HC Deb 22 June 2000 vol 352 cc547-54

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

6.46 pm
Mr. Tony McWalter (Hemel Hempstead)

My topic for this evening's Adjournment debate would appear to be as dry as dust and as unappetising as shards of broken glass. It is a subject of which today's issue of The Guardian stated: It is about as riveting as the Schleswig-Holstein question. Palmerston said that those who sought to understand it went mad.

My topic specifically is reformed local government finance as it applies to a specific group, that of new towns which are debt free and have a negative housing subsidy. Negative subsidy means that they are in the black, in credit.

Debt-free sounds good, even privileged. However, we should remind ourselves that many of those who sleep on the embankment are debt-free. That does not mean that they have no need of resources.

The fact that the local authority for the area which I represent—it is called Dacorum—is debt-free means that it is being asked, as current policy is drafted, to take savage cuts of no less than 41 per cent. of its budget. The citizens of the area are faced with an unprecedented and catastrophic decline in the quality of service that they have received from their local authority, particularly recently.

I present this topic as a supporter of a Government whom I believe to be one of the best that this country has ever had. There has been a magnificent commitment to tackling educational failure, child poverty, pensioner misery, pain caused by alleviable medical conditions and the scourge of unemployment. The achievements do not quite match the commitment yet because many problems had to be tackled from a base of neglect for decades. However, there is strong evidence that the new Government's initiatives have addressed many of the problems that were left neglected.

I am proud of the Government to whom I commit my support in Parliament. However, I am still independent-minded enough to reflect on where there are sometimes failings, and to ask myself which issues need drastic attention. Local government finance is just such a topic. Over a period when the Government have introduced many special initiatives, and have often asked local government to be a partner in them, there has sometimes been a singular lack of understanding of the reality that local authorities have had their resources stretched to the point at which systems of service delivery are breaking. Yet we know that to be true. If schools have done well under the Government, why are there still threats of library closures? If those who wish to train for jobs have done well under the Government, why is it so difficult to get a decent level of support from council social services departments?

The answer is that when the Government commit themselves to expenditure in one area, they often commit themselves at the same time to a freeze or, at best, a very gradual upturn in another. As they were working from the very low base left to us by the previous Government in the provision of so many services, even a standstill budget will drive some services into the buffers.

The topic of local government finance is not quite as dry as some might think. It affects the quality of people's lives. A woman in my constituency whose mobility is less than it was requires a small ramp at the rear of her house. The council recently stated that no such work could be carried out now, because of uncertainty about continuing funding for the Government. That is the case in service after service.

Faced with a 41 per cent. cut, what funds can the council commit to such cases? A woman needs new bathing arrangements because of her recent disability. The social services may help, but for years that department has been starved of the resources that would allow it to be proactive in the provision of such facilities. Dacorum borough has often helped in similar cases, but now it cannot.

My hon. Friend the Minister knows that I have a specific complaint about the effect of the new system of resource accounting on my constituency. The change to the new system is for the general good, but it needs to be implemented with considerable care in the labyrinth of local government finance.

The local government authority in my area, Dacorum, is an excellent example of its kind. A Labour administration from 1995 introduced a series of measures designed to tackle poverty and to initiate what we would now call a new deal. It pioneered many such beneficial initiatives, including a close relationship with local police, pre-dating the Government, which has resulted in an area of low crime and recent record falls in crime rates.

Dacorum is debt-free. That is one of the reasons why it could be proactive and support so many of the services not taken up by Hertfordshire county council. Voluntary services seem to be making up for many of the deficiencies of a social services system that is stretched to breaking point. One such organisation is the local Council for Voluntary Service, under the inspirational leadership of Mrs. June Street, who was recognised by Her Majesty for the quality of the work that she has done for the people of Dacorum.

If the local authority faced extraordinary resource difficulties, as Hertfordshire did, at least we had a voluntary service system supported by Dacorum borough and free of some of the impediments faced by many borough councils. That made a huge difference to the quality of life of many of the most needy people in my area.

