Use of money raised by infrastructure supplements

Local Government Finance Bill – in a Public Bill Committee at 4:00 pm on 9 February 2017.

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Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government) 4:00, 9 February 2017

I beg to move amendment 44, in clause 17, page 17, line 25, leave out paragraph (a).

This amendment would enable funds raised through the infrastructure supplement to be spent on housing.

In introducing the power to introduce an infrastructure supplement, clause 15 states:

“The purpose of imposing an infrastructure supplement is to raise money for expenditure on a project that the authority is satisfied will promote economic development in its area.”

Amendment 44 is completely in line with that stated purpose as it deletes clause 17(3)(a), which explicitly prevents relevant authorities from spending the sums raised through an infrastructure supplement on housing.

Given the fanfare that accompanied the long-awaited housing White Paper earlier this week, it might surprise some observers that, while Ministers claim to be bold and radical in tackling the housing crisis, they are failing to take this opportunity to enable mayoral combined authorities and the Greater London Authority to invest in housing, which would in turn promote economic development. Sadly, it is all too familiar for those of us on this side of the Committee who know that Ministers’ rhetoric does not always match reality.

Committee members know that I like to be pithy and get to the point, and I have checked the dictionary so that I can be precise in my use of language on the amendment. The Oxford English dictionary defines infrastructure as:

“The basic physical and organizational structures and facilities (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise”.

There is nothing in that that makes me think that housing might be excluded from any appropriate definition of infrastructure spending. Increasingly, businesses see housing as vital to their future growth.

There may be some Committee members who, for some reason, do not take an interest in London’s affairs. They might not have come across a wonderful business membership organisation called London First. Its mission is to make London the best city in the world to do business in. As a London MP, I have always known London First to do an excellent job in reflecting its members’ priorities. Of the two major campaigns that London First is currently running, one relates to the urgent need for action to expand airport capacity in London and the south-east, and the other is a campaign to double house building in the capital to 50,000 homes a year. As London First explains,

“the capital has a serious housing shortage that is starting to limit its competitiveness. Substantial increases in house prices and rental costs mean people from all walks of life are struggling to find accommodation.”

It worked with the Confederation of British Industry and the Federation of Small Businesses to develop the campaign. It is worth dwelling on several of the key findings of their survey of members. Some 68% of the members who responded to the survey were worried about the impact that a shortage of housing and high prices is already having on their ability to recruit and retain staff; 75% were concerned about the future impact that rising housing costs will have on their ability to recruit and retain staff; and 70% believe that the housing crisis will affect London’s future economic success.

The campaign was informed by research carried out by the Centre for Economics and Business Research, which found that consumer spending would be almost £3 billion higher since 2005, if London accommodation costs had risen by the rate of inflation, while the economy is missing out on almost £1.2 billion a year, as people spend money on housing costs that would otherwise be spent on goods and services. So the housing crisis affects the economy and businesses in two key ways. People are spending a greater proportion of their income on their accommodation, meaning that they are not spending it on other goods and services. Secondly, the cost of housing is now so high that even some people with incomes above the national average are no longer able to live near their jobs. The CEBR found that businesses would have been able to support 11,000 more jobs if housing costs were not so high.

That is not simply a problem for London’s residents and businesses. House prices have risen in all regions, while the house price to earnings ratio continues to soar. Last October, the CBI published its report on housing, “No place like home: delivering new homes for a prosperous Britain”. It argues that not only is the housing crisis affecting the ability of businesses to recruit and retain staff but it is hitting productivity. The average time spent travelling by commuters has gone up 55 minutes, according to analysis by the TUC, while the number of commuters travelling more than two hours a day has gone up by 72% in the last decade. That reduces the pool of talent available to recruiters, and limits individuals’ access to the jobs available—all due to the growing crisis in access to affordable housing. So it is interesting that one of the CBI’s key recommendations is that the National Infrastructure Commission should include housing as a strand in its forthcoming national infrastructure assessment.

It is not just those key business membership organisations that are advocating that—local government is asking for it too. I am grateful to the Local Government Association for its briefing ahead of our discussions today, in which it points out that it has consistently argued for infrastructure to be given as wide a definition as possible—crucially, in the context of the amendment, including housing. Once again, Ministers appear to be missing the role that local government could play in solving our housing crisis, if only they were given the proper tools to do so.

The Secretary of State apparently wants to increase the number of homes built to between 225,000 and 275,000 a year. Yet in only two years since the second world war has the private sector delivered more than 200,000 homes a year. The last time was in 1968, when a Labour Government were in place, and the average number of homes built by private developers annually in the last 40 years is 130,000. If the Government are to meet their ambition, surely we must harness the considerable talents of those in local government.

