Clause 38 — Real estate investment trusts: UK REITs which invest in other UK REITs

Oral Answers to Questions — Justice – in the House of Commons at 4:45 pm on 2nd July 2013.

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Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 4:45 pm, 2nd July 2013

I beg to move amendment 57, page 15, line 16, at end insert—

‘(2) Notwithstanding the provisions of paragraph 13 of Schedule 18, that Schedule shall come into force after the

Chancellor has conducted, and placed in the House of Commons Library, a review of the operation of the interaction of REITs with the Housing Market. The Review shall consider—

(a) tax measures in place to support house building; and

(b) what steps HM Government have taken to support house building.’.

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss Government amendments 30 to 34.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I am tempted to start by saying that I am sure this is the part of this afternoon’s proceedings that everyone has been waiting for, and that there is much excitement about the prospect of talking about real estate investment trusts, and that many Members will want to contribute on this very important issue.

Amendment 57 is another amendment that I have regularly described as very mild-mannered. It proposes that the Government must ensure that the impact of their policy is examined and reported on, and that all Members are subsequently able to access information on its impact from the House of Commons Library. In this amendment, we are asking for that information to be examined and made available before schedule 18 is implemented.

The amendment also asks that the Government conduct a review of the interaction of real estate investment trusts with the housing market and that the Government consider in particular measures that are in place to support house building and what measures they have taken to support house building. I suspect that the Minister may well say this is not necessary because everything is always kept under review so far as the Government are concerned, but he will be aware—because he has heard me say this before both in Committee and on the Floor of the House—that I think Governments always tend to say things are under review, but there is a great difference between something that sits on a shelf that may be dusted down and had a look at if someone asks a parliamentary question or writes to a Minister, and something that is a proactive review, whereby policy is examined and modelling work is done and different facts and figures are placed in the House of Commons Library so that we can all benefit from that information. That is really why we have tabled this amendment now. I keep making this plea to the Minister to take up, at least once, the opportunity to look more favourably on such reviews.

In last year’s Finance Bill Committee and once again this year, we have had important discussions about real estate investment trusts, or REITS. For hon. Members who have not followed the Committee musings over the two years or had the opportunity to read in Hansard the record of the excellent contribution from my hon. Friend Chris Leslie, who said just a few words about REITs during those deliberations, I shall outline briefly what this is about and why our amendment is so important.

REITs are securities that sell like a share on stock exchanges and invest in real estate directly, either through properties or mortgages. As of September 2012, 34 nations had REIT-like regimes in place. REITs are tax-advantaged vehicles set up to encourage investment in the property sector. I will, of course, be developing that theme, and people may wish to consider my comments in the light of the need for the review. REITs are exempt from corporation tax on profits and gains arising from their property rental business as long as profits are distributed. In that way, taxation of income from property is moved from the corporate level to the investor level. REITs have been given tax advantages to encourage diverse investment in the property sector, where fellow investors can have a different tax status.

We seek to amend a simple, one-line clause introducing schedule 18, which of course contains considerable detail. I am sure the Minister will speak to the Government amendments in some detail in due course, but these provisions would allow UK REIT income derived from investing in other UK REITs to be treated as income of its tax-exempt property rental business. Until now, REITs have predominantly invested in commercial properties—for example, office and retail properties. We had lengthy discussions about that when debating a previous financial Bill. According to Treasury consultation documents published in April 2012, there are more than 20 UK REITs, with a market capitalisation of more than £20 billion, so this is obviously an important issue.

As I said, the Committee discussed in detail why it is important to reform the REIT regime. We did not oppose clause 38 in Committee and we are not seeking to do so now; we are simply seeking this review and reporting back. My hon. Friend the Member for Nottingham East recognised that REITs are important investment vehicles that have changed the investment scene relating to property and those financial instruments. He spoke about that in Committee, also acknowledging that the Government appeared to be proposing relatively sensible pieces of housekeeping on the cash flow and investment profiles of the REITs. He further acknowledged the argument that REITs could make better returns on such cash if they were allowed to invest short term in other REITs. That was seen as promoting greater liquidity in the property market and potentially attracting additional investment income, particularly into the built environment. However, at that time my hon. Friend also raised a number of specific points with the Minister. For example, he asked what the policy’s effect would be on revenues to the Exchequer. He probed further the broader impact on tax treatments and also sought to discover whether HMRC had done any modelling on how the arrangement might affect yields.

My hon. Friend was interested in what the REIT vehicles are investing in and in how they are linked to commercial property arrangements and the circumstances in which residential property REITs exist. In Committee, he also sought further information from the Minister on the impact of REIT arrangements on the residential property market and its prices, given that there has been some concern in various quarters about the Government perhaps looking more at the demand side of the housing market equation than at the supply side.

I shall say a little more about the housing market later, but in Committee my hon. Friend specifically pressed the Minister on whether the Treasury had analysed the general impact of REITs on property prices in the residential sector and whether there was any overlap between the Help to Buy arrangements and investment in REITs.

The Committee also heard during that debate that although the Government originally consulted on the idea of using REITs as a vehicle to support social housing investment, they decided not to take that forward. There was no REIT vehicle arrangement to help with what the Opposition believe to be the priority—that is, of course, dealing with the need for social housing and affordable housing. I shall say something further about that in due course.

To be fair to the Minister, he advised the Committee that only 15 written responses to the Government’s consultation were received and that there was consensus that amending the tax treatment of REITs would generate positive benefits for the industry and his Government’s wider objectives, as he saw them.

In response to the questions from my hon. Friend, the Minister referred to the tax information and impact note that, as he pointed out, states that

“the provision will have a negligible impact on the Exchequer”.

He went on to explain:

“It removes a barrier that has prevented REITs from investing in REITs, which has generally not happened because it has been an inefficient structure. As a result, the cost of the change to the Exchequer will be negligible.”

That is all fair and proper, but his response to the question on the impact on house prices was perhaps less definitive. At that stage, the Minister suggested that the Government could not

“yet assess the impact on house prices as there are not yet any substantial residential REITs on the market, so the answer is that they have not had an impact on house prices.” ––[Official Report, Finance Public Bill Committee, 4 June 2013; c. 318-19.]

Although I can see the logic in that argument—it comes from a factual perspective—my hon. Friend was probing a question on which I invite the Minister to say more today. Has the Minister considered whether he would use some of the extensive resources at his disposal to do some further modelling work, not just to consider what is happening now but to make projections for the future? That would give us some idea of the advantages and disadvantages of the proposal, particularly as regards the impact on house prices, and would allow us to identify the concerns and, if any were identified, to see how they could be mitigated. That was what my hon. Friend was seeking and is part of the reason why we have tabled the amendment once again.

The Minister, in Committee, responded to questions by my hon. Friend the Member for Nottingham East on issues relating to the wider policy and REITs and the Help to Buy scheme. At that stage, the Minister drew a clear distinction between what he saw as the policy on REITs and the policy on Help to Buy. He stated:

“There is nothing to prevent REITs from investing in residential property”.

He did acknowledge that

“currently returns are not high enough to attract investors.”

At that stage he also advised the Committee:

“Responses to the consultation suggest that the need for further changes to the REIT regime to support social housing…was seen as not particularly pressing.”

It would be helpful if the Minister would say a bit more about that, because he also said in Committee:

“For some stakeholders, the changes to the REITs regime in the Finance Act 2012 were already sufficient to enable them to set up a social housing REIT.”

