§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Chapman.]
10.20 pm§ Sir Fergus Montgomery (Altrincham and Sale)I am grateful for the opportunity to have an Adjournment debate. Usually when I have such debates, they come in the early hours of the morning, so I am pleased to have one at a civilised hour.
I hope that my hon. Friend the Under-Secretary will take note of the points that I shall make. In a perfect world, we would not have a problem about affordable housing. If the housing stock of the country were shared out carefully—[Interruption.]
§ Madam SpeakerOrder. Could the door be closed? It is far too noisy and I cannot hear the hon. Gentleman.
§ Sir Fergus MontgomeryThank you, Madam Speaker.
In a perfect world, we would not have a problem about affordable housing. However, problems such as the terrible increase in divorce, with the result that where one home sufficed now we need two, and the increase in the number of young people leaving home and gravitating to big cities have all led to an increase in housing problems.
Housing associations are now the main providers of new homes for people with low incomes. I have to declare an interest, as my wife is chairman of a housing association and a member of the Housing Corporation. It might be better if she were making the speech tonight instead of me, because she knows a great deal more about housing than I do. Some would say that she knows a great deal more about everything than I do, but naturally I would not accept that.
The purpose of the Adjournment debate is to highlight the concerns of housing associations over the proposed cuts in grant rates. As my hon. Friend the Minister knows, the Government provide an average of 72 per cent. of the capital cost of new housing association homes. That is due to drop to 67 per cent. in 1993–94, and the Government have announced the objective of reducing the levels of subsidy to an average—I underline "average"—60 per cent. in 1994–95 and down to an average of 55 per cent. in 1995–96.I emphasise the word "average" because it is an average for the country as a whole. In the north-west, where my constituency is, the figures would be 45 and 37 per cent. respectively.
If those figures materialised, rents on new homes built with a 55 per cent. subsidy would, on average, be 7:5 per cent. higher than they were last year. To put that into simple language that people understand, it would mean that a rent of £48 now would rocket to £84 a week. If that happened, it would adversely affect tenants who were working but who would find it difficult to pay such an increase in rent.
It is accepted that housing associations should be concentrating on housing for those in greatest need, which usually means the poorest families. Consequently, the high percentage of new tenants who are eligible for housing benefit is proof that housing associations are being successful in their target. However, there is concern about the cost to the Exchequer of housing benefit, and it is felt that maintaining housing association grants would reduce future housing association benefits.
826 My hon. Friend the Minister for Housing, who I acknowledge got an enormous amount for housing, and who is regarded as knowing more about housing than just about any other hon. Member, gave a lecture on 4 March in which he emphasised benefit tapers and work incentives. The combination of withdrawal rates for housing benefit, family credit and community charge benefits means that households in benefit need to earn about £25 a week more just to have £1 a week in disposable income. That is a horrifying figure.
The rent levels that housing associations are increasingly having to charge their tenants, especially those with children, require a higher income than the majority could ever earn to escape the severe effect of the tapers. I am told that, at current rent levels, 46 per cent. of working tenant couples with three children would need to earn £100 a week more in order to escape. At the same time, the poorest people are being put in the newest social housing at rents that make it even more difficult for them to get out of the poverty trap and to better themselves.
If the proposed cuts in housing association grants are implemented, working households would face massive rent increases. On average, in the year 1996, that group will spend 39 per cent. of their income on rent, compared with 29 per cent. last year. The percentage of new working tenants spending more than one third of their income on rent would rise from 27 per cent. last year to a massive 76 per cent. in 1996.If that happens, could the new rents to be charged be considered to be even remotely affordable?
There is also the question of housing benefit. I am glad to see my hon. Friend the Member for Bury, North (Mr. Burt)—the Under-Secretary of State for Social Security—in the Chamber, as I am glad that he is taking an interest in this matter. The National Federation of Housing Associations estimates that, if the average grant rate goes down to 55 per cent. in 1995–96, 89 per cent. of all new housing association tenants moving into new homes will be on housing benefit.
The federation makes three valid points. The first is that the percentage of all working households dependent on housing benefits would rise from 47 per cent. last year to 66 per cent. in 1996.Secondly, on average that group would qualify for just over £30 in weekly housing benefit in 1996, compared with just over £13 last year. Thirdly, the weekly income that that group would need to earn to escape any dependency on housing benefit would rise from £160 in 1992 to £224 in 1996.We come to the crunch question—in those circumstances, would it be worth new tenants having a job? I would have thought that the Government would want to encourage people to work, rather than have them stay in the benefits system.
Housing benefit is a complicated business. An article in the Financial Times on 21 April suggested that there were rumours that housing benefit may be the focus of attempts to make savings in the social security budget. One estimate was given of savings resulting from a steepening of the taper in the rate at which housing benefit is withdrawn as income increases, from the present 65 per cent. to 80 per cent. That would increase the maximum marginal deduction rate to 100 per cent. As a consequence, thousands more people would find themselves in a crippling poverty trap.
