Housing

HC Deb 01 April 1993 vol 222 cc693-712 5.18 am

Mr. Nick Raynsford (Greenwich)

I am pleased to have this opportunity to raise the important subject of affordability in housing-albeit not at the hour that I, or I suspect the other participants in the debate, would have chosen.

I start by declaring an interest as the director of a housing consultancy which has advised a number of organisations on matters germane to the debate. It is an important subject, which has become a matter of grave concern in recent years. There have been problems of affordability in all tenures. In the home ownership market, there has been a crisis of debt and repossessions. The number of home owners facing the prospect of losing their home through repossession rose from 16,000 in 1989 to 75,000 in 1991 and 68,000 last year.

At the beginning of last year, the Prime Minister made the rash claim on, of all places, the radio programme "Desert Island Discs": "We have stopped repossessions." Some 68,000 households bear witness to the Government's failure to honour that pre-election promise. Although the rise in repossessions has been stemmed, that cannot be said of the problem of mortgage debt. At the last count, 350,000 households were more than six months in arrears with their mortgage, and 147,000 of them were more than 12 months in arrears.

Many of those households will face the misery of repossession and the loss of their home—sadly, some of them already do so. They are the victims of the failed economic policies of the 1980s, which were claimed as an economic miracle on the basis of a credit binge that came to a sickening halt in 1988, leaving all too many people with debts that proved to be millstones round their necks.

Many home owners were left with properties that were worth less than the mortgage outstanding on them—a problem that has become known in the trade language as negative equity. On the latest estimates, that problem affects at least 1.5 million householders, who are locked into the unwelcome trap where they find it virtually impossible to move because the sum that they would receive from selling their house would be substantially less than the amount that they have outstanding on their mortgage for it.

Affordability problems are not confined to the owner-occupied sector. They are seen just as starkly in all parts of the rented sector. Council tenants have faced continuing steep rent increases as a direct consequence of Government policy, specifically the new subsidy framework introduced by the Local Government and Housing Act 1989. Under that framework, the Government have been able to determine, to all intents and purposes, the level of rent that each local authority has to set.

One of the curious features of the subsidy framework is that the Government set notional rents for each local authority in the country—an extraordinary example of centralisation, where the gentlemen in Whitehall claim to have a better knowledge of what the rent levels should be in any area of the country than do those people who have been democratically elected from the local communities. Those in Whitehall use formulae that are so confusing and arcane that they produce complete nonsense. They claim that the rent levels will reflect market values, but produce results that lead to higher rents in areas where market values are patently substantially lower than in other regions.

In my local authority district of Greenwich, rents have had to rise this year by £4, to an average of £41.65 per tenant per week—an increase of more than 10 per cent, which is more than three times the inflation rate. Most scandalous of all is the fact that the forced rent increases have both enabled, and provided the vehicle for, the Government to offload on to council tenants an ever-increasing proportion of the cost of housing benefit. In the coming year, £790 million of housing benefit costs are being forced on to the rents of council tenants. That will result in an average increase in rent of £3.85 a week for every council tenant in the country to meet the cost of housing benefit for other tenants.

Not only is that monstrously unfair, but in no other tenure is a similar provision applicable. There would be a national outcry if it were suggested that similar provisions should apply in other tenures. Imagine the alarm if it were suggested that every home owner in Britain should pay a surcharge on his mortgage equivalent to £200 a year—that is the exactly equivalent figure—towards the cost of income support payments to other home owners in financial difficulties. That is the framework that the Government have introduced in respect of council tenants, forcing some to pay higher rent than they would otherwise need to pay so as to meet part of the cost of benefits to other tenants.

That is not only grossly unfair, but involves a scandalous breach of faith. When housing benefit was first introduced, the Government repeatedly pledged that the full cost would be borne by central Government and not offloaded on to local authorities. The Prime Minister, then a mere Back Bencher, speaking in a debate on what was then the Social Security and Housing Benefits Bill, asked specifically for an assurance on the point: If 2.3 million people on supplementary benefit are likely to be transferred to a local authority rebate scheme, are the Government proposing to accept 100 per cent. liability for the costs of that scheme"? He was given an assurance by the then Minister, Mr. Hugh Rossi, in the same debate: The Government have undertaken to local authorities to reimburse to them 100 per cent. of any additional costs that they incur under housing benefit … When I talk of the costs, I am talking of the 100 per cent. rebate on rents and rates that will be granted".—[Official Report, 23 November 1981; Vol. 13, c. 674–707.] We have a clear and categorical assurance, given in response to questions from many people, including the present Prime Minister, that central Government would reimburse the cost of housing benefit 100 per cent. Now, we see that the reality is different.

Some 20 per cent. of the total cost of the housing benefit paid to council tenants is not being met by central Government but is being charged to the rent accounts of tenants—a flagrant breach of a clear pledge, given by the Government of the time. It is rather a sad comment that the Prime Minister who presides over that was party to the original pledge that it would not happen.

If council tenants are facing a raw deal because of the Government's actions, so, too, are tenants of private landlords. Deregulation of the private rented market has opened the door to massive increases in rents, when properties are offered on the market not as regulated tenancies but as assured or assured shorthold tenancies.

Even those properties subject to rent regulation are seeing steep increases when rents come to be re-registered. On average, they are re-registered at a level 25 per cent. higher than previously.

Recently, I was approached by tenants in Greenwich, whose rent had been increased by 58 per cent. To add insult to injury, the increase was almost double the amount that the landlord had requested. The rent officer and rent assessment committee mechanism has produced an extraordinary increase in rents, even above the levels sought by the landlord. There can be no justification for rents being pushed up in that way. Those increases are far in excess of the rate of inflation, and bear no relationship to what is happening in the property market.

The Government have often enjoyed making the case that rents should enjoy a closer relationship to market values—they certainly argue that forcibly in relation to their new regime on council rents. However, in the past two years, market values have been declining. Indeed, there has been a significant reduction in house prices.

If the relationship to market values were to be sustained, we should now be seeing reductions in the rents that are fixed by rent officers and rent assessment committees, instead of which we see a continuing, inexorable upward trend, which is increasing at a faster rate than previously. In 1988, average registered rents increased by 18 per cent. whereas the increases in 1989, 1990 and 1991 were 19 per cent., 22 per cent. and 25 per cent. During a period when the housing market was declining and capital values were decreasing, rent increases accelerated in the sector that is subject to regulation.

