages. Everyone, provided that they are first-time purchasers, will be eligible whether they are private tenants, council tenants, sharing with others or simply living at home.
Subject to simple conditions, first-time buyers will then be able to qualify for two benefits being—the major benefit being an interest-free loan and the lesser benefit a savings bonus. A couple buying a home jointly would of course qualify for only one loan and one bonus between them.
A home buyer can qualify for a £600 Government loan if he or she saves for 1031 two years and if he keeps at least £300 in the account for the 12 months before he buys and has accumulated £600 at the end of that 12 months.
This £600 loan is interest-free and without repayments for five years. It will be of major help to savers in building up the necessary deposit that they often have to find for themselves. For those who have already saved the deposit it can free their savings for all the expenses normally associated with purchase—fees, repairs, removals and so on. The freedom from paying interest on the £600 loan means a saving of about £3.50 a month for the five-year period.
It is an important part of the benefit that the loan is additional to the mortgage which the institution would otherwise have lent. Clause 1(4) uses the phrasebeing normally additional to that which the institution would otherwise have lent".This puts an obligation on institutions not to reduce the amount of the principal loan.
The obligation will be written into the directions on the operation of the scheme. The usual mortgage form which buyers receive will show the amount that the society are prepared to offer plus the loan.
Further, risk of default by the individual on account of the scheme need not inhibit lenders because the Bill also gives me power to indemnify them against losses arising from any default in the first five years.
The institutions have agreed to repay each loan to Government as a lump sum after five years rather than over the rest of the life of the mortgage. This followed a helpful suggestion put by the Building Societies Association. The accounting is simpler and the proposal allows the Government money to be recycled, with great savings in public expenditure from after five years. The home owners is not affected. After five years he will see his payments increase only slightly—when he should normally be able to afford a little more—and will pay off the Government loan over the remaining life of the mortgage.
The second benefit, designed as a further encouragement to saving, is the associated bonus scheme. If first-time 1032 purchasers save for two years, and keep at least £300 in their account for the year before they buy the house, they qualify for the minimum bonus, which we propose will be £40. For every £100 over £300 they can keep for that final year they will get an extra £10, up to a maximum of £110 if they keep £1,000 or more. This bonus is cash, and it does not have to be paid back. It is tax-free. At the bottom of the scale, it is worth an extra 13 per cent. on savings over the final year; at the top it is an extra 11 per cent.
I want to emphasise that a fundamental element of both the loan and the bonus is the link with a savings requirement. This is designated to ensure that people coming into the scheme have the will and the capacity to set aside a sum regularly for home-ownership. I am sure that the House will agree that there would be no benefit in tempting into the obligations of home ownership those who cannot be expected to keep up their repayments.
I am anxious that this extra help should be concentrated where it is most needed. This might be done by a test related to income. But I am opposed to avoidable extensions of means testing. A simpler and more acceptable method for concentrating help is to limit it by reference to house prices.
I have in mind that house price limits should be based on the price paid by first-time purchasers in the year before the limit is set, adjusted for price increases; and that regional price limits should be set so that about two-thirds of all first-time purchasers would be eligible on this score. Last year, for example, and it can only be an example because it does not relate to this year or the future, we estimate that about two-thirds of first-time purchasers bought below £14,700 in London, below £10,100 in Birmingham and below £9,500 in Liverpool. I can see the case for a subregional price limit, but I do not think this is administratively practicable. And the fact is that, as we all know, prices can vary substantially even within the boundaries of a city. I believe that regional price limits offer a simple and effective way of concentrating help where it is needed.
1033 The House will note from Clause 2(6)(b) that those provisions which control the level of expenditure under the Bill—those concerning the house price limits and the size of the benefits—can be varied only by order subject to negative resolution of the House. This will give the House the opportunity of debating any changes with important financial implications which might be made from time to time after enactment. I am sure that this is right.
§ Mr. Bruce Douglas-Mann (Mitcham and Morden)
Does my right hon. Friend not agree that an average regional house price is likely to make the assistance provided by the Bill available to a large number in the suburbs of the cities but that it will reduce the help available to those seeking to purchase in the inner cities? The price limits will be much too high so that the sums available under the Bill will be too small to be of significant assistance in such cases. Would it not be better to reduce the price limit to a level that would enable people to buy houses in inner city areas where the average price is much lower than in the suburbs, where that price tends to be rather high?
§ Mr. Short
I am slightly confused by the latter part of my hon. Friend's intervention which to some extent contradicted the first part. However, I do not think that we have a sufficiently clear indication as to relative house prices in the inner cities, certainly as defined for partnership purposes, and the fringe areas which might be outside the inner cities. Nor do we know, frankly, whether people in the inner cities would wish to be re-housed in the outer part of the inner city, or whether the people outside would wish to be housed within. I do not believe that there are such marked differences in prices within the general area of our cities. There are certainly differences between the cities, but I am not so conscious of differences within them.
§ Mr. Frank Allaun
Perhaps, since I am a simple sort of person, I might be allowed to restate the question by my hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann) in simpler terms. He is suggesting that if the upper price limit for houses were 1034 reduced, that would make more available for those who were worse off and were seeking cheaper housing.
§ Mr. Shore
The more one lowered the limit, the narrower the range of benefit would be and the smaller the number of people who would become eligible for it. I certainly accept that, but by no means am I convinced that that would be particularly advantageous to the inner cities. I think that is the point. The precise coverage is something that will be properly debated in Committee, and we can decide the right proportion that a scheme for first-time purchasers should seek to assist.
§ Mr. Stephen Ross (Isle of Wight)
Is the Secretary of State intending to put any age limit on eligibility for the first-time buyer? For example, if someone aged 48 could qualify now for a mortgage under the normal system, given that he would have 15 years' earning time left, would such a person still qualify under the scheme as the Secretary of State sees it?
§ Mr. Shore
I am not certain what happens to someone aged 65, but a person who might normally expect to get a mortgage as a first-time purchaser would certainly be eligible.
The House will see that what the Bill means is that eligible first-time buyers will arrive at the starting gate for house purchase with up to about £700 more in their pockets than would otherwise be the case—a £600 interest-free loan for five years and a bonus of anything up to £100 or so—in addition to the £600 they will have saved. As any first-time buyer will recognise, this combined sum is not to be sneezed at. I think its significance might be better appreciated when I say that whereas the average deposit for all first-time home-buyers with building society mortgages in 1977 was £2,360 or about 22 per cent. of the average purchase price, about 40 per cent. of first-time purchasers bought with a deposit of under £1,000. My scheme is aimed at this latter group and also at those who cannot quite manage to get together a big enough deposit to buy.
It is difficult to know at this stage just how many first-time buyers coming within the house price limits will choose to enter the scheme. I think a number of 1035 better-off buyers who do not want or need to save for as long as two years will not choose to use the scheme.
Perhaps 40 per cent. of all first-time buyers should benefit from it. This means that if the number of first-time buyers grows from an average of about 375,000 a year over the last four years to approaching 500,000 a year by the mid-1980s, eventually around 200,000 or so might benefit from the scheme each year. This figure includes 30,000 or so who might not otherwise have been able to afford house purchase.
If the Bill is enacted before or during the summer, and we set an appointed day not later than the autumn, benefits will begin to flow during 1980 on completion of the two-year savings period by the first tranche of savers. It may take a year or two for the scheme to build up to its maximum level. But I estimate that the costs in the first full year of operation might be around £100 million in 1977 survey prices. But after five years or so, the cost should fall substantially because—as I have already indicated—the institutions will begin to pay the first Government loans back. Thereafter the loan element of the scheme will in fact be largely financed by recycling of money—just how much depending upon the level of inflation.
The public expenditure costs for the first two years are already provided for in the recent White Paper on public expenditure. We have been able to find room for these schemes whilst providing for some increase in all major spending on other housing programmes, except in the housing associations, which tend to fluctuate and which in any event I hope to be able to make good.
I should like to say a further word about the date of implementation. I think the House would agree that it would be an unhappy thing if the benefits of the scheme were dissipated in higher prices. This is one reason why it is important to have a two-year savings period starting from the Appointed Day. The new assistance will increase demand for new houses directly or indirectly—either by first-time buyers or from the existing owner-occupiers selling their present houses to first-time buyers and moving on to new houses.
1036 The two-year savings period will give the industry time to expand its supply. This is important. Furthermore, any proposal to count savings held before the appointed day or to bring payments forward could pose very real problems of administration and fairness.
Finally, the House will note from Clause 1 and Clause 4 that the conditions and benefits of the Bill will apply equally in all parts of the United Kingdom. For Great Britain this is achieved by specifying the Secretary of State in all parts of the Bill, but for technical reasons it will be applied to Northern Ireland by Order in Council.
It will be easy for people to join in the scheme. As the House will see from the schedule, all the major institutions concerned with lending for house purchase are included, such as the building societies, the local authorities, the banks, trustee savings banks and the insurance companies. So are savings institutions. The Giro and the National Savings Department will be in. The details of how the scheme is actually to be administered will be settled in directions, following consultations with the institutions.
I should like to put on record my thanks to the Building Societies Association and other institutions for the help they have given in working out the details, and for the assistance they will give in the future in actually carrying out the schemes.
I do not expect the home-purchase assistance provisions of the Bill to result in any rapid or large increases in demand. But I do expect, as the provisions become more widely known, significant number of families to join in. New possibilities will be opened up for themselves and their children.
§ Mr. Michael Latham
The right hon. Gentleman knows that I am a builder. I declare that interest now. There is one matter that worries me and on which I should be grateful for the Secretary of State's advice. We are moving into a rising market. House prices are beginning to rise and there is plenty of mortgage money available. Is there not a severe danger that not only will the scheme put up prices but the prospective purchaser will be worse off by taking part in it, as 1037 compared with going for immediate purchase, because the value of the deposit will be whittled away over two years?
§ Mr. Shore
Whatever pressure there may be on prices in the short term—this is a matter that we must watch, and we are watching it very carefully—that will not be affected by the introduction of the scheme, because by the very nature of the scheme we are presupposing a two-year qualifying saving period. Therefore, we are talking about the impact of the scheme on demand in 1980.
Secondly, I agree—and this is why I am sure it is right to have the power, subject to the approval of the House, to make amendments in terms of actual prices and financial limits for all the major components in the Bill—that we cannot presuppose that inflation comes to a dead end. It does not. If we have to make adjustments we shall have to make them in such a way as to safeguard the interests of people who have already started to save under the previous arrangements.
I should like to be able to compare this scheme with some of the proposals that the Opposition have made, but those proposals appear to be somewhat tentative. However, we know that the Opposition favour grants rather than loans. I have seen reports that they are considering payments of up to £1,200 per person. I hope that they will think again about these proposals, because the public expenditure implications would be substantial—I would estimate not less than £300 million a year if schemes along those lines were pursued—and the amount involved would be without repayment if it were a grant.
It is proper to ask where the Conservative Party, already committed to drastic cuts in public expenditure, would find the money for its scheme. Its 1977 Campaign Guide tells us that it would be.by a deliberate switch of resources from the public sector to helping people to buy their own homes".Here again we have the Conservative Party blind to the need for a continued supply of public rented housing.
But there are other equally important considerations which I hope will be borne in mind. One, which has very properly been raised in questions to me, is the effect on house prices of suddenly pumping 1038 in hundreds of millions of pounds of extra money each year. There would certainly be a marked rise in prices at the lower end of the housing market.
I now turn to the second purpose of the Bill, an increase in the Housing Corporation guarantee limit. Clause 5, by increasing from £100 million to £300 million—and beyond, with the approval of the House—the total amount of loans that the Housing Corporation can guarantee, extends the scope for housing associations to finance the provision of new or rehabilitated houses from private funds. Only if guarantees are called upon does the corporation meet the liability. No additional cost falls on the Housing Corporation or on public funds from the increase in the limit itself.
Decisions on the use of this facility will normally be made as part of the annual housing review, but also at other times when the need arises. They will take into account the overall programme of housing association investment, in the light of discussions with the Housing Corporation, and the total amount of resources to be devoted to housing. But they will also have regard to other circumstances. An example I have in mind is the use we were able to make of these powers to protect the construction industry from some of the consequences of the cuts in public expenditure we had to make in 1976.
There are many other desirable measures I would like to have included in a major Bill. But my hon. Friends and I have already in the lifetime of this Parliament presented four substantial housing Bills. In 1974 the Rent Act freed many families from the threat of unjust eviction. Our Housing Act of the same year empowered local authorities to declare housing action areas and thus attack some of the worst problems of urban renewal.
In 1975 our Housing Rent and Subsidies Act gave back to local authorities their freedom to fix rents. In 1976 we ended, by the Rent (Agriculture) Act, the long-standing grievance of agricultural workers living in tied cottages. Last year additionally we gave strong backing to the Housing (Homeless Persons) Bill which the hon. Member for Isle of Wight (Mr. Ross) piloted through the House and which will do much to help those whose housing need is really desperate.
1039 In this, the sixth housing Bill since March 1974, we are providing a package of real help at low cost to public expenditure both for those making the difficult jump into home ownership for the first time and for those who look to housing associations. I hope that the Bill, short and sweet as it is, will receive the unanimous support of the House.
