PRIVATE RENTED HOUSING

§ Mr. A. J. Beith (Berwick-upon-Tweed)

I beg to move amendment No. 1, in page 49, line 15, after 'tenancies', insert 'let at or below a reasonable rent as determined by a rent assessment committee under the Housing Act 1988'.

When the Chancellor of the Exchequer announced in his Budget statement that he would expand the business expansion scheme to cover properties to let in the private rented sector, there were immediate cries of "Rachmanism". It was claimed that such an expansion would bring back the worst of the Rachman era. Those cries are understandable for anyone who remembers the evils of that period, which became, in the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), the unacceptable face of capitalism.

The Committee must ask whether there are ways of attracting private capital into housing that will not bring back Rachmanism. My right hon. and hon. Friends do not think it right to dismiss out of hand the use of the business expansion scheme as a possible approach. In view of the housing crisis, those who appear to take that approach and who represent other Opposition parties do a disservice to the people.

I believe that by the means that they have chosen the Government will open the door to the worst sort of private landlord. Instead, they should use a carefully tailored device to attract private capital back into rented housing, but ensure that that is done in a way that will provide adequate security and rent protection to tenants. Given the scale of the housing crisis, it would be irresponsible to say that there is no place for private capital and that we should not be attempting to attract it back into housing.

It is clear that the public authorities alone have not been able to solve some of our most serious housing problems. Even if they were not subjected to the unnecessary restrictions to which the Government have subjected them, they would still not be able to solve those problems.

31 Much more could be achieved if the Government were not preventing housing authorities from spending the capital receipts that they have obtained from selling houses on more investment in housing. The Government are clearly placing many unnecessary and inappropriate restrictions on the ability of local authorities to play their part in tackling housing problems. The Government are also tightening the reins on the voluntary housing sector in many ways.

With the present serious crisis we cannot exclude the role of private capital in housing. If we were to do so, we would perpetuate the monopolistic aspects of rented housing that are among the worst features of the problem. I have experienced that problem in all its different forms during my years as a Member of Parliament. I have experienced the dangerous consequences of a private monopoly on rented housing where people are afraid to reveal their political allegiances for fear that they will not get a cottage from the big landowner. I have seen exactly the same thing in its municipalised form where people fear that if they have said anything rude to any member of the family of the housing officer, they will not be considered for a council house.

The same kind of feudal deference arises in the municipal rented sector as has arisen over the years in the private rented sector. Any kind of monopoly of rented housing tends to be extremely dangerous for rights of choice or a sense of independence.

Many groups of people who want or need rented housing are not getting it. One obvious group includes people who have to move in search of work. The previous lack of privately rented accommodation in many areas is a serious impediment to those looking for work elsewhere who find that the public housing sector cannot help them.

Many people looking for jobs in different parts of the country have found that they cannot obtain housing when they apply for those jobs. The national mobility scheme does not provide those people with sufficient access to council housing in the area to which they want to move. I am thinking particularly of people who move from areas like mine in the north-east to the south-east of England. They cannot afford to enter the private housing market in the south-east because prices are so high. They cannot get council houses in the south-east where there are relatively few council houses as the rate of council house sales has been so high. There are very few privately rented houses available and that is a strong argument for ensuring that more are provided.

The Committee should consider whether we can tailor the business expansion scheme incentive to ensure that it provides adequate protection for tenants. The fear is that the people most likely to use the scheme will be those who regard it as a get-rich-quick opportunity, and will take advantage of the changes in tenants' protection to exploit tenants in near monopolistic situations.

The Government appear to have removed many of the aspects of tenants' security and protection on rents on the argument that that was the only way to get private capital back into housing. Is the business expansion scheme really necessary on top of what the Government have done already? They have greatly weakened the tenant's position 32 by arguing that if they did not do so there would not be many houses to rent and therefore tenants in general would suffer.

§ Mr. D. N. Campbell-Savours (Workington)

I want to ask the hon. Gentleman a question in the most comradely terms about a statement that was made in the middle of the previous election campaign which suggested that a policy should be pursued whereby people who let a room in their home would not pay tax on the income that they derived. Will the hon. Gentleman develop that concept so that we may hear the argument explained more fully?

§ Mr. Beith

That suggestion was an extremely good idea. It was an attempt to unlock the large amount of accommodation that could be available in the short term to deal with the housing problem for single people. Several disincentives have been suggested as reasons preventing people from offering such accommodation. It was suggested that people might be unable to remove an unsatisfactory tenant or regain the use of a room when the family required it. It was also suggested that there was not a great financial incentive to provide that accommodation.

That incentive could have been increased by the scheme that we put forward. It combined a degree of financial incentive with a system of administration designed to relieve the landlord—who might in many cases be a widow living alone in a house of three or four bedrooms—of the problems and complications of tenancy protection. It was a sensible scheme, but I cannot address it in connection with the amendment, which does not bear directly upon that scheme.

Nevertheless, that scheme was another attempt to acknowledge the fact that we have housing and property that could be put to better use and that private capital is available which could be used to expand the provision of rented housing.

4 pm

I am worried, as are others who are critical of the Chancellor's proposals, about what will be the position of tenants if the business expansion scheme is used without giving them any protection. The purpose of the amendment is to ensure at least that rents are set at reasonable levels. It is no longer possible to tie the business expansion scheme proposals to fair rents, because the Government have abolished that provision. Fair rents are on their way out. There will remain only rent assessment committees, which are normally used not for the assured tenancies with which we are dealing but for shorthold tenancies. Indeed, access to rent assessment committees in respect of assured tenancies is very limited and is available primarily to the landlord. That is a fairly weak limitation.

If a business expansion scheme tenancy conferred upon the tenant the right of access to a rent assessment committee, that would provide some means of ensuring that the tenant was not exploited. That would be particularly when the landlord—perhaps a company—had a monopoly or near-monopoly of rented property in the area. It would at least limit the ability of the business expansion scheme to create exploitable tenancies and the ability of landlords to push up rents in an area.

A company that wanted to make a lot of money fast out of the business expansion scheme could move into an area where there was a shortage of rented accommodation and buy a number of properties. It could then push up the rents in that area. It would have the benefit of the business 33 expansion scheme in financing that operation in the first place and could then, by use of its monopoly, push up rents to an exploitative level.