The problems are serious for council and private sector tenants, but it is housing association tenants who feel most keenly the issues that surround affordability. It is worth putting the figures in context. When the Housing Act 1988 introduced a new financial framework for housing associations, fears were widely expressed that it would lead to steep rises in association rents. Responding to the expressions of anxiety, Ministers were emphatic that housing association lettings would be "affordable". They added that tenants would be protected by a tenants' guarantee, which among other requirements would insist that housing associations set their rents so that they would be in reach of those in low-paid employment. As with so many other pledges offered by the Government, that promise was riot worth the paper on which the tenants' guarantee was written.

In 1988, the National Federation of Housing Associations set up a regular monitoring system to record rents being set by associations and the incomes of tenants moving into new lettings. The system has been in operation since the second quarter of 1988. The most recent figures, for the third quarter of 1992, show that, in the intervening four years rents for all housing association lettings increased by a staggering 112 per cent. Housing association rents have more than doubled in just over four years. Yet over the same period, the average income of tenants rose by only 25 per cent., rather below the increases in the retail price index and in average earnings. That reflects the well-known fact that housing association tenants are among the least well-off in Britain.

As a consequence of rent levels increasing by more than four times the average income levels of tenants, the affordability ratio has increase. That means that housing association tenants are having to allocate an ever larger proportion of their income to meet their rent. The figures show that about 26 per cent. of their income is taken by rent. That does not take into account other related costs that are incurred through occupation of their homes, such as council tax, water rates and heating costs. In London, where costs are higher, the National Federation of Housing Associations' CORE—continuous recording—monitoring system records that, on average, tenants are putting about 29 per cent. of their income into meeting their rent. The figures are rising all the time.

The figures reflect a period when housing association grant rates, on average, were about 75 per cent. of the capital costs of new schemes, but the rates are changing. Last year, the rates were reduced to 72 per cent., and in the coming year they will decrease to 67 per cent. The Government justify the reductions on the ground that building costs have been falling during the recession, so the procurement cost of new housing has been decreasing. It has been possible to get homes more cheaply than previously, and the Government argue that grant rates can be reduced accordingly.

There is some truth in that, and it would not concern me, if the Government were ready to increase grant rates when building costs rise—as they inevitably will. Most people familiar with that sector except, once recovery begins, a significant rise in building costs as firms that have cut their margins to the bone to keep alive during the recession attempt to restore profit margins to protect their financial position. As they do so, the procurement costs to housing associations will inevitably rise.

While Ministers have been quick to use reduced procurement costs as an explanation, excuse or justification for reducing grant rates, they have been coy about giving the corollary assurance that, in the event of procurement costs increasing, grant rates will rise again to reflect that situation. When the Minister replies, it will be interesting to see whether he can give an assurance that when procurement costs rise again, the Government will accept the need to increase grant rates, to ensure no deterioration in the affordability of homes.

We have not received such an assurance so far. I hope that the Minister will cast some light on that aspect, but if not, we will think the worst—that the Government are only too happy to find reasons and excuses for cutting grant rates but far less willing to protect the interests of tenants and housing associations in different circumstances.

In the past few months, we have seen different indications of the Government's intentions. The autumn statement signalled the Government's objective of reducing grant rates to 60 per cent. in 1994–95 and to 55 per cent. in 1995–96. The National Federation of Housing Associations analysed the implications, and reached the stark conclusion that the consequence would be an increase in average rents to a level 75 per cent. higher in 1996 than those measured in the CORE monitoring system in 1992.

In particular, working households becoming association tenants would face an average rent of £84.37 in 1996, compared with £48.11in 1992. On average, that group would spend 39.3 per cent. of income in rent in 1996, compared with 28.9 per cent. in 1992, and the percentage of new working tenants spending more than one third of their income in rent would rise from 27 per cent. in 1992 to 76 per cent. in 1996.

Those are staggering and depressing figures. It is clear that, with rents being pushed up to those levels, some 89 per cent. of housing association tenants moving to new lettings are expected to be people dependent on housing benefit to meet all or part of their rent.

The consequences are clear. Only those people likely to be receiving housing benefit, or who are relatively well off and are able to afford large rents without assistance, would be able to consider housing association lettings. That will inevitably exclude significant numbers of people on modest incomes—in middle to low—paid work—who cannot afford the extraordinarily high cost of renting from housing associations under those terms, and who will not qualify for housing benefit towards the cost. People in need on modest incomes and in low-paid work—the very people that the tenants guarantee said should have access to housing association lettings—will be squeezed out. That is a complete and fragrant breach of the supposed tenants guarantee.

Those who cannot afford to enter into housing association lettings because they qualify for housing benefit will be caught in a wretched poverty trap—unable to improve their income and living standards because they will lose almost every penny from every extra pound they earn through the withdrawal of their means-tested benefits on top of their tax and national insurance liabilities.

A couple with a low income will lose 30p of every extra pound that they receive in tax and national insurance—assuming, that is, that they are subject only to the 20 per cent. tax band. That is a generous assumption, because the band is very narrow. National insurance will rise to 10 per cent. under the arrangements announced in the Budget. That will leave the couple with 70p, 65 per cent. of which will be removed by the housing benefit taper and a further 20 per cent. by the council tax taper. So 85 per cent. of that 70p will be taken away, leaving the couple with precisely 10.5p.

If that couple are unwise enough to have children and hence to receive family credit, a further 70 per cent. of the residual 10.5p will be taken, leaving them just 3p from every extra pound they earn. That is a monstrous poverty trap. When the Government came to office, they complained that the richest people in Britain were subject to a penal and confiscatory tax rate of 83p in the pound; now they have created a far more penal and confiscatory framework for the lowest-paid people in employment, who depend on benefits.

That cannot be right. No one in his right mind can justify creating an arrangement that catches people in such acute poverty traps, giving them no incentive to earn more: such people will lose virtually every penny they earn, through the withdrawal of means-tested benefits and tax and national insurance contributions. They are condemned to a life of benefit dependency, with no incentives.

