§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Berry.]2.20 pm
§ Mr. Robin F. Cook (Edinburgh, Central)
I am grateful for the opportunity to initiate an Adjournment debate on the subject of the payment of improvement grants to speculative developers. It enables me to raise a matter that threatens to be a major financial scandal unless action is taken in the near future to bring the position under control.
The topic to which I wish to address the mind of the House is a problem throughout the whole of Scotland, but it is especially acute in Edinburgh. It has particular relevance to my constituency, which covers the inner city area containing a high proportion of unimproved properties on which improvment grants can be obtained. It is an especially acute problem in Edinburgh because the aversion of Edinburgh district council to investing in its housing stock is balanced by a passion for shovelling public sector money into the private sector. Edinburgh has now achieved the unique distinction among the Scottish housing authorities of investing more public money in private sector housing stock.
When I refer to the extravagant generosity of that local authority towards speculative developers, I hope that the House will bear in mind the background. During the past year, that local authority did not start one new council house. It has now decided that the logical conclusion of that neglect of investment is to wind up its architect's department, and leave our capital city of Scotland without a public architectural service.
The problem stems from section 34 of the Local Government (Miscellaneous Provisions) (Scotland) Act 1981. The section repealed a section in the 1974 Act that permitted local authorities to impose a condition on improvement grants that the house to which the grant related should not be sold for up to five years after payment of the grant. It was a permissive, not a mandatory power. It is testimony to its good sense that virtually every housing authority exercised that permissive power, including Edinburgh.
The case made for the removal of the permissive power was that it was being applied unreasonably in some cases to couples who had to move within five years of improving their homes. Having been involved in the matter for a decade before the 1981 Act, I can say that, although a number of people found that they had to move—for good reasons such as job promotion—within five years of obtaining the improvement grant, there were few cases where it could had unreasonably withheld permission for them to sell their homes.
The effect of denying to local authorities that very sensible precaution has been to trigger an avalanche of applications for improvement grants from speculative developers who can now obtain improvement grants for an unimproved flat, improve it and sell it the day after completing the improvements.
The applications have not related only to single flats. There have been applications for whole tenements and, indeed, for blocks of tenements. There were 57 flats restored in Buccleuch Street, with improvement grants in excess of £300,000. There was a recent application for improvement grants for 32 apartments at Commercial 830 Wharf and 33 flats in St. Patrick's Square. A further development is pending at the Ade1phi hotel in Cockburn Street. We are talking about significant developments involving large sums of public money.
Those examples are the most visible because they are the largest. In addition to the large-scale developments in whole tenements, there has been a tendency for the speculative developer to vacuum clean the market in unimproved flats. For the past year it has been common to find in the Evening News up to half a dozen advertisements from developers touting for an unimproved flat for sale in order that they may improve it. Some of the advertisements have been of dubious propriety. There was one advertisement, which appeared for several months in the Evening News on a nightly basis, which read as follows:Help us. Young couple desperately need flat with view to modernisation. Up to £10,000 cash available".It is not my usual experience of desperate young couples in my constituency that they have up to £10,000 instant cash available. It is noticeable that the telephone number in that advertisement now appears regularly in the Evening News together with a straightforward advertisement from a property development company.
I hope that the whole House would agree in condemning as in extremely poor taste any attempt to play on the public sympathy for desperate young couples in order to obtain property to improve at a profit with the use of public funds.
There is another measure of the extent to which the abolition of the condition in the 1981 Act has triggered off a surge of applications from the speculative developers. It is provided by the very large increase in the number of applications for improvement grants. I concede at once that since the last Budget, which made much more generous provision for repair grants, there has been a substantial increase in the rate of applications of genuine owner-occupiers and landlords seeking repair grants, but it was noticeable that within Edinburgh, even before the spring Budget, there had been a marked increase in the rate of applications as a result of the change in the 1981 Act which took effect in June of last year.
In 1980, the last full year before the change took effect, on average there were only 28 applications per week in Edinburgh for improvement grants. In 1981, half of that year fell after the change in the law, there were 52 applications per week. Up to mid-1982—that is to say, up to the point where applications for repair grants became dominant after the Budget—the rate of application was running at an average of 76 per week. The remarkable increase from 28 in 1980 to 52 in 1981 to 76 in the first half of this year largely reflects the change in the law in 1981 which opened the door to speculative developers to come in and obtain improvement grants to do up property and sell at a profit.
The surplus in applications from the speculative sector has several undesirable social consequences. First, it deepens the plight of the genuine desperate young couple. As a result of the availability of improvement grants and the increased interest of developers in unimproved property, property prices of unimproved flats in central Edinburgh have risen far faster than property prices generally. Indeed, there has been a dramatic upward movement within the market. The result has been to price out of the market those desperage young couples who would usually have looked to an unimproved flat to 831 provide them with the first rung on the housing ladder, yet those are precisely the people whom the present Government purport to assist through their housing policy.
