Wednesday 14 January 2009
[Mr. Mike Weir in the Chair]
Social Housing (Central London)
Motion made, and Question proposed, That the sitting be now adjourned.—(Mr. Ian Austin.)
Talk of the economic downturn has gone hand in hand with some very gloomy predictions about the health of the housing market. Each week seems to bring forth ever more catastrophic forecasts about the likely fall in house prices, leaving the spectre of negative equity to torment an increasing number of home owners. However, in the midst of the panic about private housing, a less reported story has also emerged: social housing projects have stalled dramatically. It is quite conceivable that, this year, there will be a collapse in the completion of affordable housing developments and no programme in the 2010-11 tax year, unless credit begins to flow once more.
Grant rates for new development have decreased to about 40 per cent., leaving housing associations, which are the main providers of affordable housing in the capital, with a choice either to build social housing at a financial loss or to cross-subsidise through sales of shared ownership and private borrowing. In these tumultuous economic times, associations’ ability to take the latter option has, as for many other private businesses, been brought to a standstill. The Government’s target to build 3 million new homes by 2020 looks like it will never be fulfilled.
Notwithstanding the difficult economic climate, the housing associations to which I have spoken believe that there is a path forward. I want to address that in my comments today. I appreciate that these are very difficult problems, and I hope that in the Front-Bench contributions from the hon. Member for Brent, East (Sarah Teather), my hon. Friend the Member for Welwyn Hatfield (Grant Shapps) and the Minister will be a sense of trying to work together on this matter. It is not, and should not be, an issue for an over-partisan approach. Inevitably, there will be differences in the approaches that each political party takes, but I think that we all appreciate that some major problems are affecting all our constituents, especially given the reliance on social housing, and that there are particular pinch points—dare I say it?—within London and its outskirts. I consider the number of central London MPs; I am well aware, having contested a seat in Enfield, North well over a decade ago, that the same issues apply to constituencies such as my hon. Friend’s, which lies just the other side of the M25. I recall that such problems were at the forefront.
Planned Government investment could be brought forward in a new national housing programme, and a fresh financial model could encourage genuinely mixed communities in our cities, thus opening a flexible social housing option to a far greater number of people on a wider range of incomes. However, if the Government fail to take steps quickly enough, associations believe that the ambitious social housing targets will remain woefully unachievable.
Of the many misconceptions about my constituency—Cities of London and Westminster—the most common must surely be that I represent only a lucky club of people rich enough to live in central London: the mansion dwellers of Belgravia and Mayfair, the City’s movers and shakers and wealthy international folk who snap up river and park-side penthouses at ease. In reality, constituency-wide, there are significant pockets of social housing, and the area has important historical connections to some of this nation’s oldest housing associations. Some estates in my patch have even attracted plaudits for their design, such as the Pimlico’s post-war Churchill Gardens, which has been praised as an imaginative example of high-density, inner-city housing—at least it was high-density when it was built in the 1950s, although it does not seem so now. It now seems to be a very well-planned estate. Other estates provide wonderful examples of Victorian philanthropic architecture, such as the Peabody estate in Brown Hart Gardens in Mayfair and the Abbey Orchard estate off Victoria street, which is almost a stone’s throw from this debating chamber. Such developments have helped to transform one of Westminster’s and inner London’s worst 19th century slums and stand as a testament to the generosity of renowned philanthropist George Peabody and the eye of the English architect, Henry Darbishire. Sadly, such well-built, attractive estates have been eclipsed in the nation’s perception of social housing by so much undistinguished post-war development.
Along with other London Members’ constituencies, Cities of London and Westminster has witnessed a colossal boom in the housing market in the past decade. Property prices in my constituency rose by some 220 per cent. in the decade to 2007, while the average wage rose by only 44 per cent. In the meantime, the number of people on social housing waiting lists continues to increase. Last year, 333,857 households were on social housing waiting lists in the capital—a 47 per cent. increase over the past five years alone.
With the neediest households receiving priority for housing, my constituency is now exclusively home to the super-rich and the very poor. That is not a healthy state of affairs, although it has probably applied in places such as central London since time immemorial—it has always been home to the very wealthiest, as well as to much poverty. One can read books going back many centuries to see that. However, that phenomenon increasingly applies almost throughout the capital. People face great disadvantages. I am sure that all Members have constituents earning multiples of the average national wage who cannot get on to the property ladder and who find themselves lost, because they are regarded as being far too wealthy to qualify for social housing. That probably applies to suburban areas such as Eltham as well—I see the hon. Member for Eltham (Clive Efford) in his place, although silently so, I expect. We need to draw back from such polarisation. In the immediate term, one can see that an economic downturn might help at the margins of that polarisation, but we need a much more systematic and fundamental approach.
With the enormous pressure on stock, housing problems, along with immigration difficulties, continue to account for the largest element of casework that I receive in my daily postbag. I expect that the same could be said of all other inner-London Members. Those two issues are likely to go hand in hand, as many people migrating to Britain arrive in, or make their way to, the centre of London, which can place enormous pressure on emergency and temporary housing. Given the disparity between stock and demand, I am frequently sent letters from residents who find it difficult to secure a permanent council or housing association property or to get awarded a transfer to a more suitable home. In the meantime, those constituents often find themselves waiting in desperately overcrowded conditions or in properties quite ill-suited to their basic needs.
Last November, I met representatives of the G15, which is the group representing London’s 15 largest housing associations. They wished to express their deep concern about the impact of the current economic crisis on London’s social housing stock. The G15 associations house about one in 10 Londoners—approximately 700,000 people—and manage some 410,000 homes. Crucially, they are also relied upon to develop most of London’s new affordable housing each year, in view of the targets for the next decade or so. However, they told me that it is becoming increasingly harder to continue with affordable housing projects.
As I mentioned earlier, grant rates for new developments have decreased to about 40 per cent., making it impossible to build social housing at anything but a financial loss, unless an association can cross-subsidise. However, cross-subsidy is no longer an option, because it can be generated only through sales of shared-ownership properties and private borrowing—routes that have been cut off owing to the collapse of the property and credit markets.
Furthermore, a significant proportion of new social housing in London is produced by private developers through planning gain agreements. Again, however, as private development dries up, commensurately less planning gain for the social sector will follow. As I am sure that the Minister is aware, the result is likely to be longer delays for the thousands lingering on social housing waiting lists and an increase in the 750,000 Londoners living in overcrowded conditions.
I have disagreed with nearly none of what the hon. Gentleman has said. However, does he accept that, even before the impact of the credit crunch was felt, in some local authorities, including his and my borough of Westminster, the proportion of affordable homes from planning gain was only 11 per cent, over the past two years? Only one in 10 of all homes built in the borough before the economic crunch was affordable, and that cannot be blamed on the economic situation.
The hon. Lady makes a fair point. In the eight years that I have been in the House, we have had a number of battles—friendly, I hope—on issues related to housing. As she is aware, one of my concerns is that the targets that were set by the erstwhile Mayor of London were so unrealistic that too many developers in places such as Westminster were happy to sit on their hands and watch the value of their stock of land going up and up, rather than going down the path of taking on social housing.
I accept the point that the hon. Lady makes. I am not suggesting that the short-term credit crunch is the only issue, but given that it will impact on the housing market—particularly the social housing market—for some years to come, it gives us an opportunity to take stock and collectively to work out the best pathway forward.
Faced with the situation in which lenders will not lend, buyers will not buy and builders cannot build, the G15 contend that we need to rethink our national housing policy. The previous housing crisis was dealt with by encouraging the emergence of a third sector of independent housing associations and a third way that combined the best of public and private to get the market moving. Similarly, the G15 now want to see—as I do—a fourth way in which planned Government investment is brought forward to allow for a new national housing programme led by the third sector, to which I have referred. Such ideas could turn the financial crisis into something of an opportunity.
I should like the sales-based cross-subsidy to be replaced with a new type of subsidy that will fill the gap that is left. That will require support from the Government through increased grant funding and through equity investment given by the Homes and Communities Agency. In addition, more accessible and less expensive land will have to be made available.
I should also like a re-examination of the nature of Government investment that separates future investment into two elements: grant subsidy, which is used to develop and deliver affordable rents, and equity, which is needed to fund the product. Although equity cannot be returned, it can be reviewed and adapted to suit changing individual circumstances.
In addition, I support the introduction of a new housing model that discourages home ownership for those who cannot afford it, but leaves open an option—not an obligation—to buy in the future. By that I mean getting on a stepladder to buy a bit of shared equity. Currently, too many models regard home ownership as the be-all and end-all. In many cases, people do not have suitable lifestyles for home ownership. For example, they may not have a particularly firm employment record. Getting on to the housing ladder may seem an attractive proposition, but it is an unrealistic one for many people. The new model would help to generate very mixed communities, which is a positive way forward in social housing development. It would offer a wide range of rents and refocus on providing homes that are in short supply, such as family accommodation.
As for supply, I should like new partnerships to be established between housing associations, local authorities, house builders and the Homes and Communities Agency. By working together, the inherent economic risk can be reduced, investment increased and a firmer eye kept on long-term sustainability by ensuring that the quality of housing is high. Calls for housing associations to buy unsold private stock should be resisted as far as possible. The majority of such properties are not suitable for social housing. Only 2 per cent. of new private development homes have been awarded the status of “very good”, or level 3, of the sustainable homes code. Level 3 is the minimum standard that housing associations require to use a property for social rent purposes.
With regard to the sale of shared-ownership stock and the financial health of individual housing associations, a number of housing association chief executives have identified banks’ lending behaviour as a major risk to their business and a significant stumbling block in the completion of property sales.
Although low-cost home-ownership sales have decreased substantially in recent months, demand has risen. Housing associations are receiving more and more inquiries about different kinds of home ownership, but the rate of completion remains minute. Admittedly, in some circumstances, that is because potential buyers are waiting for the market to bottom out. They are making their inquiries and then sitting on their hands for a few months, perhaps for a year, assuming that the asset value will get lower, which is probably a fair assumption to make.
In most cases, housing associations report that transactions fail because of a lack of mortgage finance. Lenders are looking for opportunities to reprice their loan book, which has had a detrimental effect on housing associations as well as on local small businesses, many of which have been in touch with me in recent weeks. Let me provide an example. A housing association that had a group structure with three different organisations decided that it wanted to collapse that governance structure to become a single organisation with residents’ panels. That is perfectly desirable. The association consulted its residents, who mightily approved of the scheme, and such a change would save the association around £300,000 a year. However, its core lender said that if it went ahead with that restructuring, it would regard it as a significant event and be compelled to reprice the entire loan book at a cost of £1.9 million to the housing association. Naturally, in the current climate, the move did not go ahead, and efficiency savings along those lines were not made.
We must encourage Government to put further pressure on lenders, especially those in which they hold a significant stake, to provide affordable finance in this field. I appreciate that this is fast-moving situation, and I do not expect the Minister, even in conversations with his friend the erstwhile Member for Hartlepool, to give us commitments at this juncture. None the less, I hope that he will make the case for social housing, given the amount of money that is going into various loans for small businesses.
Problems with social housing policy extend well beyond supply difficulties. The cost of renting in London remains a significant issue, due to the gap between social and market rents and the inflexibility of the social rent structure. That is a problem about which I am particularly passionate, given the impact of economic polarisation in my own constituency. As I have said, wealth disparity has been a London issue since time immemorial. In the eight years in which I have been in the House, I have watched the extent of demographic change and seen that those on middle-to-low incomes in London—by that, I mean at least double the average national wage—are increasingly being pushed out of the area. All too often, families who have been here for generations and who want to contribute to the local community are in that category and are forced to move away.
As for the limits of the current structure, I shall use the example of the housing arrangements of one of my constituents who passed away last year. She had lived as a secure tenant in her home on the Peabody Wild Street estate since 1986 for a rate of £75.50 a week, which included services. The estate is moments away from Covent Garden piazza, and the market rent for the flat would be around £320 a week. The flat is now being re-let at £116 per week, including services to a tenant with support needs. The difference between the social and market rent is £200 a week, or £10,000 a year. What happens to those who fall between the two extremes—those who do not qualify for social housing, but who cannot realistically afford the cost of market rents in central London? That is the sort of gap that we are looking at—effectively two thirds of the cost. One third applies to someone who qualifies for social housing, and the full rate to individuals who would love to live close to their place of work but who simply cannot get on to the housing ladder.
The current economic climate provides us with a once-in-a-lifetime opportunity to create a much more flexible rental market. I support the provision of a wider range of housing options for people who are too rich to qualify to rent social housing but too poor to buy in the market. Housing associations are often frustrated that the income they receive from renting a property barely covers maintenance costs and that the rental income from a four-bedroom house is only slightly more than that from a two-bedroom flat. The same applies when we look at the differences in rent for a zero-carbon home and for an old, inefficient property. None of this makes sense. I appreciate that it is easy for me to make proposals. We are on the verge of unravelling almost a century of rental arrangements going back to the first world war. There are many inconsistencies in place, and it is difficult to establish a definitive template, but I am trying to put a few things on the record that will form part and parcel of the thinking of this Government and of all parties going forward.
Much better use could be made of rental portfolios, to the immense benefit of people on low and middle incomes, who would like a wider range of renting options, and would view intermediate rent of 80 per cent. or less than the market rent as an important new mechanism to bridge the gap between the social and market rent. Importantly, it could also ensure that we a greater mix in communities. A relaxation in rent policy will increase incentives to build to higher standards and reflect the relative value of a social tenancy. Rent differentiation would also provide an incentive for a couple to downsize when they no longer need to stay in a large property when their children are grown up. That would free up valuable family-sized accommodation to address the acute problems of overcrowding.
I frequently receive letters from constituents telling me of the desperate pressure imposed on family life by overcrowding. I received a letter this week from the City of London citizens advice bureau that brought to my attention the plight of a family of eight who live in the square mile in a three-bedroom flat with one small bathroom. They have been trying to get a transfer either to a larger property or to one with better bathroom facilities, but the lack of social housing in London has resulted in their having to remain in that flat. That is one example, but London Members will receive letters like that day in, day out, all year round.
I appreciate that this is an unintended consequence, but I fear that the Government’s target of reducing temporary accommodation by 50 per cent. is hampering efforts to reduce overcrowding, because local authorities are forced to transfer households who live in suitable private-sector accommodation to any new flat that they gain. That means that when councils ask developers to build new accommodation under a section 106 agreement, they build for single occupancy to reflect the type of households in temporary accommodation, and ignore the need for family accommodation, which is in many ways the more pressing need. As I said, that has an important impact on the social glue of a community, because we want to ensure that people can live in central London for the long term, and we do not want them to think that living here is something they do when they are single, before moving away.
One of my local authorities, the much-loved Westminster city council, fears that overcrowding will increase as the economic downturn deepens. The council has long recognised that overcrowding is one of the biggest housing challenges it faces and is launching a campaign to tackle the issue. It intends to say which of the Government’s targets are particularly contradictory and unhelpful in preventing local authorities from dealing with overcrowding, and it will highlight the need for reform on three key issues: more efficient use of supply, managing demand, and tenure reform.
Westminster council would like the Government to allow local authorities greater flexibility, to give them the power to transfer a household to a more suitable home when housing needs change, and to allow them to discharge the homelessness duty when a client has been assisted into suitable private accommodation, which would quickly help to reduce the overbearing waiting lists. The council contends that Government targets to reduce the use of bed and breakfast and temporary accommodation have resulted in fewer transfer opportunities for existing tenants, because new people on the register are given preference for available properties. It also intends to recommend that an applicant’s connection to the local area and community is given greater weight when deciding a person’s priority for housing—as the Minister will be aware, I feel particularly strongly about that.
How does the hon. Gentleman define local connections when it comes to the allocation of properties? I ask that with some feeling, because the proposal could end up being discriminatory against people who are in a poor housing situation. They could be in a worse position because they could be blocked out of the transfer system.
Clearly, I am not going to define that off the top of my head. As the hon. Gentleman knows, we have waves of migration, and some people have families who have lived here for several generations. Let us be honest: if we were talking about local connections in the context of housing in London 30 or 40 years ago, the unspoken issue would have been race. To my mind—this is the reality—local connection now means every bit as much to the large numbers of Bangladeshi or Chinese communities as to anyone else, and I would assume that the same applies to a place such as Islington, North. Promoting local connections means as much to people whose families have lived here for a couple of generations and who want to stay, who have work and social networks, including friends, nearby.
Arriving at a firm definition is quite difficult—it is an inherent difficulty. By the same token, too much discretion in the hands of local authorities would present difficulties. We all know that there is a sensible medium ground but, unfortunately, the strict and mandatory rules of central Government pre-1997—this is not a narrow party-political point—make things more difficult, as it is frustrating for councils, whether a Labour or Liberal-run Islington council, or Conservative-run Westminster council, to try to build a stable population in which people are willing to play an ongoing part in the community.
I appreciate that other hon. Members wish to speak, so I shall conclude. I recognise that the Government alone do not hold sway over the provision of social housing in Westminster or other local authority areas. With a budget of more than £5 billion, the Homes and Communities Agency, which is chaired by the Mayor of London, has an important role to play in addressing the capital’s housing needs. However, in his recently announced housing strategy, the Mayor has already shown a commitment to many of the aims that I have addressed in this speech, such as encouraging mixed communities, promoting a range of tenures, expanding the intermediate rental sector, boosting the number of family-sized homes, and nurturing partnerships between local authorities, housing associations and developers. It is now crucial that the Government show their true commitment—I am sure that they have one—to the provision of social housing in our capital, not simply by restating targets, but by giving serious and immediate thought to the proposals that I have set out.
Unless a fresh housing model is introduced swiftly to recognise the need for a new subsidy, the Government’s stated aims on social housing will, sadly, remain unachievable. Although the crisis facing the social housing sector is daunting, it should be seen as an opportunity to address some of the long-term problems that have plagued housing provision in the capital, such as the polarisation of communities, overcrowding, and the unaffordability of property. By working with housing associations rather than putting a break on their aspirations, the Government can use social housing to steer London’s home owners and tenants out of the darkness.
I shall be brief because we want everybody who wishes to contribute to have time to do so. I congratulate the hon. Member for Cities of London and Westminster (Mr. Field) on his contribution and appreciate his obvious concern for his constituents’ needs.
Social housing is obviously important, but I wish we could find some other term, because “social housing” has connotations of unmunificent charity, not of people’s right to decent housing. I do not know what that alternative term is, but I wish we could find one. I am sure that the Department for Communities and Local Government will find one in time—it always does.
I represent Islington, North, and the hon. Gentleman talked about the issues that affect his constituency, which are similar throughout central London. The growing gap between the wealthy and the poor in central London is quite appalling and, actually, economically damaging to London in the longer term. In Islington, North, even now, if a council house or housing association property becomes vacant through either death or somebody moving away from the area, it is nearly always let to a larger, poorer family, but if a private property becomes available for sale—a street property—it is nearly always sold to somebody much wealthier than the previous owners. That pattern is repeated across London, so the gap between the richest and the poorest in our capital city is increasing quickly. That is very much my experience.
There is enormous pressure on allocation and resources in my borough, just like all the others in London, and I find it sad that we end up having an endless debate about the science of allocation policy for housing for people in desperate housing need. We all have advice surgeries, so we probably all have far too much knowledge of the workings of the points allocation system. We all spend a great deal of time writing letters to local authorities to try to get somebody more points or greater allocation because of medical needs, or to deal with problems such as overcrowding, children of different sexes sharing bedrooms and so on. Those problems are important and it is part of our job to deal with them, but the issue, fundamentally, is the lack of supply of housing for people in desperate housing need. That must be addressed.
