Private Rented Housing

Orders of the Day — Finance (No. 2) Bill – in the House of Commons at 3:53 pm on 9th May 1988.

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Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 3:53 pm, 9th May 1988

I beg to move amendment No. 1, in page 49, line 15, after 'tenancies', insert 'let at or below a reasonable rent as determined by a rent assessment committee under the Housing Act 1988'.

When the Chancellor of the Exchequer announced in his Budget statement that he would expand the business expansion scheme to cover properties to let in the private rented sector, there were immediate cries of "Rachmanism". It was claimed that such an expansion would bring back the worst of the Rachman era. Those cries are understandable for anyone who remembers the evils of that period, which became, in the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), the unacceptable face of capitalism.

The Committee must ask whether there are ways of attracting private capital into housing that will not bring back Rachmanism. My right hon. and hon. Friends do not think it right to dismiss out of hand the use of the business expansion scheme as a possible approach. In view of the housing crisis, those who appear to take that approach and who represent other Opposition parties do a disservice to the people.

I believe that by the means that they have chosen the Government will open the door to the worst sort of private landlord. Instead, they should use a carefully tailored device to attract private capital back into rented housing, but ensure that that is done in a way that will provide adequate security and rent protection to tenants. Given the scale of the housing crisis, it would be irresponsible to say that there is no place for private capital and that we should not be attempting to attract it back into housing.

It is clear that the public authorities alone have not been able to solve some of our most serious housing problems. Even if they were not subjected to the unnecessary restrictions to which the Government have subjected them, they would still not be able to solve those problems.

Much more could be achieved if the Government were not preventing housing authorities from spending the capital receipts that they have obtained from selling houses on more investment in housing. The Government are clearly placing many unnecessary and inappropriate restrictions on the ability of local authorities to play their part in tackling housing problems. The Government are also tightening the reins on the voluntary housing sector in many ways.

With the present serious crisis we cannot exclude the role of private capital in housing. If we were to do so, we would perpetuate the monopolistic aspects of rented housing that are among the worst features of the problem. I have experienced that problem in all its different forms during my years as a Member of Parliament. I have experienced the dangerous consequences of a private monopoly on rented housing where people are afraid to reveal their political allegiances for fear that they will not get a cottage from the big landowner. I have seen exactly the same thing in its municipalised form where people fear that if they have said anything rude to any member of the family of the housing officer, they will not be considered for a council house.

The same kind of feudal deference arises in the municipal rented sector as has arisen over the years in the private rented sector. Any kind of monopoly of rented housing tends to be extremely dangerous for rights of choice or a sense of independence.

Many groups of people who want or need rented housing are not getting it. One obvious group includes people who have to move in search of work. The previous lack of privately rented accommodation in many areas is a serious impediment to those looking for work elsewhere who find that the public housing sector cannot help them.

Many people looking for jobs in different parts of the country have found that they cannot obtain housing when they apply for those jobs. The national mobility scheme does not provide those people with sufficient access to council housing in the area to which they want to move. I am thinking particularly of people who move from areas like mine in the north-east to the south-east of England. They cannot afford to enter the private housing market in the south-east because prices are so high. They cannot get council houses in the south-east where there are relatively few council houses as the rate of council house sales has been so high. There are very few privately rented houses available and that is a strong argument for ensuring that more are provided.

The Committee should consider whether we can tailor the business expansion scheme incentive to ensure that it provides adequate protection for tenants. The fear is that the people most likely to use the scheme will be those who regard it as a get-rich-quick opportunity, and will take advantage of the changes in tenants' protection to exploit tenants in near monopolistic situations.

The Government appear to have removed many of the aspects of tenants' security and protection on rents on the argument that that was the only way to get private capital back into housing. Is the business expansion scheme really necessary on top of what the Government have done already? They have greatly weakened the tenant's position by arguing that if they did not do so there would not be many houses to rent and therefore tenants in general would suffer.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I want to ask the hon. Gentleman a question in the most comradely terms about a statement that was made in the middle of the previous election campaign which suggested that a policy should be pursued whereby people who let a room in their home would not pay tax on the income that they derived. Will the hon. Gentleman develop that concept so that we may hear the argument explained more fully?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

That suggestion was an extremely good idea. It was an attempt to unlock the large amount of accommodation that could be available in the short term to deal with the housing problem for single people. Several disincentives have been suggested as reasons preventing people from offering such accommodation. It was suggested that people might be unable to remove an unsatisfactory tenant or regain the use of a room when the family required it. It was also suggested that there was not a great financial incentive to provide that accommodation.

That incentive could have been increased by the scheme that we put forward. It combined a degree of financial incentive with a system of administration designed to relieve the landlord—who might in many cases be a widow living alone in a house of three or four bedrooms—of the problems and complications of tenancy protection. It was a sensible scheme, but I cannot address it in connection with the amendment, which does not bear directly upon that scheme.

Nevertheless, that scheme was another attempt to acknowledge the fact that we have housing and property that could be put to better use and that private capital is available which could be used to expand the provision of rented housing.

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I am worried, as are others who are critical of the Chancellor's proposals, about what will be the position of tenants if the business expansion scheme is used without giving them any protection. The purpose of the amendment is to ensure at least that rents are set at reasonable levels. It is no longer possible to tie the business expansion scheme proposals to fair rents, because the Government have abolished that provision. Fair rents are on their way out. There will remain only rent assessment committees, which are normally used not for the assured tenancies with which we are dealing but for shorthold tenancies. Indeed, access to rent assessment committees in respect of assured tenancies is very limited and is available primarily to the landlord. That is a fairly weak limitation.

If a business expansion scheme tenancy conferred upon the tenant the right of access to a rent assessment committee, that would provide some means of ensuring that the tenant was not exploited. That would be particularly when the landlord—perhaps a company—had a monopoly or near-monopoly of rented property in the area. It would at least limit the ability of the business expansion scheme to create exploitable tenancies and the ability of landlords to push up rents in an area.

A company that wanted to make a lot of money fast out of the business expansion scheme could move into an area where there was a shortage of rented accommodation and buy a number of properties. It could then push up the rents in that area. It would have the benefit of the business expansion scheme in financing that operation in the first place and could then, by use of its monopoly, push up rents to an exploitative level.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I wonder whether the example that the hon. Gentleman has given is correct. If a company tried to do what he said by acquiring existing properties which were tenanted, the people occupying those properties could continue as fair tenants and there would be no advantage to the company. If the company were to purchase instead vacant or newly developed properties, in either case there would be a net introduction of new accommodation for rent that would not otherwise he available. How could a net new supply force up rental levels?

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

It could do so if the net new supply fell far below the level of demand. Provided that supply was less than demand, the company could force up prices. Indeed, no market price can be calculated if there is no rented property available. I could take the hon. Gentleman to various parts of London and elsewhere in the country where virtually no rented property is available. If he were able to obtain in such an area two or three properties—which had, perhaps, been in single occupation—and turn them into tenanted properties, he would have a virtual monopoly of rented housing and could set what rents he chose.

The situation is further distorted by the complications of housing benefit. There is not a free market in rented housing. I have submitted another amendment which, although it cannot be debated now, the Minister might like to keep at the back of his mind. It is designed to probe why it was necessary to apply the higher rate of tax relief to the business expansion scheme. A landlord who takes advantage of the scheme without the protection that I am suggesting will be investing in property with a potential for capital appreciation that is greater than almost anything else into which he could put his money. Why should he need such a large incentive? With existing schemes, no more that 50 per cent. of net assets may be represented by property. It is already recognised within the business expansion scheme that it is not the purpose of the scheme to finance property ownership and that there is not the degree of risk in property ownership to justify the conferring of substantial incentives.

The Government are offering large incentives to draw people into projects in which they can make a great deal of money without being offered a big incentive, and in which they will find it easier to participate if tenants are not given a measure of protection. The Minister may feel that my amendment to make use of rent assessment committees is not the best way of maximising tenants protection. However, unless he is able to offer some guarantee that tenants will not be exploited under the scheme, he will do the cause of expanding privately rented housing no good.

If the business expansion scheme is used in that way it will get a very bad name after the first two or three landlords are found engaging in the kind of activity I have described. Considerable harm will be done, when we should be looking in every possible direction for means of tackling an appalling housing problem. It is a problem which creates social injustice, reduces people's economic opportunities, and prices people out of a free society—if they cannot obtain access to housing in areas where there is work available to them.

If the Minister wishes to win our support for the business expansion scheme in the private rental market, he must do something to afford protection to tenants. Otherwise, the scheme will be too easy to abuse. Unless the Minister can offer such protection, either by accepting my amendment or by an alternative, he cannot expect our support for the clause.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I hope that the hon. Member for Berwick-upon-Tweed (Mr. Beith) will forgive me if I reply briefly to his remarks, because some of the wider issues on which he touched might be more conveniently discussed in the clause stand part debate. The hon. Gentleman may agree that he went wider than the narrow terms of his amendment. None the less, I am grateful to him for the moderate way in which he proposed his amendment and did not express total hostility to the idea of the business expansion scheme being used to provide more privately rented property. Indeed, he went further and indicated that he felt there was a shortage of such accommodation, which was a great impediment to mobility in locking people into areas of high unemployment. That is one of the major reasons why we want to see a revival in the privately rented sector.

The hon. Gentleman was essentially trying to strike a different balance between the landlord and tenant than that being struck by the Housing Bill and by the concept of the new assured tenancies. I do not want to open up the whole Housing Bill debate this afternoon, but the tax relief in question is built upon the assumption that the Bill will be enacted. The proposals that we have put before the House try to strike a balance between the landlord and tenant that we believe is reasonable. The hon. Gentleman knows as well as I do that there have been many attempts by previous Conservative and even by Labour Governments—for example, by the late Richard Crossman—to alter that balance within an adminisrative framework and to try to achieve a greater, albeit regulated, supply of private rented accommodation. Those previous attempts all came to grief because they did not move far enough towards allowing genuine market rents to be charged in the private sector.

Photo of David Winnick David Winnick , Walsall North

Is it not at the core of this debate that a previous Conservative Government set out to deregulate the housing market under the Rent Act 1957? All new rented dwellings were deregulated with the promise, at the time when that Bill was going through the House of Commons, that that would lead to a substantial increase in rented accommodation. However, the opposite occurred. The Minister mentioned the late Richard Crossman. but he was responsible, as Minister for Housing, for repealing the 1957 Act, which was so discredited that the then Conservative Opposition did not even vote against his doing so.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I do not think that in the first part of his observation the hon. Gentleman was really disagreeing with what I was saying. I was saying that Conservative Governments in the 1950s did not go far enough and that what they did did not have the intended effect.

Although it is largely my fault that we are doing so, I do not think that it serves our purpose this afternoon to go too far back into the policies of Henry Brooke, or indeed the late Richard Crossman. I merely say to the hon.

Gentleman that I do not think that past Governments, Labour or Conservative, went far enough in giving freedom to landlords to charge a market rent.

The new assured tenancy scheme will allow a tenant and landlord to agree any rent that they choose. We believe that that is right, because the best way to arrive at a reasonable rent is to allow it to be determined by competition and market forces. In the past we have seen, all too clearly, attempts to restrict rents causing properties to leave the private sector or not to appear in it, so that people who wanted to rent and were willing to pay a market rent found that no property was available. Indeed, there has been almost no worthwhile investment in private rented property for 50 years, and the sector is declining considerably.

The clause extends the business expansion scheme to investment in companies that let residential property on the new assured tenancy basis. We consider this necessary in the early years of deregulation, to speed up the process of bringing more rented property on to the market. It would be counter-productive and foolish to restrict the rents that could be charged by the BES company. The likely outcome would not be that the benefits of the tax relief would be passed on to the tenant in the form of lower rent. It would simply discourage the supply, and discourage landlords from making more rented property available. Again, we would find willing landlords and willing tenants being frustrated by Government restrictions.

It is doubtful whether the amendment would have any effect. Under the Housing Bill, a rent assessment committee determines the rent when the landlord proposes an increase under a periodic tenancy and the tenant chooses to refer it to the committee. The committee, however, has no role in connection with the initial rent that is charged, and no role in fixing the rent when the mechanism for increasing it is built into the tenancy agreement.

Furthermore, the Housing Bill does not use the term "reasonable rent", which the hon. Member for Berwick-upon-Tweed has incorporated in the amendment. What the Housing Bill does is to provide for the committee to determine a rent at which the property might reasonably be expected to be let on the open market by a willing landlord: in other words, the market rent. We believe, however, that imposing a rent assessment committee's view of what would be a market rent on all tenancies from the outset, as the hon. Gentleman suggests, so that a higher rent could not be charged even if the landlord and tenant were in agreement, would not be right. It would create uncertainty, and would discourage landlords from providing property for letting.

I am afraid that, despite the moderate way in which the hon. Gentleman proposed his amendment, I do not think that I can accept it. I hope to deal on clause stand part with some of the wider issues that he raised.

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

The tragedy is that, good as the intentions of the hon. Member for Berwick-upon-Tweed (Mr. Beith) are in relation to fair rents, no tenant would save money, no rent would be reduced and no family would be better off as a result of the amendment. The reason is that he has totally misunderstood what rent assessment committees are there to do, under the Housing Bill. They will not set the initial rents. They will determine rents only on appeal, and, as the Minister has conceded, they will have no remit in regard to fair rents.

One strong objection to the business expansion scheme is that we are not in a position to force fair rents, but we have a number of other objections. We believe that the major problem of the scheme is that money that ought to be used to provide better housing under housing associations and local authorities will be frittered away in tax reliefs. For those reasons—which we want to debate this afternoon—I hope that the hon. Gentleman will withdraw his amendment, which will have no force whatever, and allow us to get on with the major debate on the business expansion scheme.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne 4:15 pm, 9th May 1988

I understand that the hon. Member for Berwick-upon-Tweed (Mr. Beith) is making his parliamentary debut in his new role as shadow Chancellor and in addressing the Committee on the Finance Bill. [Interruption.] If I am wrong about the hon. Gentleman's experience, I shall gladly give way and apologise to him.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

The hon. Gentleman may have failed to notice that I have been addressing the House on this subject for about a year.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

I think that I may be right. I said that this was the hon. Gentleman's debut as shadow Chancellor in addressing a Committee of the Whole House on the Finance Bill. If he has done it before, I can only say that this afternoon was not a triumph. We understand the the hon. Gentleman is not only the shadow Chancellor for the newly formed party, but a possible candidate for the leadership. You may care to reflect, Mr. Walker, on the hon. Gentleman's good fortune in not being surrounded by all his colleagues. Only one has been here to learn the truth, which is that the hon. Gentleman has misunderstood the Finance Bill and does not understand the Housing Bill, of whose Standing Committee his hon. Friend the Member for Southwark and Bermondsey (Mr. Hughes) was a rather undistinguished member. It would have been greatly to the advantage of the shadow Chancellor if he had studied both Bills more carefully. I hope that he will not detain the Committee any longer, and will withdraw the amendment.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I thought that the hon. Member for Eastbourne (Mr. Gow) was going to make a speech discussing the issues raised in the amendment. I used to think that he was interested in housing issues; he was, after all, Minister for Housing at one time. He clearly prefers, however, to engage in discussion of wider political matters at a pretty superficial level.

I also thought, when the hon. Member for Dunfermline, East (Mr. Brown) spoke, that I had intruded on a private quarrel which could be conducted only on the basis of being either in favour of private landlords or wholeheartedly opposed to them. Indeed, the hon. Member for Walsall, North (Mr. Winnick) intervened when they were mentioned, and said that they should go. It is a widespread view in the Labour party that there is no role for the private rented sector.

My purpose in tabling the amendment—and I am strengthened in my view that we should press it—is to suggest that there is a role for private rented housing, and that the Government should be looking for ways to encourage a responsible private rented sector without doing so in ways that afford no protection to tenants. I can hardly be criticised for the unsatisfactory features of the Government's housing legislation—including the rent assessment committees—given the effort put by my hon. Friend the Member for Southwark and Bermondsey (Mr. Hughes) into criticising those proposals when they were put forward. The amendment offers the Government an opportunity to find a way of moderating their own proposals.

Let us suppose for a moment that the Government are right in their assumption that the change in the balance between landlord and tenant will attract more people into private sector housing. That must have been their intention. The argument that they used throughout all the debates on the housing legislation was that the balance was wrong, and that shifting it would bring more capital into private housing.

If there were anything in that argument, the business expansion scheme would be of only limited relevance to the expansion of the private rented sector. As it accords considerably greater benefits to landlords who will already have been released from their former obligations, which the Government believe kept some of them out of the housing market altogether, why should not a greater obligation towards tenants be imposed on that group of landlords—particularly as it may prevent the scheme from being abused, and becoming a means of returning to the days of Rachmanism?

We have put forward a reasonable proposal, and have offered the Government an opportunity to suggest alternatives. But they seem determined to drive ahead with an unrestrained incentive to landlords, with no tenant protection at all. The Labour party seems determined not even to consider ways in which the private sector could play a larger role in tackling the enormous housing problems. In those circumstances, I feel that we are entitled to differ, and to say that there is a role for a responsible private sector. 1 therefore intend to press my amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 145, Noes 221.

