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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Question put and agreed to.

House adjourned.