I would be interested to hear what discussions have taken place, and how the Minister intends to work with the sector to see whether it is feasible, and whether it is advantageous, to try and set up something in that regard, because other interested parties currently not considering establishing a social housing REIT were concerned that housing at social rents alone would be unable to generate sufficient returns to attract investors. I hope the Minister will say something more on that. For those parties, further additional changes to the REIT regime, such as the removal of the listing requirement, would be unlikely to make any difference to the thinking. The thrust of the Minister’s argument was:

“Essentially, we did not believe that the various ideas that we looked at to encourage social housing REITs would be effective”.[Official Report, Finance Public Bill Committee, 4 June 2013; c. 318.]

In Committee, we heard the Minister acknowledge that dealing with REITs was a relatively small part of the much bigger picture of the housing market. That is absolutely correct, and he was right to say that. I have laid out several areas where it is important to look further at some of those issues for the future and to do some of that work and report back to the House in due course. Our amendment provides the vehicle to do that.

The Minister was absolutely correct to acknowledge that the REIT regime was a relatively small part of that much bigger picture, so let me spend a few minutes looking at that bigger picture. This also relates to the part of our amendment that would provide for further work to be done on the tax implications of different regimes, and on what the Government are seeking to do to support house building and create further housing opportunities for those who need them. It is therefore relevant to our amendment.

I do not think it is overstating the case to say that we face the biggest housing crisis in a generation. The Opposition recognise the seriousness of the issue. We know how crucial house building is to economic recovery. Whether it is a young family seeking an affordable home in which to bring up their children, or whether it is those at a different stage in life, seeking to downsize or to change their accommodation as their needs develop, it is of course important that a range of housing options is available, and at a cost that people can afford at that stage in their life. That is key.

For the three years that I have been in this place, Opposition Members have consistently called for action on housing, especially affordable housing. I praise my hon. Friend Jack Dromey for his conviction and clarity on housing policy, and his understanding of the impact of what is happening in the real world on those who are trying to get on the housing ladder, or trying to obtain their first tenancy in a social housing situation.

Yesterday I quoted some comments by both the Prime Minister and the Chancellor on taxation, and there were some groans and some cheers. If the House will allow me, I shall continue that pattern for a moment and quote once again, but this time from the Prime

Minister and the Deputy Prime Minister, who are all in it together, of course.

In the foreword to the Government’s housing strategy, they wrote:

“The housing market is one of the biggest victims of the credit crunch: lenders won’t lend, so builders can’t build and buyers can’t buy.”

They continued:

“it is right for government to step in and take bold action to unblock the market.”

We do not disagree, because of course the Government must act and deliver bold action, but in practice, yet again, the rhetoric does not match up with the reality. In housing, as in so many other things, this Government have promised much but delivered very little on the ground. Housing investment is well short of what Labour was proposing; house building has fallen; rents are rising; home ownership is becoming harder to achieve; and homelessness has risen. The Government’s record offers little hope to hard-working families who are trying to do the right thing and aspire to better things, but who are held back by the combination of the squeeze on their incomes and the lack of suitable affordable housing that is available to them.

One of the reasons I came into politics is that way back in 1979, when I was a student, I spent some time living in London and working for a project for homeless people. I recall all the improvements made in subsequent years during Labour’s period in office to enable homeless people and those who were living on the streets to obtain accommodation and support to get back on their feet. I never thought I would see in my lifetime some of the things that are happening now to people who have lost or are at risk of losing their home. Although I am straying somewhat from the amendment, let me say that I am worried about the impact the Government’s policy on the bedroom tax is having on many decent people.

The amendment, which would ensure that the Government review and produce further work on the housing market and taxation, is important. Perhaps we should not be surprised by the Government’s poor record on housing. We heard in the previous debate about their warm words but weak action on infrastructure. My hon. Friend Catherine McKinnell pointed out that just seven of the 576 projects in the 2011 infrastructure plan have been completed, and that five of those were started under Labour; and that despite their warm words, the Government are cutting capital infrastructure spending by 1.7% from 2014-15 to 2015-16. She also gave a stark reminder that of the 261 new school building projects the Government have said will be delivered, only one has started.

We have had hollow promises to kick-start the economy, hollow promises to get growth going, and hollow promises to balance the books in this Parliament. When the British people, right across the country, look at this Government’s record, they understand that this Government have failed to deliver, time and again.

Photo of Stephen McPartland Stephen McPartland Conservative, Stevenage 5:15 pm, 2nd July 2013

Does the hon. Lady accept that there are some success stories? In my constituency, for example, the Government are giving almost £2 million for a purpose-built homeless shelter, which will serve a large part of Hertfordshire, and we have provided the funds to build the first council houses in Stevenage in 30 years. As for infrastructure, my local hospital redevelopment is part of a £150 million hospital rebuilding scheme, and a section of the A1M is being widened. It is not all as bad as the hon. Lady makes out.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I appreciate what the hon. Gentleman says, and I am sure his constituents will appreciate the fact that he has raised the matter in the Chamber today. The people who make use of that homeless shelter no doubt welcome the fact that it is there for them but, with respect, that does not get away from the wider need to ensure that we have good quality, affordable housing right across the country. Although his constituents may be benefiting at present, sadly I see in the places that I visit and right across the country that there are areas where that level of investment is not happening. People are finding their living standards squeezed and they are finding it extremely difficult not only to balance their own household budgets, but to plan for the future.

The hon. Gentleman’s intervention leads me neatly on to the subject of house building, although I suspect that that is not what he intended to do. None the less, it gives me the opportunity to move seamlessly into that part of my speech. The Government have had four major housing launches in three years and they have made more than 300 announcements on housing. Some areas would have welcomed 300 houses, never mind 300 announcements. We know, notwithstanding the hon. Gentleman’s comments, that house building is at its lowest level since the 1920s, and research by the House of Commons Library confirms that no peacetime Government since the 1920s have presided over fewer housing completions than this Government have in the past two years. So for all the launches and all the statements, are things going to get any better on this Government’s watch? That is a question that the Minister has to answer.

Photo of John Mann John Mann Labour, Bassetlaw

Is my hon. Friend aware that of even that paltry number of housing finishes, the Labour Government were responsible for many of them? For example, the Strata Homes development in Retford in my constituency was started under the Labour Government only because of a capital grant given to get it going, and given as a present to this lousy coalition?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I could not have put it better myself. My hon. Friend speaks with great passion and I know that he always seeks to do the best for his area, but he makes important points that the Government would do well to take into account.

Is the situation going to get better? From what we know already, it is getting worse rather than better. Housing starts fell by 11% in 2012 to below 100,000. The construction sector has been hit particularly hard by the Government’s policies, which are hurting rather than helping. An estimated 80,000 construction workers are out of work and there has been an estimated 8.2% fall in construction output, despite recent signs of the beginning of change. Even in respect of home ownership, which one imagines this Government of all Governments would advocate, there are 136,000 fewer home owners than when the Government came to power. Home ownership has fallen from 67.4% to 65.3%. Crucially, on affordable homes, the official figures from the Homes and Communities Agency show that the number of affordable housing starts collapsed in 2011-12 by 68%.

I referred earlier to my own experiences when I worked on a homelessness project while I was a student in London back in 1979, which was one of the reasons that I got involved in politics in the first place. It is appalling that homelessness and rough sleeping are up by a third since the election. The Government must take responsibility for some of these awful situations.

