CALCULATION OF HOUSING REVENUE ACCOUNT SUBSIDY (Hansard, 14 June 1989)

§ Mr. O'Brien
I beg to move, amendment No. 185 in page 75, line 27, at end insert 'and— (d) amounts which relate to expenditure in respect of houses, land and other buildings in the account incurred by local authorities prior to 1st April 1990 which was not charged to the account and which was not prescribed expenditure for the purpose of Part VIII of the local Government Planning and Land Act, 1980, and which has been made known to him by local authorities.'.

§ Madam Deputy Speaker
I must draw the attention of the House to the fact that with, Mr. Speaker's permission, 955 amendment No. 184, which is grouped with amendment No. 185 and 186 on the selection of amendments, is to be debated separately. I want the House to understand that with amendment No. 185 we are now debating only amendment No. 186, in page 75, line 27, at end insert 'and (d) the extent to which the authority has and will incur expenditure under Part III of the Housing Act 1985.'.

§ Mr. O'Brien
Amendment No. 185 relates to expenditure in respect of houses, land and other buildings in the housing revenue account that was incurred by local authorities prior to 1 April 1990, which was not charged to the account, and which was not prescribed expenditure. The operative words in this amendment are "prescribed expenditure" because authorities can currently use the non-prescribed proportion of capital receipts to support certain types of return. That major expenditure is capital repairs. For receipts obtained through selling housing and housing land, the current prescribed proportion is 20 per cent. Both prescribed and non-prescribed receipts can be used for capitalised repairs. The Government do not dispute that the use of both non-prescribed receipts and capitalisation, according to the current regulations, are entirely legal.
In Committee the Minister responsible for housing said: There is a real problem here, particularly for authorities that have relied on non-prescribed capital expenditure from receipts to provide a legitimate boost to their repairs programme over a number of years."—[Official Report, Standing Committee G, 18 April 1989; c. 927.] It is accepted, therefore, that the Minister realises that there is a problem with housing repairs.
As the Minister accepts that the new provisions in the Bill will cause problems, why will he not say that he will definitely include past capitalisation, using non-prescribed proportions of receipts within the formula covered by clause 69(1), (2), and (3)?
The Minister has said that, in the first year of the new financial regime, rents will not rise by more than they would have done under the old arrangements. However, unless full account is taken of all capitalised repairs, either rents must rise or there will be a dramatic fall in council repairs programmes for council houses. There has been a dramatic fall in the past 10 years because of the reduction in the HIP programme. If tenants, therefore, are facing a further dramatic fall in council repairs programmes, they will suffer much more than at present. Either way tenants will suffer, and it is the Government's insistence on introducing new capital controls and ring-fencing the housing revenue account that is to blame. Can the Minister say which of the options—rent increases or cuts in repairs—he supports?
In Committee the Minister raised a number of issues concerning non-prescribed receipts and capitalised repairs. The Minister accepts that capitalisation using non-prescribed receipts is a legitimate activity. That has occurred on a large scale and, unless it continues, a large proportion of repairs will not be carried out. The point is not so much from where the resources come, but that the work needs to be done. I underline the fact that repairs to council houses need to be done. The very fact that capitalisation is necessary on such a large scale indicates that allocations 956 are inadequate. Is the Minister saying that capital allocations will be increased to meet all the capitalised repairs funded from the non-prescribed proportion of receipts? If that is the option chosen, will he assure us that the new definition of capital will cover works that it has been accepted would have been capitalised in the past? In other words, there will be no change in what local authorities have been doing to ensure that the necessary repairs to council houses are undertaken and will continue to be undertaken.
I estimate that as much as two-thirds of the current expenditure, using non-prescribed receipts—more than £400 million in England and at least £150 million in London—is devoted to capitalised repairs. Last year local authorities spent a total of £640 million on non-prescribed receipts. The estimated figure for 1988–89 is higher at £688 million, and the HIP returns suggest that in 1987–88 capitalised repairs totalled £812.2 million, with estimates of £878.1 million for 1988–89. Those are high figures. Much money is being used to meet the repairs demands of local authorities. It is not just Labour-controlled authorities that are spending that kind of money to meet council house repairs. Conservative and Democrat-controlled authorities, too, make substantial use of non-prescribed receipts and capitalised repairs.
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The proportion of non-prescribed receipts devoted to capitalised repairs varies with individual authorities. However, for many authorities, virtually all their non-prescribed expenditure has been directed towards capitalised repairs. In Waltham Forest, for example, in 1987–88 the total of non-prescribed receipts was £2.6 million out of £4.1 million on capitalised repairs. Using non-prescribed expenditure, the current estimated expenditure is £6.9 million. That was approved by the district auditor for subsidy purposes. In Greenwich in 1987–88, non-prescribed receipts were £11 million out of £21 million on capitalised repairs; and in 1988–89 non-prescribed receipts were £9 million out of £18 million on capitalised repairs. Current year spending is at the same level as the previous year. That indicates that it is essential that the Government should consider allowing capitalised repairs to continue.
The Government are, however, now changing the rules, both for capital receipts and the housing revenue account. By forcing authorities to devote 75 per cent. of receipts remaining at April 1990 and generated after that date to repayment of debt, they have drastically depleted the available resources generated from sales of local authority assets. In other words, the change in procedure will have a tremendous effect on the local authority's ability to carry out council house repairs.
By changing the rules, the Government have placed in jeopardy a large proportion of expenditure on repairs. By some means that must be replaced. As the system is being introduced at the Government's insistence, it is up to them to replace it. The issue is not so much the method by which the repairs were paid for in the past, but meeting the cost in the future, given the serious reduction in the financial flexibility accorded to local authorities. As has already been recorded, it is an urgent matter that should be discussed between the Department of the Environment and the local authority associations.
It is up to the Minister to decide whether capitalised repairs paid for with non-prescribed receipts will or will 957 not be reflected in future subsidies or capital allocations. The local authority associations have made it clear that those amounts must be picked up, and that the preferred option is through revenue subsidy. Discussions can sort out any detail, for example over the figures, but the only person who can end the uncertainty and decide the matter is the Minister.
I ask the Minister to consider our amendments carefully. They are directed to the level of expenditure that is required to provide facilities for the homeless, and to calculating the necessary subsidy to meet housing need and the debt involved in homelessness. I ask him to accept our proposals.

