§ 2.49 p.m.
§ Report received.
§ Clause 1—[Rents for Public Sector Dwellings]:
§ Lord AVEBURY moved Amendment No. 1:
Page 2, line 2, at end insert—
( ) In section 111(1) of the Housing Act 1957 (General responsibility for local authority's houses) after the word "determine" there shall be inserted the words "having regard to management and repair costs, cost of borrowing and economies of scale associated with public sector house-building".
The noble Lord said: My Lords, Section 111(2) of the Housing Act 1957 requires a local authority to make
such reasonable charges for the tenancy or occupation of the houses as they may determine ",
but nowhere in that Act, or in the Bill now under consideration, is the word "reasonable" defined, nor are local authorities given any guidance on the criteria to be used in defining it for themselves, apart from the rules which noble Lords will be aware of, which provide that local authorities should not make a profit on their housing revenue account. These rules are all of a character which defines the maximum which can be allowed under the heading of "reasonable rents", but within that maximum I am afraid we have no guidance at all.
§ One can argue—and I know that some noble Lords do—that of recent years local authorities have been far too strictly constrained by the dictates of Central 8 Government, and that wherever possible your Lordships and another place should restore the maximum degree of freedom to them. However, if one looks at every other important field of social policy, I think it is now agreed that uniformity is essential, so as to avoid differences of treatment between one citizen and another. That is certainly so throughout England, if not the United Kingdom, particularly on matters that require cash transactions between an individual citizen and a public authority. To illustrate the point, it would be quite unthinkable for prescription charges, for instance, to be varied considerably from one area of the country to another.
§ If housing is to be considered a social service—and I understand that noble Lords opposite take that view, as we do on these Benches—there is no logical reason why rents should be in a different category from any other charge which is made for social services. As has already been remarked in the proceedings on this Bill, it is worthy of note that the rebate scheme provided for under the 1972 Act is retained, and to that extent the Government obviously take the view that housing is a social service, and that the benefits of it should be uniform throughout the country.
§ It seems to me that the reason why the Labour Party treats rents as being different is the entirely illogical one that under the Conservative Housing Finance Act the formula used implied a very steep increase for large numbers of tenants—a criticism of the formula and not of the principle. We of course supported the principle in the White Paper which preceded the 1972 Housing Finance Act, but not the way in which it was implemented. In the absence of any-such formula at all, what may tend to happen in practice is that rents will vary considerably from one authority to another according to the political complexion of the landlord. It could well be, in the case of tenants living on opposite sides of a street, that because one of them happens to be in the area of a Conservative authority and the other is in the area of a Labour authority one will have to pay twice as much rent for a very similar dwelling.
§ In the case of the private sector, it is generally agreed that the 1965 Act formula has worked reasonably well. But 9 the Tories wrongly assumed that it could be read across as it stood into the public sector, ignoring the economic differences between the two that were highlighted in the Milner Holland Report. That Report showed that what is a reasonable rent for a council house is not the same thing at all as a fair rent for the equivalent privately-rented property, because the costs are quite different. Milner Holland showed, for example, that with a two-bedroomed dwelling in the local authority sector the economic rent was roughly half that of the same dwelling in the private sector. This is the point I am trying to deal with in the Amendment.
§ It would be an act of temerity on my part, or on that of any other layman, to try to write into the Bill a definition of the word "reasonable". The most one can try to do is to sketch in some of the factors which should be taken into account by local authorities. To anticipate one possible objection of the Government, they might reply that the circumstances mentioned in my Amendment would invariably be taken into account and come under scrutiny when housing committees were thinking about what the level of rent should be. If this is the case, then there is no harm in spelling it out. But if, on the other hand, we are to be told that in specifying these factors we are implying that local authorities may ignore others of equal importance, which cannot necessarily all be anticipated at this stage, then as an alternative to the proposal in this Amendment I should be perfectly happy for the Secretary of State to have a power to make orders to require local authorities to take account of any matters he may think fit. But I suggest, my Lords, that to leave the term "reasonable" entirely unqualified, as it was in the 1957 Act, is a recipe for unreason and for enormous differences of rent which are not fair to tenants. I beg to move.
§ Baroness YOUNG
My Lords, I very much regret that the noble Lord, Lord Avebury, was not with us at the Committee stage, because I hoped very much that he would support me in my Amendments to Clause 1. One of the Amendments which the Committee carried was to amend subsection (3) of Clause 1 and so to allow a local authority, if it chose to do so, to make a surplus, and this 10 would meet the kind of circumstance which the noble Lord, Lord Avebury, has suggested in his Amendment No. 1. This is a helpful start to a definition of what is meant by a "reasonable rent", and it became very clear at the Committee stage not only that there would be a variety of circumstances between local authorities, but that Clause 1 itself is very unclear in its drafting, in particular in regard to what is meant by a local authority "having a balance", and what is meant by not being allowed to make a surplus, neither of which was fully explained, and which have been left— certainly, with regard to having a working balance—undefined in the Bill.
