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Housing Subsidy (Barking and Dagenham)

Volume 490: debated on Friday 27 March 2009

Motion made, and Question proposed, That this House do now adjourn.—(Mr. Frank Roy.)

It is fair to say that the subject of this short debate is quite different from that of the debate that preceded it. However, we Catholics have always had quite an interest in housing policy, so there is a certain continuity. This afternoon I want to talk about the operation of the housing revenue account, and the so-called negative subsidy system, with regard to its effect on my borough, the London borough of Barking and Dagenham.

The housing subsidy system is based on a complex set of rules and assumptions that the Government make about a council’s need to spend, about the Government’s national rent-setting policy, and about a council’s debt position. The councils that have historically managed their finances well, and are debt-free, such as my authority in east London, are assumed to be in less need, and therefore have to contribute to the housing subsidy pot. The Government run their national system as a redistributive pool, so they pay housing subsidy to those they assume to be in greatest need, and require others, who are in less need, to pay negative subsidy back to the Government for subsequent redistribution.

When the housing revenue account was first set up, no council had to pay money to the Government, but now 156 of the 206 housing authorities pay negative subsidy to the Treasury. This year, the Treasury has taken £194 million from council tenants. I would argue that that is a tax on some of the poorest and most vulnerable people in our communities. Not only is that deeply unfair in principle, but it actively prevents councils from investing in, improving and repairing their housing stock.

The allocation formula creates perverse incentives. For example, if a council pays off its housing debt, reduces crime on its estates or reduces vandalism of its stock, it loses some of its subsidy. That situation will get worse over the next few years. The amount of money that central Government will take out of the system is planned to increase to some £300 million in the next financial year. Obviously, I realise that the revised determination of rents will probably reduce that figure dramatically, but I simply repeat the point that the system is structured in a way that produces those surpluses.

I turn now to the situation in our borough, Barking and Dagenham, which is a deprived area of east London. The council manages some 20,000 homes. It used to manage 40,000. Our council paid in some £17 million to Government negative subsidy in 2007-08. That is equivalent to nearly £900 per property per year. Next year, 2009-10, we will pay some £22 million in negative subsidy back to the centre. Through their rent payments our tenants are effectively subsidising council tenants in other parts of the country. This additional tax on our tenants operates at the same time as we have an investment gap of about £100 million, looking to 2011.

Retaining the millions that we pay in negative subsidy would enable us to invest in our existing stock and new affordable housing. The situation has been raised endlessly with the Government over the past few years. We petitioned the Prime Minister himself in 2008. I remember standing in Downing street with the signatures of 244 of my constituents. There is huge local support for the issue. We had another petition with 1,580 signatures locally run in our Tax on Tenants campaign.

There are a number of interlinked housing policy issues which cross-relate to the issue of the negative housing subsidy. For example, in 2004 there was a tenants survey in connection with the Decent Homes option appraisal. It resulted in a 25 per cent. response rate among our tenants, of which 86 per cent. stated a desire to remain with the council. As an authority we are delivering the Government’s agenda, developing mixed-tenure communities and focusing on town centre and estate renewal. We are at the forefront of the development of local housing companies. Ours will be incorporated in July, with a start on site in August for a scheme of 470 units. We have plans for some 6,000 units over the next 12 years, with a minimum of 50 per cent. designated as affordable.

Because of negative subsidy, the housing revenue account position is critical for the future of council housing in our borough. In little more than two years, the housing revenue account is likely to go into deficit, potentially forcing the council into balloting for stock transfer, despite the clearly stated wishes of our tenants and council representatives.

We welcome the recent announcements from the Prime Minister and the Minister for Housing on new council house building activity. We have been campaigning for that for many years, but unless the housing revenue account subsidy is resolved, no effective new council housing will be built. That is the situation in other towns and cities across the country as well, although I would argue that we are on the front line because of the scale of the negative subsidy. That could undermine the basis from which we will try to confront the deep structural weaknesses in the supply of social housing as the country’s housing crisis develops.

Even if we instituted a system of prudential borrowing which created the level playing field for which many of us have argued for many years to allow new build council units, the £22 million deficit means that we could not build the numbers that we so desperately need. Our request is that the London borough of Barking and Dagenham be allowed to exit the housing revenue account as soon as possible. The housing finance review is due to report to the Housing Minister “later in the year”, even though that was originally planned for April. We need to be able to exit on terms that leave a viable council housing service in the borough which can afford to borrow to develop its homes and our estates.

