Housing Subsidy (Barking and Dagenham)

Part of the debate – in the House of Commons at 2:32 pm on 27th March 2009.

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Photo of Jon Cruddas Jon Cruddas Labour, Dagenham 2:32 pm, 27th March 2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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