Division No. 290][4.20 pm
AYES
Allen, GrahamCampbell, Menzies (Fife NE)
Anderson, DonaldCampbell-Savours, D. N.
Archer, Rt Hon PeterClark, Dr David (S Shields)
Banks, Tony (Newham NW)Clay, Bob
Barnes, Harry (Derbyshire NE)Clwyd, Mrs Ann
Battle, JohnCohen, Harry
Beith, A. J.Cook, Frank (Stockton N)
Benn, Rt Hon TonyCook, Robin (Livingston)
Bennett, A. F. (D'nt'n & R'dish)Corbett, Robin
Bidwell, SydneyCorbyn, Jeremy
Blair, TonyCox, Tom
Blunkett, DavidCryer, Bob
Boateng, PaulCunliffe, Lawrence
Boyes, RolandCunningham, Dr John
Bradley, KeithDalyell, Tarn
Bray, Dr JeremyDarling, Alistair
Brown, Gordon (D'mline E)Davies, Rt Hon Denzil (Llanelli)
Brown, Nicholas (Newcastle E)Davies, Ron (Caerphilly)
Bruce, Malcolm (Gordon)Davis, Terry (B'ham Hodge H'l)
Buchan, NormanDixon, Don
Buckley, George J.Dobson, Frank
Caborn, RichardDoran, Frank
Callaghan, JimDouglas, Dick
Dunnachie, JimmyMichie, Bill (Sheffield Heeley)
Dunwoody, Hon Mrs GwynethMillan, Rt Hon Bruce
Eadie, AlexanderMitchell, Austin (G't Grimsby)
Eastham, KenMoonie, Dr Lewis
Evans, John (St Helens N)Morgan, Rhodri
Ewing, Harry (Falkirk E)Morris, Rt Hon A. (W'shawe)
Fatchett, DerekMowlam, Marjorie
Faulds, AndrewMullin, Chris
Fearn, RonaldMurphy, Paul
Field, Frank (Birkenhead)Nellist, Dave
Fisher, MarkOrme, Rt Hon Stanley
Foot, Rt Hon MichaelOwen, Rt Hon Dr David
Foster, DerekPatchett, Terry
Fyfe, MariaPendry, Tom
Galloway, GeorgePike, Peter L.
Garrett, John (Norwich South)Prescott, John
Golding, Mrs LlinQuin, Ms Joyce
Gordon, MildredRandall, Stuart
Gould, BryanRedmond, Martin
Griffiths, Nigel (Edinburgh S)Rees, Rt Hon Merlyn
Griffiths, Win (Bridgend)Richardson, Jo
Grocott, BruceRoberts, Allan (Bootle)
Harman, Ms HarrietRogers, Allan
Hattersley, Rt Hon RoyRooker, Jeff
Haynes, FrankRowlands, Ted
Heffer, Eric S.Ruddock, Joan
Hogg, N. (C'nauld & Kilsyth)Sedgemore, Brian
Hoyle, DougShore, Rt Hon Peter
Hughes, Robert (Aberdeen N)Skinner, Dennis
Hughes, Roy (Newport E)Smith, Andrew (Oxford E)
Hughes, Sean (Knowsley S)Smith, C. (Isl'ton & F'bury)
Hughes, Simon (Southwark)Smith, Rt Hon J. (Monk'ds E)
Illsley, EricSnape, Peter
John, BrynmorSoley, Clive
Kinnock, Rt Hon NeilSpearing, Nigel
Leighton, RonSteel, Rt Hon David
Lestor, Joan (Eccles)Stott, Roger
Litherland, RobertStraw, Jack
Livingstone, KenTaylor, Mrs Ann (Dewsbury)
Lloyd, Tony (Stretford)Taylor, Matthew (Truro)
McAllion, JohnTurner, Dennis
McFall, JohnWall, Pat
McKay, Allen (Barnsley West)Walley, Joan
McKelvey, WilliamWareing, Robert N.
McLeish, HenryWelsh, Andrew (Angus E)
Madden, MaxWilliams, Alan W. (Carm'then)
Mahon, Mrs AliceWinnick, David
Marek, Dr John
Marshall, Jim (Leicester S)Tellers for the Ayes:
Martin, Michael J. (Springburn)Mr. James Wallace and
Meacher, MichaelMrs. Ray Michie.
Michael, Alun
NOES
Alexander, RichardBright, Graham
Alison, Rt Hon MichaelBrittan, Rt Hon Leon
Allason, RupertBrown, Michael (Brigg & Cl't's)
Amos, AlanBrowne, John (Winchester)
Arbuthnot, JamesBruce, Ian (Dorset South)
Arnold, Jacques (Gravesham)Buck, Sir Antony
Atkinson, DavidBurt, Alistair
Baldry, TonyButcher, John
Beaumont-Dark, AnthonyButler, Chris
Bendall, VivianButterfill, John
Bennett, Nicholas (Pembroke)Carlisle, John, (Luton N)
Benyon, W.Carlisle, Kenneth (Lincoln)
Biffen, Rt Hon JohnCarrington, Matthew
Biggs-Davison, Sir JohnCash, William
Blackburn, Dr John G.Channon, Rt Hon Paul
Blaker, Rt Hon Sir PeterChapman, Sydney
Bonsor, Sir NicholasChope, Christopher
Boscawen, Hon RobertClark, Sir W. (Croydon S)
Boswell, TimClarke, Rt Hon K. (Rushcliffe)
Bottomley, PeterConway, Derek
Bottomley, Mrs VirginiaCoombs, Anthony (Wyre F'rest)
Bowden, A (Brighton K'pto'n)Coombs, Simon (Swindon)
Bowden, Gerald (Dulwich)Cope, John
Boyson, Rt Hon Dr Sir RhodesCouchman, James
Braine, Rt Hon Sir BernardCran, James
Brazier, JulianCurrie, Mrs Edwina
Curry, DavidLloyd, Sir Ian (Havant)
Davies, Q. (Stamf'd & Spald'g)Lloyd, Peter (Fareham)
Davis, David (Boothferry)Lord, Michael
Day, StephenLuce, Rt Hon Richard
Devlin, TimMcCrindle, Robert
Dickens, GeoffreyMacfarlane, Sir Neil
Dicks, TerryMaclean, David
Dorrell, StephenMcNair-Wilson, M. (Newbury)
Douglas-Hamilton, Lord JamesMalins, Humfrey
Durant, TonyMans, Keith
Evans, David (Welwyn Hatf'd)Maples, John
Fallon, MichaelMarshall, John (Hendon S)
Favell, TonyMarshall, Michael (Arundel)
Fenner, Dame PeggyMartin, David (Portsmouth S)
Field, Barry (Isle of Wight)Mates, Michael
Forman, NigelMaude, Hon Francis
Forsyth, Michael (Stirling)Maxwell-Hyslop, Robin
Forth, EricMellor, David
Fox, Sir MarcusMiller, Hal
Franks, CecilMills, Iain
French, DouglasMitchell, Andrew (Gedling)
Fry, PeterMitchell, David (Hants NW)
Gardiner, GeorgeMoate, Roger
Garel-Jones, TristanMontgomery, Sir Fergus
Gill, ChristopherMorrison, Hon Sir Charles
Goodlad, AlastairMoss, Malcolm
Gorst, JohnMoynihan, Hon Colin
Gow, IanMudd, David
Gower, Sir RaymondNelson, Anthony
Grant, Sir Anthony (CambsSW)Neubert, Michael
Gregory, ConalNewton, Rt Hon Tony
Griffiths, Peter (Portsmouth N)Nicholls, Patrick
Grist, IanPage, Richard
Ground, PatrickPaice, James
Grylls, MichaelPatten, John (Oxford W)
Gummer, Rt Hon John SelwynPrice, Sir David
Hanley, JeremyRathbone, Tim
Hannam, JohnRhodes James, Robert
Hargreaves, A. (B'ham H'll Gr')Riddick, Graham
Hargreaves, Ken (Hyndburn)Rossi, Sir Hugh
Harris, DavidRost, Peter
Haselhurst, AlanRowe, Andrew
Hawkins, ChristopherSackville, Hon Tom
Hayes, JerrySayeed, Jonathan
Hayhoe, Rt Hon Sir BarneyScott, Nicholas
Hayward, RobertShaw, David (Dover)
Heathcoat-Amory, DavidShaw, Sir Giles (Pudsey)
Hicks, Robert (Cornwall SE)Shaw, Sir Michael (Scarb')
Higgins, Rt Hon Terence L.Shepherd, Richard (Aldridge)
Hind, KennethShersby, Michael
Hogg, Hon Douglas (Gr'th'm)Sims, Roger
Hordern, Sir PeterSmith, Tim (Beaconsfield)
Howard, MichaelSpeller, Tony
Howarth, Alan (Strat'd-on-A)Steen, Anthony
Howarth, G. (Cannock & B'wd)Stern, Michael
Hughes, Robert G. (Harrow W)Stevens, Lewis
Hurd, Rt Hon DouglasStewart, Andy (Sherwood)
Irvine, MichaelStradling Thomas, Sir John
Irving, CharlesSumberg, David
Jack, MichaelSummerson, Hugo
Jackson, RobertTapsell, Sir Peter
Janman, TimTaylor, Ian (Esher)
Jessel, TobyTaylor, John M (Solihull)
Johnson Smith, Sir GeoffreyTaylor, Teddy (S'end E)
Jopling, Rt Hon MichaelTemple-Morris, Peter
Kellett-Bowman, Dame ElaineThompson, D. (Calder Valley)
Key, RobertThorne, Neil
King, Roger (B'ham N'thfield)Thurnham, Peter
Knapman, RogerTracey, Richard
Knight, Greg (Derby North)Tredinnick, David
Knight, Dame Jill (Edgbaston)Trippier, David
Knox, DavidTwinn, Dr Ian
Lamont, Rt Hon NormanWaddington, Rt Hon David
Lang, IanWakeham, Rt Hon John
Latham, MichaelWaldegrave, Hon William
Lawrence, IvanWalker, Bill (T'side North)
Lee, John (Pendle)Waller, Gary
Lester, Jim (Broxtowe)Walters, Dennis
Lightbown, DavidWard, John
Lilley, PeterWarren, Kenneth
Watts, JohnYoung, Sir George (Acton)
Whitney, RayYounger, Rt Hon George
Widdecombe, Ann
Wiggin, JerryTellers for the Noes:
Wilshire, DavidMr. Mark Lennox-Boyd and
Winterton, NicholasMr. Richard Ryder.
Wolfson, Mark

Question according negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

This clause, together with schedule 4, extends the business expansion scheme to investment in companies which let residential property on the new assured tenancy terms. It complements the current Housing Bills, which introduce this kind of tenancy. The aim is to encourage the provision of private rented accommodation. The shortage of such accommodation in many areas in our cities has been one of the main causes of homelessness, and it has also been an obstacle to labour mobility.

In the longer term, the freedom for landlords to charge market rents under the new-style assured tenancies will stimulate more investment in private rented housing, but we see a strong case for speeding up this progress by providing a special incentive in the early years of deregulation. Therefore, we propose to extend the business expansion scheme to investment in companies letting properties on the new assured tenancy terms, which give tenants security of tenure. This relief will be available for only five years. The Bill provides for BES relief to be available for shares issued after Royal Assent and before the end of 1993.

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

Will the Minister assure the Committee that companies formed under the business expansion scheme to provide private rented accommodation will have to subscribe to a social landlords' charter that has been proposed by the Minister for Housing and Planning?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

No. The terms of the assured tenancies under which investment can take place under the legislation are precisely the same as those in the Housing Bill. Any proposal that is made by my hon. Friend the Minister for Housing and Planning would be incorporated and would have to be observed by any company which was benefiting from the business expansion scheme. I shall return to that question in order to confirm or amend my answer.

Relief will apply to shares that are issued after Royal Assent to the Finance Bill and before the end of 1993. The new assured tenancy basis will not be available immediately. We expect it to come into force early next year. In the interim, a company will be able to use the business expansion scheme to raise money to buy or build properties, but it will be unable to let them. Nevertheless, we felt that it was right to make BES relief available during the interim period, because the purchase of properties and any necessary preparations to make them ready for letting could take some time. We want companies using the BES to be able to let properties on assured tenancies as soon as possible.

As the aim of the BES relief is to encourage the continuing provision of rented property, the relief will be available only for assured tenancies that give the tenant long-term security. There will be a limit on the value of each let property. This will prevent tax relief from being used to provide expensive properties for renting. The limit will he £125,000 in Greater London, and £85,000 elsewhere. If the value of the property exceeds this limit, the letting will not qualify. The Bill contains a power to amend these limits by statutory instrument.

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

What are the mandatory reasons that will allow houses to be repossessed? Does the Minister agree that it may be in the financial interests of a company to attempt to repossess its houses after five years?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The hon. Gentleman is arguing against the whole basis of the Housing Bill. He is saying—and I expect that it will be the major point in the debate—that it provides an incentive to evict people. The hon. Gentleman knows as well as I do that my hon. Friend the Minister for Housing and Planning has produced a battery of new safeguards for tenants that will strengthen the criminal law and give the tenant the right to compensation if he is unfairly evicted. There is a risk of eviction from rented property, but that is more likely to arise from controls that make it impossible for landlords to receive a decent return on their property. The Housing Bill provides tenants with security of tenure, backed by changes to the legal protection that is available to them. Moreover, in certain circumstances, there will be access to the rent assessment committees. The legislation strikes a balance between the needs of the landlord and the tenant.

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

Does the Minister agree that intention to redevelop is one of the means by which tenancies can be repossessed on a mandatory basis, and that it may be in the financial interest of a company to repossess the tenancies after five years?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

Yes. Under the business expansion scheme the property has to be let on a long-term basis. The hon. Gentleman believes that there will be an incentive for a landlord to get vacant possession or to develop a property with vacant possession, but a company will be unable to qualify for BES relief unless it is letting the property as rented property. The BES relief will bring into existence companies which will let property on a continuing basis and also on an assured tenancy basis.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Is the Minister able to foresee circumstances in which a person who is a tenant and an investor under a business expansion scheme will be able to rent from his own investment? Is it not possible that he might receive tax relief on an investement from which he had already received a benefit?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

That is not possible. If the hon. Gentleman can demonstrate any way in which that is possible we shall take action to stop it, because that is not the purpose of the business expansion scheme.

The Opposition refer to harassment and to incentives to evict, but that is not the purpose of the legislation. We are prepared to look at any reasonable provisions that the Opposition may wish to put to us to safeguard the rights of tenants that do not cut across the Housing Bill, which we believe strikes the right balance between the rights of tenants and the need to give landlords a proper incentive to invest in rented property.

Photo of John Battle John Battle , Leeds West

When we discussed the Housing Bill the Minister accepted that practices of landlords or property developers such as Nicholas Hoogstratel were not covered by the law and that changes in the Bill would make it easier for him to carry on such practices. Although the Minister expressed grave reservations about that landlord's practices, when that landlord came before the courts his case was dismissed. What is there to prevent that person and his companies benefiting from the business expansion scheme and continuing to keep properties in bad condition and charge prices that tenants cannot afford to pay?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I wish to make no comments about one individual. Bad landlords are a product of previous Rent Acts. This legislation, the housing legislation and the BES are intended to provide a continuing supply of property on an assured tenancy basis. That is not compatible with the examples that Opposition Members are giving.

I was explaining about limits on the values of properties prescribed under the legislation, but if the value of a property exceeds the limit it will not necessarily cause BES relief to be lost, because a company will be allowed to carry on some non-qualifying activities. If those non-qualifying activities are substantial, BES relief will not be available. What that means in practice will depend on the facts of each case, but the Inland Revenue's existing practice is that if non-qualifying activities amount to less than 20 per cent. of total activities they are not regarded as substantial.

That rule will ensure that the company specialises in the provision of qualifying tenancies, which will give some desirable flexibility. For example, a company may from time to time have money on deposit while it is preparing to buy or improve properties. It would clearly be wrong to withdraw BES relief because it received a relatively small amount of interest on its deposit. Indeed, these provisions reflect the general provisions of the BES for all types of companies. The Bill excludes sub-standard properties by reference to standards laid down in the Housing Act 1985 and the Housing (Scotland) Act 1987.

There is a further feature of BES relief that I should mention. Clause 50 imposes a limit on the total amount of investment in a company in any year that can qualify for BES relief. Ordinarily the limit will be £500,000, but for companies letting residential property on assured tenancies it will be £5 million. It is not our intention that the BES should be used to finance large property companies, which should have less difficulty obtaining equity finance from the markets. Thus, a limit is necessary. We want to enable a company to benefit from economies of scale in offering shares to the public and in managing a large number of properties. We felt that the £5 million limit, which we have extended to ship chartering, was about right.

The privately rented sector has been in continuous decline since rent control was introduced in 1915 in response to wartime shortages. It has continued ever since and has been reinforced by other Governments. In 1915, 90 per cent. of the population lived in privately rented homes, but today barely 8 per cent. do so.

The lack of a ready supply of rented housing has become a major obstacle to labour mobility. Many people have been losers, including many unemployed people. Many people have been unable to take jobs because of the lack of a privately rented sector in areas where work is available. The country has lost from the economic activity that has been forgone. A battery of legislation, statutory rent controls and other rent restrictions are largely to blame for that profoundly unsatisfactory position.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I press the Minister about this simple question and I want a simple answer. Can a person rent a flat from a company in which he is a BES investor? The answer is either yes or no.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I answered that question earlier and said that I believed that the answer was no. I shall return to this issue later.

Photo of Mr David Shaw Mr David Shaw , Dover

Is not the question asked by the hon. Member for Workington (Mr. Campbell-Savours) answered by schedule 4 to the Bill, on page 123, which says: In subsection (2) of section 291 (individuals qualifying for relief), after paragraph (a), there shall be inserted—'(aa) a tenant of a dwelling-house of which the company is the landlord;'. Consequently, a tenant is unlikely to obtain relief under that subsection.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 4:45 pm, 9th May 1988

The answer to the question is no, but I shall return to it if the hon. Member for Workington (Mr. Campbell-Savours) wishes to pursue it.

The Government have decided to take action to reverse that profoundly unsatisfactory position by introducing a new assured tenancy scheme. Under its proposals, existing tenants will have the same protection as at present, but we are relaxing controls for future tenancies. Landlords and tenants will have a choice of two types of tenancies. Assured tenancies will provide long-term statutory security, and assured shorthold tenancies will give the tenant at least six months' security. In both cases, market rents will be payable. These proposals will provide the incentive for landlords to invest and, at the same time, give protection to the tenant.