§ Mr. Anthony Nelson (Chichester)

I wonder whether the example that the hon. Gentleman has given is correct. If a company tried to do what he said by acquiring existing properties which were tenanted, the people occupying those properties could continue as fair tenants and there would be no advantage to the company. If the company were to purchase instead vacant or newly developed properties, in either case there would be a net introduction of new accommodation for rent that would not otherwise he available. How could a net new supply force up rental levels?

§ Mr. Beith

It could do so if the net new supply fell far below the level of demand. Provided that supply was less than demand, the company could force up prices. Indeed, no market price can be calculated if there is no rented property available. I could take the hon. Gentleman to various parts of London and elsewhere in the country where virtually no rented property is available. If he were able to obtain in such an area two or three properties—which had, perhaps, been in single occupation—and turn them into tenanted properties, he would have a virtual monopoly of rented housing and could set what rents he chose.

The situation is further distorted by the complications of housing benefit. There is not a free market in rented housing. I have submitted another amendment which, although it cannot be debated now, the Minister might like to keep at the back of his mind. It is designed to probe why it was necessary to apply the higher rate of tax relief to the business expansion scheme. A landlord who takes advantage of the scheme without the protection that I am suggesting will be investing in property with a potential for capital appreciation that is greater than almost anything else into which he could put his money. Why should he need such a large incentive? With existing schemes, no more that 50 per cent. of net assets may be represented by property. It is already recognised within the business expansion scheme that it is not the purpose of the scheme to finance property ownership and that there is not the degree of risk in property ownership to justify the conferring of substantial incentives.

The Government are offering large incentives to draw people into projects in which they can make a great deal of money without being offered a big incentive, and in which they will find it easier to participate if tenants are not given a measure of protection. The Minister may feel that my amendment to make use of rent assessment committees is not the best way of maximising tenants protection. However, unless he is able to offer some guarantee that tenants will not be exploited under the scheme, he will do the cause of expanding privately rented housing no good.

If the business expansion scheme is used in that way it will get a very bad name after the first two or three landlords are found engaging in the kind of activity I have described. Considerable harm will be done, when we should be looking in every possible direction for means of tackling an appalling housing problem. It is a problem which creates social injustice, reduces people's economic opportunities, and prices people out of a free society—if they cannot obtain access to housing in areas where there is work available to them.

34 If the Minister wishes to win our support for the business expansion scheme in the private rental market, he must do something to afford protection to tenants. Otherwise, the scheme will be too easy to abuse. Unless the Minister can offer such protection, either by accepting my amendment or by an alternative, he cannot expect our support for the clause.

§ The Financial Secretary to the Treasury (Mr. Norman Lamont)

I hope that the hon. Member for Berwick-upon-Tweed (Mr. Beith) will forgive me if I reply briefly to his remarks, because some of the wider issues on which he touched might be more conveniently discussed in the clause stand part debate. The hon. Gentleman may agree that he went wider than the narrow terms of his amendment. None the less, I am grateful to him for the moderate way in which he proposed his amendment and did not express total hostility to the idea of the business expansion scheme being used to provide more privately rented property. Indeed, he went further and indicated that he felt there was a shortage of such accommodation, which was a great impediment to mobility in locking people into areas of high unemployment. That is one of the major reasons why we want to see a revival in the privately rented sector.

The hon. Gentleman was essentially trying to strike a different balance between the landlord and tenant than that being struck by the Housing Bill and by the concept of the new assured tenancies. I do not want to open up the whole Housing Bill debate this afternoon, but the tax relief in question is built upon the assumption that the Bill will be enacted. The proposals that we have put before the House try to strike a balance between the landlord and tenant that we believe is reasonable. The hon. Gentleman knows as well as I do that there have been many attempts by previous Conservative and even by Labour Governments—for example, by the late Richard Crossman—to alter that balance within an adminisrative framework and to try to achieve a greater, albeit regulated, supply of private rented accommodation. Those previous attempts all came to grief because they did not move far enough towards allowing genuine market rents to be charged in the private sector.

§ Mr. David Winnick (Walsall, North)

Is it not at the core of this debate that a previous Conservative Government set out to deregulate the housing market under the Rent Act 1957? All new rented dwellings were deregulated with the promise, at the time when that Bill was going through the House of Commons, that that would lead to a substantial increase in rented accommodation. However, the opposite occurred. The Minister mentioned the late Richard Crossman. but he was responsible, as Minister for Housing, for repealing the 1957 Act, which was so discredited that the then Conservative Opposition did not even vote against his doing so.

§ Mr. Lamont

I do not think that in the first part of his observation the hon. Gentleman was really disagreeing with what I was saying. I was saying that Conservative Governments in the 1950s did not go far enough and that what they did did not have the intended effect.

Although it is largely my fault that we are doing so, I do not think that it serves our purpose this afternoon to go too far back into the policies of Henry Brooke, or indeed the late Richard Crossman. I merely say to the hon.

35 Gentleman that I do not think that past Governments, Labour or Conservative, went far enough in giving freedom to landlords to charge a market rent.

The new assured tenancy scheme will allow a tenant and landlord to agree any rent that they choose. We believe that that is right, because the best way to arrive at a reasonable rent is to allow it to be determined by competition and market forces. In the past we have seen, all too clearly, attempts to restrict rents causing properties to leave the private sector or not to appear in it, so that people who wanted to rent and were willing to pay a market rent found that no property was available. Indeed, there has been almost no worthwhile investment in private rented property for 50 years, and the sector is declining considerably.

The clause extends the business expansion scheme to investment in companies that let residential property on the new assured tenancy basis. We consider this necessary in the early years of deregulation, to speed up the process of bringing more rented property on to the market. It would be counter-productive and foolish to restrict the rents that could be charged by the BES company. The likely outcome would not be that the benefits of the tax relief would be passed on to the tenant in the form of lower rent. It would simply discourage the supply, and discourage landlords from making more rented property available. Again, we would find willing landlords and willing tenants being frustrated by Government restrictions.

It is doubtful whether the amendment would have any effect. Under the Housing Bill, a rent assessment committee determines the rent when the landlord proposes an increase under a periodic tenancy and the tenant chooses to refer it to the committee. The committee, however, has no role in connection with the initial rent that is charged, and no role in fixing the rent when the mechanism for increasing it is built into the tenancy agreement.