I was looking yesterday at the statistics for housing developments in my borough over the past 15 years. The number of units built each year for rent by housing associations varied between very few and a few hundred. The number built by the local authority for most years was zero, but happily it is now building a small number of homes.
The vast majority of development has been small infill development by private sector developers, typically creating between half a dozen and a dozen private flats, some of which are sold on the buy-to-rent market. My local authority chose to set the threshold for what it terms social housing too high, so most of those developments contained no social rented element whatever and were nearly all for sale. That threshold has been reduced a little, so the number of places available for rent by people on the housing list has gone up a little. However, we have to be tough about this: there are developments across London that will probably soon by mothballed or stopped, so this is a golden opportunity for local authorities to take them over and use them to house people in desperate need.
I take the hon. Gentleman’s point about the purchasing of private properties by housing associations, but sadly many of them are simply inadequate and built to too low a standard. That alone is a condemnation of our system: the private sector building is of such low quality that local authorities and housing associations could not buy them even if they wanted to. I look to the Minister for much tougher building regulations on the private sector in addition to the welcome improvements in the public sector.
I also want briefly to mention the private rented sector. My constituency has an owner occupation rate of only about 30 per cent., which is well below the national average, and indeed well below the London average. That level is declining fast, in part because people have difficulty selling in the current climate and prefer to rent and hang on to the capital value of the property. The local authority stock was declining fast due to right to buy, although that has now declined a great deal, so the stock is more or less static.
The only stock that is fundamentally increasing is that of housing associations, but it is in the private rented sector that the biggest problems emerge in that the local authority has limited resources and huge demands are placed upon it: there are roughly 13,000 families on either the waiting list or the transfer list in my borough council area, and I suspect that there are similar figures across central London.
Therefore, the local authority can allocate housing only by guiding people into the private sector to rent a property, and because most of those who apply for housing are on benefits, housing benefit pays the rent. That costs the public sector a great deal of money, but it comes not from the local authority, but from central Government, who are paying astronomical rents of £200 or £300 a week for wholly inadequate properties.
That issue has been raised many times by successive Ministers and with the Department for Work and Pensions, and I was pleased that the Secretary of State agreed to meet a delegation of London MPs to discuss housing benefit costs in the private sector, because it is an enormous waste of money. We are paying a great deal of public money to keep people living in misery.
In boroughs such as the hon. Gentleman’s, as is probably the case for us all, that is also unfair because rich parts of the borough with high prices can contribute to the average taken across the borough. The housing benefit that someone can get might not reach anywhere near the cost of the place available because it is based on the average for an area with low-cost and high-cost housing, so it is even worse for many people.
That is a fair point, and a real issue. Due to how the housing benefit system operates, we can end up with a kind of social cleansing of certain areas because housing benefit costs often do not meet the rent costs. We all have cases of someone coming to see us because their housing benefit covers perhaps 80 per cent. of their private sector rent and they have to pay the rest out of income support, so they end up on an incredibly low take-home income. That has to be looked at.
Clearly, the housing crisis in London can and must be resolved by rapid investment in new build and much tougher planning regulations on the level of building within private sector developments. The hon. Member for Cities of London and Westminster pointed out that the number of rented units available through housing associations is declining because most of their developments are predicated by sales policy, or indeed by commercial lets policy.
We must ask ourselves what housing associations are for. They were established to provide housing for people in housing need, roughly equivalent to the local authority. Indeed, the allocations for affordable rented property come entirely from the local housing authority anyway, but since they now have much less than half their capital costs provided by central Government through the homes agency, or indeed any other source, they have to borrow the rest, so they are encouraged to build for sale and to go to some extent into commercial renting. We must then ask ourselves why on earth we have housing associations if they are not providing the kind of social rented housing that we need.
We must look carefully at what some housing associations are doing and whether they are behaving more like property companies than agencies for renting to people in desperate housing need. I hope that the Minister can give us some comfort in that regard.
I also want to mention local authority building. For a long time, local authorities were the main source of provision of new housing for people in housing need. Between the 1950s and 1980s, the level of council house building was enormous, and I think that 100,000 houses were completed in 1979. The number declined rapidly after that to almost zero, although it has now increased a little.
Local authority housing has provided good-quality homes for a large number of people, and surely that ought to be the solution to the current crisis. Investment in council housing is a means of regeneration, conquering unemployment and keeping the building industry going. Above all, it is a way to provide for people living in appalling overcrowded conditions and to help to prevent underachievement in school, high levels of crime and all the other problems that result from bad housing and overcrowding. Those can be improved by this strategy.
I hope that the Minister can give us some comfort that it will be possible for the money allocated for housing development during the current crisis and the money given to the homes agency to be used for that purpose.
My final remark returns to the point I started with, which was about allocations policy. There is obviously a huge science around all that, but frankly, I just wish that we could provide housing as of right so that we would not have to have these arcane debates.
I am concerned that the number of households in London that are populated by single people is increasing. Indeed, that is predicted to be the fastest-growing area of social living in London over the next 20 years. In most housing association and local authority allocations, it is hard to get housing for single people. They have to be either vulnerable or elderly or suffering from some serious medical condition.
Increasingly in London, many single people—quite often people in work—must sofa-hop from one friend’s home to another, sometimes ending up sleeping in cars and all the rest of it, because they cannot afford private rent at the rate of £200 or £300 a week and cannot be allocated a council or housing association property because they do not figure as a priority. I hope that we can become slightly more balanced and ensure that their needs are met as well as others’.
We have it in our hands to do something about this crisis. If we do not, the result will be sheer misery for those living in grossly overcrowded accommodation, and a more divided social structure in central London, which is in nobody’s interests.
It is a pleasure to follow the hon. Members for Cities of London and Westminster (Mr. Field) and for Islington, North (Jeremy Corbyn), who speak frequently and knowledgeably on London issues. The hon. Member for Cities of London and Westminster was right to point out that housing is one of the most intractable problems that we face as Members of Parliament, whether we represent central or outer London.
The hon. Member for Islington, North asked what the purpose of housing associations was. At the point when a lot of responsibility was shifted from local authorities to housing associations, one of their purposes was to be more representative, accountable and accessible than councils. However, in my experience—it may be his as well—local authorities nowadays are all too often more responsive, in many ways, than housing associations. In terms of democratic accountability, from the housing perspective, it is much easier to put pressure on someone in the local authority than in a housing association. I am afraid that the original intention has been lost in recent years.
I had expected to make only an intervention in this debate. Indeed, before the hon. Member for Cities of London and Westminster turned up a minute or two before the debate, I thought that I would end up making the only Back-Bench contribution, so my remarks this morning are perhaps an extended intervention, containing a couple of key questions for the Minister.
Clearly, this is a critical time for the economy. It is already having a significant knock-on effect on home owners, and it will have a significant effect on people in social housing as well. Job losses will undoubtedly lead to home repossessions and people falling behind with their rent. How many homes does the Minister expect to be repossessed in London this year, and what impact does he expect that to have on the demand for social housing?
The hon. Member for Cities of London and Westminster rightly highlighted the impact of the situation on funding, particularly for projects where the local authority or a housing association is working in partnership to provide a mixture of affordable housing and housing for sale. Is it still the Government’s preference to have mixed-tenure development? In the current economic circumstances, that will be more and more challenging.
From a London perspective, the Mayor has a significant responsibility for housing. It is regrettable that the 50 per cent. target for affordable housing to which he signed up during the mayoral campaign has been jettisoned. I welcome his target of building 50,000 new homes, as well as the fact that he places great emphasis on the need for boroughs to be at the centre of what is happening in housing. They have the tough job of balancing strong demand all over London for affordable housing with equally strong demand in many parts of London, particularly outer London, for the preservation of back gardens. Back gardens preserve a green lung and are in many cases the only habitat for wildlife in suburbia. They are often the reason why people choose to live in suburban London; people feel that gardens are an important part of the character of those areas.
I hope that the Minister, as well as the Mayor, will adopt the proposal advocated by Mike Tuffrey, a member of the London assembly, to provide real-time information about the number of homes being built. The Minister might want to put a diode display outside the front of his Ministry to show how many completions there have been each week. We could then see whether the Mayor’s targets and the Government’s were being met, and if they clearly were not, suitable action could be taken to address the situation.
In a London and national context, in relation to empty homes, it would be remiss of me not to mention something that the Liberal Democrats have banged on about endlessly: equalisation. VAT on new build should be the same as on renovations, to bring back into use the empty homes scattered across London, typically above shops on our high streets.
My local authority is still en route to becoming a two-star arm’s length management organisation. Will the Minister reassure us that, notwithstanding the current economic circumstances, the money will be available for authorities that achieve two-star status? My authority has significant housing issues. The housing stock is not of a standard that I feel is appropriate. One of the explanations for that involves my final point.
We have been running a local campaign called “A Fair Deal for Sutton’s Tenants”, which brought a couple of busloads of tenants up to London to deliver a petition to No. 10 last year. Sutton’s tenants, who suffer from housing that is not of an appropriate standard in some cases, make an average contribution of £1,473 each from their rent to the central pot. In effect, £10 million is being taken out of Sutton to subsidise and improve social housing in other parts of the country that we, not having two-star status in our borough, need to invest in improving our own property.
The Government have the issue under review, but I hope that the review will be tough. Local authorities of all political parties will be winners or losers if the Government address the situation. However, this is a fundamental issue of fairness. When tenants in a borough pay their rent, they expect that rent to be spent locally on doing up their own properties. They do not expect £10 million a year to be exported to do up council properties in other parts of the country.
I hope that the Minister will respond to those two or three critical questions, and I hope that the Government, working with the Mayor, will address the provision of social housing in central and outer London. It remains the single biggest intractable issue that we, as Members of Parliament representing London constituencies, must address daily.
I congratulate the hon. Member for Cities of London and Westminster (Mr. Field) on securing this debate. I enjoyed his contribution and agreed with almost all his analysis and some of his recommendations. I was a bit worried that I would agree with everything; he started to say some nice things about Westminster city council and its long-term concerns about people in overcrowded housing, and I just managed to get to the point of disagreement in the end.
The hon. Gentleman was absolutely right in much of what he said and in some of his recommendations. It is refreshing to hear a Conservative Member talk about the positive side of rented accommodation and the need for it, as one rarely hears that from that party. However, I was left with the impression that what he had really done was to give a justification of the previous Mayor’s housing policies, rather than the current Mayor’s. I cannot understand from what he said what could possibly have been wrong with a target of 35 per cent. social rented housing, 15 per cent. intermediate housing and 50 per cent. market housing. That seems exactly the right discipline for London at the moment.
The emphasis on social rented housing is based on the fact that, notwithstanding what is said about intermediate housing, it is clearly the area of most pressing need. We know that the past Mayor hopes to come back. If he is looking for a housing adviser, perhaps that job will be available, but the reality on the ground is very different. Housing policy in London is different, because it is now largely in the hands of mainly Conservative boroughs and a Conservative Mayor. I do not want to be a party pooper, but I want to reflect that reality for a moment.
The first point is that the abolition of targets is a very cynical move to ensure that less social rented housing is built in the capital. That process operates to the extent that one of my local authorities—Hammersmith and Fulham—judicially reviewed the Government to reduce the target that was set. Then, having won that judicial review as recently as last week, the authority was crowing over the fact that it now has much lower targets on social housing. It says, as the Conservative mantra has it, that that is because these targets create artificial boundaries. As I often remind colleagues on these occasions, under a previous Labour administration, it was possible to build 80 per cent. affordable housing, split almost 50:50 between intermediate and social rented housing. I would have thought that that was the paradigm for what the Conservatives say they wish to achieve, so I do not know why they should engage in the business of spending public money to go to court to reduce those levels, because not only are targets for affordable housing going but the definition of affordable housing is substantially changing.
The target for what is called “affordable housing”, as far as my local Conservative council is concerned, is for people with a per annum income between £50,000 and £72,000. Previously the range was £50,000 to £60,000, but under the Mayor’s housing strategy, the range is for people with a per annum income between £50,000 and £72,000. I do not know whether that is what the hon. Member for Cities of London and Westminster had in mind when he was talking about intermediate housing, but that is not what I call intermediate housing. When I talk about intermediate housing, I am talking about people on perhaps £20,000 to £40,000, who are the majority of people in housing need and looking for housing, but who may be able to access a level above social rented housing.
Those people are entirely excluded from my local authority’s plans, but it goes much further than that. There are three pillars of housing policy in Hammersmith, the first of which relates to disposal. The reason why the council is unlikely to reach its targets on temporary accommodation is that, for example, it has just sold off by public auction large, good-quality properties for £1 million to £2 million each that provided more than 60 flats for homeless families in the centre of the borough, with family networks, schools and everything that goes with good-quality temporary accommodation when it is necessary. That sale happened so that those families can be moved, probably out of the borough and certainly into private sector leased accommodation, at a cost to the taxpayer that is three or four times greater than the cost was previously.
As I have already alluded to, the second plank or pillar of policy in Hammersmith is to build no new social rented housing at all in the borough. Again, that is a question of going back, renegotiating with and putting pressure on housing associations not to include any social rented housing at all in new developments.
Most provocatively, the third pillar of policy is to look at the demolition of existing social housing. If all the council’s plans came to fruition, up to a third of all social housing in the borough—up to 5,000 units—would be demolished for redevelopment, either as commercial units or as private housing units. I do not have to explain any further; clearly, far from improving things, that policy will make the housing situation locally far, far worse.
Perhaps the hon. Member for Welwyn Hatfield (Grant Shapps), the Opposition spokesman, may wish to allude to this matter, but what must underlie a policy that is stated as reducing the percentage of social housing in Hammersmith and Fulham is a Conservative policy that was mooted last year; I do not believe that it is yet formally official policy. That policy is to relegate the status of social housing effectively to temporary accommodation, to remove security of tenure. I say that because that can be the only conclusion. It is certainly the stated policy of the Conservative administration of Hammersmith and Fulham council that it believes that social rented housing should be available only for emergency housing or for temporary provision. That idea was something that fed into the Conservative party’s policy review. As I say, that can be the only conclusion of a policy that says that they wish to see a substantial percentage reduction in the availability of social housing over the next few years, when waiting lists and overcrowding are the highest for a generation.
I finish, as I always do on these occasions, with a plea to the Minister: in relation to London housing, only the Government can wave the stick to ensure that, far from being reduced, the amount of affordable social housing is increased, which I believe is Government policy. That applies not only to local authorities, but to housing associations, and on that point I agree with my hon. Friend the Member for Islington, North (Jeremy Corbyn).
Again, it is partly the fault of the Conservatives that public land sites that previously would have been transferred to housing associations at nil value are now being auctioned to the highest bidder. Of course, once the housing association is saddled with more debt and more expense, it can build only a lower percentage of affordable housing. However, many of the culprits in this situation are precisely the chief executives of the G15 group of major housing associations, who, almost as a matter of pride and policy now, see the future in housing for sale, rather than in housing for rent. That is a complete subversion not just of the function for which they were established, but of what, frankly, they are paid and instructed to do. The Government must come to terms with that, because those people are unaccountable, either to their paymasters in Whitehall or to their tenants, who are primarily the people whom they deal with. That is a matter that we must address.
Does the hon. Gentleman share my concern that the Housing and Regeneration Act 2008 specifies that public land cannot easily be sold for anything other than its market value, which sometimes leads to the wrong type of development?
I will let the Minister respond in detail to that point, but it is something of a canard. There is a problem at root there, although the hon. Gentleman always finds a lateral way of avoiding his responsibilities as a housing spokesman to make what I often think are rather petty points. As I say, there is a problem with disposal for best value with all public assets, but there are also ways round that problem. However, I agree with him that we often hear from the Government about plans to dispose of unwanted public assets for the benefit of social housing in particular, yet I do not see much of that happening. That is perhaps another area where the Government can pay more attention.
I am very grateful to the hon. Member for Cities of London and Westminster (Mr. Field) for securing this debate. I will be very brief, because I am sure that the hon. Member for Regent’s Park and Kensington, North (Ms Buck), who is very knowledgeable and helpful in these debates, would like to say a word. I will therefore be really quick, taking two minutes to outline the state of play in Southwark and another two minutes to put questions to the Minister.
Southwark has the largest local authority housing stock in London and probably the largest leasehold stock, given the number of people who have bought property. In my constituency, we have the smallest owner-occupation rate in London, so we depend on local authority housing and housing associations—both the traditional housing associations, such as the Peabody and Guinness associations, and the newer ones. I want to reinforce the last point but one that was made by the hon. Member for Ealing, Acton and Shepherd’s Bush (Mr. Slaughter) about housing associations. The intention was that they should build property for rent. They should do so, and I hope that Ministers will tell them that that is what their purpose is, not suddenly to do other things.
I also want to reinforce the point made by my hon. Friend the Member for Carshalton and Wallington (Tom Brake) and other Members that housing associations are far less accountable than they should be. As an MP, four out of 10 constituency issues that I deal with are related to housing, and I generally find it far more difficult to obtain good responses from housing associations than I do from the local authorities—Southwark and the City of London—that own the housing stock. That issue needs to be addressed.
I want to put on record the latest official figures, which the Minister will know. The average local authority rent is £76 a week; the average housing association rent is £81; and the average private sector rent is £193. Obviously, things are moving a bit at the moment. Equally, the average house price in London is £315,000; average earnings in London are £25,000; and the income needed for a mortgage is nearly £100,000. Furthermore, there has been a much greater increase in house prices than in earnings. Therefore, most people cannot afford to buy and are dependent on local authority and social housing stock. The most recent figures that I have seen show that in London, private sector completions were 12,800; housing association completions were 9,100; and local authority completions just two—I repeat, two. That is complete nonsense if we wish to respond to need.
I therefore have a number of questions for the Minister. First, what is the policy on empty homes? Should registered social landlords be able to buy or lease them? I am aware of the controversy, but there are a lot of empty homes around and they should be used. What is Government policy and what should housing associations be doing? Secondly, will Ministers consider suspending the right to buy from today, or as soon as possible, for anyone who moves into social housing, to stop the drain that has, sadly, taken too much away? Thirdly, will Ministers consider lowering the starting rate, with shared ownership, for the percentage that one needs to buy? There could be a 5 per cent. purchase with 95 per cent. rent rather than a 10, 15 or 20 per cent. purchase. Fourthly, can we have a response to the question that the hon. Member for Islington, North (Jeremy Corbyn) and others made about single people and couples, key workers and people returning from the services? Such people need to be provided for in all our communities. It is not sufficient to provide only for those who are elderly, vulnerable or have children, because that does not allow us to service the economy, get jobs done and keep communities together.
Fifthly, what is the deal between big and small housing associations? Are the big ones in a position to finance the smaller ones that are in difficulty? I have read in the housing press that some of them are coming to the rescue. Is that satisfactory, or will the Government need to come in and give support? Sixthly, does the new Homes and Communities Agency have the money that I am told it has to release now? Is it waiting to give that money out? If so, can the money be released so that schemes on the drawing board can be delivered? Lastly, there are big developments in my constituency that the Government support, such as the Heygate and Aylesbury redevelopment. I understand that the deals have been agreed but are not being signed up to because the housing associations are nervous that they cannot deliver. Will the Government take an active interest so that the plans that everyone has agreed should happen—this is not a party political matter—can happen? Then people will not be so nervous that new housing is not being built.
I have just one or two points to make. First, let me congratulate the hon. Member for Cities of London and Westminster (Mr. Field) on securing the debate. I agreed with almost all of his analysis of the current crisis, including the cash-flow problems facing registered social landlords and the G15 group talking about having more than £1 billion-worth of unsold shared ownership on its books. The underlying problem of the grant regime must also be addressed.