For the new assured tenancy scheme, but not for assured shorthold tenancies, we are introducing tax relief under the BES scheme for a limited five-year period. We have a considerable task in pressing ahead with deregulation in the privately rented sector, and we believe that the extension of BES relief will give a significant boost to plans for deregulation. Decades of legislation have left this sector demoralised and in decline. It is important to reverse that decline, to give the unemployed a greater chance to find work and to give the population a greater choice in their housing.

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

The one thing that we can say about the Minister and his speech about tax concessions for the BES is that, despite all the criticisms that have been made of BES and of this new proposal in particular, his enthusiasm for the scheme remains undiminished.

Since the scheme was set up in 1983—it was originally intended to provide tax concessions for high-risk investment in high-technology industry to create jobs—Ministers have had to come to the House at least twice to say that, because of the increasing dependence on property and fixed assets, they intend to change the terms of the scheme. First, they had to admit that there were abuses in the scheme as it applied to expensive wines and antiques. They said that they intended to rule out those abuses. They then said that, because land and buildings form such a large part of the capital issued under the scheme, they would limit the amount that could be used to 50 per cent. Today, they appear to have turned full circle. Instead of saying that they will limit the dependence of BES companies on property they are saying that privately rented sector companies can be 100 per cent. dependent on property assets.

There is a further irony in what is happening. For months we have been saying that public funds that should have gone to the National Health Service, local authorities and social services departments for the benefit of the many have been going in tax concessions to private hospitals, nursing clinics, private health clinics, private schools and private accommodation for bed and breakfast for the benefit of the few. We said that those abuses should be limited. Yet the Government have opened up a new area of opportunity, with tax reliefs for a new area of the private sector, which is as yet unexploited under the BES. That is why we now have this proposal to extend BES relief to the private rented sector.

All Opposition Members recognise the housing problem—250,000 more people are on waiting lists than in 1979, there has been a 30 per cent. increase in the number of homeless people, there are twice as many people in bed-and-breakfast accommodation and 500,000 houses have been lost from the rented sector, even after taking account of council house sales.

As has been said, more houses have been lost from the rented sector under this Government than at any other time since the infamous Rent Act of 1957. In response, we believe that the Government's proper action should have been to give funds to housing associations and local authorities to enable them to build houses, and to encourage housing co-operatives. We believe that, for the same money, local authorities and housing associations could achieve far more than is possible under this new business expansion scheme.

Photo of David Winnick David Winnick , Walsall North

Does my hon. Friend agree that, as the rents are to be market rents, it will often be the case, especially in London and the south-east, that rents will be higher than the cost of a mortgage, so the very people about whom we are worried, who cannot afford a mortgage, are hardly likely to benefit from the Housing Bill. Is that not a measure of the hypocrisy of the Government's legislation?

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

If my hon. Friend will stay with me, I shall return to that point, which goes to the heart of our objections to the scheme.

We know what the scheme will do for the private investors whom the Minister is anxious to encourage. We know that someone who invests £40,000 in a BES company can save £16,000-worth of tax. We know that, on the occasion of houses being rented, complete decontrol is proposed under the Housing Bill and that companies can charge whatever rent they want. We know, too, that, after five years, shares in BES companies can be sold without there being any liability to capital gains. We know what gains there are—they come three times over—for those who invest in such schemes. What we do not know and what we have not heard, however, are the gains to tenants.

There is no guarantee—the Minister confirmed it—of fair rents, of long-term security in accommodation or of good quality landlords. It is small wonder, therefore, that this proposal did not surface in the Conservative party manifesto. As far as we can understand, it has never been advocated by any local authority and it has never been put out to anyone for consultation, and when it was announced immediately after the Budget the reaction of housing authorities and housing associations was anything but supportive.

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

The hon. Gentleman asks what is the benefit to the tenant. Is not the provision of new, additional rented accommodation of inestimable benefit to potential tenants?

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

The hon. Gentleman should read the details of the scheme. There is no guarantee of new accommodation. There is no guarantee that houses will be newly built rather than merely bought for renting under the scheme. As for rents, the hon. Gentleman will see clearly that the people who will benefit are not the migrant workers from the north looking for jobs in the south, which was the original intention of the scheme, but people looking for second flats, such as executives wanting accommodation in London or other major cities.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

The hon. Gentleman unintentionally misled the House. He said that there was no reference in our manifesto to the proposal before the Committee. I shall read what we said: We must attract new private investment into rented housing—both from large institutions…as well as from small private landlords…to encourage more investment by institutions, we will extend the system of assured tenancies. When introducing the motion, my right hon. Friend followed precisely the promises made on page 13 of our manifesto.

Photo of Gordon Brown Gordon Brown Shadow Chief Secretary to the Treasury

I hope that the hon. Gentleman does not wish to mislead the House. He failed to mention that at the heart of the scheme is the provision of a tax concession to people who, primarily, will be top rate taxpayers. There was nothing in the Conservative party manifesto which said that public money—taxpayers' money—would go to BES companies or any other companies to stimulate the private rented sector. That is the basis of the objection to the scheme—public money is being used to finance accommodation in respect of which there is no guarantee of fair rent, secure accommodation or good quality landlords. That money could be far better spent by local authorities or housing associations to build more houses or to repair houses for which fairer rents are charged.

I shall consider the drawbacks of the scheme. The Minister said that it is based on the principle of assured tenancies, and that people who rent under the scheme will have what he would regard as security of tenure under assured tenancies. We know that assured tenancies will provide less protection than secure tenancies under the Rent Acts, that there are seven mandatory reasons for tenancies to be repossessed and several other discretionary powers, that among them is the failure of the owners to pay the mortgages and that another is rent arrears after three months.

We know that another justification for repossession, at least in England, is the offer of alternative accommodation, which is vaguely defined as "suitable". We know that one of the principal loopholes that is likely to be used is the landlord declaring his intention to redevelop, whereupon he automatically has the right to repossession without, as we understand it, even having planning permission to carry out the redevelopment. We know, therefore, that there will be considerable abuse of the scheme.

The Financial Secretary has conceded that there is a financial benefit to companies which sell up after five years, and therefore secure vacant possession to enable them to sell up. We know that assured tenancies are more likely to be five-year tenancies at best. The people who gain them are likely to find themselves in other accommodation at the end of that period.

It is small wonder that those who advise investors in this matter have already said—an estate agent has said it: the grounds for possession are much more extensive than under the Rents Acts and include some previously available only under part II of the Landlord and Tenant Act 1954 for business purposes". The latest publication from the BES advisory group called "Best BES" concludes with a paragraph entitled, "Likely Exit Routes" thus: more likely perhaps properties will be sold either untenanted or with tenants". The idea that people will be advised that they are in the business of providing long-term accommodation lasting beyond five years, and the guarantee that these will be assured tenancies which cannot be broken will, under the new Housing Bill, I believe, prove groundless.

What are the guarantees about the quality of landlords? Housing associations are debarred from involvement in the scheme. Assurances involving the registration of landlords under assured tenancies, are, as in the previous legislation, being abandoned. There is no provision such as that involving the Housing Corporation whereby landlords are registered and approved. The proposal for social landlords will not come within the remit of BES landlords—the Financial Secretary confirmed that. What guarantees do we have, therefore, that landlords who have no experience, no track record and no approvals or supervision will have any commitment to proper standards of property and the proper treatment of tenants?

Is it not as my hon. Friend the Member for Leeds, West (Mr. Battle) suggested—that the landlords that local authorities and housing associations are trying to outlaw because of their atrocious record will be brought back to life? Indeed, under this scheme, they will be guaranteed state support in the form of tax concessions. Far from eliminating exploitative landlords, there is nothing here which will guarantee, under a social landlords charter or anything else, that the landlords who are being outlawed will not reappear. That is why one firm of accountants recently said: Rachman one suspects would not have been slow to take advantage of the scheme had it been around in the Sixties. Under these proposals, Rachman is subsidised by the state with an open-ended commitment which the Government think might cost £40 million in its first year.

5 pm

That is not the only problem. There is another problem that the Minister did not properly address. We are being told by Ministers that the aim of the scheme is to help the mobility of people round the country. We are told that it is to help workers in the north find accommodation once they find employment in the south. However, the information available to us suggests that the rent for a house costing up to £125,000, which is the limit of the scheme in London, could be as high as £240 a week and the rent on a £85,000 house, which is the limit in the cities and turns of the rest of Britain, could be as high as £154 a week on a market basis. When rent is as high as that and the housing benefit maximum will be only £114 in Westminster, £70 or £75 in other parts of London such as Kensington and Chelsea, £88 in Camden, £39 in the west midlands and £34 in Humberside, there is little chance, even with housing benefit support, of the migrant worker being able to afford the rents that will be charged under the business expansion scheme.

In other words, the rents that will charged will rule out the very people the Government say they are trying to help. It is the higher paid business men, with the rent probably paid by the company, who will benefit from such tenancies. It is not the first home for migrant workers that it likely to result from the scheme but a second home for temporarily resident business men. That is not the group in the country with the highest claim upon the charity of taxpayers.

Instead of suggesting that ordinary average wage workers are likely to benefit under the scheme, surely it would be better if the Government took up the suggestions made by the Employment Institute in its pamphlet published a few days ago. It said that if the Government are to continue to reject the proper answer to these problems, which is an active regional policy, the best solution for people moving south is publicly provided accommodation at rents that people can afford.

On top of the insecure tenures that are likely to result, the high rents that are likely to debar all but the best-off workers and the failure to provide guarantees against bad quality landlords, we come to the problem at the heart of the scheme. The same amount of money as the Government will give in tax subsidies to the rich could have been used to build local authority housing, sponsor housing associations or develop housing co-operatives.

We asked the housing associations what they believed could be done with the sum of money that the Government have set aside for the first year cost of their tax concessions. They told us that for that amount of money they would be able to build more than 2,000 new houses—2,000 extra houses, not houses taken from the accommodation sector now—and charge sensible rents for them.

We asked the Association of Metropolitan Authorities what it could do with the same amount of money—£40 million. It said that that would be sufficient capital to enable it to borrow sufficient money to build 10,000 local authority houses a year. Therefore, in return for a provision that will probably bring about 1,000 rented properties in its first year, we could have provided the capital to help to build up to 10,000 local authority houses. That is the scale of the missed opportunity caused by the Government's obsession with providing tax reliefs under the business expansion scheme.

As a result of the Government's policies, the number of public sector starts is at its lowest since 1945—and at a time when the need is becoming greatest. At the same time, the annual figures for house building in the public sector have fallen from 81,000 in 1979 to what is estimated to be only 29,000 this year. The Minister should respond to us by saying that, after looking at the finances of the business expansion scheme and recognising that the £40 million could be far better spent in the provision of local authority or housing association finance, the value for money achieved by this proposal is far less than would be achieved in the public sector.

It is a tragedy that the Government seem to feel that there is a psychological need to circulate cash around property developers and speculators before it can do any public good. The truth is that ideology in the Conservative party is now so rampant that it would prefer to subsidise the private sector to do the job inefficiently than support the public sector to do the job efficiently.

We are aware of a number of deficiencies in the business expansion scheme and my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) will deal with them when he winds up. Money that should have been raised for businesses in the north has been diverted to the south, money that should have gone to small businesses has gone to large businesses, money that should have gone to the manufacturing sector has gone to the service sector and money that should have gone to projects that would have created far more jobs has been frittered away on projects that the Minister has latterly had to ban.

The truth of the business expansion scheme for private rented housing accommodation is that it has been founded on dogma about the benefit of the private sector. It has been fired by selective generosity towards top rate taxpayers who stand to benefit far more than any tenant can benefit from the scheme. It has been justified on the myth about the average migrant worker being able to do well out of the scheme when the Government know that that cannot be the case. It is riddled with abuses and anomalies that will force the Minister back to the House to change the legislation in a short time.

In this debate the scheme has been exposed for what it is. It is a mechanism for taking the housing problems of the many and transforming them into the tax havens for the few. The scheme will do little for those who most need housing help. The money that is being spent on it should have been given to local authorities and housing associations to allow them to build the houses that we need. It is for those reasons that we will vote against the scheme.

Photo of Mr John Watts Mr John Watts , Slough

There would be little disagreement in the Chamber about the fact that there is a need for greater provision of rented housing in this country. Home ownership has increased at a rapid rate. That is commendable and desirable if it is a matter of free choice. However, if home ownership is merely a matter of Hobson's choice for those who would prefer to rent but who are denied the opportunity because there is no supply of rented housing, it is not a matter for congratulation. Therefore, one reason for wishing to see a greater supply of rented housing is to give individuals the same choice of renting accommodation as they have of owning their home.

Photo of John Battle John Battle , Leeds West

Is the hon. Gentleman still in favour of the policy of increasing the number of owner-occupied homes in Britain? At present, that stands at 62 per cent., and I understood it was the Government's policy to increase it to 75 per cent. Has it not occurred to the Conservative party that perhaps the reason for the shortage of private rented accommodation is that owner-occupation has increased? Is the hon. Gentleman now saying that his party feels that we have gone too far in the direction of owner-occupation and that we should pull back from that policy?

Photo of Mr John Watts Mr John Watts , Slough

Not at all. I am happy that we should continue to encourage and assist those who wish to become home owners. However, there should also be the option of renting. I believe that we have reached the point where, because of the fast dwindling private rented sector, many people do not have that choice. That is what the proposals in the Housing Bill, supported by this clause in the Finance (No. 2) Bill, are designed to redress. Therefore, the first justification for what we are putting forward is the freedom of individual choice. The choice of renting is as valid as the choice of owning.

Photo of David Winnick David Winnick , Walsall North

How can the hon. Gentleman talk about choice? I do not know about his mailbag or surgeries, but people write to me daily asking for rehousing and they come to my surgery with housing problems. They do not know about choice. They cannot afford a mortgage. In the main, they are family people who, on their restricted incomes, cannot obtain a building society mortgage. How will they he in a position to pay market rents when in many cases the rent will cost more than a mortgage and when housing benefit is being drastically reduced?

Photo of Mr John Watts Mr John Watts , Slough

I cannot understand how a market rent on a property could possibly be greater than the cost of funding a mortgage to purchase the same property. If it were, no would-be tenant would take that option. There will not be any choice for people who wish to rent if the hon. Member for Walsall, North (Mr. Winnick) and his hon. Friends continue to seek to frustrate any measure designed to increase the supply of rented accommodation. If the Labour party does that, it will not in any way give greater choice either to my constituents or to those of the hon. Member.

Photo of Ian Taylor Ian Taylor , Esher

Few lenders are prepared to advance a 100 per cent. mortgage. The difficulty for people trying to get a mortgage is in finding the differential capital amount. The attraction of rented accommodation—at least while people are establishing themselves in new working environments—is that people do not have to find the capital deposit that is required.

Photo of Mr John Watts Mr John Watts , Slough

My hon. Friend makes a valid point. In addition, people do not necessarily wish to put down permanent roots—as is often implied by home ownership—early in their careers, when they may make many job moves.

After choice, the second justification for seeking to increase the supply of rented accommodation is that it will improve labour mobility. Labour Members pooh-pooh this, but every Friday 30 or 40 pages of vacant jobs are advertised in my local newspaper. There are unemployed people in Walsall, North who would love to come to Slough for a job, but they are prevented from doing so because they cannot obtain accommodation there.

We have heard from Labour Members, predictably, the bleat for more council housing. The Labour party has only one solution to any housing problem—build council houses. That will not improve labour mobility. One need only look at the poor supply of council housing in the pool for the national mobility scheme to see how true that is. Obviously, the claims of existing constituents of local authorities are given priority over those of potential constituents. The demand of an existing tenant to transfer to better accommodation will always be accorded priority over the claim of someone who wishes to move into the area to take up employment. No conceivable level of capital expenditure on public housing will ensure that there is such an oversupply that the needs of those wishing to move into an area to take employment can be met by expansion of public sector housing.

There is no advantage for labour mobility in providing greater funds for the public sector. By contrast, the private rented sector is available equally to local people who are seeking rented accommodation and to those who want to move into the area for employment. There is no bar to the latter being granted a tenancy. They compete in the same market with others seeking rented accommodation.

The importance of expanding the private rented sector is recognised in the Housing Bill, which is the main vehicle for encouraging a resurgence of supply of private rented housing. Clause 49 of the Finance (No. 2) Bill, extending the business expansion scheme to assured tenancies, is intended to provide an initial boost to the intentions behind the Housing Bill. It is common sense and essential that the BES should apply to the same categories of assured tenancy as are defined in the Housing Bill. Any move to impose on housing investment further qualifications and requirements that would qualify under the BES—such a suggestion was made in amendment No. 1, which we have rejected—would blunt the impact of the useful boost that we are able to provide through this fiscal measure. Any such additional qualifications would he bound to defeat the pump-priming purpose of clause 49.

5.15 pm

The Opposition have professed concern for the future security of assured tenants. Their form of protection would prevent potential tenants from ever having the opportunity to obtain a tenancy. It would so constrain the conditions under which anyone could offer accommodation for rent in the private sector that no one would offer it. The purpose of providing housing for rent, and providing for greater choice and the needs of labour mobility, would be defeated by the Opposition's professed concern to provide protection.

The hon. Member for Dunfermline, East (Mr. Brown) criticised the tax relief that will be given under the scheme as squandering money that should be given to the National Health Service, local authorities, and so on. We have heard that bleat throughout our consideration of the Budget and the Bill. The hon. Gentleman missed the point that incentives to encourage investment maximise the benefit to potential tenants who are looking for property to rent and minimise the cost.