§ Mr. Trippier
I got the hon. Gentleman's point at the end of his second paragraph. As much of what he said was superfluous I shall try to convince him briefly that the amendments are, too.
Amendment No. 185 could allow the subsidy formula to refer to authorities' past practice in capitalising repairs expenditure, which is questionable on a number of grounds. I draw the attention of the hon. Member for Normanton (Mr. O'Brien) to clause 71(3), which empowers the Secretary of State to refer to a wide range of factors in the subsidy formula.
First, the formula should not reflect authorities' past practice; it should reflect the needs of local authorities. I do not think the hon. Gentleman disagrees with that. If that were not so, existing inequalities between high and low spenders would be reinforced. If we take account of authorities' spending, it will merely be to ensure a smooth transition to the new regime, and that is all.
Secondly, much of the expenditure that authorities have been undertaking is properly regarded as capital spending. To the extent that that is so, the need for it should he reflected in capital allocations, not in revenue subsidy.
Thirdly—a much more practical point—we do not have the sort of information on capitalised repairs to enable us to build a factor into the subsidy formula even if we wanted to. It is not satisfactory to seek such information now. The scope for authorities to manipulate their housing revenue accounts in order to increase their capitalised repairs, and hence their subsidy entitlements, would be too great. The cynical authorities would gain at the expense of the honest ones, which must be wrong.
I recognise that authorities which have been relying on non-prescribed capital expenditure from receipts to give a legitimate boost to repairs programmes may be concerned about what I have just said, but I in no way demur from what I said in Committee—the hon. Gentleman was right to correct me by reference to the Committee proceedings. The door is not closed. I shall want the Department to discuss this in more detail with the local authority associations. The Bill is perfectly wide enough to permit capitalised repairs to be taken into account if we decide to do that, but the capital allocation route is preferable.
Amendment No. 186 allows the subsidy formula to take account of the costs incurred by an authority under homelessness legislation. I would not rule out the possibility of an element in the management and maintenance allowance to reflect extra management costs for authorities with large numbers of homeless people, if we find that the cost of accommodating homeless people in HRA dwellings is significantly higher than the cost of accommodating other tenants. However, most of the costs 958 related to homelessness arise before homeless people become tenants, not afterwards. These costs do not fall to the housing revenue account, so there is no need to take account of them in the subsidy.
I hope that I have convinced the House that the amendments are superfluous, and the hon. Gentleman that he should withdraw them.

§ Mr. O'Brien
The Minister says that the Government do not have the statistics that are necessary to provide an idea of past spending. On the contrary, many statistics can be used to obtain that information—the Department has reams of them. The Government can gather the information before 1990, so that some help can be given to local authority organisations which will be holding discussions on this issue with the Department of the Environment.
Let us have some co-operation. We can obtain the information from local authorities. There are statistics that would give some idea of past expenditure and of what future needs might be. The Minister has promised that discussions will continue with local authority associations. If he will give us an assurance that an attempt will be made to obtain the information necessary to allow the people with whom consultations will be held a fair opportunity to resolve the matter, I will be prepared to withdraw the amendment.

§ Mr. Trippier
I can give that assurance.

§ Mr. O'Brien
In that case, I beg to ask leave to withdraw the amendment.