My Lords, I rise to speak to my Amendment 59ZA, which proposes a new clause after Clause 63. We now move in earnest to the issue of financing the extension of right to buy. We have had a long debate about the extension of right to buy under the voluntary scheme for housing associations and we now consider how this will be financed. In moving this amendment, I should declare again my interest as president of the Local Government Association and chair of Peabody.
The issue we have been grappling with is that, whatever people may feel about the extension of the right to buy, there is deep disquiet, as we have heard from all parts of the House, about the mechanism for financing that extension. This is a crucial issue because it concerns a lot of people. Given a choice, everybody, including perhaps the Minister, would want to decouple these two policies that have been put together: the extension and the high-value sales. My amendment would enable that to happen without a huge additional burden on the government deficit.
My amendment would replace grant funding of the discount in voluntary right to buy with an equity loan. That equity loan would sit alongside the current right-to-acquire discount that is available for housing association purchases. The loan would be similar in kind to that of Help to Buy for private, newbuild sales: it would be a loan that stands behind the mortgage as security and is interest-free for five years, after which a lower rate of interest is paid. The right-to-buy loan would be funded by the Government. As we discussed in the last Committee day on this Bill, equity loans are regarded as financial instruments and therefore score as debt in the Government’s accounts but do not count towards the annual deficit, in contrast to direct funding from government. The coalition Government approved a budget of just under £10 billion to support Help to Buy up to the year 2020, so already a significant amount of money has been set aside to cover equity loans. In this instance, the equity loan would be up to
the discount that is available under the current right-to-buy policy for local authority stock. Therefore, it would replace the grant funding that is currently proposed.
I put forward this amendment for the following reasons. First, under the current proposals, as a number of noble Lords have already said, a central government policy is being funded by a levy on local government. The recent report of the House of Commons DCLG Select Committee, an all-party committee, rightly took exception to this, arguing that if the Government want to do something, they should pay for it. Funding the discount in the way proposed in my amendment would address this issue: local government would no longer be required to fund a central government policy.
Secondly, the amendment would address the fact that, incredibly, even at this late stage, we do not have a set of numbers that add up in terms of the receipts that would be achieved, the replacement of local authority sales, the two-for-one policy in London, the funding of the discount as well as a contribution to the £1 billion brownfield regeneration fund. Indeed, an independent report from the Chartered Institute of Housing suggests that this is not possible. Shelter has calculated that there would be a shortfall of £2.45 billion in the financing. If it is correct that the numbers do not add up—as I have said, this late in the process, we still do not have a set of figures that demonstrate that they do—a number of things are likely to happen. First, demand may be managed through restricting eligibility. In the current pilot, a person has to have been a resident for 10 years. So the first potential option is to restrict demand by eligibility. The promise that people could have a “right” to buy will no longer be a right; it will be a right if they have lived in their property for 10 years. The second option for managing this imbalance in funding is essentially to have a policy of saying, “If we’ve run out of money for a given year, you can’t buy in that year, or even the year after”, so there will be a waiting-list policy to make the sums balance. That is equally problematic as far as potential purchasers are concerned. A third option is for the levy on local authorities to be set high—higher than would truly be acceptable and eating not just into absolutely higher-value properties, as a number of noble Lords have said, but into relatively higher-value properties; in other words, into the very core of stock that becomes vacant for local authorities. So a third way in which demand might be managed is essentially by levying a very high sum that goes beyond what any of us would reasonably call high-value properties. The last option, which I suspect will form part of the policy, is that instead of local authorities being truly funded on a like-for-like basis, they will get a proportion of the value of the new property and will have to borrow the rest. In the current right-to-buy policy, that is a third—the proportion may or may not be the same. Local authorities will then need to borrow. One reason why a number of local authorities struggle with the replacement policy is that they do not have the borrowing capability within their caps.
I suggest to noble Lords that any one of these options will be problematic. If we restrain demand, we will cause very unhappy housing association tenants. If we put a huge charge on local authorities, we will denude them of even the very limited remaining capacity
for re-lets they have on vacant properties. So we start with a policy where, at the moment, any analysis in the public domain that I have seen suggests that the numbers do not add up. The alternative of the equity loan would avoid this difficulty.