With tax relief at a maximum of 40 per cent., it must follow that two and a half times as much housing is provided for every £1 in lost tax revenue as would be provided if the same amount of cash were expended through local authorities. For every £1 lost in tax revenue through this relief, it would be necessary to spend £2·50 if the same amount of accommodation were provided through the public sector, and that is even making the generous concession that the public sector could provide housing as efficiently and as cheaply as the private enterprise system.

The Government's proposal maximises the benefit for people who need houses to rent—people for whom the Conservative party cares and whom the Opposition would sacrifice to their hatred of the private enterprise system in general and of landlords in particular. I give the clause my full support. I hope that it will be carried with a substantial majority to show how serious we are about expanding the provision of private rented accommodation.

Photo of Alistair Darling Alistair Darling , Edinburgh Central

The Government's support of the clause is indicative of their attitude to a major problem. The primary purpose of the clause is to provide a tax shelter for a few, using the housing shortage as an excuse. It has potentially unpleasant side effects. There is no doubt that there is a major housing shortage. The high demand is ruthlessly exploited by many private sector landlords. There is a particular shortage of rented accommodation at prices that people can afford. The people who find it most difficult to move about and to secure any accommodation at all are those on low incomes, who cannot afford the price of housing.

The hon. Member for Slough (Mr. Watts) asked why the private sector has been in decline. The answer is simple: successive Governments have subsidised home ownership. It is obvious that anyone who has the means will attempt to buy his or her own home because it is very much to his or her advantage to do so. That is why the private rented sector has declined throughout this century.

It is interesting to note that in home ownership the subsidy goes to the purchaser of the home, whereas under this scheme, rather than the public subsidy being given to the tenant, it goes to the landlord. On Second Reading I said that if the Government were serious about promoting tenants' choice it would be far better to subsidise tenants so that they could shop around and use their increased purchasing power to choose suitable accommodation. Instead of that, the cuts in housing benefit have greatly reduced the purchasing power of prospective tenants, especially at the bottom end of the market.

What is the answer to the housing shortage? The Government are providing an opportunity for a few people to obtain further tax relief. The clause provides a tax break for the better off. Rachman rides again, and this time the taxpayer is providing the horse.

Photo of Ian Taylor Ian Taylor , Esher

The hon. Gentleman has got it the wrong way round. The Government are trying, through the medium of tax incentives, to provide much more rented accommodation for people who need it.

Photo of Alistair Darling Alistair Darling , Edinburgh Central

I shall develop that argument shortly. I do not think—and I do not think that the Government believe—that this scheme will bring on to the market the thousands of extra houses that are needed. In any event, any houses for rent will be at the top end of the market, particularly in the south-east of England, where high profits can be made. Other parts of the country where there is a demand for accommodation and a need to encourage increased mobility will not be so attractive to people who wish to invest under the business expansion scheme.

One of my objections to the clause is that it specifically excludes organisations such as housing associations which have done much to provide low-cost housing. Clause 49(2) (b) specifically states that the qualifying activities are activities which … are, during the relevant period, conducted on a commercial basis and with a view to the realisation of profits. Clearly it is those who would profit from providing accommodation who will be subsidised.

I have three basic objections to the clause. First, it provides a tax shelter, giving a 40 per cent. discount to higher rate taxpayers. We must remember that only a few people in this country have between £500 and £40,000 to invest. They are not the ordinary, run-of-the-mill people. Very few people have that sort of money to play around with. The Government are aiming the provision at those who have a great incentive to reduce their tax liability and who have vast sums of money available to tie up for five years.

Photo of Mr David Shaw Mr David Shaw , Dover

Is the hon. Gentleman aware that about 70 per cent. of all those who have invested under the business expansion scheme are taxpayers at below the highest rate and that many standard rate taxpayers have invested in the scheme over the years?

Photo of Alistair Darling Alistair Darling , Edinburgh Central

Most of the money has gone to those paying higher rate tax. I repeat that the scheme is aimed at those with substantial sums of money available to invest which they are willing to tie up for five years.

The second objection is that after five years investors can sell up and get a profit, free of capital gains tax.

The third objection is that in some cases those providing accommodation at the bottom end of the market will receive a subsidy from the public purse because their tenants will have their rents financed through the Department of Health and Social Security. A few will provide accommodation at that level, but for the most part investors will be looking for market rents to improve the return on their investment, and that means high rents. Those with low incomes will not be properly catered for.

The scheme provides a tax break for the rich instead of looking after the least advantaged. It exploits those who have no choice. Furthermore, it is open to abuse, as my hon. Friend the Member for Dunfermline, East (Mr. Brown) said. If the capital gains tax advantages are to be realised, it is necessary to ensure that there are no tenants in the building at the end of the period. Clearly, the value of a property increases if it is not burdened by tenancies. This will give landlords the incentive to get rid of tenants by using the powers to be made available to them under the Housing Bill. By arguing that there is alternative suitable accommodation and that he wants the house for redevelopment, the landlord will be able to get the tenants out and realise his profits.

Who is to police the scheme? The Inland Revenue has enough trouble as it is in tracking down people who push tax advantages to their very limits. To give powers to local councils would be anathema to the Government, who have a pathological dislike of local authorities. With the money that is to be made available, local authorities could provide properly supervised accommodation for those who need it. If we are prepared to make funds available by way of tax forgone under the business expansion scheme, it would be far better to give that money to public bodies to provide accommodation, without the need to make a profit, thereby making a saving to the public purse.

We should invest in the public sector. I cannot see what is intrinsically good about the private sector providing accommodation, or what is intrinsically bad about local authorities and public bodies providing it. We should be willing to look after local authorities and housing associations, many of which have a very good track record of providing accommodation where it is needed.

The Government have completely abandoned any regional policy. We know that most of the money under the business expansion scheme has been invested in the south-east and that less than 4 per cent. has been invested in Scotland. If we are serious about encouraging businesses to set up outside the south-east of England, we should provide accommodation and give industry other incentives to move out of the overheated south-east. One of the laudable aims of the Scottish Special Housing Association, for example, was that it sought to provide accommodation where the labour was needed. Such a policy would get round the argument of the hon. Member for Slough.

In short, the clause is a tax break for those who have always been looked after by the Government—the few people to whom the Government have always attached a high priority and shown great favour. Those who have are to benefit at the expense of those who have not. The provision is, first and foremost, a tax shelter. Everything about the scheme points in that direction.

The serious problem of homelessness is not being addressed either in this Bill or in the Housing Bill. The business expansion scheme will not solve the problem. It will not bring on to the market the rented accommodation that is so desparately needed. According to the Government, there was a need to cut back on housing benefit because it was an open-ended commitment. This proposal is an open-ended commitment if ever there was one. We do not know how much it will cost the Exchequer in tax forgone, yet the Government are prepared to allow this blank cheque to be written to look after the few. The provision is a tax break first and foremost, and it will take a great deal to convince us that it is anything else.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

The Committee may want to take note of the fact that, having lost his amendment, the shadow Chancellor of the Social and Liberal Democrats has left us and made way for others on the Liberal Benches.

The debate is about whether the clause should stand part of the Bill, but quite rightly, my right hon. Friend the Financial Secretary and the hon. Member for Dunfermline, East (Mr. Brown) spent much of their time dealing with the housing aspects of the Bill. I, too, intend to talk mainly about the housing aspects, although at the very end I shall have to say something about the fiscal desirability of the proposal.

When the Chancellor made his Budget statement, he said: For years, the shortage of private rented accommodation has been an obstacle to labour mobility. The Government's proposals to deregulate new rents are already going through the House. Deregulation will, over time, substantially increase the supply of housing for rent. But this will not happen overnight, and there is a case for a special incentive to speed up the process in the early years."—[Official Report, 15 March 1988; Vol. 129, c. 1002.] I entirely agree with what the Chancellor said on 15 March.

There is no doubt that there is available and empty today a large amount of property which is underused or unused. Part of the purpose of the Finance Bill is to bring that unused or underused accommodation into use. The fact that it is empty at a time of considerable homelessness is a massive indictment of the present state of the law. It is to the redressing of that evil that the Housing Bill is in part directed. That Bill is designed not just to bring into use existing unused or underused accommodation, but to achieve something that has virtually not happened at all in the past half century—to attract new investment into the building or conversion of housing for rent in the private sector.

5.30 pm

Everyone should welcome the provision of new investment for the building of houses or flats to let in the private sector The Labour party should welcome it, especially for its employment consequences. Labour Members are rightly deeply concerned about employment. They used to tell me constantly that we needed to spend more money on housing. Part of the reason for that was the fact that construction of houses and flats is highly labour intensive. [Interruption.] The hon. Member for Workington (Mr. Campbell-Savours), clad in the Liberal colours, seeks to intervene from a sedentary position. He would be wiser to make his own speech in due course if he manages to catch your eye, Sir Paul.

I do not wish to be led astray by the hon. Gentleman who, like me, has this afternoon escaped from the Public Accounts Committee. Even he should welcome the prospect of still further employment in the construction industry as a result of this measure. It is not enough just to encourage those who have empty accommodation to let their property. It is high time for some new investment in the private rented sector.

Photo of John Battle John Battle , Leeds West

Will the hon. Gentleman explain why he has not supported an increase in housing investment programme allocations so that cities such as Leeds can put money into private rented accommodation through improvement grants in housing action areas? Local authorities have a strategy which seeks to deal with housing in both the private and the public sectors, but the cuts in HIP allocations have meant that money could not go into improving private rented accommodation.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

As the hon. Gentleman well knows, in this financial year there has been an increase in the Treasury allocation to the public sector of housing, so his intervention is somewhat self-defeating. [Interruption.] I was comparing this year with last. The hon. Gentleman wants more money and my right hon. Friend the Chancellor has provided it this year.

A dramatic increase in private ownership of houses must by definition mean a diminution in the rented sector, but one of the consequences of the drying up of the private rented sector has been that many people who would be only too happy to rent accommodation are today unable to do so. The hon. Members for Edinburgh, Central (Mr. Darling) and for Dunfermline, East asked how we could prove that migrant workers would go into the houses and flats that will be built as a result of clause 49 of the Finance Bill. Of course we cannot prove that, but whoever goes into them, someone somewhere in the country will move up. The hon. Member for Edinburgh, Central should not laugh. It is self-evident that an increase in private rented accommodation will make itself felt throughout those parts of the kingdom in which there is currently an unmet demand for such accommodation.

The provisions of the Finance Bill on their own will make it more attractive for private money to go into the building of houses and flats for rent, but because for the past 50 years there has been virtually no private sector investment in that area, I believe that my right hon. Friend the Chancellor is right to give it an extra boost for the first five years. Clause 49 will accelerate the revival of the private rented sector by accelerating the long overdue return of private investment in that sector.

The Labour party is thus in a dilemma. Even the hon. Member for Walsall, North (Mr. Winnick), except in his most eccentric mood, must agree that it is no bad thing to have more accommodation available in the United Kingdom. The hon. Gentleman, however, finds it difficult to reconcile that with support for clause 49.

For us, there is no such dilemma. We support the renewal of the private rented sector and believe that clause 49 will accelerate that renewal. We congratulate both my right hon. Friend the Chancellor and my hon. Friend the Minister for Housing and Planning, who was here a moment ago, on the combination of the Housing Bill, which has completed its Committee stage, and the Finance (No. 2) Bill which has just started its Committee stage. We believe that the two together will achieve that purpose which has eluded Governments for the past 50 years, and the sooner the clause reaches the statute book, the better it will be for housing.

Photo of Mr Win Griffiths Mr Win Griffiths , Bridgend

It gives me some pleasure to follow the hon. Member for Eastbourne (Mr. Gow) as he has clearly shown the link between the extension of the business expansion scheme in the Budget and the Housing Bill. The Government argue that those two measures will bring an extension of the private rented sector because they believe that the problems of rent control for landlords have resulted in the decline of the private rented sector, but all the evidence collected by reasonable people who might be considered experts on this tells us virtually the opposite.

The vacant property survey carried out by the Department of the Environment showed that rent control was not the reason for empty property. The survey showed that 60 per cent. was vacant due to the poor condition of the property and only 2 per cent. because of the landlord's dissatisfaction with Rent Act controls. The Institute of Housing—scarcely a bastion of Socialist thought—took a similar view. One of its reports states: In the Institute's view statutory controls on both security and rent have contributed to the decline but the evidence is inconclusive to say the least. The Select Committee on the Environment, in its 1981–82 report, states that the real problem for the private rented sector has been the massive advantage to owner-occupiers through mortgage interest tax relief.

Photo of David Winnick David Winnick , Walsall North

I was a member of that Select Committee. My hon. Friend may be interested to know that when we took evidence from the Small Landlords Association, it dismissed assured and shorthold tenancies as being of no use, and evidence has shown that they were not taken up. Moreover, the association said that small landlords—the same probably applies to large property companies—would be willing to rent only if there was no protection of rents and no security of tenure. If those circumstances could not be achieved, there would be no incentive for the private sector to intervene in housing.

Photo of Mr Win Griffiths Mr Win Griffiths , Bridgend

I thank my hon. Friend for pointing that out and for reinforcing the view of the Select Committee.

A survey carried out in London in 1983–84 found that fewer than two thirds of households were protected by the Rent Acts, and that during the period covered by the survey fewer than one third of new lettings were covered by rent controls. When one adds to that the ease of evasion of existing rent controls, one would have imagined that there would be an increase in lettings, but that has not been the case. The number of lettings has decreased.

In 1983–84, rents that were not protected in any way were an average of £345 a month. Protected tenants were paying £158 a month and registered tenants were paying £128 a month. Translated into current prices, that would mean £450, £190 and £154 a month, respectively. Rent controls have had little influence on the reduction of activity by private landlords. Indeed, the abolition of some controls after 1957 did not result in an increase in the private rented sector.

We can all agree with the view of the Select Committee on the Environment about what is needed to encourage private investment in housing for rent. Its report said that a healthy independent rented sector would require that landlords could obtain a return on investment similar to that obtainable elsewhere and that tenants could, without hardship, pay rents for suitable secure accommodation. There's the rub. Although it is possible for landlords to obtain a return on investment—I dare say that many right hon. and hon. Members pay hefty monthly rents for property in London with which their landlords are well satisfied—the problem lies in tenants being able to pay those rents without hardship. In a city such as London, many people could not dream of paying rents in excess of £400 a month.

The Halifax building society said that the market rent for a terraced property worth £45,000 in the south-east—it must be a little way out of London—would be £86 a week, whereas the mortgage repayment would be £76 a week. There would be no advantage in renting such a house.

Photo of Sir Sydney Chapman Sir Sydney Chapman , Chipping Barnet

Apart from the valid point made by my hon. Friend the Member for Esher (Mr. Taylor) about the need to put down a deposit on such houses, which must be a material factor, does the hon. Gentleman agree that mortgage interest rates can increase as well as decrease? Although the position is favourable at present, anyone going into the serious business of home ownership, which we wish to encourage and expand, should take those unpredictable factors into account.

Photo of Mr Win Griffiths Mr Win Griffiths , Bridgend 5:45 pm, 9th May 1988

We can all agree about changes in the mortgage rate and that, until recently, mortgage interest rates have been at record levels under this Government, but we should not deal with that now. We must discuss what is happening. At almost every stage during the past 20 years it has been more expensive to rent decent accommodation that it has been to buy that accommodation, notwithstanding the problems of finding a deposit.

By introducing property companies into the business expansion scheme, the Government are not making a significant contribution to tackling the problems. Will there be a large take-up of the extended business expansion scheme? The Chief Secretary to the Treasury said that the demand for the business expansion scheme remains uncertain. Although the Treasury has estimated that it will cost £40 million in the first year, no one knows for sure. In April, there were reports that Barratts would become involved in the scheme in a big way, although according to the magazine Housing in May—only a few weeks later—Barratts was already considering drawing in its horns and not becoming so involved. When one considers the advantages of tax relief and owner-occupation against the fact that those who rent accommodation obtain no relief, it is difficult to understand how the scheme can be successful.

With the Government's policy of reducing higher rates of tax, although the 40 per cent. relief may prove to be attractive for many people, other schemes will be equally attractive and perhaps less burdensome than this scheme—unless the so-called assured tenancies prove to be less effective and less well-meant than the Government claim.

Under the Housing Bill, tenants will not be as well protected as they were in the past. Landlords could run a coach and horses through some tenancy agreements and get their tenants out without too much trouble. The Government more or less admitted as much by the exclusions that are provided under the assured tenancy scheme—for example, for redevelopment.

The outcome of the business expansion scheme is uncertain, yet the Treasury is committed to pouring millions of pounds into it. The money may not be spent at the end of the year. If in the first year the £40 million is not taken up, it will be interesting to know whether the shortfall will be used to provide money for home improvements or for building new properties in the public sector. We would welcome a commitment from the Minister on that.

We must also consider how the business expansion scheme has dispersed its money throughout the United Kingdom. Anyone from outside the south-east of England must wonder whether the scheme will do his region any good. In the south-east, the business expansion scheme took up 43 per cent. of the money expended in the last year for which information is available. In the same year, only 2·7 per cent. of the money available was spent in Wales. The amount spent in Scotland was less than 4 per cent. Less than 5 per cent. of the money went to the north-west, the north-east and the west midlands.

It appears, therefore, that this will be an opportunity primarily for unregistered and unlicensed landlords, who may not be controlled in any way, to run riot in the south-east because the money is unlikely to be spent elsewhere. The opportunities to boast that Rachman rides again, subsidised by the taxpayer, will be legion.

We call upon the Government to reconsider the clause and to expunge it from the Bill. We must ask whether it is a suitable vehicle for encouraging long-term growth in the private rented sector, or whether it will simply provide for a tax-subsidised property development scheme with a brief rental interlude. Obviously, the Government hope that, having extended the lollipop to potential investors in the property market, the aftertaste will be so sweet that they will keep their money there. They are building that hope on an illusion. All the evidence suggests that investors will make some money out of the scheme while it lasts, but, when it finishes in 1993, there will be a flight of investment away from this area, the money to provide decent housing at a decent cost will be lost, and we shall be no further forward in dealing with the problems of providing housing than we are today.