§ 4.49 p.m.
§ Mr. Hugh Rossi (Hornsey)
The right hon. Gentleman the Secretary of State asked for the unanimous support of the House. It is a pity, therefore, that he should have started by somewhat souring what could have been a friendly debate on a measure that has attractions for the Opposition. The right hon. Gentleman justified his outburst because the Bill relates not only to home ownership but to additional provision for housing associations. Then he went on to say "But, of course, the Conservative Party has no interest at all in social ownership or in housing for renting."
Perhaps I may remind the right hon. Gentleman that it was my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), when he was Minister of Housing, who introduced the housing association concept into this country and he made a provision of £3 million in order to get the scheme going. In successive Bills, one after another, introduced either by my right hon. and hon. Friends when they were in office or by the Secretary of State's right hon. and hon. Friends, on every occasion the Conservatives assisted housing associations, and in opposition put down amendment after amendment proposing greater assistance and help to housing associations. The right hon. Gentleman should take care to look at the record. I was concerned in some way in most of those measures.
Therefore, there is absolutely no justification for the particular way in which the Secretary of State decided to open the debate. I assure the right hon. Gentleman that there is nothing more unedifying than a member of the Government adopting this holier-than-thou attitude that is so favoured by the Labour Party.
However, perhaps it is not surprising that the right hon. Gentleman should open the debate in that way, and it is 1040 perhaps not surprising that now that we are within 12 months of a General Election the Secretary of State has selected assistance for home buyers as the subject for his first and probably the only piece of legislation emanating from the recommendations contained in the Green Paper on housing policy published 10 months ago, after a delay of some two years. But there it is.
After all, in considering the right hon. Gentleman's motivation, one has only to look at the report itself, at Part II, the technical volume, where in pages 34 and 35 the Madge survey shows that 87 per cent. of young married couples preferred owner-occupation of their homes if given a choice. The same survey shows that only 49 per cent. selected home ownerships as the best tenure in their current circumstances. The disparity between these two figures reflects, as the Green Paper states, the inability of nearly half of the couples to translate their aspirations into reality, thus placing a demand upon expensive public sector provision.
This is where we begin to part company from the right hon. Gentleman and his hon. Friends in these matters. First of all, our genuine desire is to see the aspirations of these young people fulfilled-87 per cent. of them—and, moreover, to do it in a way that is of general benefit to the taxpayer and ratepayer of this country and to the economy as a whole.
The Minister for Housing and Construction kindly answered a Written Question for me on Friday. The answer showed that the average capital cost of new council housing is estimated at £13,500, and the corresponding revenue cost—loan charges, repairs, maintenance and supervision—is estimated at £1,555, with rent, offsetting against that, at £345. Therefore, the annual deficit on a newly constructed council house today is about £1,200. Of course, that will decrease over a period, but only to the extent to which the Government are prepared to allow rents to rise and thereby diminish the amount of subsidy.
The Secretary of State chides me because our proposals indicate a substantial public sector expenditure, but I ask him what is the cheaper—£1,250 once for all, enabling a young couple to achieve their heart's desire, or £1,200 a year for the 1041 next 60 years? That is the arithmetic of the situation, and those are the two bases for our particular policy.
The findings of Madge were consistent with those found in the survey conducted by the British Market Research Bureau on behalf of the Housing Strategy Committee of the Building Economic Development Council, whose report I assisted to see the light of day about this time last year. Thus, given these unfulfilled, and indeed frustrated, aspirations of so many of our young married couples, it is not surprising that the Secretary of State has felt obliged to produce a measure that will make them benevolently disposed towards him and the Government in this General Election year.
After all, was not the Rent Act 1974 produced in somewhat similar circumstances, to anticipate the October 1974 General Election? Unhappily, as we know, that measure has caused great damage to those whom it pretended to help, as was forewarned. Now we have in hand a review of the Rent Acts, which the Government were forced to commission because of the complaints from all sides as to the operation of this measure.
By the way, perhaps I may ask the right hon. Gentleman when we shall have that review published and whether we could have amending legislation introduced before an election—or would that leave too much egg on the face of the Government?
However, reverting to the measure before us, whilst I cannot see that it will do much harm, I cannot see that it will do very much good, at least in the hands of the present Government. My feeling is that the right hon. Gentleman is introducing it without real personal conviction but rather with his tongue in his cheek, hoping that by elaborate window dressing and gaudy packaging he will bedazzle the public and conceal the facts that the carton is three-quarters empty.
First, as regards the timing of the scheme, the Bill when enacted will not come into force until a day appointed by the Secretary of State. What is the need for that? Most statutes come into effect a month after enactment, and the Rent Act, as we know, came into effect within the indecent period of two 1042 weeks from enactment. One wonders whether the Secretary of State really wants to produce his scheme in detail before the General Election so that its paucity can be fully demonstrated.
This is not an end of the matter, because even when the Act is in force it will not, as the Secretary of State has said, come into effect for another two years after that. A great deal of the gilt will have disappeared from the gingerbread in the shop window even before his Hansels and Gretels will have been enticed to taste it. The levels of help offered by the scheme will then have been totally outstripped by the rise in house prices over the next two or three years. Indeed, as I indicated in an earlier intervention, the Royal Institution of Chartered Surveyors has just warned that house prices have leapt 15 per cent. since Christmas, in some areas, and that house builders expect a £12,000 first-buy house to cost £17,000 within a year. A bonus of £110 will not go very far on that basis.
The truth is that we should be spending our time to more effect and more realistically if we were taking steps to fend off a house price explosion or tackling the current causes, namely, land famine and planning delays. Only this weekend, a builder in the North of England told me that delays in obtaining planning permission had added £2,000 to the cost of each house that he was intending to build and that he had therefore abandoned the project for the time being. Similarly, a combination of the Community Land Act and the development land tax were denying him land and forcing up the price of land that he was having to buy at highly inflated prices.
That is really the problem that we should be tackling by dismantling the Community Land Act and reducing development land tax, and by improving the planning system in order to bring forward a supply of house building land. That would be of great help to youngsters in keeping prices within the limits that they can afford.
With regard to the two-year time lag, I find it difficult to understand why it applies as equally to the loan as it does to the bonus. I can quite understand that a tax-free bonus can be applied only to approved savings over a given period. I do not see why a tax-free loan cannot 1043 be brought into operation immediately. Indeed, if it is not, the Secretary of State runs the risk of many potential buyers holding off purchase until they qualify both for the loan and for the bonus. That would be a disaster for the house building industry, which has been suffering the worst recession since the 1930s.
I am sure that the Minister for Housing and Construction would not wish to cap his 1977 figures for starts and completions, which are the worst in 15 years—40 per cent. and 20 per cent. less starts in both sectors in that year compared with the year before—
§ The Minister for Housing and Construction (Mr. Reginald Freeson)
The hon. Gentleman has got the figures wrong again.
§ Mr. Rossi
I have not got the figures wrong again. If the right hon. Gentleman wants to detain the House by bandying about figures, I shall give him the figures—if I can find my piece of paper. There were approximately 38,000 fewer starts in the public sector in 1977 compared with 1976 and about 20,000 fewer starts in the private sector in 1977 compared with 1976. Those are the worst figures for 15 years. I am sure that the Minister for Housing and Construction does not wish to have even more catastrophic figures in 1978, which he will do if he artificially creates a situation where people will hold back house purchase because they are looking for both the bonus and the loan.
These unreasonable and unnecessary delays in the implementation of the scheme must make the Government's motivation extremely suspect. Another matter which makes me question the Government's bona fides is the financial provisions for the Bill. We are told in the Explanatory and Financial Memorandum that, so far as can be predicted, the costs might be £100 million in the first year. These costs are to be met within existing expenditure provision for housing. If the £100 million is to come out of existing provision, on what part of the existing provision is the knife to fall?
I do not think that the Minister for Housing and Construction, or his hon. Friends the Members for Salford, East (Mr. Allaun) and Bolsover (Mr. Skinner), would willingly allow the knife to fall 1044 on new council house building. That would be alien to their particular approach to our housing problems. Thus, will it fall on improvement grants or—most likely—on local authority loans for home purchase? The Government's record in that regard has been to slash back from £736 million in 1973–74 to £116 million at present. It is something that the Government have a keenness for doing. If they are looking for economies in the housing sector, will it be local authority home loans or improvement grants?
If that is the case, one must be astonished at the cynicism of the Secretary of State in proposing as he does—in the language that he did—a measure to help home owners. That cynicism takes some beating, because the very people who suffer most from a cut-back in local authority loans are those at the lowest end of the market who need the greatest help if home ownership is to be made accessible to them.
This cynicism becomes somewhat evident when one begins to examine this particular scheme in detail. Let us look at the bonus. The first-time buyer must save for two years. At the end of the first year he must have saved a minimum of £300—or almost £6 a week out of taxed income. That will not be very easy for many young married couples, particularly those living in deprived conditions in the inner cities. If they save no more than £300 over the whole of the two-year period they will receive the princely sum of £40. If they save their £6 a week over the whole of the two years they then get £70—about enough to carpet one very small room or to buy a small Frigidaire.
I turn to the interest-free loan. This is equally illusory in terms of real help to first-time buyers. First, they must have saved all of £600 of their own money over two years before they qualify for the loan, if I am to believe the Press handout issued by the right hon. Gentleman's own Department.
§ Mr. Rossi
That is, therefore, postponing assistance to them even more. It 1045 says clearly in the explanatory note in the Press statement that a person must have a total of at least £600 in savings before he qualifies for the £600 loan. A first-time buyer might wait five or six years before he saves that amount and before he is entitled to the loan. I am glad that the right hon. Gentleman has made that point, because that is the kind of clarification we need about the scheme.
In any case, what will the loan be worth when they receive it? Let us assume that mortgage interest rates are 10 per cent.—a convenient figure—and that there is a basic tax rate of 34p in the pound. The net benefit of not paying interest on £600 is a little under £40 a years for five years.
That would enable a couple to watch the Secretary of State explain in his party political broadcast of 1981 why he has not put a house around their rented television set—black and white, of course. Even with regard to the £600 there is a catch. The Secretary of State said that his proposal will give young couples £700 more in their pockets than they would have without the scheme. That is highly misleading. The £600 is part of the original mortgage loan. In giving a mortgage loan the building society will have to take the £600 into account when calculating how much the buyer can afford to borrow.
§ Mr. Rossi
The £600 is repayable and, therefore, must relate to the borrower's ability to keep up the monthly repayments, otherwise the Secretary of State is inducing people to enter into a commitment that they cannot possibly afford. Therefore, the borrower will get nothing extra by way of loan in relation to his financial status.
It is quite true that the Secretary of State in his Press statement talked about adding on to the loan so that the total mortgage is not more than 100 per cent. of the value of the property. But there are two factors in every mortgage loan. There is the value of the security—how much the building society is prepared to lend on the value of the house—and the financial ability of the borrower to repay. The building society must—but must—take into account—unless there is to be an irresponsible breach of current prac- 1046 tice —whether that £600 will go beyond the financial status of the borrower concerned.
If I am right in that explanation—I hope that in his reply the Minister for Housing and Construction will tell me whether I am right or wrong—then the Secretary of State has misled the House by saying that this will put £700 more into the pocket of the borrower than he otherwise could get out of a building society.
§ Mr. Shore
I think the hon. Gentleman is in some ways making Committee points, but I do not wish to deny the House any clarification even at the Second Reading stage. I would remind the hon. Gentleman of what I said earlier. I said:It is an important part of the benefit that the loan is additional to the mortgage which the institution would otherwise have lent.Clause 1(4) makes that perfectly plain. Therefore, it is known that the building society will, as it were, add this sum on top of the sum which it would otherwise have made available to the would-be first-time purchaser.
§ Mr. Rossi
That is an extremely interesting statement. I took care to check these matters. I understood that the right hon. Gentleman's statement related only to the mortgage that the borrower could get upon the value of the property—the security that that would offer—and, of course, there is the cut-off point mentioned in the Bill in that the loan cannot be taken by the £600 beyond the 100 per cent. mortgage upon the value or the price of that house. However, we can take up this matter again in Committee. The information that I have received from the building societies suggests that they have not understood the Bill in the way in which the right hon. Gentleman has described it.
But whatever our feelings may be about the inadequacy of the Bill, it would be churlish of me not to recognise the advance that has taken place in Government thinking about the value to our society of helping home buyers. It represents a major change in Labour Party theology—a profound conversion. I am certain that there is more joy in heaven over this repentance than if 99 per cent. of my hon. Friends were to bear witness to their belief in home ownership.
1047 As far as it goes, we welcome the Bill. I welcome it as the first tottering step of a newly born Labour Party attitude towards home owners. I welcome it also as creating a vehicle which we shall require in order to introduce a more useful scheme in a few months' time. We have noted with satisfaction that the mortgage bonus may be varied at any time by the Secretary of State with the consent of the Treasury. We note also that the terms and conditions of the payments may be dealt with also by ministerial direction. That is all we require, and as soon as we are in office we shall introduce a scheme that we announced not just today but as long as three and a half years ago.
