§ The Minister for Social Security and the Disabled (Mr. John Major)
With permission, Mr. Speaker, I wish to make a statement on the arrangements for the payment of mortgage interest through the supplementary benefit system. As the House will know, 18 months ago, in the Green Paper "Reform of Social Security", the Government declared their intention to examine arrangements for reducing supplementary benefit help with mortgage interest. This was confirmed last December in the White Paper. We said then that we would discuss with building societies and others how we might take this forward.
In May, following those discussions, we referred proposals to the Social Security Advisory Committee for consultation. The main change was designed to limit the amount of benefit payable during the first six months only of a claim to supplementary benefit.
We have now considered the report of the SSAC and other comments and laid draft regulations before the House today that embody the Government's decisions. The committee's report has also been laid, together with the Government's response to it.
The Government have decided to proceed with the principle of limiting supplementary benefit assistance to mortgage interest but to make two significant modifications to our consultative proposals. First, the period in which only half the mortgage interest payable will count in assessing entitlement to supplementary benefit will be reduced from the six months originally proposed to four months. The regulations actually refer to 16 weeks. Thereafter, the full amount of mortgage interest due will again become eligible for payment. Secondly, we have accepted entirely the SSAC's recommendation that action should be taken to avoid creating a "mortgage interest trap" and the draft regulations have been amended to achieve this. That will help some people to qualify for supplementary benefit payments after 16 weeks who might otherwise not have been able to qualify at all.
The draft regulations also include changes to tighten up the payment of benefit in cases where a home is also used for business purposes, where the mortgage includes a business loan, or where a home is unreasonably expensive. The SSAC has supported all those proposals and we are carrying them through. Our intention is to bring the changes into operation on 26 January 1987.
There will be an opportunity to debate the regulations shortly, but there are several matters that I wish to draw to the attention of the House concerning the main change. First, it will affect only new cases. Secondly, the changes will mainly affect short-term claimants. Fifty per cent. of unemployed people leave the register within three months. Thirdly, the draft regulations reflect several important safeguards and improvements. No one over 60 will be affected; those whose claims are longer lasting will get full help after 16 weeks and extra help with interest on any arrears arising from this restriction. There is also a linking rule between claims to protect people who go on and off benefit and a special disregard of income from mortgage protection policies. Fourthly, the reduction in expenditure will be about £23 million compared with £30 million under 342 the original proposals. Finally, we shall be encouraging and helping claimants to make early contact with their lenders to avoid difficulties. I should like to stress to the House that the SSAC has acknowledged in its report that the changes should not bring significant financial hardship to the majority of claimants affected. It was, of course, commenting in the context of the six months' restriction and not the lesser 16 weeks now proposed. Moreover, the Building Societies Association has indicated that it will respond to changes sympathetically and responsibly. These are welcome and important assurances. I hope, therefore, that, with the safeguards and concessions I have described, the House will recognise that the Government have struck a fair and reasonable balance between the borrower, the lender and the taxpayer.
§ Mr. Michael Meacher (Oldham, West)
Is the Minister aware that this punitive and shameful proposal, despite its minor and entirely unpersuasive limitation to four months, will still push 90,000 families deep into debt, leading to eviction and, no doubt, often to marital breakdown? Is he further aware that the Government's brutal message this Christmas to the unemployed is that they will be deliberately kicked when they are down, losing not only their jobs but, most likely, their homes?
Is it not symbolic of this Government's double standards that they are offering £35 a week to the Prime Minister to buy her half-million-pound mansion in Dulwich, while at the same time they are threatening the unemployed, the sick and the disabled on the poverty line with the loss of their homes? Is it not one law for the rich and another law for the poor, with a vengeance, that last year this Government gave £370 million in mortgage interest tax relief to owner-occupiers on incomes of over £30,000 a year and that now they are insisting on going even to the length of causing homelessness in order to claw back just £23 million from those on the poverty line?
Does the Minister comprehend what will happen to families on the dole under this proposal? Is he aware that a family consisting of husband, wife and two children with a £16,000 mortgage will have to find, under the proposal, out of supplementary benefit of £70 a week, an additional £17 a week, which is nearly a quarter of their weekly income? Is he aware tha a couple with a baby and a £30,000 mortgage—like many in the south-east—will have to find under this proposal an additional £32 a week, which is equal to 57 per cent. of their income on supplementary benefit?