For years, Dacorum has not asked permission from the Government to borrow. Inevitably, its housing stock decreased markedly under the right-to-buy proposals, but it remains strongly the landlord of choice for the many people who cannot afford to buy, even at discounted prices. Rents in the area are 6 per cent. lower than in Stevenage, and if a large-scale voluntary transfer of the stock were proposed, residents of Dacorum would say, "No way!" The council supports a number of housing initiatives outside the housing revenue account, including a women's refuge and a centre that supports those with mental health difficulties.

The net effect of the moves was that Dacorum, through selling houses and the contentious sale of a large playing field, which was technically a housing asset, was able to liberate itself from governmental spending constraints. It was able to use the interest on capital receipts and the receipts themselves to tackle poverty, deprivation, desperation and social malfunction, especially when it was led by a Labour councillor, Julia Coleman, between 1995–99. In my view, in its use of resources, Dacorum borough council operated as a council should. It does not operate in that way now.

In its finances, the council faces the equivalent of planning blight, even catastrophe. It is tempting to be party political and say that the reason is that, since May 1999, it has been run by a minority Conservative administration. However, that accusation would be unfair. The Government have established a new system of organising local government finance that could be massively prejudiced against Dacorum and significantly damaging to other new towns, including Bracknell, Harlow and Crawley.

What is the origin of the blight, which means that my pensioner constituent will not receive help to get her bath, and that pensioners who enjoy a game of bowls at an economical price will be denied it? What threatens the budgets of dozens of voluntary organisations, which deliver services to the elderly, the mentally handicapped, the homeless, the mentally ill and those who need supported employment? The origin of the misery is that Dacorum has what is called "negative housing subsidy", and assets that exceed its liabilities. That makes it technically debt-free. It has debts, but they are covered by its assets.

Since an Act of Parliament in 1989, Dacorum has not received any borrowing authority to build or improve its houses, which number about 12,000. It had a negative housing subsidy, which it was required by law to put into its general rate fund. That meant that, this year, £8 million "profit" on the council housing budget subsidised general rate activities. In addition, the council is regarded as having what is technically called a mid-year subsidy credit ceiling, which is also negative—about £36 million. That mid-year subsidy credit ceiling, which is negative subsidy, is deemed an asset on which it can make interest.

Negative subsidy is a funny term. The whole system is built around the idea that councils are up to their ears in debt and that they want to borrow. A council that has managed its affairs well, whose policies anticipated many of the Government's policies and which is not in debt and is delivering a high-quality product to its people is somehow deemed an affront to the system. Hence the ridiculous language of negative subsidy. The mid-year subsidy credit ceiling system is deemed to deliver the council interest of £2 million on its assets. The sum is the item 8 credit that appears in the title of the debate on the Order Paper.

The £8 million in the council's general rate fund, which is 41 per cent. of the council's revenue, is threatened because the Government want no transfers from housing funds to the general rates. The straight implication is that Dacorum would have to slash its annual revenue budget by £8 million. Hundreds of local organisations would close their doors for ever. A council that does so much good will, alas, no longer be able to do that.

What did the Minister for Housing have to say about that? On 23 May he said—

It being Seven o'clock, the motion for the Adjournment of the House lapsed, without Question put.

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

Mr. McWalter

I am grateful to you, Mr. Deputy Speaker. I thought that I had temporarily got lost, in terms of the procedure. I hope that the debate will not last too much longer, so that we can get away a bit early.

On 23 May, the Minister for Housing and Planning said: The majority of respondents agreed that it was right to regard local authority housing as a national programme and that assumed surpluses in authorities' housing accounts should be retained within housing and redistributed through a pooling mechanism.—[Official Report, 23 May 2000; c. 437W.] It can be said in words of one syllable that £8 million is to be lost by my local authority to authorities that are deemed more needful.

I have little doubt that—to quote Tony—those who say that they will rob Peter to pay Paul will have the support of Paul. In this case, the Pauls are in a strong majority; but it might be sensible to consider the implications for Peter before seizing his assets. So far, the Government have suggested a 10-year phasing in of the change—that is, the removal of the negative housing subsidy of £8 million. I thank the Minister for that, but it still represents a considerable year-on-year reduction. I value the work of my council, and I passionately value the welfare of my constituents. I thank the Minister for what he has done, as far as it goes, but I want a better outcome.