Under that scheme, the first-time buyer will receive a tax-free bonus of £1 for every £2 saved. Therefore, if he saves only £300, he will receive a bonus of £150 when he buys his house instead of only £40, and he will not be pushed to save it all in the first 12 months either. He will not have to worry about struggling on to have another £300 to get an extra £40 a year over five years under repayable loan. There will be nothing for him to repay.
Of course, if, he saves the proposed maximum of £1,000 under the Government scheme, instead of the £310 spread over five years that the Government propose, he will get from us £500 straight away. It is also our hope that we shall be able to extend our scheme to qualify for outright grants of anything between £1,000 and £1,500. After all, if that can be managed in Southern Ireland, with its basically agricultural economy, we can manage it here, particularly when we compare it with the cost of the provision for the deficit annual subsidy on a council house.
§ Mr. Stephen Ross
I thought that the Irish scheme was limited to newly built homes. That was done in order to give an incentive to the building industry. Would the Conservative Party's scheme be similar?
§ Mr. Rossi
The intention is to help people to buy a home of their own for the first time. Australia is also, most sensibly, running a scheme which we are looking at most closely. Not surprisingly, the Australian scheme was stopped by Mr. Whitlam but has recently been restored. 1048 One does not have to look at the ideology to realise why.
The Secretary of State talked in terms of public expenditure when he criticised our scheme. I hope that I have dealt with that matter. He also asked us where we would find other savings in public expenditure. We find the Community Land Act, with its proposed spending of £500 million a year, quite unnecessary. We would far rather get rid of that Act and give the money to young couples anxious to buy their own homes while ensuring that land becomes more freely available.
Real and substantial steps towards home ownership are what our young people want above all else. That is the kind of help that we will give. It is the cheapest way of providing houses for them. We must ensure that they realise their dreams. It can be done, and it will be done.
§ 5.15 p.m.
§ Mr. Michael Stewart (Fulham)
I must apologise to the House in advance for the fact that unavoidable other duties as a Member will necessitate my leaving the debate soon after I finish speaking, but I could not resist speaking on this subject, with which I have been familiar and in which I have been interested for many years.
I recall that I bought my first house many years ago with the help of a mortgage from a Labour local authority under powers given to it by an Act of Parliament passed by a Labour Government. The fact is that most of the legislation which has helped people to own their own homes has been passed by Labour Governments. We have had lots of prospectuses such as that just offered by the hon. Member for Hornsey (Mr. Rossi) on behalf of the Conservative Party, but they have not always turned out quite right.
I gathered from the hon. Gentleman's speech that he thought the Bill to be a waste of time and a misuse of money but would not oppose it. We can leave that for what it is worth. As far as I see it, the object of Government housing policy should not be specifically to favour either rented or owner-occupation. It should be to give to people who want a new home as much consumer choice between the two methods as possible.
1049 The weakness of Tory housing policy is that generally it is so arranged as to make it easier for people who are tolerably housed to become better housed but to push those who are really badly housed further down by lengthening the waiting lists for rented accommodation and by a quite merciless treatment of them on the subject of rent.
I have already mentioned my personal experience in buying a house. Later, as a Member of Parliament, I had the experience, like other hon. Members, of constituents consulting me on the problem of getting a home. Over and over again one found the situation where a young couple, responsible and thrifty, found it terribly difficult to bridge the gap between the mortgage they could get and the sum of money they would actually have to put down. This not only applied to the price of the house itself but encompassed legal expenses and all the other odds and ends which always seem to crop up when buying a house.
In the early 1960s we still suffered the effects of that masterpiece of Tory housing problems, the "Rachman's friend" Act of 1957. These young couples found that, while they were desperately trying to save more money in order to bridge the gap, that Act was giving their landlords more and more opportunity to put up the rents against them so that they could not save. Therefore, an approach of the kind now introduced by the present Government in this Bill has been needed for a long time. The need is not quite so acute now as when the Rachmanite legislation was in force, but it is still there among thrifty young couples who still find that they have not got quite enough.
I welcome the Bill. I do so because, although it is obviously not, and was not meant to be, a major Bill, it will give a limited amount of help at points where it will be genuinely useful. There can and no doubt will be arguments in Committee about such matters as the periods of time, the size and sums of money, and so on, but these are factors that we can sort out. I can easily picture a number of my constituents who will welcome the Bill. It is right so to arrange it, as my right hon. Friend has said, that the Government do not put a sudden flood of 1050 money into the market which would merely cause a rise in house prices.
I wonder whether my right hon. Friend will consider one other thing. I have mentioned the legal expenses of buying a house. We do not want this measure to result after a time in a rise in the incidental expenses of buying a house, because the money is intended to help young couples who are buying their homes for the first time. It is not intended to benefit those whose business is arranging the buying and selling of houses. I do not think it will be possible to get it into the compass of the Bill, but I hope that my right hon. Friend will accept that the Bill underlines the need for some legislation to make the process of buying and selling a house simpler and less expensive than it is at present. I am told that it is both cheaper and simpler to buy and sell a house in Scotland than it is in this country. Perhaps my right hon. Friend will consider whether something could be learned from that source.
Although the Bill is of very limited scope, none the less I believe that it is very well tailored to meet a particular need. I am quite sure that the House, despite the small attendance at the moment, will also be glad when the Bill is passed into law.
§ 5.21 p.m.
§ Mr. Stephen Ross (Isle of Wight)
I entirely agree with the right hon. Member for Fulham (Mr. Stewart) that the cost of buying and selling houses in this country is far too expensive, and has been for too long a time.
I declare an interest as a chartered surveyor. I have been ashamed to see commission claims go out to vendors on occasions when one has done very little to effect a sale. On the other hand, where one has worked terribly hard on a deal, often one gets very little out of it. Too often it is someone such as the dustman who offers an additional gift for a service performed when such is not really deserved or necessary.
It can be argued that a person has no need to go to an estate agent in order to sell his property, and can do it by him-self if he wishes, but he is a brave person who does his own conveyancing. It is long past time that the procedure for buying and selling property was simplified. I am not wishing to see work taken away 1051 from lawyers, who are probably the right people to do it, but I suggest that it is time that they put their house in order.
I should have liked to say, when we were discussing the Estate Agents Bill, that estate agents and lawyers should get together and produce a simplified form of contract which could be broken if some of the facts were found to be incorrect, and which would also stop gazumping and make the whole process much simpler.
It ought to be possible to transfer a property by means of a registration book, as with the transfer of ownership of a car. The State should help by speeding up the process of registration. If something could be done along those lines, it would be a step in the right direction. I shall of course be told by lawyers that sometimes the most difficult properties to convey are those with a registered title. However, the fact remains that people have to pay very large sums of money when buying and selling property, and apart from this the whole process must be speeded up.
I welcome the Bill as a positive step to enable first-time purchasers to get a foot on the ladder of home purchase and thus help in the extension of our property-owning democracy. I am certain, however, that there will soon be disappointment expressed in many quarters. It will come very rapidly after this debate, because people have already been in touch with me as to when the Bill will become law. Many people are expecting a cash payment some time this year; therefore there is bound to be disappointment when the conditions of the scheme are understood and the somewhat complicated nature of it. The fact that it will be two years before a person can qualify may well dissuade those who would like to purchase. We have a selling job to do in this respect.
I accept, on reflection, that it is probably right to link the bonus and the interest-free loan to a positive effort on the part of the borrower to save.
I am very concerned about the present housing situation. If we are not careful and feed in too much mortgage money too rapidly, there will be a take-off and we shall almost be back to the position in 1971, 1972 and 1973, and that will not help anyone. The Secretary of State gave us the figures for those years.
1052 If the Opposition are to put forward a policy for a cash grant of as much as £1,250, as an outright promise in the next General Election campaign, I believe that there will be anotherr price explosion. I say that in all honesty to the hon. Member for Hornsey (Mr. Rossi). I do not disagree with his ideas on extending the bonus for the money invested, but I believe that any promise of the size that he mentioned for an outright cash grant could lead to real trouble.
§ Mr. Rossi
The hon. Gentleman will appreciate that the amount of the grant will be related to the amount of saving, therefore it is not as inflationary as he would suggest. Secondly, it is only part of a whole series of proposals that we have concerning the release of land and matters of that kind, which will in their turn help to keep down prices.
§ Mr. Ross
I will not go further into that, but I beg the Opposition to be responsible over this question in the forthcoming General Election, because it would be wrong to make promises which could lead to the sort of position that we had three or four years ago. I believe that it was the housing position, not the miners, that lost the Conservative Party the last General Election. A great many people felt very sick and frustrated at seeing house prices double over a period of four years, when they had no opportunity of purchasing houses.
I am mystified that house prices are taking off at this time. With pay restraint, where has all the money suddenly come from? I suggest that company schemes are possibly responsible for quite a bit of this. People must be getting round some of the pay restrictions. Perhaps the Secretary of State will consider this when he puts forward his regulations. Should banks and other-companies which run their own mortgage schemes at reduced rates of interest qualify under the Bill? I doubt whether they should. It is a mystery to me that people who earn less than a Member of Parliament seem to be buying, in quite large numbers, property up to the £25,000 mark. I should be very interested to be told why this is happening.
I agree with the hon. Member for Hornsey that a great deal could be done to release more land. I accept that absolutely. I think that the Secretary of State 1053 ought to put even more pressure on local authorities and institutions to release land and get it sold. I believe that at the present time their land could actually realise what they gave for it, because the Estates Gazette last week spoke of land changing hands at £80,000 an acre, and that is an extortionate sum. Something must be done about that.
I do not want to see development land tax reduced all that much. I should prefer to see it done away with altogether and a different form of taxation introduced which would work effectively. If development land tax is brought down to 35 per cent. or 40 per cent., the result will only be to push up land prices still more. It is time that we settled the land problem once and for all. We ought to agree on a policy and stick to it.
We still need planning restraint. It is very often the supporters of the hon. Member for Hornsey who are the most vociferous about local authorities giving planning consent too easily. I would rather have the local authorities consider big schemes seriously, and take time over this, than release land for developments such as we have seen over the last 10 years and wish we had never created.
The smaller applications ought to be dealt with in a much speedier fashion, but where there are big developments, in regard to which it is sought to release large acreages of land, we ought to be very careful. I do not want to see vast acreages of good agricultural land released when there is plenty of building land available within our urban areas. In retrospect, although I suggested at one time that a cash grant was preferable, I think that the Government may well be right to be cautious.
There will be difficulties about the boundaries between the regions of England and the different limits which the Secretary of State will have to apply. There will be occasions where, say, the South-East and the South-West regions meet and someone will ask why he should not be in one area rather than the other. But the very fact that the Secretary of State will keep those ceilings down will have some effect in persuading builders to try to keep within the limits, so that should be an influence in helping the first-time purchaser.
1054 I congratulate the building societies on their co-operation and willingness to work the scheme. It should be recognised that, contrary to some of the comments which have been made today, building societies are becoming more flexible in their attitude to the inner urban areas. They are moving slowly in that direction, and I think that the Government have played some part in that. There have been some statements recently from certain building societies saying that they are looking into these matters with a view to being more helpful, and I welcome that. It is a good trend.
I welcome the increase in the Housing Corporation guarantee. Housing associations can do a great deal more, especially in decaying urban areas. I am not thinking here only of the inner cities. I think, for example, of my own constituency once again where, in the inner urban area of Newport, our market town, there is a huge area formerly occupied by a thriving brewery. For three years now, a housing association linked with the British Legion has been trying to get a scheme off the ground to have that land developed for sheltered accommodation for ex-Service men. The association has failed to get finance through the local authorities, and the Housing Corporation has taken the view that this is not an area which it should regard as of first priority for its money.
I hope that the Secretary of State will realise that there are many market towns in a decaying condition similar to the inner areas of our big cities and will not be too restrictive in the way that the additional money—£300 million rising to £500 million—is to be spent by the Housing Corporation.
With those few comments, I welcome the Bill.
§ 5.32 p.m.
§ Mr. Bruce Douglas-Mann (Mitcham and Morden)
The hon. Member for Hornsey (Mr. Rossi), when talking about the speech which he might have made, said that it would have been churlish not to welcome the Bill, but I think that anyone who listened to the remainder of his speech will think that it was extremely churlish, even by his standards.
What the hon. Gentleman envisaged as the policy which his party might carry out if, unfortunately, it were to have 1055 control of housing would undoubtedly result in an enormous explosion in house prices. He explained in an intervention during the speech of the hon. Member for Isle of Wight (Mr. Ross) that his party would provide cash grants which would be scaled to the amount which purchasers had. Thus, the more money one had, the more one would be able to get by way of grant from the Government, and therefore the more inflationary pressure would be exerted.
If that is to be one of the ingredients of Conservative housing policy at the next election, we shall look back with nostalgia to the relative modesty of the 9½ per cent. mortgage bribe which was offered at the previous General Election.
§ Mr. Rossi
The hon. Gentleman should realise that, as with the Government's scheme, there would be a proposal to limit our scheme to houses below a certain value. Those above that would not qualify under the scheme. The object is to help people who are worse off to secure the maximum benefit possible towards buying their houses. Obviously, a wealthy person who is able to stuff a lot of money suddenly into a building society would not be interested in buying the sort of house to which our scheme would be directed.