The number of families with children and pregnant women being housed in bed-and-breakfast accommodation for six weeks or more has risen by more than 800% since the coalition Government came to power. A staggering 125 councils have had to house families in B and Bs for six weeks or more. [Interruption.] My hon. Friend John Mann is right: it is a waste of taxpayers’ money. It is not only a waste of money, which is important, but a human tragedy for the families living in those conditions. I ask hon. Members to pause for a moment and reflect on how they would cope if life events meant they had to live like that. What if they were uprooted from somewhere they had been staying and had to pack up their belongings? What if they found themselves, perhaps with children, having to live for an extended period in one room in bed-and-breakfast accommodation, with nowhere to keep their belongings, nowhere to call home, and nowhere to do all the things that we take for granted with our own families?

Let us take a closer look at the Government’s so-called bold action plan. If the Housing Minister’s claims are to be believed, the new homes bonus will deliver an additional 400,000 properties by incentivising growth in planning permissions for new housing and the output of new homes, but the figures show that fewer homes are being delivered, not more. In reality, their flagship scheme has delivered a reduction in both permissions and outputs since 2010. In 2010, residential planning permissions totalled 135,000, but they were down to 115,000 in 2011, to just 95,000 in the first nine months of 2012, and in 2012 they fell by 11% to below 100,000.

A National Audit Office report stated that the Government’s assumptions about the new homes bonus were “unreliable”, “unrealistic” and

“contained a substantial arithmetical error”.

The report found little evidence that the new homes bonus is increasing house building or approvals for housing and that it is rewarding behaviour that would have happened anyway. It also found that the Government are not even monitoring the impact of the £1.3 billion of taxpayers’ money, which is another reason why it is important that we have the review.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons) 5:30 pm, 2nd July 2013

Does my hon. Friend also accept that the heat map for the new homes bonus is completely unfair, because it affects the ability of local authorities to spend on other projects such as house renovations, rather than new build? It is a Treasury policy that is not working.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend makes an important point. New build is of course important, but so too is bringing existing dwellings up to modern standards and ensuring that families have decent accommodation. That is a useful point to which I hope the Minister can respond.

Given that the National Audit Office report was so damning, by no stretch of the imagination could the new homes bonus be called a success. If we couple that with the rest of the record I have described, we might even call it unforgiveable.

Then there is the Help to Buy scheme, which the Treasury Committee dubbed a “work in progress”. It took us some time to get any real answers from the Minister when we probed how the scheme would work in practice. The Opposition desperately want to help first-time buyers, but the Government are making the crisis worse. As I have said, affordable house building is down. Indeed, many commentators, including those the Government might well have assumed would be on their side, are concerned that the scheme is pricing people out of the market. The Government need to take action on the supply side by building more affordable homes, just as the International Monetary Fund has been arguing. I wonder whether the Minister agreed with the IMF when it said:

“There is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.”

Let us take a look at how well the affordable rent programme has worked. Labour invested £8.4 billion in the three years from 2008 to 2011, while the Tories will invest just £4.5 billion in the four years from 2011 to 2015. The Government have cut the budget for new affordable homes by 60%. No doubt they will try to argue that they are getting more for less and that this is all about lean Government, but that is not borne out in reality. Affordable housing starts have collapsed—not stalled, not flatlined, but collapsed. The Government like to claim that they are going to deliver 170,000 affordable homes by 2015, but the NAO report confirms that despite the relentless spin, over 70,000 of those were commissioned by the previous Labour Government.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

If it is about getting more for less, the result will be to push up rents, so these so-called affordable homes will not be affordable. That, in turn, will push up the cost of housing benefit, which will undermine many of the other claims the Government are making on reducing the housing benefit bill.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend makes an important point. She spent a long period working on housing issues in Scotland and taking forward a number of very positive policies in her previous life at Edinburgh city council, so I always listen carefully to what she has to say, and I hope that the Minister does the same. We have to ensure that policies have no unintended consequences. That is why, in this very mild-mannered amendment, we are suggesting a review to look more broadly at the impact of these policies as regards taxation and the Government’s record on housing, to produce information, and to put it in the House of Commons Library so that we can all be aware of it in looking to the future.

This Government appear to care more about spin than substance. Even with a record that shows they have failed on issue after issue, there is more, because their failure to deliver also extends to the NewBuy scheme. So far, 12 months in, the scheme has delivered fewer than 2.5% of the promised 100,000 mortgages. At this rate, they will not meet their target until 2058. In September last year, the Government announced £10 billion-worth of housing guarantees that were due to open for bids in April 2013. However, as the

Financial Times reported recently, the plans are in disarray because no financial group has come forward to run the scheme.

On right to buy, the Government extended the discounts, promising one-for-one replacement. Notwithstanding the rhetoric, the reality is that since the extension of right to buy, 3,495 homes have been sold but just 384 homes have started to be built or have been acquired as replacement stock.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

My hon. Friend raises an important point. People were promised that there would be one-for-one replacement in social housing. The fact that it was not like-for-like replacement was another folly in the Government’s policy. It should be put on the record that it is not one for one but one for nine, and that is a tragedy.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend puts his point powerfully on the record. His phrase, one for nine, will perhaps hit home more vividly than my expressing it as 3,495 homes sold but just 384 starting to be built. It is also right to say that those houses that are being built should meet the needs of people who are seeking either to get their first home or to move.

I do not want to spend too much time on the bedroom tax, but it is sad that the Government constantly say that people are living in homes that are far too big for their needs. I know from my own area and the work I did before coming to this place that many people who live in such housing are rooted in their local community. They do not want to move to another town, village or even another street. If homes of a decent standard that met their needs were available in their area, perhaps they would be prepared to move in order to free up some of the larger family houses.

Photo of John Mann John Mann Labour, Bassetlaw

Does my hon. Friend agree that if we built environmentally friendly, small, local authority bungalows with a little bit of garden, like we used to, many people would queue up to move into them? If only the Government would get their act together and provide the funding to build them.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

My hon. Friend makes another very good point. I know of areas where elderly people would welcome such an opportunity. Indeed, I know of some elderly people who have been persuaded, because they felt it was the right thing to do, to move into good-quality housing where everything is on the flat and they have a small garden, a common area and locally provided services. It is also important that such housing is environmentally friendly and has affordable heating and rent.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

Elderly accommodation is a chronic problem in my constituency and other areas. Does my hon. Friend know whether the Government, as part of their housing strategy, have undertaken any assessment that has identified the need for accommodation for the elderly?

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I cannot answer for the Government, but I would have thought that any Government reflecting on the needs of citizens throughout the country—particularly given the number of elderly people in our communities and the fact that people are living longer—would want to undertake a proper and thorough assessment of future needs and that its projections would be translated into a comprehensive housing plan for the future. If such a plan is in place, I am sure the Minister will enlighten us on it before the end of this debate.

This is about people’s homes, but Government Members seem to think that it is about the number of bedrooms and do not really understand the emotional link that people have to the home that they may have been born and brought up in, that they may have raised their family in, or that they may be set to retire in in their later years. Surely any compassionate society should take that into consideration. We should also take every possible step to ensure that people do not become homeless; we must not let that become another scandal.

I will finish soon because others wish to speak on this important issue. Ministers promised last summer that the Government were on course to smash their ambition to release enough land for 102,000 homes, but they have now conceded that they are only a third of the way towards that target. I will not give into the temptation to go back over every Government failure, but they have missed target after target. After all the warm words, hot air and relaunches, it is clear that this Government are making the housing crisis worse, not better.

People who are out in the cold looking for their first home, looking to move, or looking for somewhere to live out their later years in comfort without having to worry whether it is affordable might look back at Labour’s record. There were 2 million more homes under Labour and we built 500,000 affordable homes. A million more families were able to buy their own homes, housing standards improved and homelessness fell by 70%.

