HL Deb 12 June 1972 vol 331 cc644-80

8.0 p.m.

House again in Committee.

THE DEPUTY CHAIRMAN OF COMMITTEES (VISCOUNT HOOD)

We are on Amendment No. 39.

LORD SANDFORD

I was explaining the content of the consultations which the Secretary of State was now engaged in with the local authority associations in order that he may determine this important business of what should and what should not count for reckonable expenditure, so that when the expenditure for one year was compared with the next the right amount of rising costs subsidy should be attracted. I was setting out the content of these consultations. The power is not going to be used to control in any way the policies of a local authority in the arrangements which they make in regard to loans pooling. Moreover, loan charges on housing costs arising out of expenditure to which the housing cost yardstick procedures introduced in 1967 did not apply, will all count as reckonable expenditure.

Now that I have mentioned the housing cost yardstick for the first time, I should like to take this opportunity, the first that has arisen, to correct an impression which I think I must have left with the Committee, which is a wrong impression, about this housing cost yardstick. I was asked at an earlier stage in this consideration how the tolerance applied. The 10 per cent. tolerance is taken into account when it comes to the control of capital investment, but I think I made the point that it was also taken into account in reckonable expenditure under this particular subsidy. In that I was incorrect and I apologise to the Committee. The expenses up to the yardstick count in reckonable expenditure but not beyond, not even the tolerance. The tolerance is allowed when it comes to the control of capital investment. I am glad of the opportunity to make this point clear and I apologise to the Committee for having got it wrongly the first time.

Loan charges arising out of housing expenditure in excess of the yardstick under the Housing Subsidies Act 1967 therefore will not count as reckonable expenditure. In the case of housing schemes approved by the Secretary of State after the Bill comes into force, broadly speaking costs in excess of the yardstick, or tender, whichever is the less, will not count for rising costs subsidy for the local authorities who are entitled to that subsidy. But for authorities who are not entitled to the rising costs subsidy, the yardstick will be primarily advisory, in that it will not set a cost limit for the purposes of reckonable expenditure. These are the things on which consultations are now being held with the local authority associations. In addition, consultations have begun with the local authority associations on how reasonable limits might be set for reckon-able expenditure on repairs, maintenance and management, and the intention is to devise arrangements which are fair and easy to administer, and to take account of the need for local authorities to keep their dwellings in a good state of repair and to manage them properly and humanely. As far as possible these arrangements will take account of the fact that expenditure on repairs and maintence may fluctuate from year to year. This is a point on which the noble Lord spent a moment or two. The actual expenditure will be reckonable for rising costs subsidy for 1972–73. Expenditure on improvements which is not met by a Government or rate fund contribution will count as reckonable expenditure also. I hope that has elucidated the nature of the consultations which are now going on in order that these calculations should be based on agreed factors.

The point I should like to make in answer to the main burden of the noble Lord's Amendment is that hitherto the Secretary of State has exercised his own discretion in all these matters without any obligation to consult, though he has. In this Bill he is under a statutory obligation to consult, and to that extent we have moved in the direction in which the noble Lord is asking in his Amendment that we should move. My submission to the Committee is that we have moved far enough.

LORD DIAMOND

I am grateful to the noble Lord, and particularly grateful for his having made clear what was previously not quite clear or, to the extent that it was clear, was not quite correct, particularly as he has taken the opportunity to make the matter clear at a time when the weight of the argument in my favour is doubled or trebled. Whereas before we had been talking about an excess over and above 110 per cent. of the yardstick, we are now talking about anything above the yardstick, be it an expenditure which was incurred earlier or an expenditure which is incurred now. I recognise and am grateful that the Bill states that there is a compulsion on Ministers to consult—it is far better that the Minister should be under a statutory compulsion to consult rather than that he should merely consult without such statutory compulsion, because even if there were no difference in the fact of consultation there is a difference in the entitlement to consultation and it makes people feel differently about it—nevertheless, I am bound to say that the unfairness in the calculation is now all the greater. The noble Lord, no doubt through an oversight, omitted to deal with my major argument there, so I must return to it and ask him whether I am not right in saying, and particularly in underlining, as the facts have now been made clear, that there is an imbalance or an unfairness in the way in which the subsidy is calculated, namely, that "reckonable expenditure" means that expenditure on providing a house so far as it is not in excess of the yardstick and "revenue" means that revenue which is derived from the house, be it in respect of the house or in respect of the additional amenities provided by expenditure incurred in excess of the yardstick. In my view you cannot have such an imbalance.

If the noble Lord and the Government want to say that the reckonable expenditure incurred shall include only expenditure up to the level of the yardstick—and as he and I know there are vast numbers of houses built in excess of the yardstick, and rents are going to be fixed in relation to the standard of amenity and convenience provided by the total expenditure—I do not know how he can attempt to maintain that you should ignore total expenditure, or if you do include total expenditure you should not ignore part of the income. It cannot be right to have it in its present situation. The noble Lord knows that the local authorities are, quite properly. hot under the collar about this.

What the noble Lord is saying is that where you have a yardstick of £100, and a tolerance of £10, making £110, and you have total cost incurred of an extra £5, making £115, then the expenditure taken into account in arriving at the subsidy is £100, and the income taken into account is the rent to be fixed as fair, having regard to all the additional convenience and amenity provided by the extra £15. That is as the Bill stands at the moment, as I understand it; indeed, unless the noble Lord contradicts me, as I assert it. It is perfectly clear in the Bill. Plainly that is totally unjust, and there is an added insult to injury in that those authorities which have already incurred this expenditure and cannot possibly avoid the annual interest charges will find that their interest charges are out of gear with their expenditure and that they are not going to get the right subsidy. So I am bound to come back to this point and say that the noble Lord must think about this again. The rest of the position is perfectly clear, but this stands out like a sore thumb as totally unfair. I invite him to tell me whether I am right in my assertion that the calculation of the subsidy is totally unfair, and whether in those circumstances he ought not to take it away and think again.

LORD SANDFORD

Certainly I am glad to give that assurance, but I did make it clear that, apart from the first year of the operation of this Act, when any expenditure debited to the authority's housing revenue account will qualify for the calculation of the rising costs subsidy, with the two exceptions I mentioned in the case of patched houses and the housing repairs account, all the other factors, such as the one which I recognised as important, are among those being discussed at the present time with the local authority associations, to make sure that the basis is fair, appropriate and reasonable for the future. This is just the sort of thing that is under discussion, and if at a later stage I can say anything more which will help to elucidate these matters and to reassure the noble Lord, I will certainly do so.

LORD DIAMOND

Well, I have heard undertakings given with reserve, with greater reserve or with the greatest reserve; and the undertaking I have just listened to beats the lot. I am not in a position to do other than say to the noble Lord that I am very grateful to him, but I hope he will realise this is a matter of very serious content and gives rise to very considerable anxiety. What the noble Lord is telling me is that the Bill provides, in that part of it which I seek to omit, for the Secretary of State to decide, and that the Secretary of State is at the moment carrying on certain consultations, as I am aware, before reaching his decision, and that therefore this matter is open for decision. But the noble Lord, unfortunately, earlier on went beyond that and said that the Secretary of State had decided that any expenditure over and above the yardstick would not count as reckonable expenditure.

LORD SANDFORD

I made that point in correcting an impression which I was wrong in giving to the Committee on the current position. This year all expenditure debited to the housing revenue account will be taken into account (it is in subsection (10)) because it is not practicable to make any other arrangements.

LORD DIAMOND

I understand. I thought the noble Lord meant by the current position under the current law before the new law.

LORD SANDFORD

And that, too.