§ Mr. Douglas-Mann
I welcome that assurance, and I hope that the Government will take it on board, because it is my apprehension that one of the defects of the Bill is that the limit of assistance will be set too high. I shall come back to that later.
The Conservative Party seldom seems to understand that the more public money is made available in the private housing sector, the more rapidly house prices will rise. We constantly hear references to the effect of the Rent Act on the supply of privately rented houses, but Conservatives do not seem to appreciate the reality. To be fair, I think that the hon. Member for Hornsey does understand this, and he occasionally lets the cat out of the bag in public, but very few of his hon. Friends understand the effect of mortgage interest tax relief on the privately rented sector.
At present, a man who owns a house which can be sold at, say £10,000, can receive for that house, if interest rates are 1056 at 12 per cent., a sum worth £1,200 a year; but it costs a person buying the house, because of tax relief, only £800. On the other hand, if the owner were to let that same house, to get the same return he must receive from the occupier £1,200 a year, that is, 50 per cent. more than it would cost somebody to pay as mortgage interest on buying it.
That is why there is a constant diminution in the stock of privately rented houses, and that is why house prices are constantly escalating. However, that subject goes wider than the Bill before us, raising the question of mortgage interest tax relief in general, and I shall deal with it on another occasion.
By pumping too much money into the private purchase sector we make house prices escalate and we create a distortion of the market, such as we have seen over the past two years, which undoubtedly adds to inflationary pressures and makes house purchase infinitely more difficult for millions of people. However, I shall not be diverted too far into that now.
I accept from the hon. Member for Hornsey the criticism that the Government have not adequately distinguished between two categories of potential buyer. The hon. Gentleman described this as a modest Bill, as did my right hon. Friend the Secretary of State. I accept that. It is a Bill about which my right hon. Friend has good cause to be modest. It is, perhaps, a Bill desirable in itself but, if it is to achieve its objects, it ought to be on a larger scale.
In my view, the object should be to assist those who could not otherwise make it as first-time owner-occupiers. I feel that my right hon. and hon. Friends have confused two objects, and if we are to spend only £100 million a year we need to concentrate on only one.
In my view, Ministers have confused the objective of assisting first-time house purchasers generally—people who could have made it as house purchasers anyway without the scheme—with those who would not otherwise make it. My fear is that they have the balance wrong, because there will be far too few who would not otherwise have made it and there will be a little help spread very thinly over a fairly large number of people who would have been able to make it as house purchasers anyway.
1057 I gather from the Press statement accompanying the Bill that it is proposed that the limits will be set so that roughly two-thirds of first-time purchasers in Scotland, Wales, Northern Ireland and each of the English regions will be able to qualify. My fear is that, with only £100 million altogether, there will not be many people brought into the category of potential purchasers who would not have made it anyway without the scheme. The limits on the price of eligible property should be set a good deal lower.
I turn now to the detail of the proposals. I understand that the cash bonus is likely to cost about £15 million a year, once it comes into effect, and presumably that will continue indefinitely. But £15 million spread over the numbers involved will be but a trifling sum. I understand that it is estimated to be £110 as the maximum anyone can obtain.
One has to set that against the administrative cost of keeping track of the amounts which people have been saving. Even if the building societies absorb a substantial part of this cost and it does not all fall on public funds, in one way or another, there will be an administrative cost to come out of the money likely to be available for house purchase. Even if the building societies increase their overhead expenditure, there will still be a waste of money in keeping track of all the sums which people save for the sake of a total expenditure of £15 million a year.
If, as is clear from the Financial Memorandum to the Bill, that £15 million is coming out of other housing expenditure, I can think of much better uses for it. Perhaps this is seen as a revenue measure which is a means of encouraging people to save, as is the case with the Chancellor's National Savings schemes. If so, it should have been presented as part of the Chancellor's proposals which do not affect housing expenditure. It may be worth while—I cannot judge. But it is not sufficiently worth while to take £15 million away from other housing objectives.
On the additional loans scheme, I feel that the Government once again are falling between two stools. They should either give money away to first-time home buyers and not aim particularly at alleviating hardship of those just outside 1058 the scheme, or they should concentrate—as I believe they should—on those who would not otherwise be able to come within the scheme.
The Memorandum envisages limits set at average regional house prices, so that two-thirds of all first-time buyers will be eligible for the loan. In national terms this means people on an average income of up to £4,500 a year. Mostly these are not those families who are struggling to get out of the pressures of housing need—nor those anxious to escape from inner city privately rented accommodation.
The group at which this Bill primarily is aimed—those in housing need with a bit of savings—are those who are living in privately rented accommodation and who know that they could buy the house from their landlord if they could raise the money. This Bill will not provide enough assistance to break through that difficult barrier of raising the essential deposit and the money for the costs involved.
§ Mr. Tim Sainsbury (Hove)
I am trying to follow the hon. Member's argument. Is he suggesting that the scheme should be more generous in the help that it gives to first-time buyers in raising the initial deposit?
§ Mr. Douglas-Mann
I should like to allocate more money for concentration at the lower end of the scale. We must not put too much public money into any particular sector of the market so that we cause inflation in that market. I do not think that there is much danger of doing this in the privately rented sector where the landlord is prepared to sell. We should offer more money to those trying to buy in that sector. I want to see the Bill go further, provided that as a consequence we do not generate excessive demand which will result merely in prices being pushed up. The two-year delaying period for new houses will achieve that goal, and for existing housing we can introduce it without any delay, without resulting in any particular inflationary pressure being generated.
Not only are the financial limits of the Bill likely to exclude enough help, but the way in which the Bill is framed will make it very difficult for adequate help to be given. First of all, there is the 1059 restriction of the scheme operating only through established lending institutions. We know from studies in inner Birmingham that 20 per cent. of all buyers had loans from clearing banks of less than five years' duration. A high proportion had loans which had not been raised through the established institutions. These people would not be eligible under the Bill.
Also, a high proportion of building societies operate a red lining system which excludes a great many of the houses that we need to ensure are bought as a consequence of the measure. Unless the Secretary of State can ensure that building societies will drop the red lining system as a consequence of operating within the Bill—and I do not know what incentive he might provide—the Bill will not achieve its principal objective.
My greatest anxiety is that the expenditure is coming out of other housing expenditure. Although the Bill itself is desirable, I do not regard the money being spent under it as sufficiently worthwhile to justify cutting expenditure in other fields. We shall not have the sort of expenditure that either my right hon. Friend or I would like to see. The projected housing expenditure in the year this Bill begins operation will be at a low level, having regard to the level of need. Therefore it will not do much to help solve the problems in our inner cities.
The hon. Member for the Isle of Wight and my right hon. Friend the Member for Fulham (Mr. Stewart) referred to the cost of legal expenses in house purchase. Speaking as a solicitor, I agree entirely. The legal charges of solicitors for house purchase transactions frequently are too high. I hope that my right hon. Friend will do his best to reintroduce a maximum scale charge.
I welcome the provision of power to the Housing Corporation to guarantee loans to housing associations. I hope that my right hon. Friend will expand it more rapidly, because this is a field in which we can increase the most important part of housing activity—the alleviation of housing need by the acquisition in our inner cities and elsewhere of formerly privately rented accommodation. This can be done by housing associations, together with the Housing Corporation, without any increase in public expenditure figures. 1060 This is a field that urgently needs exploration.
I give a cautious welcome to the Bill and I hope that it will be supported in the House and that we shall have the opportunity of improving it in Committee.
§ 5.50 p.m.
§ Mr. Michael Morris (Northampton, South)
I agree with my hon. Friend the Member for Hornsey (Mr. Rossi) that it would be churlish not to welcome the Bill. It is to be welcomed because we all know that in the background are many young people in the under-35s group, amounting to 80 per cent. of mortgage seekers, who want to own their own homes. Therefore, it is incumbent upon us to do what we can to ensure that their wishes are met.
However, the Bill throws up certain problems. It is not a very generous Bill. It is complicated and will be rather slow in beginning. There are a number of other schemes throughout the world that are much simpler to operate than the scheme in the Bill. Furthermore, the bonus of £110, after the saving of £1,000, does not provide sufficient incentive for young people to try very hard to save that extra amount of money.
This scheme should be examined with the save-as-you-earn scheme in mind as well as the scheme for pensioners involving the provision of a sum of £500 as an investment. The hon. Member for Mitcham and Morden (Mr. Douglas-Mann) made a valid point when he said that if there is to be an incentive to save it should be advanced by the Chancellor of the Exchequer and examined in the total context of savings schemes.
It has already been pointed out that a figure of £600 as a loan figure in present circumstances, when set against the requirement for a deposit, survey and legal costs, will hardly cover the total involved and provide a starting point. Therefore, I wish to make one or two suggestions for consideration in Committee.
Why cannot the loan element begin earlier than in two years? I do not think the figure of £600 will make a mammoth difference to house prices. It seems strange that one cannot get that element of the scheme going at an earlier date than in two or two-and-a-half years' time.
1061 Why can we not examine indexing in this context? Although the Government hope that inflation will fall. I must point out that, even at a rate of 10 per cent. a year, the figure of £110 will depreciate over a couple of years. I believe that if we seek to index a number of the other schemes that I mentioned earlier, we shall be able to index the financial benefit in the scheme in the Bill. It is not good enough for the Secretary of State to suggest that there are administrative difficulties that would stand in the way of bringing forward the matter as a law. That is not a considered point to put forward.
I am worried about putting on these provisions any price limitation other than a fairly high one. Those of us who experienced the early days of improvement grants know that the great problem then was the cut-off point of rateable value in respect of improvement grants. That was relieved only when properties were upgraded to a high level, and expensive properties could be included in the list for improvement grants. It was only when the scheme got going that one was able to remove some of the distortions in the market.
The danger with the proposed scheme is that we shall find on the margin people who are holding back awaiting the annual review of prices which I understand is about to occur. We shall then return to a situation in which inflated prices are asked for fixtures and fittings, with other manoeuvres being taken to ensure that people near the margin are brought back under it. That is a danger and we should re-examine the situation.
Another problem in the inner city areas relates to eligibility. Honourable Members will know that Shelter has carried out an extensive examination into the take-up of owner-occupation in some of the inner city areas. If Shelter's claim is anywhere near right and half of the cases they have examined in inner city areas would not be eligible for this scheme, I believe that it throws up a worrying situation, because it appears that the Bill will not be able to meet the aspirations of the Secretary of State.
There is now clear evidence that there are people who, for one reason or another, choose to borrow on a short- 1062 term basis of up to five years. Some borrow on unsecured loans. A number of so-called fringe banks—I am aware of certain Asian banks which operate in this connection—would not be covered by the Bill. So far as I can discover, they are perfectly reputable banks and provide a viable service in some inner city areas in which nationals seek to use banks from their originating countries. Therefore, the situation in that respect also needs to be examined.
Is the Minister able to say whether local authority authorities will be able to bring down the interest rate on local authority mortgages and to offset the cost against the ratepayer? The provision of local authority mortgages in inner city and inner town areas is of relevance and great importance when we are considering this Bill.
I wish to say a few words about the provisions of the Bill relating to the Housing Corporation. I wish to sound a note of caution. I believe that the initial impetus which brought the voluntary housing movement into being is in danger of being lost. It was originally conceived to bring extra money into the house market and also to provide extra resources to enable a slightly different dimension of rent to be offered. Assistance was to be given to teachers and others who wished to help in deprived areas and who were not eligible for council housing or were unable to obtain sufficient points to obtain accommodation. That was the original conception.
The danger now is that the matter has got somewhat monolithic in proportion. I have factual evidence to suggest that the voluntary element, the charities—very much the backbone in the early days—is now being disregarded and is not consulted when changes are made. The matter is being driven forward with energy, which is a subject for congratulation, but it takes no consideration of the views and aspirations of those who started the movement.
Speaking for myself, I should like to see the Housing Corporation becoming considerably more democratic in respect of those to whom it reports and about its objectives. I do not welcome the total concentration on inner city areas, as now seems to be happening, because all the 1063 money appears to be geared in that direction. That was not the original concept of the voluntary housing movement, and it will be a sad day if that becomes the policy.
It is at least a good thing that we have a Bill that is geared to helping young people to get on the housing ladder. I welcome the fact that the officials concerned have been converted that far. The Secretary of State has been asked to define the primary objective of the Bill. If its primary objective is to help those who are on the margin who would not otherwise be able to get started, the point made by the hon. Member for Mitcham and Morden is a good one, because obviously the Bill as drafted is not geared to meet that need.
This is not merely a problem in the inner city areas. If one examines the town of Northampton, one discovers that the biggest problem area in housing terms lies in the terraced houses in the inner part of the town whose value has dropped astronomically. There are 800 or 900 of those properties on the market and they are sticking. If the Secretary of State wishes to get at the people on the margin, the young married couples, he will have to think again and he may have to steer more money in their direction. It may be that he will decide that this Bill is not the right one to do it, because it may be that the answer lies in a more generous approach to housing repair costs and that sort of aspect of work. But, when we deal with the Bill in Committee, it will be useful if we have in mind an explanation from the Minister in simple terms of the objective behind the measure. If we have that, we shall be better able to make a contribution towards the Committee stage.