Is he also aware that this is bound to lead to a huge increase in mortgage arrears and that repossession of homes by building societies, which has already increased by 700 per cent. under this Government since 1979, is likely, under this proposal, to reach 50,000 a year? Is that not only cruel but a false economy, too, when the costs of mortgage repossession often fall on the public purse, because families are then allocated local authority accommodation under the Housing (Homeless Persons) Act 1977?
Is the net saving, therefore, not likely to be even more piffling than the Government's estimated £23 million?
The Government justify their action on two main grounds: first, that mortgage interest payments to those on the dole are the most generous in the world. How does that square with the Minister's answer to me when he said:We have no detailed comprehensive information about the assistance with mortgage interest payments given to persons receiving social assistance in all European 343 Community and Organisation for Economic Co-operation and Development countries".—[Official Report, 26 June 1986; Vol. 100, c. 293.]Secondly, the Government justify their proposal by saying that the unemployed are in a relatively favourable position compared with low-paid families in work. But why then do the Government not concentrate more aid on the low paid in work with mortgages—for example, the £320 million that could be transferred in mortgage interest tax relief, if that were limited to the basic rate of income tax?
Is the Minister further aware that the Social Security Advisory Committee, which is his own advisory committee, has stated:We do not think a scheme of this kind could be justified at all unless the building societies and other mortgage-giving bodies were prepared to give comprehensive assurances about the availability of rescheduling".Will the Minister say whether he has had such comprehensive assurances? Will he confirm—[HON. MEMBERS: "Too long."] Will the Minister confirm that the Building Societies Association has not had any consultation with the Government on the proposals since it gave its views to the SSAC this summer, when it was strongly opposed? Is the Minister aware that nobody in the field supports the proposal—not the building societies, the finance houses, the local authorities, the National Consumer Council, or the independent Institute of Housing, or indeed even Conservatives on the Benches behind the hon. Gentleman, who have the wit to see that the proposal cuts clean across the right to buy?
§ Mr. Meacher
Does this not finally show that the Government's rhetoric about a home-owning democracy is a disreputable sham when it applies only to those in work? This proposal—
§ Mr. Meacher
This proposal will leave thousands of families in the new year without jobs, without homes and without hope, and it should be withdrawn immediately.
§ Mr. Major
I had thought for a moment that the hon. Member for Oldham, West (Mr. Meacher) was seeking to talk the measure out, but alas he cannot do that. I must say to him, in all charity, that I find his guise as the homeowners' friend difficult to take in view of his record and the attitude of the Labour party on mortgage interest relief which he has again attacked in the past few minutes. That was rather curious.
Let me respond as follows to the specific points that the hon. Gentleman made. He said that there was no consultation after the matter was referred to the SSAC. He will be aware that the purpose of referring the matter to the SSAC is so that it may consult and report. For that reason, our consultations were held before reference. I can confirm that we consulted widely before reference.
The hon. Gentleman mentioned 90,000 families. Our estimate is that the average number of families affected would be less than that at any one time, probably—
§ Mr. Major
If the hon. Gentleman will listen, he will find out how many. It is probably 75,000.
344 With regard to eviction and repossessions, I can confirm that the Building Societies Association has assured us that it proposes to act responsibly and sympathetically. I remind Opposition Members that it was not the attitude of the Building Societies Association or other major lenders to foreclose during the 12 months of the miners' strike when interest was not being paid. I see no reason to suppose that they will not act equally responsibly on this occasion.
On losses, we expect that those who are unable to meet the second half of mortgage interest payments will have it aggregated to the capital debt, and that sum will be wholly eligible for mortgage interest relief at the end of the four-month period. The hon. Gentleman, in making his wild assertions, overlooked the fact that 50 per cent. of the mortgage interest will continue to be paid on an aggregating capital asset from the first day that supplementary benefit is admissible, and that after 16 weeks, 100 per cent. of the mortgage interest will be payable.
The hon. Gentleman sarcastically referred to the observation that our supplementary benefit scheme for assistance with mortgage interest was the most generous in the world, and asked me for my source. It was not a Government source, but the Building Societies Association, that made that observation.
The hon. Gentleman referred to the relationship with mortgage interest relief. I am surprised that he does not appreciate the difference between the two propositions. However, I note yet again that his party has shown its antagonism to home ownership and mortgage interest relief.
§ Mr. Speaker
Order. We have a very long day ahead of us. This statement is important, but there is to be a debate afterwards. If hon. Members put their questions briefly, it may lead to briefer answers.
