§ 6.38 p.m.
§ Earl Russell rose to move, That a humble Address be presented to Her Majesty praying that the regulations be annulled.
§ The noble Earl said: My Lords, first, I should like to thank the noble Baroness, Lady Hollis of Heigham, for tabling the Motion. She pipped me to the post; on that I congratulate her. I am sorry that the noble Baroness is unable to be present. However, although she is unable to be present, it seems to me that the issue nevertheless deserves some debate. I am most grateful to the Minister for reacting like the real trouper he is to finding that, after all, he would not have the evening off. I am grateful to him and sorry to put him to the trouble.
§ Autumn is the season when Prime Ministers have visions. This Prime Minister has had one; but, unfortunately, it was bifocal. It is a characteristic of a bifocal vision that you can see only one half of it at a time. The Prime Minister has a vision of a home-owning world in which he hopes there may be 1.5 million more home owners. But at the same time he has a vision of trimming away some of the edges of the welfare state and increasing self reliance. As the Secretary of State put it in his memorandum to the Social Security Advisory Committee, people who buy houses must be able to sustain major commitments if unable to work. One can understand the sense of that, but it does not sit very easily with 1.5 million more home owners.
§ I can see the case either for reducing home ownership or for reducing dependence on the state. I find a great deal of difficulty in seeing both at once. I find even more difficulty in seeing the case for increasing home ownership sitting beside the case to which the Prime Minister is also committed for a deregulated and, as he sees it, more competitive labour market. Unless one is 810 able to rely on the state in time of trouble, home ownership is essentially for those in stable, secure jobs. The deregulated labour market, as it develops, means more and more people who are not in stable, secure jobs, who are therefore in not at all a good position to be home owners unless they can rely on support through the benefits system when they cease to be in employment. I wish to know to which part of that vision the Prime Minister is committed. I cannot see that it can possibly be both. There is a natural incongruity in that.
§ I understand, of course, that there is a strong and genuine case for keeping down costs. No one wants to see costs growing unduly; but a desire to keep down costs is no excuse for wasting money. So we need to be clear, when we undertake a measure which is designed—as this is—to reduce costs, to be sure that it does so. I am surprised that the Government are not more concerned than they appear to be by the size of the gross mortgage debt in this country. When Mrs. Thatcher (as she then was) came into office, it was 26 per cent. of GNP. It is now 62 per cent. of GNP or £370 billion. That is a great deal bigger than the national debt. It is truly a potential avalanche waiting to descend on our heads. So if we have a massive wave of repossessions, we may get a succession of failures running through the economy, causing a great deal of dislocation which I would not wish to see—and nor, I hope, would the Government.
§ The costs of repossessions, both social and financial, are extremely heavy. It is the central effect of repossession that it is extremely hard for the person who has suffered it to obtain work. No employer likes taking on people who have no fixed address. At present, of all the people who draw income support to help with their mortgages, 50 per cent. return to work within a year. That is an important figure. I do not see how, under any of the alternative arrangements proposed, that figure can possibly be matched.
§ There is also an increasing volume of evidence—much collected through the Institute of Education in London—of severe difficulties in obtaining schooling suffered by children who are homeless, itinerant or on the move. It is something on which we would welcome interdepartmental consultation because there is the potential for the beginning of another cycle of deprivation and for all the costs to public funds that that may entail.
§ I am certain that the Minister is just about to tell me that all those fears are groundless because we can entirely rely on insurance to take up the slack. That faith is misplaced because, after all, insurance is a private business. It is designed to achieve profit, though I know it does not always succeed. Insurance is not a social science and cannot function efficiently if it attempts to be one. I wish to refer to some of the disadvantages and I rely on evidence presented largely by the Social Security Advisory Committee. It draws attention to anecdotal evidence of people applying for mortgage protection insurance who are refused it on the grounds that if they ask for it they must be about to lose their jobs and are therefore bad risks. In fact, if you want it, you must need it, so you cannot have it.811
§ From the commercial point of view of the insurance company, there may be a good deal of logic in that position. Cherry-picking is the very nature of insurance, but in social security it is not the cherries that we need to pick. So the people who are most likely to need help will be those who are least likely to get it through the insurance system. For example, many people have been told that under their policies they cannot have any help from their insurance company if they become unemployed within six months of taking out the policy. That is the crack between the insurance system and the welfare system into which a great many people may fall. I do not know what will happen to them when they do.