I remind the Minister that, when Labour was last in power, although income tax was higher—the standard rate was 33 per cent. rather than 25 per cent.; the lower rate also applied, but I am not taking that into account—a person in low-paid work would still have kept 37p out of every extra pound that he earned, because the reduction in benefit was so much less steep than it is now.

That is a very interesting difference. Someone in low-paid work, receiving help with housing costs through housing benefit—or rent rebate, as it was then—and rate rebate, but also paying tax and national insurance, would have been subject to an income loss of 63p in the pound. Currently, the equivalent figure is 89.5p in the pound. The Government should be ashamed of having plunged so many low-paid people into such a poverty trap.

This unhappy situation cries out for a new approach, and I have a series of specific proposals for action to tackle the problems. First—remembering the problems of mortgage arrears and repossessions—I believe that we need a mortgage benefit scheme to help home owners in low-paid work who are struggling to cope. For those who are unemployed, income support may well be available; if so, it will meet their mortgage interest payments up to a reasonable limit. But there are no arrangements to help those who are in work, even if—as is so often the case—the mortgage arrears are attributable to a reduction in earnings, perhaps when a member of the family ceased to work or went on to short-time work, or when his hours or earnings were reduced.

People who are in employment, but whose earnings are reduced, will have serious difficulty in making their mortgage repayments. It is precisely those people who receive no assistance under the current arrangements. The mortgage benefit scheme, which has been researched very thoroughly for the Joseph Rowntree Foundation, offers an intelligent way forward, concentrating help on those most in need. The savings that the Chancellor will make by restricting mortgage interest tax relief to 20 per cent.—that move, announced in the Budget, is very welcome—should be diverted to help the poorest home owners through a mortgage benefit scheme.

Council tenants must also be liberated from the monstrously unfair housing benefit clawback. This requires a simple adjustment to the subsidy rules to exclude housing benefit from the formula, thereby putting council tenants on exactly the same footing as everyone else. Benefits to council tenants, private tenants and housing association tenants and income support for home owners should be the responsibility of society as a whole, paid for out of national taxation, not selectively offloaded on to individual sectional groups within the community. It is wrong that that should be done. That practice should be changed as soon as possible.

Local authorities should be allowed once again to determine rents locally, in the light of local circumstances, rather than be forced by Government to push rents upwards, on the basis of a mechanistic Whitehall formula which, as is so often the case, bears no relationship to local reality. With private tenants, Ministers should now act on the consultation exercise that they undertook some months ago. The evidence—which I am aware of from talking to people, not just in my own constituency but in many other parts of the country—is absolutely clear: that rent levels for private tenants have been rising by unacceptably disproportionate levels, far ahead of the rate of inflation, and that they bear no relation at all to what is happening to capital values.

Action is needed urgently to halt, if not reverse, the unjustified rent increases being imposed on private tenants. New guidance should be issued to rent officers and rent assessment committees. The latter are often the cause of the problem. Rent officers tell me that they often have no option but to increase rents far more than they would like because, if rents are referred to a rent assessment committee, they will simply be put up on appeal. Rent assessment committees have the unenviable reputation of being seen as the party of the landlord rather than as a group of people trying to be impartial and scrupulous and trying to find an appropriate and fair balance between the interests of the two parties.

New guidance is needed to discourage these unjustified rent increases, and also proper safeguards, including appeal procedures that work for those tenants who are not in the regulated sector—tenants who have assured tenancies or assured shorthold tenancies—and who usually have no effective redress whatsoever against extortionate rents imposed and charged by their landlords. A proper mechanism for appealing against such extortionate rents and unreasonable increases is long overdue.

I believe that the Government must act immediately to reverse the very damaging threat of further reductions in grant rates to housing associations. The current figure of 67 per cent. grant rates should be taken as the absolutely minimum base line, and should be increased if either construction costs or affordability problems make that necessary. The threatened reduction of grant rates to 60 per cent. and then 55 per cent. must be repudiated as yet another of our failed Chancellor's foolish foibles. He may be unable to tell his threes from his fives, but it is time that someone else in the Government—in this case, I suggest, a Department of the Environment Minister—taught the Chancellor a few basic lessons.

At the same time, the Department of the Environment must come clean about affordability. For years, Ministers have talked about affordability but have never come up with any definition. We notice from other issues that Department of the Environment Ministers are all too keen to prescribe performance indicators to others. It is high time that they set a performance indicator in relation to affordability. Tenants of housing associations throughout the country deserve to know what is an affordable rent. They deserve to have the opportunity to challenge rent increases that are unreasonable and beyond the means of people in low-paid employment.

To do that. it is necessary to have a clear indication and a clear definition of affordability. The Government should come clean about it. In the absence of any clear criteria and a clear definition, it is possible for people to say one thing to one group of people and something else to another group, and to preside over a framework in which rents are clearly escalating and going through the roof—far beyond the means and reach of people in low-paid employment, without their having any come-back. We need some honesty from Ministers, and we need some clear definitions of affordability.

I am conscious of the fact that this debate is taking place at the end of a very long night. However, we have at least had an opportunity to air what I believe to be one of the most vital housing issues of today. I hope that, in his reply, the Minister will be able to offer some positive responses, and not just trot out the old excuses for the failure of current policies—excuses that we have heard so often. I hope he will accept that, even at this hour of the morning, lame excuses will not be good enough. We want a new approach that will bring hope to people who are desperate because of affordability problems.

5.50 am

Mr. John Battle (Leeds, West)

It is appropriate that this debate on affordability follows one on retirement and pensions. It is also appropriate that it should be taking place tonight, of all nights. I believe that when we look back we shall see 1 April as a key date with regard to housing and the homelessness crisis. I make that point because it is the date of the introduction of community care. That may not seem immediately relevant to affordability, but I suggest that it is indirectly relevant. From 1 April, people already in private residential care will not have the full cost of their care met; unlike those who enter homes after 1 April. In this of all years—it is the European year for solidarity between the generations—elderly people will find that, as a result of that policy, they cannot afford places in residential homes. If their families are unable to match the costs, they will have to leave and look for accommodation elsewhere, turning back to local authorities. Why? Because the housing benefit system will not cover the full cost.