LORD DIAMOND

I gather he is saying that that is the position under the existing law, and that if this Bill should, unfortunately, become an Act, that will be the position under it for that first year. But that does not deal with the future position, and I gather he is now saying that the Secretary of State is not committed to what line he will take and that negotiations are continuing. In those circumstances, I will say to the noble Lord that I am grateful for the statement that if he has anything more to say he will say it. I can give him an equal assurance that I will give him ample opportunity to say it. We shall therefore come back to the Bill at some time when negotiations have gone further, I hope before reaching Report stage, and it will be possible for him to say something more reassuring. In the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8.16 p.m.

LORD DIAMOND moved Amendment No. 40: Page 8, line 11, leave out ("determine") and insert ("shall agree with the authority").

The noble Lord said: I beg to move Amendment No. 40, and hope it will be convenient to take with it No. 41. As we are now, unfortunately, stuck with these clauses, we have to deal with them the best way we can and we have to improve them if at all possible. On page 8, line 11, it refers to the reckon-able expenditure being so much of the expenditure debited to the authority's Housing Revenue Account as the Secretary of State may from time to time determine… I am aware of the fact that determination cannot take place until there has been discussion and consultation, and for that I am grateful. But "determine" is even so, in my view, not the right word because the Secretary of State is the person who is doing the paying. If we could all determine purely out of our own minds how much we would pay it would be very simple the answer in all cases would be nothing. So you must have some more objective method of deciding what is the proper amount to be paid as between central and local government, and the word "determine", in my view, is too authoritarian and fits in with the rest of the Bill, which has a very inflexible structure and authoritarian atmosphere about it all told.

I am hoping that the Government are still inclined to believe in the merits of democracy and in the merits of arguing the case and putting your point of view, and if you cannot agree, doing what the Government keep on suggesting employees and employers should do when they cannot agree, namely, go to some outside authority and not to attempt to decide it themselves. So instead of determine", I think it is better to say "shall agree with the authority". That puts both on the same footing and leaves it to argument instead of power. If the arguments are not seen to favour one side or the other of the middle line, and if both sides cannot agree where the weight of argument is, then the suggestion is that, failing agreement, it is determined by arbitration. It is far better for this to be seen to be a judicial process than for it to be left to the will or the wish of the Secretary of State. I hope the Government will feel this is a reasonable Amendment and one which will give considerable balance to the Bill and considerable reassurance to the local authorities.

I have had a lot of correspondence from local authorities and local authority associations. Every one of the communications is riddled with anxiety about what the Government may do. They say, "We fear the Government will do this" or "We fear the Government will do that." One is very familiar with this, and the Government have a responsibility to remove that sense of fear. The Government's proposals have been drafted in such a way that local authorities have naturally taken fright. If the Bill is drawn in such a way that the worst is provided for in legislative form, and then there is a provision that a Minister or a Secretary of State may lighten it by changing his mind in ten years' time, that does not remove the sense of anxiety. Here is another case where, by inserting words similar to those in this Amendment, the Government could give considerable reassurance to local authorities. They ought to do this if they want the working of this Bill to be at all satisfactory. I hope they will look kindly on the Amendment, which I now move.

LORD SANDFORD

It is understandable that local authorities and housing authorities may have a number of anxieties about this legislation, because it is making such a radical change in the whole system. But it is in order to meet this anxiety that this subsection is in the Bill. It imparts determinations which the Secretary of State has hitherto undertaken without any statutory obligation to consult at all. To that extent it is designed as a reassurance. It is not correct, as the noble Lord has said, that these determinations relate to what is being paid by the Secretary of State. If that were so there might be some force in what he has said. This particular determination relates solely to the question of what expenditure incurred by the local authority should be debited by the local authority on the Housing Revenue Account.

This is not a matter which lends itself to arbitration. There is no judgment of merits between two difficult and opposing issues. It is purely a factual consideration of which particular items of expenditure incurred by the local authority ought to be debited on that authority's housing revenue account. I submit to the Committee that this is a matter on which hitherto the Secretary of State has been able to make up his own mind without any fuss or bother, but which in future will be settled only after consultation with the local authorities. The whole object of the subsection is to give the reassurance which I fully agree local authorities very much require with the introduction of such a radical measure as this.

BARONESS GAITSKELL

The Minister talked about radical reform in relation to this clause, which in my opinion is a very good example of innovation but not of reform.

LORD DIAMOND

I am grateful to the noble Lord, Lord Sandford, who has the capacity to illustrate in one sentence what I have failed to illustrate in many sentences. However, I must return to the task. The noble Lord has said that under the current legislation the Secretary of State has these various powers. That may be so, but that is in relation to a much simpler and well-established form of providing subsidy. The main subsidy is the interest subsidy. Once the figure of interest has been agreed—and there is provision for the fullest consultation before it is agreed—the rest follows automatically. With respect, here is a totally new complex of subsidies, each of which may have effect for a number of years, have effect at varying percentages, be phased out over different periods and take various priorities over one another in relation to the balance on the Housing Revenue Account.

Anyone who has attempted to understand Schedule 1 will agree that it is a very complex situation. Moreover, with respect, the noble Lord is not absolutely right in saying that there is nothing which requires argument. There is a great deal. That is what we were discussing on a previous Amendment. All those charges which are normally known as overhead expenses or indirect expenses—which are not exclusively and directly related to the matters in the Housing Revenue Account—will have to be apportioned, and arguments may arise about the apportionment, about the level of main- tenance, about the annual charges for maintenance where this is in excess of expenditure incurred and is building up or seems to be building up the reserve.

All these matters give rise to anxiety and question marks, and it is not good enough merely to say there is some provision for consultation. I recognise that there is, but at the end of the day there is a conclusion to be arrived at and a decision to be made, and I do not think it is right that the Secretary of State should have the sole authority to make that decision. He will listen to what has been said and then make his decision. Just imagine that the noble Lord, Lord Drumalbyn, was the Secretary of State. He would sit at his desk. He would listen kindly to all the representations made. He would smile. He would say he was sure there was a lot in what had been said. In short, he would treat them exactly as he treats me, and at the end of the day he would say, "Nothing doing!" This is a prospect which cannot enthuse the local authorities. I was hoping that the Minister would have melted a little and admitted the validity of having an objective and judicial approach to deciding issues which are new and very important, relating to the most important subsidy in the whole of this new subsidy structure; but apparently I have failed to satisfy him. At this stage all I can do is to read carefully what he has said and perhaps think of some method whereby we can go half way or a third of the way at a later stage with another Amendment. In the meantime, I do not think I should serve any useful purpose by pursuing the argument. Accordingly, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

LORD GARNSWORTHY

The noble Lord, Lord Sandford, wanted to include Amendment No. 42 with the earlier Amendments since he thought they covered much the same ground. I have listened carefully to what he had to say. Amendment No. 42 was put down as a probing Amendment. I doubt whether the noble Lord will say that he has anything to add to what he has already told the Committee. Since we on this side have no wish to waste time we shall await to-morrow's Hansard to read what he had to say. In the meantime, I do not wish to move Amendment No. 42.

8.30 p.m.

LORD DIAMOND moved Amendment No. 43: Page 8, line 28, leave out subsection (14).

The noble Lord said: Subsection (14) refers to Part III of Schedule 1 and provides that: The provisions of this section as to the circumstances in which any subsidy or rate fund contribution is to be paid or made, and as to the amount of the subsidy or contribution, have effect subject to Part III of Schedule 1… We shall come later on to Part III of Schedule 1, and I hope that we manage to come to it at an early time of the day when damp towels are available in large quantities, because there are few Schedules which are more difficult to follow than Schedule 1. But I need refer only to Part III of Schedule 1 at the present time. That provides a table which is in a curious, though intelligible, form. The items in the table are listed as A, B, C, D and E, and there is an order mentioned later covering the way in which the subsidies there described are phased out. The only circumstances with which I am concerned under which a subsidy will be phased out are where that is done because the Housing Revenue Account is in balance; in short, where, on the definition of the Government, a local authority does not need a subsidy or the whole of the subsidy. I hope that your Lordships are with me so far.