My hon. Friend Jack Dromey, who might want to comment on the work that he has been doing, is right to call for investment in house building to tackle the housing crisis, bring down the benefits bill—we have not dwelt on that in this debate, but it would feature in a review if the Government accepted the amendment—and put a roof over the heads of the families and individuals who need a home. It would also create thousands of jobs and apprenticeships, and rebuild Britain as we need it for the future.

This is another mild-mannered amendment. I do not see what objections the Minister could have to conducting a review. It would answer a number of the questions that were posed in Committee.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I will, but only briefly because I am on my last words.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

My hon. Friend has made some valuable points in what is an excellent speech. Does she agree that the Government and certainly the Treasury ought to consider in the review what impact a VAT cut would have on the construction industry and on the renovation and refurbishment of properties? That should be part of the review because half the country is being left behind.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Thank you for that guidance, Mr Deputy Speaker. I had feared that the Exchequer Secretary would jump up and ask a supplementary question about the Opposition’s position on cutting VAT.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I suspect that the hon. Gentleman wants to stray into the territory where Mr Deputy Speaker has suggested we do not go. Suffice it to say that my hon. Friend Graham Jones makes yet another suggestion that the Minister would do well to consider as part of the wider review. I look forward to hearing his response.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

My hon. Friend Cathy Jamieson, in her powerful speech, pointed to the biggest housing crisis in a generation that is gripping our country. House building is down to the lowest level since the 1920s. Homelessness is up by 30% since the general election, after it fell by 70% under the Labour Government. We have a mortgage market in which millions struggle to get mortgages and a private rented sector with 8.6 million tenants, or 1.1 million families. There are many good landlords, but many bad ones too. There are chronic problems of security, stability, affordability and quality. One in three homes in the private rented sector does not meet the decent homes standard.

Like my hon. Friend, my interest in housing goes back a long way. When I was a lay trade union activist, I was also secretary of the Tenants and Residents Federation. I was a founding member of the Housing Action campaign. For older Members of the House who remember the occupation of Centre Point, I was proud to be one of those who organised what was an effective demonstration against office block speculation, against the background of rapidly rising homelessness and bad housing. I never thought that we would be back here 30 years later debating a crisis worse than that one.

Photo of John Mann John Mann Labour, Bassetlaw

I wonder whether my hon. Friend would elucidate more for the benefit of us younger Members.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

There was an office block speculator called Harry Hyams. Those were the days when people could build office blocks and not pay rent on them, and they would appreciate two or three times in value every year. That happened against the background of a chronic housing crisis. We rightly protested against that and the incoming Labour Government rightly changed the law for—

Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

Order. We are trying to deal with an amendment. Going down memory lane is all very well, Centre Point is very interesting and Mr Mann will always have a response, but I know that Members are desperate to get back to the amendment.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

You are right, of course, Mr Deputy Speaker.

We are here to stand up for the people we represent, and we all see the impact of the housing crisis in our constituencies. I see the impact in the shortage of homes being built in Erdington—56 certified by the National House-Building Council in 2012—and the building worker, one of 79,000, who lost his job, a big man who burst into tears on his front doorstep in Marsh lane and said, “I’ve lost my job three times; I am desperate to provide for my family. I simply can’t cope any longer.” I also see the impact on the homeless families who come to my surgery—on one occasion, they had just been evicted—desperate for a decent home, and the young people in the Orchard project run by the YMCA in my constituency, where numbers of young homeless people double every year.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

Is the hon. Gentleman aware that homelessness today is at its lowest for the past 30 years? It has been lower in only three of the past 27 years. It has been bad, but homeless today is the lowest it has been for 27 out of 30 years.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

I prefer to rely on statistics from the hon. Gentleman’s Government: homelessness has risen by 30% since the general election.

A teacher and a firefighter in their 20s came up to me on Erdington high street and poured their hearts out about how they are desperate to buy their own home but simply cannot get a mortgage. Evidence from Shelter has shown that typically, couples in their 20s will have to save for 11, 12, 13 or 15 years to afford a deposit. Extraordinary statistics show that the number of people between 25 and 34 who own their own home has fallen from 2 million to 1.3 million, and census figures showed that for the first time since the 1950s home ownership has fallen in our country.

I have seen the problems in the private rented sector in my constituency, such as the lady in Streetly road who had to be rescued by the council’s private tenancy team from a premises for which she was being charged a fortune in rent, but which was deeply dangerous because of faulty electrical wiring.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

My hon. Friend makes a powerful point. One sad thing that I reflect on is that a lot of property in the private rented sector is in grossly bad condition, yet the rent is paid by the taxpayer through housing benefit. I do not for the life of me see why we do not have better regulation of the private rented sector when a vast amount of public money goes into that market through housing benefit.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

My hon. Friend is right. We call it protection for good tenants and landlords alike; the Government call it red tape and have rejected every move since 2010 to regulate the private rented sector more effectively. No Government have done enough in our lifetime, but my hon. Friend the Member for Kilmarnock and Loudoun was right: I will compare favourably anytime the record of our Government to the current Government.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I hate to throw facts at the hon. Gentleman, but 421,000 social homes were lost under the previous Labour Government. This Government are building 170,000 homes by 2015. This Government’s record is far better than that of the past 13 years under the previous Government.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

Let me spell out the facts: 2 million new homes; 1 million more mortgage holders; half a million more affordable homes; and 1.6 million social homes brought up to a decent homes standard after our Government inherited a £19 billion backlog in housing repairs. In the 1980s, the hon. Gentleman’s Government stood back and allowed a tidal wave of mortgage repossessions. In 2008, we took action to keep people in their homes and, through the kick-start programme, sustained the building industry against collapse and got Britain building again. I will compare that record favourably anytime to the miserable track record of failure of the hon. Gentleman’s Government.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Does my hon. Friend share my perplexity about the figure for the amount of homes lost that Government Members have come up with in recent debates on housing? If social homes are lost, they are lost through the right to buy. The Government have decided to increase the size of discounts and further encourage the right to buy, so they will probably lose more social homes than they build. We cannot compare net figures with gross figures.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

Indeed, when the former Housing Minister, Grant Shapps—a man who gives hubris a bad name—launched the new enhanced right-to-buy campaign, he said that there would be one-for-one replacement. One for nine is what is happening. In addition, as freedom of information requests have just shown, Labour councils are building council homes at twice the rate of Conservative and Liberal Democrat councils.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

Another explanation for the loss of units under the previous Government is that, because they were investing in upgrading homes through the decent homes standard, some homes, particularly in high-rise blocks, were too expensive on a unit cost basis to improve. It was costly, but they had to be demolished. We lost units because we were trying to improve the overall stock.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

My hon. Friend is right: tough decisions had to be made. All of us in our constituencies have seen the benefits of that decision to invest in the decent homes programme: it has transformed the lives of millions of tenants.

Why have the Government made these mistakes? They started with the catastrophic error of judgment of cutting £4 billion in affordable housing investment in 2010, which led to a 68% collapse in affordable house building. What we have had subsequently are a succession of false dawns: four “get Britain building” launches, 300 separate initiatives and thousands of press statements. I once said of the former Housing Minister that if we had a home for every press statement that he issued we would not have a housing crisis.