We all need a little more honesty if we are to find a way forward. On the Conservative side, there is the fundamental problem of resolving the issue without resources or due attention to social housing. That was entirely absent from the Mayor of London’s strategy. There are also all the reasons that my hon. Friend the Member for Ealing, Acton and Shepherd's Bush (Mr. Slaughter) gave, which I shall not repeat. We need a little more honesty from the Government, too, about the way out of the immediate crisis. One issue that I want to pick up is the desperate importance of taking a more relaxed attitude to the target to reduce the use of temporary accommodation by 50 per cent., because the transfer and movement of people who are in chronic housing need and suffer from overcrowding is being backed up to an alarming degree. The target was based on projections of new housing supply that have since been rendered totally invalid. The London councils inform me that the projection on which it was based was for 7,263 social homes to be constructed this year, whereas there will be about 5,000, and we all agree that the numbers will almost certainly fall off a cliff in 2009.
Even on the basis of previous projections, almost two thirds of all housing nominations are going to homeless households, although I understand why. Everyone in the Chamber, including me, deals with huge numbers of homeless households who are in a desperate situation. No one is suggesting that their needs should be abandoned, but all other housing needs are being squeezed to a catastrophic degree. That squeeze is having an impact on community cohesion in all parts of London, in addition to the problem with housing need. It is time to be flexible about the target and to use the HCA’s £17 billion budget to ensure that we provide settled, long-term accommodation for homeless households in the thousands of privately rented accommodation properties that are mainly ex-right-to-buy. Otherwise, £400 a week a more is paid in rent for such households.
My final point is about an issue that the Minister has addressed and has heard me raise before, but which still goes on: the exporting of homeless households from areas where they have strong local needs. I promised to raise a case about which I have written to him concerning a Bangladeshi family with 27 years of local connection to the Church Street ward. They were born and bred there, they work locally and their children are in Gateway school in that ward, but they have been sent to Barking and Dagenham where there is a problem with community cohesion. As my hon. Friend the Member for Ealing, Acton and Shepherd's Bush has said, we look only to the Government to enforce the rules and to help us to deal with this crisis, which has been so well described this morning.
Let me begin by congratulating the hon. Member for Cities of London and Westminster (Mr. Field) on securing the debate, which has been useful. It has covered much ground that has been covered in previous housing debates, usually with the same speakers. The focus on the economic crisis is useful to the overall debate on housing need.
Like most hon. Members who have spoken today, I have acute problems with housing in my constituency, in which about 20,000 families are on the housing waiting list. One in 10 children in Brent live in temporary accommodation. Nationally, 1.7 million are on council waiting lists. As the hon. Member for Islington, North (Jeremy Corbyn) has said, the issue is fundamentally one of supply, which is why it is important to tackle the problems that prevent housing associations and councils from meeting targets on affordable housing for rent.
The issue is partly about lending, as the hon. Member for Cities of London and Westminster said. Many of the housing associations that managed to secure private finance before the credit crunch hit have found that banks are trying to renegotiate the terms of their loans. They say that will happen at the end of this financial year, when land that they purchased previously will be downgraded in value, appearing as a large loss in accounts and audits. The banks will use that as an excuse to renegotiate loans. That is affecting the larger housing associations; it is not just about smaller housing associations having difficulties with liquidity. As it is predominantly the larger housing associations that are building and developing properties, they are having the greatest difficulties.
There is also a problem with cross-subsidy, as many hon. Members have said. It is essential that the Government consider creating more flexibility in the subsidy per unit. This is not necessarily a long-term issue—it is a short-tem one—and it is crucial that the Treasury relax the rules. We have to accept that, for the moment, it is going to cost more to build affordable housing for rent. If we do not relax the subsidy, no housing will be built.
Does the hon. Lady agree that it is important to have more fairness for housing co-operatives? By their nature, they cannot, and do not, become involved in the sale of property, as that is against their ethos, so they need more support with new building.
The hon. Gentleman makes a valid point.
Another relevant issue is flexibility for councils, which would probably find it easier to borrow on the financial markets at the moment as public sector bodies, but the Treasury rules on council borrowing make that difficult. In addition, they cannot keep the capital receipts for properties that have been sold under the right to buy. As my hon. Friend the Member for Carshalton and Wallington (Tom Brake) said, there is uncertainty about the amount of housing rent money they can keep. They are not in a position to borrow, but they could make a greater contribution to meeting the need for affordable housing to rent if they had that flexibility.
Many hon. Members have mentioned the social housing model. The whole point of having cross-subsidy and a mixed economic model is to ensure that we do not have ghettoised communities, but there is another option. We could have affordable housing for rent, intermediate rent and private rent in the same developments. What consideration are the Government giving to intermediate rents? Such rents would make a substantial difference to the ability of housing associations to meet the sustainable communities requirements that the Government place on them and on councils when they are able to build developments. They would also ensure that those involved were not stuck with a model where they could finance the development only through private sale, which is, of course, what is causing difficulty. Is it really a sensible policy priority for the Government to push people into home ownership at the moment? As property prices are still going down, is it not more sensible to use the subsidy to try to make sure that we build more affordable housing for rent? There is no reason why those properties cannot be sold later, either through shared ownership or on the open market, if that is appropriate and if lending comes back on stream. However, banks are not offering mortgages for shared ownership properties anyway, so it does not seem to be a particularly sensible priority for the Government to continue to put money into that when so many families are absolutely desperate for affordable housing to rent.
I congratulate my hon. Friend the Member for Cities of London and Westminster (Mr. Field) on securing the debate—it is a pleasure to have a debate secured by a Conservative colleague. In relation to affordable housing, he has demonstrated that even Conservatives who represent London boroughs that might to the casual observer seem to be well off share exactly the same problems as hon. Members who represent other parts of London and, indeed, areas just outside London—as is my constituency.
The areas of deprivation that my hon. Friend highlighted are of considerable concern and historical in his part of London. Things are moving in the wrong direction, rather than the right, and I have been struck by the degree of consensus across the Chamber this morning. I think that everybody agrees that the fundamental problems derive from not having built enough housing of all types in recent times, notably social housing. That has led to a crisis—the shortage of available homes—that is perhaps unparalleled since the war. Again, that applies to all categories of housing, but notably social and rented housing.
Time is short, so straight away I will talk about what should be done about the problem and ask the Minister for his thoughts. First, there are too many small, minutiae-type projects going on to try to tackle the problem. What is required is big thinking, not a lot of press release-type thinking. Too many small, sometimes complex and contradictory programmes are out there. We know that Social HomeBuy has been a spectacular failure. It was designed to help 10,000 people over two years, but is has helped 235 people over that period. What is the Minister going to do about that? Just the other month, a new scheme called HomeBuy Direct was announced to help people to obtain shared equity and get a foot on the housing ladder. Having spoken to social providers, affordable housing providers and developers, it seems that HomeBuy Direct and New HomeBuy can end up in direct conflict with each other in some developments.
We hear that a new announcement will be made by the Minister for Housing this Friday, which will involve £200 million and is designed to help people to get on to the housing ladder. Again, I fear that that will involve small, meddling schemes that no doubt have good intentions, but which will not solve a crisis of the kind that we have got ourselves into.
We could get into a debate about exactly where the threshold should be, but as my hon. Friend the Member for Cities of London and Westminster pointed out, the average salary in one part of the country—and therefore the average availability of housing, as we know through the local housing allowance—can be very different from that in other parts of the country.
Levels of affordability mean that people can be in deprivation when they have relatively high earnings. It is nonsense to suggest that the situation is the same across the country. For example, this week, I visited social housing in the west midlands, where housing is significantly cheaper than in Cities of London and Westminster. We must have some flexibility, and therefore the numbers will be different.
Let us get back to the big picture. As I have said, we are suffering the consequences of nearly 12 years of less housing being built. On average, some 30,000 fewer units are completed each year under this Government. Things such as the density targets, which have been referred to this morning, have had a significantly damaging effect on the range of property available and, in many cases, have meant that the wrong types of property are available and are in surplus. Families in many hon. Members’ constituencies will therefore struggle to get into decent housing. Does the Minister think that it is time to end density targets, which have done so much damage?
Surely, a proper scheme to kick-start the housing market is required. Back in the early 1990s during the last recession, 60,000 affordable homes were built in 1992. Why is it that next year we will be lucky to scrape 10,000 or 15,000 affordable homes? That is a great shame and does not reflect well on current housing policy. I will end my contribution there to allow the Minister to answer some of those points.
I join other hon. Members in congratulating the hon. Member for Cities of London and Westminster (Mr. Field) on securing the debate. I have said before in this Chamber that for an hon. Member who represents what is seen as an affluent area—arguably the most affluent in the country—the manner in which he represents all his constituents in this place is testimony to his character. That has been shown today.
This has been an excellent debate and the hon. Gentleman set the scene extraordinarily well. His analysis was extremely strong, particularly when he pointed out that we have had many housing debates in the House, but the manner in which the current economic crisis is having an impact on housing markets makes such debates particularly important. The recent economic crisis is bringing such problems into even sharper relief, with consequences for home owners, house builders and prospective buyers. The full effects of the crisis are yet to unfold, but it is clear that the social housing sector and affordable housing in general are being affected.
There is more pressure on the stock of such housing because of increasing unemployment and the possibility of rising repossessions. There have also been strains on the business model, which was another strong element of the hon. Gentleman’s contribution. Other hon. Members also mentioned the business model and I would like to talk about it at length if I have time.
The Government want to address two challenges. First, we wish to ensure that much-needed social housing gets built. Increasing the supply of housing is vital, and despite the current pressures and the financial difficulties that the world is experiencing, we need to build more homes. Secondly, as has been mentioned in this excellent debate, we need not only to build homes and concentrate on numbers, but to drive up quality throughout the sector, offering a better quality of life and a fairer deal for tenants.
I do not have much time in which to speak, but I would like to paint a picture and set out some important scenarios regarding central London boroughs and the need for housing that illustrate the scale of the problem we have been talking about. More than 2,700 households are in temporary accommodation in Westminster, and in 2007, 1,344 households were on the waiting list for social housing in the City of London. That shocked me, because I was probably guilty of believing the perception and myth that there was no need for social housing in that part of the world. More than 8,000 people are on the waiting list for social housing in Westminster. As in all other regions of the country, waiting lists throughout London—particularly central London—have gone up.
There is also concern in some areas about the options on offer once people are in social housing and need to move home—for example, because their family has grown. My hon. Friend the Member for Regent’s Park and Kensington, North (Ms Buck) gave me the courtesy of allowing me to go to her constituency in the summer, when I visited five families in Westminster who were living in cramped and overcrowded conditions. The purpose of my visit was to see at first hand the impact of that on their quality of life and their life chances. What I saw shocked me and I want to do something about those problems.
It is clear that we still have some way to go in tackling overcrowding, and in reducing the use of temporary accommodation and—this particularly concerns me, and my hon. Friend mentioned it—out-of-borough placements, so that children do not have to travel a long way to school and the family unit can stay together and remain concentrated as much as possible in one place.
A theme of today’s debate has been the cross-party consensus on the analysis of the problems and the willingness and ambition to do something about them. I hope that all hon. Members will work with the Government and local authorities, as well as with the Mayor of London, to try to deal with those problems. Just before Christmas, I had a meeting with Westminster city council’s director of housing at which we discussed the related problems of overcrowding, temporary accommodation and out-of-borough placements, and I am keen to impress on the director and the local authority the need to do much more.
There have been serious problems with affordability, and, despite recent house price falls, that remains the case. The ratio of house prices to average earnings throughout the country is high, which is one reason why we need to build more homes. In central London, as hon. Members would expect, the problem is particularly acute. In the City of London, lower quartile house prices are more than 12 times lower quartile earnings; in Westminster, they are more than 13 times. That really is an astonishing statistic. By comparison, the average ratio throughout England is less than seven times. We are painting a picture of real need for more homes and, in particular, more affordable and social homes in the City of London. The National Housing and Planning Advisory Unit states that somewhere between 33,800 and 42,600 homes are needed each year in London to tackle the supply and affordability problem.
If I read correctly the body language of the hon. Member for Welwyn Hatfield (Grant Shapps), who spoke for the Opposition, he implied that the statistics that the Minister has just cited rather undermine my argument about the Mayor of London choosing to raise the threshold for assistance to significantly more than a Member of Parliament’s salary. I would argue that the Minister’s figures confirm my case, because the sheer scale of demand that he outlined for intermediate and sub-market housing and housing for rent confirms that we must prioritise. Does the Minister agree that people earning more than a Member of Parliament are unlikely to be our top priority for affordable housing assistance?
I agree with the sentiments that my hon. Friend expresses. The Mayor’s priorities are somewhat odd and confusing, as is his housing policy. I am keen to work with him, however, and if I have time, I shall articulate the current architecture of London and its housing policy, and how we can do more to work together.
There is an issue about scrapping the 50 per cent. affordable housing target, and about the idea that we can help people who are on more than £70,000 when there are real priorities. My hon. Friend the Member for Ealing, Acton and Shepherd’s Bush (Mr. Slaughter) said that there are people on £20,000 a year who are really struggling, distorting the economy and reducing the chances of the London economy achieving its potential. We really need to concentrate on that element. That is an important point.
I do not want to bandy around the remarks involved in the little battle that is taking place between my hon. Friend the Member for Welwyn Hatfield (Grant Shapps) and the hon. Member for Regent’s Park and Kensington, North (Ms Buck), but surely the Minister acknowledges that one of the biggest concerns in London involves people who are on £72,000.
I would not have set the target quite so high, but, equally, we are talking about not only people who are on £20,000 a year, but about people on £50,000 and £60,000 who desperately want to stay and live in central London. They simply cannot get on to the housing ladder, but there is that sense of needing to try to achieve a mix, because it is in all our interests to have mixed communities. The case is slightly easier to make for someone on £20,000 a year, and I know that it is more difficult to make when one is looking at a multiple of the average national wage, but that is the depth of the problem here in central London.
I fully understand what the hon. Gentleman says, and I know that in the economy of central London the wages of a certain element of its population are proportionately much higher than those of people in the rest of London and the rest of the country. He made the point, however, that had he been Mayor he would not have set the level at £72,000, which seems to indicate to me, and probably to my hon. Friends, that the level is wrong and that the measure should have been concentrated on people on lower wages. We could have helped an awful lot more.
I want to mention several points, particularly about how we can help to increase supply. Hon. Members will know about the £8 billion investment programme that the Homes and Communities Agency has planned over the next three years. It has been mentioned this morning, and we anticipate that it will provide 70,000 affordable homes, including 45,000 homes for social rent each year from 2010-11.
London is the biggest recipient from that £8 billion pot, receiving about £4 billion over the next three years, £3.2 billion of which will be London’s element of the national affordable housing programme. A further £440 million will be allocated for local authorities’ decent homes programmes.
Hon. Members will know that the HCA is up and running—it has been since 1 December 2008—and is responsible for housing and regeneration funding. We have talked today about partnership, and the HCA, with Bob Kerslake as its chief executive, wants to bring people together to have with local area representatives a single conversation about their regeneration and housing needs to deliver better focused and more effective outcomes for places and communities. Given the particular challenges in London, a sub-committee chaired by the Mayor has been set up to oversee delivery.
A key theme of this morning’s debate has been the fact that pressure will increase on social housing in central London as a result of the economic downturn, and I agree with the analyses that hon. Members from all parts of the Chamber have provided. The strains on the business model in housing association sectors have been acute, and there has been an assumption that housing associations will have to rely on cross-subsidisation to build social housing. One thing that concerns me, however, having spoken with chairs of housing associations, is the fact that, because of the difficulty and the financial concerns, they are more risk averse—in a similar way to the banks. There is no willingness to increase their stock, and they want to manage their existing stock, but that does not help anybody.
The hon. Member for Cities of London and Westminster mentioned lending. He talked about trying to renegotiate the banks’ lending covenants and how the banks have introduced difficulties and obstacles—an issue that has been raised with me previously. Before Christmas, I met housing association chief executives and the National Housing Federation, and precisely that point was made about attempts to renegotiate a group structure and the bank involved wanting to renegotiate its entire lending policy. That is not good; it is short-termist and does not help anybody, and this debate has put a rocket up me, frankly. It has ensured that I can go the lending panel, which my right hon. Friend the Chancellor chairs, and say that we need to do something about the issue. It is not in the interests of increased housing supply if banks are not willing to take a sensible approach to lending.
Having said all that, and given the strains on the business model, I must say that the hon. Gentleman and my hon. Friends will be aware that we have acted speedily to bring forward £550 million-worth of spending on social housing from the £8 billion pot. That will not only ensure that homes are built, but keep construction firms open and people in jobs, which is vital at this time.
Another theme of today’s debate has been the need to be more flexible about grant rates, and I absolutely agree.
I shall just mention this point, because it is key. The key word at the moment is “flexibility”, whether in grant rates, models of home ownership, different tenures or different ways to bring forward development, which is what we are doing. The HCA is providing a great deal of flexibility in its grant regime to enable those schemes to go forward, so I hope that hon. Members are reassured by that.
I thank the Minister for giving way. Will he briefly address the point that I and the hon. Member for Regent’s Park and Kensington, North made about the 50 per cent. target on temporary accommodation and its distorting effect? Will the Government look again at the issue, with some urgency, either to scrap the target in the short term or to place some downward movement on it?
My hon. Friend the Member for Regent’s Park and Kensington, North has brought the issue to my attention on previous occasions, and I am aware of her concerns, as well as those of the hon. Gentleman, about the relationship between temporary accommodation, overcrowding and—an important secondary issue, in my opinion—out-of-borough placements.
I shall look at the issue. The temporary accommodation target is important and has provided discipline to try to reduce the real moral outrage of people in inferior housing, but I know that there are genuine concerns—[Interruption.] And I know that my hon. Friend is shaking her head now. The target has stimulated work and improvements, but I know that there are concerns and I acknowledge them.
I pay tribute to the contributions made by all hon. Members. The debate has been of extremely high quality, and the analysis focused and well made. We can all work together to improve London’s housing stock.
Chase Farm Hospital
I am pleased to have secured this important debate on Chase Farm hospital. It is a matter of great concern to my constituency and neighbouring constituencies, and I welcome the hon. Member for Edmonton (Mr. Love) and my hon. Friend the Member for Broxbourne (Mr. Walker) to the Chamber. This issue is of concern to the community of Enfield, which is made up of 300,000 people, as well the surrounding area. Some 1 million people have been affected by recent decisions on Chase Farm hospital.
Issues affecting the hospital have been debated in the community for a number of years. We often say that a debate is timely, but this debate is particularly timely. Discussion has been going on since 1999, when the trusts were merged. We were given promises that a full range of front-line services would continue on both sites, followed by the “Healthy Hospitals” consultation in 2003, and recently, the “Your Health, Your Future: Safer, Closer, Better” consultation.
The primary concern is about the future of a fully functioning accident and emergency service and consultant-led maternity services. Those services have been in doubt, and over the years successive Ministers have come to Chase Farm hospital—particularly at election time—to provide assurances that the A and E service would not be downgraded. Come the next election, however, we will not have that privilege. The future of A and E and consultant-led maternity services is no longer in doubt, because on 4 September 2008, the Secretary of State confirmed the local primary care trust’s decision to cut those services.
I congratulate the hon. Gentleman on securing this debate, and I agree that it is timely. Before he moves on from the history of the situation at Chase Farm hospital, may I point out that it has been a subject for debate for the past 20 years? Does he agree that the consultation processes that we have experienced personally have been wholly unsatisfactory, and that efforts to engage the public in such consultations have not facilitated their access to the process nor their ability adequately to express their views?