When we had the pleasure of sitting on the Housing and Planning Bill Committee together last winter, the Minister blocked one of my amendments, which would have lifted the council housing revenue account borrowing cap. In his initial reaction to the housing White Paper, Councillor Martin Tett, the Conservative leader of Buckinghamshire County Council and housing spokesperson at the Local Government Association, said that

“councils desperately need the powers and access to funding to resume their historic role as a major builder of affordable homes. This means being able to borrow to invest in housing and to keep 100 per cent of the receipts from properties sold through Right to Buy to replace homes and reinvest in building more of the genuine affordable homes our communities desperately need.”

Hence the reason for tabling the amendment.

Sean Nolan, the director of local government at the Chartered Institute of Public Finance and Accountancy, who has given evidence to our Committee, said:

“There are still vital roles for housing associations and councils in providing affordable housing for rent or to buy, but to do this they must be allowed greater freedom and flexibility to build new homes and replace existing stock reduced under right to buy, something that has been denied them in recent years. Social housing is a necessary and long term investment that requires certainty and full control of the assets.”

One thing the Committee might agree on is the limited value of the book by the right hon. Member for Sheffield, Hallam (Mr Clegg) on the coalition years. He did, however, reveal one interesting little nugget. In an interview with The Guardian when he was promoting his book, he was asked if it was true that the then Prime Minister, David Cameron, had said no to more social housing because it turned voters away from the Conservatives. He said

“It would have been in a Quad meeting—

that was the committee of Cameron, the right hon. Member for Tatton (Mr Osborne), the right hon. Member for Sheffield, Hallam, and Sir Danny Alexander, the former Chief Secretary—

“so either Cameron or Osborne. One of them—I honestly can’t remember whom—looked genuinely nonplussed and said, ‘I don’t understand why you keep going on about the need for more social housing—it just creates Labour voters.’ They genuinely saw housing as a Petri dish for voters. It was unbelievable.”

On that point, at least, I have to say I do agree with him.

We might have expected a change under the new Prime Minister, the self-professed champion of the “just about managing”. However in the White Paper there still appears to be no serious role for councils to build new homes to tackle our housing crisis. The amendment would go a small way towards redressing that gap.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I thank the hon. Gentleman for his explanation of the amendment. I do not agree with all he said, particularly in relation to the White Paper and our record in recent years on building new council housing, bearing in mind that more council housing has been built in the past seven years than was built in the 13 years of the Labour Government. That said, the amendment would remove the reference to housing in the list of exclusions at clause 17(3), allowing funding raised for the infrastructure settlement to be spent on housing.

We are clear that the supplement should deliver direct benefits to local businesses and as such should be focused on delivering infrastructure that will create a better economic environment. The supplement expenditure should also be additional—that is, spent on infrastructure that otherwise would not get built. That will be crucial in engaging with businesses locally and securing their support for any such proposals.

Clause 15 makes clear that the supplement must be spent on infrastructure that will promote economic development. That will enable Mayors to invest in a wide variety of projects—for example transport, digital and broadband—that have the potential to make significant improvements across an area, and to support broader investment that will best serve the local business community.

The Mayor is directly elected, as we have discussed, by the local people and so has a mandate to decide what best serves the interests of the community. In many cases, we would expect the infrastructure delivered through the supplement to have a beneficial impact on housing delivery anyway. Crossrail, which was funded by a business rate supplement, as we have discussed, will enable an additional 57,000 new homes to be built and help create £5.5 billion of additional value to residential and commercial real estate along its route between now and 2021.

The hon. Gentleman may wish to note that the Government already support housing infrastructure in a range of ways, including the £3 billion home building fund, which provides loans to house builders of all sizes. We also give capacity funding to local authorities to support the delivery of large housing sites and housing zones, and we have recently announced a £2.3 billion housing infrastructure fund. This is grant funding for local authorities to support housing delivery on sites where viability is marginal and it has the potential to unlock up to 100,000 units in the areas of greatest housing need.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

On that point, does it not go against the spirit of localism and devolution to expect local areas to come to the Government with a begging bowl for housing funding?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

All I can say is that we are damned if we do and damned if we do not. If we do not offer up significant funding streams to support projects for local areas, Opposition Members criticise the Government. When we do offer up significant funding—the £2.3 billion in the housing infrastructure fund is indeed significant—we are again criticised, so I am not sure what the Opposition want. I would encourage areas, as I hope the hon. Gentleman will encourage his area, to look to the fund to unlock new housing that is badly needed across the country.