It therefore seems helpful to suggest that some of the things to which a local authority should have regard are management and repair costs. It is very unfortunate that the recent local government circular should have told local authorities to economise on repairs— a very shortsighted economy, I should have thought—and also to economise on management, when all the evidence that we have at the moment goes to show that we need better management, not economies on management on public authority housing. I am therefore very glad to support this Amendment, and I hope that the Government will accept it.
§ 2.58 p.m.
§ The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)
My Lords, the noble Lord, Lord Avebury, has raised a particularly interesting point. I do not know how pleased he will be at the support he has received, which in fact would take us back to the Housing Finance Act—which I really cannot believe is what is in his mind. The question of reasonable rents has again arisen. Here we are really returning to the basis that local authorities have used for many years—over 50 years before the 1972 Act. When one goes beyond what has been accepted as reasonable—and I shall be going into this in rather more detail in a moment—one has finally to leave it to the courts to decide what is a reasonable rent in any individual case. It is quite clear that the noble Lord who introduced the Amendment has given it careful consideration and I should like to acknowledge his further consideration in giving 11 me earlier a brief idea of what he had in mind. As I understand it, he wishes the Bill to set out some objective guidelines for the determination of rents in the local authority sector, and he is disturbed by what he regards as a gross disparity in rents for similar houses which happen to be in different local authority areas. This is certainly so at first glance —I appreciate very much what I think many of us would feel about this.
But the noble Lord falls into the camp of those who think that council rents should be governed by some objective test and this is an aim with which I would most certainly sympathise. Rents should be seen to be rationally determined. However, the noble Lord's Amendment would not achieve his aim, and in drafting, this, of course, is the problem which I think he acknowledged himself, particularly in so complicated a Bill as this. The Amendment might however succeed in achieving several other ends, not all of which I think the noble Lord would sympathise with— for instance, putting back the clock to the 1972 Housing Finance Act.
The Amendment would require local authorities to have regard to several factors in determining their rents. Let me look for a moment at these factors, bearing in mind that local authority housing finance is governed by the principle of meeting the cost left after subsidy either from rents or rates. First, there is the item of management and repair costs. Certainly local authorities must have regard to these; indeed, they must do more—they must pay them. Next, the noble Lord's Amendment mentions the cost of borrowing. This is the major local authority housing expense and it would be quite superfluous to tell a local authority to have regard to this, because any local authority treasurer would immediately reply: "The thought of my council's loan charges gives me nightmares and I am puzzling all the time how to meet them from income, either from the tenants or the ratepayers".
Local authorities do not do more in practice than cover these costs by income. At the present time about half their housing income comes from rents, about twofifths from subsidy, and the remainder from the rates. The Bill fixes the sub- 12 sidies and, in addition, one of its principal aims is to give local authorities freedom of choice, within the limits set by the word "reasonable", as to how they bring in the rest, either from rents or rates. To insert a piece of guidance to them on the lines of the Amendment (which I agree is well-intentioned) would have the result, I am afraid, of confusing them. What, they would ask, is the sense of bidding them to have in mind factors which must already dominate their thinking? Is it a roundabout instruction to cover all their housing costs out of rents? If so, what about their subsidies? Or is it an oblique way of telling them to cover no more than their housing costs out of rents?—in other words, a reinstatement in a less clear form of the no-profit rule which was deleted by an Amendment in Committee. I do not think that the noble Lord really intends that. If this Amendment were included in the Bill it could mean a very heavily trodden path to the courts, and one wonders what they would make of the situation.
The third factor of the noble Lord refers to economies of scale. It is quite true that local authorities can achieve many such economies. They offer contracts for large numbers of repetitive units with the prospect of repeat orders, and so they can get better terms from contractors than those same contractors would quote for building the same house as a one-off job. As a result, their borrowing is less than it would have been for a number of one-off jobs, and their loan charges are less. I think the noble Lord would agree with me on that point. That takes me back to my point that it is mainly loan charges that have to be covered by income.
Economies of scale are already, and automatically, taken into account in the loan charges. There is no possibility of taking further account of them by an injunction of this kind. Similarly, the economies of scale associated with managing large numbers of houses—economies which sometimes seem more apparent than real—are already taken into account when the council estimates how much it will need to spend on management and maintenance, and adds that sum to the expenditure side of its Housing Revenue Account estimates.
13 The noble Baroness, Lady Young, mentioned economy on repairs and maintenance. The fact is that councils were asked in that Circular to keep the same standard of service in real terms, but it was made clear that there could be no increase in standards this year. This is not because of any whim of the Government; it is due to a cut-down on public expenditure, of which the noble Baroness will be well aware. It is not my intention to decry economies of scale; all economies of this kind are very desirable. My point is that there is no possibility of having regard to such economies separately from having regard to the noble Lord's first two factors, and they, for the reasons I have already given, are superfluous; that is, as regards putting them into the Bill.