My hon. Friend the Member for Kilmarnock and Loudoun looked at the track record: NewBuy was to produce 100,000 homes, but thus far there have been 2,500. When the Minister comes to respond on NewBuy, he might care to refer to the recent Help to Buy announcement, when the Prime Minister ruled out, from the Dispatch Box, any question of its being used to buy second homes. I tabled a written question:

“To Mr Chancellor of the Exchequer…with which organisations or companies (a) he and (b) other Ministers in his Department have met to discuss the mechanism that will be put in place to stop people using the Help to Buy Mortgage Guarantee Scheme to purchase a second home.”

In answer, I was told that

“Treasury Ministers have met with a number of companies in the mortgage industry to discuss a wide number of issues, such as the Help to Buy mortgage guarantee scheme, including through the Home Finance Forum.”—[Hansard, 1 July 2013; Vol. 565, c. 408W.]

Has a mechanism been agreed?

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

My hon. Friend makes a valid point regarding going from First Buy to homebuy to Help to Buy. When the Government talk about affordable housing, is there any explanation of why the upper limit in the previous schemes of £280,000 was increased to £600,000 in the current scheme? How does that qualify as affordable housing, and how does it help people who are struggling? That is surely redirecting money at people who could afford a more modest property.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

Those of us on the Opposition Benches stand for homes for all; the Government stand for homes for the better-off.

Another example of hype was what the £10 billion guarantee scheme would deliver, including in investment in the private rented sector. However, the Government have failed to get anyone to run the scheme for them. Another example—there are endless examples—is self-build. The former Housing Minister said in opposition that the Conservatives would oversee a housing “revolution” led by self-build. He said they would have an action plan in government to double self-build homes. He introduced that action plan in 2010. He then tried to conceal whether it had worked, but ultimately the Information Commissioner forced his hand. We now know that self-build has fallen under this Government, not increased.

Photo of John Mann John Mann Labour, Bassetlaw 6:00 pm, 2nd July 2013

Is my hon. Friend as disturbed as I am by the Government’s failure to deliver on their promise to exempt self-build from the community infrastructure levy and the affordable housing levy, despite repeatedly saying in this Chamber that they would do so?

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

We have been strong supporters of self-build. The Government have promised a great deal on self-build, but done pitifully little. The figures speak for themselves: a decline in self-build under a Conservative-led Government, compared with what happened under a Labour Government.

The simple reality is that we have seen catastrophic mistakes, a succession of false dawns and, to be frank, downright cheek—the point has already been made that sometimes the Government have claimed the figure is 170,000, when 70,000 of those homes were commissioned by a Labour Government. The comprehensive spending review last week was a missed opportunity. There are indications of a moderate uptake in house building; what we needed was a major investment programme—I will say more about that in a moment. It was a missed opportunity at the worst possible time, and we now run the risk of seeing five wasted years for housing under this Government.

Let me make some brief points about the announcement made last week. It represents a cut in investment in affordable house building, instead of the necessary ambition of approach. I would simply contrast two figures. In the final comprehensive spending review under a Labour Government, £8.4 billion was committed for the three-year period from 2008 to 2011. For the three-year period from 2015 to 2018, this Government propose to invest but £3.3 billion—less than half of what Labour proposed to invest in affordable house building.

In addition, we are seeing an approach on the part of the Government that will mean the slow death of social housing—the mistakes made in 2010, with the cuts in investment; the progressive reigning back of councils’ ability to use section 106 to insist on affordable and social housing; and, now, the Housing Minister talking about the need to convert to the affordable rent model, which is unaffordable for many people and will push up housing benefit bills. We also see the Government once again restating their determination finally to crack the problem of bringing public land to market. We have heard it all before. They have promised a great deal and delivered pitifully little.

It is little wonder that the National Housing Federation was critical of the statement, despite the Government saying that the role of housing associations would be central. The federation attacked it as representing a cut in investment. It is also little wonder that the Chartered Institute of Housing said that the statement lacked the necessary ambition. Just when the country needed a sense of urgency and ambition, the Government let the country down. That is why our amendment argues for a serious approach, designed to get Britain building. First, we have to tackle the biggest housing crisis in a generation. There should be decent homes for all, to rent or buy, at prices people can afford. Secondly, history tells us that there has never been a recovery from a depression, such as that in the 1930s, from a war or from any recession since the war without a major public and private housing programme.

That is why the shadow Chancellor has said that the Government should heed the advice of the International Monetary Fund. Were they to invest that £10 billion in a house building programme, 400,000 homes would be built, and 600,000 jobs and 100,000 apprenticeships would be created. The Government need to invest now, rather than looking beyond 2015. They need to build now, in order to get people back into work now and to bring the cost of failure and the housing benefit bill down. It cannot be right that 95p in every £1 spent on housing investment goes on housing benefit. We need to get that money shifted into bricks. Such investment would ultimately bring down borrowing as well.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

My hon. Friend is making a powerful speech. I have to criticise the Government for the fact that if every one of their announcements on this matter had been a house, we probably would not have a housing crisis now. They have talked an awful lot about house building but, brick upon brick, it is not happening in very many places in this country.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

I agree absolutely with my hon. Friend. As I said earlier, if we had a house for every press statement issued by the Government, we would not have a housing crisis.

Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Business, Innovation and Skills), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Communities and Local Government), Shadow PC Spokesperson (Culture, Media and Sport), Shadow PC Spokesperson (Wales)

The hon. Gentleman is making some powerful points, and I entirely agree with him on the need for a house building programme. Would not the advantage of such a programme be that there would be a ready revenue stream in the form of rental repayments?

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

The hon. Gentleman is absolutely right. All the benefits that I have referred to, plus others, would result from such a programme. If we were to invest in retrofitting as well as in new build, we could tackle some of the chronic problems that are costing the national health service £2.5 billion a year. We could also tackle the problem of a whole generation of young people being held back at school because their overcrowded homes impact on their ability to do their homework. That impacts on their exam results, which in turn impact on their lifelong earnings potential. If the Government were to invest in housing as we would do, they could also reflect the demands of an ageing population. They would be able to help people of all tenures to downsize, rather than using the obscene weapon of the bedroom tax, which has no place in a civilised society.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

My hon. Friend has made a powerful point. The Government’s policy is totally focused on an under-supply of housing, but he makes the valid point that the Treasury should be looking at the other part of the problem, which is the over-supply of housing and its consequences. The Treasury needs to take this matter on board. In constituencies such as mine, people suffer chronic ill health as a result of poor housing.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

My hon. Friend makes a good point. This is not just about new build, where appropriate; it is also about retrofitting, about regeneration and about bringing empty homes back into use. It is also about recognising that the housing market and the problems associated with housing should not simply be seen through the prism of London and the south-east. Housing markets vary considerably nationwide.

Photo of Bob Stewart Bob Stewart Conservative, Beckenham

I have listened very carefully and I understand the logic of what the hon. Gentleman has said. My only worry and concern is where we are going to get the money to invest in housing—investment in housing is a good thing. The hon. Gentleman suggested that we would get the money back, but we will not get it back quickly.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

What is happening for certain is that the country is paying the price of failure, with £245 billion more being borrowed because of it. Ultimately, it comes down to this: it is a choice between paying for the costs of failure or investing for success. All the evidence shows in transmission times that investing in house building is the quickest way to get a sluggish economy moving. It would build badly needed homes for people to rent or buy; it would put building workers back to work; it would create apprenticeships and hope for the nearly 1 million young people out of work; it would progressively bring down the cost of housing benefit; and, ultimately, reduce borrowing rather than increase it. That is the choice that the Government and the country now face: do we invest public money for failure or invest it to build for success?