I welcome the Bill and look forward to its reaching the statute book.
§ 6.0 p.m.
§ Mr. Michael Shersby (Uxbridge)
Any Bill which is designed to help first-time home buyers is of special interest to me. My interest in the matter goes back many years to the days when I served as a councillor in two London boroughs and was aware there of the grave difficulties facing young couples wanting to buy their own homes for the first time. It is an interest which goes back especially to the General Election of 1974 when, as 1064 a parliamentary candidate, I was a keen supporter of the Conservative home savings grant scheme which I believed would have done a great deal to help young couples in my constituency to buy their own homes.
Therefore, although I welcome the Bill, I am sorry that it has been so long delayed, and it is to my mind inadequate to deal with the problem which faces young couples in the constituency which I represent.
I should like to examine one or two aspects of the Bill and to demonstrate why I think it is unrealistic and will make no substantial contribution to assist first-time home buyers in many areas of the country, especially those in Greater London. I shall try to show why it is nowhere near as good as the recommendations put forward by the Conservative Party in its election manifesto in 1974 and in its policy document "The Right Approach" in October 1976.
There is no doubt from what my hon. Friend the Member for Hornsey (Mr. Rossi) said that the scheme set out in the Bill is far less generous than the Conservative scheme set out in "The Right Approach". Under the Conservative proposals, there would have been a straight forward grant of £1 for every £2 saved, up to a maximum of £1,200 or £1,300 per person, which is far in excess of the maximum available by way of loan under the Bill. Although the loan is to be interest free for a period of five years, I understand that that does not alter the fact that, after the initial period, the loan has to be repaid with interest at a rate which as I understand it has yet to be fixed.
But let us assume for the sake of this debate that the rate will be about 8½ per cent. I calculate that that will be about £5.29 a month over a period of 20 years. This means an increase in the amount of repayment probably at just about the time, in the case of a young married couple who have started a family, they face increasing expenses in circumstances where the wife has to give up her job, at least temporarily. I think that these are fairly difficult circumstances which most young couples find themselves in, and it seems to me, therefore, that there are some very high hurdles for prospective home buyers to jump if they 1065 are to qualify for the cash bonus of £110 or the loan of £600 provided in the Bill.
When I read the Bill, I thought that the Government must have caught the hurdle disease from the Scotland Bill by including in the loan scheme savings hurdles which I believe will be quite a problem for many youngsters. I say that because, although they are trying to save in order to qualify under the scheme, the price of property is rising and inflation continues. Therefore, it is a difficult hurdle for many young people to jump.
We know, for example, that to qualify for the £600 loan the prospective purchaser must have a total of £600 in savings, in which case the lending institution will match it with a £600 additional loan from the taxpayer, interest free for five years.
To qualify for the cash bonus, we have heard the Minister explain that the prospective purchaser will have to have saved for two years with a recognised savings institution and to have kept at least £300 in his account throughout the 12 months before asking for the loan. If the prospective purchaser manages to do this, he will receive a tax-free bonus at the lower end of the scale of a mere £40, and that after two years of pretty hard saving. I do not think that that is very much of an incentive, and if he is to get the maximum bonus of £110 he will have had to save £1,000, assuming that my calculations are correct. This is quite inadequate, and it does not even begin to compare with the scheme put forward by the Conservative Party in "The Right Approach".
Why is that? I believe that there are several reasons. First, I believe that the Government want quite naturally to give the impression of helping first-time home buyers. However, I fear that in practice very few will really benefit. Secondly—and I shall be charitable—I detect the hand of the Treasury in the framing of the Bill, and I am not surprised, therefore, that it does not begin to understand the problems of first-time home buyers.
The overriding problem which they all face is that of saving the deposit. It is the deposit and the difficulty of acquiring that deposit which faces young people in my constituency. It was my hope, therefore, that a Bill of this kind would be more generous and that there would not 1066 have been the kind of waiting period to which my hon. Friend the Member for Northampton, South (Mr. Morris) referred. During that period, the price of property will continue to rise, inflation will continue, and the problem will get more difficult.
I should now like to demonstrate why I think a loan of £600 plus a small cash bonus is of very little help to young people who come to my constituency surgery every week. Let us consider the cost of buying a three-bedroom semidetached house in the London Borough of Hillingdon suitable for a young couple planning to have an average size family. In talking of a three-bedroom semi—and Hillingdon is made up of three-bedroom semis—I am thinking of youngsters who have perhaps been living in rented accommodation or with parents, who already have one or perhaps two children and who want to buy a house which will be suitable for family occupation. They will want a house with two or three bedrooms and perhaps a small garden where their children can be brought up in comparatively decent conditions. So I am talking not about an elaborate house but about a typical semi or perhaps a maisonette if they can find one—somewhere to begin married life with a young family.
According to the council-operated Hillingdon housing advice bureau, the price of the average house today is between £14,000 and £17,000. This is confirmed by a leading building society in Uxbridge. If we are to assume that the young purchaser has achieved the minimum qualification for the cash bonus and have savings of £400, he will get just £40 plus his £600 loan. That means that the purchase price will be reduced by £640 on a house costing, say, £14,000. If he has the maximum of £1,000 saved, the price will be reduced by only £710 compared with £1,200 under the Conservative scheme referred to by my hon. Friend the Member for Hornsey.
How, then, will this help materially? Let us consider how the £600 loan plus the £40 bonus will help a young couple paying £14,000 for an old house which is probably in need of repair and improvement, bearing in mind that in the London Borough of Hillingdon it is impossible to get an improvement grant because such grants simply are not available.
1067 Let us consider also the other expenses which the young purchaser will have to meet. There is, for example, the building society survey, which I estimate will cost £27. If he is wise, there will be a structural survey, costing anything up to £100. There will be solicitors' fees of £150. It may be that removal expenses from rented accommodation or living-with-parents' accommodation will amount to another £100. Insurance for the first year will be about £50. That makes a total of about £465. In addition, the young couple living in that type of house in outer London, especially if they work in central London, will have to face commuter fares of anything up to £350 a year. I know that the cost of travel is not a housing expense, but it is a relevant part of the expenditure of a young family.
On a mortgage of £13,000 on a £14,000 house taken out over 25 years, the loan of £600 is worth £5 a month, or £1.20 gross a week, or a £60 a year reduction in the initial mortgage repayment. I calculate those figures by taking the repayment of principal and interest on a loan of £600 at 8½ per cent. spread over 25 years. At those rates the young couple would still have to pay £101 a month or £23.32 a week on the remaining £12,400 of the loan, less tax relief. Therefore, the loan provided for in the Bill enables there to be only a small reduction on the mortgage. It is a trivial sum compared with the tax relief on the loan.
That is not a real incentive for young couples on the margin to buy their home. That is my basic criticism of the Bill. If the Secretary of States and his colleagues wished to provide this sort of incentive but were determined to apply the restrictions that are to be found in the Bill, there must surely be a better and less costly way of achieving the same result.
It is clear that the proposals contained in the Bill are far from adequate and of little help to a first-time home buyer in many areas such as the one that I represent, where house prices are rising fast.
What must be done to improve the Bill? First, I believe that it should be amended to make it more generous and to come into operation more quickly so that young couples may benefit without having to wait for two years during a period of rapidly rising house prices, during a period when inflation is continuing at a high rate. That is essential.
1068 I should like the Bill to be amended so that it takes on the shape of the scheme proposed in "The Right Approach". It has been said this afternoon that to operate a scheme of grants rather than loans is financially irresponsible. It must be said in reply that if families are not helped by a scheme of that sort they will have no alternative but to go on the council waiting list for a council house. There would be a major saving of public funds.
The average price of a house in Hillingdon is £14,000. That is the price of a second-hand house. That price must be compared with the cost of building a new council house, which is probably about £20,000. As my hon. Friend the Member for Hornsey has said, there is a subsidy from the taxpayer of £1,200 to £1,300 on a new council house. That is roughly equivalent to a once-for-all maximum grant that prospective purchasers would have received if they had been lucky enough to benefit from the Conservative home purchase scheme instead of the Bill. That compares with about £300, which is roughly the cost to the Exchequer of tax relief on a new mortgage.
The Bill should tackle one of the greatest problems facing many tenants today who wish to buy their own homes. The Bill does not contain the legal right for tenants to buy their houses on favourable terms. All that it does is provide a comparatively trivial sum to those who are either private tenants or those living in other forms of unsatisfactory accommodation such as caravans.
I should like the Bill to incorporate modifications to the Community Land Act so that more land would be brought on to the market. That would help to cancel out the rising price of houses. I should also like it to contain some attempt to deal with the problem of shorthold tenancies along the lines proposed by my hon. Friend the Member for Kensington (Sir B. Rhys Williams). If that problem were dealt with, we would bring vacant residential accommodation back into use as homes.
I have never been able to understand why the Government have been so unwilling to tackle the problem of vacant accommodation throughout Greater London and many other large cities. The Bill is proposing to help young people obtain homes for the first time by giving 1069 them a small cash incentive, but nothing is being done to deal with the enormous number of rooms that are available throughout London that could be made available to youngsters to enable them to start their homes.
Lastly, I should have welcomed some attempt to bring local authority mortgages at least to the level that obtained when the Conservative Government left office.
Those are some of the plans that I would bring forward for improving what I consider to be an inadequate and rather mean little Bill. I shall look forward to hearing what the Minister has to say in reply. I hope that he will be able to give some examples and some encouragement to my young constituents when explaining how the proposals contained in the Bill will help them, bearing in mind that the figures that I have given are today's figures and that £14,000 to £17,000 is the price of a semi-detached house in the London Borough of Hillingdon. I hope that the Secretary of State will realise that the figures demonstrate all too clearly the way in which house prices are rising and how inadequate and trivial are the sums that it is proposed to provide under the Bill.
§ 6.17 p.m.
§ Mr. Tony Newton (Braintree)
I want to join briefly in the debate to make two fairly specific points.
First, anyone taking part in the debate and having heard the Secretary of State must comment on what appeared to be nothing much more than a crude electioneering speech. If left me with the feeling that it had been written by the Transport House Press department with an eye on the Ilford, North by-election, whereas it should have been a relatively uncontroversial speech introducing a generally reasonably well liked Bill in the House of Commons.
I am worried because, apart from the tone of the right hon. Gentleman's speech, it seems that the Secretary of State is living in a different world from the rest of us. Any hon. Member will be conscious that in his own constituency all the signs are that housing problems are getting worse rather than better. It seemed almost unbelievable to have a catalogue at the beginning of the right 1070 hon. Gentleman's speech that attempted to suggest that all our problems have been overcome.
Single people, including a growing number left single, as it were, by the rising rate of marriage breakdowns, are finding it almost impossible to get accommodation. Those who are left without children are facing that difficulty. There is growing difficulty in obtaining bungalows or ground floor accommodation for the elderly and disabled. A growing number of young families come to me to explain that they are unable to get a council house. I do not believe that my experience is untypical. From the tone of the right hon. Gentleman's speech we are given a clue. If he is as complacent as he implied, I am alarmed for the future of some of those who come to talk to me about their housing problems.
We have heard a good deal of crowing about how the problems of rising house prices and land prices have been avoided during the past few years. It is clear that they are now re-emerging. I suspect that the Government will find that they have in no way solved the fundamental problems that gave rise to the difficulties that we saw before. They will find that they have managed to suppress the whole issue by bringing about a fall in real incomes by their economic policy. In that way demand has been suppressed. If that factor disappears, we shall see all the problems in the housing market reemerging very much as we had them at their earlier stages.
Meanwhile, the Green Paper has been delayed. We now have this Bill, which is nothing much more than a mouse scratching at the surface of the problem. We have continuing unreality from some Back-Bench Labour Members. For example, does the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) really believe that the drying-up of private rented accommodation is the result of nice financial calculations about the difference between the costs of a mortgage and the income needed from rent? If he does, he is living in a dream world.
Surely no hon. Member has not come across accommodation which is simply not being let. It is not being sold. It is being kept vacant, because people have been advised by lawyers not to let in a 1071 tenant as they will not get him out and that will gravely devalue their property. That is absolute madness. That is at least as large a factor—I would say a larger factor—as the cost calculations given by the hon. Gentleman. Yet he made no reference to it at all.
§ Mr. Douglas-Mann
What does the owner contemplate doing with the property in the long term if he is keeping it vacant? Does the hon. Gentleman agree that property that can be sold is sold because the return is likely to be much higher than can be obtained from renting, irrespective of the Rent Acts? That is why property is sold. Property that is kept empty is kept empty as a consequence of the ignorance that the hon. Gentleman is propagating.
§ Mr. Newton
I am thinking of property for which the owner has long-term plans and therefore will not want to sell. I could give the hon. Gentleman examples. I do not want to give specific examples, because it might involve identifying people. However, I can quote examples of property being kept empty or of an owner allowing someone who does not particularly need it to use it rent free. The landlord knows that he can get such a tenant to go nicely if asked. He will probably prefer to do that than to let to a young married couple with the uncertainty that they would go when he wanted them to go. This is a crazy situation. The hon. Gentleman is doing himself a disservice if he does not recognise that is happening in a large number of instances.
