Housing Corporation

HC Deb 24 May 1990 vol 173 cc397-405

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Goodlad.]

9.34 am

Mr. John Fraser (Norwood)

I am grateful that this subject has been selected for debate and for the timing of the debate. I must declare an interest because I am a partner in a firm that advises and works for housing associations. The purpose of the debate is to seek a solution or at least an easement of the cash crisis in which the Housing Corporation and housing associations now find themselves. That crisis is a consequence of the change in the way in which the Housing Corporation gives approval to spend money for housing associations whose target for starting and completing homes is 20,000 per year.

In 1989 the total production of public sector homes, which are largely to rent, was 27,000. That is disgracefully low. We are talking about virtually all public sector low-cost housing for rent since the Government massacred the local authority house building programme. The cause lies ultimately with the Government, who introduced the Housing Act 1988. The solution is also in the hands of the Government and they can provide it not by the announcement of any new unit or committee but by the announcement of a new commitment to see through the programme of 20,000 starts and 20,000 completions in the housing association sector.

It is not enough for Ministers simply to shuffle off responsibility for what has happened to the Housing Corporation or the private sector. Ministers are responsible for housing. They are not Ministers of excuses or alibis—they are here to provide houses, but they have provided only a small number. I do not want excuses—I want action.

Housing associations now provide almost all the low-cost homes for rent in Great Britain. Those homes are almost all for those who are in need and on low incomes. The associations provide much of the new housing for the homeless and also for people with acute needs such as those who have had long periods of hospitalisation, people suffering from mental or physical illness, those who need sheltered accommodation and people who need accommodation that is coupled with counselling.

There is almost no new help for such housing except that which comes from the housing associations. That is because the Government have savaged local authority programmes. Housing associations are non-profit-making bodies. Some are co-operatives and some are specialised, and all are governed by volunteers. Most of the vacancies which occur in their properties go on nomination to local authorities and the associations play a useful part in tackling the problem of homelessness.

I shall now deal with the cause of the present crisis I shall have to simplify my explanation, but my description will certainly not be inaccurate. Obviously, I cannot spend a long time going through all the causes. Before 1989 housing associations received approval for loans and subsidies. The subsidy is called HAG, which means housing association grant. They received approvals for individual schemes and the money was then paid by the Housing Corporation to acquire land, to move on to site and sign building contracts, to complete legal obligations to builders and for the completion of the site, and to pay development costs.

The system that operated before 1989 made it relatively simple, although it was not entirely without problems, to keep the flow of money from the Housing Corporation to the housing associations with public expenditure limits. In the financial year 1989–90 the system was changed. Following the passage of the 1988 Act, housing associations were invited to be more commercial, to use private finances, to take more risks and, under the assured tenancy arrangements, to charge higher rents. The larger housing associations were given the freedom to plan; it was called tariff expenditure. They relied heavily on the tariff arrangements, but unfortunately they have been torn up in the recent crisis.

Under the new system, associations could draw their allocations much more rapidly. They could then get on with the job of providing housing by accelerating the development process, which they did with great success. Indeed, it is precisely because they responded effectively to the new system that they are now being penalised and find themselves in crisis, which affects not only them but, ultimately and more importantly, their consumers. Housing associations did not overspend in 1989–90; they simply spent their money more quickly and did exactly what the Government had asked them to do—that is, to work with the private sector to achieve a rapid provision of housing. Of course, the numbers are still far too low, but within what they were allowed to do they responded with a rapid system for putting housing into use.

In 1989–90, the system took the strain of several forces. The first was the much bigger initial payments to housing associations to start schemes. That was the pattern of the new regime. The second was the speed with which housing associations started on site or bought in completed schemes. Because of the slump in house building programmes, there were more off-the-shelf schemes available. Therefore, the available money was used more quickly. The third was the encouragement to get on with new schemes because of the change in capital controls on local authorities which came into force on 1 April. Many authorities were anxious to dispose of money that they could spend only in the last financial year, or to dispose of land under the old system. The fourth—which I regard as the forgotten factor—was the remaining substantial cost of completing schemes in the pipeline from the earlier years of the old approval system.

In financial terms, the fast train of 1989 ran into the back of the slow train of 1988 and earlier years. That resulted in financial disaster and many casualties among housing associations. That is my description of events. The Housing Corporation used less florid language, but it amounted to the same thing. It said that the costs flowing from its 1989–90 programmes already approved require significantly more cash in 1990–91 than we had previously forecast, leaving much less cash for schemes to be approved during the year. The £815 million budget for the Housing Corporation for 1989–90 was grossly exceeded and all sorts of devices were introduced either to cure or to disguise the problem. Of course, it is not a real problem—it is first a public expenditure accountancy problem and could be easily solved. Money was transferred from the 1990–91 programme to last year's programme, leaving much less available for this year; a 13-month year was invented; new approvals were delayed; and the tariff arrangements—which, in effect, were the long-term planning agreements for associations—were torn up and disowned.