§ The Minister will remember an amendment moved by the noble Lord, Lord Swinfen, during the disability Bill, drawing attention to the difficulty suffered with insurance by those with an inheritance of genetic disorders, people perhaps with a grandparent who suffered from Huntington's chorea. Many of them are perfectly able to work and pay taxes. I do not see that their prospects of becoming home owners are particularly good and that causes me concern.
§ It is also normal in insurance policies that people in temporary jobs—contract jobs, self-employed or undergoing training—tend to be excluded. The Government have often gloried in the increase in self-employment, they have gloried in all forms of deregulated employment. However, a great many such people will not be able to obtain insurance so they would not be able in future to become home owners. For example, in my own field let us take the contract scientific researchers who are now the underclass of the academic world. It will be even harder to keep them in universities than it is now, if they have no hope of stable housing.
§ There is a real doubt whether that is in the public interest. There is a strong case for arguing that since deregulation will mean frequent short-term experience of unemployment, it necessarily implies a strong welfare state. It is a world in which people often fall over. If you fall over, you must be able to get up again. Often you cannot do that without help, otherwise you are pushed into a position where you may not be able to get back into employment for the rest of your life. That is no more in the interests of public funds than it is for the person who suffers it.
§ There has been a good deal of argument between the Government and the committee about insurance cover for repairs. The Government have gone some way to meet the committee on it, but at the same time they argue that there is not really a public interest in repairs. I believe that they are wrong on that. It is of the nature of a market that if we diminish the supply without diminishing the demand, the price must increase. If we diminish the housing stock, the price of housing in general must go up.
§ I also found the attempt in the regulations to deal with this an example of the disadvantages of the total enumeration method of legislation. I do not think that I need explain to the Minister what I am getting at; I think he knows well enough. In fact, it is not a bad attempt to set out all the things for which one might need help with repairs. However, I should much have preferred the 812 general phrase used by the Secretary of State in his reply to the committee: namely, help for any repairs "which are required to maintain fitness for occupation".
§ The Government have gone a long way towards total enumeration of those repairs. However, they have left out, for example, repair to broken locks. Anyone who lives in a rough neighbourhood knows what will happen to the house if you cannot afford to repair the locks. That is an example of what the noble Lord, Lord Renton, always says: the draftsman cannot foresee everything.
The Social Security Advisory Committee quotes the insurance ombudsman:
The experience of the Bureau is that this kind of insurance generates enough problems as it is. These problems will only be compounded if this kind of insurance is presented, incorrectly, as being the equivalent in all material respects to the state benefit it is intended to replace".
§ The committee recommended that the Government should defer the introduction of this until they are convinced that the insurance upon which they intend to rely is in place. That is a sensible recommendation. If the Government are as confident as they say that the insurance will appear, it should not cost them very long.
§ While we are on the subject of the committee, I should like to congratulate Sir Thomas Boyd-Carpenter on his appointment to the chairmanship. He will find, as I remember Sir Peter Barclay telling me he had found, that it is a steep learning curve. I am sure that, like Sir Peter, he will climb it successfully, and indeed with distinction. I wish him better luck than his predecessor in getting the attention of the Government for the reports that he produces. I beg to move.
§ Moved, That a Humble Address be presented to Her Majesty praying that the regulations be annulled.—(Earl Russell.)
§ Lord Graham of Edmonton
My Lords, I rise very briefly and unexpectedly. I did not intend to make a contribution, but, in view of the kind words of the noble Earl, Lord Russell, in the absence of my noble friend Lady Hollis, I should like to say that I appreciated his remarks. As the House well knows, the case that was made so well by the noble Earl would have been made equally well by my noble friend. It is sufficient to say that in another place my parliamentary colleague, Keith Bradley, twice sought to do precisely what this parliamentary initiative seeks to do, but to no avail. I am grateful for the remarks of the noble Earl, Lord Russell. He covered all the points. We on these Benches fully support everything that he said. That is all that I intend to say this evening.