The consultation was inadequate and flawed, which is why this debate is particularly timely. Enfield council challenged the decision through judicial review, and the flawed consultation is at the heart of that challenge. If the Minister has any concerns about commenting on the details of the challenge or the decision, he may be pleased to know that the rule of sub judice does not apply in this case, because when a ministerial decision has been challenged, full debate is allowed. No jury would be affected by our debate today, so we can have a full and frank discussion, and I look forward to the Minister’s response to concern about the wholly flawed and inadequate consultation process.
The legal challenge should not surprise us. It did not surprise me when I received the Secretary of State’s letter on 4 September, which referred to “Your Health, Your Future”, with the sub-heading, “Safer, Closer, Better, Barnet”—no reference to Enfield. The letter went on to say that the independent reconfiguration panel
“has considered a great deal of evidence from a wide range of contributors”.
It then talked about
“the needs of patients, public and staff to ensure safe, sustainable and accessible maternity services in East Sussex.”
There was no mention of Enfield. That was plainly a mistake, but it gives rise to concerns at the very outset that this was a copy-and-paste decision, using national guidance and models, in relation to centralising A and E and maternity services.
Does my hon. Friend agree that the various consultations seem to have ignored the fact that approximately 150,000 people in Hertfordshire use Chase Farm A and E and other Chase Farm services? My constituents now face not only the prospect of a reduced service at Chase Farm, but reduced services at the QE2, so their nearest A and E will be the Lister, which is approximately 30 miles away and can take an hour and a quarter to get to in the rush hour, if not longer.
My hon. Friend makes a good point. Yesterday, I was talking to an ambulance man who raised a similar concern about the travel time to neighbouring hospitals, with the loss of accident and emergency services. My hon. Friend has been a doughty campaigner on behalf of his constituents and I pay tribute to him, as well as to his 16,423 constituents who signed the petition that was delivered to No. 10 and the House of Commons. That petition was ignored, along with the concerns of Enfield residents. That is summed up by one campaigner, who said that the recent comments made in the House by the Minister who will respond to the debate today have raised acute concerns that the interests of Enfield and neighbouring constituencies have not been properly considered and, indeed, that those concerns have been treated with contempt. In parliamentary terms, this debate comes soon after business questions in the House on 16 December, when my hon. Friend the Member for Eddisbury (Mr. O'Brien) asked the Minister:
“Will the Minister find time before Christmas to go to Enfield and tell the people there why they do not need an accident and emergency department at Chase Farm hospital and why it will be replaced by a non-blue light service at the urgent care centre?”—
I am not aware that the Minister took up that invitation to come to Enfield before Christmas to explain the position, but we have an opportunity today to get a proper explanation and to recognise the timely report by the College of Emergency Medicine, which concluded:
“There is no evidence of the clinical or financial benefits”,
and that the Government’s proposals are
“clinically unproven and against the principle of patient choice of access to proper emergency care.”
We look forward to an explanation from the Minister that goes further than his response to the House, in which he sought to hide behind the legal challenge, which we now know is unnecessary, given the rules of sub judice. He concluded:
“Everybody….is agreed that the proposals are the best solution for the north-east London health economy.”—[Official Report, 16 December 2008; Vol. 485, c. 955-56.]
We have already heard today that that is not the case, and that it is untrue. The words of Kate Wilkinson, one of the staunch campaigners on this issue, are pertinent. She says on behalf of many people that the Minister’s comments
“showed utter contempt for the strength of public opinion that has been shown so far and for the hours of work (years!) that various health scrutiny committees have undertaken to scrutinise the proposals in depth.”
Those objections and that scrutiny have been made on a cross-party basis, in an investigation ably chaired by Councillor Ann Marie Pearce, of the joint scrutiny committees of Haringey, Barnet and Enfield, which are united in their opposition. Opposition has also been ably led by my colleague Nick de Bois, and by Irene Wilson and Ivy Beard, who has come to hear our debate today. Opposition has consisted of a large number of petitions—notably one that was organised by Irene Wilson and presented to No. 10, which was signed by 30,000 people—and marches. Some 5,000 people participated in one march. Hon. Members present in the Chamber today and I were united at the front of that march. We were concerned and were campaigning against the downgrade of A and E and consultant-led maternity services. Also notable was a petition organised by Nick de Bois during the consultation process. It was signed by 9,000 residents. More than 70,000 people have signed petitions or made representations, and all of them objected to the downgrade. That is why it is time that we heard a full explanation from the Minister.
This debate is timely because last night, something unexpected happened that made me aware of the need to retain services. Today, I could focus on the independent reconfiguration report, which expressed concern about the flawed consultation. I could focus on the 50,000 responses that were rejected in the consultation process. I could focus on the fact that option E, which would retain and improve existing major services at Chase Farm, was not included, and that the consultation document, as has been said, was fundamentally flawed and poorly communicated. I could emphasise the transport problems in east Enfield, in Cheshunt and in Winchmore Hill in my constituency, or I could focus on the capital plans, which the independent panel said do not have a clear source of funding.
I could speak about the concerns of chief executives and funding gaps. The chief executive of North Middlesex hospital is extremely concerned about how she will find the extra £60 million required—over and above existing plans for the private finance initiative expansion at North Middlesex hospital, which is welcome—to cater for the increased demand should Chase Farm hospital be downgraded. The chief executive of Chase Farm accepts that the planned £100 million will not be enough to cover the improvements necessary for the three sites.
Last night, I attended A and E with my daughter, Dorothy, who suffered a fall and an injury to her head. Perhaps that is taking preparation a little too far but, thankfully, my daughter’s injury was minor. The Minister would probably be quick to say that such an injury would be catered for under the proposals for a downgraded unit. Let us not call it a local A and E, as that is ambiguous. One could describe it as an urgent care unit, but we need further details about what that means. However, it would deal with a minor injury such as the one that Dorothy suffered.
Just behind us at reception was the family of a constituent—an old ex-council colleague whom neighbouring MPs will know well. Last week, Richard Course suffered an aneurysm and thankfully survived. His family came to the hospital last night to thank the staff for saving his life. I pay tribute to the staff who did that—they save lives day in, day out. The family wanted to make the point that Mr. Course would not have survived under the proposals, as there was no time because of his aneurism to transfer him to Royal College hospital. Chase Farm—and the location of Chase Farm—saved his life. It also saved the life of my father when he suffered asthma attacks. Timing was crucial, so it was important he could get there quickly, and no doubt many others have similar experiences. I could also mention the complications during the birth of one of my children. A mid-labour transfer to another hospital would have jeopardised his life.
I have some experience of the matter, having lived in Enfield in the run-up to the 1997 election when I was the candidate there. Chase Farm hospital was a big issue at that stage.
Does my hon. Friend agree that, given that there was a case at that juncture to keep the A and E open, that case is considerably stronger a decade or so on, not least because of the huge increase in population? The Enfield Island site was still in gestation in the late 1990s. It is now fully finished, and a huge number of people live in that part of eastern Enfield. The case is even stronger now, and it should be made by all the folk who have a local concern in Enfield.
I wholeheartedly agree. The Enfield area has a disproportionate number of nought to 14-year-olds and of over-74s, and the population is increasing dramatically. If one looks at maternity services, the latest statistics from the Office for National Statistics show that there has been a 17.5 per cent. increase in the birth rate, which is the second highest in London. The population of Enfield is the fifth largest and is increasing. The case was good when my hon. Friend was campaigning there, but it is even better now.
The situation became clear to me last night. I heard about it while speaking to various practitioners who were present. It was a very busy evening. There were three patients on trolleys who were waiting for beds. They were there with ambulance men, who said that usually people wait one or two hours for a bed. They explained that 164 patients had gone through A and E the day before yesterday. Patients were waiting to be offloaded from ambulances—they were stacking up—and four patients waited on trolleys for a bed. They said that overnight there had been 22 admissions for the 16 beds in the wards.
The observation unit is often full to the extent that there is 24-hour observation, which goes beyond the remit for observation. I was told that the Barnet and North Middlesex hospitals were full that evening, and that often it is obvious from the board that Barnet is full. Indeed, Enfield often takes more patients than the surrounding hospitals. The ambulance men and nurses told me that patients often require urgent surgical and medical attention, and that time is critical. Time-critical patients coming from the surrounding area are often elderly—every minute matters—and they need a local hospital to deliver the care they require.
North Middlesex hospital is the fifth busiest in London. It would have to take up capacity from Chase Farm hospital. The words of Sir George Alberti are particularly pertinent:
“Care will be needed to ensure that capacity is adequate at the two sites so that the end result is not two swamped departments unable to provide the level of care required.”
The Government hired him to provide advice, and they ought to listen to his words extremely carefully.
The concerns expressed by the ambulance men and nurses should be heard, as should the concerns of the consultants and doctors to whom I spoke last night. They said that the closure does not make sense, and that it is madness, given the demand coming through Chase Farm. They said that their concern and that of others was that if A and E were to close, it would lead to the end of the hospital. None of us would want that; it does not make sense. In legal terms, practitioners are concerned that the decision is irrational. No doubt that is why the council is challenging it, and it is why the Minister should give a full explanation today.
All that comes before we talk about maternity services and the grave concerns about a lack of true clinical benefits and the loss of consultant-led maternity services. Midwives have communicated their concerns. A group of 10 said that the closure will result in fatal outcomes if a shoulder dystocia occurs—that is when the baby’s head is delivered but the shoulders become trapped. They said that there are six minutes to deliver the shoulders before brain damage or even the death of the baby occurs. If a woman starts to haemorrhage during or after the delivery of the placenta, she could bleed to death in minutes. Those events and many others cannot be predicted during antenatal screening for suitability to deliver at the birth centre.
The birth centre and the labour ward at Chase Farm hospital are an ideal configuration. The midwives at the birth centre say that seven out of 10 women would not choose to go to the birth centre if the labour ward were not downstairs. Who can blame them for not taking a risk? Sadly, Enfield mothers would not choose to have their baby at the birth centre if there were not the assurance of a labour ward there as well. I again pay tribute to the staff at Chase Farm and to those who have worked tirelessly for local health care. I congratulate Nadia Conway on being awarded an MBE for her services. I commend the progress made in a number of areas that we do not have time to debate today. I am thinking particularly of infection control: Chase Farm has been praised for its cleanliness, staff knowledge and commitment to ensuring that appropriate control mechanisms are in place.
We are all convinced—there is almost unanimous support in the community for this—by the argument that the best opportunity to improve services is at Chase Farm. We need to ensure that we have a fully functioning A and E and consultant-led maternity services. That is what the council has said in motions and what the challenge is all about. Now the Minister has an opportunity to provide an explanation. I hope that he will use the opportunity to say, “No, we’re not just going to go to court. We’re going to retain a fully functioning A and E and maternity service.”
May I begin by congratulating the hon. Member for Enfield, Southgate (Mr. Burrowes) on securing the debate? I would like to recognise the good work being done by NHS staff throughout Barnet, Enfield and Haringey. They are delivering a better-quality health service than ever before, benefiting the constituents of the hon. Gentleman and of other hon. Members.
Before addressing the detail of the concerns that the hon. Gentleman raised, it is important to put in context the proposals that he discussed. During the first 60 years of the NHS, society, technology and medicine have changed beyond all recognition. Today, patients with more and more conditions can be treated and cared for in their own homes or local communities, and for many of the procedures that still require hospital admission, the length of stay has reduced dramatically. As medical science has advanced, NHS staff have become capable of ever more extraordinary feats of clinical care. For some complex procedures or operations, it is important to have well-equipped and well-staffed specialist centres where round-the-clock consultant and specialist nurse expertise can be assured and where sometimes extremely expensive technology can be concentrated. There is a kind of two-way traffic in the health service: an increasing amount of care is being devolved out of the traditional acute hospital setting into the community, GP practices, health centres and people’s homes, while more complex, specialist, emergency or acute care is being concentrated in fewer, more specialist centres. The changes in health care in north London are taking place in that environment.
It is important to stress at the outset that the organisation of health care is no longer decided by Ministers or civil servants in Whitehall, but by local health care professionals on the ground. Organisational changes must be based on medical grounds—what is best in terms of patient care. If democratically elected local councillors wish to object to proposals from their local health service, they can do so—as they have in this case—and refer the proposals to the national independent reconfiguration panel. That system was deliberately set up to take the politics out of such decisions and it has served the NHS well. The IRP is genuinely independent. It has, for example, rejected two major reorganisations in recent months, in Oxfordshire and in East Sussex.
As the hon. Gentleman acknowledged, there has been considerable local debate about how health services should be organised in north London, dating back a considerable time. The Barnet, Enfield and Haringey clinical strategy set out how the NHS proposed to provide services to his constituents. The proposed case for change was as follows. Services are duplicated across hospital sites. Some local hospital buildings are in poor condition and are no longer suitable to deliver the high-class care required. Despite recent significant increases in investment, local health services are overstretched and score poorly against national standards. The current pattern of children’s, neonatal and maternity services locally is neither safe nor sustainable in the medium and long term.
As part of the work leading up to the launch of the formal public consultation on the proposals, and as the hon. Gentleman acknowledged, NHS London invited Professor Sir George Alberti, the national director for emergency access, to work with the local NHS and offer an independent view on the medical clinical case for change across Barnet, Enfield and Haringey. His work was published in May 2007, and he stated:
“Put starkly, it is evident that safe, high quality modern care cannot be provided for all specialties in all three acute hospitals in the area…Care of the standard that members of the public have a right to expect will require the centralisation of some specialties on two of the three hospital sites. Immediate care around the clock by experienced clinicians cannot be guaranteed whilst efforts are made to maintain all three sites as full acute hospitals.”
Following formal consultation on the strategy, Barnet, Enfield and Haringey PCT boards met in December 2007 and agreed unanimously to take forward option 1 for their clinical strategy. The hon. Gentleman and other hon. Members will be well aware of what that option involves. In-patient planned operations—hip and knee replacements, for example—will be concentrated at Chase Farm and expanded. The existing service will expand to incorporate surgery from Barnet and North Middlesex hospitals. The local NHS estimates that 240 patients a month will benefit. Separating out planned care, provided at Chase Farm, and emergency care, provided at Barnet and North Middlesex, has the benefit of reducing the number of planned operations that have to be cancelled because of an emergency admission.
There will be an extended-hours local A and E service, led by senior A and E-trained clinicians at Chase Farm hospital, which will be open for at least 12 hours a day to cover the period of maximum demand, with urgent care outside those hours provided by a co-located GP out-of-hours service. That means that Chase Farm will no longer take blue-light ambulance cases or patients who require emergency admission to hospital. However, the local NHS estimates that 80 per cent. of people who attend A and E at Chase Farm hospital could continue to be treated by the new service on the site. The proposal recognises that it is better for seriously ill or injured patients to go to a bigger, better staffed and equipped A and E rather than a smaller one, even if it is closer. To put it simply, bigger specialist A and E centres save lives.
There will be a midwife-led unit at the Chase Farm site replacing the existing consultant-led service. The service will be available for women identified as low risk, which is the majority of expectant mothers. There will also continue to be a full range of antenatal and post-natal services. The recommendations from the Royal College of Obstetricians and Gynaecologists on the consultant presence and the volume of births per unit for the safe delivery of babies in high-risk cases led to the conclusion that two sites would provide a safer and better service than three. Similarly, the support needed from paediatricians for a special care baby unit and the required round-the-clock anaesthetist cover could not be provided on three sites.
A new specialist consultant-led paediatric assessment unit and an older people’s assessment unit will be established at Chase Farm, and they will serve patients currently seen at A and E by the in-patient paediatric and older person teams on site. That will allow specialist teams to assess patients and treat or refer them appropriately without the patient having to be admitted to hospital and treated as an in-patient, as happens now.
The one thing that we are relieved about is securing the future of the hospital at Chase Farm, given that the very presence of a hospital there has been under threat. However, my hon. Friend the Minister talked about taking the politics out of the situation. We in Enfield feel that we have done that. The Minister can see that there is cross-party concern. There are no residents or public representatives in Enfield or, clearly, further afield—in Cheshunt, for instance—who in any way support a reduction in services at Chase Farm. The final comment that I want to make is that all the doctors, nurses and other staff at Chase Farm do a fantastic job and deserve the tribute that we pay to them.
I entirely accept what my right hon. Friend has just said. I was trying to make the point that the system that the Government have established, which involves the referral from the overview and scrutiny committees, the democratic check that that provides and the role of the IRP, was set up to try to avoid the political wrangling that has dogged some of these reorganisations, which I admit are often controversial at local level.
I shall be as brief as I can. Although I accept what has been said about trying to take the politics out of the situation, what people in Enfield simply cannot understand is how, given the overwhelming support for the hospital and what it represents, people could go against that locally determined decision.
I hear what my hon. Friend says. Hon. Members will have to forgive me: I will not be able to cover all the issues that I wanted to in the time that the hon. Member for Enfield, Southgate allowed me, but I want to put this on record. He referred to an exchange in the House of Commons before Christmas. I did not mean to imply that the proposals that we are talking about were supported by everybody in north-east London; that is clearly not the case. I am well aware of local concerns, not least because of the assiduous lobbying by my right hon. Friend the Member for Enfield, North (Joan Ryan), who has not only brought all-party delegations to see me, but has lobbied my right hon. Friend the Secretary of State. I believe that her campaigning has succeeded in improving the original proposals substantially. The hon. Member for Enfield, Southgate also quoted selectively from the report by the College of Emergency Medicine, which—
Tax Credits (Working Parents)
Thank you, Mr. Weir. I think that means that I win by default, which is always good news. I am grateful for the opportunity to talk about tax credits and work incentives, particularly for working parents. [Interruption.] I welcome the Minister, who is now in his place; I had only just begun my remarks. I want to start by making it clear that, in my view, tax credits are a good thing. I am here to praise the basic system of tax credits, not to demolish it.
There are 1.5 million families receiving the working tax credit—that is the main focus of my speech this afternoon—and there are nearly 3 million children in households receiving it. The average family in work receiving the working tax credit have topped up their wages by almost £7,000 a year. Without tax credits, for millions of families work simply would not pay. That would not leave parents living a life of ease and luxury on benefits, as so much of the tabloid press would have us believe. It would leave them facing a stark choice between working as an end in itself—in my experience, most parents and most people are wholly sympathetic to that—and ending up deeper in poverty and less able to provide for their children and families.
As things stand, despite the extent of the tax credits system and the resources that go into it, 57 per cent. of all families who are below the poverty line are working families, so the issue is not that we are providing too much, but that we are providing too little. No family, no parent, should be left to choose between a job that leaves them worse off and a life on benefits.
I do not want to go too far into the byways of the minimum wage, but it certainly indicates that wages are too low in many parts of the country. I shall talk mostly about London, my own area. Given London’s higher costs—I am sure that this also applies in some other parts of the country—people have to earn significantly more than they do in very low-cost areas. One of the side projects that I have as a Member of Parliament is chairing the Fair Pay Network, which campaigns for a living wage in different parts of the country. I hope that that addresses the point.
The substance of my comments will not be that the tax credits system is fundamentally wrong or that there are moral failings in the approach to delivering tax credits, but that there are practical steps that we still need to address as a matter of some urgency if we are to make further progress on tackling child poverty and particularly on ensuring that work pays and that people with children can enter into and sustain themselves in employment at a level that allows them to care for their families. I shall address three issues, the first of which is child care costs and the child care tax credit, and the second is housing costs and the interaction between housing benefit, council tax benefit and the tax credits system.
