Part of the debate – in the House of Lords at 2:30 pm on 12th May 2004.

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Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Shadow Minister, Treasury 2:30 pm, 12th May 2004

My Lords, I hope that Kate Barker thinks more clearly and speaks more independently of the Government on the MPC of the Bank of England than she does in this, frankly, muddled and flawed review.

Kate Barker's analysis of housing affordability and what drives house prices misses the main point, which jumps out at you from the chart of housing completions over the past 50 years on page 125 of the report. Between 150,000 and 200,000 new houses for sale have been completed every year since the late 1950s. That total has been very stable over the past 20 years or so. But the flow of new social housing built for rent by the public sector—councils or registered social landlords—is now down to a pathetic trickle. As the noble Lord, Lord Howie, pointed out in his fascinating historical excursion, it is now down to 21,000 new social houses per year. It was running at about 150,000 a year as recently as the late 1970s, certainly within my working memory, because I was a member of Oxford City Council's housing committee at the time.

If we are serious about tackling homelessness and housing crises in the high stress areas of London and south-east England, we must deliver far more affordable housing directly at the point of need, as the noble Earl, Lord Selborne, illustrated so clearly and expertly in his speech. Here I must differ in emphasis with my former city colleague, the noble Lord, Lord Lucas. Of course, increasing supply ultimately affects price, but so does reducing excess demand. There is not a shred of evidence that spraying estates of new executive boxes at a quarter of a million or half a million a time all over the green belts and flood plains of southern England will house key workers for our creaking public services or reduce the rate of house price rises any time soon.

Barker's key mistake is to assume that building only new homes for sale reduces house price growth. But building new social housing meets housing demand more directly. Much of the upward pressure on house prices comes from people being forced deep into debt to buy because they can find nothing to rent. There is no surprise there, of course, because new affordable housing has dried up and so much social housing has been sold off by the governments of the noble Baroness, Lady Thatcher, who I am sorry to see is no longer in her place, and her successors.

The Barker review's proposed additional 17,000 to 23,000 social houses a year barely scratches at the surface of our affordable housing crisis, as it is called by Home Truths, backed by the Town and County Planning Association, the Joseph Rowntree Foundation and many other leading housing associations. Barker believes that her recommended targets of building 17,000 to 120,000 extra new private sector houses for sale a year will cut long-term real house price rises to either 1.8 per cent or 1.1 per cent a year. Frankly, the evidence for that in her report is so thin that it is almost anorexic. That, in turn, undermines Recommendation 1, that the Government should establish a market affordability goal for house prices, which should be incorporated into the public service agreement framework.

Not content, of course, with just the national house price goal, which will be even more difficult to achieve than it is to define, Recommendation 5 goes on to say that every unelected regional planning body should,

"set its own house price target, plus sub-regional targets, which may include floors and ceilings".

Regional planning bodies and regional housing boards would be merged to create regional planning and housing bodies, which,

"will be responsible for managing regional housing markets delivering the regions' affordability target . . . and will continue to be responsible for the Regional Spatial Strategy".

The regional planning executive would, of course,

"require new appointments, including a chief executive".

That involves building bureaucracy, not houses. These new regional housing commissars could no more set regional house prices, let alone sub-regional floors and ceilings, than King Canute could stop the tide coming in.

Picture yourself as the chief executive of the new RPHB in York or Nottingham, watching house prices rise in your region by 50 per cent over the past year. What would you have done—torn up your house price target, changed your sub-regional price ceilings into floors or rung the Governor of the Bank of England, begging him to put up interest rates? Recommendations such as these are for the birds. They cut right across the grain of how markets work and they override democratically elected local authorities. For instance, we read in the report that within the current institutional framework at the regional level, no organisation has overall ownership of the regional housing market. Of course it does not; millions of individuals own it. No serious economist would ever write a sloppy sentence such as that.

Also, sadly, Barker has been nobbled by the Treasury in her refusal to end the nonsense of a 0 per cent VAT rate on new building, compared with a crippling 17.5 per cent rate on the reconstruction, renovation and improvement of existing homes. That is very interesting, because her report actually makes a very powerful case for applying VAT to newly built homes on greenfield sites. It says that it has credibility, would correct the distortion between new build and repairs, maintenance and improvement, would create a more efficient market for housing resources, and would enable the wider community to use VAT to share in development gain without undermining the ability of most landowners to prosper from land sales for residential use. Wise words, backing a long-standing Liberal Democrat commitment.

Why then do we suddenly get a screeching U-turn worthy of Tony Blair over the referendum? "No equalising of VAT rates after all", says Barker—"let's try a planning gain supplement". However worthy in principle, that to me looks like some of the 1976 development land tax, the 1973 development gains tax, the 1967 betterment levy or the 1947 development charge. Politicians love ideas such as those, but property professionals have grave doubts about whether they will work any better than their predecessors, when land owners just sat on the land and the system seized up.

By contrast, VAT at, say, 5 per cent on new housing is simple, straight forward, fair, impossible to evade and easy to collect. Indeed, in the section of the report that Barker, rather than the Treasury, wrote before the U-turn, she confirmed that levying VAT on newly built housing would have little direct impact on house prices and would lead to a reduction in land prices, and that,

"it would have the desired effect of extracting some of the development gain associated with land sale for housing development".

Some three and a half years ago I made the case for equalising VAT rates in this House. I received an encouraging and revealing response from the noble Lord, Lord Whitty. He called the present distortion,

"undoubtedly a significant perceived disincentive to refurbishment . . . However, at the end of the day, these are matters for the Chancellor . . . No doubt the taxation issue can be referred to at a later stage".—Hansard, 17/10/00; col. 970.]

We have reached the later stage; some three-and-a-half years on, we are no further forward. When will the Treasury lift its dead hand blocking this long overdue reform?

So VAT reform would help to bring unfit empty houses back into use. In total, there is not a housing shortage in this country. The problem is that too many of our houses are in the wrong condition, at the wrong rent or price, and in the wrong place. VAT reform would provide a major boost to social house building for rent and thus attack the crisis in affordable housing and help to keep prices down.

Most important of all, the Government must pursue a much more vigorous policy to promote economic growth, jobs and therefore housing demand in our less prosperous and less overcrowded regions. Building new towns all over southern England only reinforces regional inequality and makes overheating down here worse. Northern and Midlands cities have plenty of cheap housing, plenty of cheap office space, and the skilled staff to take far more government jobs for a start. Members on these Benches have already proposed in all seriousness to move a substantial chunk of the Treasury's operations to Liverpool. Why not follow that by moving most of our swollen Home Office head office to Newcastle? Some 1,300 Home Office civil servants say that they must have daily access to Ministers and Parliament. What rot. Why, for example, does the Prison Service need to have its headquarters in London? In response to the noble Lord, Lord Lucas, whom I thank for his interesting speech, this is not a question of moving bodily a quarter of a million people from southern England up north, but of stopping the steady drift of jobs, money and people down south—or at least trying to reverse the trend.

I believe that the Barker review is a great opportunity sadly missed. It is now time for the Government to act on the areas under their own direct control—VAT reform, far more social and affordable housing, and jobs to move out of London and the south-east to where they are desperately needed in the regions.