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

My hon. Friend is making a very powerful speech. Is it not the case that the £25 billion that goes into housing benefit supports rentier capitalism and not entrepreneurial capitalism? Would not that money be better invested in bricks and mortar? One of the solutions that the left and the Labour party have for this problem is to bring in rent controls. Does my hon. Friend agree that rent controls would help to bring down the housing benefit budget?

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

I would make two points in response. First, the single biggest factor that would make a difference is, of course, significantly increasing supply. What is so wrong about the Government’s approach is that it has been too much focused on demand and not sufficiently focused on supply. On the issue of demand, we have heard criticisms from the IMF, the Treasury Select Committee and others about the impact of Help to Buy on pushing up house prices, without necessarily seeing a significant increase in supply.

Secondly, we definitely need to look at a very different type of private rented sector for the future, where quality standards will be raised and where there will be longer-term tenancies and flexibility for those who wish it and security for those who need it. Index-linked rents, for example, could see people having predictable and more affordable rents. If we look at existing evidence of such longer-term tenancies with the indexation of rents, we find that tenants pay significantly less and landlords have a reliable income stream, so it works for good landlords and tenants alike. The time has come for a very different private rented sector in the future. Sometimes we refer to “the continental model” of security, affordability and higher quality, where people enjoy a higher status in a sector of choice—not what we have at the moment.

Millions of people will have waited for last week’s comprehensive spending review with hope, but their hopes have been dashed. What we had was hyperbole from the Chief Secretary to the Treasury. I have to say that I sat gobsmacked at his contribution. When it comes to writing the history of hyperbole, he will deserve a chapter of his own, as we have heard it all before. The simple reality is that this Government’s housing policies, like their economic policies, have failed and will continue to fail. Whether it be “First Buy”, “NewBuy” or “Help to Buy”, the British people know from experience that getting a decent home at a price they can afford and getting Britain building once again will ultimately mean sending this message to this Government at the next general election—“goodbye”.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

Let me begin by drawing attention to my interests as declared in the Register of Members’ Financial Interests.

I am very pleased to follow my hon. Friend Jack Dromey, who made a powerful and persuasive speech about the importance of expanded investment in housing, and my hon. Friend Cathy Jamieson, who presented a masterful overview of the whole range of housing expenditure.

The state of the housing market in Britain today can only cause alarm, for a variety of reasons. Output is far below the level that would enable it to meet the current need, and that is bad for people who are themselves in need. It is bad for people who want to buy their homes but find it impossible to do so at prices that they can afford; it is bad for people who are looking for social housing, because the waiting lists are overstretched and the supply is inadequate; and it is desperately bad for people who risk homelessness. The number of homeless people has, alarmingly, been rising in the last three years, after, it must be said, a period during which there was enormous success in driving down the level of homelessness.

The state of the market is also bad for people in private rented housing, which, curiously, is the one of the few success stories of recent housing history. The amount of private rented housing has increased, but unfortunately it has increased on the back of very steep rent increases. That has created a huge problem for people who simply cannot afford to pay such rents without the help of housing benefit, and it has created a real problem for the Government. All the Government’s rhetoric is about reducing housing benefit, but the policy that is being promoted by both the Treasury and the Department for Communities and Local Government is leading to increased calls for it. Increased dependence on private renting and higher rents in the social housing sector, both of which are explicit policies of the DCLG, inevitably drive increased demand for housing benefit. The Government have got themselves into an extraordinary mess. One arm of Government is talking about cutting housing benefit, while the other is deliberately fuelling demand for it.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons) 6:15 pm, 2nd July 2013

Does my right hon. Friend agree that the Treasury does not seem to be taking account of evidence which shows that the cost of private renting housing, per unit, is roughly twice the cost of social housing? At that rate, the more reliance there is on the private rented sector, the higher the housing benefit will be.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

I entirely agree. As my hon. Friend the Member for Birmingham, Erdington pointed out, it is important to support the private rented sector, but it must be helped to do the job it does best, which is providing for people whose incomes are higher than the incomes of those who have traditionally depended on social housing.

The Government have created a problem for themselves by trying to use the private rented sector, with high rents, as a substitute for social housing, with lower rents. That is inevitably a recipe for more dependence on housing benefit. It traps people who are dependent on benefit, which is bad for them, and it increases the bill for housing benefit. What we need are policies that encourage both the growth of a private rented sector for people who can afford to pay a market rent for their housing and will not be dependent on benefit, and, in parallel, the revival of a social housing sector that meets the needs of those who require housing at sub-market rents.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Sometimes the issue of private rents is presented as though it involved people living in mansions, but many of those high private rents are actually charged in former council properties. Ironically, two tenants living next door to each other may both be receiving housing benefit, but the rents involved may be very different. People who are not living in mansions are simply having to pay high rents.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

My hon. Friend has made a fair point about the fact that the rise in rent levels means that many people are paying above the odds for accommodation that is not particularly good. However, that is a product of shortage. We need an increased supply of good-quality private rented housing which commands a market rent. There will be people who are perfectly happy to pay that rent, and to benefit from good-quality accommodation as a result.

As my hon. Friend the Member for Birmingham, Erdington said, we need to bear down on exploitative landlords who are letting sub-standard properties and charging above the odds for them. We also need to ensure that councils and housing associations provide an adequate supply of alternative housing for people who genuinely cannot afford to pay a market rent, and who would otherwise be left either dependent on housing benefit or homeless.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

My right hon. Friend is making some very powerful points. The private rented housing market is very diverse, but in areas like mine in Gateshead in the north-east of England, where we have a substantial private rented sector, unfortunately much of the property in that sector is housing of last resort and people are having to pay inflated rents for it—rents that are much higher than they would have to pay for much higher-quality socially rented housing in the neighbourhood.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

My hon. Friend makes a very good point that again illustrates just how dire the consequences of current policies are for people in need of housing.

If the current housing policy and current housing market are bad news for people in housing need, they are also bad for the economy. As my hon. Friend the Member for Birmingham, Erdington rightly emphasised, there would be huge economic benefits from an expanded house building programme. Not only would we see an increase in employment and demand for materials, most of which are sourced within the UK, but there would be huge impacts on the supply chain.

Photo of Lisa Nandy Lisa Nandy Shadow Minister (Education)

I agree with what my right hon. Friend is saying. Does he agree that there would be a particular impact on young people? There are more than 1 million young people in this country who are desperately in need of a job. Many young people in Wigan were employed in the construction industry and on apprenticeships before this Government came to power, so they would experience a very positive effect from the changes he is describing.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

I entirely agree. I happen to be the president of Youthbuild UK, which is one of the bodies that has been campaigning specifically for more effective opportunities for young people, in particular disadvantaged youngsters, to get the training and skills necessary to secure employment in the construction industry. I wholly endorse what my hon. Friend says.

There are benefits in terms of the economy. There are benefits in terms of employment. There are wider supply chain benefits. I am thinking in particular of all the industries that provide the materials, furniture, furnishings and equipment that go into houses when they are built. When people move into a house, they need carpets, furniture and various fittings, and all of that additional demand will be good for the UK economy. There is therefore a real multiplier effect from an expanded house building programme.

It is not just about new homes. As has been said, it is also about retrofitting existing homes that are in poor condition. Here the Government have got themselves into another mess, but not through lack of a good idea. The idea behind the green deal is a sound one: that we try to put in place a mechanism that enables people to borrow the money required to fund improvements in the energy efficiency of their home and they can then pay for that out of the savings they make through reduced bills because the home demands less energy. That is in principle a very good idea. The problem is that the scheme the Government have managed to come up with after quite a long gestation period has proved so complex, opaque and financially disadvantageous that it is at present struggling to get any takers.