I have now to explain why I want to delete from the clause the reference to the Schedule. What I want to delete is the reference to the phasing out. I wish, first of all, to ask the Government for their justification of this order, and if they have no justification for it I want to suggest a different order. My reason is that certain subsidies are phased out ahead of others. If all subsidies were at 100 per cent., it would not matter in the slightest which was phased out first, but, in their wisdom and in their meanness, the Government have decided to phase out first the subsidies under which they, the Government, pay a lot, and to phase out, secondly, the subsidies under which they pay a little. The position therefore is simply this. If a local authority is nearing the point where it does not need a subsidy or the whole of it, and needs, let us say, only £1 million—that £1 million being less than the total subsidy which would otherwise be provided— then, if that sum were to be provided under the rising costs subsidy, three-quarters of it would be provided by the Government and one-quarter would be provided by the local authority from the rate fund. But if that same £1 million were required under the operational deficit subsidy where the proportion is 50/50, £500,000 would come from the Government compared with £750,000 under the rising costs subsidy.

Which, therefore, do the Government phase out first when there is only £1 million required from one or the other? The Government think about the matter very carefully. The Secretary of State consults and he decides, very objectively and very judicially, that he would prefer to pay out one-half rather than three-quarters. It is very odd indeed. Therefore, the Bill provides that the subsidy to be phased out first is the rising costs subsidy, ahead of the operational deficit subsidy. In one case the ratepayers provide half and the Government provide half, but in the other case the Government provide three-quarters and the ratepayers provide only one-quarter. There is a vast difference for the ratepayers between providing £250,000 and providing £500,000.

That being the case, as every one of your Lordships who has enjoyed Schedule 1 as bedtime reading has already discovered, there is a need for the Government to explain why they have, on objective grounds, not on mean grounds—I do not think they need to explain that as one can understand it; it is totally in line with the principle of the Bill under which they seek to save money at the cost of the tenant for the benefit of the taxpayer, and we would not ask them about it if the explanation were merely one of meanness in consonance with their general approach—decided to phase out the rising costs subsidy in this way. It is, in the first place. to ascertain what the reason is that I am moving this Amendment. I beg to move.

BARONESS YOUNG

This Amendment is somewhat similar in character to an Amendment which was put down when we last met. Subsection (14) is concerned with the circumstances under which the rising costs subsidy is to be paid. I think it would be more helpful to the Committee if I dealt in detail with Schedule 1 when we came to that part of the Bill, rather than attempt to deal with it now. But perhaps I may make clear that the reason why the Government feel unable to accept that subsection (14) should be deleted is that it would mean that the rising costs subsidy, like the transition subsidy and the operational deficit subsidy, which are all paid to local authorities who have deficits in their Housing Revenue Accounts in particular circumstances, would be paid regardless of whether those accounts were in surplus or in deficit. Therefore the particular circumstances would not be prescribed as they are at present. It is for that reason that the subsection should remain in the clause.

There is one matter which I can clear up in regard to the point at which subsidy will be withdrawn. My understanding is that the first subsidy to be withdrawn would be the operational deficit subsidy and not the other subsidies which are of particular concern in the first year to authorities with the greatest housing need.

LORD DIAMOND

There is no need for me to say how delighted I am always to hear from the noble Baroness. This is for two reasons. First, it is a great pleasure to hear from her and, secondly, one always knows that one has a good Amendment. If one has an Amendment which the Government cannot answer they put up the noble Baroness, knowing my great and well developed sense of chivalry. I am bound to say to the noble Baroness that although I followed everything she said to the very end I was a little foxed when she said that the operational deficit subsidy was the first one to be phased out.

Although I do not want to dwell on Schedule 1 at any great length now, because, as she properly said, we shall have to dwell on it at considerable length if and when we get there, paragraph 12(2) is perfectly clear. It says: The order in which amounts are reduced to give effect to sub-paragraph (1) above shall be the order of the heads in the Table, so that the amounts within head A are reduced to zero before any reduction of any amount within any of the later heads, and so on. If one looks at head A, pursuing our well-known habit of head-hunting, one finds that head A is the transition subsidy. If one has regard to the words "and so on" one looks next at B and one sees that B is the rising costs subsidy and C is the operational deficit subsidy. I am bound to say that I thought that I was reading the Bill aright when I suggested that the rising costs subsidy, which was expensive to the Government, would be phased out ahead of the operational deficit subsidy which is less expensive. I do not know if the noble Baroness's advice has been based on the same part of the same Schedule from which I am reading.

BARONESS YOUNG

We all recognise that the order of the Table is very important to local authorities, particularly those which will receive more than one of the subsidies, but I can confirm that the operational deficit subsidy will be eliminated first in 1972–73, but third in the years after 1972–73.

LORD DIAMOND

What the noble Baroness is saying is that apart from 1972–73, the first year which is a special one and in which the subsidy has to be dealt with specially and uniquely under many of the other provisions of the Bill, what I am saying is right. But let us assume that we have got beyond the first year. In those circumstances the noble Baroness and I are in agreement that the operational deficit subsidy will not be phased out first but will be phased out third, and what will be phased out second, which I think it is reasonable to suggest comes slightly ahead of third, will be the rising costs subsidy. So we are back to the point I was making: that apart from the year 1972–73, which is the first year and which has to be dealt with uniquely under many provisions of the Bill, the Government prefer to phase out first an expensive subsidy ahead of another one which is less expensive. When I say "expensive" I mean the one that requires the Government to provide a higher proportion—namely, 75 per cent. rather than a lower proportion—namely, 50 per cent. I am bound to say to the noble Baroness: "Why is that?"

THE DEPUTY CHAIRMAN OF COMMITTEES

The Question is that Amendment No. 43 be agreed to.

LORD DIAMOND

We are discussing Amendment No. 43 and I am pressing the Government to justify what is so far totally unjustified. If the noble Baroness or the noble Lord, Lord Drumalbyn, says for some reason that it is not convenient to deal with this point now I shall understand. If, on the other hand, I am going too quickly, which is my general fault, and I am invited to go more slowly, so that the noble Baroness can refresh her memory—or possibly be briefed—I am prepared to do that. But I should like to know why, for no reason whatsoever, the Government should choose to pay a local authority, for example, one-quarter of a million pounds instead of half a million pounds. This is a simple point, and I think the Committee should be told on what basis the Government justify this.

BARONESS YOUNG

I wonder whether the noble Lord, Lord Diamond, would accept that it would be convenient to discuss this point when we are dealing with the Schedule. Perhaps he would prefer to take the Amendments which he has on the Marshalled List to the Schedule now, rather than leave them until later.

LORD DIAMOND

I accept the implied suggestion of the noble Baroness that it would be convenient to deal with the Schedule when one gets there, but it is also unavoidable if a draftsman puts in a clause that the provisions of the clause have effect subject to Part III of the Schedule one must at that point of time look at Part III of the Schedule and see what it means and see how it relates to the clause. This is a very familiar problem. What the noble Baroness is saying is that it is obviously inconvenient for the Government to deal with this question now and that the Government require a longer time to think of an answer to the very solid point which I am making. I understand that and I have no wish to embarrass the Government. I know that we shall have an opportunity to discuss this matter again, but we shall be in difficulties when we come to the Schedule because we shall already have passed the part of the clause which refers to the Schedule. Nevertheless in the circumstances I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8.48 p.m.

On Question, Whether Clause 4 shall stand part of the Bill?