§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, I did think, as the noble Earl, Lord Russell, said, that I was about to get away with a free evening this evening. However, I am happy to respond to the points that the noble Earl made on this issue and, so to speak, pick up the baton. I hope that it does not encourage the noble Earl too much when I say that I was almost beginning to get withdrawal symptoms over the past three months without having to fence with him across the Dispatch Box.
813 I should like to start by putting these measures in context. It has often been said that these measures for income support mortgage interest will add to the burdens of home owners—as if the current system provides a panacea for home owners in difficulty. Indeed, to a certain extent in part of his argument the noble Earl seemed to move in that direction.
This is simply not the case. I make no apology for repeating a statistic that will be very familiar and well worn to those noble Lords who have followed this debate. The vast majority of home owners—70 per cent. in fact—would receive no help from income support if they found themselves unable to work tomorrow. Indeed, 150,000 unemployed home owners currently do not qualify for income support.
As to the noble Earl's remarks in regard to my right honourable friend the Prime Minister and his desire to see more and more people do what they all want to do—namely, own their own homes—the noble Earl's "either/or" trap was, as I discovered, a clever one—into which I suggest neither I nor my right honourable friend the Prime Minister has fallen. It is not a matter of "either/or". As I say, 70 per cent. of home owners would not receive income support; and 150,000 home owners currently do not qualify. They do not qualify for a number of reasons. Help is not available to those with a working partner, and 62 per cent. of mortgages are based on two or more incomes. It is not available to those with modest savings or redundancy payments, and it is not available to those with a modest income.
So, income support mortgage interest is a very uneven safety net, contrary to the impression given by the noble Earl—and, to be fair to the noble Earl, the impression given by many people who campaigned against this change of policy since we announced it. Therefore, despite failing to help so many people it is a very expensive arrangement, with the burden on the taxpayer rising from £31 million in 1979 to around £1 billion today.
The main change that we intend to make is that for new borrowers—namely, those who take on new housing commitments after 1st October 1995—the waiting period will be nine months (perhaps more legalistically expressed, 39 weeks) after which the full eligible housing costs will be paid. For existing borrowers—those who took on their housing commitments prior to 2nd October 1995—the waiting period will be two months (eight weeks) followed by a further period of four months (18 weeks) when 50 per cent. of the mortgage will be paid. This puts existing borrowers on a par with those on private mortgage insurance which usually has a two or three-month waiting period.
Once housing costs become payable they will be paid at a standard rate which is set as close as possible to the average building society rate. I know that the noble Earl did not mention this aspect, but we hope that by the use of the standard rate many of the difficulties and bureaucracies, and indeed errors that are made, in the current system will be ironed out. Existing claimants and pensioners have been protected. During the consultation on these measures we had extensive 814 discussions with all those concerned and we considered carefully the report of the Social Security Advisory Committee.
Essentially, we believe that lenders and borrowers should take back responsibility for the first few weeks of difficulty. Before we came forward with these proposals many borrowers were already taking out insurance. The Association of British Insurers says that one in three new borrowers were taking out insurance—that is, before this proposal even came across the horizon—and the Abbey National confirmed this—40 per cent. of its new borrowers were taking out insurance. That rather knocks on the head the argument that the noble Earl put forward on anecdotal evidence; namely, that if you ask for insurance, the company immediately thinks that you must need it, and therefore it will not give it to you. Quite clearly, on the evidence that I have presented, very many people were already taking out policies, and successfully, before the proposals we made came over the horizon.
However, following discussions with lenders and insurers a number of important easements have been introduced. The noble Earl mentioned some. I hope he will accept that we recognise that at present there are some groups whom insurers cannot cover. They are in particular: carers; those with pre-existing medical conditions or HIV related illnesses; remand prisoners; and deserted partners who have care of children. New borrowers in these groups will be treated as existing borrowers. We have also clarified the definition of new borrowing to avoid any perverse effects. We have introduced a 26-week linking period where re-qualification periods for insurance may have left borrowers uncovered. We have introduced special rules to "start the clock" on the restricted period for those who are not entitled to income support because of excess income or capital. So they will not be left having to pay for some time before the clock starts to tick—when, for example, they first sign on as unemployed.
Once housing costs become payable by the Department of Social Security Benefits Agency, they will be paid direct to lenders participating in the mortgage direct scheme. That will help control arrears by ensuring that benefit paid for housing costs is used for that purpose.
