My Lords, I propose a cluster of three new clauses in the group, all concerned with the desperate problem of this country’s acute shortage of homes that are affordable to those on average incomes and below. Amendment 40 relates to right-to-buy discounts and seeks not to undermine these arrangements but to make them more productive. Amendment 41 seeks to apply more of the receipts from right-to-buy sales to the provision of new homes. Amendment 42 attempts to enable councils to borrow prudentially more funds to increase housing supply.
These proposed new clauses do not represent earth-shattering proposals that will solve the nation’s acute housing problems. Other more dramatic changes are needed to achieve really significant results, but this trio of amendments would enable councils to play a bigger role once again in meeting this country’s crying need for more and more affordable new homes.
I declare my interest as president of the Local Government Association. I am grateful to the LGA for preparing these amendments and, as always, for valuable briefings.
Clause 29 endeavours to make the right to buy more attractive by reducing the time from five to three years that a tenant has to live in a council property before being able to buy at a big discount. Discounts can be as much as 70% of value, so tenants can buy a home for 30% of what it is worth, subject to maximum discounts of an index-linked £100,000, now £102,700, in London and £75,000, now £77,000, elsewhere. These nationally set figures are very much back-of-the-envelope stuff. They do not recognise that the housing market outside London is not uniform. Levels of demand and house prices in Bradford and Burnley are not as the same as in Bedford or Brighton. Indeed, house prices are not even the same across London.
Amendment 40 would mean councils setting their own discount levels, based on local markets. It would place a maximum 60% on discounts. It would avoid giving away publicly owned assets on extravagant terms. It localises decision-making, in keeping with the Government’s general disposition towards the devolution of responsibility to local government.
Critics of the amendment could worry that some local authorities, which believe that the right to buy has already removed too many properties from their stock of affordable homes, will reduce discounts to the point where no one wants to buy. Some councils will certainly point out that a large proportion of RTB sales lead to the first buyer selling on to buy-to-let landlords. Sadly, this can mean the same previously rented home being re-let at twice the earlier rent, often increasing the housing benefit. Worse, the private tenants may be people requiring intensive housing management and support, which is not available from the private landlord. In extreme cases, I hear of families evicted by the council for anti-social behaviour returning to the estate, into former right-to-buy properties, costing the taxpayer twice as much, but without the restraints on behaviour that could be exerted for council tenants.
There are also the problems for the purchasers themselves. Those buying flats can discover a few years down the line that they must pay large sums towards major repairs and replacements of lifts, external cladding, roofs and so on, turning their asset into a liability.
Amendment 40 puts these arguments to one side and avoids the accusation that it could be used to undermine right-to-buy sales. It would require discounts to continue at levels that will still attract buyers. It would stop local authorities being forced to spend more than is necessary to encourage sales, and would prevent unwise tenants being tempted by the sheer scale of the discount from making an unwise purchase. It would substitute localised decision-making on an issue that requires local knowledge, for the distant regulation of RTB discounts by Whitehall.
Amendment 41 follows from that. It would seek to capture 100% of the sale proceeds—admittedly after they have been greatly depleted by the discount—to be recycled for local housing purposes. The importance of this measure is not hard to see. At present, the Treasury takes a 25% slice of proceeds from right-to-buy sales. Last year, from a total £877 million, the Treasury took £237 million. If that extra money had been recycled into the housing revenue account and used for new homes, it would have made a very helpful difference at the local level. Councils which have done the sums have estimated that they could have improved their housebuilding performance by some 30%.
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As the noble Lord, Lord McKenzie of Luton, set out, the Government’s stated intention is that local authorities will be enabled to replace each home lost through right to buy with a new one. At first sight, this sounds improbable. If you sold an older property for, say, half its value—for example, at just £20,000—after discount for a council house in many places away from the south of England and you wanted to pay for a brand new one worth, say, £120,000, you would expect to make a big loss. However, borrowing to fill the gap and charging higher rents to cover the borrowing costs, plus obtaining special consent from the Homes and Communities Agency to fund 30% of the building costs from the retention of more of the receipts from sales, the figures can just about be made to add up in
some, but by no means all, cases. Regrettably, there remain plenty of instances where the discount and the loss of receipts to the Treasury mean that replacing homes sold creates an unbridgeable gap to producing a replacement.
I know that the Government have responded to the LGA that it is only fair for local authorities to return some of the receipts from sales because, in establishing the basis for councils’ housing revenue accounts to be returned to local control, there has been an expectation in settling on the figures that RTB sales could generate some cash for the Treasury. However, everything would be simpler and extra resources could be put to very good use if, quite simply, councils could keep their sales proceeds and recycle them for housing purposes.
Finally, Amendment 42 sets out the LGA’s proposition for removal or, in the context of this Bill, deregulation of the current housing borrowing cap—the ceiling on the amount that each authority is allowed to raise for housing purposes. The Government have built into the calculations for every council’s housing revenue account some headroom for additional borrowing, and, helpfully, a year ago the Chancellor announced £300 million extra to top this up. However, a number of local authorities are straining at the bit to do a great deal more than their individual cap allows.
In no cases does anyone suggest that local government should borrow what it cannot afford to repay. This is the principle enshrined in the prudential code. However, there are local authorities with a strong balance sheet for their housing, which would enable borrowing that could be prudentially repaid from rental and sometimes other income. We cannot afford to hold back those local authorities that have the land, the competence and the eagerness to do more. The LGA’s estimate is that these keen local authorities would gear up to borrowing some £7 billion over the next five years, producing an important fillip to housebuilding production. I have visited a number of councils which have made a start on programmes of new council house building. No one should fear that the ghastly mistakes of 40 or 50 years ago are even remotely likely to be repeated. No council would ever contemplate the mono-tenure, concrete, soulless estates of yesteryear. Today, the housebuilding contribution of councils is one in partnership with housing associations and housebuilders.
I know very well that the Government have, as a very high national priority, the reduction of the national debt, and borrowing by councils, even prudentially, currently counts against our deficit. This means that getting tomorrow’s new homes built by housing associations and, of course, private sector housebuilders is much preferred to seeing local authorities borrowing and building. However, throughout the EU different borrowing rules apply, which means that all “trading” activities by municipalities fall outside their national debt. I recognise that the Government are not keen to change the definition they use in defining public expenditure, but it seems unlikely that other countries would object to a definitional change that liberates the UK Government from this constraint.
Even without changing our definition, I urge support for the amendment. Work by the consultancy firm Capital Economics, which surveyed economists, fund
managers and credit ratings analysts, concluded that there would not be any significant reaction from the markets to an increase in borrowing of £7 billion over five years resulting from lifting the borrowing cap. It is a matter of all hands on deck and we desperately need councils to be part of the picture. For those that are ready to go and those that would gear up if given the helpful nudge this amendment provides, I ask both the Government and the opposition parties to be a little braver in allowing local authorities to do what we know they can do extremely well.