My Lords, the amendment would help to solve three problems: the urgent need for more social housing; the lack of growth in the economy; and the need to boost the construction industry. It is supported by a number of organisations: the Local Government Association, of which I declare my vice-presidency, Shelter, the Home Builders Federation, the Federation of Master Builders, the Chartered Institute of Housing, the National Housing Federation, London Councils and, crucially, the National Federation of Arms-Length Management Organisations, ALMOs. All urge a relaxation on borrowing by local authorities to enable them to build up to 60,000 more homes over five years.
Last year saw the lowest house completion rate since 1923. The Government urgently need to get more social homes built and there should be absolutely no reluctance to build them. The shortage is now being exacerbated by the underoccupancy or bedroom tax. Many people on low incomes want to move to a council home with fewer bedrooms but too many are unable to do so because the homes do not exist. The numbers on housing waiting lists, the rising demand for temporary accommodation and high rents in the private sector all point to the social and economic benefit of building more homes at below-market levels. This amendment would help to build the homes that people want to move into.
The question is whether it is affordable for local government. Councils have the capacity to build more homes, given that council housing is now self-financing. They could raise £7 billion. This could be done if the Government removed the borrowing cap on housing revenue accounts, relying instead on a prudential borrowing code to guarantee that only sustainable investment gets the go ahead. Many councils have successfully used prudential borrowing and have shown that they can manage such borrowing without risk. The Local Government Act 2003 already empowers the Secretary of State to cap any local authority which undertakes risky borrowing.
I understand the need for the Government to be careful about public borrowing levels. However, relaxing the housing borrowing cap need not be counted as public sector borrowing any longer. The UK uses a much wider measure of public debt than other countries. Council housing is a trading activity and international regulations already permit this to be discounted from government borrowing levels, although unfortunately the UK does not currently adopt such an approach and I remain puzzled as to why it does not. Council housing has been self-financing since April last year, and that is welcomed. The average debt on a home is
just over £17,000. There is clearly scope for additional borrowing against the asset represented by the existing housing stock.
This is an opportune time for the Government, with the support and input of partners such as CIPFA and the Local Government Association, to produce a new, additional, prudential borrowing code, focused on borrowing undertaken specifically through the housing revenue account. The prudential code framework is a successful model that has worked well and supported councils to manage their borrowing sensibly. A similar model alongside strong backstop provisions already in legislation—the 2003 Act—would be an effective safeguard on borrowing through the housing revenue account.
I spoke on this matter in Committee and this new clause differs slightly from that tabled in Committee to emphasise that local authorities must have regard to government guidance such as a new prudential borrowing code. Ministers raised concerns in Committee that removing the housing borrowing cap could jeopardise the Government’s deficit reduction programme. This amended new clause, alongside a new, tailored prudential borrowing code, discussed by providers and authorised by HM Treasury, would offer a compromise approach to the Government that could address the concerns of Ministers.
Advice has been received that there would be no adverse reaction from the capital markets. This is because the increase in borrowing would be comparatively low and, in any case, the sums involved fall well below the size of the OBR’s forecasting errors on local government debt. This amendment offers a major opportunity to build more homes, to cut waiting lists, to get builders building and to drive growth. I beg to move.