The current year still holds commitments from the old approval system as well as the balance of commitments that were accelerated in 1989–90. I understand that the consequences are so severe that only about £70 million will be available for new starts this year as against the £450 million needed to sustain 20,000 starts a year under the new system, when much greater amounts of money are paid to housing associations once they have undertaken schemes. Because of the telescoping of previous programmes, only £70 million will be available, of which half is committed to starts on the new homeless housing programme. On the worst scenario, those figures mean that in the current financial year the number of starts will fall from 20,000 to 3,000, a cut of 85 per cent. Even on a medium scenario, with a cut of 50 per cent. to 75 per cent., it would be an appalling tragedy for the provision of housing for rent, which is the greatest unmet need in today's housing market. I cannot believe that Ministers will allow that to happen.

I wish to cite some examples of the consequences of what some call the current crisis, but which is officially called a dislocaton. The Government forced Lambeth borough council to sell a site because they said, with a little justice, that Lambeth was too slow in developing it. I asked the Minister's predecessor to ensure that the site would be sold to a housing association for rapid development to provide much needed homes for rent. I am pleased to say that he agreed to that proposition. As a result, the land was sold to a housing association so that it could get on with the job quickly. The consequence of the present crisis is that the housing association cannot develop the site because money will not be available to start during the current financial year.

A second example is of land in Kent which was acquired in phases for sensible development by a housing co-operative. It completed phase 1 and has acquired the land for phase 2. It is ready to go out to tender for the building contract. That co-operative has now been told by the Housing Corporation that the site cannot be started. Interest charges are accruing on the money paid for the site. Building costs may well rise during the next year. If the accumulated costs exceed the maximum allowable total—it is called indicative costs—the scheme may have to be abandoned. It is another example of a delay in starts this year leading eventually to a reduction in the number of completions in later years.

The third example is the number of development themes run by housing associations which may have to be disbanded. Those people are specialists who have been working together for a number of years. They have had a reasonable flow of work and they depend on development allowances to keep their teams together. Their expertise may now be lost. Associations that rely on a steady flow of development allowances could find themselves in financial difficulty with the consequent need to shed staff. At the end of the day, fewer starts this year—possibly as low as 3,000 to 4,500—must mean fewer completions in later years.

I demand that the Government act to ameliorate, or even to cure, the crisis. There are massive capital receipts in the public sector which could well be used. It is well within the Government's capability to solve the problem. As the Minister knows, there are huge accumulated capital receipts among local authorities. If a scheme could be put together with the Treasury to release that money, housing association schemes could continue without dislocation.

If the Minister acted like a Minister with responsibility for housing and used a bit of imagination, housing associations would be able to maintain a programme of 20,000 starts as well as 20,000 completions a year. That would assist the building industry, which faces a difficult time, to maintain a reasonable flow of work and would help the homeless and those in need. In addition, it would have no long-term cost implications.

If one examines the dislocation, the crisis, the delay in starts, one sees that it will have the effect in the long term of increasing rather than decreasing expenditure. The cost of keeping people in homeless accommodation is notoriously high and great savings could be made there.

What we have this morning is the chance for the Government to turn a crisis into an opportunity, to meet housing need and human need and to keep the contract that they made with housing associations. I hope that the Minister will give me a positive and constructive response this morning.

9.50 am

The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope)

I am grateful to the hon. Member for Norwood (Mr. Fraser) for initiating the debate and giving me the opportunity to explain the background to some adjustments that have recently become necessary to the Housing Corporation's capital programme, to correct some misapprehensions about the consequences of these adjustments, and to reaffirm our confidence both in the corporation and in the ability of the housing association movement to take the lead in the provision of low-cost homes for households in need.

I think that it is implicit in what the hon. Gentleman was saying that he recognises that the answer to today's housing problems does not lie in yesterday's massive municipal house-building programmes. Of course, there were and are plenty of good and well-run council estates, but there are also many notorious failures. Local authorities have had a near-monopoly of low-cost rented provision in their areas, and that monopoly has bred inefficiency and indifference to the customer's wants and needs. Authorities that have provided decent housing and managed it well have done so despite that monopoly, not because of it.

Housing associations have on the whole avoided the mistakes of local housing authorities. As relatively small-scale providers, they have not allowed bureaucracy or professional vested interests to get between them and their customers. On average, their tenants are better satisfied than those of local authorities. That is the main reason why over the past few years we have reversed the traditional roles and made associations, not local authorities, the lead providers of new low-cost housing. In doing so, however, we have found it necessary to recast the basis for funding their development.

