Report (2nd Day)
Lord McKenzie of Luton (Labour)
My Lords, I shall speak also to Amendments 43 and 45. Clause 155 introduces the concept of settlement payments to facilitate the self-financing system that will replace the housing subsidy system when it is abolished. A devolved system of council housing, whereby councils are able to manage their stock using their own rents, will be achieved by a one-off debt settlement. We discussed this on Monday. The amount of debt allocated to each authority will be calculated on the basis of what its business plan shows it is able to support. The 30-year cash flow of income and expenditure is converted to a capital valuation using standard discounting techniques. If the valuation is below the amount of housing debt for which an authority currently gets support through the subsidy system, the Government will make a settlement payment. If the valuation is higher, the local housing authority will make a settlement payment.
The cash flows for the 30-year business plan will require the forecasting of rental income and of costs for repairing and maintaining stock, as well as debt servicing costs. Clause 155 gives the Secretary of State the authority to make determinations for providing the basis of calculation of the settlement payments. It covers the right to make assumptions about receipts and payments. Any determination can include an assumption even if it is not borne out by events. Further, it can include an assumption whether or not it is likely to be borne out. The amendment seeks clarification of this phrase. Does that mean that at the point when the assumption is made, it does not matter whether it is likely to be borne out? This probe is not just nitpicking; it is important to be clear on the evidence and analysis that will be needed to underpin the assumptions that will be used. These are the sorts of issues on which my noble friend Lord Whitty sought clarification when we last debated this.
I will take one example of an unrealistic assumption. It is understood that the calculation assumes that the initial year's income is available to offset the cost of the self-financing payment at the start of the year, whereas in practice it will accrue throughout the year. Similarly, the loss of rental income from right-to-buy sales is assumed to operate only from the end of each financial year. This is demonstrably unrealistic and operates against the interests of local housing authorities.
There are also, as I understand it, issues about demolitions. To the extent to which they are recognised, they obviously reduce income in the 30-year plan. However, it is understood that they are only recognised if a degree of actual planning for them has occurred or is under way. Clearly, over a 30-year period, this will not always be the case initially. What is the current position on this? I do not expect an answer to the technical points here and now; but, if correct, they support the proposition that some unrealistic assumptions are built into the calculations operating to the detriment of local housing authorities. What is the process of resolving these?
Amendment 43 focuses on Clause 157 and relates to settlement payments arising from the abolition of the housing revenue account subsidy scheme. Clause 157 covers certain aspects of settlement payments. In particular, it allows the Secretary of State to charge local housing authorities interest, if they pay late, an amount equal to any additional cost that the Government incur. This amendment simply provides for reciprocity should the Secretary of State not pay at the time determined. It may be considered that the Government will never default on a payment or, indeed, on a payment timetable, but we could be dealing with circumstances were there is administrative error or, indeed, an IT problem. As the sums involved could well be significant, it seems entirely reasonable that local housing authorities should be kept whole.
Finally, on Amendment 45, we originally added our name to this amendment which I think was tabled by the noble Lord, Lord Best, together with a small amendment. I am not sure why the noble Lord did not wish to pursue his amendment, and he may let us know. However, I am pleased to see that we continue to have common cause with the noble Lord in wishing to remove Clause 158 from the Bill. This is the essence of what we are dealing with. In place of Clause 158, our amendment would cause local authorities to determine and keep under review their level of housing debt consistent with their obligations under the Local Government Act 2003. As we discussed on Monday, Clause 158, in particular, provides for the Secretary of State to be able to impose limits on council housing borrowing. We agree with the LGA that this power contravenes the objective and spirit of self-financing.
I am grateful to the Minister for her letter of
"Your amendment proposed at Committee stage would have left the decision as to what constitutes 'affordable borrowing' to individual local authorities to determine, with central government only having the ability to issue guidance on this issue".
Why is the existing prudential regime not considered sufficient to cover the situation? It has worked effectively, and effectively to protect the Government. In any event, why is the protection of the Local Government Act 2003-in particular the provisions in Sections 3 and 4(1) and (2)-not sufficient? To date, the Government seem to have focused on Section 3 of the 2003 Act, not Section 4. Let me try again to draw attention to that, because I believe that it is crucial to this argument.
Section 4(1) of the 2003 Act states:
"The Secretary of State may for national economic reasons by regulations set limits in relation to the borrowing of money by local authorities".
Moreover, subsection (2) states:
"The Secretary of State may by direction set limits in relation to the borrowing of money by a particular local authority for the purpose of ensuring that the authority does not borrow more than it can afford".
We accept that, for national economic reasons, the Government should have the residual power to limit local authority borrowing. That was, after all, our legislation. But the Government should not be allowed to hide behind these powers to diminish the benefits of self-financing. On Monday we focused on the fact that the Government have already removed vital headroom from local authorities by charging a reduced discount rate. The capping of opening debt levels just reinforces this disadvantage. We need a better explanation from the Government on this point than we have hitherto received.
I do not propose to press Amendments 39 and 43 today. However, I reserve the right to test the view of the House when Amendment 45 is called, in the event that we do not receive a coherent and satisfactory answer on this very important point.