I admire the ambition displayed by the Minister responsible for the scheme in trying to get it off the ground. He has put a huge amount of effort into trying to promote it, but as it is currently constituted it is simply not attracting the interest of the British public, and without doing that it will not fly, so we will have a continuation of the problems of energy inefficient homes that are bad for the environment because they pour out unnecessary carbon emissions. That will be bad for the fuel poor who end up paying more for fuel than they need to, and it will be bad for the construction industry because all those potential jobs in retrofitting existing homes will not be taken up.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

Does my right hon. Friend agree that it is an indictment of the Government’s shambolic housing policy that they rejected the idea that private landlords should in the near future be forced to implement the green deal and energy efficiency measures in properties? The Government have put that backstop date back to 2018, which allows private landlords still to have houses that do not meet the lowest of energy ratings for many years.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

I am grateful to my hon. Friend for highlighting that, because it is a cause of real concern that the energy efficiency programmes that were in place have come to an end, and as a result of the introduction of the new ones—the green deal and the energy company obligation programme—the level of activity on energy efficiency retrofitting has plummeted.

I talked to a housing association, active in my constituency, that has done a magnificent retrofit of about 1,000 properties in Charlton. That has hugely improved the comfort of its tenants, who can now keep warm at much less cost. It has improved the appearance of the estate and has won plaudits from everyone, and it was done with a work force that included a number of young unemployed people from the area, who were trained specifically to be able to take up the advantages of employment as part of the scheme. It was an admirable scheme. When I was congratulating the housing association on it, the one and only disappointment came when it told me “Well of course this was funded under the old community energy saving programme—CESP—which made it possible and has now ended. We would probably not be able to do this again if we were starting from scratch today.” That is an obvious problem.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

My right hon. Friend is talking about the ending of schemes. Does he agree that this is not just about renovating properties where people are living, but about the large number of empty properties in boroughs like mine which are crying out to be renovated? They are in places where people want to live, where communities can be recovered in the way he just described, but nobody is living there now. Does he agree that the Government need to revisit the issue of funding for empty properties?

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

The thrust of my whole speech is about the importance of the Government finding more effective measures to stimulate investment in housing in all sectors. That includes bringing empty properties into use, improving the existing substandard housing stock and building new homes that are needed to increase the supply. The case is overwhelming, but, sadly, as the figures cited in this debate so far have shown, the Government are failing to meet the needs. I am not going to go into that in detail, because it has already been covered.

I wish to draw attention to the new homes bonus. It an extraordinary scheme, and our Front-Bench spokesperson made some pertinent remarks about it. It was launched by the Government as, supposedly, the panacea for the problem of opposition among some local communities to new house building in their area. The theory was that if a financial incentive was given to councils and to communities for agreeing to build new homes, we would get a different attitude—we would have enthusiasm for new house building rather than hostility. And so the new homes bonus was launched.

The new homes bonus is a very expensive scheme. As the National Audit Office report demonstrates, it is costing £668 million in the current year, but that is due to rise to £905 million next year, to £1.1 billion in 2015 and on beyond that, because it is a cumulative bonus that is paid for a six-year period. I have given only the individual one-year costs. When we add in the cumulative costs derived from previous years’ awards, we find that by 2018-19—that is six years ahead, so at the end of the six-year period—on current trends, expenditure on the scheme would be £7.5 billion. It is a very, very expensive use of public money, which is mostly taken from local authorities. The Government talk about it as though it is a Government scheme, but they are putting in only £250 million a year, with the rest coming as a top-slice from local government funding.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

My right hon. Friend is making a strong argument about the new homes bonus, which is top-sliced from local authorities and given back to those who build. On other policies, such as empty homes and retrofitting, local authorities that have had their income reduced substantially, and are in low-demand areas like mine and unable to build new homes, encounter a perverse incentive, whereby a slew of issues, such as empty homes and dealing with the private rented sector, cannot be dealt with. The money is simply given to authorities that are cash rich and are building more homes, and it is not really in their interests to build any more because they have got enough money.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich 6:30 pm, 2nd July 2013

My hon. Friend makes a very good point. The NAO made an absolutely damning comment—I am astonished that the Government have not looked at this one sentence and said that they clearly need to reconsider the scheme. It is, quite simply:

“We found no association between individual local authorities’ planning application approval rates and their numbers of homes qualifying for the Bonus.”

There we have it: the NAO can find no correlation between the granting of planning consent and the awarding of the bonus, yet that is what it is supposed to do—it is supposed to incentivise councils to improve their performance in granting planning consent. No wonder the Government are embarrassed.

Rather than doing what they ought to by carrying out a thorough and quick review of the scheme and winding it up if it is proved to be as ineffective as the NAO indicates, the Government have done another extraordinary thing and announced in the spending review last week that they will take £400 million of new homes bonus money and transfer it to local enterprise partnerships. It is not their own money—only £250 million is Government money, and the other £150 million would otherwise have been paid to local government. It will now go to the LEPs. Whatever happened to localism? I thought the Government’s mantra when they came into office was that they would allow more decisions to be taken locally. This decision muddies the waters and it will be even more confusing to work out where the money goes.

As my hon. Friend Graham Jones pointed out, there is already gross inequality between different parts of the country, many of which are contributing to the new homes bonus and getting nothing out of it while others, which have done nothing to improve their housing performance because they already have a high demand for housing and because it is already been built in those areas, benefit from the scheme. It is a most extraordinary scheme and it will be made even more opaque and confusing. Clearly, such a scheme has no prospect of achieving the incentive effect it was supposed to achieve.

Photo of John Healey John Healey Labour, Wentworth and Dearne

My right hon. Friend has put his finger on it. There is not an economic rationale for the policy, but a political one. Essentially, it is a stealth redistribution from poor areas to wealthier ones with a more active, buoyant and successful housing market.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

My right hon. Friend, as always, is very acute and he realises that this is a political move. The change is being introduced with no analysis and no evidence base—it is a political move that will have significant redistributional consequences in favour of some areas at the expense of others, paying no regard whatever to the principles of localism that the Government used to proclaim.

Photo of John Healey John Healey Labour, Wentworth and Dearne

May I tempt my right hon. Friend to reflect on one other aspect of the subject he just touched on? If his figures are right—I am sure they are—by 2017-18 this will cost £7.5 billion in total. That cannot be described as a top-slice from local government as it represents almost a third of the total local government expenditure in England. The proposal will fundamentally destabilise the whole system of local government funding within five to six years.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

My right hon. Friend makes a valid point, and it is a further argument for the serious and thorough evidence-based review of the subject that the Government ought to be undertaking. It is shameful that they are continuing to tinker with this failed scheme at a time when there is such an urgent need for the limited funds that are available to be used to best effect to stimulate investment in housing and to have the beneficial economic effects that my hon. Friends and I have been talking about.

The amendment specifically calls for a review of the operation of REITs and their interaction with the housing market. That is important because the scale of investment necessary to secure the level of house building and home improvement we need will require a combination of public and private investment. We must therefore have measures that encourage more private investment in both private and social rented housing. Institutional investment in private renting has been a bit of a holy grail for many years for people who saw it as a way of ensuring an improved private rented sector driven by responsible investors who would be keen to see high standards of investment and management.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

I am grateful to my right hon. Friend for giving way once again. Will he congratulate my local Labour authority, Hyndburn borough council, which has private institutional investors? The council has got a pension company to invest in private lets to the tune of £14 million and is using that capital to regenerate and provide affordable housing for rent for people who need it. Does he not agree that there should be more such schemes in the UK? That flagship programme has appeared on many television programmes and I am proud to say that a Labour authority is doing it.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

My hon. Friend makes a valid point and highlights the fact that throughout the country, there are a series of partnership agreements between the public and private sectors which are successfully helping to attract increased investment to meet social needs. That is what we need to encourage. I very much welcome amendment 57 because it calls for precisely that: it calls for a review of the REITs programme and how it interacts with the housing market. The thinking behind it is entirely about how we can ensure more effective blending of public and private finance to meet housing needs.