Secondly, the position of housing associations has been made much more difficult as a result of the increased interest from the development sector. Edinburgh district council recently offered for sale an unimproved tenement which it was making available for other agencies to improve. There were 20 bids for the tenement, of which 19 came from speculative developers. One of the bids came from a recognised and registered housing association in my constituency. Its bid came fourteenth out of the 20 tenders for the property. It is no longer in a position to compete for unimproved property in the city centre, and I am sorry to say that that is a generalised problem throughout the major conurbations of Scotland. Indeed, the research officer of the Scottish Federation of Housing Associations, Mr. David Clark, has commented on the fact that housing associations find it difficult to obtain property that they can do up and let at a reasonable rent. He said:People who want to live in the inner city and can't afford to buy are being elbowed out.The third social consequence of the change is that there is distressing evidence of growing and direct pressure being brought on tenants of unimproved property to get out and make room for the improvement and sale of their flats.
§ It being half-past Two o'clock, the motion for the Adjournment of the House, lapsed without Question put.
§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Berry.]
§ Mr. Cook
That development need not surprise us if we recall the upsurge of the Rachman-like tactics of the late 1950s and early 1960s, because they followed the Rent Act 1957, which provided landlords with a clear financial incentive to winkle out sitting tenants. The 1981 change conferred an even greater financial incentive on the landlord and developer to winkle out sitting tenants, and a councillor in my constituency knows of a number of distressing cases of elderly tenants being approached by a developer and offered sums of up to £2,000 to quit a flat so that he could apply for an improvement grant and put the property on sale as a modernised flat.
I hope that the Under-Secretary and all parties in the House will join me in condemning that tactic and will share my worry that a change in the law has allowed that type of practice to emerge. For the first time, it has a clear financial incentive.
The issue of social concern that should trouble us most is that we have clear evidence that private profits are being made on the back of public funds through the improvement grant system. It was never intended that improvement grants should serve that purpose. The grants have had bipartisan support over the past two decades and it would be regrettable if that were lost. They were instituted to help the owner-occupier do up his own house and to help landlords improve the quality of accommodation for their tenants. It was never intended that improvement grants should assist the speculator in transforming his balance sheet. This is a free country and a private developer is entitled to ply his trade and to seek to make a fair return on his investment, but it is doubtful whether he is entitled to 50 per cent. or 75 per cent. improvement grants for the development that he is carrying out.
One particularly distressing example does not arise as a result of the change in the law last year, because the 832 developer concerned proposes to lease properties rather than sell them, but it is a striking example of the extent to which the attitude of Edinburgh district council towards applications from speculative developers have become very relaxed. One might even say that they have become completely "laid back".
The example, which is familiar to the Under-Secretary, is that of Brown of the Mound, which was purchased by Pentland Securities, with a view to development. The company originally applied for planning permission to create offices in the tenement. Permission was refused. The company then sought and obtained improvement grants to create one-apartment flats in the tenement. That application was approved by Edinburgh district council.
During the work on the tenement costs escalated in a way that is familiar to anyone who has been involved in the renovation of old property in the city centre, and the company applied for an increase in its improvement grant. The district council applied to the Scottish Office for approval to pay an improvement grant above the standard tariff. That approval was given by the Scottish Office. There is a clear Scottish Office involvement in the case.
The marketing material produced by Pentland Securities on completion of its project is available. While the development of Brown of The Mound may he many things, it is patently not private dwelling houses. The luxurious literature produced in association with the development describes the property as comprising executive suites. Later in the text it is described as a good gentlemen's club with the added benefits that such accommodation also doubles as first-rate office space. Although I said earlier that planning permission to convert the building for office use had been refused. We learn from the brochure that each flat will have a fold-away bed which can be ignored if it is wished to use the property as an office. It will have a management on the premises who will do everything from booking theatre tickets to providing secretarial services, and it will even provide a telex facility. We learn that the target market for the development is those companies with regular executive traffic through Edinburgh. Mr. Wallace Mercer, the sole shareholder in the company, states:It costs an average of £45 to £50 a night to stay in a four-star hotel in Edinburgh. What we are saying is that a suite is cost efficient for companies with people staying in town for more than two nights a week.
This is a free country, and if Mr. Mercer perceived that there was a gap in the market that could be filled by such a development it was open to him to fill that gap, and good luck to him. It is fair to say that in difficult circumstances the company has rescued an historic building. It would be equally fair to add that for that reason it has received support from the Historic Buildings Council. It is open to doubt whether the development could conceivably justify the receipt of improvement grants on the basis that it was improving the housing stock.