Furthermore, the Housing Bill does not use the term "reasonable rent", which the hon. Member for Berwick-upon-Tweed has incorporated in the amendment. What the Housing Bill does is to provide for the committee to determine a rent at which the property might reasonably be expected to be let on the open market by a willing landlord: in other words, the market rent. We believe, however, that imposing a rent assessment committee's view of what would be a market rent on all tenancies from the outset, as the hon. Gentleman suggests, so that a higher rent could not be charged even if the landlord and tenant were in agreement, would not be right. It would create uncertainty, and would discourage landlords from providing property for letting.

I am afraid that, despite the moderate way in which the hon. Gentleman proposed his amendment, I do not think that I can accept it. I hope to deal on clause stand part with some of the wider issues that he raised.

§ Mr. Gordon Brown (Dunfermline, East)

The tragedy is that, good as the intentions of the hon. Member for Berwick-upon-Tweed (Mr. Beith) are in relation to fair rents, no tenant would save money, no rent would be reduced and no family would be better off as a result of the amendment. The reason is that he has totally misunderstood what rent assessment committees are there 36 to do, under the Housing Bill. They will not set the initial rents. They will determine rents only on appeal, and, as the Minister has conceded, they will have no remit in regard to fair rents.

One strong objection to the business expansion scheme is that we are not in a position to force fair rents, but we have a number of other objections. We believe that the major problem of the scheme is that money that ought to be used to provide better housing under housing associations and local authorities will be frittered away in tax reliefs. For those reasons—which we want to debate this afternoon—I hope that the hon. Gentleman will withdraw his amendment, which will have no force whatever, and allow us to get on with the major debate on the business expansion scheme.

§ Mr. Ian Gow (Eastbourne)

I understand that the hon. Member for Berwick-upon-Tweed (Mr. Beith) is making his parliamentary debut in his new role as shadow Chancellor and in addressing the Committee on the Finance Bill. [Interruption.] If I am wrong about the hon. Gentleman's experience, I shall gladly give way and apologise to him.

§ Mr. Beith

The hon. Gentleman may have failed to notice that I have been addressing the House on this subject for about a year.

§ Mr. Gow

I think that I may be right. I said that this was the hon. Gentleman's debut as shadow Chancellor in addressing a Committee of the Whole House on the Finance Bill. If he has done it before, I can only say that this afternoon was not a triumph. We understand the the hon. Gentleman is not only the shadow Chancellor for the newly formed party, but a possible candidate for the leadership. You may care to reflect, Mr. Walker, on the hon. Gentleman's good fortune in not being surrounded by all his colleagues. Only one has been here to learn the truth, which is that the hon. Gentleman has misunderstood the Finance Bill and does not understand the Housing Bill, of whose Standing Committee his hon. Friend the Member for Southwark and Bermondsey (Mr. Hughes) was a rather undistinguished member. It would have been greatly to the advantage of the shadow Chancellor if he had studied both Bills more carefully. I hope that he will not detain the Committee any longer, and will withdraw the amendment.

§ Mr. Beith

I thought that the hon. Member for Eastbourne (Mr. Gow) was going to make a speech discussing the issues raised in the amendment. I used to think that he was interested in housing issues; he was, after all, Minister for Housing at one time. He clearly prefers, however, to engage in discussion of wider political matters at a pretty superficial level.

I also thought, when the hon. Member for Dunfermline, East (Mr. Brown) spoke, that I had intruded on a private quarrel which could be conducted only on the basis of being either in favour of private landlords or wholeheartedly opposed to them. Indeed, the hon. Member for Walsall, North (Mr. Winnick) intervened when they were mentioned, and said that they should go. It is a widespread view in the Labour party that there is no role for the private rented sector.

My purpose in tabling the amendment—and I am strengthened in my view that we should press it—is to 37 suggest that there is a role for private rented housing, and that the Government should be looking for ways to encourage a responsible private rented sector without doing so in ways that afford no protection to tenants. I can hardly be criticised for the unsatisfactory features of the Government's housing legislation—including the rent assessment committees—given the effort put by my hon. Friend the Member for Southwark and Bermondsey (Mr. Hughes) into criticising those proposals when they were put forward. The amendment offers the Government an opportunity to find a way of moderating their own proposals.

Let us suppose for a moment that the Government are right in their assumption that the change in the balance between landlord and tenant will attract more people into private sector housing. That must have been their intention. The argument that they used throughout all the debates on the housing legislation was that the balance was wrong, and that shifting it would bring more capital into private housing.

If there were anything in that argument, the business expansion scheme would be of only limited relevance to the expansion of the private rented sector. As it accords considerably greater benefits to landlords who will already have been released from their former obligations, which the Government believe kept some of them out of the housing market altogether, why should not a greater obligation towards tenants be imposed on that group of landlords—particularly as it may prevent the scheme from being abused, and becoming a means of returning to the days of Rachmanism?

We have put forward a reasonable proposal, and have offered the Government an opportunity to suggest alternatives. But they seem determined to drive ahead with an unrestrained incentive to landlords, with no tenant protection at all. The Labour party seems determined not even to consider ways in which the private sector could play a larger role in tackling the enormous housing problems. In those circumstances, I feel that we are entitled to differ, and to say that there is a role for a responsible private sector. 1 therefore intend to press my amendment.

§ Mr. Norman Lamont

This clause, together with schedule 4, extends the business expansion scheme to investment in companies which let residential property on the new assured tenancy terms. It complements the current Housing Bills, which introduce this kind of tenancy. The aim is to encourage the provision of private rented accommodation. The shortage of such accommodation in many areas in our cities has been one of the main causes of homelessness, and it has also been an obstacle to labour mobility.

In the longer term, the freedom for landlords to charge market rents under the new-style assured tenancies will stimulate more investment in private rented housing, but we see a strong case for speeding up this progress by providing a special incentive in the early years of deregulation. Therefore, we propose to extend the business expansion scheme to investment in companies letting properties on the new assured tenancy terms, which give tenants security of tenure. This relief will be available for only five years. The Bill provides for BES relief to be available for shares issued after Royal Assent and before the end of 1993.