The hon. Lady has brought up a very important issue and is making excellent points. I am sure that she will deal with the benefits trap. The issue that I want to raise relates to child poverty. Her Majesty’s Revenue and Customs has its rules on the clawback of overpayments. First, the individual must have acted properly at all times and not misled the Revenue. Secondly, the Revenue must not have made a mistake in making the payment. That is unfair, in that it results in clawback even when individuals have acted properly, and it will cause poverty for the individuals—
I have sympathy with the general concern about clawback and overpayments, although that will not be the substance of my comments today. The Government have gone a considerable way on overpayments, compared with where we were a few years ago, but I accept that there is still work to be done.
The difficulty that parents have in assessing what their future financial situation is likely to be—in making that forward calculation—is a real concern. That allows me to segue into the third area that I want to talk about, which is the “better off” assessment and, if one takes into account tax credits and passported benefits and those that are lost, how difficult it can be for people to make a meaningful calculation of their financial prospects. The reality is that many people are not better off in work, for the reasons that I shall explain.
In outlining these issues, I am drawing heavily on my constituents’ experience. I carried out a survey in which a great deal of powerful and well articulated concerns were raised about how the system is working. I am also drawing on analysis conducted for the London Child Poverty Commission, the work of Westminster Children’s Society and briefings from Shelter, Citizens Advice and Every Disabled Child Matters. The interpretation is mine alone, but the facts come from them and the overwhelmingly powerful case that is made is theirs. As I said, I shall concentrate on London, which, although it shares characteristics with some other high-cost areas, is at the sharp end. The problems with policies that apply to the whole country are thrown into sharpest relief in London.
Child care is, of course, central to how parents make a decision about being able to go into work and sustain themselves in employment. I think that everyone would agree that it is critical that all parents thinking about a job can draw on child care that is safe and of high quality. The Government have done a great deal in the past 10 years. The landscape has been utterly transformed since 1997, with Sure Start children’s centres, the neighbourhood nurseries initiative and extended schools. In London, the Government have funded the child care affordability programme to help to plug the gap between London’s very high child care costs—a recent survey produced the figure of £8,000 a year for private nursery care in some places in London—and the national affordability threshold, for the purposes of calculating the child care tax credit, of £175 a week. Despite that, there are a number of problems.
First, given the route into assistance via the child care tax credit, which in turn is via the working tax credit, too many low-income working families who are on London wages but face London costs are simply not entitled to help. For those who do qualify, the required parental contribution is often still too high. Families with a total household income of £20,000 or so may still be required to find hundreds of pounds to contribute towards their child care costs. In addition, parents are confused and put off by a formula based on thresholds and percentage entitlements, especially if they really need to assemble a portfolio of child care, such as arranging for someone to pick up a child from a nursery or deal with two children in different child care settings. It is very hard—I would say that, in effect, it is impossible—for anyone to calculate what they will be entitled to and harder still to work out what they will then have to pay out of their future income.
Changes of circumstance can be particularly difficult to manage, especially as many child care providers demand payment in lieu of notice or reducing hours; that is not factored into the system. We could perhaps overlook all the disadvantages if the system were a major vehicle for helping low-income families with their costs, but it patently is not. The child care tax credit is making only a dent in the problem. Only 250,000 lone parents and 133,000 couples receive help from a national total of 6 million tax credit recipients and 1.6 million families in receipt of working tax credit.
Of course, there are significant local and regional variations. In my constituency, 4,770 families receive the working tax credit, but only 550—just under one in 10—receive help with child care costs. In my borough, Westminster, 4,830 households receive the working tax credit; a mere 490 families in the entire borough claim help with child care costs out of a population of 171,000. In Tower Hamlets—a borough more frequently associated with extreme poverty and low income—the figure is no better. A mere 520 families receive the child care tax credit out of 6,390 households that receive the working tax credit and a population of 148,000. In total, only 41,000 Londoners receive the child care tax credit. Given the number of households and the number on low incomes, common sense tells us that the system is failing to help a sufficient number of families.
Above all, although I have much sympathy for the broad thrust of the Government’s welfare reform policies, the child care tax credit fails to help parents of older children. The extended schools programme—an excellent initiative designed to provide wrap-around care from 8 am to 6 pm for 48 weeks of the year to parents whose children have entered the school system—relies explicitly on parental co-payment. That is the only way that the Government believe that those services can be made sustainable.
For lower income households, the child care tax credit is the means by which they can make a parental contribution to the extended schools scheme, yet research done by the Department for Children, Schools and Families indicates that the number of people doing so with the help of the child care tax credit is falling. If only 500 people in my borough receive the child care tax credit, it is easy to work out that most will be claiming the tax credit to help with nursery school fees of £200 or £300 a week and that virtually none will be drawing on that benefit for help with the extended schools scheme. That should ring loud alarm bells. We will not be able to deliver the extended school provision without parents making a co-payment, and they will not be able to make such a payment under the child care tax credit system.
It is clear that the child care tax credit is reaching the end of the road. It is not that it is a bad policy; it simply does not deliver what we want. We should look instead to an alternative that involves more direct funding of services—particularly, I argue, for provision for elder children. We also need a voucher or Oyster card system that includes a simple credit for parents who qualify for specific child care payments. That could provide them with up to 100 per cent. of the costs, depending on the circumstances. It would be calculated on income but be banded, and not subject to highly specific and difficult-to-calculate individual entitlements. It should also be able to accommodate regional variations in income, such as those that I have described.
I congratulate the hon. Lady on securing this timely debate. She mentioned the concept of the Oyster card as a way of paying for child care. Has she heard that some in receipt of the child care element of the working tax credit are not using the money to pay for child care and that the bad debts that some nurseries are experiencing as a result can be crippling?
There is clear anecdotal evidence that some parents are receiving the child care element but that it is not going to the providers. However, that would be an interesting subject for a wider debate. None the less, it is consistent with the Government’s approach, usually rightly so, and probably consistent with the approach that would be adopted by the Conservative party, that people should be able to choose how they dispose of their income.
I believe that parents should know exactly what they are entitled to, but that should not be about thresholds and percentages, which are hard to calculate. Whatever the technology, parents should be able to hold the equivalent of an entitlement to a specific number of hours of provision. In some cases, it might be provision for a child minder as well as for a nursery or extended school entitlement, based on household income, that passports them to a certain level of provision for child care.
Such a system is being explored by the London child care affordability programme, which is piloting variations on the child care tax credit system. That is excellent, but as always with such schemes, the pace is now so overwhelming that the child care element of the tax credit is no longer suitable, particularly in places such as London. We should move more swiftly to replace that element.
On housing costs and the interaction between the payment of housing and council tax benefits with tax credits, high rents in the private and temporary accommodation sectors—and, in London, even the social rented sector—make it inevitable that most lone and many two-parent families will continue to rely on housing benefits, even when in work.
That creates two problems, the first of which is structural: the impact of the taper can creep up to 85p in the pound, making it much harder for working families to reach an income above the poverty threshold. The second is an administrative problem, whereby families on tax credit are subject to a housing benefit regime that reassesses their benefit with every variation in income—an entirely different system of calculation from the tax credit. As a result, it is again utterly impossible for families to calculate their entitlement and to make forward projections of their circumstances.
Housing benefit and council tax benefit are poorly understood, and very much so as in-work benefits. Citizens Advice calculates that lone parents earning low wages will find that increasing their hours will not increase their final income. The current scheme leads to an increase of about £1 a week for every £30 a week extra in gross earnings. Those who can command high enough pay rates to move out of the housing benefit and council tax benefit trap might gain approximately £8 for every £30, but the higher the rent and the higher the child care costs, the less likely they will do so.
The official position of the Department for Work and Pensions is that higher rents do not have an impact on work incentives by dint of the fact that housing benefit can be an in-work benefit. Frankly, that is nonsense. The fact is that housing benefit can continue to cover people’s rent if the income is low and the rent high, but it will not help them to increase their earnings. Taken together with costs and the loss of passported benefits, people could easily end up being worse off in work. For example, a couple with two children and a rent of £120 a week would be only £23 a week better off if their income increased from £100 a week to £400 a week. If their rent was only £60 a week, or treated as such, they would be £55 a week better off.
Much could be done for a relatively small amount of money. Reducing the housing benefit taper rate in London would cost an estimated £70 million and increasing the earnings disregard would cost an estimated £20 million. Introducing a housing costs top-up in the tax credit system would be more expensive at an estimated £200 million. We need to do something similar with council tax benefit, which bites at a much lower rate for families on tax credit. For example, setting the lower earnings threshold for council tax benefit in line with full working tax credit would give a substantial boost to very low earners.
The London Child Poverty Commission argues—the Government accept the fact in principle—that higher costs mean that wages do not go as far in London. Although some people might accept work that makes them worse off in the short term in the expectation that their earnings will soon increase, it would be perverse to expect many to do so, especially if there were children to be considered, yet that is the reality for many London families.
The Government need to address two aspects of the “better off” calculations: first, the reliability and accuracy of information on people’s post-work income—I am thinking in particular of the difficulty in predicting when housing and council tax benefits and child care costs are taken into account—and, secondly, the substantial question whether they are better off after the essential costs of working are taken into account, especially travel, their own meals, school meals and clothing.
The Government have accepted the principle of a London premium, of course, with the introduction of the additional in-work credit—I congratulate them on accepting that principle—but that credit is time limited, and a London claimant would need a £3,000 a year net pay rise to compensate for its loss at the end of the fixed-term entitlement. That is another dimension to the “better off” calculation—how long can people expect to be better off in employment?
In many ways, the £25 a week—the Government’s basic figure when advising people whether to go into work—“better off” assessment is an illusion. It does not allow for fares to and from work or for child care. It does not cover school dinners. It includes no component for other working expenses, such as lunches or clothes, and has no element for the parental contribution to child care, as required under the child care tax credit. The £25 “better off” guarantee translates, therefore, into at least a £15 a week loss for a single parent with two children on school dinners requiring a two-zone travel card to get to work. I therefore urge the Government to do more, move faster to improve the quality of information underpinning “better off” calculations and address the substantial question whether families are better off in work.
The Government are piloting wider access to free school meals. I strongly recommend that this pilot be speeded up and extended to areas such as mine, where the loss of the benefit of free school dinners can make all the difference between work paying and not paying. Large numbers of people are out of work, but relatively few are on working tax credits, indicating that we have a problem of low-income working families who fall just above the working tax credit threshold. I urge the Minister to liaise with departmental colleagues and others to ensure that data modelling is carried out to establish how many people could benefit from the wider roll-out of the free school dinner programme.
If we are to make further progress in reducing in-work poverty among families with children—and in so doing improve work incentives, attract more people into work and sustain them in employment—we have to address the issues that I have outlined today. To those who ask, particularly given the difficult economic climate, how I can argue for more money to be invested, I say that the Government rightly look to putting money in the hands of those who will make best use of it in the local economy. I also point to the investment that we are making in raising employment overall.
The Freud report estimated that the average saving from moving a jobseeker’s allowance claimant into work to be £4,100 a year. If we are to carry on improving the rate of work entry and sustainability, especially over the long term, some of that money must be used to assist families in London communities such as mine, and in pockets around the country, where people have effectively been locked out of being better off in work.
I congratulate the hon. Member for Regent's Park and Kensington, North (Ms Buck) on securing this important debate; she has a fine and enviable record on such matters. Children throughout the UK are in her debt.
I should say as an Opposition Member that I am glad that the Government have ensured that millions of pounds of credit claims are in payment, and that many people receive the money that they deserve. I have some criticisms of the system, but clearly it is very effective in alleviating the effects of low wages and poverty. What interests me is how many people do not claim the tax credits to which they are entitled, especially the child care elements, and the consequences, especially in respect of accessing appropriate but costly and scarce child care.
The eventual proof of the system will be whether it gets the right money to the right people. To what extent is it failing to deliver, or even getting it wrong? There is evidence of both over a long period. Despite the Government’s efforts, real hardship and poverty persist. I see that particularly clearly in my constituency surgeries, as do other hon. Members. I see people who do not know enough, or even anything, about the tax credits system. I see people who are fearful of claiming or reclaiming, because of what they have heard or experienced regarding overpayments and subsequent clawbacks. Some people have been overpaid, and now face a substantial and extended loss of income, because of the need to repay. By definition, those people are on modest and low incomes anyway, so are least able to repay.
Some people who have been overpaid informed the Revenue properly, clearly, fully and in time, of all their circumstances, but still the Revenue got it wrong. I am glad to say that that happens in a decreasing number of cases. I regularly meet constituents who owe £3,000 or £4,000, or something lower—sometimes nothing at all—rather than £7,000 or £8,000. I commend to hon. Members the practice of asking the Revenue for telephone call recordings. Under certain circumstances, constituents of mine have been able to prove that they had provided the proper information by, “very spookily”, as one of them said, listening to themselves some years ago telling the Revenue what their circumstances were.
I am glad to say that some of my constituents and I have had some success in removing the shadow of many thousands of pounds of debt. However, real hardship and distress persist. In preparation for this debate, I looked for some figures. The most recent Government figures that I could find, for 2003-04, show that 2.6 million UK families were paid the wrong amount. To anchor my point in a real case, may I recall a constituent who contacted me because she had received a summary demand from the Revenue for a £9,000 repayment? Through her tears, she told me that her annual income was only £8,000. We do not need Mr. Micawber’s arithmetic to convince us of the fear and misery that such a situation can cause.
Will the Minister ensure that when notices of overpayment are sent out, they are not merely statements of debt with an implied requirement for a summary repayment? They should provide full information about how the debt arose, about how to dispute the overpayment—people think that they cannot do so—and about repaying in instalments, as that has been a lifeline for some people who have had to repay thousands of pounds, allowing them to manage their debt at a modest rate.
Will the hon. Gentleman ask the Minister to address the backdating system? Generally, if someone has been underclaiming or needs to make a new claim of which they were not aware before, they can backdate their claim only for three months. Surely the Government could be more generous when dealing with the most vulnerable people in society.
The hon. Gentleman makes a very good point. Debts can stand for years, but underpayments have a finite life. I refer in passing to a recent case of a firefighter who was overpaid. He could not foresee his likely earnings, because he was part-time and could not foresee how many times he would go out, yet he faced having to pay thousands of pounds, because his income forecast was wrong.
In my constituency, and in Wales in general, the local and national rates of economic activity are relatively low. Many people are on low wages in service industries. The predominant pattern of employment is self-employment, which is subject to low and insecure earnings that can vary greatly over a short time. One consequence, of course, is a variation in the need for child care. In some circumstances, that variation is very difficult to foresee. I agree with the Government that getting people back to work is a central plank of any anti-poverty strategy. Tax credits can help to get people into work, and keep them in work as well. They can show that work pays more than welfare, which gives people the incentive to move up the income ladder. I accept all those facts. However, it is becoming increasingly clear that, for some people at least, the tax credit system is a disincentive to getting back to work. In some cases, people prefer to work on a low wage and not even claim rather than become entangled in what they see as the tax credits web. Citizens Advice reports that half the claimants involved in overpayment cases in 2007 would be unlikely to claim again. Whether they do so or not is another matter, but their sentiments, after being involved in such cases, are that the credits are a disincentive. I have heard that directly from my own constituents.
I also accept that take-up rates of tax credits are much better than they were in preceding systems. I am afraid that I am old enough to remember family income supplements, family credit and, of course, the family tax credit, which had take-up rates between 49 and 76 per cent. I am very glad to say that we are doing a great deal better than that. In 2008, Her Majesty’s Revenue and Customs published the take-up rates for 2005-06. For child tax credits, they were between 80 and 84 per cent., and for working tax credits, between 59 and 63 per cent. The other side of the coin is that nearly four out of 10 people who could claim working tax credit were not claiming it. Those people are, by definition, people on modest incomes. Will the Minister tell us what more the Government can do to encourage fuller take-up or even, dare I say it, full take-up of tax credits? I am sure that more can be done in that area.
In April 2008, according to HMRC, Wales had 320,000 families claiming working tax credits, with only 20,000 claiming the child care elements, which reflects the figures that the hon. Member for Regent's Park and Kensington, North mentioned. The average take-up in Wales was about £60.50, compared with £65 on a UK basis. Clearly, people are claiming less for child care in Wales, which contrasts with the situation in inner cities, where child care is difficult because of the cost. I appreciate entirely the hon. Lady’s argument in that regard.
A low proportion of claimants in Wales were claiming the child care element, compared with the UK as a whole. In Wales, fewer people are claiming, and they are claiming less, which is a cause for concern. Incidentally, the child care element in Wales is more likely to be claimed by single parents than is the case elsewhere. Although the working tax credit for child care is a vital part of alleviating and eradicating poverty among single parents in Wales, much more needs to be done. That is particularly true in respect of rural areas, which brings me to my last point.
There is a particular problem in rural areas, as there is in inner city areas. Let me refer briefly to a bilingual report that I commissioned some years ago called “Gofal O Fath Gwahanol” or “A Different Kind of Care”, which covered informal child care in rural north-west Wales. It is a bit long in the tooth, but it is the only report that I know that specifically considers that question. It shows that child care in rural areas can be scarce, of variable quality and possibly in the wrong place. People may have to drive miles in one direction to access child care and many miles in the other direction to go to work. One of the answers identified in the report is the possibility of supporting in-laws—grandparents mainly—by non-monetary means. Given that they provide free child care in such a situation, the report considers whether something further can be done to support them. I would be interested to hear the Minister’s comments on those matters as well.
In rural areas, as well as in the inner cities, there is a failure by the markets to provide affordable, high-quality child care. Child care is scarce, expensive, fragile and frequently in the wrong place. Last summer, I visited Sweden with the all-party Sweden group, which was very interesting. I need hardly contrast the universal system of child care that exists there with the situation in Wales and the UK in general. We need a more universal system of child care if we are to enable people to take up work so that they and their children can escape poverty. That is the answer for areas in which there is clear market failure. Such a system should be targeted not only on an income basis but on a geographical basis, and should come into force if there is market failure in the inner cities or in extremely rural areas.
The Welsh Assembly and local authorities in Wales are working hard on the issue, and I commend their efforts. We must look at diverting the money spent on working tax credits for child care to a more universal system. I therefore ask the Minister to tell the House what consideration he has given, or intends to give, to radical alternative models of providing child care other than the review of the tax credit system. Will he also look at providing universal child care in some areas and at supporting family members?
It is a pleasure to follow the hon. Member for Caernarfon (Hywel Williams). I agree that access to child care is an important issue. If we want to get families into work, they need good access to flexible child care.
I congratulate the hon. Member for Regent's Park and Kensington, North (Ms Buck) on her full outline of the benefits trap that faces so many of our constituents, and on securing this timely debate. Yesterday, we spoke a great deal about social mobility. Hon. Members from all parts of the House agree that worklessness is one of the problems faced by many families, particularly lone parents, in trying to overcome poverty, so helping people into work is an important part of improving their access to social mobility.
Two working parents are the norm in every part of the country, so child care provision is vital for all communities. I will focus my remarks on child care and the challenges that we face as a result of the problems with the child care element of the working tax credit. One in five women—I am talking about women because child care affects them so much—have problems finding affordable child care, which is something of a conundrum, given the emphasis the Government have placed on making child care affordable for more people in the country. From talking to people in my own constituency, I know that affordability is still a real problem throughout the country. The child care element of the working tax credit was designed to address that issue, but only one in four eligible families receive it, and it is not getting to the people who need it most. I was interested to note that the hon. Member for Regent's Park and Kensington, North said that only one in 10 of her constituents who was eligible was able to access it, which shows that this is an acute problem in certain parts of the country. I should like to focus on the impact of that problem. I want to talk not just about the implications of a tax credit system that is making overpayments and creating real heartache and anguish for so many of our constituents but the implications for child care in the long term and for the children who suffer.