§ Mr. Douglas-Mann
How does the hon. Gentleman account for the fact that the decline in rented property was at its most rapid in the period 1957 to 1964 when there was no control?
§ Mr. Newton
I am not suggesting that other factors are not also operating in the private rented sector. In my judgment, the problem has got worse since the passage of the 1974 Act. I can give definite examples of people who have been told by their lawyers that they would be mad to let their property on normal terms. It would appear that they are better off keeping it empty until they want to do something with it than letting it on a short-term basis. That is why it is difficult for many young married couples and single people, perhaps following 1072 divorce, to find anywhere to live pending the possibility that the council might be able to offer them accommodation in due course.
Like the hon. Member for Mitcham and Morden, I do not want to take up time arguing about other difficulties in housing, but some of these points need to be made.
My real purpose in intervening in the debate is to wonder whether we should spend the money involved in the way indicated in the Bill. I agree with my hon. Friends that it is unlikely to make a significant contribution in helping first-time buyers. We are all in favour of helping first-time buyers, but there is no point in spending a lot of money on a scheme which will not be very effective. If the Bill is not to be effective one must inevitably ask whether it would not be better to spend the money involved in some other way.
I want to refer especially to a matter that I raised with the Minister at Question Time last Wednesday and which has been touched on by my hon. Friend the Member for Northampton, South (Mr. Morris), namely, local authority loans and mortgage interest rates. My hon. Friend the Member for Hornsey (Mr. Rossi) pressed the Secretary of State on the matter of local authority mortgages. I shall not attempt to add to what he said. However, I share his anxiety about the steep drop in these loans.
I suggest that if we want to help first-time buyers, including those who have already bought but are in difficulty because of the rise in interest rates, the Bill should have taken the opportunity to do something about the disparity between many local authority mortgage interest rates and those of the building societies.
I should like to read two of the relevant sentences from the Green Paper on this matter. On page 62, paragraph 7.43, it is stated:The Government consider that it is inequitable that local authority mortgagors—who tend to be first-time buyers with incomes lower than those of building society mortgagors—should have to face higher rates. They therefore propose to introduce legislation to enable local authorities to charge such rates as may be determined by the Secretary of State from time to time.1073 When I asked the Minister about this matter on Wednesday, he defended the decision not to take up this question by saying that he was consulting local authorities. I would make two comments in reply. First, that sounded like a definite commitment rather than a proposal for consultation. Secondly, as the wording is "to enable local authorities", I cannot see why permissive powers should not be introduced into the Bill to allow councils to assist some of the people who have been hardest hit by the rise in interest rates.
In the Braintree District Council area the rate is now 1½ per cent. above building society rate. Until recently, it was 2 per cent. above the building society rate. I know how much hardship the extra payment has caused to young couples. What is the point of helping them with local authority mortgages and then clobbering them with the present level of interest rates? This matter could have been included in the Bill. I hope that it will be introduced in Committee. I believe that it might be a more worthwhile use of the money than the likely benefit we shall get from what is in the Bill.
An objection sometimes raised to the idea of keeping local authority mortgage rate in line with the building society rate is that it constitutes a subsidy. When interest rates are falling, a degree of subsidy is involved. However, if that system had been in operation during the last few years, the swings and roundabouts would have cancelled out, because, when interest rates were rising fast it would have involved charging rather more than would otherwise have been the case. Although at the moment it would involve an element of subsidy—and, incidentally, I can see a strong argument for saying that should be borne by the Government, not by the ratepayer—over the years it need not involve a degree of subsidy. I believe that it would produce a fairer and more acceptable situation than what we have now. By helping local authorities with their lending, and local authority mortgagors with their payments, we would be doing as much to help first-time buyers as anything that is likely to be achieved by the Bill.
§ 6.28 p.m.
§ Mr. Ivan Lawrence (Burton)
The Government, for a Socialist Government, are beginning to do some very interesting things. Taxation is too high? Certainly, we shall cut it. Small businesses are being strangled? Good Lord, we shall ease their plight. Parents frustrated over education? Certainly, we shall give them more say. Public opinion polls showing that more people want home ownership; 69 per cent. of all respondents prefer home ownership; 80 per cent. of all respondents in the 25-to-34 age group prefer owner-occupation; 78 per cent. of all respondents in the 20-to-44 age group prefer owner-occupation? Certainly, we shall introduce the Home Purchase Assistance and Housing Corporation Guarantee Bill.
Why the conversion? It is not a deathbed conversion, though many Conservative Members earnestly hope that it is. It is not that Labour Members think that they are about to die. So why the conversion? The answer is that a General Election looms, to say nothing of the Ilford, North by-election.
In the run-up to a General Election we would expect the Labour Government to steal our clothes. They know that our clothes are what the people most want, and they—the Government—badly need to please the people, because they are running 9 per cent. to 11 per cent. behind in the public opinion polls. But on this side of the House we do not fear that theft, because it is not the clothes that the people want; it is the animal underneath. However the Socialist wolf dresses up, it will never fool the British people into thinking that it is other than a very dangerous wolf.
One well-known attribute of the wolf is that it believes in the public ownership of housing and does not believe in a property-owning democracy. When has the Labour Party ever gone to the country on a slogan of wanting wider home ownership? Now, apparently, the Government are converted to the cause, but where are the Labour Members below the Gangway?
§ Mr. Lawrence
Where is anyone who supports the Government today? Far 1075 more prominent in the Labour Party's policy was the policy to nationalise the construction industry—a policy which was determined finally and unanimously by the 1977 Labour Party conference. Why is that not the Bill that we are debating today?
The Secretary of State shook his head when my hon. Friend the Member for Hornsey (Mr. Rossi) said that this Bill was for General Election purposes. However, those closest to the right hon. Gentleman could detect the glimmering of a grin on his face when he shook his head. The right hon. Member for Fulham (Mr. Stewart), in a brave attempt to defend his party's pitiful housing policy, naturally attacked the Tories and called our policy weakness. But was it weakness to start 48,000 more houses a year in our last four years of office than in the past four years of Labour Government? Was it weakness to start 80,000 more houses for sale in our four years than in the four years of Labour Government? Was it weakness to give 41,000 more improvement grants a year in our last four years than in the Labour Government's four years? If one wants to cure homelessness, that is how one goes about it, not by the policies which have caused Neil McIntosh, the Director of Shelter, to observe in the Daily Telegraph of 7th February:Taking house building and improvement together, these are the most dismal figures for 15 years.If Tory weakness is properly called weakness, Shelter would say "Give us an excess of it."
Of course we support the Bill because, unlike the Labour Party, we do not vote against measures just because they are introduced by the other side. We support it as we would support anything that went in the direction of helping first-time buyers, however feeble, puny and fiddling it was.
A number of technical defects in the Bill have been pointed out by my hon. Friends, principally by my hon. Friends the Members for Hornsey and Uxbridge (Mr. Shersby), who said that the Bill will not help the young new house buyer. My hon. Friend the Member for Braintree (Mr. Newton) said that we have to bridge the gap between those who cannot afford to buy council houses, unless a significant form of financial assistance is given to 1076 them, and those who cannot get on to the council housing lists.
I do not agree with all of my hon. Friends who have said that the Bill should come into operation before two years have passed. It is clear to me that if it were to come into operation immediately it would put up house prices unless the Government introduced policies to make more land available. If the Bill is not to come into operation for two years, it is nothing more than a cosmetic. It is not a death-bed conversion, nor any other kind of conversion.
Our main criticism is that it is far less generous than we believe is possible, provided that more land is made available and that grants continue to be proportionate to savings. Savings are counter-inflationary by their nature and help to keep land costs down.
If the Government really want to boost home ownership, they should do something about restoring the amount of money available for local authority mortgages to the level that obtained when the Tories were in office. I suspect that that would be doing the job too well and that the Government's absent supporters from the Tribune Group would not want to return to the House and find that that had been done because there would be a row and the General Election would have to be put back.
§ 6.36 p.m.
§ Mr. Tim Sainsbury (Hove)
We have had a short debate on what is, by today's standards, a relatively short Bill. The Secretary of State referred to it as a minor Bill, perhaps in that way recognising the relatively small degree of help that it will give to those seeking to buy and own their own homes.
Before turning to the central and most important aspect of the Bill, I wish to make two comments. The first concerns the loan guarantee limit for the Housing Corporation which is increased in Clause 5. We enthusiastically support housing associations and, as my hon. Friend the Member for Hornsey (Mr. Rossi) said, it was my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) who introduced the measure to help them. However, there are some doubts about the general cost-effectiveness and method of operation of the Housing Corporation. 1077 My hon. Friend the Member for Northampton, South (Mr. Morris) said that there should be a word of caution about the operations of the Housing Corporation. Is it becoming too bureaucratic? Is it, for well-intentioned reasons, strangling the enthusiasm of the voluntary organisations which it is meant to be helping?
These are subjects which should be debated. I regret that by putting the Housing Corporation aspect into this wider Bill we are deprived of a longer debate on the subject. The Housing Corporation has not been discussed in the House for two years.
Under the Bill the Secretary of State may specify by order any further increases in the loan guarantee powers. If he produces such an order we may not have an opportunity of discussing it, and yet another opportunity will go by for debating the affairs of the Housing Corporation. I hope that we shall be able to look into these matters in Committee.
That brings me to my second preliminary point. It concerns the extension of the Secretary of State's powers. The situation is extraordinary. The Secretary of State may by order vary virtually every provision in the Bill except the Long Title and the Citation. It is another example of the tendency of Government to introduce enabling legislation on practically every subject. It is as regrettable in this case as it is in others.
As my hon. Friends have recognised, it is an ill wind that blows nobody any good. Having given the Secretary of State such wide powers to vary the provisions of the Bill, I am sure that we shall take an early opportunity of using these powers when my hon. Friend is in a position, on the other side of the House, to extend the powers to give substantial help to first-time buyers. We should recall that first-time buyers receive nearly half of all building society loans.
I may have got the Secretary of State's words slightly wrong, but I believe that he gave as his principal objective helping into home ownership a number of people on the margin, and to ease the burden—I presume that he was referring to the burden of mortgage repayments—on some of those who can only just afford to buy their houses.
1078 As my hon. Friend the Member for Braintree (Mr. Newton) said, they are laudable objectives, but by far the most effective way of achieving them is to increase the personal disposable incomes of home buyers. The Government have so markedly failed to do that in their four years of office. Economic mismanagement has held down the spending power of home buyers, and this has choked back the demand for homes. Now, just when that is perhaps beginning to pick up a little, as personal wealth increases a little, the Government have come along with a little extra help for demand.
Several voices have been raised in the debate about whether that increase in demand will be met by an increase in supply. I hope that with the benefit of four years in office the Minister now recognises that house prices will be determined largely by the interaction of supply and demand. On the supply side, the figures, whether comparing this year with last, or comparing the last four years of Socialist Government with the previous for years of Conservative Government, speak for themselves both for public sector housing and private sector starts. Under this Government the annual average of houses started and intended for sale is 136,400. The Conservative annual average was 216,000. These and the other figures were mentioned by my hon. Friend the Member for Burton (Mr. Lawrence).
It the Secretary of State is so proud of his achievement, I hope that he will not hesitate in his speeches here and elsewhere to bring out these figures very clearly and to let the public judge on that record.
§ Mr. Michael Morris
I believe that it will assist the House if I pursue the point raised by the Secretary of State concerning the increased investment shown fur public sector housing in the Green Paper on housing policy. I have here the Technical Volume, Part I, and on page 144 Table III.29 shows the projection for the number of houses to be completed in Great Britain in the public sector. The number for 1976 is 161,000, dropping in 1981 to 125,000, and in 1986 to between 115,000 and 125,000. But, even on the financial figures, in Table III.30 the figure at 1970 prices drops, from a provisional £909 million for 1976, to £650 million in 1981. On any basis, therefore, the projections show a fall.
§ Mr. Sainsbury
I am extremely grateful to my hon. Friend for making that point and for putting the figures into perspective. I wonder why the Secretary of State found reason to deny what my hon. Friend said about the Government's achievement. The figures in the Green Paper and the figures for what has been achieved by the Government after four years speak for themselves, and there is no wonder that there is concern about whether, if there is an upturn in demand and some modest help for demand, the supply of houses will be adequate.
The most important factor in supply is the supply of land. Will enough land be available to enable the builders to produce the houses for sale? Anybody who is closely involved or concerned with the house building industry must be aware of the concern that the industry feels about the shortage of land and the effects of this Government's legislation upon the supply of land.
Let us start with that disastrous bureaucratic nonsense, the Community Land Act. If, because of what he has said in the past, the Minister cannot bear to take this unnecessary piece of legislation off the statute book, will he at least look at the limits on accepted development? We are trying to encourage more development in the city areas. Will he look at those limits to see whether even a modest increase could provide some further small supply of land? I must stress, however, that unless we get rid of the Act we shall not have a satisfactory supply of land for house building.
Certainly the great and widespread application of the development land tax is having an adverse effect. Planning delays are occurring, but the Secretary of State does not seem too enthusiastic to do much about them.