Photo of Sir Sydney Chapman Sir Sydney Chapman , Chipping Barnet

I am grateful to have the opportunity to contribute briefly to this part of the debate. The Minister reminded the House that in the last 70 years the number of private rented houses has declined from 90 per cent. of the total to just under 8 per cent. today.

There are many reasons for that. First, although it may appear to be a strange reason, there are more houses, or dwelling units. Secondly, there has been a great growth in private home ownership, which Conservative Members welcome. Thirdly, there has been a growth in the past 70 years in the public rented sector; and, more recently with the housing association contribution, which is an invaluable part of our housing stock today.

I have no doubt that there is another reason—that until recently our rent legislation has been framed on the assumption that every landlord is a villain and every tenant a saint. We now have a more equable and fair regime of rent legislation. We must have this better balance on the one hand, while assuring security of tenure to the reasonable tenant on the other. The reasonable tenant represents the vast majority of tenants in this country.

There have been one or two inconsistencies in contributions from Labour Members. The hon. Members for Edinburgh, Central (Mr. Darling) and for Bridgend (Mr. Griffiths) have fairly pointed out that the business expansion scheme is taken up mainly in the south-east. Clause 49 may or may not assist the provision of housing principally in the south-east, where, in certain areas, there is a particularly severe housing shortage. If the Bill is effective, it will help meet the housing needs of people in our capital city and in the south-east generally.

Photo of Andrew Smith Andrew Smith , Oxford East

Given the tight constraints on planning permission in my constituency and in many parts of the south-east, will the hon. Gentleman tell us how that additional housing subsidy can have any effect other than to fuel price inflation and carry owner-occupation further beyond the pockets of many people? It is already way beyond the reach of many people in the south-east. I presume that the hon. Gentleman is a market economist. Will he explain how, with extra money available and no more housing being built, this can be other than property speculation subsidised by the state?

Photo of Sir Sydney Chapman Sir Sydney Chapman , Chipping Barnet

I say, with relief, that I am not a market economist. I do not quite know what that means. However, I take the hon. Gentleman's point. There is pressure for development in the south-east, and there is a shortage of land for development in the south-east, compared with many other parts of the country. Nevertheless, there are plenty of opportunities and there is much spare land in the south-east. I can take the hon. Gentleman to parts of this great capital city and show him sites that are crying out for development.

Be that as it may, not all the housing needs in the south-east can be provided on existing under-used or derelict urban sites. I do not wish to stray too far from the clause, but I invite the hon. Gentleman to attend the Chamber this time next week, as I have been fortunate enough to draw first place in the ballot and intend to bring up the subject of planning controls and the problems facing us, particularly in a sustained expanding economy.

Photo of Alistair Darling Alistair Darling , Edinburgh Central

I do not want to accept the hon. Gentleman's invitation to attend a debate next week, but he appears to be developing a theme that was developed to some extent by his hon. Friend the Member for Eastbourne (Mr. Gow). He appears to be saying that if a business expansion scheme creates tenancies in London it will create surplus accommodation in other parts of the country. Is not most BES property likely to be at the top end of the market, because market rents will be charged?

Even if someone came to London to take up a place, that would not help someone in Newcastle who wanted to come to London to seek work but did not have very much money.

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Photo of Sir Sydney Chapman Sir Sydney Chapman , Chipping Barnet

The hon. Gentleman makes a series of important points, but the issue cannot be divided into black and white. There is a capital limit in paragraph 13 of schedule 4. I do not think that there will be provision only at the top end of the market. House prices and land prices are extremely high in the metropolis, and these prices will be reflected when comparison is made with other areas. I do not accept that the business expansion scheme will play into the hands of those who can afford to provide the most expensive private rented accommodation.

It is said that my right hon. Friend the Chancellor of the Exchequer is wrong to provide a tax incentive which is open-ended. How dreadful. It is then said that we shall be lucky if 1,000 houses are built under the scheme. There is a difference between offering a tax incentive and finding public funds to pay for subsidies in another area of housing. I am not saying that we should have one to the exclusion of the other. I am advocating a fair balance. We need to encourage private rented sector investment much more than we have done in recent years.

If I recollect correctly the words of the hon. Member for Dunfermline, East (Mr. Brown), he said something about ideology running rampant on the Conservative Benches. Having listened to some of the contributions of Opposition Members, it is clear that the well-worn political prejudices are alive and thriving on the Socialist Benches. I am confident that with such antiquated thinking the great Socialist ship will go down at the next general election, as it has in the past three.

I welcome the provisions in the clause and the schedule. Private rented dwellings can and should have an important role in housing provision. An increasing number of young people are unable to start the process of home ownership, for reasons which have been mentioned already, especially by my hon. Friend the Member for Esher (Mr. Taylor). These young people need temporarily and initially to find rented accommodation so that they can save for a deposit and then step on to the ladder of home ownership.

Secondly, there is increasing mobility in our nation. People are seeking jobs in different parts of the country. The hon. Member for Islington, South and Finsbury (Mr. Smith) will be aware that, in some areas of the south-east and some parts of London, employers are crying out for people to work for them and are offering attractive income levels. If the business expansion scheme is a success and creates market rents, those who take employment in the south-east and in parts of London, and who have come from other areas, will be able easily out of their incomes to afford market rents. We must keep an open mind if we care about encouraging the maximum number of people to be in employment.

My third example—the list is not exhaustive—is that there are people who, for various reasons, choose not to own their own home. Instead, they choose to rent. Some of these people would not qualify by any calculation for public sector housing, and provision should be made for them. We must encourage more private capital into rented housing because of the demands that I have mentioned, and others.

I accept that the business expansion scheme is not the only approach, but I am sure that it will make a valuable contribution. Clause 49 will help to add accommodation to the existing meagre stock. I have gone carefully through the detail of these provisions, as have hon. Members on both sides of the House. I recognise that there are exclusions that apply to tenure and type and value of property. After a careful study of the clause and the schedule, I see nothing to prejudice a tenant or prospective tenant.

For example, the Bill excludes property where the landlord or the owner demands a premium. As well as having the market rent established—that has to be done by agreement—the landlord will be prevented from saying, "I can charge only this amount of rent, but if you pay a higher premium than the other person who wants the place, you can have it." I accept that there is a shortage of housing in my area, and I see advantages in the scheme.

I have one detailed query to put to the Minister; and it is appropriate to do so now, as we are in Committee. It concerns the provisions in paragraph 13(1) of schedule 4, which relate to clause 49. I cannot understand why the market value limit is £125,000 in Greater London and £85,000 elsewhere. I agree that there should be value limitation, but I should like to know why my hon. Friend the Minister hit upon these figures. My constituency is an area where the metropolis meets the countryside. In one road in the constituency one comes across the boundary with Hertfordshire. One of the houses in that road adjoins a house that is deemed to be in Hertfordshire. Why should a value limit of £85,000 attach to the house in Hertfordshire, while the house next to it, which is in my constituency, is the subject of a £125,000 limit?

More important, does the limit refer to a dwelling house that may subsequently be divided into units of accommodation, or does it refer to the unit of accommodation that might be derived out of a greater whole? That is worth looking into. Much depends on the value of properties in any one area when compared with values elsewhere. Prices are extremely high in constituencies such as mine and in many other parts of London and the south-east. This could be a material factor. I shall be glad if my hon. Friend will respond to those points. However, I fully support the intention and spirit behind the clause and commend it to the House.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

When the business expansion scheme was originally introduced, I did not show outright hostility, because I believed that it could be made to work. That is still my belief. In a way it has helped in part to create jobs in the regions and in other parts of the United Kingdom. However, what has always worried me is abuse.

It might be worth reflecting for a moment on the origins of the scheme and the conditions in which the Government produced it. It came at a time when industry was not investing in the way that it should. The Government then produced a number of schemes, some of which were quite successful, to produce jobs. Those schemes were on a small scale and they were operated in every part of the United Kingdom. One of the problems at that time—to some extent it persists—was that high interest rates meant that there was a reluctance to invest. Some people said that it was easier to sit on a pot of gold in the bank and live on the interest than to invest. Against that background, schemes such as BES were introduced to offset the damaging effect of high interest rates on the small investor, especially in areas of unemployment where, invariably, small investors were not too inclined to congregate. Such areas do not normally have living within them people of great economic means. Workington is such an area.

When we originally discussed these matters three or four years ago, I made a somewhat ambiguous speech in that I partially welcomed the scheme but drew attention to a number of areas where I believed that abuse would take place. If I may say so, with modesty, I have been proved to be correct because there have been abuses. I can only repeat what I said then. I believe that the Government have produced a perfectly good scheme, but it was not targeted to avoid the inevitable abuses that have taken place.

I am concerned about one area of abuse. Although the Minister has replied to two of my interventions to reassure me, I want to present him with a scenario in which abuse will occur. I hope that I will not have to return to this point in two or three years' time in the way that I have had to refer to abuses about the scheme in general today.

I refer to comments made by Mr. Stephen Howe of BES Investment Research. I am not sure whether my hon. Friend the Member for Dunfermline, East (Mr. Brown) referred to those comments earlier. However, we seem to have missed the point that a new ceiling has been introduced for the business expansion scheme. Many people have set up companies which have benefited from the scheme. They now believe that there will be a policy shift in the organisations in terms of where they place BES money. They believe that the ceiling will prevent them from adopting—or direct them away from adopting—the schemes that I would have wanted or perhaps would not have wanted if they involved abuse, and force them into investment in housing.

To what extent has the Minister been able to assess in advance the impact and scale of that movement away from the previous investment areas towards housing? The statements from Mr. Stephen Rowe are quite strong. He is quoted in the Financial Times of 16 March 1988 as saying: It would take a lot of money into the residential property market which would otherwise have gone into genuine businesses. Mr. Rowe might be correct. I hope that those areas where the scheme has been successful will not suffer as a result of the switch in investment.

I also received a letter from a gentleman in Kent, an area in which I have taken a great interest over recent months. The gentleman, whom I am unable to name today, drew my attention on 2 February to an area of BES investment which he believed was an abuse. I do not know whether it is an abuse, but it certainly shows some remarkably high returns. He said: The scheme was prompty abused by the City so much so that some measures were introduced to prevent this, but it would seem without much success. One measure was to limit investment in property to 50 per cent. of the funds raised which has turned out to be something of a joke. He refers to BES managers looking for a minimum return of at least 30 per cent. per annum, something that was quite easy to achieve with retirement homes where a profit of £100 a week per patient is considered modest. He writes: I know of one home here in the south-east"— that is in Kent— which was purchased for £200,000 under the BES and has now 50 occupants each paying an average of £1,034 a month plus extras. That is £600,000 a year to run a home that was purchased for £200,000 under the business expansion scheme.

If the firm concerned is offering a high quality of care in Kent, I am sure that we would all welcome it. However, I wonder whether the Minister believes that that is the kind of investment that he would have wanted to attract when the scheme was established. Surely the benefits paid by the Department of Health and Social Security, which in many areas are the minimum fees that these homes ask, are enough to insulate people against the heavy expenditure involved in setting up and running those homes.

6.15 pm

I want to refer to my previous interventions and the Minister's responses. The Minister told me that someone could not be a tenant—not officially—of a house or flat in which he had invested under the business expansion scheme. Is it not possible for one, two, three or four people to join together and invest in a house? They might split up that house, perhaps in London, into a number of flats so that each flat, dependent on how the scheme was put together, would fall under the £125,000 threshold for London. If I have been slightly misled in that, I am sure that the Minister can imagine another scenario in which four people might join together to invest in that way.

Mandatory grounds for repossession after four years of assured tenancy require that where the landlord acquired the property before the tenancy began and now wishes to occupy it as his only or principal home, notice must normally be served that this ground will be used before the tenancy begins. My hon. Friend the Member for Leeds, West (Mr. Battle) tells me that those are self-standing grounds for repossession.

Is it not possible that someone seeking to secure a £40,000 discount, which is effectively what the tax deduction would mean, on a £100,000 investment, might make that investment and put in place someone who could not be deemed an associate under the Income and Corporation Taxes Act 1988, specifically section 291, subsections (2), (3), (4), and (6)?

Is it not possible that those people might not necessarily be associates? Might somebody be installed in that residence at a rental agreed between the two parties—remembering what the Minister said—which might effectively be £1 a year? Is it possible that the tenant might be fictitious or even a friend? Someone may become a resident and be given notice at the beginning of the term of four years that he would hand over tenancy after four years while the investor simply lived in the property.

The hon. Member for Dover (Mr. Shaw) intervened earlier when I put my case—no doubt because he is wise about these matters. He said that my point was dealt with in section 291 of Income and Corporation Taxes Act 1988. Perhaps he would intervene now and tell me where the Finance Bill precludes the scenario to which I have referred. Could a person put a friend in a flat in London, save £40,000 or £50,000—through a concession on the higher rate—with an agreement signed at the beginning of a four-year term to state that at the end of that time the friend would release occupation and the investor would move into the flat having procured it with a 40 per cent. discount? Is that not possible?

If it is possible, it will be an abuse. If the Minister wants to check the records, he need simply look back at the abuses that I predicted some years ago about a scheme that I supported. I am not rejecting the scheme out of hand. However, I believe that it will lead to abuses.

I want the Minister to assure us that the abuses will be dealt with. The Inland Revenue cannot police these matters. We cannot have teams of funny little men from the Inland Revenue running around blocks of flats in London to see who is living with whom, who happens to be in residence or whether there is any connection between a person in residence and someone investing in a business expansion scheme who has gained 40 per cent. relief. I do not believe that the system works like that. Understanding the way in which the Prime Minister's mind works about civil servants, I believe that that is the very last thing on earth that she wants to happen. Will the Minister give me an absolute assurance that that will never happen? If he cannot do so, he has a duty to the Committee to withdraw the whole proposition or to amend it in such a way that the Committee will be reassured.

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

This Government have been faithful to two important principles in their fiscal policy so far. The first is the desirability of simplifying the tax system. The second is the desirability of getting away from the fatal temptation—I almost called it addiction—to which so many of the Government's predecessors were subject.

That temptation consisted in using each Budget to introduce new tax incentives or penalties with a view to persuading various agents, in one sector or another of the economy, to change their behaviour patterns and to take decisions they would otherwise not have taken—or not to take decisions they otherwise would have taken. Over the years, that tendency has produced, in effect, an increasing attempt administratively to second-guess the market. The distortions that that produced were cumulative and did enormous damage to our economy. I am glad that we have moved away from that tendency to the extent that we have over the past seven or eight years.

The Government have acted pragmatically and not dogmatically. They have been prepared to retain fiscal incentives where there seemed to be a special case for them and introduce fiscal incentives where there seemed to be a very special case for doing that. There are two questions for the Committee to examine. First, is there really a special case? Secondly, if there is, is the particular means of intervention foreseen in clause 49 the appropriate one?

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

Before my hon. Friend addresses himself to those questions, will he explain to the Committee why not a single member of the Liberal party is in his place?

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

Since entering the House I have attempted to interest myself in a number of matters. I find some of them simple to grasp and others more complicated. Some of them I find completely inscrutable. The behaviour of the Liberal party falls into the latter category, and I can offer no help or light in regard to the interesting mystery to which my hon. Friend the Member for Eastbourne (Mr. Gow) has drawn attention.

It seems to me more appropriate, where a special case of the kind I have outlined has been identified, to intervene by means of a tax break rather than by means of a subsidy—simply signing a cheque with taxpayers' money, which is the preferred course in such circumstances of the Labour party. My reason for making that distinction is twofold. First, a tax break tends to reinforce the logic of the market rather than go against it, so it takes investors a little further in the direction in which they might otherwise have been inclined to go more cautiously—rather than turn people back from the course which the market appears to have dictated.

Secondly, as has already been pointed out, if one produces a tax break, one generates a great deal of additional money that is leveraged into the same purpose. I refer to the arithmetic that we have used today, and to the fact that for every £1 that it costs the taxpayer by way of tax breaks, we shall generate £2·50 of new money for investment in private rented accommodation by means of clause 49.

Another question to which I address myself is whether the argument has been made that the priority of rented private accommodation represents a special case. I believe that it does and I shall mention three reasons that seem to me to be cumulatively convincing. First, there is the present state of the private rented sector in this country, but I shall not elaborate on what was said by my right hon. Friend the Minister when he spoke of the important social and economic need to revive the private rented sector.

Secondly, the tax incentive will fit neatly, productively and fruitfully with the Housing Bill that is before the House, with its new concept of assured tenancies, which will involve the tenant paying a market rent. If one has market rents, one finds again that one can with reasonable confidence predict the future real value of rents and therefore of properties, which is the function of rents, over a number of years. It is arguable that, under a restricted rent system, one can more easily predict nominal values. What is important for investment decisions are real prices and values.

If we are to offer the private investor a stake in projects to provide private rented accommodation, and if we are to syndicate investments of that kind, as is foreseen in the Bill, one must produce a reasonable projection of cash flow. That can only be based on some reasonably reliable estimate of what the real value of the rents to be derived in future years is likely to be.

The third reason why I believe there is a special case, and why clause 49 embraces a good and appropriate concept, is that, whether one likes it or not, the memories of the past 30 or 40 years have had a traumatic effect on private investors. The history of rent controls and of excessive security of tenure way beyond the long-term interests of the tenants themselves has left investors with many unhappy memories.