LORD DIAMOND

It is necessary to say a word or two on the Question, That Clause 4 stand part of the Bill. This is a complicated Bill and provides for a totally new structure of subsidies for housing authorities. Housing authorities are very anxious to know how it will work. The Government have been extremely courteous and have supplied me with a number of figures which, provided they are accompanied by two full pages of notes, and provided one is a chartered accountant, one can follow and for that I am very grateful. But it is necessary that local authorities should also be given some insight into the Bill and some knowledge of how it is going to work, especially as municipal treasurers and others will have to prepare their accounts and plan their budgets. At the present time they are finding very great difficulty in doing so. I imagine that in due course the Government will prepare guides, booklets and pamphlets explaining the way through this mass of legislation. At the moment these are lacking and it would be of considerable convenience to all concerned that it should be put on record what these various subsidies mean and how the Government intend to calculate and apply them. The most convenient way to do this is on the Question, Whether the Clause shall stand part? We are in the difficulty that under our procedure—and very sensibly so—Amendments are always discussed before the principles of a clause, and it is not until one gets to the Question, Whether the Clause shall stand part? that there is any opportunity to describe the principles. But I still think they ought to be described, and therefore I have risen to my feet on the Question being put in regard to this clause, because it is, I repeat, overwhelmingly the most important subsidy in the new structure of subsidies upon which local authorities will depend for their ability to build houses and provide accommodation for their citizens. This is the most important one by far, and therefore it is right, I think, that people should know how it works.

While I am on my feet, may I say that there are several major criticisms that one has of the clause. It is vague in the extreme, because, as the noble Lord has already admitted, discussions are going on and therefore there is nothing in the Bill saying how those discussions will materialise. The Bill therefore does not provide directly for an indication as to how the figures can be calculated. The amount of provision is totally inadequate in many respects. We have had these discussions throughout Amendments of the Bill—the reducing percentage on a reducing amount, and then a provision to reduce that even further. Many of these provisions are objected to, both by the association of local authorities and by such important authorities as the G.L.C., in very strong terms, and there is inadequate opportunity for those authorities to discuss and agree provisions with the Government and to have those decisions incorporated in the Bill so that the local authorities know where they are.

I want to repeat—because there may be some misunderstanding about this—that the argument here the whole time is between central Government and local authority. It is not between Conservative and Labour philosophies. It is nothing to do with Parties at all; and I am very sorry indeed that the assistance which I hoped for from the other side of the Committee has been totally un forthcoming. I do not know whether noble Lords opposite think that all local authorities are peopled exclusively by Labour councillors, but they are not. I do not know what the proportion is at the moment. I do not care; we are not concerned with that. It will be a varying proportion. Some authorities will be Labour controlled, some will be Conservative or Liberal controlled, or whatever it is. What we are all concerned with, I should have thought—but I have been sadly disappointed—is seeing a fair relationship between central Government and local authority; and this is 75 per cent. of the money that local authorities are going to need, be they Labour or be they Tory local authorities, in order to provide roofs over the heads of their citizens. So I am saying I regret extremely that the weight of the argument has been left to this side of the Committee alone. One cannot help that.

I do not know whether or not any of the noble Lords opposite who are present have been supplied with the same information as that with which I have been supplied, quite properly and sensibly. I am only sorry that it is necessary for me to say this, but I wanted to remove what I thought might be a misunderstanding about the Party aspect, because the whole of the weight of the argument has come from the Liberal and Labour Benches. However, this is a most important part of the subsidy structure of the new arrangements of the Government, and I think it would be right that the Government should therefore put on record through Hansard how they think this clause should work, and what its benefits are.

LORD WOLVERTON

I think a few words from these Back-Benches are probably appropriate at this moment. The noble Lord, Lord Diamond, has just said that this clause is one of the most important clauses in the whole Bill. This is the first time that a rising costs subsidy has been given, and many local authorities to which I have talked are very grateful for this clause. It will help those authorities which have very large housing lists to try to build houses for the future, which is so urgent a need. In this era of inflation, many local authorities have said that, with the present subsidies, the more houses they build the more they get into debt. Noble Lords know well how the Housing Revenue Account has to be kept in balance year by year, and if it is not in balance the rents have to go up. Many local authorities have taken the view that it is not fair to their tenants to keep on putting the rents up for the building of new houses. So I think this clause will have a very good effect towards helping local authorities to build houses in the future. Rising costs through inflation will be met to a great extent by this clause.

BARONESS GAITSKELL

I am struggling to understand this Bill. I am struggling even to understand all the contributions that have been made. I find that Mr. Aughton's account of what is happening—he is the Borough Treasurer of Hemel Hempstead—is, in a way, to me the most lucid. I do not know whether I am allowed to quote a very short extract of his summing-up, but he says: As the Housing Revenue Account rent income rises, the account will begin to come into surplus in most places, and, first, rising costs subsidy, with its associated rate fund contribution, will cease; then, operational deficit subsidy and contributions and, next, the subsidy and rate fund contributions which cover the cost of rent rebates. We shall then have returned to our present state, inasmuch as rent rebates will again be borne by the Housing Revenue Account. I do not know what that adds up to, but it seems to me a long way from what this Bill and this particular clause wish to achieve.

LORD SANDFORD

I am glad to have an opportunity to recapitulate what we have been saying on this important clause. This subsidy, more than almost any other subsidy, is the one that helps us to concentrate the help represented by the subsidy system on the places that need it, in order that they can continue, maintain and increase their house-building programme. There are other subsidies which concentrate help upon the people who most need it: this is the one that concentrates it upon the places that most need it. The rising costs subsidy is based upon the increase in reckonable expenditure over the previous year. We have been discussing the consultations in which the Secretary of State is now engaged with the local authority associations as to which of those sums debited to the Housing Revenue Account should count in the calculation of reckonable expenditure, and noble Lords have rightly recognised that this is an important matter. Although it is no more than an extension of matters which the Secretary of State has been able to determine hitherto on his own account, now, because they have greater significance (although they relate to much the same things) he must consult the local authority associations, and that is what he is doing. The subsidy arrived at by this calculation is a proportion of that qualifying amount and it is received initially at the rate of 90 per cent., not dropping to 75 per cent. until 1975. So the immediate impact and assistance is very considerable.

The other big issue we have been discussing is the need for a review and the provision for a review; and the point I would want to re-emphasise in that connection is that we are not now simply introducing another subsidy to be added to the 60 existing subsidies but are intro-clueing a radical reform and with it sufficient flexibility, scope for adjustment and opportunity for review, to ensure that the framework as a whole continues to serve many years ahead and that there is sufficient scope for adjustment to provide for all the varying circumstances which can arise, at least as far as ten years ahead. Nobody can foresee what the circumstances will he, but we believe we have introduced sufficient flexibility to contend with them when they arise.

The need for these is to enable us further to refine and further to extend the basic principle behind this Bill which is to concentrate the help that is represented by all these subsidies (but by this particular subsidy in respect of places that still need to build large numbers of houses) and to continue to refine and to extend this principle so as further to concentrate this help upon particular authorities as time goes by and as the majority of authorities move to a position where they are not as much in need of help as they now are while certain authorities continue to remain in need of assistance. It is in order that we should be able to concentrate our assistance still more on them that this clause is drawn in the terms in which it is. It is because a great deal of this still lies in the future that the precision for which the noble Lord is asking is not yet in the Bill. I submit that the framework is there in sufficient precision for us to be able to understand how it is to work and for the Secretary of State and the local authorities in the future to adapt it to circumstances as they change.