I shall make a number of points about the operation of the housing revenue account in our borough. It seems perverse that a national subsidy system which is meant to reward well-run and prudent councils should have such a negative effect on Barking and Dagenham’s ability to meet Decent Homes standards and provide new homes for its current and future tenants. A borough that is the seventh most deprived in London and has the fastest-changing demographic profile in the country should simply not be paying £22 million to the Government from the rent paid by its own tenants. Each week, the average tenant in Barking and Dagenham pays £24 as a portion of their rent for which they receive no service.

The subsidy paid to the Department for Communities and Local Government excludes about £13 million that the Government allow the council to keep as major repairs allowance, or MRA. That sum is intended to meet the year-on-year costs of Decent Homes for elements, such as repairs, baths, kitchens and rewiring, that become due for renewal in-year. The sum itself is not sufficient to allow for the renewal of those items and, worse still, the Government require the council to spend it as cash rather than put the money into borrowing.

If the council put £13 million into borrowing, it would be able to meet all its Decent Homes obligations for some time to come. It could make substantial investments in improving the locality’s estates. Tenants in Barking and Dagenham have made it clear in successive surveys that they want the council to remain their landlord, yet the Government’s subsidy system is rapidly driving the council out of the housing business. That is not what local people want. They want the council to invest the money that they pay in rent to improve their living conditions, and we all agree that those are needed.

The London borough of Barking and Dagenham has put forward a couple of proposals to the Department for Communities and Local Government over the years about how the council could leave the subsidy system. Neither the tenants nor the council want to transfer stock to a registered social landlord, whether an existing or a newly created one. However, if the council did so, the Government would allow it out of the subsidy system and contribute many millions towards the cost of meeting the Decent Homes standard. If that large amount of money can be provided to the council in a large-scale voluntary transfer, why is it not possible to invest the money through the democratically elected council whose tenants so clearly wish that to happen?

In a recent interview for Inside Housing, the Minister for Housing said that her real priority was to ensure the provision of new homes, and we all totally agree with that. However, it is simply not enough. There are two points about our own housing stock. First, we cannot neglect people in existing communities who have existing housing needs. To condemn 20,000 households in our borough—to make inadequate investment in their homes, their future, and the area in which they live—is wrong. Secondly, if Barking and Dagenham were allowed to retain the negative subsidy of some £22 million and invest its MRA in the way best suited to local people’s needs, it could easily begin to build new council housing—and the Prime Minister himself has said that he wants to encourage local authorities to do that.

Barking and Dagenham is a well run and prudent council. Its comprehensive performance assessment, or CPA, rating is excellent and it is improving strongly. Its CPA housing score is 4 and it has Housing Corporation accreditation to manage property built with public money. Its tenants and local people generally want the council to remain their landlord. They want investment in their homes, and new homes to be built for their sons and daughters.

The money to do those things exists locally, but the housing subsidy regime effectively prevents that from happening. The review of the subsidy system, which has been going on for some time, has yet to produce any results. The six pilots, conducted nationally to see whether it is possible for housing authorities to exit the housing revenue account, have so far come to nothing. No one can be confident that there will be any positive outcome from this exercise. As I said earlier, the review of the subsidy system, due to report to Ministers soon, has been delayed. In the Inside Housing article to which I referred earlier, the Minister said that she was not concerned about the time scale of the review. We should be.

I am sure that Barking and Dagenham will continue to work with the Department for Communities and Local Government and put forward models through which it might leave the housing revenue account without a traditional stock transfer. However, there must be a degree of political will if the proposals are to succeed. The Department must show real leadership and commitment to the reform of the housing revenue account. It must give councils such as mine in Barking and Dagenham, which have strong local support and the ability to deliver, the chance to deliver.

One other factor cannot be ignored in this debate. As I have said, increasing social housing—particularly providing new family homes—is a top political priority for our council. Speaking as a local MP, I can say that housing is the outstanding issue in my caseload, and locally, it is the outstanding issue of public policy in our community. We are also on the front line in the fight against the far right—the British National party. The BNP has ruthlessly sought to exploit the issue of working-class families being unable to gain access to good-quality social housing. It has ruthlessly racialised this debate and linked it to demographic changes in the borough. Increasing the supply of social housing is therefore absolutely critical in maintaining community cohesion locally. This debate on the negative subsidy is not an abstract debate—it is central to the day-to-day cohesion of our borough and critical in enabling us to deal with the frustrations involved in access to social housing and with the rise in the appeal of the extreme far right.