§ Mr. Gordon Brown

Will the Minister assure the Committee that companies formed under the business expansion scheme to provide private rented accommodation will have to subscribe to a social landlords' charter that has been proposed by the Minister for Housing and Planning?

§ Mr. Lamont

No. The terms of the assured tenancies under which investment can take place under the legislation are precisely the same as those in the Housing Bill. Any proposal that is made by my hon. Friend the Minister for Housing and Planning would be incorporated and would have to be observed by any company which was benefiting from the business expansion scheme. I shall return to that question in order to confirm or amend my answer.

Relief will apply to shares that are issued after Royal Assent to the Finance Bill and before the end of 1993. The new assured tenancy basis will not be available immediately. We expect it to come into force early next year. In the interim, a company will be able to use the business expansion scheme to raise money to buy or build properties, but it will be unable to let them. Nevertheless, we felt that it was right to make BES relief available during the interim period, because the purchase of properties and any necessary preparations to make them ready for letting could take some time. We want companies using the BES to be able to let properties on assured tenancies as soon as possible.

As the aim of the BES relief is to encourage the continuing provision of rented property, the relief will be available only for assured tenancies that give the tenant long-term security. There will be a limit on the value of each let property. This will prevent tax relief from being 41 used to provide expensive properties for renting. The limit will he £125,000 in Greater London, and £85,000 elsewhere. If the value of the property exceeds this limit, the letting will not qualify. The Bill contains a power to amend these limits by statutory instrument.

§ Mr. Gordon Brown

What are the mandatory reasons that will allow houses to be repossessed? Does the Minister agree that it may be in the financial interests of a company to attempt to repossess its houses after five years?

§ Mr. Lamont

The hon. Gentleman is arguing against the whole basis of the Housing Bill. He is saying—and I expect that it will be the major point in the debate—that it provides an incentive to evict people. The hon. Gentleman knows as well as I do that my hon. Friend the Minister for Housing and Planning has produced a battery of new safeguards for tenants that will strengthen the criminal law and give the tenant the right to compensation if he is unfairly evicted. There is a risk of eviction from rented property, but that is more likely to arise from controls that make it impossible for landlords to receive a decent return on their property. The Housing Bill provides tenants with security of tenure, backed by changes to the legal protection that is available to them. Moreover, in certain circumstances, there will be access to the rent assessment committees. The legislation strikes a balance between the needs of the landlord and the tenant.

§ Mr. Brown

Does the Minister agree that intention to redevelop is one of the means by which tenancies can be repossessed on a mandatory basis, and that it may be in the financial interest of a company to repossess the tenancies after five years?

§ Mr. Lamont

Yes. Under the business expansion scheme the property has to be let on a long-term basis. The hon. Gentleman believes that there will be an incentive for a landlord to get vacant possession or to develop a property with vacant possession, but a company will be unable to qualify for BES relief unless it is letting the property as rented property. The BES relief will bring into existence companies which will let property on a continuing basis and also on an assured tenancy basis.

§ Mr. Campbell-Savours

Is the Minister able to foresee circumstances in which a person who is a tenant and an investor under a business expansion scheme will be able to rent from his own investment? Is it not possible that he might receive tax relief on an investement from which he had already received a benefit?

§ Mr. Lamont

That is not possible. If the hon. Gentleman can demonstrate any way in which that is possible we shall take action to stop it, because that is not the purpose of the business expansion scheme.

The Opposition refer to harassment and to incentives to evict, but that is not the purpose of the legislation. We are prepared to look at any reasonable provisions that the Opposition may wish to put to us to safeguard the rights of tenants that do not cut across the Housing Bill, which we believe strikes the right balance between the rights of tenants and the need to give landlords a proper incentive to invest in rented property.

§ Mr. John Battle (Leeds, West)

When we discussed the Housing Bill the Minister accepted that practices of landlords or property developers such as Nicholas Hoogstratel were not covered by the law and that changes 42 in the Bill would make it easier for him to carry on such practices. Although the Minister expressed grave reservations about that landlord's practices, when that landlord came before the courts his case was dismissed. What is there to prevent that person and his companies benefiting from the business expansion scheme and continuing to keep properties in bad condition and charge prices that tenants cannot afford to pay?

§ Mr. Lamont

I wish to make no comments about one individual. Bad landlords are a product of previous Rent Acts. This legislation, the housing legislation and the BES are intended to provide a continuing supply of property on an assured tenancy basis. That is not compatible with the examples that Opposition Members are giving.

I was explaining about limits on the values of properties prescribed under the legislation, but if the value of a property exceeds the limit it will not necessarily cause BES relief to be lost, because a company will be allowed to carry on some non-qualifying activities. If those non-qualifying activities are substantial, BES relief will not be available. What that means in practice will depend on the facts of each case, but the Inland Revenue's existing practice is that if non-qualifying activities amount to less than 20 per cent. of total activities they are not regarded as substantial.

That rule will ensure that the company specialises in the provision of qualifying tenancies, which will give some desirable flexibility. For example, a company may from time to time have money on deposit while it is preparing to buy or improve properties. It would clearly be wrong to withdraw BES relief because it received a relatively small amount of interest on its deposit. Indeed, these provisions reflect the general provisions of the BES for all types of companies. The Bill excludes sub-standard properties by reference to standards laid down in the Housing Act 1985 and the Housing (Scotland) Act 1987.

There is a further feature of BES relief that I should mention. Clause 50 imposes a limit on the total amount of investment in a company in any year that can qualify for BES relief. Ordinarily the limit will be £500,000, but for companies letting residential property on assured tenancies it will be £5 million. It is not our intention that the BES should be used to finance large property companies, which should have less difficulty obtaining equity finance from the markets. Thus, a limit is necessary. We want to enable a company to benefit from economies of scale in offering shares to the public and in managing a large number of properties. We felt that the £5 million limit, which we have extended to ship chartering, was about right.

The privately rented sector has been in continuous decline since rent control was introduced in 1915 in response to wartime shortages. It has continued ever since and has been reinforced by other Governments. In 1915, 90 per cent. of the population lived in privately rented homes, but today barely 8 per cent. do so.

The lack of a ready supply of rented housing has become a major obstacle to labour mobility. Many people have been losers, including many unemployed people. Many people have been unable to take jobs because of the lack of a privately rented sector in areas where work is available. The country has lost from the economic activity that has been forgone. A battery of legislation, statutory rent controls and other rent restrictions are largely to blame for that profoundly unsatisfactory position.