LORD DIAMOND

We are grateful to the noble Lord for that explanation but I should like to explain why we regard this clause as very unsatisfactory. I must do that because we are not saying that subsidies are not welcome, and if the Government want one structure of subsidies instead of another then we must look at it sympathetically and try to understand it. In spite of what the noble Lord has said about matters still being under consideration, the fixed statutory provisions in this clause all work one way. They define the qualifying amount with care and with the exclusion of certain items, some of which I have already indicated as being totally unfair. They then take power to reduce the qualifying amount by altering the formula: they provide that the subsidy, which starts at 90 per cent., is reduced year by year to 75 per cent.; they provide that the subsidy should be reduced further in the future, if necessary, if so decided, down to a lowest level of 60 per cent. And so far as the provisions which we have been discussing, which are related to the Schedule, are concerned, they provide wherever there is an opportunity for the Government to pay less and the authority to pay more they seize upon that opportunity by the method by which they provide for the phasing out of the subsidies. They refuse to listen to requests which I am making for providing some judicial method of settling disputes between central Government and local authorities, and they have not moved at all so far as the main complaints of bodies like the A.M.G. and the G.L.C. are concerned. So, although we must make our position quite clear when we vote against a provision

Resolved in the affirmative, and Clause 4 agreed to accordingly.

Clause 5 [The operational deficit subsidy, and associated rate fund contribution]:

9.14 p.m.

LORD GARNSWORTHY moved Amendment No. 44: Page 9, line 3, leave out ("whichever is the smaller") and insert ("one").

The noble Lord said: With the Committee's leave I will at the same time speak to Amendments Nos. 45, 46 and

of a subsidy (and vote against it at this stage when things are not final) we must say that the shape of it, and of that part of it which is finalised, is so unsatisfactory for the local authorities that we must vote against the Question, That this clause shall stand part of the Bill.

9.5 p.m.

On Question, Whether Clause 4 shall stand part of the Bill?

Their Lordships divided: Contents, 58; Not-Contents, 35.

CONTENTS
Aberdare, L. Drumalbyn, L. Monckton of Brenchley, V.
Ailwyn, L. Elles, Bs. Monk Bretton, L.
Allerton, L. Elliot of Harwood, Bs. Mowbray and Stourton, L. [Teller.]
Balerno, L. Emmet of Amberley, Bs.
Balfour, E. Ferrers, E. Northchurch, Bs.
Barnby, L. Fisher, L. Orr-Ewing, L.
Belhaven and Stenton, L. Fraser of Lonsdale, L. Rankeillour, L.
Belstead, L. Gowrie, E. Reading, M.
Berkeley, Bs. Grenfell, L. Reay, L.
Brabazon of Tara, L. Grimston of Westbury, L. Redesdale, L.
Buckton, L. Hailsham of Saint Marylebone, L. (L. Chancellor.) Reigate, L.
Colville of Culross, V. Ruthven of Freeland, Ly.
Cottesloe, L. Hawke, L. Saint Oswald, L.
Cowley, E. Hylton, L. Sandford, L.
Craigavon, V. Latymer, L. Sempill, Ly.
Crathorne, L. Limerick, E. Terrington, L.
Cromartie, E. Lothian, M. Vivian, L.
Daventry, V. Massereene and Ferrard, V. Windlesham, L.
Denham, L. [Teller.] Milverton, L. Wolverton, L.
Derwent, L. Molson, L. Young, Bs.
NOT-CONTENTS
Bacon, Bs. Hale, L. Simon, V.
Balogh, L. Heycock, L. Stow Hill, L.
Beswick, L. Hoy, L. Taylor of Mansfield, L.
Blyton, L. Hughes, L. Wade, L
Brock way, L. Llewelyn-Davies of Hastoe, Bs. [Teller.] Walston, L.
Champion, L. Watkins, L.
Delacourt-Smith, L. Maelor, L. Wells-Pestell, L.
Diamond, L. Milner of Leeds, L. White, Bs.
Energlyn, L. Morris of Kenwood, L. Wright of Ashton under Lyne, L.
Evans of Hungershall, L. Phillips, Bs. [Teller.]
Gaitskell, Bs. Popplewell, L. Wynne-Jones, L.
Garnsworthy, L. Serota, Bs
Greenwood of Rossendale, L. Shepherd, L.

47. Clause 5 deals with the operational deficit subsidy and the associated rate fund contribution. This subsidy is equal to half of the smaller of the contributions made by a local authority out of the general rate fund to the Housing Revenue Account for the years 1970–71 and 1971–72. I hope that puts it fairly, even though I have attempted to put it concisely. The Amendment seeks to secure that the subsidy for the first year shall be equal to the higher of the two contributions if the higher contribution comes in the second year, the year 1971–72; clearly the entitlement as the subsidy itself is bound up with rent increases.

The Government appear to take the view that it would not be right to pay subsidy equal to half the increase in the deficit of a local authority's Housing Revenue Account if the authority could reasonably have avoided the increase, supposing such an increase occurred in 1971–72. They have made it plain that they have calculated on higher rents to prevent such an increase in the deficits. This Bill is not yet an Act and cannot be for some weeks yet. I and my colleagues find this clause—and we are not alone because the feeling is widespread throughout the country—coercive, since it deals with a year that is half gone and in 1970 when local authorities were preparing their budgets they had no crystal ball to guide them, or they might have been the better able to protect their tenants and their ratepayers. Some local authorities have had regard, when considering the rents they have charged, to wage levels in their areas. Some have seen housing as a social service.

I do not know that masses of figures are very helpful, particularly at this time of night, it one, such as myself, endeavours to use them. I am filled with growing admiration for my noble friend Lord Diamond and his ability to cope with them. I think the Committee is greatly indebted to him because he is showing a tremendous understanding of the Bill, and most of us find it very difficult because of its incoherence. I doubt whether the total amount of difference as between 1970–71 and 1971–72 would be very high. Maybe the Government have some figures which show that there is a significant sum involved overall. In any case, if the Government have their way for the year 1971–72, rents will go up£26 for the 12 months since it is a case of "Impose 50p as from last April or £1 as from this coming October", with perhaps—and only perhaps—some exceptions. So I really do not see how local authorities can fix the books at this stage to ensure a higher deficit in 1971–72 than in 1970–71. If a higher deficit does occur, the probability, almost the certainty, is that it will be general. In any case it seems to me that subsection (5) of Schedule 1, provides a very good reason for accepting this Amendment. It is certainly a good reason for moving it.

May I, at this stage, invite the Government to tell us whether they have any observations to make on the front page article of yesterday's Sunday Telegraph? If the noble Lord can tell us what the Government's intentions may be it will be extremely useful. I think it is perhaps not only the members of this Committee who would be interested to learn what the Government's intentions are. I certainly hope we shall not be told that there is no truth in the report in yesterdays Sunday Telegraph because it would give a very great deal of relief to large numbers of people, to many local authorities, if the Government said "Yes, there is truth in it and we do not intend to coerce local authorities in the way this present Bill does; indeed, we shall put off for a year the operation of this demand that rents be increased by£1 as from October."

At the moment we do not know what the effect of Clause 63(4) will be. We do not know how many authorities will be involved as a result of the consideration that is being given to it. We have raised the matter before, but it would be helpful at this stage if the Government could give us some idea of what the thinking of the Secretary of State is. It was of course extremely interesting that it was Birmingham that came forward at Election time and said: "We do not need the 50p increase to bring our rents up to a fair rent level". There are many authorities throughout the country who feel that they have as good a case as Birmingham. It would be interesting to this Committee and encouraging to local authorities throughout the country if we could hear that the Secretary of State is viewing sympathetically the case that was put to him by Birmingham.

Like so much of this Bill—indeed, it seems to me all of it—too little firm information is available as we go through it. Again and again there is too much guesswork, too many estimates, and the scales seem to be weighted every time against, first, the tenant, and then the local authority. This subsidy which we are now considering is only a 50 per cent. subsidy. The total amount of money is, I gather, a comparatively small sum—£25million in 1972–73, dropping away, I fancy, to some £15 million in 1975–76. With the powers that the Secretary of State will possess under Schedule 1(5), there is no valid reason why this Amendment should not be acceptable. I beg to move.