It is against that background that we are not surprised at the warning from the Royal Institute of Chartered Surveyors about what is happening to house prices. But when we press the Minister about the supply of housing land we get a remarkable degree of reticence combined with complacency. In reply to a Question from me in which I asked what representations he had received about the forward supply of land for housing, he said:The message that I get is that there is no general shortage but that there are some local 1080 and individual difficulties."—[Official Report, 11th January 1978; Vol. 941, c. 1647.]I was interested in the extent of these "local and individual difficulties", and I asked him whether he would list the local authorities which had experienced them. His reply was "No". I asked him how many local authority areas had been shown by his Department's monitoring to have a shortage of land for housing development, and he simply referred me to his earlier reply, which said that he would not give such a list.
Why this reticence? The Minister is not normally so shy and reluctant to bring the facts forward. Is there something about his monitoring that he does not want us to know? I suspect that on the evidence coming before him there is a growing awareness in the house building industry of a shortage of land which is already beginning to have extremely adverse effects on house prices.
Even if the land were available, as a further help to the supply of housing the Labour Party has proposed that the big builders should be threatened with nationalisation. The small builders will continue to be clobbered, like all small businesses, by taxation, and, in particular, the capital transfer tax. On the supply side, I do not think that we can look at the past or the future with any confidence under this Government.
There are other more minor problems in the Bill that we need to note. My hon. Friend the Member for Northampton, South and the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) referred to the restrictions on the qualifying lending institutions and the minimum length of loan, and the extent to which these might restrict the application of the Bill to those who would particularly benefit from it, those in the inner city areas and the immigrant communities. Can the Minister assure us that he will discuss these aspects with community leaders before we reach that section of the Bill in Committee?
My hon. Friend the Member for Northampton, South expressed concern about the house price maximum limit. Inevitably if a limit is imposed—although, as with every other part of the Bill, the Secretary of State can vary it by order—the question arises whether the system is sufficiently flexible in an inflationary time, when house prices are rising. The limit 1081 is likely to be calculated by his Department by reference to the average price paid by first-time buyers, with a suitable uplift for inflation, but what will that inflation be? If it is to be determined now, the answer must be 15 per cent. for house prices in relation to last year's average purchase price. The Minister for Housing and Construction shakes his head. Perhaps he will say that it should be more, or he may suggest that it may be less.
Whatever it is, a figure must be put down. We might find six months later that it was totally inadequate and that far too many properties were excluded. There are a number of difficulties, such as the price for fixtures and fittings, the effect on demand for houses just above the limit, and the excessive demand one forces on houses just below the limit, if one has a limit. We shall need to consider the matter carefully in Committee.
A number of hon. Members referred to what is not in the Bill. What was said about local authority mortgages, sale of council houses and several other matters was all well worth while. To that list I would add only the question of a further incentive for improvements and repairs. Maintaining the quality of our housing stock is a vital part of any cost-effective housing programme.
The Secretary of State seems to be very proud of his record. We have already talked about what has been built in the private and public sectors. The right hon. Gentleman may have spent a great deal of money, but he has not achieved much. In 1973–74 local authority improvements amounted to £680 million at 1977 prices. In the private sector, improvements were about £285 million, making a total of £965 million. According to the White Paper, Cmnd. 7049, our most up-to-date book of reference on the matter, the expected outturn for the current year is £425 million for the local authorities and a miserly £91 million for the private sector, giving a total of £516 million, compared with the £965 million in 1977. That is not an outstanding performance on improvements and repairs.
We understand that the Government are now to launch an advertising campaign to make more people aware of what they have done or what can be done in the matter of improvements. As what they 1082 have done on improvements has been so limited, if it were left to me I am not sure that I would want to advertise that record. The most glaring omission is the absence of any help to the private sector on energy conservation.
The main point to come out of the debate is the unanimity on both sides of the House about the small scale of help. I think that the hon. Member for Isle of Wight (Mr. Ross) said that it was small, complicated and delayed. The hon. Member for Mitcham and Mordern said that it was small and costly to administer, and that he would like to see the Bill go further. My hon. Friend the Member for Northampton, South said that it was not very generous, that it was slow in starting and that it was no incentive to saving. He made the good point that we should index the benefits.
My hon. Friend the Member for Uxbridge (Mr. Shersby), with a most interestting display of figures, showed how inadequate the Bill was to deal with the problem, particularly for young couples starting out, who might be faced with an increase in payments after five years just at the wrong time as regards their income. My hon. Friend the Member for Braintree pointed out that the Bill was unlikely to make a significant contribution to dealing with the problem.
All of this is said against the background that in the preamble to the Bill we are told:The costs are being met within the existing public expenditure provision for housing.Therefore, this is not extra money and help for housing but merely a shuffling around within what the Treasury has allowed for housing. I shall be delighted if the Minister tells us that the Preamble is wrong, but that is what it says and I must believe it, for want of better information.
Some people have said that the Bill is a step in the right direction. I am not sure that that is not an exaggeration. So small is the movement that I think "step" is too grand a word. Let us describe it merely as a shift of weight by a stationary person from his left foot to his right. It may put him in a position to move ahead, but perhaps that is all that the Secretary of State is allowed to do by his absent friends from below the Gangway.
1083 We on this side of the House welcome this move towards moderation. Perhaps it is a lack of experience in moderation that has made the effect so small. We must explain to the Secretary of State that when he is being moderate he does not have to be so restrained. We must tell him "You could be a little more exaggerated in your moderation and give a little more effective help to home buyers."
§ 6.56 p.m.
§ The Minister for Housing and Construction (Mr. Reginald Freeson)
I am pleased to note the welcome that many, if not all, hon. Members have given to our proposals in the Bill. I shall try to deal now or in Committee with as many as possible of the points made.
As my right hon. Friend the Secretary of State said in opening, we must see the Bill as part of an overall housing policy. It is too great a temptation, to which the hon. Member for Hove (Mr. Sainsbury) and others succumbed, to regard one piece of legislation as a vehicle for all solutions. The hon. Gentleman gave us a list of about six Bills that this should be but is not. No doubt I could add another half dozen. If one studied the Green Paper and its implications, one could add vet further to the kind of legislation we should wish to introduce.
But the Bill is concerned with two particular aspects of housing policy and not the whole range. It is not a panacea. It is put forward not as a panacea but as a very useful measure which sets out to alleviate a problem of which all of us as constituency Members, if on no other count, are aware. Everyone agrees that we should help many prospective first-time buyers over the hump of initial purchase, and assist many who would become home-owners but with great difficulty.
First, how does the Bill fit in with other policies? As so much stress has been placed upon them, I should like to touch on one or two which are more relevant to the Bill than other aspects of policy.
Although the Bill is basically about providing help for purchase, it gives a further boost to improvement and repair at the time of purchase or within a year or two, a matter to which the hon. Gentleman and one or two other hon.
1084 Members referred. The £600 loan is always part of the main mortgage but many purchasers will want to repair and improve their properties or will be asked to do so by building societies. Many of us have had that experience. I had it some years ago when I bought my own property.
In many cases the loan assistance will mean that the purchaser will have £600 of his own savings released. He will still be entitled to an improvement grant, so the extra help that we are giving will often allow the carrying out of improvements or repairs which might otherwise have been done later or not at all. I put stress on this potential, particularly in the older areas. I was much concerned to ensure that the cash provisions of the Bill would cover this. The Bill will help those buying older houses as well as new.
I turn now to the question of new building, to which there has been much reference. About 60,000 new homes are bought by first-time buyers every year. That is about 40 per cent. of all new homes built for owner-occupation. In 1976, 40 per cent. of new houses were sold at prices below the average paid by first-time purchasers in England and Wales. Therefore, many such buyers will qualify for these benefits. Perhaps more important, there will be a chain effect, as increased demand in the lower part of the market for second-hand houses works through the system. Much of the new demand will be met by increasing the supply of new homes. Private house builders have been through a difficult period in the past few years. We want to reintroduce stability, and this Bill, in its own small way in this particular respect, will help.
We are still suffering from the speculative boom of the early 1970s, which was fed by hot money and unchecked house price inflation, to which my right hon. Friend the Secretary of State referred. The result at that time was inevitable, and there were people warning—not just politicians on the Left but people in the industry and the market—about what would happen: the bubble burst, and starts slumped.
I intervened in the speech of the hon. Member for Hornsey (Mr. Rossi) and said "The hon. Gentleman has got his figures wrong again." Starts in the private 1085 sector slumped from over 200,000 in 1973, as a result of the collapse of the boom, to 106,000 the following year, with a further decline in prospect when I received the situational report on my appointment as Minister in March 1974.
The present Government have had to build up basic stability against a background of the worst economic crisis that the Western world has faced since the early 1930s. In our particular field, mortgages had to be dealt with. That was our first concern, as hon. Members will recall. As a result—without going over the history of 1974–75—we took our first steps towards the stabilisation arrangements, which are now operating fairly well, and we are now, as a result of these various measures and other factors, in the range of about 135,000 to 155,000 starts and completions each year. That is a marked difference from the prospect when we took office.
I am not trying to make a particularly strong polemic about this matter—I do not want to indulge myself or the House in it—but the figures are there, and they did not happen by accident. The figures slumped and collapsed, and there was the prospect of even worse to come, with the mortgage famine and other factors at the time.
I am not complacent about the figures. They are by no means good enough. But we have been operating against a very serious economic background, and the figures are significantly higher now than at the time of the collapse of the boom, and they are likely to rise. With falling interest rates for mortgages and for credit for the building industry, demand for new houses has begun to pick up. Indeed, the builders, who are not natural optimists, now report growing demand from most parts of the country, and they expect starts of about 150,000 this year.
§ Mr. Rossi
Of course, I accept what the Minister says. He came to office when there was a world-wide recession, brought about by the oil crisis. Energy costs quadrupled in a matter of months and, of course, that had a profound effect on the economy of every industrialised country. One accepts that during that period there would have been a slump. But what is the explanation for the 1086 slump over the last year, some three years later?
§ Mr. Freeson
With respect—perhaps I should not say that, because it usually means that one is not showing sufficient respect—the hon. Gentleman has got my words wrong. I was referring to the conduct of the housing market. Much earlier in the debate, my right hon. Friend referred to the management of the economy as a whole. I am concerned about that, but I was referring to something much more specific. There was the bubble, the boom, that occurred well before the oil crisis.
The economic crisis that ensued as a result of the oil crisis late in 1973 came after the collapse was setting in in the housing market and the property market generally. Halfway through 1973, before the Yom Kippur war which led to the oil crisis, there was all the evidence of a collapse. Decisions were being made by house builders in the latter part of 1973 which led to the 106,000 starts in 1974, compared with 228,000 in 1973. I was confining myself to a particular facet and not concerning myself with the aftermath of the 1973 oil crisis at this stage.
However, pursuing the point, hon. Members should pay attention to the figures being quoted by builders themselves who, I think we would all agree, are not natural optimists. They are expecting 150,000 housing starts this year.
§ Mr. Lawrence
I should like to take up the point the Minister was making about mortgages. I think that he was saying that the Governments' first concern when they took office was to improve the mortgage situation. Is it still Labour Government policy to reduce the tax relief on mortgage interest, and is it Labour policy to reduce the ceiling below which mortgages qualify for tax relief?
§ Mr. Freeson
Tax relief on mortgages has already been dealt with in the Green Paper, and I do not follow what the hon. Member is referring to. Perhaps he would quote to me the policy to which he has referred.
§ Mr. Lawrence
It is the policy in the Labour Party's programme for 1976, which I understand was to reduce the tax relief available on mortgage interest.
§ Mr. Freeson
Perhaps the hon. Gentleman will be more educated if he re-reads that document. However, on the point about the ceiling, we introduced that in 1974, but we have restated in the Green Paper, I think, that this will be subject to review, so the position holds now as it was in 1974. The £25,000 price ceiling holds.
§ Mr. Newton
I should like to ask the Minister a question that is genuinely seeking information. Given that the Government have now accepted the fact of the regional differentiation of prices in the Bill, will they follow that through to the other special forms of restriction upon housing assistance, including the £25,000 mortgage limit and, indeed, the stamp duty relief, because there is at least as strong a case for both of those to take account of regional factors as well?
§ Mr. Freeson
I think that the sooner I get back to matters relevant to the Bill, the better. The hon. Member should address those remarks to my right hon. Friend the Chancellor of the Exchequer, because they concern a matter that is not for us this evening. I was answering about the Government's policy with regard to the ceiling that we are operating. It was introduced in 1974 and the position remains as it was then, subject to the prospect, as stated in the Green Paper, of further review in the future.
As reference has been made to the relationship of mortgages, we come back directly to the question of the Bill, because although demand is picking up builders are already finding, as we have known well in the past, that many potential buyers have a problem in getting together a deposit but could afford mortgage repayments. That is the problem that the Bill, in its own limited way, seeks to tackle—apart from the Housing Corporation aspects of the Bill.
But we want the industry to plan with confidence for continuity of production, not to go back to the boom and bust years of the early 1970s. We are planning for controlled growth of demand. We want a stable level, above that of the past two or three years, but a level reached gradually without that surge of demand which sends prices through the roof, as we have experienced in the past.