Similarly, in the case of community care, the discharge of people from hospitals will put pressure on housing. The Government take a good policy and, somehow, manage to turn it inside out and corrupt it. They have a knack almost of corrupting the language. The very words "community care" may well turn out to mean the opposite. It may well be that there is no care and that the community is not there for the provision of support. The document on community care contained the helpful words: Housing is the key to independent living. That is fine, provided that there is sufficient housing. But, without a door, what use is a key?

In the context of this debate, the primary concern of society must be the absolute shortage of housing to rent. The Audit Commission, the Institute of Housing and the Housing Corporation all come up with a figure of 100,000 when considering the number of units of accommodation that need to be provided each year. The Government's plans for this year may produce, at best, 53,000 new homes. There is a desperate shortage of housing to rent.

For another reason, tonight is an appropriate occasion for a debate on the affordability of housing. On 31 March the Government closed the severe weather shelters. I am glad that the Parliamentary Under-Secretary of State for the Environment is present, as he went on record in The Times, and elsewhere, in an attempt to assure us that the 400 people in the nine shelters provided as emergency accommodation throughout the winter would have places provided for them or would find spaces in the voluntary sector. On the very last day—31 March—we checked and found that 133 people in some of those nine shelters had to leave, without anywhere else to go. As we debate in this Chamber, those people are spending their night on the streets of London. That is a disgrace.

Of course, we accept that it is a good policy to have severe weather shelters, but why on earth could not the Government have made provision to ensure that people being turned out had somewhere else to go? They knew who the people were. What we have is a good policy corrupted.

The Government's housing policies are now effectively pricing people out of renting. They are making it impossible for many people to rent in the private sector, the local authority sector and the housing association sector. I remind the Minister that the housing association sector is only 3 per cent. of the stock, the private rented sector only 7 per cent. and the local authority sector 21 per cent. All in all, about a third of the population live in rented housing and they have a right to know whether their homes will be affordable in the years to come.

I suggest that there needs to be some joined-up thinking between the Department of the Environment and the Department of Social Security. The affordability crisis in housing is also a housing benefit crisis. The Government are pursuing a low-wage policy and there is a fundamental contradiction between low wages and high rents. The Minister may reply that high rents will be met by high housing benefit.

The problem is that, for some people, wages are dropping. The Government claim that the average wage is rising and that is true, but they do not seem to realise that the average rises because the highest wages go up while, at the same time, people at the bottom of the scale see their incomes declining. That is where people hit the poverty trap.

The poverty trap is not for those on benefit but for those who are literally trapped between benefit and work income. They are caught coming off benefit. The Government must tackle the issue of housing benefit and the Minister should not glibly assume that social security will pay the bill. He will learn the hard way. People have to take up work—and so they should—but when they are offered a low-paid, part-time or temporary job, they will find that the income from that job will float them out of housing benefit through the tapers. They will be caught in the poverty trap because they will have to decide whether they can afford to take the job. If they cannot afford to take the job because it would mean that they were unable to pay the rent, they will face the worst double jeopardy. They will face the choice of losing their home because they cannot pay the rent or not taking a job. In other words, a work disincentive is being built into the Government's high-rent, low-wage policy.

The Government also need to make it clear whether the Treasury is giving carte blanche to the housing benefit system. From some of the statements made by the Secretary of State for Social Security, I am not sure whether the benefit tapers will be changed in the next Budget in November. If the tapers are changed and the situation becomes harsher, people will receive less from the benefit system to support their rents and will be forced to pay a higher proportion of their incomes in housing costs.

My hon. Friend the Member for Greenwich (Mr. Raynsford) referred to the iniquitous system of local authorities effectively subsidising the income support system. When the Government ring-fenced the housing revenue accounts, that is how they insisted that the system worked. Local authority tenants not on housing benefit make up the cost of local authority tenants on housing benefit. Of course, the Government know that that is happening. That is why they have recently changed the rules for large-scale voluntary transfer. They know that the rent accounts of local councils are receiving a subsidy from tenants not on benefit to cover the deficits which the Government should be making up through housing benefit and income support.

Why should some council tenants be subsidising the housing benefit of others, who ought to get proper support through the social security system? In other words, other renters are being forced to subsidise the income support system rather than the housing system. That is iniquitous and unjust. The Government recognised that fact in connection with large-scale voluntary transfer, which is why they changed the rules for that and introduced the levy. They should scrap the system now and return to local authorities the money that is due for paying out full housing benefit.

The Government are still operating a policy of pricing people out of renting local authority properties unless they are on high or medium wages. There is almost a deliberate edge, to force people to buy by pricing them out of renting. The guidelines set by the Government for local authority rent increases this year assume a 9 per cent. increase. That is well above the rate of inflation, yet those are the costs that tenants are asked to pay; that is the money that local authorities have to raise to balance their housing revenue accounts.

On 24 March my hon. Friend the Member for Rother Valley (Mr. Barron) asked the Secretary of State what assessment he has made as to the likely effect on the building of houses by housing associations of the reduction of housing association grants. The Minister for Housing and Planning replied: Increasing the private finance input into housing association schemes enables us to produce significantly greater numbers of new homes with the available public resources. The reduction in the average housing association grant for rented schemes from 72 per cent. in 1992–93 to 67 per cent. in 1993–94 was achieved through lower costs without any significant impact on the affordability of rents implied."—[Official Report, 24 March 1993; Vol. 221, c. 625.] A lot of meaning must be attached to the little word "implied". It is not the view of housing associations or their tenants that there has been no significant impact on affordability. There has indeed been a significant impact and not only I but many other hon. Members, including Conservative Members, are receiving letters from tenants in housing associations saying that they are finding it difficult to meet their rents.

On 24 March the National Federation of Housing Associations launched its affordability campaign, because it believes that the affordability crisis is now undermining housing association provision of housing to rent. If the housing associations constitute the only social rented sector that the Government are prepared to support, where does the Minister expect people to go if he prices them out of housing association properties? Even the Government's 1988 deregulation of the private rented sector did not revive it; there has been no substantial increase in properties available for private renting. There is a massive shortage of properties in the public, council rented sector. If people cannot afford their housing association flats and houses, where are they to move to? Where else can they go?