BARONESS YOUNG

The operational deficit subsidy is payable in two circumstances, and in the particular Amendment that has just been moved we are concerned with the circumstances in which a local authority made a rate fund contribution to the Housing Revenue Account for the years 1970–71 and 1971–72. The Amendment proposes that the subsidy should be based on the larger contribution from the rate fund rather than on the smaller, as is the circumstance described in the Bill. I think it would be helpful to consider, first, the circumstances in which the operational deficit subsidy would be paid in this particular case.

If we take the case of an authority which made a smaller rate fund contribution in 1971–72 than it did in 1970–71, it is true that it has a deficit in the second year; but it follows that it is a smaller deficit than it had in the first year, and it is therefore reasonable to assume that its financial position is somewhat better. In this case it seems to be both reasonable and fair that the operational deficit subsidy, which would be 50 per cent. of the rate fund contribution, should be paid on the lesser amount, that is, for 1971–72, rather than the larger amount which was for the preceding year. If, on the other hand, the authority made a larger contribution in 1971–72 than it did in the preceding year, 1970–71, its financial position is clearly more difficult, because the authority has an increasing deficit which it is meeting by a rate fund contribution. Under the proposals in the Bill the authority could have been expected in these circumstances to meet a proportion of its increased deficit by putting up rents to meet a part of the deficit. If, however, the deficit on the Housing Revenue Account was very large then the authority could not have been expected reasonably to increase its rents to meet all of this cost.

The operational deficit subsidy would be payable on two counts: it would be payable, first of all, on the smaller rate fund contribution for the year 1970–71, and the authority would get a 50 per cent. operational deficit subsidy on that year. But if it qualified it would also get a subsidy on the second count, and in order to keep the record quite straight I should explain that it would receive a 50 per cent. operational deficit subsidy, as defined in subsection (5)—that is, based on the excess of the authority's reckonable expenditure for 1971–72 per Housing Revenue Account dwelling as at the end of that year, over the authority's reckon-able expenditure for 1970–71 per Housing Revenue Account dwelling as at the end of the year, but disregarding the first £15 per Housing Revenue Account dwelling for the part of the excess multiplied by the number of Housing Revenue Account dwellings on March 31, 1972.

If I could perhaps put that in words which to me are somewhat simpler to understand, it really is the difference between the authority's reckonable expenditure of 1971–72 and 1970–71; and we disregard the first £15 of expenditure on every house, the number being determined as the number at March 31, 1972. So that if the authority qualifies for an operational deficit subsidy because its expenditure from the general rate fund for 1971–72 is greater than it was in 1970-fund contribution for 1970–71, which is 1970–71, its financial position is clearly the lower amount, and it might qualify for something under the other part of the operational deficit subsidy. I should make it clear as a general principle that if it were not for the operational deficit subsidy this amount would have been paid by the ratepayers of the local authority. On the other point raised by the noble Lord, Lord Garnsworthy, I do not feel it would be proper for me to comment on a newspaper report.

LORD GARNSWORTHY

If I may just take up the last point made by the noble Baroness, I am quite sure that the Government are going to have to comment on it to somebody before they are very much older, because the issue is of such great importance that I do not think they will be able to ride away with it as easily as all that. I should have thought that the acceptance of my Amendment would have made it perfectly clear that local authorities were going to get 50 per cent. of whichever was the larger figure. The noble Baroness as I understood her, said that they will, if there is a larger deficit in 1971–72 than in 1970–71.

BARONESS YOUNG

I am extremely sorry if I did not make myself clear. I did not say that. I said that in the circumstances in which an authority made a larger rate fund contribution for 1971–72 than for 1970–71 the authority would get 50 per cent. of the rate fund contribution for the smaller of the two years, which is 1970–71. I went on to say that it might qualify for a further operational deficit subsidy, as defined in subsection (5).

LORD GARNSWORTHY

I thank the noble Baroness for what she has said. We shall examine in Hansard what has been said so that we are sure we have understood the position correctly. I accept what she said in good faith, because I am quite certain that she would not speak otherwise; and in the circumstances I wish to withdraw the Amendment.

Amendment, by leave, withdrawn.

9.30 p.m.

LORD DIAMOND moved Amendment No. 48: Page 9, line 13, leave out from ("contributions)") to end of line 16.

The noble Lord said: I beg to move Amendment No. 48 because I do not know what the words I am seeking to have left out mean. I am sure that they have some meaning and that the noble Lord or Baroness who is in charge will be able to tell us what it is. If I may take the next step and make the improbable assumption that the words have some meaning and some purpose, may I ask why the Secretary of State is given these very absolute powers? The clause says that …the Secretary of State may give directions as to the manner in which a sum so credited is to be taken into account for the purposes of this section. This Amendment is both probing and criticising, but mainly probing.

LORD SANDFORD

I am grateful to the noble Lord for making it clear that this is in the nature of a probing Amendment. If the point that my noble friend has been making in answer to previous Amendments is taken then in order to secure fairness as between authorities, it is important to provide that certain authorities, less scrupulous perhaps than others, should not so manipulate their accounts as to make the smaller of the two deficits which we have been talking about artificially large and bring it up towards the level of the larger figure, thus increasing their entitlement to the operational deficit. It is possible to do this by manipulating the accounts in a variety of ways. I can give an example of this to the noble Lord if he so wishes; but as he has indicated that this is only a probing Amendment I will assume that he may be satisfied with that explanation. This wording is to ensure that any such adjustment between the general rate fund and, or payment from the general rate fund into, the Housing Revenue Account, represents a bona fide transaction and not an artificial one.

LORD DIAMOND

I am grateful for that explanation. I am bound to say that I found it impossible to imagine that the words meant no more than that. They obviously had some meaning, but I did not know what was in the mind of the Government. If the words mean that then I recognise that there is a solid purpose to be served and the Exchequer must be properly protected. In those circumstances, the power that the Secretary of State takes would be appropriate. I dare say that others, like myself, found difficulty in imagining that those words were intended to cover that situation. I am not going to press this matter, but I would ask the noble Lord to give further thought to see whether words that more directly specified what is in the mind of the Government could be used. I know that one cannot refer to the precise terms which the noble Lord used: they were perhaps a little over-precise. In the Treasury we used to talk about "massaging" the figures—we thought that was a rather more elegant term. I understand the situation and, having made the point which I am sure the noble Lord will be good enough to take on board, I seek your Lordships' approval to with draw the Amendment.

Amendment, by leave, withdrawn.

LORD DIAMOND moved Amendment No. 49: Page 9, line 14, after ("may") insert ("after consultation with the authority").

The noble Lord said: Page 9, line 14, is in fact within the words we have just been considering, and I think it is right that if there is to be a fairly arbitrary decision of this kind it ought to be taken after consulting the authority concerned. I imagine it could not be taken without consulting the authority concerned. But I come back to a point I have made many times: that if the Bill is drawn, as indeed it undoubtedly is, so as to give local authorities anxieties that they are going to be overridden and not fully consulted, then it is necessary to keep putting in quite often the fact that by statutory requirement they are going to be consulted. I imagine that the difference between us here is not the fact they are going to be consulted, but whether the statutory provision for that ought to be made. I think it ought to be, and that is why I beg to move the Amendment.

