HC Deb 27 February 1998 vol 307 cc681-8

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

2.30 pm
Mr. Austin Mitchell (Great Grimsby)

This is an exciting moment for the really important debate. I am grateful that it has such a peak-time slot.

I begin with an apology. I do not regard myself as an expert on housing matters or council housing. I stand in awe of the Minister for London and Construction, who has made a formidable contribution on those matters, both in opposition and now in government. It is always better to begin by buttering up Ministers as a path to power: new Labour, new unctuousness.

I feel inadequate to deal with the issue but it is right to raise it, because I know a real injustice when I see one and this is one. The system was introduced by the Local Government and Housing Act 1989. Once a council housing account is in surplus—and more and more of them are as rents go up and the debt burden is paid off—housing benefit, or rent rebate as it is known to council tenants, is paid out of the housing revenue pool. That is monstrous, because it does not apply to private or housing association tenants. Their housing benefit, known to them as rent allowance, is paid by the Treasury.

How is it right to maintain a distinction between council tenants, who carry each other's burdens, and other tenants? It is an iniquitous principle because it means that council house tenants are taxed twice. They are taxed once for national revenue to make their contribution to the housing benefit of private tenants, and taxed again through the rates to contribute to the housing benefit of council house tenants under the same local authority. That is double taxation, and it is not a small amount.

The following calculations are from the Chartered Institute of Public Finance and Accountancy's housing revenue statistics for 1997. In North-East Lincolnshire, every tenant pays £2.91 a week on their rent to pay the housing benefit of other council tenants. That is the smallest contribution in Humberside. In North Lincolnshire, our neighbouring authority, the weekly amount paid for housing benefit for other tenants is £6.58. In the East Riding of Yorkshire, double taxation of council tenants is £13.89 a week.

We cannot fairly maintain such an iniquitous burden. It encourages hatred and antagonism between tenants; it is divisive. Why should tenants pay it? Whatever Conservatives have claimed in the past, when they portrayed council tenants as rolling in money, council tenants' wages are about half the average wage. They are the poor of this society, and the gap is widening. We are effectively asking the poor to subsidise the poorest—council tenants in receipt of housing benefit. How can the Minister justify that? How can I? How can the Labour party? The simple answer which I hope that my hon. Friend the Minister will give us today is that none of us can.

The measure was introduced in 1989 by that beneficent force for social advance and promotion of council housing and local government known as the Conservative Government. We opposed it then. My right hon. Friend the Member for Copeland (Dr. Cunningham), then the shadow spokesman for the environment, now the Minister of Agriculture, said when the Bill was introduced: I have made the point once, but I make it again, that we fundamentally oppose the new housing finance proposals which will require council house tenants effectively to pay an additional tax to subsidise the poll tax and housing benefit. That is a major departure from the policy followed by all previous Governments."—[Official Report, 14 February 1989; Vol. 147, c. 186.] An abuse then is an abuse now. I realise that we opposed many abuses in our time when the Conservative Government were in power, but they have to be put right. I accept that it is a staged process and one cannot do it all at once, but we have to commit ourselves to the principle of putting right those abuses. It is necessary, especially as the abuse has grown since 1990.

Since 1990, council tenants have been bilked of £6 billion to pay the housing benefit of other council tenants. This year, it amounts to £1,000 a year on the rent of each working council house tenant. It applies to more and more authorities. My hon. Friend the Minister gave me some statistics in a parliamentary answer. It now applies to 80 per cent. of authorities and is more and more a cross-subsidy. I calculate it at £1.3 billion. In an answer to me, my hon. Friend the Minister put it at £1.22 billion, but that is still a huge figure.

In North Lincolnshire, my local authority, the cross-subsidy is £1.5 million this year, and it estimates that it will be £2.4 million next year. Rents have been pushed up since the measure was introduced in 1990. The cross-subsidy is the major reason why council rents have been pushed up. They have gone up 50 per cent. in real terms in the past 10 years. In London they have gone up by 70 per cent. The main reason for that is the need to subsidise the housing benefit of the poorest tenants.

I should like my hon. Friend the Minister to comment on a problem area. Council housing is surely social housing allocated according to need, yet there seems to be constant pressure in the Department—it was certainly strong when the Conservatives were in power—to gear it to the market. There is an argument in the Department as to whether affordability is a relevant concept in setting rents in the social housing sector, or whether rent setting is about providing price signals to encourage the efficient allocation of resources.

I hope that the Minister will tell us about that argument in his Department, because I think that it is a real one. It looks as though senior people in the Department want to price council housing at economic rents so that market forces will operate, and so that old ladies who occupy too much space will be forced out into smaller accommodation.

