LORDS AMENDMENTS (Hansard, 25 February 1975)

§ Baroness BIRK

My Lords, I beg to move that the House doth not insist on their Amendment No. 1 to which the Commons have disagreed for the Reason numbered 2: Because the Amendment would enable local authorities to make a profit on their Housing Revenue Account. This Amendment was inserted by your Lordships' House against the advice of the Government spokesman during the Committee stage. The reason for what I may call the no-profit rule being in the Bill in the first place was my Party's adherence to the principle that local authority housing should be run as a non-profit-making service. I need not at this stage traverse all the ground of shortages, Rachmanism, the slum problem and homelessness which have led to our conviction that there should be provided in every town a substantial pool of housing to rent, of good quality, out of which no profit should be made, and that the Statute Book should say so.

Your Lordships discussed this matter in Committee, and I see from re-reading our debate that some of the points raised reflected a misapprehension regarding what a surplus or a profit might be, and I hope that I can briefly dispel this. The fear that the provision might prevent spending on improvements and amenities, or might prevent the housing account from balancing, or prevent provision for unexpected changes, all have in common a certain missing of the point. This provision will not hamper local authorities when they come to make their estimates. They will set down on the expenditure side exactly what they do now. If they think it right to set down some provision for improvements and amenities they will do so. Although we are now in a situation which calls for strict economy, it will obviously be right in principle, when the situation allows, to make such provision. If they want to make provision for some unforeseen change they will do that also. That will be included in the working balance. Another way of putting it is: provision for contingencies. Certainly in addition they will be making provision for inflation, as they do now. The no-profit rule 673 concerns a situation that may arise after all this has been done.

Let me take the case of an authority whose housing accounts are, relatively speaking, in a fairly good state. The joint first claims on any apparent surplus might be a rebuilding of the working balance to a reasonable level and restraining rent increases next year. As the next priority, the authority should carefully re-examine the housing needs of its area: have the council really replaced all unfit houses and provided houses for all families living in lodgings? If not, they will, we hope, use their favourable position to increase their building programme, giving perhaps more attention to special needs like the disabled, one-parent families and the single person. Next, perhaps, would come an expansion of work on general improvement areas and priority neighbourhoods under the Housing Act 1974. The local authority would, I hope, look to the quality of its housing environment. Fifth might come the provision of amenities on existing housing estates—work which local authorities often do, using their housing powers.

These, in the Government's view, and in the view of many of the Peers who spoke when we debated this subject, are the proper uses of any housing resources which a local authority may find surplus during its budgeting process.

There was also a more general proposition underlying the Amendment which your Lordships made: that although local authorities need not consciously plan for profit, it was suggested that a surplus which was built up in one year might help to stabilise rents in the following years as it was run down. As a principle of private finance, putting something aside for a rainy day is good, but as a principle of local authority housing finance it has disadvantageous consequences. It means a very large jump in rents now, in a difficult year, to build up any worthwhile reserve; it means finding the most inflation-proof home that one can for the reserve, which is not easy; it means defending the reserve from the raiding propensities of the chairmen of other committees; and it means another large jump in rents at the end of the period of apparent stability. It has not achieved anything that is worth while. It is far better to meet circumstances when they come and, if an increase is neces- 674 sary, then to make it, but for no more than is necessary.

Yet the Amendment which your Lordships made would have opened the way in recent years to an authority whose policies might be quite unacceptable. Small though the risk is in present circumstances, since the likelihood of any authority making a profit next year is small, it is not a risk that should be run, nor is it an idea that should be presented to a council as having any potential merit. For this purpose we need a financial safety net to ensure that housing funds are used for housing purposes and that the possibility of socially necessary housing generating funds to be used for quite different purposes docs not arise. This is the last stage in the Bill prior to Royal Assent. Local authorities are now in great and growing need of some definite statement of the law as it will stand for the next financial year. Those who might wish to prolong consideration of this Bill would bear a heavy responsibility if they did so.

§ Baroness YOUNG

My Lords, it must be a matter of much regret to those of us on this side of the House that the Government have not felt able to support either of the major Amendments which were carried in this House. One of the objects of this Bill was to restore to local authorities freedom to fix their rents. By putting back the Amendment that we carried to Clause 1, the Government have begun by breaking this principle. There is now no freedom for an authority, if it wishes to do so, to make a surplus. Although I listened with great care to what the noble Baroness, Lady Birk, said in trying to explain the very confusing Clause 1— when an authority is allowed to make a balance but when it is breaking the law by making a surplus—I am bound to say that I found her argument unconvincing. Of course, a good authority will try to provide something for contingencies, but it is very difficult to see what the difference is between providing a working balance for contingencies and providing a working balance for a surplus. The fact is that we are living in a very different world from the world of the 1957 Act, the 675 principles upon which this Bill is based. There is now rampant inflation. It is exceedingly difficult for anybody to say what building costs will be in six months' time, let alone in a year's time.

I believe that the consequences of Clause 1 could be very serious for local authorities. If, indeed, a local authority underestimates its expenses, two consequences will inevitably follow. One is the possibility that there will have to be a supplementary rate to offset the deficit. This is the only way in which they can make up the difference. Alternatively, there will have to be a very large rent increase. There is, in fact, a third possibility; that the Government might provide something more by way of subsidies. However, I think we can exclude this possibility, because that is not suggested under the terms of the Bill. What is much more likely to follow is that ratepayers will be asked to meet the deficits. These could well occur, not from malice aforethought on the part of housing authorities but because they are so restricted by Clause 1 that they may well feel that, although they could have made a surplus, they were not supposed to do so, and they have miscalculated what they need for contingencies. I believe that this makes housing sense, and I am sorry that the Government have not felt able to accept the Amendment.