LORD SANDFORD

I can confirm that in the great majority of cases the Secretary of State would in practice consult the particular authority concerned before giving a direction. But it is not very easy to give precise statutory recognition of that fact because it is conceivable—indeed, more than conceivable; it is quite on the cards—that directions might have to be given of a general nature. It would be appropriate in the first instance to have consultations with the local authority associations or particular groups of local authorities and, that having been done, it would perhaps be impracticable, if it affected all local authorities, or inexpedient if it concerned a large number, to consult each particular one before applying a direction which resulted from general consultations. As the noble Lord recognised, the Exchequer needs to be protected from time to time from unscrupulous manipulation or "massaging" of accounts, and in some extreme cases I think the noble Lord would agree that even consultation might not be appropriate.

LORD GARNSWORTHY

It is a little difficult to follow the noble Lord, Lord Sandford, on this one. The Amendment is such a simple one: to insert "after consultation with the authority". If this were introducing something that was quite new it would be a different matter. Consultation in no way commits the Secretary of State to take any particular line of action; it commits him to consultation only. It is this kind of attitude on the part of the Government that causes us to say they are inflexible; they are unbending they are unreasonable. My noble friend is trying to be helpful and going out of his way, it seems to me, to give the Government an opportunity to re-establish themselves to some extent with local authorities throughout the country. I beg them to think again and not to close their minds and refuse to accept this Amendment. This, surely, is no great matter of principle. My noble friend has served local authorities extremely well in the discussions we have had on this Bill up to date. It would be to the Government's credit if they gave some indication that they were prepared to think favourably with regard to the point he is making.

LORD SANDFORD

I am certainly prepared to do that, and I do not want to import into this more inflexibility, or indeed any inflexibility at all. It is not a matter of principle, it is a matter of practical detail. In practice, when the Secretary of State is dealing with an individual local authority on a point that is particular to that local authority he will of course in practice always consult them. But in this sphere, as in a number of others we have dealt with hitherto, and in others we shall be dealing with, it may well be that the direction that emerges does so in the form of, say, a circular as a result of consultation, not with all the individual local authorities severally but with the local authority associations on their behalf. If that consultation has been complete and adequate and satisfactory it is really needlessly laborious, and a tremendous duplication of effort, to consult with each local authority separately in addition. This is just a matter of practical detail.

I fully take the point that the noble Lord is urging on us: that it is desirable to have consultations. I confirm that it is the practice of the Secretary of State to do that, and it is his intention to do it in the future, in respect of individual local authorities when he is dealing with individual local authorities, or with their associations when he is arriving at a general direction. But, for the reasons which I have set out and tried to elaborate, it is difficult to see how it can be set out in statutory form, although I am certainly willing to look at this in order to see how it can be done. I do not think that it can be done by accepting this particular Amendment.

LORD DIAMOND

I accept straight away that the particular point which the noble Lord wants to meet cannot be achieved by means of this Amendment. Nevertheless, I think the Amendment has served its purpose in making it clear that there is no difference between the two sides as to what is likely to happen in practice. The only problem is not to overload a busy Secretary of State with words in a Statute which are more than necessary. I am grateful to the noble Lord for saying that he will look at it again. We do not wish to divide on this Amendment and I will certainly withdraw it. But I shall be grateful if, in the course of looking at it again, the noble Lord will look at his own drafting in subsection (12) of the previous clause, and in particular at the reference to consulting with any housing authority with whom consultation appears to him to be desirable. I think one could limit the kind of consultation that is to take place in a way which would still leave a statutory expression of the desire to consult which would be helpful. In the knowledge that the noble Lord will be good enough to give thought to these matters I seek permission to withdraw this Amendment.

Amendment, by leave, withdrawn.

9.42 p.m.

LORD DIAMOND moved Amendment No. 50: Page 9, line 17, leave out ("are") and insert ("is").

The noble Lord said: As may be imagined, this is a drafting Amendment. I hesitate to interfere in the drafting, and I recognise that "authority" is a word which can equally attract the singular or the plural of the verb; but I think it gets a little clumsy when one has to say "a local authority are entitled". I am not saying that it is wrong; I am saying that it is clumsy. Albeit when normally a Bill uses the plural for a word like "authority", and this can be justified on the grounds of consistency, I still think it is a little clumsy, and therefore merely for the sake of giving the Government the opportunity of considering it, I beg to move.

LORD SANDFORD

I am grateful for that invitation. I will certainly look into it but I think the convention is that on the whole we keep to the plural. I notice that we have done so at line 35 without attracting the censure of the Opposition, so I prefer not to accept this off the cuff, as it were. However I will undertake to look into it.

LORD DIAMOND

I am grateful to the noble Lord for undertaking to look at it again and I hasten to withdraw the Amendment.

Amendment, by leave, withdrawn.

LORD DIAMOND moved Amendment No. 51: Page 9, line 21, leave out ("50") and insert ("75").

The noble Lord said: Perhaps it would be convenient to discuss Amendment No. 52 at the same time because it is complementary to No. 51. The point can be expressed in a very few words. The figure proposed in the Bill is 50 per cent. It is the smallest of all the percentages. I cannot see where the Government have justified the use of such a small percentage, and I invite them to do so. I beg to move.

BARONESS YOUNG

I always seem to be the one to discuss percentages when dealing with Amendments to measures of this kind. On this particular percentage I understand that consultations took place between my right honourable friend in another place and the local authority associations and it was felt that the percentage here was both fair and reasonable. It is, of course, in this particular case, when the operational deficit subsidy is being paid to a rate fund contribution, that the circumstances in local authorities vary very much indeed. Some may have had a policy of building a number of houses and having relatively high rents, and still having a rate fund subsidy. Others may have had relatively low rents and low costs, yet again having a rate fund subsidy. One can only say that in these circumstances it is a just distribution to have half the cost paid by the Government when previously the whole of the cost was borne by the ratepayers of the local authority.

LORD DIAMOND

I recognise that the whole cost was previously borne in that way, but here we are dealing with a totally different structure of subsidies. This is the difficulty of trying to compare subsidies and rates under the proposed structure with the different structure under the current legislation. I was interested to hear what the noble Baroness said about the discussions with local authorities, and I gather that they are not unduly disturbed about the figure of 50 per cent. It is true that I have not been asked to make representations on this issue by local authorities—unless I have missed something in the volumes that have been put before me to read. It seemed to me that the Government should have an opportunity to justify this figure. I will think about what the noble Baroness said, and I assure her that she need not be hesitant about her capacity to understand percentages. It is nice to see someone on the Government Front Bench who is capable in this respect. In the circumstances, I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

LORD DIAMOND moved Amendment No. 53: Page 9, line 27, leave out ("either as respects all such years, or").

The noble Lord said: I move this Amendment in order to find out what special heavy meaning these words have that I have been unable to understand. It seems to me that if these words are left out, nothing vital is omitted from the Bill. The Clause will still mean exactly the same as it means with the words. I doubt whether words would be put in in such an otiose fashion, and therefore there must be some reason for them. I invite the Government to give that reason. I beg to move.

LORD SANDFORD

We are here in the rather sophisticated realm of Parliamentary drafting and I will therefore stick closely to what my advisers tell me, which is that the effect of this Amendment would be to make it impossible for the Secretary of State to make an order to provide for operational deficit subsidy to be payable after 1981–82 for an indefinite period, subject to the provisions for reducing or eliminating it under subsection (8). It is undesirable to deprive the Secretary of State of the possibility of so helping local authorities which need this help, and therefore I recommend the Committee to keep these words in the Bill, if such is their effect.

LORD DIAMOND

The noble Lord says that "if such is their effect" he thinks they ought to stay in the Bill. If such is their effect, I agree, they ought to stay in the Bill. The only question is whether such is their effect. From what the noble Lord is saying neither he nor I dare offer any serious comment on that. I am bound to say that I thought that would be the answer, but the ordinary layman's reading of the other words "as respects such number of years" ought to include all such years. It is not for us to enter these fields, however, and I seek leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

9.52 p.m.