The measures we set out in the regulations provide the right balance between benefit and insurance provision and ensure that the two mesh together to provide more comprehensive cover for borrowers. Importantly, the introduction of those measures has encouraged all borrowers and their lenders to think about how they might cope when times get hard. Your Lordships may recall the point I made that 70 per cent. of borrowers would not be covered and will see the importance of the additional spread of cover that has come about because we made the decisions we did.
The question of reasonable repairs, which the noble Earl raised with me, is a difficult issue. People take out second mortgages and sometimes a new mortgage to repair, improve or expand their house. Some people do it because they like where they live but want a bit more room and therefore take out another mortgage; other people do it because the house is not properly habitable 815 and they wish to make it habitable. That is a problem for the Government. Clearly it would not be right if one decided to take out a new mortgage in order to give one's wife the kind of kitchen one sees in classy magazines and then turned to the taxpayer and said, "Will you be prepared to pick up the tab for this lovely kitchen?" There is a world of difference between that situation and another situation which the noble Earl is perhaps about to put to me.
§ Earl Russell
My Lords, I entirely accept what the Minister says. My point concerned the method of drafting legislation. It owed its ideological origins to the noble Lord, Lord Renton.
§ Lord Mackay of Ardbrecknish
My Lords, I appreciate the point the noble Lord is making as to how one drafts legislation in order to tighten up on these issues and not allow the example I was making through the system. As is often the trouble with a general provision, when it said, "anything else reasonable", the blunt fact is that that was being interpreted too widely in the old scheme and we had to think of ways, by giving examples, to list the kinds of facility which would fall to be considered for help and, if they are not listed, the kinds of facility which would not. We tried to list the facilities which may be required to make a house habitable; to meet the needs of the disabled and, for example, to cover the provision of separate sleeping arrangements for children of different sexes aged 10 or over. We hoped that by listing the examples the position would he made clear to everybody, including the officials of the Benefit Agency who must administer the policy.
Perhaps I can turn to the points relating to insurance. The measures we have taken are founded on the belief that the insurance industry is able to rise to the challenge of providing effective, quality products for those borrowers who want them and that lenders want to ensure that all their borrowers are in a position to cope if they are unable to work. Lenders and insurers have already responded positively to those measures. A whole range of new products are emerging, many at substantially reduced rates.
Direct sale products are emerging, cutting out the middle man and cutting costs—one is even being offered by the Daily Mirror. Pick and mix products have been developed offering separate cover for redundancy, accident and sickness. The Skipton, Market Harborough and Hinkley and Rugby building societies are all offering the redundancy element free with top-up insurance as low as £2 per £100. Other lenders are cutting the cost of their comprehensive cover; the Woolwich now offers cover from £3.50 per £100. Lenders are encouraging take-up by existing borrowers to whom it was previously unavailable.
To return to the point I made, because of what we are doing the proposition that people should be insured and the availability of reasonably priced cover will help those people who would never be helped by the income support system if they became unemployed.
Other innovative products are emerging—one from the Halifax combining help to borrowers both in and out of work. The industry as a whole has been acting to 816 ensure that the quality of insurance improves. We have worked with the ABI to help it produce its statement of best practice for mortgage protection policies. That is important as it addresses many of the issues of concern about the interface between benefit and insurance, including the treatment of groups such as those mentioned by the noble Earl, the self-employed and contract workers. We will continue to work closely with insurers and lenders now that the changes have been introduced to ensure that the interaction between state and private provision works to the benefit of all concerned.
The noble Earl made some points in relation to home ownership. Home ownership has rarely been as affordable as it is today. The taxpayer still funds MIRAS to the tune of £2.8 billion a year and the average borrower is still £140 better off than in 1990 due to the fall in interest rates. Unemployment is falling steadily and the figures today provide further encouragement. People are becoming used to the idea that we live with continual low inflation; many people had forgotten that low inflation was possible.