The housing associations' campaign on affordability points out that since 1989 housing association grants, the Government subsidy to housing association development, had been fixed at an average level of 75 per cent. throughout the country, but that in 1992–93 it fell to 72 per cent. and that it is now scheduled to fall to 67 per cent. But in the Department of the Environment's public expenditure announcement following the autumn statement the Government set an objective of reducing the grant to 60 per cent. in 1994–95 and to 55 per cent. in 1995–96.

The Government have not previously set grant rates for subsequent years. In a parliamentary reply on 24 March to a question from me suggesting that grants were projected to drop to those rates, the Minister said that it was alarmist propaganda. If he believes that the public expenditure statements of the Department of the Environment are alarmist propaganda, he should eat his own words, because it is there in black and white. It says that that is the Government's objective. In a speech at the London School of Economics the Housing Minister confirmed that that reduction in grant rates was his objective.

The consequences of the reduction in grant rates will be higher rents, the growth of dependency of housing association tenants on housing benefit, housing association revenue streams increasingly dependent on housing benefit and difficulties faced by housing associations in sustaining levels of private finance. If the grant rate changes take place, it is estimated that housing associations will need to raise an extra £400 million in private finance in 1995–96 simply to maintain a stable programme. Have the Government done the arithmetic on that? Do they believe that they can raise that money? Will not the Minister concede that it is an unrealistic additional amount for housing associations to find?

What will happen? There will be a vicious circle of higher rents, housing benefit dependency and reduced loan security, all as a result of a reduction in grant rates in the Government's attempt to push the housing association movement further in the direction of raising private finance.

The National Federation of Housing Associations commissioned UBS Phillips and Drew to forecast the factors that are incorporated into the grant rate and the total cost indicator systems which govern the costs and rents of housing association production. The calculations based on those forecasts are that rents are likely to increase by a further 70 per cent. on average and dependency on housing benefit will increase to 85 per cent. of housing association tenants. It will be 90 per cent. for two-parent households.

Such percentages of incomes spent on housing costs are well beyond what is expected anywhere else in the world. The OECD suggested that if a person or a family spent more than 30 per cent. of income on housing costs, there would not be sufficient left to feed and clothe themselves, apart from the cost of travel to work.

The Government have not revealed their estimate of an acceptable percentage of income to spend on housing costs, but the Treasury has assumed a figure of 34.7 per cent. since 1989. Under the proposals for one parents and single people, that figure will be over 40 per cent. For pensioner households the position will be even worse. If grant rates drop to 55 per cent., according to the UBS Phillips and Drew survey, pensioner couples will spend 45 per cent. of their income on rent and single pensioners 52 per cent. Single people under 25 will pay 48 per cent. Those levels are unsustainable.

I hope that the Minister has seen the background briefing notes of the National Federation of Housing Associations which give figures based on the federation's continuous recording of lettings data on new tenants supplied by the associations that make up the federation. They show that 76 per cent. of new working tenants will spend more than one third of their income on rent. The question that must be asked is: in those circumstances, how could the new rents be considered affordable on any reasonable interpretation of the word? Working households becoming association tenants will face an average rent of £84.37 in 1996, compared with £48.11 in 1992. On average that group will be spending 39.3 per cent. of their income on rent in 1996, compared with 28.9 per cent. in 1992.

In other words, the percentage of new working tenants who spend more than a third of their incomes on rent will rise from 27 per cent. in 1992 to 76 per cent. in 1996. Is that the Government's intention? If so, the only conclusion is that they assume that the bill will be picked up by the Department of Social Security in housing benefit, because 89 per cent. of new tenants will be on full or partial benefit. I should be interested to know whether the Department of the Environment and the Housing Minister have clearance from the Secretary of State for Social Security to escalate housing benefit in such a way. If 89 per cent. of all new housing association tenants moving into new homes in 1966 are on housing benefit because of the change in grant rates—reducing them to 55 per cent.—they will qualify for weekly housing benefit of £30.72 in 1996, compared with £13.28 in 1992. In that case, the Government will have to pay drastically more in housing benefit.

When we look at the annual report of the Department of the Environment, we find that the increase in housing benefit for private tenants and housing association tenants in the past 12 months is incredible. I cannot see the Treasury allowing the Department of the Environment to get away with a policy of simply saying that it will jack up the rents and the Department of Social Security will pick up the bill. I suspect that the Government will start to claw it back.

If everyone is pushed into housing benefit, the question again arises: in those circumstances, is it worth new tenants having a job? In other words, if they are offered a job, they are put in the real dilemma of having to refuse it because they will not be able to make up the difference between the high rent and what they would have got on housing benefit.

Pensioners will face worse affordability problems. In 1991–92, pensioner households, except housing association lettings, paid an average of 38 per cent. of their net incomes in gross rent, compared with 25 per cent. for households under pensioner age. We all know that, because pensioners who visit our surgeries or write to us often set out their payments in detail. They can tell us their weekly milk bills. They do the arithmetic because they must pay the price of increasing bills. Pensioners will be hard-pressed if rents increase in this way because not all of them are on full housing benefit: some get a modest supplementary pension which, effectively, eliminates them from access to housing benefit. They then have to find the rent. Pensioner households pay higher average weekly gross rents than non-pensioner ones—in 1991–92, the figure was £42.49 compared with £38.30.

Are the Government suggesting that housing associations will provide welfare housing with a vengeance only for those on housing benefit? The trend is already shifting in that direction because 70 per cent. of tenants in housing associations are on benefit, compared with about 66 per cent. of council tenants. If they are saying that, there is another twist because the housing will be available only for pensioners on housing benefit.

If unemployed people on benefit are offered a job, they must accept it, regardless of how low paid it is, or they will lose the benefit. That is the new trap under the social security rules. The double-jeopardy is that, if people accept a part-time, temporary, low-paid job, it may float them out of a benefit but not give them sufficient to make up the difference in rent and they will have to move out. Even for the elderly, a bit of supplementary pension from a partner could mean that housing association properties will need notes in the windows saying "DSS only apply", which we have seen previously. If people cannot guarantee that they are on full housing benefit, they will not be able to afford the rent.