§ Mr. Campbell-Savours

I press the Minister about this simple question and I want a simple answer. Can a person rent a flat from a company in which he is a BES investor? The answer is either yes or no.

§ Mr. Lamont

I answered that question earlier and said that I believed that the answer was no. I shall return to this issue later.

§ Mr. David Shaw (Dover)

Is not the question asked by the hon. Member for Workington (Mr. Campbell-Savours) answered by schedule 4 to the Bill, on page 123, which says: In subsection (2) of section 291 (individuals qualifying for relief), after paragraph (a), there shall be inserted— '(aa) a tenant of a dwelling-house of which the company is the landlord;'. Consequently, a tenant is unlikely to obtain relief under that subsection.

§ Mr. Lamont

The answer to the question is no, but I shall return to it if the hon. Member for Workington (Mr. Campbell-Savours) wishes to pursue it.

The Government have decided to take action to reverse that profoundly unsatisfactory position by introducing a new assured tenancy scheme. Under its proposals, existing tenants will have the same protection as at present, but we are relaxing controls for future tenancies. Landlords and tenants will have a choice of two types of tenancies. Assured tenancies will provide long-term statutory security, and assured shorthold tenancies will give the tenant at least six months' security. In both cases, market rents will be payable. These proposals will provide the incentive for landlords to invest and, at the same time, give protection to the tenant.

For the new assured tenancy scheme, but not for assured shorthold tenancies, we are introducing tax relief under the BES scheme for a limited five-year period. We have a considerable task in pressing ahead with deregulation in the privately rented sector, and we believe that the extension of BES relief will give a significant boost to plans for deregulation. Decades of legislation have left this sector demoralised and in decline. It is important to reverse that decline, to give the unemployed a greater chance to find work and to give the population a greater choice in their housing.

§ Mr. Gordon Brown

The one thing that we can say about the Minister and his speech about tax concessions for the BES is that, despite all the criticisms that have been made of BES and of this new proposal in particular, his enthusiasm for the scheme remains undiminished.

Since the scheme was set up in 1983—it was originally intended to provide tax concessions for high-risk investment in high-technology industry to create jobs—Ministers have had to come to the House at least twice to say that, because of the increasing dependence on property and fixed assets, they intend to change the terms of the scheme. First, they had to admit that there were abuses in the scheme as it applied to expensive wines and antiques. They said that they intended to rule out those abuses. They then said that, because land and buildings form such a large part of the capital issued under the scheme, they would limit the amount that could be used to 50 per cent. Today, they appear to have turned full circle. Instead of saying that they will limit the dependence of BES 44 companies on property they are saying that privately rented sector companies can be 100 per cent. dependent on property assets.

There is a further irony in what is happening. For months we have been saying that public funds that should have gone to the National Health Service, local authorities and social services departments for the benefit of the many have been going in tax concessions to private hospitals, nursing clinics, private health clinics, private schools and private accommodation for bed and breakfast for the benefit of the few. We said that those abuses should be limited. Yet the Government have opened up a new area of opportunity, with tax reliefs for a new area of the private sector, which is as yet unexploited under the BES. That is why we now have this proposal to extend BES relief to the private rented sector.

All Opposition Members recognise the housing problem—250,000 more people are on waiting lists than in 1979, there has been a 30 per cent. increase in the number of homeless people, there are twice as many people in bed-and-breakfast accommodation and 500,000 houses have been lost from the rented sector, even after taking account of council house sales.

As has been said, more houses have been lost from the rented sector under this Government than at any other time since the infamous Rent Act of 1957. In response, we believe that the Government's proper action should have been to give funds to housing associations and local authorities to enable them to build houses, and to encourage housing co-operatives. We believe that, for the same money, local authorities and housing associations could achieve far more than is possible under this new business expansion scheme.

§ Mr. Winnick

Does my hon. Friend agree that, as the rents are to be market rents, it will often be the case, especially in London and the south-east, that rents will be higher than the cost of a mortgage, so the very people about whom we are worried, who cannot afford a mortgage, are hardly likely to benefit from the Housing Bill. Is that not a measure of the hypocrisy of the Government's legislation?

§ Mr. Brown

If my hon. Friend will stay with me, I shall return to that point, which goes to the heart of our objections to the scheme.

We know what the scheme will do for the private investors whom the Minister is anxious to encourage. We know that someone who invests £40,000 in a BES company can save £16,000-worth of tax. We know that, on the occasion of houses being rented, complete decontrol is proposed under the Housing Bill and that companies can charge whatever rent they want. We know, too, that, after five years, shares in BES companies can be sold without there being any liability to capital gains. We know what gains there are—they come three times over—for those who invest in such schemes. What we do not know and what we have not heard, however, are the gains to tenants.

There is no guarantee—the Minister confirmed it—of fair rents, of long-term security in accommodation or of good quality landlords. It is small wonder, therefore, that this proposal did not surface in the Conservative party manifesto. As far as we can understand, it has never been advocated by any local authority and it has never been put out to anyone for consultation, and when it was 45 announced immediately after the Budget the reaction of housing authorities and housing associations was anything but supportive.

§ Mr. Quentin Davies (Stamford and Spalding)

The hon. Gentleman asks what is the benefit to the tenant. Is not the provision of new, additional rented accommodation of inestimable benefit to potential tenants?

§ Mr. Brown

The hon. Gentleman should read the details of the scheme. There is no guarantee of new accommodation. There is no guarantee that houses will be newly built rather than merely bought for renting under the scheme. As for rents, the hon. Gentleman will see clearly that the people who will benefit are not the migrant workers from the north looking for jobs in the south, which was the original intention of the scheme, but people looking for second flats, such as executives wanting accommodation in London or other major cities.

§ Mr. Gow

The hon. Gentleman unintentionally misled the House. He said that there was no reference in our manifesto to the proposal before the Committee. I shall read what we said: We must attract new private investment into rented housing—both from large institutions…as well as from small private landlords…to encourage more investment by institutions, we will extend the system of assured tenancies. When introducing the motion, my right hon. Friend followed precisely the promises made on page 13 of our manifesto.