Photo of John Battle John Battle , Leeds West

Like me, the hon. Member for Stamford and Spalding (Mr. Davies) served in Committee on the Housing Bill. He will surely agree that schedule 2 to that Bill took away tenants' rights under which there was a measure of discretion. There could be a row with the landlord about whether tenants should be evicted, but the Bill is weighted in favour of the landlord, who can say that his tenants will be mandatorily evicted. Tenants have lost their rights and could now, for very small reasons, be evicted. Does the hon. Gentleman think that that is a good thing? Also, what guarantees can he give, from his financial analysis, that moneys from rents will be reinvested in improving properties, to ensure a decent private rented housing stock in Britain?

Photo of Quentin Davies Quentin Davies , Stamford and Spalding

To answer the hon. Gentleman's second question first, the question whether the return from an investment is reinvested in the same sector will depend on the continued attractiveness of that type of investment. The Housing Bill, together with the provisions before the Committee in clause 49, will go a long way, inasmuch as governmental and legal action can, to ensure that investment in the private housing sector remains attractive.

As to security of tenure, one must strike a balance between the apparent and immediate interests of tenants in providing maximum security of tenure and the fact that, if there is absolute security of tenure, no landlord will rent his property. I believe that the Housing Bill strikes a good balance, but that matter is slightly outside the scope of the Committee.

My final point is that, after the traumatic effect of the controls on investors of the past 30 or 40 years, if we are to attract investors—and particularly private investors—back into private rented accommodation, given that there is tremendous hesitation in doing that, we must do something to counterbalance the ill effect on investor confidence of the policies which have been pursued up to now.

Governmental action up to now has been very damaging. I feel that it behoves us to take the need of the economy seriously, and do something to sugar the pill additionally before we invite a whole new range of private investors to swallow it. The Bill does that very neatly. It is well conceived and presented, and clause 49 merits the support of the House.

Photo of John Battle John Battle , Leeds West 6:30 pm, 9th May 1988

Although the hon. Member for Eastbourne (Mr. Gow) made great play of the fact that this proposal was in the Conservative manifesto, those of us who served on the Standing Committee considering the Housing Bill were slightly surprised that it was not mentioned once during that Committee stage. The Minister said that the provision builds on the assumption that the Housing Bill will become law. In practice, it will go much further than that Bill towards undermining the rights of tenants.

Conservative Members have expressed the view that rights have swung too far in the direction of the tenant and that power has shifted away from the landlord. However, the myth should be scotched immediately that any tenant has—in the words of the hon. Member for Stamford and Spalding (Mr. Davies)—had "absolute rights". That has never been the case. Under the Housing Bill, tenants' rights to appeal are being eroded and leverage is being provided for the landlord. Clause 49 of the Finance Bill will underpin and assist the landlords by giving them a tax break—as the hon. Member for Stamford and Spalding put it—from the Treasury.

During consideration of the Housing Bill, the Minister for Housing and Planning made great play of introducing a new concept, that of the social landlord. I suspect that he introduced that concept because he felt that the reputation of landlords—particularly private landlords—needed tempering, because there were examples of bad landlordism throughout the length and breadth of Britain. The Minister introduced the notion of a social landlord charter—stretching the language, as it were, between the public and private sectors.

Will those who take up the business expansion scheme have to register with the Housing Corporation? Will they have to register with anyone? Will they be required to have any record in property management, tenant management and rent management? Will the rent be controlled? We know that controls on rent will be taken away by the Housing Bill, but we were also assured that any increase imposed by a private landlord would be matched for those who could not afford to pay by an increase in housing benefit—a public subsidy. That point should not be neglected by those who refer simply to the capital subsidy, taking no account of revenue subsidies.

What guarantees can be given that people will have decent and appropriate housing to rent in the private sector? What will the clause do to improve the standard and quality of housing? It is sometimes suggested that the Rent Acts alone got rid of the private landlord. The hon. Member for Elmet (Mr. Batiste) nods in assent. It seems to me that the private landlord was disappearing in the city that he and I represent long before the Rent Acts were introduced.

In Leeds, at the turn of the century, 72,000 private rented houses called back-to-backs were built in the inner-city areas alongside the rivers and the courtyards of the pubs and inns. That was so that they could plug into the drainage systems and inside lavatories did not have to be provided. Although indoor lavatories had been invented by the Romans, the builders decided, for some unknown reason, to cut the costs of providing decent sanitation. As a result, the drainage system was overloaded. Lo and behold, at the turn of the century the streets where those houses were built were rife with tuberculosis. It was not the Labour councils that introduced the Public Health Acts and public housing to replace the private sector because it had done such a bad job in providing decent conditions.

Photo of John Butterfill John Butterfill , Bournemouth West

Does the hon. Gentleman not accept that we have moved on rather since those days? We have Town and Country Planning Acts, building regulations and Public Health Acts, with all of which any new builder must comply whether he is building for rent or for sale. The problems that the hon. Gentleman recites from the past are hardly likely to recur today.

Photo of John Battle John Battle , Leeds West

I am delighted with that intervention. I invite the hon. Gentleman to visit my constituency, for some of the conditions that existed under private landlords then exist today. I could show him flats full of people who live in basements—[Interruption.] Conservative Members may find it amusing, but when environmental health inspectors have to take to court the cases of elderly people who live in basements without a window to provide them with light because the landlord is breaking the law, I take the view that such conditions must be tackled.

When a local authority includes in its plans a housing action area to put money direct into the private rented sector and to improve and tackle those conditions, when an £88 million plan is put before the Government and their response is that the city can spend only £22 million so that there can be no grant for the private rented sector, we do not get very far in tackling he problems of at least 50,000 houses in the private sector in Leeds which are sub-standard and in need of major repair and modernisation.

I hope that the fabric of houses is part of the equation. This is not simply an issue of supply. Quality is also important. Homes must be supplied that people find decent, at a rent that they can afford. The clause is merely a pocket-liner. It has nothing to do with the supply of decent and appropriate housing, and it will not improve the housing stock. Everyone, from the Duke of Edinburgh downwards, has highlighted the crisis in Britain's housing stock. Nor will it give tenants security. Conservative Members may hide behind the word "assured", but they need only read the report of the Committee stage of the Housing Bill to see how past assurances have now been weakened.

I urge hon. Members to think again and to reject the clause. It will do nothing to improve housing conditions in this country.

Photo of Mr Spencer Batiste Mr Spencer Batiste , Elmet

It is fortunate that I should rise immediately after the hon. Member for Leeds, West (Mr. Battle), because I should like to present a rather different perspective on current events in the city of Leeds, which contains both our constituencies.

Before I do that, it may be worth recalling that the business expansion scheme as a whole came out of particular needs in 1979. Those of us who at that time were specially concerned with small business and the development of investment in it—in the many sectors of the economy where venture capital was woefully lacking—saw the scheme as a prime lever to get money into those sectors. It has been spectacularly successful. The Peat Marwick McLintock report showed that 50 per cent. of the investment raised under the scheme would not have been raised without it.

Perhaps the most valuable part of the scheme is that it signposts areas of investment in which further investment is needed. It signposts them in such a way that further investment follows rapidly from the wider market place, because it is seen, when the business expansion scheme leads, that there is an opportunity for the venture capital market to benefit from it.

It follows from that that the needs for the scheme will vary. The position is now quite different from that of 1979: there is a substantial and much better developed venture capital market. It is surely wrong to adopt a static approach to the business expansion scheme, because if there are sectors of the economy in which there is patently adequate investment in more conventional forms, there is no need to provide tax relief in channelling further money into it.

It is right that from Budget to Budget the Government repeatedly look at the business expansion scheme and try to change its focus to meet changing needs. That seems entirely sensible and logical. From the speeches that we have heard, it seems that no hon. Member has denied that further substantial, varied and flexible investment that can come only from the private sector is needed in rented accommodation. I have no difficulty in warmly endorsing the clause as a method of encouraging a new investment focus by the private sector in rented accommodation alongside the reforms in the Housing Bill.

I must say to many of my hon. Friends who have spoken that for me, and no doubt for the hon. Member for Leeds, West (Mr. Battle), this is not a matter of helping migratory workers going to live in the south-east. If that were the sole justification for the scheme, it would be relatively slender. In Leeds and my constituency, we do not want our workers migrating to the south-east. I came here today from the opening of a £20 million factory in my constituency. It represents the state of the art, as do so many other places in my constituency and in Leeds. When I visit the chamber of commerce and the chamber of trade, they say that we need more skilled people, and we do not want them to be drawn off to go to the south-east.

However, we have a corollary of the problem of the south-east. Because of the success of certain areas, many of the people born and bred in those areas find it difficult to find homes there. Particularly in a constituency such as mine, which consists of countryside abutting on to a city, people who are born and bred in the towns and villages, because of the rapid rise in house prices—exactly the same phenomenon as the south-east—find it difficult to live and work in their home areas where they first chose, and where they have spent so much of their lives. Equally, people who have retired and who are looking for sheltered rented accommodation find it very difficult to find homes near their families who live in the villages and towns around the cities.

It seems to me that success of the business expansion scheme will be measured not just in terms of whether it encourages further investment into the south-east in rented accommodation, but whether it provides a solution in other regions of the country, in areas where there is a desperate need for further rented accommodation. We are hoping that it will produce more units of accommodation out of the existing housing stock.

In many of our constituencies, there are large houses that are not really economic as single family homes. There are many derelict farm buildings which could be converted into smaller homes for renting. That is precisely the operation in which the private sector, and in particular the small business man, seeing an opportunity, needs some fiscal encouragement. With land prices rising as rapidly as they are in the area that I represent—in the triangle between Leeds, York and Harrogate—it is extremely difficult for someone to buy land and buildings for rented accommodation unless there is some form of financial incentive. I believe that the success of the scheme will be judged in those situations.

A number of hon. Members have mentioned that much of the business expansion scheme seems to be centred around the south-east. About a year ago, along with some of my hon. Friends who are particularly interested in small businesses, and with some BES fund managers, I investigated why so much investment was channelled into the south-east. The answer was really quite simple. The scheme is relatively expensive to set up and relatively complex to administer. There needs to be a measure of sophistication in terms of the advice and the support services for setting up and running such schemes.

Until now, all too often those centres of sophistication and the people who are able to handle that complexity tend to set themselves up in the London area. They have many opportunities to invest the money available to them, and naturally, they choose to invest it in places that are most convenient for them to run, to look at, to visit and to monitor.

Photo of Mr Michael Grylls Mr Michael Grylls , Surrey North West

Does my hon. Friend agree that the limit of £500,000 which the Budget has put on individual investment under the BES, is likely to draw the scheme out of the City of London, because it is unlikely to prove all that attractive to the big institutions that were investing very large sums in individual companies? I believe that one of the objectives of my right hon. Friend the Chancellor was to make the funds more locally generated.

I agree with my hon. Friend, and I hope that there will be more investment outside the south-east. Does he agree that the scheme could he attached to some of the enterprise agencies that could get together groups of business men who could provide funds locally? That would be much more attractive and would target the scheme to small businesses that need investment, and not to larger ones who can get it through venture funds.

Photo of Mr Spencer Batiste Mr Spencer Batiste , Elmet 6:45 pm, 9th May 1988

My hon. Friend, who is chairman of the Small Business Bureau, makes the point that he made so eloquently in his submission to my right hon. Friend the Chancellor prior to the Budget for precisely that kind of amendment to the Bill. I agree with him completely that the lowering of the ceiling to £500,000 may well have that effect.

Equally, one has to bear in mind that the scheme is still complex to administer and that the start-up and monitoring costs can be relatively high. The growing sophistication of the professional advice services in the provinces may provide the best answer, alongside the development of the business expansion scheme. In the various islands of investment around the country where there are very high instances of BES investment, it is usually because some big player locally has taken a scheme by the scruff of the neck and decided to make it work in that area.

The scheme has unlimited potential for further investment in the regions, and in that context it is particularly sad that, with the sole exception of the hon. Member for Workington (Mr. Campbell-Savours), Opposition Members have been so critical of the scheme. I have no hesitation in welcoming it. I believe that it will produce many more units of accommodation out of the existing housing stock, it will improve much sub-standard accommodation, and return it to the rented market, it will assist the mobility of labour, and I hope that it will also increase the accommodation available in the cities and villages of the north and the midlands.

My only regret about the debate is that, with the sole exception of the hon. Member for Workington, there has been such a negative attitude to this important scheme from Opposition Members, and most importantly from the Opposition Front Bench, but that is hardly surprising, as the views of today's Labour party are increasingly irrelevant to today's needs.

Photo of David Winnick David Winnick , Walsall North

The hon. Member for Elmet (Mr. Batiste) says that our arguments arc irrelevant to housing in Britain. I must say that his speech was totally irrelevant to the housing needs of so many people throughout the country.

We have heard two main themes from Conservative Members. First, they argued the case for private investment in housing, and one would expect that from Conservative Members. Their second theme is that the housing shortage in the rented sector is all the fault of wicked Socialist controls, and that, if there had not been rent controls since 1915, there would be a flourishing rented sector in the private market, no one would need rented accommodation and all would be absolutely well. If anyone believes such nonsense and such an absolute fallacy, they would believe anything.

During one of my interventions in his speech the hon. Member for Slough (Mr. Watts) disputed that market rents would be as much as, if not higher than, a mortgage. Last November, the Evening Standard carried some advertisements for rented accommodation that clearly would be outside the Rent Act 1977. Houses were advertised for rents ranging from £130 to £240 a week. Some flats—not many, but one or two one-bedroom and two-bedroom flats—were costing up to £70 a week.

Bearing in mind the escalating property prices in London and the south-east, surely it is obvious that market rents under the Housing Bill would not he much less, if anything, than the rents which were quoted in the Evening Standard last November. That demonstrates the Opposition's basic point that people who are in desperate need of rented accommodation will be unable to afford market rents of the kind that will be allowed by the Housing Bill.

We do not object for reasons of dogma or prejudice. We object because the genuine housing needs of our constituents who write to us or who come to see us will not be satisfied if the only rented accommodation that is available is to be let at market rents. That is why we oppose the Housing Bill and this clause.

I intervened during the speech of the hon. Member for Berwick-upon-Tweed (Mr. Beith) because I consider that the private rented sector has a limited role to play. I do not believe that housing should lead to private profit. It is perfectly acceptable that an owner-occupier should be able to let a room in his house. In many cases that is highly desirable, but housing should be in owner-occupation or provided by local authorities and housing associations. It should not be the subject of private profit.

Photo of John Butterfill John Butterfill , Bournemouth West

Would the hon. Gentleman oppose the provision of private sector rented housing by building societies, insurance companies and pension funds? That is what happens in other countries, which provide better housing conditions than we do.

Photo of David Winnick David Winnick , Walsall North

I would oppose it to the extent that market rents would be payable by the prospective tenants, for all the reasons that I have given.

The business expansion scheme is a form of tax shelter that can easily be abused. My hon. Friend the Member for Workington (Mr. Campbell-Savours) referred to one form of potential abuse. I shall be interested in the Minister's reply. In his usual simplistic way, the hon. Member for Eastbourne (Mr. Gow), who is not in the Chamber, said that the provision of new rented buildings would provide work and that it would help to reduce unemployment. But assured tenancies and shorthold tenancies will not necessarily be provided only in new buildings. Those two forms of tenancies under the Housing Bill will apply to all new lets. The hon. Member for Eastbourne cannot have read the Housing Bill if he believes that such tenancies will apply only to new buildings.

When the Housing Bill becomes the law of the land and landlords let on shorthold tenancies, the minimum length of letting will be reduced to six months. I am aware that the business expansion scheme does not apply to that form of letting, but I do not accept that the Bill will lead to the provision of a large amount of new rented accommodation.

Sheer dogma and political prejudice lie behind the Government's policy not to allow local authorities to build and not to allow genuine housing associations to provide much-needed rented accommodation. The hon. Member for Bournemouth, West (Mr. Butterfill) implied that local authorities are not perfect. I accept that there have been many shortcomings over local authority accommodation, but local authorities have done a great deal to replace the slums and hovels that were such a curse. They have provided accommodation at a reasonable rent and enabled ordinary people, often for the first time, to live in decent, adequate accommodation. I pay tribute to the local authorities. That is why the Opposition are not on the defensive.

Local authorities are said to be too bureaucratic and centralised. My local authority was one of the first to decentralise its housing services by providing 28 neighbourhood services and neighbourhood offices throughout the borough. That example has been copied by many other local authorities. The way to satisfy the acute housing needs of those who cannot afford market rents or mortgages is to provide them with local authority housing or housing association accommodation. They have as much right to be adequately housed as any Member of Parliament.

The Minister said that the Housing Bill goes further than the Rent Act 1957. That is interesting. When the Secretary of State for the Environment spoke on Second Reading of the Housing Bill, I compared that Bill with the Rent Act 1957, but he said that the Housing Bill does not go as far as the 1957 Act. Who is right?

I do not deny that we face all kinds of disadvantages when we grow old. However, one advantage of getting on in years is that one remembers, certainly if one has been in politics for many years, what happened in the past. I am one of the very few Members of Parliament who served on a local authority when the Rent Act 1957 was being implemented. That local authority in north-west London, despite all its difficulties at that time, had to spend a large amount of money on rehousing people who were lawfully evicted as a result of the Rent Act 1957.

Conservative Members say that all the trouble stems from the tight rent control restrictions that were introduced by a wicked Socialist Government, but I ask them to consider what happened when the Rent Act 1957 was enacted. We were told that if the rented housing market were deregulated, plenty of accommodation would be provided, but by the time that the Conservative Government left office there had been, to some extent as a result of the 1957 Act, not an increase but a substantial reduction in rented accommodation. The Housing Bill will have much the same result. Tax shelters, tax relief and subsidies to those who provide private rented accommodation at market rents are completely without justification. For that reason, we shall vote against the clause.

Photo of Mr David Shaw Mr David Shaw , Dover

It is appropriate that before I comment on the clause I should declare an interest. I have been involved in the setting up of a number of business expansion scheme companies. I have also been involved in the setting up of two business expansion scheme funds. I am pleased to say that those companies and funds have resulted in the creation of about 1,000 jobs.