I shall give an example. If that happened, a single person who had a £1 increase in gross income would find that, with income tax of 25p, national insurance of 9p, 827 housing benefit on an 80 per cent. taper of 53p, and council tax on a 20 per cent. taper of 13p, the total withdrawn from each additional £1 would be £1.That is a 100 per cent. marginal deduction rate. The person would lose all his pay increase through taxes and loss of benefit. The same would be true for families. That would severely affect work incentives.
There are other examples. A single person earning £120 a week would find that he had a weekly disposable income of less than £50. A single person earning £180 a week, with a net income of £139.28, paying £40 a week rent, council tax of £280 a year—about £5 a week—and travel expenses of £5 a week, would be left with a weekly disposable income of £89.28.
Compare that with the single person receiving £44 income support, £40 housing benefit, and £5 council tax benefit, totalling £89 per week. A single person would have to find a job paying at least £180 before he or she was even a few pennies better off in work than out of it. I cannot believe that we should be encouraging that sort of thing.
Under the capital rule, anyone with capital of £16,000 is disqualified from housing benefit. Capital below £3,000 is disregarded. With capital between £3,000 and £16,000, a notional amount of interest is assumed at the rate of £1 per week for every £250 of capital. I only wish that I could find some way of enjoying that sort of return from my savings. In fairness, that rate of tariff income is too high and is a disincentive to saving. I hope that also will be examined. It would be fairer to assume a tariff income of 50p per week for every £250 of capital.
I hope that the Minister can give some assurance to housing associations throughout the country, because they are extremely worried about the proposed reductions in grant aid. Affordable housing must be provided for the poorest people in this country, and we must ensure that the housing benefit system does not militate against those who want to work and to help themselves, and that we do not penalise the elderly who have been thrifty during their working lives.
The reduced grant rate objectives will have four main effects. They will worsen affordability problems; increase housing benefit dependency and reinforce the poverty trap; make housing association revenue streams increasingly dependent on housing benefit—making them, in the view of private investors, a political risk and diminish their quality; and create difficulty in raising private finance because of the adverse impact on loan security for private investors.
I therefore hope that the Minister will heed the warnings from housing associations throughout the country.
§ The Parliamentary Under-Secretary of State for the Environment (Mr. Tony Baldry)I am grateful to my hon. Friend the Member for Altrincham and Sale (Sir F. Montgomery) for raising the important subject of affordable housing, which is one that we take seriously—as evidenced by the presence on the Government Front Bench of my hon. Friends the Minister for Housing and Planning and the Under-Secretary of State for Social Security, who has responsibility for housing benefit.
828 My hon. Friend the Member for Altrincham and Sale has always taken a close interest in housing policy and as he pointed out, his wife, Lady Montgomery, is chairman of the Manchester and district housing association and a distinguished member of the Housing Corporation. Her work is much appreciated.
Our aim is that a decent home should be within reach of every family. That commitment means using public money to best effect, which in turns means extracting the best value from every pound spent and making maximum use of private finance levered in to support public spending.
Most people prefer to own their own homes. We have expanded home ownership from 56 per cent. in 1979 to 69 per cent. today—from half to well over two thirds during the lifetime of this Government. The right to buy for council tenants, our rents to mortgages proposals, cash incentive schemes to enable council tenants to move out into owner-occupation and shared ownership schemes are all important parts of our commitment to empower those who want to own their own homes to become home owners.
With mortgage rates at their lowest for 25 years, some impressive fixed-rate mortgage deals on offer and better and better economic news, now is an excellent time for those thinking about buying their own home to do so. The evidence of increased mortgage lending suggests that people are doing exactly that.
Of course, not every household will want or be able to afford owner-occupation. We must therefore ensure that sufficient good-quality rented accommodation is available. In the private sector, we have ended 75 years of restrictive legislation that had almost killed the private rented sector, to which most people used to look first for housing. There is now evidence of an increase in the number of private lettings. We are determined to continue to reinforce a well run, well managed private rented sector to help meet the need for housing.
Many people will rightly continue to be housed by local authorities. Here we are making a gradual shift from across-the-board rent subsidies—which went indiscriminately to all tenants, whether they needed help or not—towards targeted, income-related assistance to those who genuinely need the most financial help. This means that, when tenants can afford to pay more towards their housing costs, they do so. Tenants who cannot meet the full cost of the rents will receive means-related help through housing benefit. It must be right to move subsidy away from buildings—away from bricks and mortar—towards the people who live in those buildings, and who really need the subsidy.
As enablers, local authorities are responsible for developing the housing strategies for their areas, in partnerships with a wide range of groups—in particular, housing associations. Local authorities are responsible for the efficient management of their own housing stock, and for ensuring the provision of accommodation for the statutory homeless. However—as my hon. Friend made clear—local authorities are no longer the main suppliers of new social housing for rent; that role has been taken on by housing associations.