Negative subsidy is not just a problem for Barking and Dagenham; it is growing across the country. Portsmouth is losing £6 million, Waverley is losing 49p in every pound of rental income, and Sutton is projected to lose over £10 million in the next financial year. The problem is getting worse every year. Unless we sort it out, our broader, more laudable aims of building more homes will not be realised. It is estimated that some 5 million people will soon be in need of social housing, and the number is continuing to rise. With the credit crunch, the economic crisis becomes a social crisis; we face 75,000 repossessions this year alone.

The private sector will not build the units required. The business model of the private sector has effectively collapsed. Starts this year will be way under 100,000 units; the Government’s stated objective of 240,000 extra units a year is a very distant objective. Where will those units come from? We have to rebuild a mixed economy in the supply of housing. In order to do that, we must allow councils to build more social units. In Barking and Dagenham, we have a council desperate to build those units, we have thousands of residents desperate for more social housing, and we have the land to build it on—but we also have a system of negative subsidy that acts as a road block to our providing these new homes. All we are asking is for the Government to help us to do what we want to do and dismantle the system of negative subsidy.

I congratulate my hon. Friend the Member for Dagenham (Jon Cruddas) on securing this debate. It is an honour for me to respond at the Dispatch Box to somebody whom I admired long before I entered the House, and to address the very important matter that he has raised. He has demonstrated in the preceding 15 minutes why he is a champion for the people of Barking and Dagenham in particular.

In relation to the specific problems that exist in Barking and Dagenham, it is worth pointing out that the permanent secretary at the Department for Communities and Local Government recently wrote to the chief executive suggesting a meeting to discuss some of the serious issues that my hon. Friend raised. I ask him to speak to the chief executive to ensure that that offer is taken up. It is always easy to make offers on behalf of ministerial colleagues, but I am positive that the Minister for Housing, too, will be happy to meet him to discuss these important issues.

As regards building new council housing, my hon. Friend is right to say that the Department is consulting on new freedoms that should help councils to build more council homes. That would mean, for example, councils keeping all the rental incomes from new homes that they build, and the full capital receipts if those homes were sold in future under, for example, the right-to-buy scheme. We are also inviting councils to bid for social housing grant, which is capital subsidy for new housing. Previously, local authorities have not been able to get that funding; my hon. Friend will know about the unfairness of that skew. He rightly said that the consultation closes in April and that we hope to implement these changes in May or June. I invite him, when he speaks to his council, to ask it to start discussing with homes and communities agencies whether they want to be involved in this project.

I agree with my hon. Friend’s comments on the concerns about the major repairs allowance and funding borrowing. We are aware of those concerns. Clarification is required on these issues, and we are considering whether it would be helpful, for example, for the Department to clarify its guidance.

A lot of the changes that my hon. Friend mentioned came about because of the pressure that he put on the Department, and because of his raising issues not simply outside No. 10 Downing street, but in constructive conversations and meetings, and lobbying Ministers in my Department and throughout government.

For those who misunderstand the position, I would like to put on record the context of the housing revenue account subsidy system. It provides a framework for financing the upkeep of council housing stock. Since the 1930s, successive Governments have used a subsidy system to ensure that the country’s council housing is maintained, but we have to accept that when we inherited the current system—and my hon. Friend will know this because he played a crucial role in the run-up to this Government’s election in 1997 and thereafter—it was clear that action was needed to halt a long-standing and continuing decline of the national stock.

To put that remark in context, let me say that in 1997, we inherited a £19 billion backlog of repairs and maintenance in council housing stock. In 2001, this Government brought in the decent homes programme, because we want every tenant, including those in Barking and Dagenham, to have a decent place to live, produced to a good standard. In 2001 we brought in the major repairs allowance, which provided a massive injection of £1.5 billion of resources to stop the long-term deterioration of the stock, on top of the £40 billion we had put in to deal with the major works taking place in 3.6 million social homes.

Why have I spent a few moments talking about that? These matters, together with allowances for management and maintenance, and provision for debt, are resourced through the subsidy system, tenants’ rents and, when needed, subsidy from the Government. I understand, as do ministerial colleagues, that some councils, such as Barking and Dagenham, feel that the system does not work for them, but I am sure that my hon. Friend will accept that not all councils can raise enough through their rents to cover their costs. Our policy is that social rents should be affordable and below those of the private market sector. We do not want councils to raise their rents beyond what people can afford. To keep rents affordable, the system redistributes resources from councils that make more in rental income than they spend to those that do not.