The knock-on effects of the failure of child care tax credits are significant. The Government have expanded the number of child care places, predominantly through the Sure Start scheme, over the past 10 years to enable more people to access child care. However, because the child care element of the working tax credit is not working in the way it is supposed to work, many nurseries find it difficult to remain sustainable in the long term. The figures that I found in parliamentary answers show that, since 2003, the number of full day-care places has dropped. Four out of 10 nurseries are experiencing extreme financial problems. The National Day Nurseries Association recently issued a report that a third of nurseries are reporting that occupancies are down. The Government really have to wake up. They have expanded the number of child care places, but they still rely on the private sector, so the fact that their affordability programme is not working is creating havoc in the child care market. The Minister must reassure us that he understands that, and that he will do something about it by looking at how we can make the child care element of the working tax credit work as it was designed to work. It is almost as if the Government are turning their back on an over-engineered policy that, frankly, does not work, even though they had a decade to design it, rather than fixing it for the families that it was designed to help.
The second thing that I should like to talk about is the impact on children’s lives. Good-quality child care can have an enormously positive impact on the early-years development of children who live in the most deprived communities in our country. We also know, from Leon Feinstein’s work, that by age two, children from more privileged backgrounds can have advantages over children from poorer areas, and that the availability of good-quality child care at that age can help to reduce the gap between the most and least advantaged children in our society. At the moment, that gap is widening.
I am perplexed as to why the Government are not addressing the issue. They know that there is a problem, and that there is a problem with take-up. If we are not to see some quite catastrophic effects on the child care industry in the long term, the Government must act now. It is ironic that the Government, who have done so much to expand the amount of available child care, are now presiding over problems in the sector. Rather than simply announcing, as his colleague the Prime Minister did at the Labour party conference last year, more access to free child care for two-year-olds, before withdrawing it as a result of Conservative probing, I urge the Minister to look for a long-term solution to the problem of the affordability of child care in this country by fixing a policy that is manifestly not working at the moment.
I congratulate the hon. Member for Regent’s Park and Kensington, North (Ms Buck) on securing the debate. She has an admirable record of speaking on such issues and I am delighted by some of her comments, especially on child care. I support some of her remarks, although I want to broaden the debate to include working tax credits more generally with reference to examples from my constituency.
The hon. Lady was absolutely right when she said that take-up in relation to child care has not been what the Government originally intended. As the hon. Member for Basingstoke (Mrs. Miller) said, that is because this is a highly over-engineered, inflexible product, and it is not meeting the needs of families for many reasons. There is a maximum cap of 80 per cent. of £175 a week for one child, or £300 a week for two children; any employer contribution is capped at £55; there is a rule that says that people must work at least 16 hours; and the availability of child care does not take account of some families’ flexible working practices.
The Government have an admirable record on the provision of child care places, but those things mean that the take-up of the child care element of working tax credit has not been what it should be. I hope that they listen carefully to this sensible and straight debate, because all hon. Members want the system to be improved.
The hon. Gentleman is making some important points about how the system works. Does he feel, as I do, that the Government could learn from the salary-sacrifice schemes that so many employers are putting in place, whereby employees can receive national insurance advantages by putting money into child care? It is a simple system—it avoids the complexity of the child care element of working tax credit—and it seems to work.
I agree entirely. The Prime Minister this week announced support to take people off the unemployment register. What greater fillip could there be than him, at the same time, encouraging and making it easier for employers to support people into employment? I agree with the hon. Lady that it would work out a lot cheaper all round.
I welcome the opportunity to talk more generally about working tax credit, which is the title of the debate, because the wider debate needs to be addressed. I do not agree with the hon. Member for Regent’s Park and Kensington, North that the system is working. The fact is that five years after working tax credit was introduced, it is still a disaster for many. The figures on working tax credits for 2006-07 obtained before Christmas by my hon. Friend the Member for Cardiff, Central (Jenny Willott)—the latest figures—show that £1.2 billion was overpaid and that 1 million people were still affected by overpayment.
If we look at all the figures available from 2003, we see that more than 1.8 million families have been overpaid tax credits more than once in the four years that the system has been running, including 400,000 in 2006-07. Those 1.8 million families represent more than one in five of the families that claimed in the period. Some 461,000 of those families—nearly half a million—have been overpaid more than twice in four years, and 63,000 have been overpaid more than three times. The system is designed to help the poorest people and to help them into work, so those are frightening figures.
Yes. In fact, if the hon. Gentleman looks at the figures, he will see that overpayments since April 2003 amount to £6.7 billion and that the overall cost, including administration and so on, is £14 billion. The average overpayment in 2005-06 was £916. Those are frightening figures, as I said.
In response to those problems, the parliamentary ombudsman has published two excellent reports, the last of which came out in October 2007. The recommendations that she made in that report are pertinent to the current situation. She mentioned three problems with the tax credits system: its design, a failure in complaints handling, and the unfair and unreasonable application of code of practice 26, which is Her Majesty’s Revenue and Customs policy on what to do in the event of overpayment.
The ombudsman made six recommendations at the end of her report, all of which were accepted by the Government. In her 2007-08 annual report, she stated:
“The Government accepted all recommendations in the report and is taking action to implement them. A key improvement is the revision of COP 26 to better reflect the balance of responsibilities on both tax credit claimants and HMRC.”
However, in a section entitled “Still getting things wrong” she also stated:
“It is clear from the complaints received that attempts by HMRC to recover overpayments made under the tax credit system continue to cause distress and hardship for a significant number of people. As one complainant put it: ‘Tax credits are supposed to help families, not cause them money worries’.”
I would like to give two examples from my own constituency in which I believe that, regardless of what the Government have said about code of practice 26 and the application of the overpayment system, HMRC has deliberately ignored at least five of the ombudsman’s six recommendations. I remind the Minister of the last recommendation:
“In considering the recovery of tax credit overpayments, the Debt Management and Banking Unit should be required to tailor their approach to the needs of the customer group. In the case of tax credit recipients, that would include considering family circumstances (such as whether they include children or adults with disabilities or severe illness) and the likely impact on the individual or family. That consideration should also include whether recovery, either immediate or suspended, would work against the policy objectives of the tax credit scheme.”
I believe that that recommendation is pertinent to what I want to say about my two cases and to what the Department has been doing since on the number of cases that have been allowed and the number of people taken to court in at least the past eight months.
My first case is that of Mr. and Mrs. F, an elderly couple who look after their granddaughter. Having made an application for tax credits just over two and a half years ago, they were receiving £136, which later increased to £400. They were told that that increase occurred because the Department had recorded that their granddaughter was severely disabled, but she was not. Regardless of the fact that it was Mr. F who informed the tax office of the mistake, he was asked to repay £4,823 of the overpayment. That caused him unbearable stress: he is 76 and subsequently suffered a heart attack.
Mr. F then tried to gain access to his phone records in relation to the tax credit form and the claim form in which he was supposed to have stated that his granddaughter was severely disabled. That request was denied, which is a clear contravention of the recommendations of the ombudsman’s report. After Mr. F contacted my office, we were able to get that information for him. HMRC agreed that he had not claimed that his granddaughter was severely disabled, the claim for £4,823 was dropped and he received £150 in compensation. He first raised the issue with HMRC in January 2007, and only this month was the problem sorted out, so such cases are happening now, regardless of the ombudsman’s recommendations.
My second case is that of Mrs. M. It is an example of an attempt to claw back working tax credit, despite the fact that Mrs. M had kept the tax credit office abreast of all the circumstances and recorded her correspondence. The tax office claimed that she had been overpaid for child care, despite the fact that she had called the tax credit office to inform it of her child care circumstances. At that stage, the tax credit office was attempting to claim back £2,600, even though she had always kept the Department informed of what was going on.
The Department then admitted that a computer glitch had caused Mrs. M’s record to show that she had received over three times as much working tax credit as she had in fact received. Consequently, she had been underpaid by £126.76, and in the two years during which she had pursed the claim her entitlement had been reduced by £1,625.96, which she is now owed. Again, that case took nearly three years to resolve, and that lady is working on the minimum wage. She is being threatened with court action, despite keeping all the information, which is why I believe that code of practice 26 and the recommendations on what the Department should do when things go wrong are being applied in name only.
The number of times that HMRC has used a court case to claw back overpayments has increased massively: between April and October 2008, 5,697 people were taken to court for overpayment, which is a 500 per cent. increase on the previous figure. I put it to the Minister that, with regard to the application of code of practice 26 in the tax credit system, the issues raised in the report do not seem to have been taken on board, which is shown by the fact that people are still being pursued in the way I have described.
In 2005, 351,500 people disputed overpayments with the Department and 162,500 were written off. In 2006, 350,000 people complained, so that figure was roughly the same, and 14,000 were written off. In 2007, 202,000 complained and only 12,350 were written off. That says to me that HMRC, rather than putting in place the ombudsman’s recommendations, is taking a much harder line and penalising people through a system that was designed to help them and is, in my view, not doing so.
I finish by quoting another important point from the ombudsman’s report:
“These decisions effectively place those low income families and earners in debt, and in many cases will have a financial impact on them for years to come, often causing them hardship and anxiety.”
I believe that that is the case: a system that was designed to help people is, by its application, continuing to cause huge distress and anxiety. I hope that the Minister will take that on board and ensure fully that those recommendations are implemented so that the principles in the report are applied. I hope, too, that that will sometimes include an acceptance that the Department is at fault, rather than the individual.
Why should a system that is designed to get people out of poverty and into work have a perverse effect that is the reverse of its original intention? In my view, that is what it is doing.
It is a pleasure to serve under your chairmanship once again, Mr. Weir. I begin by congratulating the hon. Member for Regent's Park and Kensington, North (Ms Buck) on not only securing the debate, but setting out her case so well. In a clear, thoughtful and analytical speech, she identified many of the difficulties facing working families with children and the poverty trap that exists for such families, particularly in London—she is a London MP—which is a high-cost area. I will focus the bulk of my remarks on the points that she made, particularly those that relate to the child care element of working tax credit. However, the title of this debate refers to tax credits generally, and this is the first Westminster Hall debate that we have had on the subject for a while.
The hon. Members for Caernarfon (Hywel Williams) and for Rochdale (Paul Rowen) rightly raised broader issues and difficulties with the tax credit system, particularly problems caused by overpayments. That is a long-standing issue; as the hon. Member for Rochdale pointed out, the parliamentary ombudsman has been involved, and he could have mentioned that the National Audit Office considers it regularly. There are continuing difficulties with overpayment. I do not think that any of us is under any illusion about the difficulties that overpayments can create, often through no fault of the recipients, who find to their surprise that they are required to pay back amounts that are substantial given their income.
The problem is one that we as Members of Parliament face in our constituencies and address in such debates fairly regularly. I am sure that the Minister will explain what the Government are doing to address it—I have no doubt that he will discuss reforms of code of practice 26, which was mentioned by the hon. Member for Rochdale—but the problem has not gone away, and it is right that we should acknowledge that.
We in the Conservative party take a slightly different view from that of the Liberal Democrats. If we are elected in the next general election, we will not abolish tax credits, despite the claims made by some Ministers—I am sure that the Financial Secretary will not fall into that trap—but we recognise the need for fairly substantial reforms in the administration of tax credits to address the concerns that have been outlined in this debate and on other occasions.
The hon. Member for Caernarfon made a point about take-up. Generally, the take-up of child tax credits is pretty high—the Government are proud of that record—but working tax credits tend to be more of an issue. He gave statistics for the take-up of working tax credits; it is around 40 per cent. However, there is an issue with working tax credits in households with no children. Historically, take-up figures have been low; a couple of years ago the take-up was 26 per cent. or so. I can remember the Prime Minister saying when he was Chancellor that the take-up would increase substantially. Will the Minister outline what progress has been made on that front?
The hon. Member for Regent’s Park and Kensington, North raised the issue of child care and the child care tax credit. Child care is hugely important. We want to get people back into work and encourage social mobility, but inadequate child care can hold people back. My hon. Friend the Member for Basingstoke (Mrs. Miller), who has great expertise on the subject, said that one in five women have difficulty finding affordable child care. Other figures compiled by the Daycare Trust state that the problem is particularly acute for those on lower earnings. Of those who earn less than £10,000 a year, 34 per cent. find child care unaffordable.
The quality of child care is also an issue. According to my hon. Friend, the number of failing child care settings in the poorest 5 per cent. of areas in England has increased from 6.6 to 10 per cent., which is worrying. Also, as she said, more child care facilities are being closed. Indeed, I believe that, last year, more places were closed than opened. Child care is a live issue, and not an entirely successful one, I am afraid.
On the child care element of the working tax credit, the system is complicated, as we have heard from the hon. Member for Regent’s Park and Kensington, North. Those eligible cannot spend the money on informal child care, as the hon. Member for Caernarfon pointed out. That is particularly relevant for low-income households. Research by the Institute for Public Policy Research states that, whereas 52 per cent. of families with a yearly income above £32,000 use formal child care, the figure falls to 31 per cent. for those earning £10,000. It appears that those on lower earnings are more likely to use informal child care, the very sort with which the child care element of working tax credit cannot assist.
As a consequence of the problems of complexity and eligibility, take-up is low. The figures given by the hon. Member for Regent’s Park and Kensington, North were striking and suggest that it is very low. Can the Minister give precise figures on the national picture? As far as I can see, the precise percentage of those on working tax credit who claim the child care element is not easy to find, because some do not have children, but Policy Exchange estimates it to be 26 per cent. of the 1.65 million families claiming working tax credit. That figure is pretty low, and it suggests that we have a problem. As the hon. Lady said, the child care element of working tax credit is not working. There is clearly a need to make it simpler and much more user-friendly. Surely, we can improve how we do it.
As far as I can see, there is also an issue with lower-income couples where both parents work. There is evidence to suggest that take-up is particularly low in that group, which may explain why fewer mothers from two-parent households appear to be in work nowadays. Whereas there has been an increase in the number of lone parents working—although not as great an increase as the Government might hope—the number of working mothers from two-parent households appears to be decreasing. If I am wrong, I am sure that the Minister will correct me, for which I would be grateful.
In the context of support for families with children and tax credits, the couple penalty within the tax credit system has not been mentioned specifically by those who have contributed to the debate. We all know that family breakdown is a great problem faced by society and that children who suffer a family breakdown are more likely to fail at school and have drug and alcohol problems; we have evidence. I pay tribute to my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) for the enormous amount of work that he has done on the subject with the Centre for Social Justice. A considerable amount of research suggests that children benefit from having two parents. That is not a moral judgment but a purely pragmatic one. It seems a justifiable public policy objective to do what we can to prevent family breakdowns and keep couples together.
One of the difficulties that has emerged in recent years with the tax credit system is that it penalises the formation of couples. Indeed, there was a report by the Civitas think-tank earlier this month that showed that some parents can be more than 20 per cent. worse off if they live together rather than separately. That has a number of implications, one of which is that a degree of fraud appears to have been created, with some parents claiming to live separately when in fact they live together. The Institute for Fiscal Studies has put together some research on this subject and showed that about 200,000 more people received benefits and tax credits as lone parents than there are lone parents in the country, so that is an issue.
The hon. Gentleman makes an important point. However, when people address the couple penalty, there is often an assumption that one member of the couple is able both to access and pay for their housing costs. Is that factor not usually taken into consideration when the couple penalty calculation is made?
As I understand it, the basis for that calculation is the income that needs to be achieved to live above the level of poverty. Regarding the benefits that lone parents receive, there is an assumption that it is much easier as a couple to live relatively comfortably. I do not think that the arguments made by a number of groups that people are worse off living alone are correct. Indeed, there are case studies that basically show that some couples would do better living separately than together. There is some empirical evidence to suggest that that is the case.
There is an issue with the couple penalty, and we think that it needs to be addressed. I should be grateful for the Minister’s view on this matter. Is any consideration being given to addressing the couple penalty? Addressing it would not only take about 300,000 children out of child poverty, but indicate to people that living together will not be penalised, that there is an encouragement of family stability and that we are seeking to address the real concerns that exist about family breakdown.
We have had a useful and interesting debate. The essential point made by the hon. Member for Regent’s Park and Kensington, North has been the existence of a poverty trap or benefit trap. That trap exists 11 years after the election of a Labour Government who had argued that welfare reform would be one of their priorities and who have argued that getting people into work is essential in eliminating poverty and encouraging social mobility. What we have heard today demonstrates that, after 11 years, an enormous amount still needs to be done.
I begin by apologising for my lack of punctuality at the start of this debate, Mr. Weir. I am delighted that we are sitting under your chairmanship this afternoon.
As others have done, I congratulate my hon. Friend the Member for Regent’s Park and Kensington, North (Ms Buck) on securing the debate. I welcome her deep and sustained interest in the topics that she has discussed in this very useful debate, and I certainly welcome her continued interest in policy in this area.
Tax credits today provide support to nearly 20 million people in about 6 million families, including 10 million children. In December 2008, just over 10,000 families, including 19,000 children, were benefiting from tax credits in my hon. Friend’s constituency, as she knows. I am grateful to her for her very full recognition today of how the system has been valuable—indeed central—to reducing the tax burden on low-income and middle-income families. It has helped to ensure that about four in 10 families in Britain now pay no net tax.
I am sure that that success has been one of the considerations behind the conversion of the Conservative party to a degree of support for tax credits, which the hon. Member for South-West Hertfordshire (Mr. Gauke) acknowledged. I am not sure that “support” is quite the right term; none the less, there has been Conservative acquiescence the system, after a reversal of the party’s former opposition to. I welcome that development. I think it is widely acknowledged that the system has done a very valuable job, not least in helping to move people into work and helping them to move up the employment ladder, and in making sure that in the great majority of cases, with some exceptions that we have heard about, work pays more than benefit. The system has been changed substantially in that direction, which is the right direction, since it was introduced.
The system of tax credits has played a key role in tackling child poverty, as my hon. Friend the Member for Regent’s Park and Kensington, North also knows very well from her work on that topic; she has taken a particular interest in tackling child poverty in London. As a result of all the changes to the personal tax and benefit system since 1997, families with children in the poorest fifth of the population are now £4,100 a year better off in real terms. That figure will rise to £4,400 a year by 2009-10. Tax credits have achieved a decisive change.
Quite rightly, we have discussed in this debate the take-up of tax credits. As the hon. Member for Caernarfon (Hywel Williams) generously acknowledged, take-up is high, with low-income families the most likely to take up their entitlement. According to the latest figures—new figures are expected next month—take-up of the child tax credit was 82 per cent. in 2005-06, with more than 90 per cent. of the money available being claimed. Take-up among those people with incomes of less than £10,000 a year is now 96 per cent., so there is very high take-up, as there should be. As the hon. Gentleman also acknowledged, take-up is higher than for any of the previous systems of income-related in-work financial support for families. The take-up rate was 50 per cent. in the early years of family income supplement, as he recalled; 57 per cent. for family credit; and 65 per cent. for working families tax credit, so take-up now is not only higher, but quite significantly higher than it was in the previous system.
None the less, we need to do more to ensure that as many families as possible take up the help that is available to them. We have therefore convened a taskforce of experts from local authorities and the third sector. It will report in the spring with advice that is particularly addressed to local authorities on how to improve take-up further, while recognising that for many people their interface with the benefit system is initially for housing benefit and council tax benefit. If we can extend support and improve the access to the tax credits system as part of that discussion, we should take that opportunity.