I must put specific questions to the Minister, as his office has been involved in approving the improvement grants for the property. If the Minister has mastered the brief with which he has been supplied, I shall put my questions. How does he reconcile the development of the executive suites and the gentlemen's club with section 9(2) of the Housing (Scotland) Act 1974 which provides that improvement grants can be paid only on a private dwelling house? Secondly, how does the Minister reconcile the statement of the operator of the project that his target is 833 those people who spend two nights a week in town with the provision in section 9(3) of the 1974 Act that improvement grants can be paid only to those dwelling houses that provide the main residence of the occupier?
If the Minister cannot, as I cannot, reconcile the payment of improvement grants in this case with those provisions of the 1974 Act, how did his office approve the payment of improvement grants in those circumstances?
Change of principle is involved in the Local Government (Miscellaneous Provisions) (Scotland) Act 1981. I have consulted the Standing Committee debate when the change was made. It was made on the basis that it would assist those couples who found that they had to sell their houses after receiving an improvement grant. The then Minister, the hon. Member for Edinburgh, Pentlands (Mr. Rifkind), said:If having received a grant, the person then sells his house, it seems unreasonable that the grant should have to be repaid simply because the person has chosen to sell. That is all that the amendment would achieve, and on that basis I commend it to the Committee."-[Official Report; First Scottish Standing Committee, 24 February 1981; c. 655.]
From our experience in Edinburgh over the past 12 months it is plain that that is not all that the amendment has achieved. It has opened the door to speculative developers to pile in to an unimproved sector and do it up on the back of public funds. Did the Government appreciate that last year when they presented the amendment to the Committee? If so, why did they not tell the Committee that that would be one effect of the amendment? If they did not appreciate it when they moved the amendment, what do they now propose to do when the evidence is only too abundant that speculative developers are ripping off improvement grants to improve properties which are being priced beyond the reach of the desperate young couples who come to my surgery every Friday in search of accommodation in the central area?
§ The Under-Secretary of State for Scotland (Mr. Allan Stewart)
I congratulate the hon. Member for Edinburgh, Central (Mr. Cook) on his good fortune in obtaining this debate and on his choice of subject. His zeal as a constituency Member is undiminished despite the recommendations of the Boundary Commission for Scotland. He has a great deal of experience and expertise in housing policy and I listened to him with great care. As he said, the issue has been subject to press comment.
In principle, the Government see nothing improper in involving property developers in improving or rehabilitating houses, with grants to assist where required. Behind some of the opposition I suspect that there is a philosophical dislike of the principle that profit should be made out of housing. Progress must be made in building houses and renovating old houses. It can be made if the private sector, as individuals, financial institutions and entrepreneurs, can be fully involved.
As the hon. Gentleman said, the Housing (Scotland) Act 1974, as originally enacted, contained a provision in section 9(3) which effectively made it a condition of grant that the house should be kept in use in one or other of the ways for which the grant was given. A breach of the condition occurred automatically if the house was sold and 834 occupied by the purchaser, in which event the purchaser rendered himself liable to pay back all or part of the grant, according to how much of the five-year period remained.
The provision was introduced on a discretionary basis. It was not intended that local authorities should demand repayment on every occasion. We found cases in which local authorities demanded repayment of grant even when the original applicant had a compelling reason to sell his house-one obvious reason being a change of job. In some cases, repayment was automatically required. The practice contrasted with the guidance given to local authorities by the previous Government that they should take due account of reasonable grounds for a house being sold before requiring repayment.
There was another factor in the Government's thinking. It was that the threat of possible repayment was likely to be an important factor in deterring applicants from seeking improvement grants which would have undesirable consequences for progress in improving substandard housing. It is interesting that in the last complete financial year before the repeal of section 9(3) about £850,000 was recovered by local authorities from owner-occupiers.
We were convinced of the important contribution which the payment of improvement and repairs grants can make to progress in improving substandard and otherwise unsatisfactory houses. We recognise that house owners must have a clear inducement to undertake improvement work, not one which can be taken away from them without their prior knowledge of the circumstances.
The repeal of section 9(3) was undertaken for fairness to the applicant and the need for a clear inducement to ensure the best possible progress in the reduction of the number of houses below tolerable standard in Scotland.
Suggestions were made at the time that speculative development might result from the change in the law. We have always taken the view that private sector investment is of fundamental importance to the housing sector as a whole. I accept that it is necessary to distinguish between the legitimate investment of risk capital to obtain a reasonable profit, and what might be described as profiteering.
I emphasise to the hon. Gentleman that if a local authority detects an element of undue financial speculation in any proposal it can withhold grant. The housing subconvener of the Glasgow district-hardly a stronghold of unreconstructed capitalism-has made it clear that he does not see any difficulty in local authorities ensuring that they can differentiate between a reasonable and a speculative profit. There is no question of local authorities not having the power to act in that way.