So what is the future of housing associations? The Mail on Sunday on 21 February said: Private developers could be given Government cash to build low-cost homes for homeless and poor families. Ministers may allow builders to compete with housing associations for a slice of £2 billion of Whitehall funding. Tory MPs pushing for the change are concerned that housing associations are failing to give value for money. They believe that savings could be made by 'cutting out the middleman' and funding developers directly. They argue that private developers could build more homes with the money through greater expertise and lower costs. The hon. Member for Croydon, Central (Sir P. Beresford) said in the article: I understand from the private sector that value for money is not being given. Many of the builders concerned claim they could build more homes for the same costs. I should like the Minister to confirm whether that is Government policy. Does he see the housing association grant going directly to the builders when it drops to 55 per cent?

So the great honeymoon of the housing association world which the Government supported seems to be coming to a close. What are the Government's intentions for the housing association world? Do they see it having a future, providing what they would describe as "socially rented housing", or do they see the grant going direct to the builders to provide more housing at lower cost?

The race for market rents was set off by the Housing Act 1988, which was to free the private rented sector. I remember asking the Housing Minister during proceedings on that Bill whether he had persuaded the Department of Social Security to agree to underwrite the housing benefit bill if landlords decided simply to jack up the rents and charge what they wanted. I remember the Minister saying that of course landlords could not put the rent up to £100 or £150 a week and simply claim that the person was on housing benefit. What have we seen happen?

We were given another notion—market rents. What do we get now? Week after week, I receive scores of letters from people who went to the rent assessment committee because the landlord proposed to increase their rent and found that the committee agreed to increase the rent by even more. What is happening in the private rented sector is exactly what was predicted would happen. Rents are going through the roof. So far, the Government simply say that it is deregulation and that those who cannot afford rents can obtain housing benefit. How long will it be, I am worried to ask, before the Treasury cuts the housing benefit bill? Will it be in November, when the tapers are reduced, that people are told that they have to pay more rent?

I conclude with a remark that the Minister made to me when I put it to him in environment questions on 24 March that the housing association grant reduction would cause real hardship. He replied: I reject the alarmist propaganda that the hon. Gentleman has just revealed to the House."—[Official Report, 24 March 1993; Vol. 221, c. 906.] Is the UBS Phillips and Drew survey alarmist? Are the housing associations being alarmist? They tell the truth about the arithmetic and who will pay the price if the Government press ahead with their proposal.

When we talk about propaganda, the Minister should look at his Department's news releases, in particular the one of 18 March which committed the Government to spending £1.4 million on an advertising scheme to remind tenants of their right to buy. The news release which relaunched the campaign said: Many council tenants could find that the costs of buying compare very well with the costs of renting. In fact, an average Right to Buy mortgage repayment will be less than the average rent as from April. Of course it will if the rents are increased to price people out into taking on mortgages. I suggest to the Minister that that statement says a lot more about the increasing costs of renting than about the availability of cheap mortgages. That is the problem. When we have a Government abolishing wages councils and driving wages down, of course the rents will be beyond people's means and the equations start to look different.

The Minister says in page 3 of the press release: Rents however have risen and now average rents are £33.00 a week (expected figure for April 1993) or £145 per calendar month. So mortgage costs could in fact now be less than renting costs. I am tempted to add that it is almost like an advertisement for a timeshare. It is certainly not a commitment to a decent, affordable renting policy; it is simply suggesting that people should get out of renting and take themselves into mortgages as quickly as possible.

There we have it. That is the real propaganda, the real direction of Government policy. There is a fundamental contradiction between a Government's economic policy developing a low-wage economy and a Department of the Environment insisting on high rents. We need more rented housing; that has to be the primary position; but we also need to tackle affordability, or, in effect, people will be priced out of renting.

If the Government pursue the present policies in the public sector, the housing associations and the private sector, people will be priced out of renting. The only conclusion can be an increase in homelessness as people try to live with others, on sofas and floors, or take to the streets. What worries me is that this time it could mean homelessness among the elderly on a scale which, so far, our society fortunately has not had to face.

That might sound alarmist to the Minister, but I suggest that he does his homework on the figures. The Government could, and should, act now to pre-empt that potential scandal. The primary need is for homes to rent. The Government should ensure that people can afford to pay their rent according to their real income and means; if they do not, they will be culpably compounding the homelessness crisis and rendering the word affordability totally void of meaning.

6.22 am

The Parliamentary Under-Secretary of State for the Environment (Mr. Tony Baldry)

With the leave of the House, Mr. Deputy Speaker, I wish to respond to the debate.

On the Order Paper, the debate is entitled "affordability of housing". The question what is the right price level for social housing is not an easy one. This is not a simple matter of deciding that it would be nice if accommodation were cheaper, and legislating to that end. Indeed, it could be argued that many of the current inequalities in the housing market have their roots in decisions taken on past occasions, based on precisely that sort of ill-considered wishful thinking.

One of the reasons why this country has one of the smallest private rented sectors in Europe is that the artificial rent controls effectively destroyed the private rented sector for the decades after the first world war.

Mr. Battle

rose—

Mr. Baldry

I have hardly started my speech before the hon. Gentleman invites me to give way, but I am happy to do so.

Mr. Battle

I am grateful, but it is one of the big myths that Government keep running, and it ought to be nailed as a lie. The reason why the rented sector declined is that landlords sold the houses to put the money in the bank. It was cheaper, when interest rates were high, to sell the property and accumulate money that way. Was not the cause of the gentrification of inner cities and the decline of rented housing the fact that the amount of housing to buy went up?

Mr. Baldry

That is a total canard, as the hon. Gentleman knows. The private sector declined from the first world war onwards because of rent controls which artificially kept down the return that landlords were able to make upon their investment—rent controls that were maintained by successive Labour Governments, which effectively destroyed the private rented sector. It has only been since the 1988 housing legislation, when we freed rents to proper market levels, that we have begun to see, for the first time for many decades, a private rented sector in which new tenancies equal those that are falling in.

Mr. Raynsford

rose—

Mr. Baldry

No. I have listened to a lot from the hon. Gentlemen. They have both made very long speeches. They have both made a lot of points to which they want me to respond. It is a complex subject, and one on which I wish to respond in my own time and in my own way.