§ Mr. Richard Alexander (Newark)
But are not my hon. Friend and the Government being just a little mean over this proposal? At a time when we are spending untold millions whenever the EEC asks for money and some £2,000 million on an airborne early warning system that the RAF does not really want, need we really be doing this to those whose cup of misfortune is already very full?
§ Mr. Charles Kennedy (Ross, Cromarty and Skye)
Although the Minister has shown some comprehension of the anxiety expressed by the SSAC and his partial climbdown this afternoon is welcome, will he clarify the fifth paragraph of his statement and what he defines as a home that is "unreasonably expensive"? Does he accept that the statement and the principle that it embodies stand in stark contrast to his Government's trumpeting about wanting to create a property-owning democracy? We now see that property-owning democracy for what it is—under the Tories, people can have the right to buy, but that does not mean the right to keep.
§ Mr. Major
The hon. Gentleman overlooks the fact that more people own homes under this Government than ever conceived of it some years ago, and that that is a 345 continuing trend. He asked about the "unreasonably expensive" proposition, but he will be aware of the provisions that have long existed in the supplementary benefit scheme in that regard. The new proposition is supported by the SSAC and seeks primarily and almost wholly to bring supplementary benefit into line with housing benefit provision.
§ Dame Jill Knight (Birmingham, Edgbaston)
Does my hon. Friend agree that, despite the Opposition's synthetic rage and push-button ranting and the gentle concerns expressed by some of my colleagues, 50 per cent. of the mortgage is to be paid immediately from supplementary benefit and, after only 16 weeks, 100 per cent. is to be paid? Does my hon. Friend realise that there are people outside the House and perhaps even some hon. Members who recognise that he has a duty to balance the needs of individual responsibility, the social security system and the taxpayer? I believe that my hon. Friend has succeeded in doing that this afternoon.
§ Mr. Frank Field (Birkenhead)
Will the Minister give an undertaking that no family will be made homeless as a result of this move? Will he also respond to Mr. Speaker's request that we should speed up proceedings by giving a yes or no answer?
§ Mr. Roger Sims (Chislehurst)
Will my hon. Friend confirm that the SSAC is a completely independent body, which has not in the past been averse to criticising Government measures when it felt so inclined? Will he also confirm that in this case the committee said that the six-month period would not cause hardship, so it is unlikely that the four-month period will? That puts into context the gross and extravagantly long over-reaction of the hon. Member for Oldham, West (Mr. Meacher).
§ Mr. Nick Raynsford (Fulham)
Does not the Minister agree that, during the lifetime of this Government, the number of households in serious arrears with building society mortgages—that is, more than six months in arrears—has grown from about 8,000 to more than 66,000 currently? Does he also agree that the number of people homeless as a result of mortgage arrears has risen to the point where 10 per cent. of all homeless households accepted by local authorities are homeless because of mortgage arrears and that this measure will make life worse for those people in difficulties? If the Government 346 had wanted to make savings they might have done so by restricting mortage tax relief—[HON. MEMBERS: "Ah."] listen—to those who are receiving that relief at rates above the standard rate, as is proposed by the Labour party. A saving of £320 million could be achieved by that means without penalising anyone on incomes below £20,000 a year. That would have been a way of making savings without penalising the poorest and without the risk of increasing homelessness.
§ Mr. Major
I am grateful yet again to the hon. Gentleman for emphasising the innate hostility of the Labour party to mortgage interest relief. The fact is that this is a limited measure for a limited time, with a limited impact. The underlying proposition that the hon. Gentleman has to bear in mind is that less than one quarter of 1 per cent. of families out of 6.75 million mortgages are subject to repossession at any one time.
§ Mr. Stephen Dorrell (Loughborough)
Does my hon. Friend accept that the flexibility that he has shown in the face of criticisms that were widely felt at the original proposal is welcome? Can he say a little more about the linking proposal that he mentioned in his original statement? What safeguards will exist to protect the position of somebody who takes short-term work to ensure that there is not a major disincentive if somebody working for three months then loses his entitlement to supplementary benefit when he goes back on benefit?
§ Mr. James Lamond (Oldham, Central and Royton)
Did the information that was circulated by the Tory party when it was trying to lull people into buying their own homes make any mention of the intention of the Government to renege on their responsibilities and to make those who bought their own homes, instead of drawing the unemployment benefit to which they were entitled and for which they had paid, go cap in hand to the building societies hoping that they would pick up the responsibilities that rightly belong to the Government?