A second line of attack was recently offered by the technical advisory group to the Department. The group notes that for a decade local authorities that have been borrowers have been required to put aside money to cover their debts. That generated a resource that the Government could use for a national housing initiative. Debt-free authorities, however, did not make such provision. They did not put aside money to cover their debts, because they had no debts. They spent capital receipts, as they were fully entitled to do; or they saved them, and ploughed the interest into improving the quality of life of their citizens. That is certainly what Dacorum did. New rules for resource accounting now assume that they did not spend the money, and effectively require such authorities to pass the interest to the Department even if they no longer have the interest-earning capital.

I make the point because it has particular significance for other new towns. They regard this as retrospective legislation with a vengeance. Fortunately for Dacorum and for Hemel Hempstead—the same does not apply to some other new towns—at least Dacorum still has the money. It is still receiving interest, and it could meet the bill. The only misery—in fact, a major series of pieces of misery—that the item 8 transfer could cause would lie in the fact that Dacorum might then have no capital programme. After all, it has money, so it has no need to borrow—but look! It must not spend its money, or it will not be able to make its £2 million deemed interest payments to the Department.

The item 8 transfer would also mean that Dacorum would lose £2 million from its general rate fund, as part of the overall £8 million lost. It would never be able to get a capital programme going, because—this is a crucial point—new towns lack the land assets that older councils have.

Some might think this series of penalties rather steep for a new town that makes its contribution to the £160 million a year that is raised by such towns for the Treasury through what used to be the Commission for New Towns, and is now English Partnerships. Some might consider such a penalty an absolute injustice to an authority that has made far fewer demands than others on Treasury resources, and that has made no contribution to the public sector borrowing requirement for a decade. Some will say, "If this is what happens when things are managed well, what is the point of managing well?".

The technical advisory group suggested that authorities that are debt-free should be asked not to make item 8 payments from the time of their freedom from debt. Freedom from debt does not mean that there are not major problems—including housing problems, which in my constituency are not covered by the housing revenue account.

In my constituency, the price of houses is too high to be managed on the salary of a teacher or nurse, so we have a brain drain to those parts of the country that have accommodation at more reasonable prices. We need affordable housing, but we will not get it through that other mechanism. We need support for housing, some of which will be outside the housing revenue account. A sensible Government would recognise the contribution by authorities that are not in debt and organise things appropriately.

I saw on the internet last night that Hilary Chipping from the Minister's Department has written to all local authority finance officers. She talked about the item 8 credit and said that the Department would write to you in October with any proposals for changes. I am glad that there is a commitment to review item 8 arrangements, but it means that blight continues until October. I urge the Minister to recognise that the issue is more urgent than that. We need action now. Special action for new towns needs to be taken ahead of that universal consultation. I speak for colleagues who are also implicated in this business.

Hilary Chipping said in the letter to chief finance officers: There will be transitional arrangements. I am grateful for that, but again, she will write later in the year. In the meantime, the authority is looking at what happens to that £6 million.

What do I want from the debate? First, I want an assurance that the Minister understands the gravity of the situation afflicting Dacorum and other authorities that are in negative housing subsidy. Secondly, I want an assurance that, whatever happens, he will ensure that there will not be a catastrophic cut in the council's budget over whatever period. I need that assurance now, so that rational planning of services can restart. Thirdly, I want him to press for the mid-year subsidy credit ceilings to be set at zero, as his own advisory group has suggested, rather than be deemed negative. That would allow assets to be used for the good of the community that generated them. It would permit a continuing capital programme and set item 8 credits at zero.

I hope that the Minister recognises the passion with which I have dealt with the matter, which looks on the surface rather cold and technical. These are real people; these are my constituents. Dacorum is an excellent council delivering on Labour's agenda for improvement in the quality of life of our citizens. I cannot bear to see it threatened, as it is at the moment.

7.8 pm

The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Chris Mullin)

I thank my hon. Friend the Member for Hemel Hempstead (Mr. McWalter) for setting out the issue so clearly. It is to his credit that he made simple some fairly complex problems. I hope that he will find my response as clear.

I acknowledge the problem and the effect on my hon. Friend's local authority in particular, and on some others. I think that he knows that the Government take the matter seriously. He will recall that I have met two delegations on the issue: one of local authority leaders and one of Members of Parliament, including my hon. Friend.