To begin with, housing is not, like some other goods such as education or health services, predominantly a public sector matter. Most households prefer to own their own homes, and a major element of our housing policies has been focused on enabling them to do so. The right to buy for council housing, and now our rents-to-mortgages proposals; cash incentive schemes to enable public sector tenants to move out into owner-occupation; shared ownership schemes—these are all important parts of our commitment to empower those who want to own their own homes to do just that. With affordability levels high, with mortgage rates at their lowest for 25 years, and with some impressive fixed rate mortgage deals on offer, now is an excellent time for those thinking about buying into the market to do so.

Not every household will want, or be able to afford, owner-occupation, so our policies also address the demand for rented accommodation; but here as well we must remember that housing for rent is not a public sector monopoly; although the private rented sector has been a declining force in housing provision throughout the century, there is now evidence of an increase in private lettings in response to the measures we have taken to encourage the private rented sector. Housing benefit means that tenants who rent from private owners are not left on their own if they face difficulty in meeting their housing costs.

Therefore, the question of affordability in the social housing sector is not something which can be treated in isolation. Not only do we need to remember the interaction with the other housing sectors; we also need to consider what the nation as a whole can afford to spend on housing programmes; to make sure that what we can afford is targeted as closely as possible on those in the greatest need; and to use it as efficiently as possible.

In the local authority sector, we have intentionally been moving towards a more market-based system of rents, where the rent the authority charges reflects the value of a letting. Instead of subsidising the bricks and mortar of the property itself, we have been subsidising the people who matter—individual tenants. That approach means that where local authority tenants can afford to pay more towards their housing costs, they do so.

In the past, there has been a great deal of emphasis on keeping down gross rents. However, that policy has produced some pretty odd results. In the local authority sector, rents have tended to reflect historic investment costs and arbitrary decisions on rent levels by local authorities rather than the intrinsic value of the housing on offer.

Thus, it has been common for local authorities to charge a high rent for a virtually uninhabitable system-built flat simply because the investment was recent and the debt charges high, and a much lower rent for a pleasant, traditional older house built some time ago. It is no wonder that some estates have been hard to let. As well as relative rents being out of line with reality, the average level of all gross local authority rents had reached an artifically low level by the time we took office in 1979, so we have been pursuing a policy of gradually increasing local authority rents in real terms.

Ring-fencing the housing revenue account has put an end to arbitrary subsidies to or from the ratepayer or council tax payer, and by shifting subsidy from bricks and mortar to people, we achieve a fairer distribution of the available subsidy.

The increases have not been severe, as we accept that tenants who do not receive housing benefit need to be protected from too steep a withdrawal of the subsidy to their rents. In order to move towards a more rational pattern of local authority rents, we have been targeting our guideline rent increases according to the capital value of different local authority housing stocks, so the authorities with the most valuable stocks are those that increase their rents the most.

We have also encouraged all authorities to move towards a more rational pattern of rent among their different properties—a pattern that reflects the value rather than the cost of different local authority homes. A tenant who is unable to meet the full cost of the rent gets means-related help from the housing benefit system. Some 70 per cent. of local authority rent increases are met by rent rebates.

Since 1989, local authorities have faced the discipline of the ring-fenced housing revenue account. It increases the focus on the delivery of housing management services, which are properly chargeable to rents. It means that authorities cannot bail out an inefficient housing operation at the expense of the local council tax payer, as too many did in the past. The need to make sure that rental income, together with the support we provide through the housing revenue account subsidy, meet outgoings provides a vital check. I make no apology for moving the subsidy away from the buildings and towards the people who live in them; and away from the suppliers and towards their customers. That is a crucial step towards a more efficient local authority housing sector. As local authorities grow into their role as enablers, and as the pressures of compulsory competitive tendering for housing management improve performance, I hope to see further improvements over the coming years.

While local authorities account for the bulk of the existing social rented sector, they are, of course, no longer the main suppliers of new social housing for rent. That role has been taken on by the housing associations, which have been able to make use of private finance to ensure that the funds they receive from the Government through the Housing Corporation are translated into the maximum number of good-quality homes.

Since 1988, public spending on housing association grant has been supplemented by more than £2 billion of private sector finance—a clear gain to housing output at a time of public spending restraint. That large sum of private finance has enabled a great deal of additional investment in social housing to take place. The average housing association grant rate for this year is 72 per cent. Private finance enables a third more homes to be built with the available public money than would otherwise be so. For 1993–94, grant rates have been reduced, without any impact on rents, because of competititive prices and low interest rates.

Our manifesto promised 153,000 new homes to rent over a period of three years. I am confident that we shall do much better than that, partly because of the housing market package announced by my right hon. Friend the Chancellor in November. I shall outline the outstanding success of that package in a moment. The private funding that housing associations can raise, however, also makes a vital contribution. The reductions achieved this year through lower interest rates and competitive prices have enabled us to reduce the rate of housing association grant from 72 to 67 per cent. without any significant impact on the affordability of the rents implied by those grant rates. That has improved output—an extra 3,300 new homes provided this year as a result of the increase in private sector funds levered in.

We must strike a balance between rent levels and the number of homes provided. There is no magic wand that we can wave to make it possible to provide decent homes more cheaply. If we choose to provide subsidy at a higher level, we must forgo the extra output, which, I am sure that hon. Members would agree, is badly wanted by those in unsatisfactory accommodation. [Interruption.]

As with local authority tenants, it is only those on incomes high enough to be outside the housing benefit system who will face the full impact of higher rents. It is, of course, important that they do not face unfair rises or increases that are too steep. Where resources are available to tackle housing need, it must be right that we increasingly move towards directing them, through the housing benefit system for poorer tenants, at those who have the greatest need, and make new homes available to those who are not satisfactorily housed.

Housing associations have been able to take advantage of low interest rates and low building costs to build more homes and house more people. Opposition Members will hear concerns about affordability from housing associations—as I frequently do. The hon. Member for Leeds, West (Mr. Battle) referred to the lobbying that housing associations have been carrying out in recent days.

What is most significant and at the crux of the debate—although housing associations have not made it clear in their various representations—is that this year, at a time when those associations have been expressing concern about affordability and the housing association grant rate, those self-same associations have put forward more than four and a half times the number of schemes that can be supported by the resources available for this year. At those grant rates, their bids have been four and a half times the amount of the money available. That clearly suggests that, whatever concerns they may express in public, housing associations have confidence in their ability to make use of the resources available at those grant rates and to achieve the higher outputs that we have sought.