It is relevant to consider the success of the business expansion scheme. Since 1983 it has provided £150 million a year and created about 20,000 jobs. It has also helped small businesses. Often, the money that was raised was below £100,000. Up to half the small businesses that have been given help are not in the south-east. That is quite an achievement. To help small businesses in areas other than the south-east has been a problem, but a number of the clauses will help them to expand. An investment limit of £500,000 in any one company is being imposed under the expansion scheme. That is helpful. Furthermore, the ability of a fund to invest its money after the end of a tax year will help a number of regional funds.

I commend the BES to the House. The Government will find that the tax revenues of the more successful companies that have been set up under the scheme will exceed the relief given to private individuals to invest in those companies. One of the companies with which I have been involved has already paid the Government, in PAYE, national insurance, corporation tax and VAT, more than the relief originally given to the investors. The BES is not intended only for those at the top of the income range, because 70 per cent. of those who receive it are below the highest rates of taxation.

7 pm

It is good to extend the BES to investment in housing. Over the past 20 years there has been little money for private housing. I used to live in my right hon. Friend's constituency of Kingston upon Thames. He used to have advice centres and, as one of the members of the housing committee, I used to assist from time to time. Many of the complaints and problems with which I have to deal relate to housing and the shortage of rented housing. Most hon. Members will confirm that they have similar problems in their constituencies.

Job mobility and the opportunity for people to move around the country to find jobs elsewhere will be helped by this measure. Much reference has been made to the fact that the money given will go to executive second homes. Nothing could be further from the truth. There is a limit of £125,000 in London and £85,000 for the rest of the country, and those amounts will not be used to purchase executive second homes.

The overall limit of £5 million for companies is about right. It will attract much investment, and it has been suggested that about £500 million might be invested in a short time under the BES if the clause is passed. I hope that it will be passed, because that money will provide a lot of rented accommodation.

I was upset when the hon. Member for Dunfermline, East (Mr. Brown) quoted from the BES publication, because he did not quote the last paragraph, which said that people will not be required to leave their homes at the end of the five-year period and that it should be possible to sell the houses to pension funds or investment trusts. I was upset by the suggestion that housing associations will be excluded from involvement in the scheme. There is no reason why they should be. They may be excluded from receiving money under the scheme, but they are not excluded fron managing the housing. I expect that many companies set up under the scheme will delegate management to housing associations.

The opportunities offered by the extension of the BES will be tremendous. It is with regret—I am advised that the Front Benches wish to make their winding-up speeches—that I cannot speak further about the benefits that the clause will bring.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I shall be brief mainly because I shall not have to respond to the second jibe this afternoon from the hon. Member for Eastbourne (Mr. Gow). He is not present and is unlikely to be for some time.

In the preceding debate I gave the reasons why I believe that it is wrong to proceed with the BES for private sector rented housing unless it is accompanied by significant safeguards for tenant protection on levels of rent and security of tenure.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

I promised to be brief, so I shall not give way.

The Minister said that he was willing to consider elements of protection, but no Conservative Member has shown any willingness to accept such a measure. Nor have I been convinced yet that the incentive offered calls for a 40 per cent. level of tax relief. The Minister may yet convince us about that, but I find it hard to believe that he will do so, given the nature of the asset that is involved in rented housing—property. The security and prospect of capital appreciation of property is such that it is unnecessary to have 40 per cent. tax relief. Surely standard rate relief would be adequate for the purpose.

The Minister has left us with ample reason for voting against the scheme in the form that he has presented it.

Photo of Mr Rhodri Morgan Mr Rhodri Morgan , Cardiff West

I should like to raise a couple of matters that have not been raised so far about the way in which the Government believe that clause 49 fits in with the Housing Bill and why it does not achieve the objective, shared by all hon. Members, of improved choice in housing.

Clause 49 is an attempt, late in the day, to cover the inadequacies of the Housing Bill, which was presented as the great deregulating measure which would lead to investment flowing back into the privately rented sector. It was said that it would do so by creating two new forms of tenancy—the assured tenancy and the assured shorthold tenancy.

During consideration of the Housing Bill, the point was made that the assured shorthold tenancy conferred so many additional advantages on the landlord, compared with the assured tenancy, that it would undermine the effective use of the assured tenancy. That point was never denied by Ministers, and I think that it sunk in that there were severe dangers that the assured shorthold tenancy, which gives an approximate six-month tenure, would continuously undermine the likelihood of tenants and landlords agreeing on longer tenancies of 12 months or two years.

Clause 49 emanates from the Government conceding the argument of Labour Members that the assured shorthold tenancy will undermine the assured tenancy if nothing is done about it. As a result, by clause 49 the Government have made the assured tenancy a little more attractive to the landlord by conferring on it but not on the assured shorthold tenancy the benefits of tax incentives at the top rate and the capital gains tax exemption if one sells at the end of four years.

The measure has nothing to do with an attempt to improve labour mobility. If anything, it will have the reverse effect. If the Government intended to improve labour mobility one would have expected them to confer tax advantages on the shorthold assured tenancy, which is far more likely to be used by people moving into a town for the first time. It was expected that people could have an assured tenancy for anything up to 10 or 15 years. This measure cuts out the assured shorthold tenancy. It is merely an attempt to cover over the difficulties that the Government got themselves into with the assured tenancy. A tenancy that confers almost no rights on a tenant is bound to be more attractive to the landlord than one that confers some rights.

The logical dilemma facing the Government is that they do not know what to do to create a level playing field for landlord and tenant. They have undermined the concept of the assured tenancy and are attempting to cover it up with a most unsatisfactory tax break, which itself shows every sign of following the path of failure that the BES has followed since 1979.

Certain specific sectors, which are not highly risky, will tend to attract all the BES investment. That has been the case with old people's homes, and I fear that the BES will not help to cover the equity gap in highly risky investments and new technology but will grow and be invested in safe investments such as property. As investment previously went to old people's homes, it will go in future to the private sector. This measure has no contribution to make to solving our labour mobility problems.

Photo of Nigel Griffiths Nigel Griffiths , Edinburgh South

I am sad, but not surprised, that the Government are introducing this clause to increase the potential for exploitation of tenants and to champion the rights of private landlords.

The clause reinforces the Housing Bill, which has deprived tenants of many rights and in particular robbed spouses of rights of succession. We all accept that there are conscientious private landlords. Indeed, when I meet them in my constituency they complain of being driven out by the irresponsible, crooked landlords, who, they tell me, receive support and succour from the policies and philosophies of the Government.

I shall not vote for the clause because elements of the private sector have an appalling record. Yesterday, Mary Marshall, the director of Age Concern, said: Some private sector homes are making huge killings exploiting the elderly. Like me, she believes that the law is not strong enough to deal with the cowboys. We know that the Government have done nothing to strengthen the law to protect private tenants. An excellent article in the Sunday Post yesterday revealed that the private sector has not been contracting as all Conservative Members have claimed. Provision for people in private nursing homes in Scotland has doubled in two years to 6,132, and with it has come rampant exploitation. One company operating in Scotland is making £6·5 million a year, mainly from the Department of Health and Social Security, and plans to increase its income to £9 million over the next year.

The £85,000 tax limit on properties will have an horrendous effect on the Edinburgh property market. In Marchmont in my constituency there are already far too many flats in multiple occupation—properties where the landlord's interest in the behaviour of tenants is limited to their payment of rent. I fear that the clause will cause an explosion of such tenanted flats, to the detriment of neighbours and local residents. It is not that the clause will increase the number of houses or flats. Owner-occupied flats will be taken out of the home-owner market and replaced by tenanted flats, and flat prices will soar as a result.

We are entitled to ask whether the money could be better spent. There are 12,000 families on the council house waiting list in Edinburgh alone, 2,000 of them in my constituency. The Government's investment for one dwelling in Edinburgh under BES is estimated by the Treasury at £34,000. The same sum would enable the local council to finance a loan to build 10 houses to rent.

The clause shows that, when the Government have to choose between giving the private sector £34,000 to provide one house and giving the public sector the same money to provide 10 houses, their heads are ruled by dogma and not by the practical necessities which the whole country would support.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

The Opposition have made clear for some considerable time their doubts about the operation of the business expansion scheme. We believe that it is an inadequate and inappropriate mechanism for raising equity finance for high-risk small ventures. It is, however, a highly appropriate mechanism for avoiding tax; and even when the tax rate being avoided is 40 per cent. rather than 60 per cent., though less attractive, it is still attractive.

The Government are introducing changes, which we shall no doubt spend some time discussing in Committee, to ensure that there is a limit of £500,000 on the investment. It is only a marginal improvement. It is worth noting that that limit does not apply to the rented housing provisions which form the burden of clause 49.

The Government have relied heavily when praising BES—the hon. Member for Elmet (Mr. Batiste) did it again today—on the Peat Marwick report. The Financial Secretary has mentioned it several times in our debates thus far, but he ignores and fails to tell us that that report dealt only with the first year of BES. It did not go into any detail for subsequent years.

During the later years, however, there have been changes in the nature of investment under BES. For example, there has been a significant increase in the average size of investment. There has been an increase in the proportion invested in non-manufacturing enterprises. There has been a growth of prospectus issues as opposed to individual issues. Above all, there has been an increase in the cost per job of BES. It is worth remembering that, even in 1983–84—the first year of operation—the cost per job of BES was higher than the cost of creating or saving jobs in other small business promotion ventures.

Photo of Mr David Shaw Mr David Shaw , Dover

Would the hon. Gentleman care to comment on something that I said—that one of the companies in which I am involved will pay more in tax to the Government after five years than the Government gave in tax relief to investors?

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury 7:15 pm, 9th May 1988

Of course I heard what the hon. Gentleman said. I was listening with great care, as he is closely involved with seven BES companies and funds. His comments ignore the fact that that is not the universal experience. Moreover, the Peat Marwick report reveals that BES has been more successful at saving than creating jobs. It is worth examining carefully what money the Exchequer has paid out, and what it has got in as a result.

The business expansion scheme has many flaws, but clause 49 represents a wrong use of an already inefficient scheme. It is being applied inappropriately and unacceptably when it comes to the provision of housing. It is worth noting that Housing said of the BES: Cut-price property deals giving short-term pets for those who can't afford to buy their own homes and tax breaks for the rich—that's the reality of the Government's latest scheme to boost private rented housing. That is indeed the reality. We should consider what will be provided by the scheme that is proposed in clause 49.

Rents will be high. They will be at market levels. The Housing Bill, which sets up the system of assured tenancies, establishes a two-stage process for the establishment of rents. The first is what is called an agreement between landlord and tenant. It is effectively the amount at which the property is advertised by the landlord. The second stage is the rent assessment committee, which acts as a final court of appeal. It has a statutory duty to take account of market forces. There is no question of fair rents. There is no mention of a rent officer or of a comparison with housing association or local authority rents. Market forces, and market forces alone, will determine rents.

Photo of John Butterfill John Butterfill , Bournemouth West

Can the hon. Gentleman conceive of any way in which it would be possible to encourage the private sector to invest in the provision of housing for rent if it had to provide the subsidy? Does he agree that if subsidies are to be provided, they must come from the public?

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

The hon. Gentleman ignores the basic point at the heart of the debate. A subsidy is being provided by the taxpayer through tax relief available under BES. We do not believe that that is a particularly sensible or sensitive way in which to target public subsidy.

If the hon. Gentleman wants to find out about market rent levels, he should come and see what happens in my constituency. Only this morning, at my advice surgery, I saw a family with no recourse to local authority accommodation who are desperately looking for somewhere to rent. They have no capital and cannot afford to buy. The cheapest property for rent in the private market that they can find in the borough of Islington costs £200 a week.

If the Government say, "Ah, but housing benefit will take care of their problems if their income is low," they have clearly forgotten that the higher rent limit on housing benefit for the borough of Islington is £61 a week. Clearly, that puts such accommodation out of the reach of anyone in any of the categories mentioned by Conservative Members as those likely to be helped by the scheme. It puts accommodation to be provided at market levels under this scheme completely beyond the reach of ordinary people. The rents will be high and, as a result, ordinary people will not be helped by the provision of accommodation under the scheme.

Not only will rents be high, but there will be little security of tenure. "Assured tenancies" is an Orwellian phrase to describe tenancies that will be anything but assured. There are 12 different grounds for possession in schedule 2 to the Housing Bill. For example, ground 7 enables possession to be regained by a landlord simply because work is to be carried out on the accommodation. That will be the easiest, simplest, and, I predict, the commonest ground on which possession will be sought. Also, the prospect of sale to another landlord offers little ground for security under the provisions of that schedule to the Housing Bill.

If a BES company is looking for a mechanism to maximise its profit, maximise the capital gain available to shareholders, which will be tax-free at the end of a five-year period, and a way to get rid of the tenants involved, all it needs to do, at the same time as it sets up the BES-funded company, is to set up a non-BES-funded company with the same directors. It can sell the property from the first to the second at the end of five years and put the capital gain that will be made to the benefit of the first.

It will be easy for landlords to get rid of awkward tenants. They have requirements and needs and, on the whole, they tend to be treated badly by private landlords. The Financial Secretary was asked by my hon. Friend the Member for Dunfermline, East (Mr. Brown) whether he would agree that redevelopment is one of the grounds on which repossession can take place and that it would be to the financial benefit of the company to sell after five years. His answer, which I heard clearly, was yes. If he now wishes to say that he has had second thoughts, I should be delighted to give way to him. If not, that is clearly the position—that it is to the financial benefit of the company to sell after five years.

Not only will rents be high and tenancies anything but secure: it will be a relatively unregulated sector. Who will police the operation of the assured tenancies offered under the scheme? Who will police the companies involved? It will not be the Department of the Environment or the local authority. The only body that will be able to do that is the Inland Revenue, and that is hardly geared up to examining whether a social form of landlordism or a bad form of landlordism is being offered.

The tenancies will be at high rents and there will be little or no security for tenants. The letting will effectively be unregulated. It will be bad, high-cost housing and the scheme will do nothing for tenants. It will do everything for those who want to avoid paying tax. It will do nothing to solve our housing crisis, but it will do everything to create splendid new tax shelter opportunities. I strongly urge my right hon. and hon. Friends to vote against clause 49.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The hon. Members for Workington (Mr. Campbell-Savours) and for Islington, South and Finsbury (Mr. Smith) referred to the wider changes that had been made in the business expansion scheme. The hon. Member for Workington said that he had been fairly favourably disposed towards the scheme originally. Indeed, I remember that. If he will forgive my saying so, it was slightly curious to observe his anxiety about the new ceiling that we have imposed because he is worried that it might affect genuine growing businesses, whereas the thrust of much of what was said by other Opposition Members was that the Government had not done enough to curb abuses under the scheme. I am grateful to the hon. Member for Workington for saying that he approaches the matter with an open mind.

The hon. Members for Islington, South and Finsbury and for Dunferline, East (Mr. Brown) did not acknowledge what has happened under the other changes in targeting the BES much more on the smaller company. One reason why we have been able to do that, as my hon. Friend the Member for Dover (Mr. Shaw) said—I know that he is strongly in favour of the change that has been made—is that after several years' experience of the scheme we now have a venture capital industry that is more able to finance start-ups and new businesses. We do not need a tax relief that goes on for ever for that sort of business. After a few years' experience we decided that it was better to return to the original purpose, which was to concentrate on the smaller business and start-ups.

The hon. Member for Islington, South and Finsbury criticised the BES because, he said, it has started up too many businesses in the south and not enough in the north. He might have acknowledged the fact that the change that we are to make is likely to have a much more favourable effect on areas such as the north where there are fewer entrepreneurs and start-ups.

As my hon. Friend the Member for Elmet (Mr. Batiste) said, it has been widely commented that the changes are likely to bring about a much more even spread of BES activity throughout the country. I am sorry that Opposition Members do not feel more able to welcome the changes in the scheme, which have been widely welcomed outside and which are overwhelmingly sensible.

The hon. Member for Workington raised a specific point about avoidance under the BES as applied to the new lettings. He described a situation in which somebody might let a property to an associated person. My hon. Friend the Member for Dover drew his attention to schedule 4(4). That was a reasonable point to make, but I believe that the hon. Gentleman's imagination has been at work. He will be aware that the provisions for the BES as applied to rented property are also governed by other general BES provisions.

Section 289(11) of the Income and Corporation Taxes Act 1988 has a general anti-avoidance provision as applied to the BES. It says: An individual is not entitled to relief in respect of any shares unless the shares are subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose, or one of the main purposes of which, is the avoidance of tax. That provision covers the point made by the hon. Gentleman.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I would be happy to be reassured, but the Minister must be able to assure the Committee that the Inland Revenue will be able to establish the position. The staff are not in place to check on the personal lives and habits of people and the relationships that might exist between people who might be able to make an arrangement which would be an abuse and which the Inland Revenue could not identify. The Minister has not given me that assurance. He simply says that the matter is covered by the Income and Corporation Taxes Act 1988. I cannot find that provision.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The hon. Gentleman is changing his question. His first question was: is this covered by the Act? The unequivocal answer is yes. His second question was: is it impossible? We do not want an army of snoopers. The Revenue's provisions and resources in this respect are similar to those that it has for checking on many other types of abuse. Given the relatively small number of business expansion schemes, I do not believe that it will he impossible for us to identify those sorts of cases.

7.30 pm

My hon. Friend the Member for Chipping Barnet (Mr. Chapman) asked about the limit of £125,000 in Greater London and £85,000 elsewhere and about properties that were subsequently divided. We determined the figures after consultation with the Department of the Environment. We could have fine-tuned them more for different areas, but that would have made the legislation much more complex. Where property is divided, the value of each separate dwelling as let on an assured tenancy is relevant, not the value of the whole property.