Housing associations can attract private investment to supplement public spending, and are thus able to build more houses for rent. Over the past five years, public spending on housing association grant has been supplemented by more than £2 billion of private-sector 829 finance—a substantial gain to housing output at a time of public spending restraint. That private finance has made possible a great deal of additional investment in social housing.
Housing association properties have always been intended for those on limited incomes who cannot afford owner-occupation or the alternatives offered in the private rented sector. It is therefore not surprising that many housing association tenants receive housing benefit. We must remember that housing benefit goes a considerable way up the income scale. The fact that a substantial number of new tenants receive benefit demonstrates that new social housing is going to those in greatest need; but diversity in lettings has always been important, and our latest figures show that more than a quarter of new housing association lettings were made to tenants who are not on housing benefit.
My hon. Friend posed the important question, "Is it worth while for people on housing benefit to have jobs? Should we not encourage people to work rather than to depend on benefits?" I think I quote my hon. Friend reasonably accurately. I entirely agree that getting people off benefit and into employment is vital for the economy and vital for individual prosperity. Our housing benefit taper policy helps to ensure that anyone with income above income support levels will be better off in work. With the taper set at 65 per cent., no tenant, having paid his rent, will be left with an amount to live on that is lower than the appropriate income support level.
The steep taper is essential to ensure that maximum help is directed at those who most need it. At the same time, it keeps the overall cost and scope of the scheme under control. To reduce the taper to 50 per cent. would have a very substantial annual cost of no less than £340 million. I believe that our view of this issue is understandably coloured at present by the impact of the recession. We need to look beyond that to the future. As the economic cycle turns, more jobs will be created and more people will be able to get jobs to enable them to come right out of the housing benefit system, and keep a dramatically higher percentage of their income.
But people on low incomes need to know that provision is being made for them in the housing market. Our manifesto promised 153,000 new homes to rent over a period of three years. We will do much better than that. The Housing Corporation estimates that around 80,000 new homes have been provided by Housing Associations, backed by corporation and local authority housing association grant, in 1992–93 alone—nearly three times the output of the previous year.
As I have already made clear, private sector finance is important to ensure that public spending provides as many decent new homes for families as possible. Private finance enables a third more homes to be built with the available public money than would otherwise be the case. Therefore, we have to strike a balance between rent levels and the number of homes provided. If we provide Housing Association subsidy at a higher level, we must forgo extra output, and that means leaving families in bed and breakfast, or other unsatisfactory accommodation.
The key point—it is a straightforward one—in the debate is that housing associations this year, despite 830 reductions in housing association grants, have bid by a factor of more than four and a half times for the number of schemes that can be supported by the resources available. In other words, housing associations, knowing what the grant level for this year is, have notwithstanding bid by a factor of more than a four and a half times for the number of schemes that can be supported. That clearly suggests that, whatever concerns housing associations may express in public, they have considerable confidence in their ability to make use of their resources available at lower grant rates and to achieve higher outputs.
We have made it clear that our objective is to increase the proportion of private finance input to new schemes in the future by reducing grant rates to 60 per cent. in 1994–95, but we have also always made it clear that final decisions will be taken only when we have assessed the likely impact on the ability of housing associations to raise the private finance necessary. The advice of the Housing Corporation on this matter will obviously be listened to with very great care.
But whatever the level of capital spending, we shall inevitably have to choose between the number of houses that we can build and the level of rents that are to be charged. Public investment in housing must be concerned with tackling housing need, and that means seeking as far as possible to help those in greatest need.
Last year saw the first year-on-year reduction in families being accepted as homeless by local authorities. As new homes are made available through the housing market package, the figures should continue to improve. The housing market package—announced in my right hon. Friend the Chancellor of the Exchequer's autumn statement—has meant that around 18,000 homes for rent will be made available in England. The 80 housing associations involved deserve great credit for their achievement. Purchases have been made right across the country, in almost all local authority areas, making a vital contribution to meeting local housing needs.
However, the families who may still be in unsatisfactory temporary accommodation and who need a home of their own will not thank us if we allow concern for existing tenants who are already well housed and who can afford to pay a little more towards the cost of their housing to be put ahead of the needs of those needing new homes.
I hope that I can reassure my hon. Friend that, although our objective is to increase the proportion of private finance input into new schemes because we want every pound of public money to go as far as possible in ensuring the highest possible output of new homes, I continue to make it clear that final decisions housing association grant rates will be taken only when we have assessed the likely impact on housing associations' ability to raise the necessary private finance. We are determined that housing associations shall play their full part in ensuring the greatest possible number of new homes to let, because we are committed to ensuring that a decent home is within the reach of every family.
§ Question put and agreed to.
§ Adjourned accordingly at fifteen minutes to Eleven o'clock.