We are also taking steps to ensure that childless workers claim and receive the support through working tax credit that they are entitled to—that is a point that the hon. Member for South-West Hertfordshire very fairly raised. In the pre-Budget report, the Chancellor drew attention to initiatives taken by Her Majesty’s Revenue and Customs to increase take-up, again working with other organisations. At the moment, HMRC is working with 40 organisations, which between them have more than 500,000 employees. They include the Local Government Association where, on the initiative of Sir Jeremy Beecham of the LGA, we are working with six large authorities—Manchester, Nottingham, Thameside, Camden, Leeds and Durham—to encourage take-up of working tax credits by those employees who are eligible. Furthermore, in the coming year, HMRC will aim to double that coverage by working with the new national employment partnership, which met for the first time recently, to raise employers’ awareness of working tax credit and encourage take-up in that way. HMRC will also work alongside Jobcentre Plus to ensure that people starting work receive advice on the support available to them.
The hon. Gentleman is right to note that HMRC is a UK-wide organisation. It certainly works in Wales as well, and I shall be happy to drop him a line setting out the details.
Having mentioned Jobcentre Plus, let me pick up the point that my hon. Friend the Member for Regent's Park and Kensington, North made about the “better off in work” calculations, which are important. From everything that I have heard, including in my former role as the Minister with responsibility for Jobcentre Plus, those calculations have helped people to understand how much better off they will be when they are in work. When I was in that role, much of the lobbying that I received urged me to make those calculations more widely available. As my hon. Friend knows, they are difficult to do and take a lot of time, so there is, rightly, some reluctance to make them more complicated by adding more elements. She is right to note, however, that people need to take account of other factors, such as the cost of school meals, when making an assessment. I think she will acknowledge that there is a trade-off between how much is put into the calculations and the ability of Jobcentre Plus to provide them in a helpful form to as many people as possible.
We have talked about difficulties in the early days of the tax credit system that will have become familiar to all Members, but things have improved since then, as the hon. Member for Caernarfon acknowledged. Most people now receive a good service, although that is not true for everyone and there is room for further improvement. I acknowledge the points that the hon. Member for Rochdale (Paul Rowen) made about the difficulties that some of his constituents have faced. The tax credits transformation programme, which was introduced in 2006, has succeeded in making valuable improvements to the service.
The biggest problem has been with overpayments, which the hon. Members for Caernarfon and for Rochdale spoke about. The extent of end-of-year adjustments leading to overpayment has fallen significantly in the past couple of years, particularly as a result of the measures to improve the system that were announced in the 2005 pre-Budget report. Overpayments now constitute about 5 per cent. of gross spending on tax credits, which is still more than I would like, but is significantly less than it used to be, amounting to about £700 million last year, which is a 40 per cent. reduction on the previous year. That is better than the projection that we made in the 2005 pre-Budget report that overpayments would fall by about a third. The number of families affected by overpayments is down from 1.9 million to 1.3 million, and the average overpayment is down by almost £100 to £738.
There was a further important improvement last January, following discussions with representative organisations, when HMRC revised its guidance on when it will write off an overpayment where there has been an error by the Department. This matter was touched on in an intervention. The revised test means a fairer balance of responsibilities between the customer and HMRC, and a less restricted willingness to write off. My experience in my constituency surgery is that that has resulted in improved decision making and fewer overpayment problems, although I certainly would not claim that there are none. I got the impression from the hon. Member for Caernarfon that he thought that was the case, but was not sure, and I counted the hon. Member for Rochdale as having acknowledged that. I am grateful for the hon. Member for Caernarfon’s acknowledgement that that is the case.
The hon. Gentleman was right to highlight the importance of having good arrangements in place to allow the recovery of overpayments over a period, instead of demanding it straight away. HMRC restricts recovery on overpayments from continuing awards to 10 per cent. for those on the maximum award and to 25 per cent. for those on the first income layer, so those difficulties have already been taken into account when recovery rates are assessed. A 12-month instalment arrangement is available for those who no longer receive an award, with longer payback periods where that is appropriate. If those rates of recovery still cause hardship, people can contact HMRC, which is required to consider operating a slower rate of recovery and even writing off overpayments in exceptional circumstances.
I am glad that the hon. Member for Rochdale has been able to resolve the problems in both of the cases that he described. Clearly, resolution took far too long in those cases. I am always happy to look at problems with individual cases when Members raise them with me.
I want to spend some time on the child care element of working tax credit, which was at the centre of the speech made by my hon. Friend the Member for Regent's Park and Kensington, North. The latest figures show that 461,500 families benefited from the child care element of the working tax credit last December. That is an increase of 8 per cent. on 12 months ago, which is 37 per cent. higher compared with April 2005. My hon. Friend gave the figure for the number of families benefiting in her constituency, which I believe is 60 per cent. higher than it was four years ago, in April 2005.
My hon. Friend is right that access to good-quality affordable child care can be more difficult in high-cost areas such as London. The London child care affordability pilots have gone some way to addressing that problem. As I have mentioned, we announced in the pre-Budget report a taskforce of experts to help with promotion. Those initiatives should help to meet the challenges in London in particular, as will the agreements that were announced in the London child poverty strategy in November.
The aim of the child care element is to break down barriers to work. We have introduced free nursery places and free early-years education for three and four-year-olds, and we are extending the entitlement to up to 16.5 hours a week by 2010.
Will my right hon. Friend discuss or write to me about my concerns about the child care element and care for older children in extended schools, in the light of the research by the Department for Children, Schools and Families that the number of children who are being assisted in this way has declined?
I am happy to drop my hon. Friend a line about that, perhaps following discussion with DCSF officials.
The hon. Member for Basingstoke (Mrs. Miller) said that the Prime Minister’s commitment had been watered down or withdrawn, but that is not the case. Indeed, the White Paper that was published yesterday sets out the first step in delivering that commitment for two-year-olds as well.
There has rightly been a good deal of debate about take-up of the child care element, which is difficult to assess. I certainly do not have clear data on it. The difficulty is in knowing how many people want it. My hon. Friend has suggested that it is taken up by about 10 per cent. of those in her constituency who receive tax credits, but we need to ask how many we expect or want to access it, perhaps by taking up formal child care and therefore using up the child care element. We do not have clear data on that, and it may be useful to do extra work in that area to get a sense of the extent of the need being met, which I think is rather higher than has been suggested.
I am grateful for the opportunity to discuss an important issue. The economic downturn is adversely affecting many parts of society, but community pharmacists are shouldering a significant burden. In recent years, the reimbursement regime has led to financial uncertainty, which is compounded by restrictions in credit. The White Paper, “Pharmacy in England: Building on Strengths—Delivering the Future”, provides an outstanding opportunity to consolidate the good work done by pharmacists and further develop their role to the benefit of the communities that they serve. However, that opportunity might be missed if the current financial problems are not solved. Not only will many pharmacists be unable to afford diversification, but some might be threatened with bankruptcy by the capricious nature of the clawback system.
The future of community pharmacy is at a crux and the Government must act carefully to ensure that a vital community resource is not irreparably damaged. The fundamental problem is the nature of reimbursement for category M drugs. Combined with the profit cut for pharmacies, changes in price tariffs for category M drugs have prompted the erratic measure of clawing back excess profit. In addition, recalculations requiring additional reimbursement and further clawbacks at short notice have taken place. The fault in category M reimbursement lies in its complexity—it is complicated, it lacks transparency, and changes cannot be foreseen. The Pharmaceutical Services Negotiating Committee gives the following outline of how pharmacies are reimbursed:
“Contractors will receive an advance payment for October’s prescriptions in early December. This is normally 80 per cent. in advance; however as the advance payment will be calculated based on the AIV”—
average item value—
“of September’s prescriptions and the national AIV is expected to rise in October, the advance payment made is likely to be less than 80 per cent. of total payment for October’s prescriptions.”
If that is not enough, it goes on to state:
“In early January 2009, once the NHSBSA”—
the NHS business service authority—
“prescription pricing division has completed the pricing of October’s prescriptions, the remaining balance will be paid. The payment that will be made to contractors in early January will be the first payment to reflect the new payment levels.”
It could not get more complicated, although I accept that the local government funding formula probably comes close.
Pharmacists in my constituency tell me that the system is too cumbersome and has prevented pharmacies, especially smaller operators, from being able to manage and plan their cash flow effectively. The Independent Pharmacy Federation states that there has been a significant financial impact on the ability of independents to pay their bills since January 2008. Pharmacies have no advance view of the wider picture of transactions and cannot foresee how much excess profit is generated. None the less, the Government clawed back on average £30,000 per pharmacy between October 2007 and March 2008. Some pharmacists in my constituency have told me that they are essentially facing a reduction of 10 per cent. in their income this year and that they do not have the same security offered to other parts of the health service. A reduction in income and uncertainty of income are, at best, preventing investment in local pharmacies—at worst, they could cause bankruptcy.
In the past, banks were able to offer sympathetic overdrafts and sufficient credit to allow pharmacists to offset somewhat that absurd reimbursement regime. There are fears that the next unexpected clawback will not find the banks in such an understanding frame of mind. A mechanism is clearly required to ensure accurate reimbursement and to maintain a satisfactory margin of profit for pharmacies. Although the White Paper advocates substantial innovation, there is no need fundamentally to change the working—particularly the financial model—of pharmacies. However, category M is only one of several elements of income for pharmacists, and the complexity of the reimbursement process is itself a great cause for concern. There are also commercial pressures on pharmacies.
The move towards direct-to-pharmacy supply chains will also reduce pharmacists’ profits, and further dissuade forward investment. Problems have already arisen, with wholesalers occasionally requiring pressure to reduce prices to the levels of the drug tariff, and the reduced competition direct to pharmacy will exacerbate that difficulty. The potential of pharmacies to contribute to the NHS has been neglected in recent years, and the White Paper provides a perfect opportunity to bolster the service. So far, there has been little co-ordination with primary care trusts, GP surgeries and pharmacies—in some cases, there has even been a spirit of competition between them.
Lord Hunt has acknowledged that the NHS reform programme has adversely affected pharmacies and that not enough has been done to promote the wider range of services that they can offer. There is the barrier of IT integration and a lack of sharing of best practice on how to incorporate pharmacies into holistic local health care provision. The spectre of polyclinics also seems to threaten pharmacy stability. With any centralisation of GP practice, there will follow a centralisation of prescribing businesses, and pharmacies will close down in rural and deprived areas—places where such community resources are most vital.
Polyclinics highlight a trend towards centralisation that could remove services from deprived areas. Indeed, the financial pressures on small chains of market-oriented pharmacists could force them to cut branches, which will inevitably be in the less profitable but most needy areas. The emphasis on competition and choice is not well founded; it pits professional groups against one another, and it leads to a lack of co-ordination and co-operation. PCTs have not developed as effective commissioners. In some senses, they have not been allowed to develop effectively, and the danger is that that approach will create effects contrary to those desired by patients.
Instead of the cost cutting that inevitably occurs with competition, impeccable standards across the board are desired in health care. The focus seems to be purely financial, and as a result professional ethics will suffer. The White Paper is a timely response to those issues and if properly implemented, the measures it contains could expand organically the role of pharmacies, reduce the burden on GPs, and provide better services for the public. A more balanced health care system that engenders co-operation between GPs, pharmacies, PCTs and other groups would improve the service to patients. The most important factor in achieving that is stability.
Investment in new, improved services is funded through pharmacists’ margins and is fundamentally entrepreneurial. The instability of cash flow inherent in the reimbursement system seriously deters that entrepreneurial spirit. Some pharmacists have started to develop add-on services, and have aimed to tender for locally enhanced services, but when clawbacks have been announced, the additional staff taken on for those services are the first to be laid off. The sometimes daunting prospect of engaging with the PCTs’ tendering process can also dissuade investment in additional services. The White Paper aims to address the disparity between PCTs’ commissioning practices, which will be a vital element of ensuring the stability needed for improved service delivery. PCTs need a greater, better informed say in this area of provision, but they must not have an iron grip over the commissioning service, which would severely alter the free-market nature of community pharmacies.
Even if an efficient and effective commissioning regime is created, it must be complemented by a smoothing-out of the funding stream, particularly from category M. Ultimately, pharmacies are small and medium-sized businesses, and the Government must honour their commitment to reimburse businesses promptly by instituting a fairer and more transparent funding formula. Even without clawbacks, pharmacies can wait up to three months to receive reimbursements for prescription costs. For local, enhanced services, the reimbursement, which is the responsibility of primary care trusts, can take even longer. It is fundamental to the aims of the White Paper that it should create a stable and transparent reimbursement process, but the credit crunch makes addressing the financial aspect of pharmacy care provision even more urgent. There is clearly a problem and, should the financial crisis continue, it may manifest itself in a serious contraction of pharmacy numbers, with a direct impact on the quality of local health services.
What can be done about that problem? There is no significant demand for radical change, but most pharmacists would be keen to explore the provision of enhanced services, and to enable that, we need to smooth the reimbursement regime. There needs to be more transparency for individual pharmacists and confidence in the integrity of the system. Increased notice of reimbursement rate changes, and a smoothing of the peaks and troughs over time are absolutely essential. Should pharmacies start closing due to the lack of available credit, the Government will have step in with financial assistance.
The Scottish Government have recognised the scale of the problem. In November, the clawback in Scotland was significantly reduced to alleviate the strain on pharmacists, and I am not just saying that because you are in the Chair, Mr. Weir. The Scottish Government have recognised the extent of the problem, and a similar, immediate alleviation is much needed in England. Overall, pharmacies face an unprecedented financial squeeze. Category M is forcing disjointed and sudden price realignments, shifting pharmacists’ incomes and margins violently and capriciously. The cap on the available margin dissuades innovation, and the way in which price realignments are instituted lacks clarity and transparency. Those alignments are complicated by how PCTs buy locally, and by the complex way in which that interacts with the national formula for redistribution. With the lack of competence in commissioning, many pharmacies appear to be at the mercy of their PCTs and many are suffering as a result. The more patient-focused and outcome-focused aspects of the White Paper may be dashed by those problems, and the contractual framework used for pharmacies may be fundamentally flawed.
The reimbursement scheme makes other Government schemes such as tax credits look like a walk in the park. The rapid changes will steamroller many individual pharmacies, as they abruptly reverse any additional investment in services that those pharmacies undertake—investment that the Government want to encourage. The Government’s urgent attention is required on this important and pressing issue.
Good afternoon, Mr Weir. It is a pleasure to see you in the Chair. I congratulate the hon. Member for Torbay (Mr. Sanders) on securing the debate, which I know is of great interest to him. His remarks fall into two categories: he referred to pharmacy reimbursement and to the role of pharmacies in primary care and the White Paper, which is under consultation.
I shall seek to address the hon. Gentleman’s points, but, regrettably, I must profoundly disagree with his use of terms such as “erratic”, “capricious”, “rapid changes” and “cost-cutting”, not only because they do not describe what is going on, but because the Government have worked, and the Department of Health continues to work very closely, with the pharmacy profession. Our approach to the situation has received considerable accolade.
I start with the question of reimbursement. The hon. Gentleman is absolutely right that it is a complex area, so it might be fair to challenge him to explain how complex and challenging it is. He touched on the following point, but I remind him that we are discussing independent contractors, and 80 to 90 per cent. of their business involves issuing prescriptions. They do other things too, but it is always important to strike the right balance between obtaining value for money for the taxpayer and investment in services, and creating, as he said, the healthy commercial conditions that sustain businesses. It is not the Department’s job, however, to undermine the rest of the business of pharmacy; it is the Department’s job to ensure that, where it uses services, it pays for them effectively.
The hon. Gentleman picked up on two points about the payment process, and he referred to the so-called clawbacks, to which I shall return. First, we must make clear the sheer scale and complexity of the exercise. Last year, pharmacies dispensed about 700 million prescription items, worth more than £8.7 billion. Every prescription has to be priced, recorded and then reimbursed, and the profession and pharmacies recognise that.
On top of that, there is a rich diversity of providers. The hon. Gentleman rightly referred to one section, but more than 10,000 dispensing pharmacies operate throughout England, and they vary enormously in size and type—from the small, independent contractors to which he referred, through to the large national and international companies with more than 1,000 outlets, such as the high-street names of Boots, Lloyds and the big supermarkets. So, finding the right financial framework to sustain both, through the high volume and huge diversity of the system, is obviously difficult.
This is what we did: we negotiated with the representative bodies, and a funding arrangement was agreed and introduced in 2005. That is the arrangement on which we are negotiating. It was not done under duress; everybody signed the agreement. It recognised that on the products that pharmacies supply against NHS prescriptions, they retain a margin—the difference between the price they paid for the drug and the price that we as the NHS reimburse.
That was all part of the negotiations, and we recognise that the margins are part of pharmacies’ business model, so, at regular intervals within the agreement, the Department and the Pharmaceutical Services Negotiating Committee, which represents pharmacies, agree an acceptable retained medicine margin—what the pharmacies can keep—as part of the wider funding negotiations.
That brings me to the hon. Gentleman’s next point, which was about clawbacks. First, however, I repeat that we agree on what we pay, how the pharmacies purchase what they dispense and how much of the margin they can keep. To keep the margin within the agreed funding, the Department and the PSNC hold a joint survey every year to find out the average margin that pharmacies have held over the past 12 months. We then adjust it to match the overall funding settlement. So, if more has been paid than was necessary, it is agreed—through the joint survey, jointly undertaken—that it would be ludicrous for us to carry on paying more than we know we should. Things have to be evened out, but we must have the 12-month period and all the information, agree on the survey, analyse it and then make the adjustment. That is how it operates in the overall funding settlement.
In theory, we can work in one of two ways. The first is the discount clawback scale—a percentage deducted from each contract depending on its total reimbursement payment. Reducing percentages deducts less from contractors’ reimbursement, leaving them with more retained margin, and vice versa. The second, to which the hon. Gentleman referred, is adjustment of the reimbursement prices of certain generic products. Those listed in category M of the drug tariff are the ones that he mentioned. Since the new funding deal came in, the Government have only ever used the latter method—adjusting the reimbursement prices to keep the margin on track. That means paying what everybody agreed we should pay, which is the reimbursement plus the margin, with the rest then to be evened out. Why would we expect taxpayers to pay for more than they had received?
During negotiations in 2008-09, the PSNC expressed concern about pharmacies being underfunded. Although that point was made to us and the hon. Gentleman has made it again today, it is difficult to find any hard evidence. None the less, as the Minister, I agreed that in good faith we would look again at the whole funding model, in conjunction with the PSNC. In the meantime, as another generous act of good faith and despite the fact that the Government were of the view that we had paid more than we should have, we agreed to increase the funding settlement for 2008-09 by £150 million. The PSNC applauded that decision. It applauded us for acting—the very thing that the hon. Gentleman thinks we have not done. Sue Sharpe, its chief executive, described the funding as a “necessary and welcome uplift”.
However, funding decisions take time—they do every year. We are waiting for the analysis of the annual survey to come through and for negotiations with the PSNC to conclude before we can agree an overall settlement. The final agreement on the funding for this financial year was not completed until September 2008, which means that we were not in a position to pass on the extra money until the end of that year. But I stress, this is no different from any other year since the agreement came into place.
May I say that there is a difference? The difference is the fact that we now have a credit crunch, so if there was any delay in the Government paying back to pharmacists what they overpaid in through the clawback—there should not be any delay at all—that would not be consistent with the other message from the Government, which is that one should pay small businesses as promptly as possible.
In these circumstances, and within the agreement and the complexity of the system, the Government do exactly that. The hon. Gentleman referred to it himself. Regular monthly payments were paid on account, as estimates, and the Government have to do what is necessary in looking at the scripts. The pharmacists collect their scripts for a month and physically send them, which they cannot do until the end of the month, and then they need to be checked.