As my hon. Friend will be aware, some councils are unable to raise locally what they need to spend on their council housing stock, and not all of them are inefficient. For some, it is simply a statement of fact that they cannot raise the money locally. The hon. Gentleman referred to 156 local authorities paying negative subsidy, but about 50 local authorities in the country receive a subsidy, so there is a strong rationale for redistribution. It brings a degree of equity between councils, it protects certain tenants from high rent bills and it helps by not adding to the tax burden.

If after resources have been redistributed there is still an overall funding gap, however, the Exchequer makes up the difference. Since 2001, there has been an overall gap each year, which has been subsidised by around £1.3 billion in total from the Government. It is only from this year, because of how the system works, that that gap has once again turned into a surplus that goes to the Exchequer. I know that that is unpopular in some quarters, but the Treasury has planned to spend £5.9 billion on housing in 2008-09—far more than the £194 million or so going back into the system.

There is one important caveat, which my hon. Friend mentioned. We are experiencing an unprecedented global downturn. The Minister for Housing announced on 6 March that the national average guideline rent increase would be cut in half from 6.2 per cent. to 3.1 per cent. The upshot is that we do not expect any overall surplus in 2009-10. In deciding to reduce rent increases we wanted to make sure that rental income would be retained locally. In these unusually difficult economic times, it is right for the Government to offer real help to council tenants. We will be looking at the position again for 2010-11 when we get a bit closer to the time.

Surpluses are nothing new. The national account was in overall surplus from the first year for which records exist until 2001, so we are not looking at some new and unfamiliar issue.

My hon. Friend described the subsidy system as containing structural flaws and fundamental problems, and I accept that there is room for change. We recognise the concerns that are being raised by councils such as Barking and Dagenham, and it is worth pointing out that he has been an advocate of bringing those concerns to the fore, especially at a time of increasing surpluses. Because of those concerns, the DCLG and the Treasury agreed to a fundamental review of council housing finance. I know that he is concerned about the time scale of that review. My understanding is that it is due to report in the spring. I have checked with my officials, and he will be pleased that I can tell him how the civil service defines spring. He will be disappointed to know that it does not begin on Sunday but takes place over a number of weeks and months. The advice that I received from my officials before I rose to speak was that the target is still spring, and I shall endeavour to write to him when I have a specific date that will mean more to residents in his constituency, who are understandably concerned about the fruits of the review.

We want to ensure that there is a long-term sustainable system for the future that is fair and affordable for councils, tenants and taxpayers. My hon. Friend is right to say that there appear to be perverse incentives. We do not want good councils such as the one in the community that he has the pleasure of representing, with which he works in close partnership, to be inadvertently punished by a system that appears to be past its sell-by date. The review has been examining in depth the cost of landlord business rents and the use and redistribution of surpluses, and I hope that the report will go some way towards addressing the concerns of his constituents in Barking and Dagenham.

Whatever system we have in future, it must recognise that the cost of keeping council houses varies across the country. As I have said, there are still more than 50 councils receiving subsidies, and the system needs to be fair to them as well as to councils such as Barking and Dagenham that are in surplus. For now, we have a system intended to provide decent homes at rents well below market levels for some of the most vulnerable in our society. We have a benefits system to provide a safety net for those struggling to pay their rent, but we want to ensure that the system works as well and as fairly as possible for all. That is why in the short term, as I have said, we have halved average guideline rent increases in 2009-10, and why we will re-examine the increases for 2010-11.

I wish to end by making some constructive points about things that I hope will benefit my hon. Friend’s constituents in the immediate and short-term future. I confirm that the permanent secretary has offered the chief executive of my hon. Friend’s council a meeting as soon as possible involving relevant officials from the council and from DCLG. It is important for the council to contact officials at the Homes and Communities Agency to ensure that it can be at the forefront of new builds.

My hon. Friend is right to say that one thing that the far right uses to recruit people to its cause and to spread myths in the community is the finite supply of housing and the perceived unfairness of what happens to the receipts from the rents paid by some of the most vulnerable people in our community. I hope that he will continue working with my ministerial colleagues and the Department so that we can ensure that the benefits of those receipts are seen not just in Barking and Dagenham but around the country.

Question put and agreed to.

House adjourned.