A fundamental principle was accepted on behalf of the Opposition by the hon. Member for Glasgow, Garscadden (Mr. Dewar) during the Committee stage of the Local Government (Miscellaneous Provisions) (Scotland) Bill, when he said:I accept that the reason for an improvement grant is to improve a house. In a sense the fact that the house is sold does not alter the basis on which the grant was given…Society has decided that we wish to improve houses…I do not object to the general line of the Minister's argument."-[Official Report, First Scottish Standing Committee, 24 February 1981; c. 653.]I could not put that much better.
§ Mr. Stewart
I accept that. Local authorities still have the powers to refuse particular applications if they think that there is an element of undue financial speculation. The principle of the change was accepted by the Opposition when it was considered in Committee.
The hon. Member for Edinburgh, Central concentrated on the development at the Mound. The prospects of developing that building had been turned down by Edinurgh university, the district council and housing associations because of the inherently high costs of undertaking such a development. The details of that development are known to the Department because the district council decided to seek a special increase in the maximum approved expense on which grant at 50 per cent. normally would have been calculated. Therefore, the Department decided to give the increase to enable the scheme to be viable. As the hon. Gentleman said, an additional grant of £40,000 was given by the Historic Buildings Council on account of the special historic and architectural features of the building. I have no reason whatever to doubt the assurance that was given by the district council that grant assistance on the scale provided was necessary in the circumstances.
The hon. Gentleman referred to excessive profits as a result of the development. However, he will recognise that no income has yet been received from the sale or letting of the houses, so it is absurd to talk, as some people in the press have done, about excessive profits from that development. People have said that excessive profits will be or are being made at another development that has attracted attention. Not one house has been let there and only a proportion of those improved for sale has been sold. Previously the property was vacant for 10 years. That puts such criticisms into context.
The general role of the Secretary of State is that he is not directly involved in the decisions of local authorities to approve improvement or repairs grants for projects unless there is an application for an additional grant above the usual level, as was the case in the Mound project and in another project in Edinburgh, which was a building of particular architectural importance, which otherwise would have been subject to a demolition order. That underlies the basic principle of our approach. The key consideration is rehabilitation and to ensure the improvement of properties that are below tolerable standards.
The hon. Gentleman made specific criticisms on social grounds.
§ Mr. Cook
The Minister has referred to two cases. At least there is no dispute about the other building, that private dwellings have been created. Is the Minister telling the House that he is satisfied that private dwellings have been created in the Mound as a result of the improvement grant that has been made available for that development?
§ Mr. Stewart
The hon. Gentleman suggested that that development was office space. If it is, it will contravene the planning conditions under which it has been 836 developed. If there is any question of the planning conditions having been contravened, I have no doubt that the planning authority will take appropriate action.
The hon. Gentleman made the general criticism that what was happening was undermining the prospects of young couples in Edinburgh who wanted to buy unimproved property and take the first step on the housing ladder. I wish to make three points. First, in the seven years from 1974, private owners did not make a great impact in dealing with the problem of housing that was below tolerable standard. Secondly, the logic of the hon. Gentleman's argument is that, because improvement affects the prices of other properties in a market, which is always likely, we should in some way hold back improvement. That is an absurd argument.
Then there is the fact that there are 20,000 houses in Edinburgh below a tolerable standard, and it is hard to believe that development companies will affect every corner of that market.
The hon. Gentleman said that the housing associations were being undermined. I believe that there is plenty of scope for development by housing associations. They continue to have plans for such development.
Then the hon. Gentleman alleged tactics of intimidation by developers. If that is happening, it will be deplored by everyone. I hope that any such allegations will be passed to the police as the appropriate authority to deal with them.
I do not think that the hon. Gentleman has made a case which undermines our confidence in the correctness of the change in the law that we brought about last year. We are anxious to ensure that there is no profiteering as it is commonly understood. I make it clear that local authorities have the powers necessary not to approve grant applications if they are fearful of that.
I return to the statements made by the other major housing authority—that in Glasgow, which is in the control of the hon. Gentleman's party. But we have to see the overall picture as well and the dramatic progress being made in dealing with the problems of less than tolerable housing in Scotland. In Edinburgh, there was a reduction in 1981–82 of 12.9 per cent. in such housing. I believe that the greater freedom now available to persons wishing to improve unsatisfactory houses is making an important contribution to this progress.
I assure the hon. Gentleman that we shall keep the use of improvement grants generally under continuous review as part of the process of monitoring our housing policies. If CoSLA wishes to make a submission on this subject with reference to section 9(3), the Secretary of State has made it clear that he will welcome it.
I thank the hon. Gentleman for airing the subject in the way that he has and for giving me the opportunity to explain the Government's position. I must tell him that I believe that the system is working well and is making a dramatic impact on the real problem of improving Scotland's substandard housing.
§ Question put and agreed to.
§ Adjourned accordingly at three minutes to Three o' clock.