§ Mr. Major
It is a curious expression to refer to people being "lulled" into doing what they most wish to do. I observe once again the curious diversity of views on home ownership on the Labour Benches. On the Government's commitment, I remind the hon. Gentleman that 50 per cent. of mortgage interest will be payable from the first day that people go on to supplementary benefit and 100 per cent. will be paid from 16 weeks. That is a fair balance between borrower, lender and taxpayer, and we will stick to it.
§ Mr. Robert McCrindle (Brentwood and Ongar)
Is the Minister aware that, while we accept the substantial modifications that he has announced this afternoon, some hon. Members remain concerned that the effect of these measures will land entirely on those who are buying their property and that those who are renting will be left entirely unaffected? At a time when many of the properties concerned will be council properties, which the Government have successfully urged people to purchase, is my hon. Friend quite certain that the announcement he has made this afternoon sits happily with our movement towards a property-owning democracy?
§ Mr. Dafydd Wigley (Caernarfon)
Does the Minister realise that for people in constituencies such as mine, where unemployment is over 20 per cent. and where people have been on low incomes, there is no capital gain at this time, but that in fact, there has been a drop in house values? One building society in the town of Caernarfon has 50 borrowers who cannot afford to repay their mortgages but cannot sell the house in order to buy off the mortgage. In those circumstances, does the Government's proposal today not make the situtation that much worse for people who really are facing up to great personal and family difficulties at an extremely difficult time?
§ Mr. Major
The hon. Gentleman raises a particular set of circumstances which currently exist in a limited number of areas. We have materially modified the original proposals and done all that we can through the Building Societies Association and others to ensure that repossessions and evictions do not take place. We think that we have struck a fair balance, and we believe that that will be shown to be so in due course.
§ Mr. Michael Stern (Bristol, North-West)
Does my hon. Friend agree that his statement today will be especially welcomed as fair by people with low incomes from work who live next door to someone going through a short period of unemployment and regard it as grossly unfair that the latter should receive much greater help from the state?
§ Mr. Harry Greenway (Ealing, North)
Is my hon. Friend aware that when he launched his first initiative I visited a jobcentre to discuss the proposal with professionals who counsel people immediately out of work and looking for jobs and I was surprised to find that they regarded the principle as right? Will my hon. Friend comment on that?
§ Mr. David Winnick (Walsall, North)
Why should people who are largely the victims of the Government's economic policies be punished in this way? Is the Minister aware that in the west midlands large-scale redundancies continue and many families who become unemployed will be hard hit and penalised by what might be described as this Tory new year present for the jobless? Was the Secretary of State too ashamed to make the statement himself? Why did he send—[HON. MEMBERS: "The 348 monkey."] Why did he send his messenger boy? Why does not the Secretary of State have the courage to make this statement which penalises and punishes the unemployed?
§ Mr. Keith Raffan (Delyn)
Does my hon. Friend accept that, despite the welcome changes that he has made, the regulations will be bound to increase anxiety among those out of work when they are at their most vulnerable, when they first become unemployed? Does he agree that the Government having rightly and successfully encouraged home ownership, must accept as a consequence of that policy the increase in benefit expenditure on mortgage interest payments?
§ Mr. Peter Pike (Burnley)
What is the Government's main objective in this proposal? Is it fairness, as they claim, or is it to save money regardless of the people to whom it brings poverty? If the aim is fairness, why do the Government not limit mortgage interest relief to the standard rate of tax and thus save a far greater sum than that announced today?
§ Mr. Major
Three substantial propositions underline what I have said today. First, we wish to strike a fair and reasonable balance between borrower, lender and taxpayer. Secondly, we do not think it unreasonable to expect people acquiring a capital asset to meet a proportion of the interest charges for a limited period. Thirdly, we are keen to establish equity between those in and out of work on similar incomes—[Interruption.] If the right hon. Member for Salford, East (Mr. Orme) continues to babble like a monkey on a stick, I should prefer him to get to his feet and ask a question.
§ Mr. Robin Squire (Hornchurch)
I apologise for missing the beginning of my hon. Friend's statement, which I shall read with interest. I unreservedly welcome the reduction from six weeks to four weeks, but as a humane man my hon. Friend will surely appreciate that the loss of this assistance coincides with one of the most difficult periods that anyone could face. Will the Government continue to review whether the proposal is fully in line with the policy of extending home ownership?
§ Mr. Andrew F. Bennett (Denton and Reddish)
Does the Minister accept that many of today's unemployed are very apprehensive about taking on a part-time or short-time job with the prospect that it might lead to full-time employment? The eight-week linking rule could well discourage people from having a go at this type of job.