§ Mr. Brown

I hope that the hon. Gentleman does not wish to mislead the House. He failed to mention that at the heart of the scheme is the provision of a tax concession to people who, primarily, will be top rate taxpayers. There was nothing in the Conservative party manifesto which said that public money—taxpayers' money—would go to BES companies or any other companies to stimulate the private rented sector. That is the basis of the objection to the scheme—public money is being used to finance accommodation in respect of which there is no guarantee of fair rent, secure accommodation or good quality landlords. That money could be far better spent by local authorities or housing associations to build more houses or to repair houses for which fairer rents are charged.

I shall consider the drawbacks of the scheme. The Minister said that it is based on the principle of assured tenancies, and that people who rent under the scheme will have what he would regard as security of tenure under assured tenancies. We know that assured tenancies will provide less protection than secure tenancies under the Rent Acts, that there are seven mandatory reasons for tenancies to be repossessed and several other discretionary powers, that among them is the failure of the owners to pay the mortgages and that another is rent arrears after three months.

We know that another justification for repossession, at least in England, is the offer of alternative accommodation, which is vaguely defined as "suitable". We know that one of the principal loopholes that is likely to be used is the landlord declaring his intention to redevelop, whereupon he automatically has the right to repossession without, as we understand it, even having planning permission to carry out the redevelopment. We know, therefore, that there will be considerable abuse of the scheme.

The Financial Secretary has conceded that there is a financial benefit to companies which sell up after five 46 years, and therefore secure vacant possession to enable them to sell up. We know that assured tenancies are more likely to be five-year tenancies at best. The people who gain them are likely to find themselves in other accommodation at the end of that period.

It is small wonder that those who advise investors in this matter have already said—an estate agent has said it: the grounds for possession are much more extensive than under the Rents Acts and include some previously available only under part II of the Landlord and Tenant Act 1954 for business purposes". The latest publication from the BES advisory group called "Best BES" concludes with a paragraph entitled, "Likely Exit Routes" thus: more likely perhaps properties will be sold either untenanted or with tenants". The idea that people will be advised that they are in the business of providing long-term accommodation lasting beyond five years, and the guarantee that these will be assured tenancies which cannot be broken will, under the new Housing Bill, I believe, prove groundless.

What are the guarantees about the quality of landlords? Housing associations are debarred from involvement in the scheme. Assurances involving the registration of landlords under assured tenancies, are, as in the previous legislation, being abandoned. There is no provision such as that involving the Housing Corporation whereby landlords are registered and approved. The proposal for social landlords will not come within the remit of BES landlords—the Financial Secretary confirmed that. What guarantees do we have, therefore, that landlords who have no experience, no track record and no approvals or supervision will have any commitment to proper standards of property and the proper treatment of tenants?

Is it not as my hon. Friend the Member for Leeds, West (Mr. Battle) suggested—that the landlords that local authorities and housing associations are trying to outlaw because of their atrocious record will be brought back to life? Indeed, under this scheme, they will be guaranteed state support in the form of tax concessions. Far from eliminating exploitative landlords, there is nothing here which will guarantee, under a social landlords charter or anything else, that the landlords who are being outlawed will not reappear. That is why one firm of accountants recently said: Rachman one suspects would not have been slow to take advantage of the scheme had it been around in the Sixties. Under these proposals, Rachman is subsidised by the state with an open-ended commitment which the Government think might cost £40 million in its first year.

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That is not the only problem. There is another problem that the Minister did not properly address. We are being told by Ministers that the aim of the scheme is to help the mobility of people round the country. We are told that it is to help workers in the north find accommodation once they find employment in the south. However, the information available to us suggests that the rent for a house costing up to £125,000, which is the limit of the scheme in London, could be as high as £240 a week and the rent on a £85,000 house, which is the limit in the cities and turns of the rest of Britain, could be as high as £154 a week on a market basis. When rent is as high as that and the housing benefit maximum will be only £114 in Westminster, £70 or £75 in other parts of London such as Kensington and Chelsea, £88 in Camden, £39 in the west 47 midlands and £34 in Humberside, there is little chance, even with housing benefit support, of the migrant worker being able to afford the rents that will be charged under the business expansion scheme.

In other words, the rents that will charged will rule out the very people the Government say they are trying to help. It is the higher paid business men, with the rent probably paid by the company, who will benefit from such tenancies. It is not the first home for migrant workers that it likely to result from the scheme but a second home for temporarily resident business men. That is not the group in the country with the highest claim upon the charity of taxpayers.

Instead of suggesting that ordinary average wage workers are likely to benefit under the scheme, surely it would be better if the Government took up the suggestions made by the Employment Institute in its pamphlet published a few days ago. It said that if the Government are to continue to reject the proper answer to these problems, which is an active regional policy, the best solution for people moving south is publicly provided accommodation at rents that people can afford.

On top of the insecure tenures that are likely to result, the high rents that are likely to debar all but the best-off workers and the failure to provide guarantees against bad quality landlords, we come to the problem at the heart of the scheme. The same amount of money as the Government will give in tax subsidies to the rich could have been used to build local authority housing, sponsor housing associations or develop housing co-operatives.

We asked the housing associations what they believed could be done with the sum of money that the Government have set aside for the first year cost of their tax concessions. They told us that for that amount of money they would be able to build more than 2,000 new houses—2,000 extra houses, not houses taken from the accommodation sector now—and charge sensible rents for them.

We asked the Association of Metropolitan Authorities what it could do with the same amount of money—£40 million. It said that that would be sufficient capital to enable it to borrow sufficient money to build 10,000 local authority houses a year. Therefore, in return for a provision that will probably bring about 1,000 rented properties in its first year, we could have provided the capital to help to build up to 10,000 local authority houses. That is the scale of the missed opportunity caused by the Government's obsession with providing tax reliefs under the business expansion scheme.

As a result of the Government's policies, the number of public sector starts is at its lowest since 1945—and at a time when the need is becoming greatest. At the same time, the annual figures for house building in the public sector have fallen from 81,000 in 1979 to what is estimated to be only 29,000 this year. The Minister should respond to us by saying that, after looking at the finances of the business expansion scheme and recognising that the £40 million could be far better spent in the provision of local authority or housing association finance, the value for money achieved by this proposal is far less than would be achieved in the public sector.