Mrs. Jackie Ballard (Taunton)

Does the hon. Gentleman agree that the policy was introduced by a Government who were antagonistic to local authority housing and that their intention was deliberately to push up rents to persuade council tenants that they would be better off agreeing to large-scale voluntary transfer of the housing stock or moving into housing association or other housing? One of the Conservative Government's weapons in their effort to destroy local authorities was getting rid of housing stock. That is what drove the policy. Does the hon. Gentleman agree that the new Government have a different attitude to local authorities—I hope—and will take the first opportunity to reverse the policy?

Mr. Mitchell

The hon. Lady is absolutely right—I agree with her 100 per cent. That was done by a Government who wanted to make council housing odious and unpopular and to force people out.

That is not the attitude of the current Government, which is why we should try to reverse the policies resulting from that attitude. In particular, we should get rid of the notion that there should an economic pricing mechanism for council housing and that it is legitimate to keep pushing council rents to the market level. My hon. Friend the Minister hinted that he was thinking along those lines in his letter to me on 4 February and I hope that he will disavow any such intention today, because it is absolutely wrong. Council housing is about social need, and we cannot continue to push up rents.

Council housing is efficiently allocated in the light of the responsibility to meet needs, and it is efficiently used. The nature of the private housing market is boom or bust: there can be huge backlogs of empty properties and of people who want to move. Council housing allocation is extremely efficient by comparison. We cannot keep pushing council rents up to market levels, as the guidelines imposed by the Department have so consistently done. In my view, it costs to do so, because each time prices are raised, it costs more in subsidies and support.

If that burden of rent rebates to council house tenants were to be taken on by the Government and paid for out of public finance—as it should be—it would serve as a deterrent to the Department's activities in raising rents. That is another reason why we should do it. In answer to a written question asked by my hon. Friend the Member for Erith and Thamesmead (Mr. Austin), the Minister wrote that reducing the guideline rents by 10 per cent. would cost about £5.8 billion, but save £4.4 billion in rebates and £1.3 billion in retail prices index-related public expenditure. In other words, the net public expenditure cost of reducing council rents by 10 per cent. would be £100 million. If that is all it would cost, why on earth does the Minister not do it?

That would tie in beautifully with the Government's welfare-to-work proposals by removing a poverty trap at one fell swoop. It would encourage people to go out to work and make them less dependent on benefit. The briefing report by the London Housing Unit makes the point succinctly: A gearing effect means that a given level of rent reduction has a disproportionate impact on the amount of gross income needed for people to get out of benefit. For example, a tenant household paying a rent of £41 a week (the average rent for council tenants in England in 1997/8) would need to earn about £30 gross less per week in order to avoid the poverty trap if their rent was reduced by just £4 per week. Those are compelling statistics. I hope that the Minister can confirm them and tell us why we do not go down that road and remove the disincentive to work. If the Minister listens to me as assiduously as he attends to his departmental work—he is a most assiduous and hard-working Minister—I could boost his career prospects at one fell swoop by this major contribution to the new deal and welfare to work.

What should we do about the system? We should scrap it and pay the £1.3 billion or the £1.22 billion from the Exchequer. At present, the Government are actually making a profit on council housing. As the stock deteriorates, the Government are milking the assets, but they are making a profit of about £700 million, and that is iniquitous.

Benefits would flow from scrapping the system, paying to reduce council house rents out of national revenues, and giving the councils extra money in their housing accounts to spend on reducing the huge—£19 billion—backlog of repairs. That figure comes from a housing conditions survey some years ago. Councils cannot do those repairs because they lack the money—and we are taking money to pay benefits.

We are creating council house ghettos. People from North East Lincolnshire write to me and say, "Our estate is a ghetto." That letter came from Yarborough. I have had similar accusations from The Grange—yet North East Lincolnshire is a very good authority. All over the country there are ghettos—which the social exclusion unit should pay prime attention to—which need the money that could be made available.

Enormous economic benefits would result from an expansion of house building and improvements to council house stock—things which must be done. Increased economic activity would result.

The Minister is a very sensible man—I am pursuing the Hartlepool path to progress—and I hope that he will take up my idea. Sadly, it is not in the nature of Adjournment debates that he will say, "My God—you are right. Why didn't I think of this? We shall do it as soon as I get back across the road to my Department." However, I hope that he will say that this is a temporary situation, which is imposed on us by the commitment to the Clarke spending totals for two years, but that, after that, something will be done about it.

The answers that the Minister gave me in the letter of 4 February were the kind of stock holding replies that are sent out by any Department on any question. If there was a proposal to raze all council housing to the ground, departmental officials could put up a good case for it. They might say that it would remove at a stroke all unfairness of allocation because there would be no council houses to allocate, and that there would be many other side benefits. The arguments in that letter were of that ilk. It was a "Yes, Minister" type of letter.