Associations are private bodies, owing their foundation to volunteer effort and enterprise, yet since 1974 they had looked entirely to the public sector for their development funding. Moreover, because rent controls left associations with no means of increasing their income, that funding had to take a form that left all the risks with Government and provided no incentive to efficiency in construction and management.

Fitting associations for their new role has involved a revolution in their financing, restoring to them the freedom to set their own rents provided that they keep them within the reach of their own clients, tapping private sources of loan finance, and giving them full financial responsibility for their successes and failures.

We provided the framework for that funding revolution and the expansion of the movement in the Housing Act 1988. Most of the hard grind of devising the detail of the new grant arrangements and all the complex transitional machinery, putting the systems and people in place to run them and educating the movement about the implications and opportunities of the new regime, fell on the Housing Corporation. It had, too, to prepare itself and the housing association movement for a massive expansion in the capital programme. I pay tribute to its immense achievement in getting everything ready to roll in April 1989.

The strain on management, systems and staff throughout the organisation was enormous, and it would be altogether astonishing if everything had run with clockwork precision and smoothness from day one. If anything has gone wrong, it is that the housing association movement has mastered the new arrangements and responded to the challenges and opportunities that they offer even more quickly and impressively than we and the corporation had expected. I think that that is recognised by the hon. Gentleman. That has upset some of the key assumptions on which the corporation's plans for its capital programme in 1989–90 and 1990–91 were based.

Management of a capital programme within a strict and necessary discipline of annual cash limits—on which the Government put great emphasis—is always a complicated business. Individual schemes may take a number of years to plan, agree and execute. Decisions taken in one year will affect expenditure for several years ahead. Planning assumptions about what schemes will cost, or how long they will take to build, can be badly thrown out by events. Hitherto, in the face of all those difficulties, the corporation's record has been exemplary. The 1989–90 programme, however, posed an unprecedented problem —the introduction of a radically new grant system, the impact of which on development costs and times could only be guessed at.

A related difficulty was that evidence of the effects of the new system accumulated only very slowly during the past financial year. Associations' submissions of new schemes for grant approval tend to be heavily concentrated towards the end of the financial year, and that effect was more marked than usual in 1989–90 as associations, naturally, took a little time to familiarise themselves with the new arrangements. Initially, the corporation feared that take up of the programme was inadequate and that a significant underspend was in prospect. That shows how quickly the situation has changed.

The basis on which the corporation could have tested its planning assumptions and taken any corrective action was not available at critical times of the year, and the evidence on which the necessity of emergency action was eventually diagnosed was itself very incomplete and, as it turned out, unrepresentative.

By November last year, it became clear that action would be needed to contain expenditure for the year, and that was taken. Only at the end of December, however, did the corporation have reason to think that spending could not be constrained within the cash limit for the year, and in January my right hon. Friend the Secretary of State announced a bringing forward of £120 million of expenditure, originally planned for 1990–91, into 1989–90 in order to avert an overspend. The corporation's outturn expenditure for the year was within the revised cash limit.

In January, on the still very limited evidence available, the corporation believed that the high rate of spend was attributable mainly to the increasing use by housing associations of procurement methods such as design and build and off-the-shelf purchase of completed dwellings, under which grant expenditure flows through very rapidly once the scheme has been approved for grant. Allowance was made for that effect in the corporation's announcement, also in January, of its plans for the 1990–91 capital programme.

By March, it had become apparent that the new grant regime was having much more widespread effects on the phasing of expenditure. A marked speeding up was observable in all types of new scheme, including those using traditional procurement techniques. Projects that would have taken four to five years to complete under the old arrangements now seem set to be finished on average within two years. That is excellent news in itself. Homes are being completed and made available for letting much faster than before. Associations have got to grips with the new grant rules and responded to the new incentives to cut costs and development times with impressive speed. but it would have been better news still had the corporation known about it before announcing its plans for 1990–91.

The position now is that the unexpectedly rapid rate of expenditure on schemes approved before the start of the year will leave much less of a margin of uncommitted expenditure for new schemes to be started in the present year.

Mr. Fraser

The Minister is giving us an elegant and intricate description of a financial cock-up. Before he comes to the end of his speech, will he say that he intends to do something about it?

Mr. Chope

The purpose of the debate is to explain the background and not only the inputs but the outputs. I shall be stressing later the importance that the Government attach to output figures and I shall deal with them in some detail.

The corporation is reviewing the prospects in detail with each housing association and will then decide which new projects can be allowed to proceed during the year and which will have to be deferred until 1991–92.

What really matters is the number of new housing association homes being completed. It exceeded our plans for 1989–90 and seems set to do so again by a substantial margin in 1990–91, depending on imponderables such as the weather. The hon. Gentleman was, perhaps understandably, a little backward in paying tribute to the increased output beyond our forecast in both 1989–90 and 1990–91. Although the number of planned scheme approvals will have to be cut back sharply this year, that will have little impact on completions. There are two reasons—the large remaining pipeline of schemes originally approved under the old grant arrangments but on which work has yet to start, and the much faster rate at which schemes approved under the new regime are now likely to be completed.