§ Mr. Major
The purpose of the eight-week linking rule is to meet precisely the concern that the hon. Gentleman has in mind. The hon. Gentleman will know, having been here for the whole of the statement, that, after 16 weeks, the full amount of mortgage interest would again be admissible for benefit.
§ Mr. Robert Atkins (South Ribble)
I congratulate my hon. Friend on being prepared to be flexible and to adjust his proposals in the light of advice from an independent body. Will he agree that, these days, there are more and more people who are unemployed for a short period of time for the purpose of changing their jobs or looking for alternative employment in another part of the country? Does the proposal take cognisance of that fact?
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I confess that I am surprised that the Government think they will save £23 million as a result of this change. Does that gross figure include the amount of administrative changes that the Department of Health and Social Security will have to go through? Does it involve the amount of extra work that the building societies must put in train? Does the gross figure account for the fact that a lot of the arrears will be rolled over and subsequently covered in benefit at later stages?
Has the Minister given thought to the fact that there are areas—Aberdeen immediately springs to mind—where people have bought houses at the peak of a price rise but now find that property values have slumped. Often, there is no council housing available. These proposals will have a bad effect in some areas.
§ Mr. Speaker
Order. I will call those hon. Gentlemen who have been rising regularly but I ask them to put their questions briefly.
§ Mr. Gwilym Jones (Cardiff, North)
Naturally I welcome the change which has resulted in the period being only 16 weeks. However, I put it to my hon. Friend that it is the anxiety of unemployment that is most important. This proposed change is putting the sword of Damocles over the family home, yet in every other way we are doing everything possible to help to encourage a return to employment. Does my hon. Friend agree that the real cost to the nation would be greater than any savings to the social security budget?
§ Mr. Peter Bruinvels (Leicester, East)
Since we have encouraged more than 1 million people to go out and buy their homes, can I sincerely ask my hon. Friend to reconsider these proposals? None of the people who lose their jobs lose them through any fault of their own. We have been encouraging many people to buy their homes. Would my hon. Friend please put out a leaflet urging 350 potential home-owners to get a mortgage investment plan so that they will not suffer? We wish to encourage people to go out and buy their homes, but they may feel slightly let down today.
§ Mr. Major
My hon. Friend is a source of constant surprise to the House, and no doubt he has been so again this afternoon. The decisions I have announced this afternoon are the result of reconsideration made after referring this matter to the Social Security Advisory Committee. I cannot promise my hon. Friend that we shall reconsider these proposals again.
§ Mr. Patrick Nicholls (Teignbridge)
I thank my hon. Friend for responding to the concerns that many of us put to him and reducing the period to 16 weeks. I have dealt with many mortgage repossession cases. I am sure my hon. Friend will agree that it is absolutely inconceivable that a building society would attempt to foreclose on a house because 50 per cent. of interest arrears over 16 weeks were outstanding. That is the reality of the situation, not the sanctimonious claptrap that we have heard from the hon. Member for Oldham, West (Mr. Meacher).
§ Mr. Eric Forth (Mid-Worcestershire)
Will my hon. Friend withdraw his previous insult to puff adders? Does he agree with me that the primary responsibility of homeowners, who stand to gain a lot from capital appreciation, is to insure themselves against contingencies, including that of unemployment? Is my hon. Friend aware that unemployment protection policies are available from insurance companies? Has he any comment to make in that regard, in the light of today's statement?
§ Mr. Michael Hirst (Strathkelvin and Bearsden)
Does my hon. Friend agree that many people who leave employment receive severance pay to tide them over until they can find other alternative employment? Does he agree that the humbug we have heard from the Opposition Benches is insulting to the independent Social Security Advisory Committee and to building societies? If my experience as a constituency Member is typical, building societies show sympathy and understanding to people who become unemployed.
§ Mr. John Watts (Slough)
Will my hon. Friend say a little more about the discussions with the building societies and other principal lenders, in particular whether the assurance that they will behave responsibly implies that they will not foreclose during the first four months of unemployment? Is my hon. Friend also aware that any doubts I have about the wisdom of the proposals were substantially reduced by the immoderate and Kinnockesque intervention of the hon. Member for Oldham, West (Mr. Meacher).
§ Mr. Major
Rather than making bland statements, I would prefer to refer yet again to the practical experience 351 that this House and others have witnessed. Recently, during the miners' strike, a 12-month period when mortgage interest was not paid, the building societies, the banks and local authorities did not foreclose.