Having reflected on the points that have been made, I am not convinced that amendment 44 is worth supporting. I therefore ask the hon. Member for Harrow West to withdraw the amendment.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I have heard what the Minister has said. I have also heard the response of my right hon. Friend John Healey, who speaks on housing for Her Majesty’s loyal Opposition, who described the housing White Paper, quite accurately, as less a White Paper and more a white flag. That encapsulates the reality of the Conservative party’s approach to housing. The Minister has missed an opportunity by rejecting amendment 44 out of hand, but I do not seek a Division on the amendment at this point, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

This is a somewhat confusing clause, because it is entitled “Use of money raised by infrastructure supplements”, but what it goes into, in subsection (3) for example, is what the money cannot be spent on. Now, I understand that. I listened to the Minister—as an aside, I have to say that I was not convinced by what he said about housing and I hope he will reflect on it, but I understood what he said. This is part of the forbidden list, which runs to six factors in subsections (3)(a) to (f). However, to come back from that a bit, we have a problem, in that clause 36—definitions and interpretations—does not tell us what infrastructure is. I hope the Minister can tell me, either now or later, where in the Bill the definition of infrastructure is, because I cannot see it—it might be there, but I cannot see it. At the moment, we seem to have a Bill that does not say what infrastructure is and says only what the money cannot be spent on.

I am aware that clause 33—we will get to it later, Sir David, but I have to refer to it now, as it is very germane—refers to the guidance that can be given by the Secretary of State on what money can be spent on. The Minister gave us a little indication a few moments ago, because he referred to infrastructure projects—the use of the money that would be permitted under clause 17—to create, to quote him, “a better economic environment”. He then said something that, again, I cannot see in the Bill—he may correct me; it might be there, and if it is not, it sounds as if the Secretary of State would be minded to have it in the guidance. The Minister said that the projects would have to be “additional”, and that the money would be spent, to quote him again, on something that would “not otherwise get built”.

The Minister, like me, is a Member of Parliament for the west midlands, although I am in the urban core of the west midlands, directly under the combined authority. Nuneaton is in Warwickshire, which is a bit hokey-cokey about the combined authority, with its local enterprise partnership and so on, but Wolverhampton is squarely in there. As a west midlands MP who is astute about what is going on, the Minister will be aware that a subject of political debate in the mayoral elections for the West Midlands Combined Authority is whether it should buy the M6 toll road.

Clearly, that would not be “additional” because it already exists. It would assist economic development of the west midlands and, arguably, the wider country. It is not specifically on the forbidden list under clause 17(3) as I understand it. It is a transport project, so it is not housing, social services, education services, services for children or health services. It is not a service the authority provides

“in the discharge of functions imposed by or under the Planning Acts”.

It is transport and most people would say that is infrastructure.

Clause 17 tells us what the money cannot be spent on, but it does not say what infrastructure is, nor does clause 36 in the interpretation. We must then rely on the indications the Minister has given today but, with all respect, he is not the Secretary of State, and there will probably be consultation. We must also rely on clause 33, which we will come to, for guidance. What is in clause 17 is all a bit vague and I urge him overall—not perhaps in clause 17, but in part 3 of the Bill—to be a little clearer about what the Government think infrastructure is and what a combined authority can spend money on as opposed to simply saying what they cannot spend it on.

The guidance seems to me to be another centralising theme. A combined authority can have an infrastructure levy, but the Secretary of State will say what it can and cannot be spent on because guidance will effectively become mandatory. Where is local control there?

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution) 4:30, 9 February 2017

The points raised by my hon. Friend the Member for Wolverhampton South West are absolutely key to the freedoms that Parliament says it is keen to give away to local government. Clause 17(3)(a) to (f) lists the items the money and infrastructure supplement cannot be used on. I would welcome an intervention from the Minister if he can provide clarity. This feels as if he is trying to tell local authorities that, however tight their budgets, they cannot use the supplement to fund council services that should be funded elsewhere, which is why it refers to social services, education services, services for children and health services as opposed to schools, health centres or day care centres.

Will the Minister clarify whether this is “services”—the revenue element of service provision in the public sector—or a restriction on building capital projects such as new schools and health centres?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I pick up on the point also made by the hon. Member for Wolverhampton South West about the definition of infrastructure. The hon. Gentlemen are quite rise to raise that. First, we are leaving to the Mayor’s judgment what type of project might deliver appropriate infrastructure that promotes economic development. The term “economic development” is key.