The measures we have introduced will lead to the development of better protection for all home owners and will provide confidence to the people who need it. Many critics claim that they will result in an increase in arrears and repossessions. I do not accept that they will. Research has shown that 70 per cent. of those repossessed were not in receipt of income support. The reasons why people end up being repossessed are complex, but around two-thirds of those who had their homes compulsorily repossessed had more than one set of arrears. Those figures were supported in comments by a representative of the Woolwich Building Society at a recent Council of Mortgage Lenders seminar. It was said that only 19 per cent. of the societies' repossessions in July were due to unemployment or business failure, but a staggering 52 per cent. were due to financial mismanagement. With multiple arrears and in the majority of cases no recourse to state benefit, it is perhaps not surprising that some borrowers end up losing their homes. Better protection for all home owners through private provision can only improve that situation.
I wonder about the alternatives. Is the status quo which leaves the majority of home owners without help perfectly acceptable to everyone? I remind your Lordships again of the statistics on repossession which prove that it was not a viable option to stay exactly where we were. Seventy per cent. of those repossessed were not in receipt of income support and the help available. There is a proposal that there should be a mortgage benefit system which would be available to all if people fell on hard times. But the cost of that has never been properly outlined. Any work that we have done on those costs shows them to be considerably in excess of the £1 billion we spend already; they range between £3 billion and £6 billion, depending on how one defines it.
My final point on income support mortgage interest is an important one and one which is all too often forgotten. While we believe it is right that all home owners should make some provision for short periods 817 when they are unable to meet their mortgage commitments—all the evidence indicates that they will obtain that cover—the Government are not withdrawing from the provision of income support mortgage interest. We remain the insurer of last resort for those in long-term need. But by introducing these measures we have stimulated the development of a comprehensive mortgage protection insurance market, ensuring a better future for all home owners. All borrowers will benefit from the new arrangements, in particular the majority who were never covered by income support mortgage interest. Interest in insuring has increased and, as I predicted at this Dispatch Box earlier in the year, the costs of insuring have decreased dramatically. I commend the regulations to the House.
§ Earl Russell
My Lords, I thank the Minister for that reply. I did not want to appear ungenerous by not mentioning the various concessions which have been made in these regulations. I welcome them and I would not wish to imply otherwise. The Minister said that 43 per cent. of new borrowers are taking out mortgage insurance. That was, I think, based on a limited sample, but I will not argue about the sum. What I will say, if I may take a line from the late Lord Home of the Hirsel, whom I shall miss, is that his whisky bottle is not even half full; it is well under half full; it is 57 per cent. empty. That is a significant figure.
§ Lord Mackay of Ardbrecknish
My Lords, I was making the point that the society which mentioned the 40 per cent. was saying that that was before the current arrangements were even on the horizon. So it is not fair to say that the other 60 per cent. or 57 per cent.—I am not sure where the noble Earl got the figure of 43 per cent. from—will now be left adrift. I am talking about new borrowers. I am suggesting that the new borrowers of a year ago were taking it out at that rate. Perhaps I may suggest that they will be taking it out at a much greater rate from 1st October.
§ Earl Russell
My Lords, I take the Minister's point and I thank him for it. However, it means that the rate we shall reach at the end remains a matter of conjecture. 818 We are both betting. At least one of us, and possibly both of us, will be wrong. We shall have to find out which.
I take the noble Lord's point about the uneven nature of the safety net as it was before. He left out one of the main reasons for that—there was no help in the first 16 weeks. But to say that a net has holes in it is not a sufficient excuse for throwing it away. Anyone who watches fishermen during the summer around the fishing ports will know that that is not their normal reasoning. If your net has holes in it, you mend it.
I noticed that the Minister did not engage with my argument that his proposals will not introduce a real net saving. He repeated, as I thought he would, his confidence in insurance. I shall offer him one more word of warning. Do not try to turn a profit-making business into a social service. It really does not work. It is not the nature of the animal. It is not what it is meant to do.
But in the end I think that we must both stand or fall by the question of who is right on the argument of saving, which brings me to my final question. Are we to assume that this, like many, but not all, other measures introduced by the Department of Social Security, will be monitored? It will be a very difficult job to decide exactly how to monitor it because the effect of repossession on employment will take quite some skill to calculate. I hope that the department will commission academic research on the effect of these proposals on the department's budget and that in one year's, two years' or three years' time we shall meet again across the Chamber and we shall be able to find out who is right. In the meantime, I beg leave to withdraw my Motion.
§ Motion, by leave, withdrawn.