Overall, we are still on course for a massive expansion of associations' output. Public expenditure provision for the corporation is set to rise from £938 million last year to £1,736 million by 1992–93, and growing use of private loan finance will further add to the programme.

That said, the adjustments now needed to the corporation's programme of approvals in 1990–91 are, of course, extremely disappointing and frustrating not only for associations but those who work with them. Many associations have geared themselves up and taken on staff to take full advantage of the opportunities opened up by the new regime, and now face delays in getting planned schemes off the ground. The hon. Gentleman referred to some of them. All the more reason for paying tribute to the calm and constructive manner in which the National Federation of Housing Associations responded to the situation, despite all the inconvenience and disappointment that its members have faced.

It rightly concluded that the best way forward is not to indulge in recriminations but rather to work closely with the corporation on the development of new programme control arrangements, which will avert any future threat to the corporation's cash limit and give associations a firm forward planning framework—while making due allowance for all the many inevitable uncertainties which lie outside the corporation's, or anybody's, control. Thanks to tremendous efforts on both sides, those new arrangements are now being put in place for the current year.

The hon. Gentleman acknowledges that the corporation has had an immense burden to carry over the last two years, and has had an immense amount of change to digest. The introduction of the new grant arrangements has involved a difficult learning process for the corporation as well as for the movement. It is easy enough now to point to one or two things that could have been done, or said, differently during that process, or to suggest that some of today's difficulties should have been predicted and action taken to pre-empt them. But it is remarkable that today's critics were so silent at a time when suggestions could have been put to good use.

Nor can the corporation be accused of any failure to consult or to take the views of outside bodies. The NFHA was closely involved in setting up the new grant regime, and management consultants were asked to undertake a review of the corporation's systems last autumn. Their report made a number of helpful recommendations on points of detail, but it did not identify a risk of cash control problems of the kind that emerged soon afterwards.

The corporation is, I know, as anxious as anyone to restore full confidence in the programme control and planning process. As I said, new cash control arrangements are already being put in place. A full financial management and policy review of the corporation was in any event due to be carried out this year, and will provide a further opportunity to establish that the programme arrangements are as soundly based as possible. More generally, I know that Sir Christopher Benson, the corporation's new chairman, and his board are giving the supervision of that area of activity a high priority. I am sure, therefore, that those temporary difficulties will soon be behind us, and that the housing association movement can look forward to many years of expansion and prosperity.

The hon. Member for Norwood asked why the Government will not do anything about local authorities' accumulated capital receipts, but he knows that it has always been necessary to control the overall amount of borrowing. Local authorities as a whole have debts of around £45 billion. We believe that if local authorities sell assets, part of the proceeds should be used to repay some of the outstanding debt. That is how the long-term, prudent financing of local authorities will be improved, rather than be undermined by substantially increased debt burdens.

What is important is the number of units being produced. Completions are expected to be largely unaffected by the problems that I described, and the corporation expects the number for 1990–91 to exceed earlier forecasts by 12 per cent. Over the next two years, it is expected that more than 50,000 new homes will be completed for occupation by people in housing need. About 41,000 units are currently in development, between approval and completion—so there is plenty of work for associations to be getting on with.

Mr. Fraser

I acknowledge that the number of completions has increased, and said myself that it had accelerated. However, does not the Minister recognise that, if the number of starts falls in the next two years, that will eventually be reflected in the number of completions? Does he regard 20,000 to 30,000 new homes to rent per year as adequate, when one indicator of demand reveals a figure of more than 100,000 families in need of homes each year?

Mr. Chope

I have already dealt with the number of completions forecast and why the reduction in the number of starts this year will not necessarily lead to a fall in the number of completions in subsequent years. I explained that aspect in some detail.

As to the general issue of people in housing need, the hon. Gentleman will know that the Government are placing great emphasis on encouraging local authorities to make more efficient use of housing resources. The borough which contains the hon. Gentleman's constituency leaves much to be desired in that respect. About a year ago, it had about 1,000 properties squatted and another 2,000 empty. Last autumn, the Government announced a £250 million initiative to encourage better use of housing stock, which is alongside the increased amount being made available to the Housing Corporation and the housing associations.

The Government are committed to ensuring that there is increased housing output. One way of ensuring that is to attract more private finance into housing. I am sure that the hon. Gentleman will recognise that an innovation once regarded with much scepticism by Opposition Members has proved to be effective in practice. We are now getting more for our money because we are attracting private sector investment.

I look forward to the future with nothing other than great confidence. I conclude by again paying tribute to the housing association movement for taking on the major responsibilities that the Government have given it.