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New Clause 10 - Removing the housing borrowing cap

Growth and Infrastructure Bill – in a Public Bill Committee at 4:30 pm on 6th December 2012.

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‘(1) The Localism Act 2011 is amended as follows.

(2) For section 171 substitute—

“171 Amount of housing debt

(1) A local authority shall determine and keep under review the amount of housing debt held by that authority.

(2) A determination under this section must have regard to the duty to determine an affordable borrowing limit under section 3 of the Local Government Act 2003 (duty to determine affordable borrowing limit).

(3) A determination under this section must have regard to any guidance issued or approved by the Secretary of State.

(4) A local housing authority may not hold debt in contravention of a determination under this section.

(5) In this section “housing debt”, in relation to a local housing authority, means debt—

(a) which is held by the authority in connection with the exercise of its functions relating to housing and other property within its Housing Revenue Account, and

(b) interest and other charges in respect of which are required to be carried to the debit of that account.”.’.—(Roberta Blackman-Woods.)

Brought up, and read the First time.

Photo of George Howarth George Howarth Labour, Knowsley

With this it will be convenient to discuss amendment 114, in title, line 3, after ‘land;’, insert

‘to make provision about the powers of local authorities to hold debt in relation to housing;’.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

I will deal quickly with amendment 114, which would change the long title of the Bill to extend its scope to the measures in new clause 10. The new clause would enable local authorities to borrow to provide housing, boost growth and stimulate house building. It was tabled to test the Minister’s thinking about such measures to promote house building.

Essentially, the new clause would enable councils to borrow on the basis of housing assets that have been transferred to them. It would amend the Localism Act 2011 by removing the provision imposing a centrally  determined cap on borrowing for housing. That was another way in which the Localism Act was a misnomer, because it is profoundly anti-localist to restrict the—very prudential—borrowing against assets by local authorities to promote and support house building. The Under-Secretary is on record all over the place about the critical need to build more houses, so I seriously ask him why, in the context of this debate, our proposed measure cannot be allowed or even considered by the Government.

We have been told by the Local Government Association that the removal of the ceiling would lead to the creation of 60,000 new homes and more than 100,000 new jobs. In fact, the effects of the new clause would be so positive that the “Let’s get building” report states that it might contribute as much as 0.6% to GDP. It can hardly have escaped the notice of Committee members that our GDP is in a rather difficult situation at the moment: it is completely flatlining. The Government appear to be absolutely desperate to introduce any measures that will promote economic growth. The Local Government Association have brought a measure to the Government that would enable them to more than double the projected growth in the economy over the next year, so we really wonder why they would resist its suggestion.

The UK Contractors Group and Get Britain Building have also argued in some detail that for every £1 spent on building, on average 92p remains in the UK. For every £1 spent by the public sector, 56p returns to the Exchequer, of which 36p is direct savings in tax and benefits. More than 60% of construction employees are low-skilled, with relatively limited alternative employment opportunities. The Government have a key role because, historically, they represent 30% to 40% of construction demand. Given such benefits, has an analysis been made of the net effect of the policy introduced under the Localism Act?

The Bill is desperately short of measures that will actually have an impact on the economy and produce growth, so I am interested to hear whether the Minister will support this measure. At the very least, I hope that he will take it away and seriously look at it to see whether it is something that the Government could support in due course.

Photo of Nicholas Boles Nicholas Boles The Parliamentary Under-Secretary of State for Communities and Local Government

I hope that it has been clear throughout the time that we have spent together that my chief aim in the Committee has been to provide satisfaction to the hon. Lady, and, where I am not able to do that, to at least provide her some consolation. Unfortunately, however, the Government cannot accept her proposal. I remind the Committee of the wise words of the Prime Minister when recently he spoke of the party of which the hon. Lady is a fine representative as being

“the party of one notion: more borrowing.”

It is therefore no surprise that Labour Members would table a new clause that proposes to remove all control on borrowing, remove all control on the deficit that they bequeathed to us and put at risk the Government’s first priority, which is to reduce the deficit that puts our economic future in grave peril.

I remind the Committee that section 171 of the Localism Act provides powers to the Secretary of State to set a limit on the amount of housing debt each stockholding local authority can hold. That was necessary because the self-financing settlement, which was successfully  concluded in April this year, gave local authority landlords direct control over a very large rental income stream and therefore the potential to increase borrowing beyond what we as a country can afford.