LORD DIAMOND moved Amendment No. 54: Page 9, line 43, leave out ("£15") and insert ("£6.50").

The noble Lord said: Perhaps we could discuss with this Amendment the following Amendment which has the same point. This goes to the heart of the calculation of the operational deficit subsidy which this clause is all about. So far we have been considering the two methods by which two subsidies might arise. But under this subsection it is provided that there should be an omission of the first £15. I am sure I have got that right, in view of what the noble Baroness said earlier: that is to say, if the deficit is in excess of £15 the excess only is the part that counts, not the £15: so that one loses £15 for every single case. That is a substantial sum and one wants to know what is the justification of it.

My recollection is that in another place it was justified as having reference to the amount which the local authority ought to bear themselves—meaning the amount by which the local authority ought to increase rents—and that a small cost of this small amount ought to be carried out of increased rents and only the balance carried on the subsidy—or at all events counting for subsidy, which is at the rate of 50 per cent. I have now got the reference, it is at column 387 of Hansard of another place. The Under-Secretary of State, Mr. Channon, said: The figure of £15 was chosen because some modest amount of expenditure attributable in this way could he met by rent increases and over a certain amount it would obviously be unreasonable for the local authority to meet it. So a figure of £15 is chosen, being 7s. 6d. per week rounded down to £15. The figure I have chosen is 2s. 6d. per week. It seemed to me that 2s. 6d. per week is a figure that would fit in with that criterion and that 7s. 6d. a week is much too large a figure to be met by rent increases in this way. The figure is 2s. 6d. if you are to have this kind of provision, and if you are to have a deduction, and therefore I am suggesting a figure of £6.50p which I think is still something of the order of 2s. 6d. per week. I beg to move.

BARONESS YOUNG

The Amendment really is, why is the figure £15 and not £6.50p. The noble Lord, Lord Diamond, is quite right in saying that the £15 is based on the amount by which a local authority could have put up its rents in the year 1971–72. It arises because it was the figure allowed under the Rent Increases Act 1969, whereby a local housing authority could put up the rents of its houses by up to 7s. 6d. a week. If this figure is multiplied by 52 it works out at £19.50p a year. That figure itself has not been used because it is reasonable to suppose that a housing authority would have allowed a sum for rent rebate, or some other reason such as that, and it is therefore rounded down to £15 per house. This is the threshold to achieve the qualifying amount for the operational deficit subsidy, and that is the reason why it is calculated that way. The Government feel that is a fair way of making this calculation.

LORD DIAMOND

The noble Baroness has been very helpful, but she has not explained why, where a local authority did not exercise its power to increase the rent by 7s. 6d. a week because for some reason it was not appropriate to do so (I do not mean in relation to an individual who might have been entitled to rent rebate; I am referring to a local authority which did not put up its rents in this way), it should be treated as if it ought to have put up its rents. That is the part I do not fully follow, and it was for that reason I thought it would be far better to assume that local authorities could carry a small amount but 7s. 6d. is indeed a very substantial amount, and they ought not to be assumed to have done so.

BARONESS YOUNG

I think the answer to that lies in the circumstances in which the operational deficit subsidy is paid. Whatever the circumstances, the local authority would get 50 per cent. of the rate fund contribution for whichever was the smaller year, either 1970–71 or 1971–72. When we discussed this point on the previous Amendment I made it clear that a local authority could have put up its rents, even if it did not, and if it made a very large loss in the second year, 1971–72, such that even if it had put up its rents it would still have had to make a rate fund contribution, it was eligible for operational deficit subsidy under two headings; it would get it for the contribution it made in the first year and on the formula in the second year. The point about the formula is that it provides for something the local authority could have done, and if it did not it could still get some of the subsidy.

LORD DIAMOND

The noble Baroness is always very helpful and she has made it perfectly clear, as I am afraid I suspected, that this is in fact a penal clause. It is saying to a local authority which could have put up its rents by 7s. 6d. but did not, "We do not care what the reasons were why you did not. It does not matter to us at all what the circumstances were. You had the power to do so. You were allowed to go up to that maximum. If you had done so, the deficit would have been smaller. If the deficit had been smaller the Government would now be called upon to pay a smaller contribution by way of subsidy. Therefore we are going to assume that the circumstances were such that you should have put up the rents by 7s. 6d.". But I do not know whether the circumstances were such. My predilection is to believe that the circumstances were such that the local authority did in every case exactly what it did do.

My assumption is that local authorities are made up of intelligent men and women knowing the circumstances locally and acting sensibly and responsibly accordingly. I am certainly not going to take the view that where I do not know why the local authority did not put up its rents by 7s. 6d. the local authority was wrong and should be penalised, and the local citizens should be so penalised in the form of lower subsidy. I do not like this at all. There is no justification for the 7s. 6d. in these circumstances. There is no justification for penalising local authorities for the mere reason that they did not put up their tenants' rents. Unless the noble Baroness has anything more to say about it, I think we shall have to show our views on this particular Amendment. I invite her to say more if she is inclined to do so.

10.5 p.m.

LORD DIAMOND moved Amendment No. 56: Page 9, line 45, after ("dwellings") insert ("as").

The noble Lord said: The normal expression—indeed, the expression one finds a few lines further on—is, "the number of dwellings as at the end of the year". It is repeated twice in subsection (5)(a). But in line 45 the term used is, "the number of the said dwellings at the end of the year". I am perfectly content whichever is the form of words used, but I think that the Bill should be consistent. If there is some hidden special reason for the distinction, perhaps the Government will be good enough to tell us what it is. I beg to move.

LORD SANDFORD

I think the noble Lord is on an extremely good point here. I should like to wish him sweet dreams and I offer him the nightcap of accepting this Amendment.

House resumed.

10.0 p.m.

On Question, Whether the said Amendment (No. 54) shall be agreed to?

Their Lordships divided: Contents, 21; Not-Contents, 52.

CONTENTS
Balogh, L. Foot, L. Shepherd, L.
Beswick, L. Garnsworthy, L. [Teller.] Simon, V.
Blyton, L. Hoy, L. Stow, Hill, L.
Brockway, L. Hughes, L. Walston, L.
Champion, L. Milner of Leeds, L. [Teller.] Wells-Pestell, L.
Delacourt-Smith, L. Morris of Kenwood, L. White, Bs.
Diamond, L. Phillips, Bs. Wynne-Jones, L.
NOT-CONTENTS
Aberdare, L. Elles, Bs. Mowbray and Stourton L. [Teller.]
Allerton, L. Elliot of Harwood, Bs.
Balerno, L. Emmet of Amberley, Bs. Northchurch, Bs.
Balfour, E. Ferrers, E. Oakshott, L.
Belhaven and Stenton, L. Fisher, L. Orr-Ewing, L.
Belstead, L. Gowrie, E. Rankeillour, L.
Berkeley, Bs. Grimston of Westbury, L. Reading, M.
Brabaon of Tara, L. Hailsham of Saint Marylebone, L. (L. Chancellor.) Reay, L.
Buckton, L. Redesdale. L.
Colville of Culross, V. Hawke, L. Reigate, L.
Cottesloe, L. Hylton, L. Ruthven of Freeland, Ly.
Craigavon, V. Latymer, L. Saint Oswald, L.
Crathorne, L. Limerick, E. Sandford, L.
Cromartie, E. Lothian, M. Selkirk, E.
Daventry, V. Massereene and Ferrard, V. Sempill, Ly.
Denham, L. [Teller.] Milverton, L. Terrington, L.
Derwent, L. Molson, L. Vivian, L.
Drumalbyn. L. Monckton of Brenchley, V. Young, Bs.

On Question, Amendment agreed to.