I hear what the hon. Gentleman is saying, but we should consider the fact that 80 to 90 per cent. of a pharmacy’s business is dispensing prescriptions, which is a guaranteed flow of money. It is difficult to comment on what else that business might be doing or how it is run, but the flow of money is regular and predictable within the agreement, which I have agreed to revisit.
I think that the agreement is working well. Pharmacies are a little concerned and have raised a number of issues. I have said “Okay, let’s look at it,” because I entirely accept the point that the hon. Gentleman is making. As the Minister who introduced the White Paper and did a great deal of the work, I think that pharmacies have a crucial role to play in ill-health prevention, monitoring chronic diseases, helping people with long-term conditions and using the full expertise of a pharmacy, which brings them into the wider primary care family. That is exactly what the White Paper seeks to achieve.
Far from being erratic, capricious and cost-cutting, the Department, within an agreed framework, is doing its best to get the money through as quickly as possible. None the less, given the importance of pharmacies, we have to ensure that the system always operates the best it can, hence my willingness to reconsider the agreement and to invest the other £150 million as an act of good faith. That is on the basis of saying, “While we are trying to sort this out, we don’t want to leave anything to chance.”
It is always difficult, particularly for Ministers, when general points are made without specifics. I say to the hon. Gentleman that if he has an example of a pharmacy in his constituency that is going out of business directly as a result of this agreement—not as a result of other business decisions that the wider pharmacy business took—I am happy to look at it. I have asked the primary care trust in his area and the strategic health authority whether there are any particular issues and at the moment they are not aware of any, but I make that offer to him.
I want to return, because I cannot allow them to pass, to the hon. Gentleman’s comments on polyclinics and the threat to pharmacies or any other provision. I want to hit that on the head now. The thrust of Government policy is to provide exactly what patients, whose best interests we should always act on, say they want, which is as many services as is practical to be close to home—that is, local where possible and centralised where necessary.
The use of extended clinics, or polyclinics, to bring out of hospitals and into local communities the services that can be accessed there is not centralisation, but decentralisation, which is important for the local community. It also offers a unique opportunity to ensure that pharmacies and all their skills are used to the maximum. That means ensuring that where a pharmacy can provide services that we need in local communities because it already has 10,000 outlets, and where it can do so in a way that respects patient confidentiality and privacy and gets patients to the expertise, it does so. That is precisely what the White Paper is about. I get the impression from the hon. Gentleman’s comments that he is as committed as I am to that principle.
The funding mechanism is being looked at in good faith—not because we think that there is a problem, but because others tell us there is. We have given extra money just in case, we are in negotiation and we are not aware of any pharmacy that is having problems because of the payment flow from the NHS. We see that the future of pharmacies in our local communities is about them providing those important, unique services that they can provide to strengthen the diversity of our health service and ensure that the communities that the hon. Gentleman talks about, in rural and more sparsely populated areas, get the services that they are entitled to.
Exchange Rate Policy
It is delightful to serve under your chairmanship, Mr. Weir, and to be able to raise the important subject of economic transparency, which is fundamental to public accountability. That is what one gets with flexible exchange rates, for which I am a great enthusiast, but I am not quite so sure whether the Government are as enthusiastic, particularly now that judgment is being passed on the British economy by the markets.
This debate would be better entitled, “The Pound in Your Pocket”. What can people buy with the money that they earn? Can they afford a foreign holiday this year? What are their assets worth in the world marketplace? What is their pension or benefit cheque worth in the real world? Those are the questions that people have to face up to, and the answer to them is that, in 2008, according to Bank of England statistics, the pound in your pocket, Mr. Weir, in my pocket and in the Minister’s pocket was devalued by 25p—by one quarter. The exact figure was 24.7 per cent. That was the decline in the sterling exchange rate index between 31 December 2007 and 31 December 2008. Those are incontrovertible facts.
The value of the pound coins in our pockets reflects the collective worth of our country in comparison with other countries. It takes into account the value of our raw materials, assets, natural resources and, obviously, debts and liabilities. The sterling exchange rate index is an accurate and unbiased barometer, or measure, of how UK plc is performing in comparison with other countries, and the unavoidable verdict is that our country has lost one quarter of its wealth in just one year.
The full implications for most consumers have yet to be realised. Retailers have been desperately destocking because of the recession, and although they are warning of substantially higher prices when they restock, those prices have not for the most part yet got through to the consumer. Nor has the impact of the 25 per cent. devaluation of the pound against the dollar come through in higher oil prices, because it is being disguised by the global fall in the price of oil, but those price increases will come. The Bank of England is already forecasting that inflation as a result of imports will increase significantly in the coming year.
The extent of devaluation in 2008 was greater than in 1992, when the United Kingdom was forced out of the exchange rate mechanism. It was greater even than in 1966, when the International Monetary Fund had to bail out the Labour Government. The last time that the UK lost one quarter of its wealth was after the second world war. The loss we suffered then was a price worth paying for defeating Hitler and preserving our freedom. We know why we lost 25 per cent. of our wealth then, but why did we do so again in 2008?
The Government have always been expert in taking credit for others’ efforts, while finding scapegoats for their own failures, and so, true to form, the Prime Minister has been trying to blame our national economic humiliation on the international or global banking crisis that was triggered in the United States. Indeed, he did exactly that today during Prime Minister’s questions when he spoke about the global financial crisis.
The Prime Minister’s claims that the problems are all caused by some global financial crisis are manifestly absurd. If that were true, the pound would not have devalued by 25 per cent., particularly against the dollar. If the real crisis is in the US, why is our crisis much worse? The answer is that the Government mismanaged the economy in the period running up to 2008.
It is worth reminding ourselves of what the Prime Minister said when he was the shadow Chancellor of the Exchequer and was commenting on the last sterling crisis in 1992. Addressing the Labour party conference, he stated:
“Comrades, this is a government that blames the Germans, the French, the Danes, the ERM, the markets, even the Labour Party for the crisis when the Tory Party has no one else to blame but themselves. Let us be clear: the weakness of the currency is the result of the weakness of the economy which is in turn the inevitable result of the weakness of this government.”
The Prime Minister’s highly perceptive analysis in 1992 is equally applicable, if not more so, today.
The weakness of our currency is indeed the result of the weakness of the economy, and who is responsible for that? None other than the Prime Minister, who, before becoming Prime Minister, was Chancellor for the duration of the Labour Government, who have now been in office for almost 12 years. That is where the responsibility lies. Why is the Prime Minister not prepared to accept that and take the blame?
The Government have given the impression that they have no exchange rate responsibility, but paragraphs 7 and 8 of the May 1997 letter from the Chancellor to the Governor of the Bank of England emphasised:
“The Government will be responsible for determining the exchange rate regime”,
and that they can instruct the Bank to intervene in foreign exchange markets.
Interventions have been rare. The last one, which involved support of the euro, took place in September 2000, but one might also include the bizarre and ill-judged decision by the Chancellor to sell 60 per cent. of our gold reserves at the bottom of the market. The price was less than one third of what those same gold reserves would be worth now—again, a major error of judgment for which we have never had an apology from the Prime Minister.
In a fascinating exchange in the Treasury Committee on 10 December, the current Chancellor was asked whether he would be prepared to support sterling, if necessary. His answer was:
“No, the Bank of England’s policy is to target inflation, not to target the currency.”
The Chancellor was not willing to accept responsibility for his part in this, which is to deal with exchange rates. He said that the Bank of England will not deal with exchange rates. Of course it will not, because that would be outside the remit given to it by the Chancellor in 1997.
Have the Government accepted any responsibility for where the exchange rate is now? What is their policy? In a written answer on 21 April 2008, the Exchequer Secretary stated:
“By maintaining sound public finances and low inflation the Government contribute to exchange rate stability. This is consistent with their objective of a stable and competitive pound over the medium-term.”—[Official Report, 21 April 2008; Vol. 474, c. 1674W.]
Unfortunately, despite my best endeavours—I asked the Library for help—I have been unable to get a definition of “medium term”, but I am sure that the Minister can explain how the 25 per cent. devaluation in 2008 was consistent with a policy of stability in the medium term. I hope that in a moment of frankness he will say that, of course, it was not, but that would be an unusual admission for the Government to make.
The reality is that this Government’s macro-economic policy is an utter shambles. The so-called golden rules have been dumped because they became an embarrassment, and all that has been put in their place is a policy of ever more state intervention, borrowing and waste. That will undermine our nation’s economic prospects for years to come, probably for a generation. The Government’s failure to deliver on their avowed policies, whether eliminating boom and bust or monitoring and maintaining a stable exchange rate, is causing untold hardship up and down the country.
This debate is timely, because I have received representations from a company in my constituency that is the largest importer of a type of sport-related promotional product. In less than a year, the cost of its imports have risen dramatically making it hard to deliver to UK customers on agreed contractual terms. The managing director told me that he did not insure against currency risk. On asking why not, he replied that he had accepted the Government’s statements that the exchange rate would remain stable. He cannot be blamed for not realising that, far from remaining stable, the exchange rate would decline by 25 per cent. What message of apology does the Minister have for that individual, his company and the people who work for him?
With the Government’s policy of exchange rate stability in ruins, where do we go from here? The policy of maintaining sound public finances has been abandoned in favour of ever-higher borrowing. I am sure the Minister will accept that that will lead to a further devaluation and a significant inflationary problem.
In November 2007, the Governor of the Bank of England claimed that anyone searching for a stable, trade-weighted exchange rate
“couldn’t do better than look at sterling”.
Were businesses wrong to rely on the Governor’s words? Were foreign investors wrong to look to him as an expert on the matter?
In evidence to the Treasury Committee on 25 November 2008, the deputy governor of the Bank of England, Mr. Bean, said that the more than 20 per cent. depreciation in sterling
“is about the right sort of order of magnitude that is required.”
He stated that the Bank of England had
“always recognised that at some stage the economy would need to rebalance away from domestic demand towards the external sector as part of the process of correcting an unsustainably large current account deficit.”
He said that there was an unsustainably large current account deficit caused by the Government that needed correcting. That it has not been corrected, but rather exacerbated, is one reason why our currency has declined so much in value. How does that fit in with what the Governor said a year earlier about stability in the exchange rate? Does it not just demonstrate what a mess the Government are in on this area of policy?
Numerous articles have been written in recent months about the sterling crisis. I could quote a number of commentators. Does the Minister agree with Peter Spencer, the economic adviser to the Ernst and Young ITEM Club, which uses the Treasury’s forecasting computer? On 11 December, he was quoted in the Financial Times as saying:
“The problem is the UK economy doesn’t have a leg to stand on… It’s very hard to know where the floor for sterling might be when there’s nothing to support it.”
I worked for Ernst and Young in 1992 during the last sterling crisis and the resulting humiliation of John Major’s Government. I still have the original newspapers from that time. I remember how difficult it was as a former Minister and MP and a prospective Conservative parliamentary candidate to explain to colleagues what had been happening and whether there was a coherent Government policy. The judgment passed by the Ernst and Young ITEM Club is that this Government have made an absolute mess of their responsibilities and that their economic policy is in a complete mess. If we carry on like this, there will be a further devaluation of our currency.
This situation is due to gross mismanagement of our economy. Just between 2000 and 2007, Government expenditure rose by more than £100 billion in real terms after inflation. Nothing was put aside in the good times, and we are now in the bad times. I do not have time to quote the Prime Minister’s comments in The Times on 17 September 1992, when he said that confidence would not simply return on request. That is what he is asking for now. Economic events are determining the outcome. I understand why many Government spin doctors would like to preserve their cover under the cloak of membership of the European single currency. The extent to which people are being betrayed by the Government would then be less apparent.
I hope that, in responding, the Minister will declare where we should go from here. I hope that he will accept responsibility for the 25 per cent. devaluation and give some hope to those who are watching and worrying about the value of the pound in their pocket.
It is a pleasure to serve under your chairmanship for this short debate, Mr. Weir. I congratulate the hon. Member for Christchurch (Mr. Chope) on securing it. He will not be surprised to hear that I agree with almost nothing in the analysis he has put forward for the past 16 minutes. I will set out for the record the Government’s view on these matters.
As the hon. Gentleman knows, exchange rates fluctuate and respond to a wide variety of factors on a minute-by-minute basis. Movements in sterling in the recent past have occurred in a turbulent global economic environment. I never cease to be amazed that the hon. Gentleman and the official Opposition seem to take the view that this is not a global financial crisis. Anybody who reads the newspapers or steps beyond these shores knows that the issues we are discussing and debating in Parliament are being discussed and debated in Parliaments around the world. The concerns that people and businesses rightly have in the United Kingdom about the state of the UK economy apply equally to the European and US economies. There are downturns and reductions in growth, even in countries such as China and India.
The hon. Gentleman is right that overall the sterling exchange rate index has declined by 25 per cent. in the past two years and by about 14 per cent. since the beginning of August 2008. Exchange rates fluctuate. He is also right that, against the dollar, sterling has lost more than a fifth of its value in the past two years, and more than a quarter against the euro. International developments have affected other countries. The euro has lost about 8 per cent. of its value against the dollar since summer 2007 and the yen has lost about 17 per cent. The International Monetary Fund has stated:
“Foreign exchange markets have also been affected by heightened uncertainty about the safety and soundness of global financial assets and the impact of financial stress on economic performance.”
It should also be remembered that recent falls in sterling come after a sustained period of sterling strength that lasted through the late 1990s and until long after the mid-point of this decade, so despite recent falls, we have had a decade in which the exchange rate has been historically stable overall. We shall continue to see exchange rate fluctuations in this country and with other countries’ currencies as well. That is the nature of floating exchange rates.
Let me say something about exchange rate policy. If we go back, as the hon. Gentleman did, to the post-war era and before, we can see that there have been a number of attempts, as he well knows, to control the exchange rate and, as a result, the UK economy as a whole, but those have been rarely without complication and mostly unsuccessful. For the first part of the post-war era, sterling belonged to the Bretton Woods system of fixed exchange rates. That arrangement ended in 1972. Through the ’70s and ’80s, which we remember well, there were various attempts to use the exchange rate as a policy instrument, including by having sterling shadow the Deutschmark.
In 1990, sterling joined the exchange rate mechanism, which tied sterling within a target band against the euro in the hope that that would deliver low inflation for the UK economy. I do not need to rehearse the arguments about the UK’s ignominious exit from the exchange rate mechanism to the hon. Gentleman or engage in political point scoring about that or, indeed, the record of previous Labour Governments when we had to devalue the pound. The one thing in his contribution with which I agreed was what he said about floating exchanges rates. He seemed to be a fan of floating exchange rates. Since September 1992, sterling has been allowed to float freely against other currencies.
The Government’s objective is a stable and competitive exchange rate in the medium term, consistent with meeting the inflation target. Our experience in economic policy making is that trying to target exchange rates is simply the wrong policy. The policy of inflation targeting has stood the UK in good stead over the most recent period. The Government’s macro-economic framework includes a monetary framework that is designed to deliver low and stable inflation through the symmetrical inflation target. As the hon. Gentleman knows, the target is 2 per cent. at all times. Under that regime, the exchange rate is allowed to adjust to clear the market.
Despite the major challenges presented by the global economy at present, the framework continues to serve us well and compares favourably with the outcome of the previous macro-economic policy approaches to inflation and growth that I have mentioned. Since 1997, inflation has averaged less than half what it averaged in the previous two decades, while growth has been stronger. Indeed, since 1997, the UK has had one of the lowest inflation rates in the G7; before 1997 it had one of the highest. There is no shortage of evidence on the other key strengths of the UK economy. I could point to the foreign direct investment as a percentage of our gross domestic product, which is the highest in the G7. The World Bank ranks the UK as the sixth best place to do business out of 181 countries in its “Doing Business 2009” report.
There are clearly implications from a weaker exchange rate, both for prices and for volumes of goods and services in the economy, and the hon. Gentleman mentioned some of them. He also mentioned Charles Bean, the Deputy Governor of the Bank of England with responsibility for monetary policy, and I, too, should like to quote him:
“We’ve had the best part of a 20 per cent. depreciation of sterling over the past year, which is pretty hefty. Now, obviously the external climate has worsened, but that very considerable stimulus from the exchange rate should also help to pull the economy out of its slow period.”
In addition to the automatic stabilisers, a floating exchange rate, combined with the Government’s overall macro-economic policy, offers a sensible strategy to help the UK economy during difficult economic times. I have to make the point that has been made elsewhere about the decisions and judgments that the Government made in the pre-Budget report and previously about giving a fiscal stimulus to the UK economy during these difficult economic times. The fact that countries across the world have decided to introduce similar packages of support indicates the strength of our position. It is simply the right thing to do.
I also refer the hon. Gentleman to the comments that the Governor of the Bank of England made recently when giving evidence to the Treasury Committee. He rightly expressed concerns:
“If sterling falls far enough, this will be a concern and it will have an impact on inflation...Just as the…Dollar fell very sharply over a period, it’s not surprising that we’re seeing some fall in sterling’s effective exchange rate; and that can be a helpful part of the rebalancing, provided it doesn’t threaten our ability to meet the inflation target. So it’s something that we keep a very careful eye on and we certainly have no wish to see it fall particularly sharply. But I think we have to accept that some fall back from the level where it was…in the summer of 2007 is probably an inevitable part of the rebalancing that’s going on.”
A weaker exchange rate, all other things being equal, makes our exports more competitive than they would otherwise be, but also risks higher prices. That is one of the many global issues that policy makers have to consider in the current challenging environment. The hon. Gentleman and I simply part ways in our fundamental economic analysis of how the macro-economic policy framework should be designed and how the exchange rate fits into the regime. If he wants to come back and suggest that inflation targeting is not the right policy and, as his party does, that a fiscal stimulus during a global financial crisis in which the European economy and the United States are already in recession is not the right thing to do, his party needs to set out more coherent arguments as to why that is the case.
I do not speak for my party; I am just interested in finding out the Government’s policy. The Minister seems to be suggesting—laughably, I think—that we have a strong economy and stability in the exchange rate. We do not. Does he accept that the reckless borrowing policy that the Government have embarked on will inevitably drive down the value of sterling even further and that those who are predicting parity with the euro may be making the right judgment?
No, I do not accept that at all. My response to the hon. Gentleman’s question is that we started this difficult economic period in a relatively strong position compared with many other countries. Our debt levels were low compared with those of G7 and other countries. As a result, the borrowing and the fiscal stimulus that we are undertaking are an entirely sustainable policy. Of course, we need to see fiscal tightening in later years, but at this time, it is simply the right thing to do to bring forward expenditure and to have the fiscal stimulus provided by the cut in VAT. People have asked, “Does it make a difference?” At an aggregate monetary level, the VAT cut does make a difference. It is pumping an extra £12 billion into the economy and it is the right thing to do when an economy is entering a recession.
Of course, this is a global problem. It started in the sub-prime mortgage market in America, with which we are all familiar now, but it has spread to affect banks across the world. That is why the only way to resolve it is through global action. The US and the euro area are in recession, and the IMF has said:
“The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s”.
The Bank of England has said that
“the world economy appears to be undergoing an unusually sharp and synchronised downturn”.
This is not just happening in the UK, and it is wrong to pretend that it is.
Inevitably, there are difficult times ahead, but the measures that we have taken, such as the fiscal stimulus in the pre-Budget report, and the measures that we have announced today to support business through the enterprise finance guarantee and the working capital scheme are the right ones, and I commend them to the—
Sitting adjourned without Question put (Standing Order No. 10(11)).