I note that the hon. Lady’s proposal seeks to bring housing debt into line with other local authority debt, governed by the prudential code. Although I can understand why that might appear fair, borrowing arising from self-financing must be affordable within national fiscal policies as well as locally—something that the prudential borrowing rules do not address.

I also remind the Committee that, although we have set a limit on housing debt, the vast majority of stockholding authorities—139 out of 167—are not at their limit and collectively can increase borrowing by a further £2.8 billion. They could use that funding to invest in their existing stock or to build new homes, and we encourage them to look responsibly at such opportunities. I hope that I have made it clear why such limits are important and that the hon. Lady is now willing to withdraw the clause.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

I rise to speak very briefly, because I think the Minister’s justification of his position is, frankly, threadbare. He said his chief aim was to promote the satisfaction of my hon. Friend the Member for City of Durham, but he has proved that he is simply not up to it, so I want to give him the chance to think about this a bit further and come to a solution.

Ultimately, if one of his principal aims is also to increase the housing supply, as he has been saying in various places recently, the new clause is a sensible way in which he can do that. It does not, as he has said, remove all control, because, as he acknowledged, the prudential code would continue to apply and that code would set a maximum limit on local authority borrowing. Current local authority borrowing—the most recent figure that I have is for March 2011—is 3% of GDP. That is a great deal lower than it used to be. The LGA provided a briefing note pointing out that local government debt was 8% of GDP in March 1991, so there has been a dramatic reduction over the intervening 20 years.

If new clause 10 was accepted, local authorities could borrow an additional amount—not £2.8 billion, which, as the Minister rightly highlighted, is possible under the current framework, but £4.2 billion. That would be enough to stimulate a programme of 12,000 extra homes a year over the next five years—some 60,000 homes. That is hugely important in meeting housing needs and in bringing growth and stimulus back to the economy.

If the Minister accepted the new clause, he could at least, with some comfort, say, “I have been dealing with a Bill that is genuinely about growth.” Frankly, the one thing that was pretty clear through all our interesting debates is that the Bill will have little impact on growth in the British economy. This measure, however, could have a substantial impact.

The Minister is a bit confused about housing. I read the speech that he delivered to the TCPA. He waxed lyrical; he talked about a journey; and he went to some interesting places, such as Letchworth, to which my hon. Friend the Member for City of Durham referred. He went on to Edinburgh new town to show that he was not unaware of what goes on north of the border. He talked in poetic terms about some of the principles of good housing and good planning. He referred to  Letchworth and talked about the golden rule that was applied there to ensure that housing and the countryside could be combined, with 12 houses to the acre. He also said how wonderful the planning of Parker and Unwin and the new town pioneers was in coming up with that golden rule.

I was therefore a little surprised to see, two pages later in the speech, the Minister denouncing my noble Friend Lord Prescott for having had a density target of 30 homes per hectare. The Minister said how wonderful it was that the Government had got rid of that disgraceful density obligation. I have to say to him that unless my mathematics are wrong, 30 homes per hectare is exactly the same as 12 homes per acre. They are numerically the same. As he is probably as Eurosceptic as any other member of the Conservative party, I understand why he is not comfortable with hectares, so I assume that that must have been what confused him.

Photo of George Howarth George Howarth Labour, Knowsley

Order. I think the right hon. Gentleman has made his point, but I am not entirely certain what it has to do with debt.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

It is entirely to do with stimulating the economy through house building. If the Minister gave a little more attention to the details and perhaps spoke a little less poetically but ensured that he got his facts right, we would get a lot more houses built because of the new clause, and they would be built at an appropriate density of 30 homes per hectare. I hope that the Minister will now agree that the new clause should be added to the Bill.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government) 4:45 pm, 6th December 2012

I really do not want to intrude on the Minister’s grip of hectares and acres and not knowing the difference, but perhaps he will be familiar with the difference now.

The new clause was tabled to test the Government’s thinking, because the LGA came forward with such a strong proposal. It is clear from the Minister’s response that the Government do not trust local authorities to borrow sensibly, even if they want to borrow to build houses and stimulate the economy. As I said, we have heard the Minister waxing lyrical about the need to build more houses—he used lots and lots of words—but he does not appear to be delivering the means to local authorities. I implore him to go away and think again. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.