The Minister is an honest Minister, and I hope that he takes note of my arguments. I hope that he will answer a central question, which I want to ask him in conclusion—I apologise to him for having gone on slightly too long. My question is: is this fair?

2.46 pm
Mr. Kerry Pollard (St. Albans)

I shall be very brief. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) painted a national picture. I agree with everything that he said. I promise that I shall take only two minutes to draw attention to the fact that even in my constituency, St. Albans—a shire city, one of the wealthiest cities in the land—we have a housing benefit problem.

This morning, I received some figures from the housing office. I calculate that in St. Albans we have lost £40 million in rent subsidy since the present policy started, in 1990–91. Even in wealthy St. Albans, where house building and land are expensive, we could have used that money to build 1,000 new homes, which would have reduced our waiting list by half.

We have 6,000 tenancies, and 3,571 of those tenants are currently on housing benefit, which means that 45 per cent. are subsidising 55 per cent. A smaller number is subsidising a larger number—this year, to the tune of more than £7 million.

Dignity is an important aspect of this. People should not have to go begging by application form. There is a need for dignity and fairness. The poorest should not be subsidising the very poor.

2.47 pm
The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Nick Raynsford)

I start by congratulating my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on securing the debate and using it to raise a matter of real importance, which I know is of concern to many hon. Members and to local authorities and tenants throughout the country. I know that my hon. Friend is concerned about this issue. He has been diligent in ensuring that it receives the attention that it deserves, and his early-day motion on the issue has attracted significant support. I thank him for his kind comments about me. I also noted the comments of my hon. Friend the Member for St. Albans (Mr. Pollard), who made an important and short contribution to the debate.

We have received a large volume of correspondence on this issue from hon. Members and individual council tenants. In replying to the debate, I want to shine some light on the Government's policy in this area. I intend to show that the Government's policy and our approach are entirely correct and proper. I hope that my hon. Friend the Member for Great Grimsby will accept that.

It may help if I explain briefly the system for subsidising council housing in England. The present system was established in 1990, by the previous Government. It pays subsidy to housing authorities to help them meet the costs of repairing and maintaining their housing stock, and it helps them meet the costs of their tenants' rebates. The calculation of that subsidy takes into account the costs of financing capital investment in the housing revenue account and notional rental income.

Under the present system, an authority's entitlement to subsidy is based on the housing element and the rebate element added together. Under the previous system, rent rebate subsidy was almost entirely funded by the Exchequer and was paid solely to meet the cost of housing benefit for council tenants. It may help if I briefly explain the system of housing subsidy before 1990, when the current system was introduced.

In the 1980s, the housing subsidy system involved assumptions about the level of rent income and the costs of managing, maintaining and servicing debt. The aim of the system was to estimate the subsidy that each council required if rent income fell short of reasonable costs. The system introduced the notional subsidy calculation for each authority. It used assumptions about rent levels and costs rather than using the real figures from the authorities' accounts.

It became apparent that many authorities no longer required the subsidy, because notional rents covered all the eligible costs. At the end of the 1980s, only around 100 councils were still in subsidy, with their housing costs, net of notional rent income, met by the Exchequer. The rest, who were in surplus, were able to keep their surpluses and could transfer them out of the housing revenue account to spend on other services, which was not fair to tenants.

It has always been difficult for the Government to control surpluses in housing subsidy and ensure that they are channelled to meet pressing housing needs. In pursuit of that aim—although they also had other motives—the previous Government introduced measures in the Local Government and Housing Act 1989 to bring rent rebates into the HRA and the subsidy calculation. Under the Act, any surplus from the basic notional calculation of rents, minus landlord costs, could be set against the Exchequer cost of rent rebates. The previous Government argued that the saving to the Exchequer could be diverted to other housing uses. However, that was not reflected in increased investment. In 1993–94, total public expenditure on housing in England was around £5 billion. In the current financial year, it is only £3.3 billion. The capital receipts initiative had started to redress that decline in planned spending.

The policy of netting off landlord surpluses against rent rebates has, not surprisingly, been unpopular with authorities, which regard it as depriving them of a valuable source of funds. The policy is often considered to result in those tenants not on rebates having to pay part of the rents of poorer tenants who are granted rebates.

As my hon. Friend the Member for Great Grimsby and the hon. Member for Taunton (Mrs. Ballard) said, it was unquestionably an objective of the previous Tory Government to force council rents up towards market levels. That policy was abandoned in 1995, because even the Conservatives recognised the consequences of the huge increase in the cost of housing benefit that flowed from it. My hon. Friend quoted the figures showing the small cost difference between what is produced by an increase or reduction in rent and the net effect to the Exchequer, because so much is offset by housing benefit. That clearly shows the mess that the previous Government got into with their policy of trying to force council tenants to pay market rents.