As we have said, in making that economic development happen we have talked about transport infrastructure, digital networks and so on and so forth that will deliver those types of economic benefits and economic growth. To reiterate, we are leaving it to the Mayor’s judgment. We can safely say, in that context, that we would not expect the type of project the hon. Member for Oldham West and Royton is suggesting, such as a children’s centre, to be funded.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

The way the Bill is worded will only make lawyers wealthy and councils frustrated, because subsection (3)(a) is very clear that the money cannot be used for housing—we know what a house is—but paragraphs (b) to (f) are less clear, including with regard to social services. There is a difference between facilities and service provision within those facilities. The restrictions on what the money can be used on in the Bill include social services, education services, services for children and health services, but not building schools, Sure Start centres, youth centres, day care centres or healthcare centres.

I sought clarification from the Minister about exactly what that means. The response was that it will be up to the Mayor; there will be local discretion. However, there is not local discretion—there is an explicit list excluding what the Mayor will not be able to spend the money on. Is there an in principle objection to using the supplement funds for revenue costs? There is a degree of logic to that; it is not the supplement’s intention. However, owing to the way the Bill is worded, I suspect that any council or Mayor could take the infrastructure supplement and go on a school building programme. I think many communities would welcome that. Many communities would probably not welcome the inability of that same Mayor to provide housing with that fund, or even, as part of a wider development, to potentially provide gap funding for a housing requirement as part of a mixed-use development.

For a Minister who has tried to promote economic growth to restrict Mayors in that way makes no sense whatever. I ask him to go back and speak to the civil servants, and to clarify before the next session—maybe even in writing—whether subsection (3)(a) to (f) is intended to restrict the revenue use of that infrastructure supplement, or the intention is that it is not to be used to build such facilities. Do the Government intend to come back with an amendment to clarify the wording?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Elected Mayors of mayoral combined authorities will have a strategic overview of their areas, so will be well placed to deliver projects that have a significant effect on local economies. The infrastructure supplement provides a unique opportunity to deliver infrastructure investment at a significant scale to benefit local businesses and communities. As I said earlier, that will be infrastructure that would otherwise generally not be built. Clause 17 sets the parameters for how many ways can be used to help to ensure that that is achieved.

Naturally, the supplement can only be spent on the project for which it has been levied. The sums received can be used to pay off loans secured to pay for the project to which the supplement relates, which may well answer one of the questions asked by the hon. Member for Wolverhampton South West on the west midlands and the idea of some sort of involvement in the Birmingham northern relief road, which I think he was referring to.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I was specifically referring to the M6 toll. If the M6 toll is taken over and is made free, that will create economic development through the west midlands urban centre proper because it will take pressure off the current M6; it is not a question of a northern relief road. The Minister has mentioned again stuff that would not otherwise get built. I am getting the message from him, but I cannot see that in the Bill.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

When I say Birmingham northern relief road, I mean the M6 toll. That was its previous name when the project was brought forward and delivered under the Margaret Thatcher Government during the late 1980s and subsequently built during the 1990s with private finance, as the hon. Gentleman will recall.

The point is about a Mayor of a particular combined authority area. I think most businesspeople in the west midlands will think that Andy Street is the right man to undertake that role, because of his extensive knowledge of the business world and how to get the west midlands economy moving. If he were elected Mayor, he would have to decide whether it was worth while to undertake projects such as opening that toll road to general traffic, which would have an economic benefit.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

No, I will make some progress. So I hope that clears that point up.

As we have said, the money raised cannot be used to provide existing council services, such as social care. The clause provides a list of areas of expenditure that are excluded from the infrastructure supplement, and it includes provision for the Secretary of State to amend that list through regulations. Any such regulations would of course be subject to the affirmative procedure. There are also provisions to enable the Mayor of London to channel funding through the Greater London Authority’s functional bodies, such as Transport for London. The rest of the clause recognises that projects may have other funding streams, including from lower-tier authorities.

The hon. Member for Wolverhampton South West insinuated—I think when we debated amendment 44—that I may not be interested in housing in terms of infrastructure. I reassure him that I am interested in housing, which is extremely important. That is why the Government have set out significant measures in our White Paper that we are looking to consult on. He mentioned reflecting on the debate about amendment 44. I reflect on all the clauses that we debate, but to be clear, the arguments that were put forward did not convince me that it was worth supporting that amendment. I clarify that so the Committee and the hordes of people who no doubt will read Hansard understand that the Government are absolutely committed to delivering new housing. On that basis, I ask the Committee to support clause 17.

Question put and agreed to.

Clause 17 accordingly ordered to stand part of the Bill.

Clauses 18 and 19 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clauses 20 to 31 ordered to stand part of the Bill.

Clause 32