It is a tragedy that the Government seem to feel that there is a psychological need to circulate cash around 48 property developers and speculators before it can do any public good. The truth is that ideology in the Conservative party is now so rampant that it would prefer to subsidise the private sector to do the job inefficiently than support the public sector to do the job efficiently.

We are aware of a number of deficiencies in the business expansion scheme and my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) will deal with them when he winds up. Money that should have been raised for businesses in the north has been diverted to the south, money that should have gone to small businesses has gone to large businesses, money that should have gone to the manufacturing sector has gone to the service sector and money that should have gone to projects that would have created far more jobs has been frittered away on projects that the Minister has latterly had to ban.

The truth of the business expansion scheme for private rented housing accommodation is that it has been founded on dogma about the benefit of the private sector. It has been fired by selective generosity towards top rate taxpayers who stand to benefit far more than any tenant can benefit from the scheme. It has been justified on the myth about the average migrant worker being able to do well out of the scheme when the Government know that that cannot be the case. It is riddled with abuses and anomalies that will force the Minister back to the House to change the legislation in a short time.

In this debate the scheme has been exposed for what it is. It is a mechanism for taking the housing problems of the many and transforming them into the tax havens for the few. The scheme will do little for those who most need housing help. The money that is being spent on it should have been given to local authorities and housing associations to allow them to build the houses that we need. It is for those reasons that we will vote against the scheme.

§ Mr. John Watts (Slough)

There would be little disagreement in the Chamber about the fact that there is a need for greater provision of rented housing in this country. Home ownership has increased at a rapid rate. That is commendable and desirable if it is a matter of free choice. However, if home ownership is merely a matter of Hobson's choice for those who would prefer to rent but who are denied the opportunity because there is no supply of rented housing, it is not a matter for congratulation. Therefore, one reason for wishing to see a greater supply of rented housing is to give individuals the same choice of renting accommodation as they have of owning their home.

§ Mr. Battle

Is the hon. Gentleman still in favour of the policy of increasing the number of owner-occupied homes in Britain? At present, that stands at 62 per cent., and I understood it was the Government's policy to increase it to 75 per cent. Has it not occurred to the Conservative party that perhaps the reason for the shortage of private rented accommodation is that owner-occupation has increased? Is the hon. Gentleman now saying that his party feels that we have gone too far in the direction of owner-occupation and that we should pull back from that policy?

§ Mr. Watts

Not at all. I am happy that we should continue to encourage and assist those who wish to become home owners. However, there should also be the option of renting. I believe that we have reached the point where, because of the fast dwindling private rented sector, 49 many people do not have that choice. That is what the proposals in the Housing Bill, supported by this clause in the Finance (No. 2) Bill, are designed to redress. Therefore, the first justification for what we are putting forward is the freedom of individual choice. The choice of renting is as valid as the choice of owning.

§ Mr. Winnick

How can the hon. Gentleman talk about choice? I do not know about his mailbag or surgeries, but people write to me daily asking for rehousing and they come to my surgery with housing problems. They do not know about choice. They cannot afford a mortgage. In the main, they are family people who, on their restricted incomes, cannot obtain a building society mortgage. How will they he in a position to pay market rents when in many cases the rent will cost more than a mortgage and when housing benefit is being drastically reduced?

§ Mr. Watts

I cannot understand how a market rent on a property could possibly be greater than the cost of funding a mortgage to purchase the same property. If it were, no would-be tenant would take that option. There will not be any choice for people who wish to rent if the hon. Member for Walsall, North (Mr. Winnick) and his hon. Friends continue to seek to frustrate any measure designed to increase the supply of rented accommodation. If the Labour party does that, it will not in any way give greater choice either to my constituents or to those of the hon. Member.

§ Mr. Ian Taylor (Esher)

Few lenders are prepared to advance a 100 per cent. mortgage. The difficulty for people trying to get a mortgage is in finding the differential capital amount. The attraction of rented accommodation—at least while people are establishing themselves in new working environments—is that people do not have to find the capital deposit that is required.

§ Mr. Watts

My hon. Friend makes a valid point. In addition, people do not necessarily wish to put down permanent roots—as is often implied by home ownership—early in their careers, when they may make many job moves.

After choice, the second justification for seeking to increase the supply of rented accommodation is that it will improve labour mobility. Labour Members pooh-pooh this, but every Friday 30 or 40 pages of vacant jobs are advertised in my local newspaper. There are unemployed people in Walsall, North who would love to come to Slough for a job, but they are prevented from doing so because they cannot obtain accommodation there.

We have heard from Labour Members, predictably, the bleat for more council housing. The Labour party has only one solution to any housing problem—build council houses. That will not improve labour mobility. One need only look at the poor supply of council housing in the pool for the national mobility scheme to see how true that is. Obviously, the claims of existing constituents of local authorities are given priority over those of potential constituents. The demand of an existing tenant to transfer to better accommodation will always be accorded priority over the claim of someone who wishes to move into the area to take up employment. No conceivable level of capital expenditure on public housing will ensure that there is such an oversupply that the needs of those wishing to move into an area to take employment can be met by expansion of public sector housing.

50 There is no advantage for labour mobility in providing greater funds for the public sector. By contrast, the private rented sector is available equally to local people who are seeking rented accommodation and to those who want to move into the area for employment. There is no bar to the latter being granted a tenancy. They compete in the same market with others seeking rented accommodation.

The importance of expanding the private rented sector is recognised in the Housing Bill, which is the main vehicle for encouraging a resurgence of supply of private rented housing. Clause 49 of the Finance (No. 2) Bill, extending the business expansion scheme to assured tenancies, is intended to provide an initial boost to the intentions behind the Housing Bill. It is common sense and essential that the BES should apply to the same categories of assured tenancy as are defined in the Housing Bill. Any move to impose on housing investment further qualifications and requirements that would qualify under the BES—such a suggestion was made in amendment No. 1, which we have rejected—would blunt the impact of the useful boost that we are able to provide through this fiscal measure. Any such additional qualifications would he bound to defeat the pump-priming purpose of clause 49.

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The Opposition have professed concern for the future security of assured tenants. Their form of protection would prevent potential tenants from ever having the opportunity to obtain a tenancy. It would so constrain the conditions under which anyone could offer accommodation for rent in the private sector that no one would offer it. The purpose of providing housing for rent, and providing for greater choice and the needs of labour mobility, would be defeated by the Opposition's professed concern to provide protection.