We have a different approach. We have no intention of forcing council rents up to market levels. That would be wrong and inconsistent with our policy of work incentives, because it would create problems of increased dependence on benefit and increased poverty traps. We are considering rent structures and the different subsidy systems that operate in different sectors.

We should not forget that average rents for local authority housing are £41 a week. That is lower than the figure for any other housing sector. While there is no similar subsidy arrangement for housing association or private tenants to that which takes back some of the cost of rent rebate subsidy for council tenants, the average rent levels paid by housing association and private tenants are significantly higher than those paid by council tenants.

Mr. Mitchell

This is the old silly argument. Council tenants are poorer: they receive half the average wage. There is more need, and the housing is allocated for social purposes.

Mr. Raynsford

At present, the average person who is allocated housing by a housing association or registered social landlord has economic and social characteristics similar to those who are allocated council housing. That is not surprising, because the vast majority of nominations must come from the council waiting list, so we are talking about people in similar circumstances.

In my hon. Friend's local authority area of North East Lincolnshire, council tenants pay an average weekly rent of £33.73 this year. People with new housing association assured tenancies pay an average of £48.70 a week. So there is a considerable difference between housing association rents and council rents. Private tenants in my hon. Friend's area do even worse: they pay an average of £55.51 each week. The pattern of rents nationally is much the same.

The level of Government subsidy that council tenants benefit from is understated. Although rent income within an authority's housing revenue account is shown at current value, a large element of expenditure—including interest charges on housing debt—reflects only the historic value of the debt. The interest charges, and consequently tenants' rents, do not fully reflect the current replacement value of the housing stock, let alone a market level of return on capital. In this respect, council tenants have a significant advantage compared with housing association or private tenants whose rents must reflect the market levels.

It is very difficult to draw simple comparisons between the different subsidy regimes that apply to council tenants as against housing association and private tenants receiving rent allowances. The common factor between rent rebates and rent allowances is that both are designed to protect those least able to pay. The tenant's entitlement to benefit is the same whether that tenant lives in a council house or a housing association property. Therefore, council tenants do not get a raw deal compared with housing association tenants. They receive substantial help with their housing costs from central Government, totalling some £3.8 billion in 1997–98.

Another argument often advanced—my hon. Friend alluded to it—by local authorities that are unhappy about the present regime is that it limits their ability to invest some of the surpluses from housing on maintaining or improving their housing stock. We recognise that there has been under-investment in housing stock in the past. That is why one of the first moves the new Government made was to make available through the capital receipts initiative nearly £750 million pounds of additional resources for investment in housing and housing-related regeneration in England this year and next.

From this total, North East Lincolnshire—covering my hon. Friend's constituency—will receive £324,000 this year and just over £1 million next year. Those sums are in addition to other allocations in respect of the authority's housing investment programme. I am sure that my hon. Friend, like many other Members whose authorities benefit from the capital receipts initiative, welcomes this initiative, which will help us to fulfil our manifesto commitment to reverse the serious problem of under-investment.

The argument that a change to the current arrangements for housing revenue account subsidy will release additional funds for investment has one fundamental flaw: the cost. It would have a price tag of about £1.3 billion. The Government's ability to target resources for housing investment would be reduced because that £1.3 billion would have to be compensated by savings elsewhere, given our commitment—which my hon. Friend recognised—to living within the inherited financial framework. That is the position we have adopted, and that is why we cannot reverse this decision in the immediate future.

However, I put it to my hon. Friend that we are aware of the many anomalies that exist within the framework for housing subsidies and that affect rent levels, and, in the context of our comprehensive spending review, we are making a careful study of all the implications of those different subsidy arrangements. We hope to draw some conclusions by the summer, and we shall publish proposals at that stage. We shall aim to ensure that there is a more coherent pattern of rents for those renting from landlords in the public and social housing sectors, and that those rents relate to people's ability to pay.

The Government are very concerned to avoid the problems of poverty traps and work disincentives that impact adversely on many low-income householders who rent their homes from local authorities, housing associations and private landlords. It is important that we have a rent and subsidy system that addresses the problems of benefit dependency and disincentives to work, as well as creating a framework for genuine fairness between tenants.

I hope that my hon. Friend will recognise that these issues are not easily addressed. We shall consider them carefully before we reach firm conclusions about taking forward the arrangements. As I have said, we shall make our proposals clear in the context of conclusions from the comprehensive spending review later this year.

Question put and agreed to.

Adjourned accordingly at Three o'clock.