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The third reason why the amendment is worth considering is that under the current proposals higher-value areas—I emphasise “higher”, because this is relative and not absolute—will suffer a double whammy. First, these are areas where housing association sales are more likely to happen. They are the more desirable areas in which it is more likely that there will be voluntary sales. Secondly, they are the areas where the higher value, local authority properties are likely to be located, so over time these higher value areas will be denuded of social rented properties. That is an inevitable consequence of the funding mechanism that we are using alongside the extension of voluntary right to buy. This will move completely in the opposite direction to that of the mixed-income, mixed-tenure areas that we have aspired to for the past 50 years. The real consequence of this policy would be an acceleration of the move towards areas that are denuded of social rented properties. That will be particularly acute in London.
The amendment would avoid that and avoid the rather contorted policy of one-for-one replacement. We have had a lot of numbers bandied about this evening on this issue of one-for-one replacement, but the document that sets it out most clearly was published by the National Audit Office, which I commend to all noble Lords, called Extending the Right to Buy. Unusually, the NAO has assessed a policy before it is implemented. The critical passage in the report is as follows:
“One-for-one replacement does not necessarily mean like-for-like: replacement properties can be a different size, and built in a different area, compared to those that have been sold. The pace of replacements will also need to accelerate to keep pace with the target in subsequent years”.
This is talking about the reinvigorated right to buy. The report continues:
“Under the Department’s objective, housing providers have up to three years from sale of a council property to make a start on using the receipts to provide replacement homes. The Department has taken the housing starts and acquisitions funded by this policy for the three years 2012-13 to 2014-15 together”.
In other words, we are comparing three years of build against one year of sale. The report continues:
“This yields a total of 3,387, which roughly equates to the approximately 3,054 additional sales attributable to the reinvigorated Right to Buy in 2012-13. To meet the target of replacing the roughly 8,512 homes sold in 2014-15 by the end of 2017-18, however, would require quarterly housing starts to reach around 2,130”.
This is the key point. That is,
“a five-fold increase on recent figures of approximately 420 per quarter”.
In other words, this is an accelerating challenge. If you take the first three years of your build against the one year of sales and say that that is the comparison, you miss the point that as the sales accelerate the build rate has to accelerate as well. The calculation by the NAO is that it has to be five times faster than at present. That is pretty definitive evidence that one-for-one is already proving on the current right-to-buy policy very difficult to achieve.
If we went down the alternative route of an equity loan, local authorities would be free to manage their assets according to their own needs and reinvest the high-value sales where sale is appropriate—and they would make the choice—back into their own stock and new supply. That is exactly what the noble Lord, Lord Porter, was talking about. We would let local authorities make the right decisions on their assets.
There is one final reason that is crucial. Local tenants would still, just as they are through the right-to-buy policy, be able to acquire their properties. Their access to a mortgage would be equal through the loan model because it stands behind the mortgage as through a grant. But of course it will be a loan rather than a cash gift. This is a key point. The value of the cash discount now is much higher than in real terms than when right to buy was introduced in 1980. Then, the discount for a home was £7,787 while the discount for a flat was £10,382. If you uprate that for inflation, you reach a figure of £30,120 for a home and £49,000 for a flat. Compare those figures with the scale of the discount that we are now offering in the right-to-buy scheme, and it is clear why the issue of fraud and risk has come to the fore, as mentioned by other noble Lords. Moving to an equity loan would reduce the temptation as regards fraud and in my view would make it much more likely that people will stay in the property in which they have invested a mortgage and a loan on than they will if they are given a cash gift. This represents a fairer balance and is much more likely to lead to stable communities in the areas where properties are bought.
The Minister will no doubt argue that this policy represents too great a departure from the Conservative manifesto commitment. But I would say that we have already departed from it. We have not agreed to a right-to-buy policy: it is a voluntary policy for housing associations to sell their properties if they choose to do so. Indeed, as I said earlier, because the finances are unlikely to add up, it is not going to be a level playing field with local authority tenants because there will have to be some way in the process of restricting demand. So we have already moved away from that bold manifesto commitment. An equity loan instead of a grant will deliver equivalent opportunity for tenants who wish to buy, put the cost where it should properly lie, which is with Government, and will avoid a damaging sell-off of higher value council stock.
Let me quote again from the NAO report because it is crucial to this. The report looked at the impact assessment and formed a view about it:
“The department has carried out internal analysis to establish the value for money of extending the Right to Buy, including an economic and business case assessment, and this work is ongoing. When reviewed against good practice, however, the published Impact Assessment to the Bill has weaknesses. For example, it does not present alternative options for delivering the policy objectives or a summary of other options that were considered at an earlier stage”.
If this job is going to be done properly, we should give serious consideration to alternative options that deliver the opportunity for right to buy for housing association tenants.