I have gone on quite long enough, so I will let others contribute. I conclude by saying that current policies are not working. We have a stagnant housing market, which is showing very limited signs of recovery. We have massive unmet needs., and we have huge economic problems which should be addressed by an expanded house building programme. I hope the Government will change course.

Photo of David Gauke David Gauke The Exchequer Secretary

It is a pleasure to return this debate to the amendments to clause 38 and schedule 18 of the Finance Bill before us. Before I discuss Opposition amendment 57, I shall say a few words about amendments 30 to 34, which are designed to ensure that clause 38 and schedule 18 work as intended. The clause and the schedule make improvements to the REITs regime. This year’s Finance Bill improves the REITs regime by allowing a UK REIT to treat income from another UK REIT as income of its tax-exempt property rental business. Therefore these amendments do not affect the policy, but rather ensure that it works as intended. The change would generate positive benefits for the REIT industry, and also meets the Government’s wider objectives.

Let me provide some background. During the technical consultation in February, stakeholders told us that the changes as drafted might not work quite as intended. HMRC has consulted further with interested parties, and we agree that minor changes are necessary to achieve the desired policy aims. The problem, as presented by interested parties, concerned the balance of business test, which requires that at least 75% of the REIT’s profits must come from a property business. Interested parties were concerned that in certain circumstances, a REIT that invests in another REIT might fail that test even though the lower-tier REIT derives all of its income from a property business. Consideration of the issue has revealed that minor amendments are required both to the new and the pre-existing legislation. These amendments together will ensure that the Bill’s changes correctly implement the intended policy, which is that profits of a property rental business comprising the new type of tax-exempt income do not include amounts attributable to capital allowances and other tax adjustments.

Turning to Opposition amendment 57, we have had a very broad debate this afternoon. Indeed, it has felt more like an Opposition day debate on housing than a debate on the clause and the schedule. The amendment proposes that the schedule shall come into force after the Chancellor has conducted a review of the interaction of REITs with the housing market, and I hope to address the issue of REITS and the housing market in my remarks.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I hoped the Minister would understand that the nature of the debate reflected Opposition Members’ genuine concerns about the Government’s record on housing. But specifically on REITs, when he responds to the arguments in favour of the review, will he be able to say something more about the future of REITs and social housing?

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Lady can rest assured that I will address that very point, if not necessarily every point made in the wide-ranging debate.

The proposal set out in amendment 57 is that

The Review shall consider…tax measures in place to support house building; and…what steps HM Government have taken to support house building” but the Government’s view is that there is no need to postpone the changes to the REIT regime, as the proposed review would add little value at this time. There is something of a routine here of the hon. Lady requesting a review and me turning it down, and she asks so nicely that I feel almost pained in doing so, but the reason we believe in this case that a review would add very little is that there are not yet any REITs with substantial housing assets on the market, so it is too early to assess any interaction of REITs with the housing market. We do not accept the amendment and I urge her not to press it to a vote.

The new changes to the REIT regime are an example of tax measures to support house building. As REITs represent the supply side of the property market, any improvements to the REIT regime are expected to have a positive impact on the market.

The hon. Lady made a couple of points on how the REIT regime works: the first, which I believe we touched on in Committee, was whether the regime could support people who want to own their own home. It is worth pointing out that residential REITs can provide accommodation only in the private rented sector, so they are not designed, nor could they be used, for the purpose of home ownership.

The second point, on which the hon. Lady intervened, was on the relationship with social housing and what role REITS could play in that sector. There was full consultation in summer 2012 involving a number of one-to-one and group meetings with interested parties in the social housing sector. The reality is that yields on, for example, affordable rents do not appear to be high enough to attract investors into that sector, but I assure her that discussions are ongoing with non-social housing entities and other interested parties to explore the possibility of residential REITs. If a workable residential model can be found, it might be possible to use it to further a move into social housing, and we certainly would not rule that out. At the moment there appears to be no interest in using REITs for those purposes, but we are entirely pragmatic about that.

We believe that REITs have a valuable role to play and we do not want to delay the implementation of the schedule while we conduct a review from which there is little to be gained. For those reasons, I urge the hon. Lady to withdraw the amendment.

We discussed wider housing policy, but I do not intend to be drawn into a lengthy, general debate on housing. I just point out that we announced £5.4 billion of additional support for housing in the last Budget, building on the £11 billion this Government have already committed to investment in housing over the spending review period. Last week’s spending round announcement confirmed a total of £5.1 billion-worth of investment to support housing in England from 2015-16 to 2017-18; £3.3 billion of that new funding is for affordable housing over those years and will support the delivery of 165,000 new affordable homes in England over the next three years. I can also point out some of the recent housing numbers. Housing building starts in England rose by 4% in Q1 2013, seasonally adjusted. Housing starts are 15% higher than in the same quarter last year. Starts are now 62% above the 2009 trough.

Photo of David Gauke David Gauke The Exchequer Secretary

No, I want to give the hon. Lady a moment or two at the end of the debate to respond to the points that I make.

The amendments before us, alongside the changes that already form part of the Bill, show the Government’s continued support for REITs and the UK property sector. I believe the Government amendments will be welcomed by interested parties. The delay that would result from Opposition amendment 57 would be unfortunate and I urge the hon. Lady to withdraw it.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I find myself in the same slightly pained position that the Minister described. He said no so nicely, as he normally does, that I hesitate to come back with extremely critical comments. I am disappointed once again that he has not heeded our arguments, especially the argument for a review and a look at how the wider tax regime deals with housing issues.

As I said earlier, we did not seek in Committee to strike clause 38 or the schedule from the Bill, but we considered it opportune for the Government to consider a wider review. The Minister said that our debate had gone wider than real estate investment trusts. That is true, and it is because the Opposition are so concerned about the Government’s lamentable record on housing. I was disappointed that the Minister did not see fit to deal with some of the issues that were raised, particularly the criticisms arising from the work of the Treasury Committee on the Help to Buy scheme and National Audit Office report on the new homes bonus. I noticed also that the Minister was not tempted to respond to the concerns expressed by my hon. Friends about forward planning, housing strategy, how that would be funded, especially for people who require care and support, and accommodation suited to the elderly.

I am disappointed that once again the Government have come up with warm words, as I mentioned during the debate. Although the Minister said very nicely that he would not have a review, that is exactly the same mantra as we have heard from the Government all the way through the Bill. On every occasion when we simply wanted the Government to scrutinise their policies and report back to the House, they have refused to do so. For that reason, I unfortunately cannot accommodate the Minister’s request to withdraw the amendment. I can see that he is terribly disappointed but not surprised. I therefore intend to press the amendment to a Division.

Question put, That the amendment be made.

The House divided:

Ayes 227, Noes 301.

Division number 41 Justice — Clause 38 — Real estate investment trusts: UK REITs which invest in other UK REITs

Aye: 227 MPs

No: 301 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

More than four and a half hours having elapsed since the commencement of proceedings on consideration, the proceedings were interrupted (Programme Order, 1 July).

The Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).