The debate is timely. We are considering the detailed arrangements for the new financial framework for local authority housing next year, and looking closely at the position of negative subsidy authorities. We have already announced that there will be transitional arrangements from April next year to assist them. We shall shortly consult on those proposals.

Perhaps I should say a few words about the system of local authority housing finance and what we will do to improve it. There is general agreement that the present finance system is difficult to understand. It fails to provide the right framework for maintaining a valuable national asset and for taking forward the important changes that we are introducing, which are designed to ensure the best use of housing, best value in the provision of services and more effective tenant participation.

The housing revenue account must change. It will move to a resource accounting basis, making more transparent the cost of capital tied up in assets and providing additional resources to maintain it over the longer term. In due course, subject to Parliament's approving the necessary legislation, we propose that it should once again become a pure landlord account, no longer confusing housing activities with the personal support given to individual tenants through rent rebates.

In tonight's short debate, I shall not explain the intricacies of the existing system or our proposed changes. They can be found in the speech made by the Under-Secretary, my hon. Friend the Member for Stretford and Urmston (Ms Hughes), on 8 February in a debate which I believe that my hon. Friend attended.

As my hon. Friend will appreciate, under the existing system, resources are lost to housing at a time when there is a continuing need for them. That will all change with the introduction of the new financial framework. First, when we introduce the major repairs allowance next year, there is likely to be a substantial change in the amount of subsidy paid to authorities. That is essential in order to provide the revenue resources that authorities need to maintain their stock. As a result, authorities that are in negative subsidy—such as Three Rivers, which is in or near my hon. Friend's constituency—could go out of negative subsidy altogether and again be entitled to receive subsidy. Others, such as Dacorum, may remain in negative subsidy but at a lower level, with more rental income retained within the housing revenue account to spend on their stock. In either case, there will be consequences for the general fund.

The system will change again when we are able to take rent rebates out of the housing revenue account. When that happens, we propose to capture all assumed surpluses, including all those that are offset against rent rebates. We have recently confirmed our intention to introduce the pooling of those surpluses. They will then be redistributed to authorities in deficit. When that change is introduced, negative subsidy authorities will no longer be able to transfer resources to their general fund. Along with all other surplus authorities, they will be required to pay their overall surpluses into the pool for redistribution to other housing authorities. That will ensure the most effective use of scarce resources. It will mean that housing resources are retained within housing.

We recognise that, for negative subsidy authorities, the changes may cause difficulties elsewhere. That is why we have said that we shall introduce measures to enable them to make the transition to the new system. Those measures will operate from next April. My hon. Friend pointed out that his local authority was attributing some of the cuts or the inability to provide services this year to the impending changes. I can say only that so far there is no basis for that as the changes do not come into effect until next April.

We are also reviewing the assumed investment rules to see whether there are any grounds for amending them next year. The local authority associations are fully involved in that review, and I understand they are keeping negative subsidy authorities informed of progress. I have already confirmed that we believe that the rules are generally sound in principle. However it may be justified to make some changes for debt-free authorities, which I understand would include most of those in negative subsidy. That could go a long way towards reducing the difficulties that they face as they move to the new system.

My hon. Friend asked three questions. The first was whether I understood the gravity of the situation. As I have explained, I do and have done for some time, thanks to his eloquence and that of others who represent the local authorities that are affected. That is why we are putting in place the transitional measures. We are aware that they must be finalised by December, to enable local authorities to make plans for the subsequent financial year.

My hon. Friend asked me for an assurance that there will be no catastrophic cuts and I can give him that assurance—but I cannot assure him that there will be no cuts. My hon. Friend asked also if I would press for the mid-year subsidy credit ceiling to be set at zero. I cannot do so, but we will be consulting on the way forward and that is one of the issues we shall be considering.

I am grateful to my hon. Friend for raising a topic of considerable importance for a number of authorities, especially the one that my hon. Friend represents. I hope that I have reassured him, at least to some extent, that his concerns and those of his local authority have not fallen on stony ground. Equally, I hope that he accepts that the changes we are making to the housing revenue account system are long overdue.

Question put and agreed to.

Adjourned accordingly at fifteen minutes past Seven o'clock.