The hon. Member for Greenwich (Mr. Raynsford) argued that 67 per cent. was the minimum grant rate that it was possible to sustain. I simply invite him to explain how, when housing associations are bidding at levels of four and a half times the money available through existing grant rates, one can possibly justify saying that 67 per cent. is the absolute minimum for housing association grant.

Mr. Raynsford

Will the Minister answer the following question, which will help him to resolve the question that he has put to me? Has the Housing Corporation—which, as he knows, recommends to Ministers the appropriate grant rate for housing associations—recommended the reduction of grant rates from 72 to 67 per cent? If it did not, the Minister will have to explain to the House why he and his colleagues ignored the advice of the Housing Corporation, which was concerned about the affordability problems that were being caused by reducing grant rates.

Mr. Baldry

Before I answer that question, the Official Report will show that the hon. Gentleman completely ducked and evaded the question that I asked him, which is the core question. I will answer his question about the advice from the Housing Corporation as it raises the issue contained in his speech—and about which he has been muttering sotto voce ever since—about whether we would contemplate increasing the housing association grant rate.

We have repeatedly made it clear that, year on year, we make no final decisions about the grant rate until we have all the evidence and advice, which obviously includes advice that we receive from the Housing Corporation. This year, I suspect that it will also include the advice that may be offered by the Select Committee on the Environment, of which the hon. Gentleman is a member and which is currently conducting a study into the Housing Corporation and its work.

We have made no shadow of a secret of the fact that our objective is to increase the proportion of private financing put into new schemes in future by reducing grant rates to 60 per cent. in 1994–95, in line with the wider initiatives to expand the role of private finance announced in the autumn statement. But final decisions will be taken only when we have assessed the likely impact on housing associations' ability to raise the private finance necessary. Those decisions are taken year on year, and they will be taken against the background of that available information. Within that context, the Housing Corporation's advice will always be listened to carefully, as it was last year, but we will also bear in mind the need to make sure that the resources available go, as far as possible, towards helping those who need a home.

With a finite amount of capital for investment, we have to examine the trade-off between how much we can do and how much we ask tenants to pay for it. At whatever level of capital spending, we are forced to choose between building fewer homes with lower rents or more homes with higher rents. Some large numbers are involved in that trade-off. Quite small reductions in the subsidy that we pay to suppliers of housing association homes, in the case of new housing, can have a major impact on output.

This year's reductions in average housing association grant level by just 5 per cent. will enable an extra 3,300 homes to be built. In that case, rents will not have to rise, because the grant rate reductions have been made possible by cost savings. If we had followed the policies advocated by the Opposition, those extra houses would never have been built.

Recently, there have been some encouraging signs emerging from the statistics of families accepted as homeless by local authorities. The number of homelessness acceptances in 1992 was 2 per cent. less than in the previous year—the first year-on-year reduction. The signs on the use of bed-and-breakfast accommodation are even more encouraging, with only 7,500 households housed there by local authorities, compared with more than 12,000 a year ago, and that is a drop of 38 per cent. We hope that, as the new homes made available through the housing market passage come on stream, the figures will continue their current hopeful trends.

I am happy to be able to tell the House that the housing market package has exceeded our expectations, and I should like to take the opportunity to congratulate all those who have been involved on the work they have done. Around 18,000 homes for rent will be made available in England, well exceeding the target of 16,000; grants to local authority and housing association tenants will enable some 3,500 households to move into the owner-occupied sector, freeing their current homes for those in need.

The 80 housing associations involved deserve great credit for their achievement. What they had to undertake was not inconsiderable within the time scale, and purchases have been made right across the country in almost all local authority areas, making a vital contribution towards meeting housing need, and often bringing on significant numbers of new houses for rent within particular areas.

However, we shall never allow ourselves to become complacent. Homelessness is still a significant problem, which demands tough decisions on how we use the resources at our disposal. The families who are still in unsatisfactory bed-and-breakfast accommodation, and who need a home of their own to give them a chance to bring up their children in the way they would want, will not thank us if we allow concern for existing tenants who are already comfortably housed, and who can afford to pay a little more towards the cost of their housing, to dominate our thinking at the expense of building new homes.

It is not just those who are unsatisfactorily housed in temporary accommodation who should be at the front of our minds. We must also remember the needs of those who have no home at all. Our rough sleepers initiative has made a significant impact on the problem of rough sleeping in central London. We have spent over £96 million. That money will provide nearly 1,000 hostel bedspaces, 700 places in flats and houses leased from the private sector, and more than 2,000 places in permanent move-on accommodation.

The hon. Member for Leeds, West made various assertions alleging that those who had been housed in rough weather shelters had not been provided with accommodation when they left. His figures are badly wrong. Only about 10 people were refused further accommodation, but I do not intend to have a spat about that at this early hour in the morning. I will arrange to have the information that we have made available in the Official Report so that it can be seen on the record, and there can be no doubt of the success of those involved in those schemes.

These measures have been having success. Independent research suggests that the number of people sleeping rough in central London has more than halved from its level of three years ago. We need to do what we can to ensure that the figures continue to reduce, and it is vital that all the agencies concerned with rough sleepers co-operate to achieve that end. At Lincoln's Inn fields, for example, Camden council, the Government, and voluntary organisations have co-operated to ensure that everybody formerly living there was offered alternative accommodation.

Tackling rough sleeping is not a simple task. It requires close co-ordination between central Government and local government, housing associations, and voluntary groups, to ensure that the needs of those sleeping rough are tackled in the round, and to make sure that rough sleepers have the opportunity to start a new life with more secure housing. The work of the rough sleepers initiative is not just the work of central Government; it depends on all the agencies involved working together with those who need shelter to find the right solutions.

I have talked about the needs of those who are without a proper permanent home to emphasise that, when we talk about affordability, we need to remember the purpose of our housing policy. It is to ensure that a decent home is in reach of every family. That is not wishful thinking—it is a substantial commitment—but it involves hard choices. It requires us to make sure that the resources that we can afford as a nation are targeted as closely as possible on the real problems, and on those in greatest need, and we are determined to do that.