The hon. Member for Dunfermline, East (Mr. Brown) criticised the tax relief that will be given under the scheme as squandering money that should be given to the National Health Service, local authorities, and so on. We have heard that bleat throughout our consideration of the Budget and the Bill. The hon. Gentleman missed the point that incentives to encourage investment maximise the benefit to potential tenants who are looking for property to rent and minimise the cost.

With tax relief at a maximum of 40 per cent., it must follow that two and a half times as much housing is provided for every £1 in lost tax revenue as would be provided if the same amount of cash were expended through local authorities. For every £1 lost in tax revenue through this relief, it would be necessary to spend £2.50 if the same amount of accommodation were provided through the public sector, and that is even making the generous concession that the public sector could provide housing as efficiently and as cheaply as the private enterprise system.

The Government's proposal maximises the benefit for people who need houses to rent—people for whom the Conservative party cares and whom the Opposition would sacrifice to their hatred of the private enterprise system in general and of landlords in particular. I give the clause my full support. I hope that it will be carried with a substantial majority to show how serious we are about expanding the provision of private rented accommodation.

§ Mr. Alistair Darling (Edinburgh, Central)

The Government's support of the clause is indicative of their 51 attitude to a major problem. The primary purpose of the clause is to provide a tax shelter for a few, using the housing shortage as an excuse. It has potentially unpleasant side effects. There is no doubt that there is a major housing shortage. The high demand is ruthlessly exploited by many private sector landlords. There is a particular shortage of rented accommodation at prices that people can afford. The people who find it most difficult to move about and to secure any accommodation at all are those on low incomes, who cannot afford the price of housing.

The hon. Member for Slough (Mr. Watts) asked why the private sector has been in decline. The answer is simple: successive Governments have subsidised home ownership. It is obvious that anyone who has the means will attempt to buy his or her own home because it is very much to his or her advantage to do so. That is why the private rented sector has declined throughout this century.

It is interesting to note that in home ownership the subsidy goes to the purchaser of the home, whereas under this scheme, rather than the public subsidy being given to the tenant, it goes to the landlord. On Second Reading I said that if the Government were serious about promoting tenants' choice it would be far better to subsidise tenants so that they could shop around and use their increased purchasing power to choose suitable accommodation. Instead of that, the cuts in housing benefit have greatly reduced the purchasing power of prospective tenants, especially at the bottom end of the market.

What is the answer to the housing shortage? The Government are providing an opportunity for a few people to obtain further tax relief. The clause provides a tax break for the better off. Rachman rides again, and this time the taxpayer is providing the horse.

§ Mr. Ian Taylor

The hon. Gentleman has got it the wrong way round. The Government are trying, through the medium of tax incentives, to provide much more rented accommodation for people who need it.

§ Mr. Darling

I shall develop that argument shortly. I do not think—and I do not think that the Government believe—that this scheme will bring on to the market the thousands of extra houses that are needed. In any event, any houses for rent will be at the top end of the market, particularly in the south-east of England, where high profits can be made. Other parts of the country where there is a demand for accommodation and a need to encourage increased mobility will not be so attractive to people who wish to invest under the business expansion scheme.

One of my objections to the clause is that it specifically excludes organisations such as housing associations which have done much to provide low-cost housing. Clause 49(2) (b) specifically states that the qualifying activities are activities which … are, during the relevant period, conducted on a commercial basis and with a view to the realisation of profits. Clearly it is those who would profit from providing accommodation who will be subsidised.

I have three basic objections to the clause. First, it provides a tax shelter, giving a 40 per cent. discount to higher rate taxpayers. We must remember that only a few people in this country have between £500 and £40,000 to invest. They are not the ordinary, run-of-the-mill people. 52 Very few people have that sort of money to play around with. The Government are aiming the provision at those who have a great incentive to reduce their tax liability and who have vast sums of money available to tie up for five years.

§ Mr. David Shaw

Is the hon. Gentleman aware that about 70 per cent. of all those who have invested under the business expansion scheme are taxpayers at below the highest rate and that many standard rate taxpayers have invested in the scheme over the years?

§ Mr. Darling

Most of the money has gone to those paying higher rate tax. I repeat that the scheme is aimed at those with substantial sums of money available to invest which they are willing to tie up for five years.

The second objection is that after five years investors can sell up and get a profit, free of capital gains tax.

The third objection is that in some cases those providing accommodation at the bottom end of the market will receive a subsidy from the public purse because their tenants will have their rents financed through the Department of Health and Social Security. A few will provide accommodation at that level, but for the most part investors will be looking for market rents to improve the return on their investment, and that means high rents. Those with low incomes will not be properly catered for.

The scheme provides a tax break for the rich instead of looking after the least advantaged. It exploits those who have no choice. Furthermore, it is open to abuse, as my hon. Friend the Member for Dunfermline, East (Mr. Brown) said. If the capital gains tax advantages are to be realised, it is necessary to ensure that there are no tenants in the building at the end of the period. Clearly, the value of a property increases if it is not burdened by tenancies. This will give landlords the incentive to get rid of tenants by using the powers to be made available to them under the Housing Bill. By arguing that there is alternative suitable accommodation and that he wants the house for redevelopment, the landlord will be able to get the tenants out and realise his profits.

Who is to police the scheme? The Inland Revenue has enough trouble as it is in tracking down people who push tax advantages to their very limits. To give powers to local councils would be anathema to the Government, who have a pathological dislike of local authorities. With the money that is to be made available, local authorities could provide properly supervised accommodation for those who need it. If we are prepared to make funds available by way of tax forgone under the business expansion scheme, it would be far better to give that money to public bodies to provide accommodation, without the need to make a profit, thereby making a saving to the public purse.

We should invest in the public sector. I cannot see what is intrinsically good about the private sector providing accommodation, or what is intrinsically bad about local authorities and public bodies providing it. We should be willing to look after local authorities and housing associations, many of which have a very good track record of providing accommodation where it is needed.

The Government have completely abandoned any regional policy. We know that most of the money under the business expansion scheme has been invested in the south-east and that less than 4 per cent. has been invested in Scotland. If we are serious about encouraging businesses to set up outside the south-east of England, we 5