Some Labour Members seemed to doubt that we were talking about the provision of new lets. They may not all be new build, but they will be new lets. That is provided for in paragraph 15 of schedule 4.

The Opposition have very much misrepresented the position on security of tenure. Assured tenancies will provide considerable security of tenure. A landlord will be able to repossess a property only by court order, on one or more specified grounds. The general approach is similar to that in the Rent Act 1957, although the grounds for possession differ in some respects. The vital difference is that tenants will pay market rents. Housing benefit will be available to qualifying tenants.

Photo of John Battle John Battle , Leeds West

Will the Minister concede that whereas the grounds for a change in security of tenure under schedule 2 of the Housing Bill were discretionary before, they are now mandatory? This means that a tenant will have no right to appeal, but will have to go if the landlord applies for a court order.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The grounds have changed in a number of respects. There are fewer grounds than under the original Act.

The Opposition have spent a large part of the debate talking about harassment and Rachmanism. I do not know how resonant the name of Rachman is today, but obviously the Opposition's points are serious. I suggest, however, that they are confusing the incentive to get vacant possession, which exists under present legislation, with deregulation and tax relief, which, if anything, will work in the opposite direction and lessen that incentive. There is no point in getting tenants out if they must be replaced with others, which is what a landlord would have to do under the business expansion scheme, because he must be in the continuing business of letting property.

It is less likely that people will have that incentive if there are market rents, because the values of properties tenanted and of properties untenanted will be much closer. The Opposition, in their desire to misrepresent our proposals, again have totally ignored the steps taken by my hon. Friend the Minister for Housing and Planning to strengthen the criminal law and the civil rights of tenants.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

Will the Minister confirm two crucial points? Will he confirm that it is easier for a landlord to gain possession under the terms of schedule 2 to the Housing Bill than it is at the moment under the Rent Acts? Will he confirm that there is every incentive for a BES-established company, after the five years of BES funding are up, to gain vacant possession and sell the property?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The hon. Gentleman is—[HON. MEMBERS: "Answer the question."] I am answering. The hon. Gentleman assumes that at the end of the four-year period the landlord can regain possession of the property. Under the Housing Bill, when the tenancy ends, a statutory periodic tenancy arises automatically, so the tenant's security is protected and the landlord cannot count on getting possession. The hon. Gentleman misrepresents the position.

The hon. Member for Islington, South and Finsbury talked about security of tenure. It is clear that, despite all the assurances that have been given, the Opposition simply want to surround rented property with a plethora of controls that will make it extremely unlikely that anyone will ever rent any property. There must be some grounds on which people can regain possession.

Photo of David Winnick David Winnick , Walsall North

A few moments ago the right hon. Gentleman said that there was no incentive for an unscrupulous, Rachman-type landlord to get the existing tenant out. There will be every incentive if the Housing Bill becomes law. I accept that the tenant continues to have protection, but once he leaves voluntarily, or is forced out, that place can and will be re-let, at market rents. There is every incentive for the unscrupulous landlord to act as he would under the Rent Act 1957, and the Minister for Housing and Planning knows that very well.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The hon. Gentleman ignores what I have said about what happens at the end of a fixed-term tenancy. A periodic tenancy then arises automatically. A tenant also has the right to go to a rent assessment committee.

The hon. Member for Dunfermline, East talked about the money that could have been spent on other types of property instead of on this tax relief. As my hon. Friends the Members for Slough (Mr. Watts) and for Stamford and Spalding (Mr. Davies) said, we are getting, not just the 40p in the pound tax relief, but the additional non-taxed relief money, which is going into the provision of rented accommodation. Through tax relief we are harnessing additional resources from the private sector and putting them into the provision of rented property.

The hon. Member for Dunfermline, East said that tax relief would not help the tenant. As my hon. Friend the Member for Stamford and Spalding said, it will help the tenant if it increases supply. The hon. Member for Dunfermline, East said that it would not help to alleviate the problem of moving from the north to the south. As my hon. Friend the Member for Eastbourne (Mr. Gow) said, it will if it increases supply. Of course tax relief will not do so on its own. We need deregulation as well. The Labour party always threatens to reimpose controls, but all the evidence is that rent decontrol by itself cannot always increase supply. The threat of legislation from the Labour party is one factor that has forced us to put forward the proposition that there should be tax relief.

The hon. Member for Walsall, North (Mr. Winnick) does not believe that anyone should be allowed to make a profit out of private housing. No doubt he was opposed to anyone making a profit out of the supply of owner-occupied housing a few years ago. No doubt he would extend his argument to many necessities—clothing, food and so on—but most of us think that the basic things in life can be provided better, more efficiently and at a higher quality by the private sector.

My hon. Friend the Member for Slough said that the Labour party has only one answer—to build more council houses. We believe that if decent rented private accommodation were available on a larger scale it would appeal to the British people. The Labour party will find itself overtaken by events and opinion, just as it was on the sale of council housing and on privatisation. Labour Members will live to regret the day that they voted against the clause.

Question put, That the clause stand part of the Bill:

The Committee divided: Ayes 255, Noes 194.

Division No. 291][7.40 pm
AYES
Adley, RobertCurry, David
Aitken, JonathanDavies, Q. (Stamf'd & Spald'g)
Alexander, RichardDavis, David (Boothferry)
Alison, Rt Hon MichaelDay, Stephen
Allason, RupertDevlin, Tim
Amess, DavidDickens, Geoffrey
Amos, AlanDicks, Terry
Arbuthnot, JamesDouglas-Hamilton, Lord James
Arnold, Jacques (Gravesham)Dover, Den
Arnold, Tom (Hazel Grove)Dunn, Bob
Aspinwall, JackDurant, Tony
Atkinson, DavidEmery, Sir Peter
Baker, Nicholas (Dorset N)Evans, David (Welwyn Hatf'd)
Baldry, TonyFallon, Michael
Banks, Robert (Harrogate)Favell, Tony
Batiste, SpencerFenner, Dame Peggy
Beaumont-Dark, AnthonyField, Barry (Isle of Wight)
Bellingham, HenryForman, Nigel
Bendall, VivianForsyth, Michael (Stirling)
Bennett, Nicholas (Pembroke)Forth, Eric
Bevan, David GilroyFox, Sir Marcus
Biffen, Rt Hon JohnFranks, Cecil
Biggs-Davison, Sir JohnFreeman, Roger
Blackburn, Dr John G.French, Douglas
Blaker, Rt Hon Sir PeterFry, Peter
Bonsor, Sir NicholasGardiner, George
Boscawen, Hon RobertGarel-Jones, Tristan
Boswell, TimGill, Christopher
Bottomley, PeterGoodhart, Sir Philip
Bottomley, Mrs VirginiaGoodlad, Alastair
Bowden, A (Brighton K'pto'n)Gorman, Mrs Teresa
Bowden, Gerald (Dulwich)Gorst, John
Bowis, JohnGow, Ian
Boyson, Rt Hon Dr Sir RhodesGower, Sir Raymond
Braine, Rt Hon Sir BernardGrant, Sir Anthony (CambsSW)
Brazier, JulianGregory, Conal
Bright, GrahamGriffiths, Sir Eldon (Bury St E')
Brooke, Rt Hon PeterGriffiths, Peter (Portsmouth N)
Brown, Michael (Brigg & Cl't's)Grist, Ian
Browne, John (Winchester)Ground, Patrick
Bruce, Ian (Dorset South)Grylls, Michael
Buchanan-Smith, Rt Hon AlickHamilton, Hon Archie (Epsom)
Buck, Sir AntonyHampson, Dr Keith
Burt, AlistairHanley, Jeremy
Butcher, JohnHannam, John
Butler, ChrisHargreaves, A. (B'ham H'll Gr')
Butterfill, JohnHargreaves, Ken (Hyndburn)
Carlisle, John, (Luton N)Harris, David
Carrington, MatthewHaselhurst, Alan
Carttiss, MichaelHawkins, Christopher
Cash, WilliamHayes, Jerry
Channon, Rt Hon PaulHayhoe, Rt Hon Sir Barney
Chapman, SydneyHayward, Robert
Chope, ChristopherHeathcoat-Amory, David
Churchill, MrHicks, Robert (Cornwall SE)
Clark, Sir W. (Croydon S)Higgins, Rt Hon Terence L.
Clarke, Rt Hon K. (Rushcliffe)Hind, Kenneth
Conway, DerekHogg, Hon Douglas (Gr'th'm)
Coombs, Anthony (Wyre F'rest)Hordern, Sir Peter
Coombs, Simon (Swindon)Howard, Michael
Couchman, JamesHowarth, Alan (Strat'd-on-A)
Cran, JamesHowarth, G. (Cannock & B'wd)
Currie, Mrs EdwinaHowell, Rt Hon David (G'dford)
Hughes, Robert G. (Harrow W)Neale, Gerrard
Hunt, David (Wirral W)Needham, Richard
Hunter, AndrewNelson, Anthony
Hurd, Rt Hon DouglasNeubert, Michael
Irvine, MichaelNewton, Rt Hon Tony
Irving, CharlesNicholls, Patrick
Jack, MichaelNicholson, Emma (Devon West)
Jackson, RobertPaice, James
Janman, TimPatten, John (Oxford W)
Jessel, TobyRathbone, Tim
Johnson Smith, Sir GeoffreyRhodes James, Robert
Jones, Gwilym (Cardiff N)Riddick, Graham
Kellett-Bowman, Dame ElaineRyder, Richard
Key, RobertSayeed, Jonathan
King, Roger (B'ham N'thfield)Shaw, David (Dover)
Kirkhope, TimothyShaw, Sir Giles (Pudsey)
Knapman, RogerShepherd, Colin (Hereford)
Knight, Greg (Derby North)Shepherd, Richard (Aldridge)
Knight, Dame Jill (Edgbaston)Shersby, Michael
Knox, DavidSims, Roger
Lamont, Rt Hon NormanSpeller, Tony
Lang, IanStanbrook, Ivor
Latham, MichaelSteen, Anthony
Lawrence, IvanStern, Michael
Lawson, Rt Hon NigelStevens, Lewis
Lee, John (Pendle)Stewart, Andy (Sherwood)
Lennox-Boyd, Hon MarkStradling Thomas, Sir John
Lester, Jim (Broxtowe)Summerson, Hugo
Lightbown, DavidTaylor, Ian (Esher)
Lilley, PeterTaylor, John M (Solihull)
Lloyd, Sir Ian (Havant)Taylor, Teddy (S'end E)
Lloyd, Peter (Fareham)Temple-Morris, Peter
Lord, MichaelThompson, Patrick (Norwich N)
Luce, Rt Hon RichardThurnham, Peter
Lyell, Sir NicholasTracey, Richard
McCrindle, RobertTredinnick, David
Macfarlane, Sir NeilTrippier, David
MacKay, Andrew (E Berkshire)Twinn, Dr Ian
Maclean, DavidWaddington, Rt Hon David
McLoughlin, PatrickWakeham, Rt Hon John
McNair-Wilson, M. (Newbury)Waldegrave, Hon William
McNair-Wilson, P. (New Forest)Walden, George
Major, Rt Hon JohnWalker, Bill (T'side North)
Malins, HumfreyWaller, Gary
Mans, KeithWalters, Dennis
Maples, JohnWard, John
Marland, PaulWardle, Charles (Bexhill)
Marshall, John (Hendon S)Warren, Kenneth
Marshall, Michael (Arundel)Watts, John
Martin, David (Portsmouth S)Wells, Bowen
Mates, MichaelWhitney, Ray
Maude, Hon FrancisWiddecombe, Ann
Maxwell-Hyslop, RobinWiggin, Jerry
Mayhew, Rt Hon Sir PatrickWilshire, David
Mellor, DavidWinterton, Mrs Ann
Miller, HalWinterton, Nicholas
Mills, IainWolfson, Mark
Miscampbell, NormanWood, Timothy
Mitchell, Andrew (Gedling)Woodcock, Mike
Mitchell, David (Hants NW)Yeo, Tim
Moate, RogerYoung, Sir George (Acton)
Montgomery, Sir FergusYounger, Rt Hon George
Morrison, Hon Sir Charles
Morrison, Hon P (Chester)Tellers for the Ayes:
Moss, MalcolmMr. Stephen Dorrell and
Moynihan, Hon ColinMr. Kenneth Carlisle.
Mudd, David
NOES
Abbott, Ms DianeBeith, A. J.
Adams, Allen (Paisley N)Bell, Stuart
Allen, GrahamBenn, Rt Hon Tony
Anderson, DonaldBennett, A. F. (D'nt'n & R'dish)
Archer, Rt Hon PeterBermingham, Gerald
Ashton, JoeBidwell, Sydney
Banks, Tony (Newham NW)Blair, Tony
Barnes, Harry (Derbyshire NE)Blunkett, David
Barron, KevinBoateng, Paul
Battle, JohnBoyes, Roland
Beckett, MargaretBradley, Keith
Brown, Gordon (D'mline E)Leighton, Ron
Brown, Nicholas (Newcastle E)Lestor, Joan (Eccles)
Bruce, Malcolm (Gordon)Lewis, Terry
Buchan, NormanLitherland, Robert
Buckley, George J.Livingstone, Ken
Caborn, RichardLloyd, Tony (Stretford)
Callaghan, JimLofthouse, Geoffrey
Campbell, Menzies (Fife NE)Loyden, Eddie
Campbell, Ron (Blyth Valley)McAllion, John
Campbell-Savours, D. N.McAvoy, Thomas
Canavan, DennisMacdonald, Calum A.
Clark, Dr David (S Shields)McFall, John
Clarke, Tom (Monklands W)McKay, Allen (Barnsley West)
Clay, BobMcKelvey, William
Clwyd, Mrs AnnMcLeish, Henry
Cohen, HarryMcNamara, Kevin
Cook, Frank (Stockton N)McTaggart, Bob
Cook, Robin (Livingston)McWilliam, John
Corbett, RobinMadden, Max
Corbyn, JeremyMahon, Mrs Alice
Cousins, JimMarek, Dr John
Cryer, BobMarshall, David (Shettleston)
Cummings, JohnMartin, Michael J. (Springburn)
Cunliffe, LawrenceMartlew, Eric
Dalyell, TamMaxton, John
Darling, AlistairMeacher, Michael
Davies, Rt Hon Denzil (Llanelli)Meale, Alan
Davies, Ron (Caerphilly)Michie, Bill (Sheffield Heeley)
Davis, Terry (B'ham Hodge H'l)Michie, Mrs Ray (Arg'l & Bute)
Dewar, DonaldMillan, Rt Hon Bruce
Dixon, DonMitchell, Austin (G't Grimsby)
Dobson, FrankMoonie, Dr Lewis
Doran, FrankMorgan, Rhodri
Douglas, DickMorley, Elliott
Dunnachie, JimmyMorris, Rt Hon A. (W'shawe)
Eadie, AlexanderMorris, Rt Hon J. (Aberavon)
Eastham, KenMowlam, Marjorie
Evans, John (St Helens N)Mullin, Chris
Ewing, Harry (Falkirk E)Murphy, Paul
Fatchett, DerekNellist, Dave
Fearn, RonaldOakes, Rt Hon Gordon
Field, Frank (Birkenhead)O'Brien, William
Fisher, MarkOrme, Rt Hon Stanley
Foot, Rt Hon MichaelPatchett, Terry
Foster, DerekPendry, Tom
Foulkes, GeorgePike, Peter L.
Fyfe, MariaPowell, Ray (Ogmore)
Galbraith, SamPrimarolo, Dawn
Galloway, GeorgeQuin, Ms Joyce
Garrett, John (Norwich South)Radice, Giles
Garrett, Ted (Wallsend)Randall, Stuart
George, BruceRedmond, Martin
Gilbert, Rt Hon Dr JohnRees, Rt Hon Merlyn
Gordon, MildredReid, Dr John
Gould, BryanRichardson, Jo
Griffiths, Nigel (Edinburgh S)Roberts, Allan (Bootle)
Griffiths, Win (Bridgend)Robertson, George
Grocott, BruceRogers, Allan
Harman, Ms HarrietRooker, Jeff
Hattersley, Rt Hon RoyRoss, Ernie (Dundee W)
Haynes, FrankRowlands, Ted
Heffer, Eric S.Ruddock, Joan
Hinchliffe, DavidSalmond, Alex
Hogg, N. (C'nauld & Kilsyth)Sedgemore, Brian
Holland, StuartSheerman, Barry
Home Robertson, JohnSheldon, Rt Hon Robert
Howarth, George (Knowsley N)Shore, Rt Hon Peter
Hoyle, DougShort, Clare
Hughes, John (Coventry NE)Skinner, Dennis
Hughes, Robert (Aberdeen N)Smith, Andrew (Oxford E)
Hughes, Roy (Newport E)Smith, C. (Isl'ton & F'bury)
Hughes, Sean (Knowsley S)Smith, Rt Hon J. (Monk'ds E)
Illsley, EricSnape, Peter
Ingram, AdamSoley, Clive
John, BrynmorSpearing, Nigel
Johnston, Sir RussellStott, Roger
Jones, Barry (Alyn & Deeside)Strang, Gavin
Jones, Martyn (Clwyd S W)Straw, Jack
Kennedy, CharlesTaylor, Mrs Ann (Dewsbury)
Kinnock, Rt Hon NeilTaylor, Matthew (Truro)
Turner, DennisWilliams, Rt Hon Alan
Wall, PatWilliams, Alan W. (Carm'then)
Walley, JoanWinnick, David
Wardell, Gareth (Gower)Wise, Mrs Audrey
Wareing, Robert N.
Welsh, Andrew (Angus E)Tellers for the Noes:
Welsh, Michael (Doncaster N)Mrs. Llin Golding and
Wigley, DafyddMr. Alun Michael.

Question accordingly agreed to.

Clause 49 ordered to stand part of the Bill.