It is difficult to estimate, but I think that the Bill will bring in 30,000 new 1088 purchasers each year—that is, 30,000 people who could not otherwise have bought. Much of this extra demand should be met by new homes, either directly for the new purchasers or indirectly for the people who move on.
Perhaps I may now pursue the aspect of the mortgage rate and prices. Because of the improving economic prospects, the building society mortgage rate has fallen rapidly in recent times and now stands at the lowest level for five years. Hon. Members have referred—not for the first time—to the local authorities. Local authority rates have fallen more slowly, but they are falling. They are falling more slowly because of the effects of pooled borrowing and of having a different financial structure entirely. We are considering the local authority associations' reactions to our proposal to enable them to lend at the Building Societies' Association recommended rate with support from the general rate fund, as outlined in the Green Paper.
It is as well to make this point, because it is understandable that at times of difficulty, which undoubtedly exist, it is overlooked that if one takes a run of years—and not so many years at that—one finds that for most of that time local authority rates are running below, and sometimes well below, BSA recommended rates. There are certain periods, which can be identified on a graph, during which the position is reversed for short periods, but for most of the time, at least, the position is no worse than one of swings and roundabouts, although that does not mean that we should not look at the question as a serious one which affects individuals.
The Green Paper stated generally our concern about the inequity of the situation at times such as the present.
§ Mr. Rossi
Perhaps the Minister will help me with regard to local authorities. Instead of putting this on the general rate fund, as the proposal appears to be, could not the authorities be allowed to renegotiate these loans? I understand that under present financing they borrow over a 60-year period and that the rate at which they borrow at the time remains the same for the whole of the period. Are there great financial objections to enabling local authorities on repaying that loan to reborrow at lower interest rates?
§ Mr. Freeson
I shall have to check that. But I do not think that the hon. Gentleman has the position right. Local authorities operate under the Consolidated Loans Fund basis. They can only charge on current rates. Some have done this in the past. By using the Consolidated Loans Fund rate it means that they are operating on a refinancing basis, because the Consolidated Loans Fund is subject to refinancing. They may borrow for 60 years, for example, on local authority housing. To give a clearer example, the actual cash raised in this period is not the same for the whole of the 60 years. There is constant refinancing. Indeed, there are indications that the consolidated pooled rate is dropping, as it has done in the past, just as at other times it has gone up.
§ Mr. Michael Morris
I think the Minister is absolutely right. There is a small percentage of about 5 per cent., which is a fixed figure as opposed to a variable one. Surely this is an area where the Government ought to give considerable assistance to local authorities.
§ Mr. Freeson
I think that the hon. Gentleman has put this into perspective. I am not denying that there is not problem. We have stated this in the Green Paper and we are taking the views of the local authority associations on the Green Paper proposal. There may be other ways in which we can look at this technically to see whether there are ways of easing the burden. But at present there is no scope for introducing such a proposal in this Bill.
§ Mr. Stephen Ross
Is not one of the real problems that the whole fixed rate of interest—I used to be subject to a local authority rate of 3¾ per cent.—would automatically have to go up, and there would be people who would object strongly to that?
§ Mr. Freeson
I do not want to chance my arm, because there may be some people who borrowed at very high fixed rates a few years ago. I have one or two personal friends who have been paying a fixed rate for many years. In fact, I know of a case concerning a very lucky man who was paying a local authority mortgage of 2½ per cent.
In this context hon. Members have referred to house prices. Some of the 1090 language used has not been particularly conducive to the benefit of the market or the customer. We should try to moderate our language. Just because a few property correspondents, estate agents and others keep talking up the market, we should not encourage them so to do.
Although house prices increased last year at an annual rate of only 8 per cent., this year—one cannot be certain what the underlying trend will be for the whole of the year—the evidence suggests that the increase will be 10 per cent. to 11 per cent. We should not encourage people, even in the local market, let alone the national market, to keep on talking about an average of 15 per cent., or even higher rates of increase which have been talked about in some quarters in recent weeks.
§ Mr. Sainsbury
I am grateful to the Minister for giving way. Perhaps that is why he shook his head when I referred to prices being calculated on last year's average plus 15 per cent. The hon. Gentleman quoted 10 per cent. to 11 per cent. Is that a national figure? If so, what is the figure for the London area?
§ Mr. Freeson
I cannot give a figure for the London area. Initially it is a national figure. It is very early in the year, but that is the judgment that we are making based on the underlying trends.
Against that background one must accept that house builders must have a reasonable return, although I must say that I have no sympathy—nor should anyone else—with those agents who are again trying to talk up prices. One or two hon. Members unintentionally gave some endorsement to that. We must not encourage this kind of talk-up of prices. Fortunately, our relations with the building societies—through the joint advisory committee—are very close, and we are monitoring the level of lending to ensure no excessive price increases.
That will not happen under this Government. We are not going to have a runaway similar to the one that occurred in the early 1970s. This is being done on a co-operative and joint basis with the BSA. We shall watch the situation and act on it very carefully indeed, together with the building societies. Never again, under this Government, will that situation be repeated.
1091 The hon. Member for Hornsey (Mr. Rossi), supported by other hon. Members, made much talk about the small level of benefits incorporated in the Bill as at present suggested, compared with various proposals put forward by the Conservative Opposition. He made some general statements about a greater benefit being put forward by the Conservative Opposition—a better buy, as it were—by way of cash grants. I think the hon. Gentleman mentioned a figure of £1,250 compared with local authority and housing association rented provision, which would reduce the demand for highly subsidised council houses.
In this complicated area, let me try to put shortly the position in view of the figures that have been quoted. To compare the cost to the Exchequer of home ownership and public sector housing one has to look at whole life costs. We are dealing with two different structures entirely. We have to look at whole life costs, not just the initial year, and must make predictions about such things as interest rates, the movement of house prices and rents and taxation policy over at least 60 years.
That kind of calculation is little more than a demonstration of the power of compound interest. But, in any case, we cannot just stop local authorities from building to meet housing need on the assumption that the market will step in to fill the gap. Local authorities give priority to those in urgent need. What is more, local authorities build in circumstances, physically and cost-wise, in which the private sector would not build to meet need. Such factors are often overlooked.
These are not necessarily the same sites or the same people year by year who would be brought into home ownership if local authorities or housing associations moved out. Obviously, what we need to do—and what we have constantly tried to get the Conservative Opposition to accept—is to get an appropriate balance between renting and home ownership area by area and in national policy. That is why we have the concept of the housing strategies which we are seeking to develop locally, and in a national context, and which we are taking first steps towards.
I should like to take up some of the specific points made. First, there is the 1092 size of the benefits. We have set bonus and interest-free loans at levels which, in our judgment, are large enough to be effective but not so large as to affect prices adversely. We also have to fit in this expenditure with our other plans for housing and come to a judgment about the overall use of resources.
I cannot understand what the Conservative Opposition want, except perhaps to make profligate promises about the use of taxpayers' money. Until today we have heard very little and I am not sure whether we are wiser now, but the basic approach seems to be much larger benefits, in particular, a grant of £1 for every £2 saved. But why a grant? Even to convert our reasonable levels of loan could create a continuing public expenditure commitment of £100 million a year at 1977 prices. But if the Conservative Opposition propose a grant at even higher levels—perhaps £1,250 or £1,300, as I have heard mentioned, for each purchase—the cost would be doubled. If the proposal is to allow double benefits for couples—which I have heard hon. Members mention—who knows where this expenditure would end? How many millions of pounds—thousand of millions of pounds—would that entail? No one seems to have done any kind of projection—from the Conservative Benches, from Tory Central Office or anywhere else—about the implications of what they are proposing.
That is not all that is objectionable in these proposals. That essential piece of reading "The Right Approach" talks aboutlimiting benefits to lower paid first-time purchasers".So it matters not what price one pays; it is one's income that counts. I must ask whether that means another kind of means test system.
§ Mr. Rossi
I have already made plain that what we were looking at was the way in which the Government have looked at this particular problem. There is no question of means testing. But even if there were—and there is not—I am astounded that the hon. Gentleman should be surprised, because his Government operate more than 16 means tests at present. The hon. Gentleman's Department is doing it at the moment. I do not see why he should hold his hands up in horror.
§ Mr. Freeson
I was not waving my hands about—the hon. Gentleman was waving his. But I am glad that we now have a straight answer. It was not what was implied in the original text of the Tory statement on the matter. Now we have it clear. But I have a bigger worry about the sense of the thing. I cannot believe that these proposals have been thought through. I do not believe that the necessary figuring has been done.
For example, is it right that savage cuts should be made elsewhere in public sector housing in order to achieve this objective? Or should there be an increase in taxation, which seems to have been suggested by the hon. Gentleman at one stage, in order to find the necessary resources? Ought we to cut back on the provision of housing and possibly other facilities in order to achieve £500 million or £1,000 million a year in this uncontrolled expenditure advocated by the Opposition Front Bench and others?
Again, is it right to pay £2,500 or thereabouts to purchasers who might be paying only £5,000 or £6,000 at the lower end of the market? Is it right that the Government should pay 50 per cent. interest on one year's savings? There would be tremendous incentive to borrow from whatever source in order to qualify for this so-called scheme of the Tory Party. The benefits proposed are so out of proportion that people would be likely to borrow wherever they could in order to benefit from the proposals thrown out in today's debate. The Tory scheme seems likely also to encourage a whole new fringe lending industry by which to swell people's savings accounts and, indeed, to boost false savings. How could the scheme be administered?
The Government, on the contrary, have produced a balanced scheme. It has been thought out in close consultation with the institutions. There have been very full discussions with them, and the scheme will work. For the first five years our continuing expenditure will be basically for the bonus. The loans, on a present-price basis, will rest on recycled finance. The Opposition may be suggesting accumulated expenditure many times what we are envisaging, but they have not indicated where it is to come from.
I turn now to the question about the limitation on the lending institutions. We have been criticised for excluding 1094 buyers who do not borrow from one of the recognised institutions. Some people pay cash or take a short-term financial loan. Anyone buying for cash is unlikely to need this assistance. Others go to less reputable institutions than those with which we intend to deal.
I represent an area which has experienced the evils of money lending at extortionate rates for house purchase. We still have some of the consequences, both for the individuals and for the state of the property. I want to encourage people to borrow from bona fide institutions. Our savings conditions are meant to encourage people to save regularly with proper institutions and thus ease the way to a mortgage.
But as well as safeguarding the borrower, we have a duty to safeguard the investor of the money, to give help where there is a secured loan. Without security of mortgage, how is one to ensure that the Government's money is safe in the first place?
There is genuine concern which I share, about purchasers in inner city areas, and about schemes that will discriminate against people buying in those areas, perhaps with a lease of two or five years. There should be no problem where there is a secured loan from a recognised institution. We want to help such people to buy their own homes, but we must use our resources wisely and we must not encourage people to take loans that they later regret, both in personal terms and in terms of the condition of the property. We shall look at this aspect further. We are concerned about it. We can discuss it more fully in Committee.
I have sought to deal with most of the points raised in the debate but there is one that I have left to the last. The hon. Member for Hove laid stress on it. It is the question of the supply of land for housing. I shall put the issue clearly as we understand it. At the last count there was enough land with residential planning permission in England—
§ Mr. Rossi
I know that the right hon. Gentleman's Department keeps on feeding him with these figures, but I wish that he would ask his officials who are giving 1095 him this advice to descend from the 17th or 18th floor of Marsham Towers to the ground and talk to builders who are trying to build houses. If they do, they will find that the number of planning permissions does not relate to the land that is viable for building purposes. The infrastructure and all other matters have to be taken into account.
§ Mr. Freeson
The hon. Gentleman started "No, no, noing" before I had completed my sentence, let alone the paragraph. He should contain himself a little longer. The hon. Gentleman makes these rhetorical points from time to time. We have close contact with the builders, and there is no difficulty about their access to us. We like to deal with the available information and data so far as they can be made available rather than indulge in the generalisations that the hon. Gentleman likes so much.
The figures I am giving are based on the available data. There is enough land, according to the last count, with residential planning permission in England for about four to five years' building. That is as accurate an assessment as we can make on the available information. Builders nationally continue to have, we estimate, about three years' supply of land with planning permission and mains services. I understand that most of it is likely to be available for development. They also have a considerable amount of land without planning permission.
There are difficulties locally, but we have yet to have any information from the builders or from other sources suggesting that there is the national land shortage that the hon. Gentleman keeps referring to. That is not the position.
I want to conclude with a reference to the Government's position on the question of home ownership. Once more we have had constantly trotted out the mythology about the position of Labour Governments on the question of home ownership. I challenge any member of the Opposition to read the history of housing legislation in this country over the last 10 years or a good many years earlier than that and to find when a Tory Government last introduced legislation which would be of assistance to home buyers. I ask them to check also in their reading of history when Labour Governments introduced legislation and ad- 1096 ministrative action to assist the home buyer. When they have found out those facts from history, they should put them in a league and compare them. They will find then that nearly all the measures taken during the past generation or more to assist home ownership have been taken by Labour Governments and very few by Tory Governments.
Despite all the speeches, "Right Approaches" and the rest by the Conservatives, in practice it has been Labour Governments who have acted to assist home buyers, particularly those down market, and not those who make all the grand speeches and issue the glossy documents.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).