The Amendment is, unfortunately, not merely superfluous: it would be positively harmful in narrowing local authority freedom of decision. By listing the factors to which regard should be had in this way, the Amendment would exclude several factors to which authorities might wish, or need, to have regard. I have in mind, for example, factors of a social or economic kind, which might lead a local authority gradually to adjust its rate fund contribution to housing to be either more or less than the contribution which it will, as it were, inherit from the 1972 Act when it moves into its new position of rent freedom. The Government do not propose either to require or forbid authorities to do this; they know their areas and the circumstances of their people, and if they consider that some adjustment in the contribution from the rates is either equitable or necessary, while remaining within the limits of reasonableness, they should be free to make that adjustment.
The noble Lord is concerned at the differences in rent which occur between one local authority and another. Let us leave subsidies out of the reckoning for the moment, and suppose that local authority "A" covers its costs by charging an average rent of £4 a week while local authority "B" needs £5. Is the noble: Lord suggesting that local authority "A" should put up its rents to £5 to get rid of the disparity? If so, it would first reduce its rate fund contribution to housing, and so the disparity would be transferred from 14 the rents to the rates of the two councils. Eventually authority "A" would have got rid of its rate fund contribution altogether, and would be moving into profit. What then happens to the profit? The Council may reduce the rates still further, thus increasing that disparity, or it may treat itself to a new amenity such as a swimming pool; or—and really this is quite likely, and it is what the 1972 Act provided for—it may see part of the profit clawed back for the benefit of the Exchequer—and I cannot think that is what the noble Lord had in mind. If the alternative course were followed, and authority "B" reduced its rents to the level of "A", either the rates would have to rise, or there would have to be more subsidy. Since one cannot, in justice to the taxpayer, have an uncontrolled subsidy which simply picks up the bill whenever a council decides to cut its rents, there would have to be a system of external control by independent nonelected boards deciding what the rents should be. Thus we should be back to the system in the 1972 Act, with all that flowed from it. I need hardly remind your Lordships that the whole point of this Bill is to get rid of that Act and return autonomy to local authorities.
The reasons for differences in rents between one local authority and another are many. One cannot equate rents with other social services. There are complex social and economic factors involved. Sometimes one authority is more efficient than another and provides the same service more cheaply. In that case, its people should benefit. Another authority may be more parsimonious than its neighbour. In that case, its tenants should pay less because they are getting less. In some cases the situation may be due to housing history. Not all authorities build houses at full stretch all the time. A council that finds itself in an easier housing position, and reduces its rate of building for, perhaps, three or four years will find itself temporarily in a better financial position because its proportion of older houses with less debt is higher. That will enable it to keep down its rents until its rate of building rises again. It is this disparity in building that is the biggest single cause of disparity in rents.
All these factors are due to local decisions taken by elected local councillors and ultimately the electorate has the final 15 say because they can elect new councillors. While the system of local government exists, such variations will be inevitable unless the key decisions are taken out of their hands. The Bill aims to keep such decisions firmly in their hands. The noble Lord's Amendment would introduce interference which tenants will not appreciate. There are other aspects of housing policy just as important as uniformity—a matter which noble Lords opposite did not grasp until the Housing Finance Act had done all the harm it did.
The noble Lord spoke of the attitude of the Milner Holland Committee, and its approval of the way in which the fair rent formula has worked: I think he would have found equally approving comments in the Report of the Committee on the Rents Acts (the Francis Committee) in 1971. The essential feature of the fair rent system is that it works well in the privately-rented sector, where the problem is one of being fair, on the one hand, to a landlord who seeks a return on an asset and, on the other hand, to a tenant who is in no way responsible for the scarcity of accommodation in a particular area. This is a completely different problem from the problem in the public sector where it is a matter of bearing inescapable costs in the most reasonable way possible.
It was one of the errors of the 1972 Act that it transposed a formula from the area where it was applicable to an area where it was not applicable. I appreciate the noble Lord's eagerness to find a formula—and I am in great sympathy with what he is setting out to try to do—but he is, I feel, seizing one without thinking through its application. What works in one sector does not work in the other, and we have had enough proof to be able to see that. However, I hope this will be of some comfort to the noble Lord. This Bill is an interim measure, certainly as regards its provisions for subsidies and finance generally, and therefore to this extent it must be regarded as interim as regards rents also. I do not mean to suggest that local authority freedom and responsibility are only to be regarded as interim arrangements. They have permanent value, for theirs is a responsibility to distribute the bearing of costs, and it will be the legis- 16 lation consequent upon the long-term review of housing finance that will determine how much the costs will be.
The noble Lord may be assured that equity will be a prime objective of that review. In the meantime, I suggest that the immediate objective is to set up a system that restrains rents so far as humanly possible, and that is best served by allowing local authorities full scope for their economy and ingenuity with a minimum of restraint. I apologise to the House for having taken a little time on this, but not only did I owe it to the noble Lord, Lord Avebury, who put down the Amendment, but I feel that in raising this point he has rendered a service. He has underlined a number of things which I hope I have explained to his satisfaction, and although it would be impossible to write them into the Bill, they should always be kept at the top of people's minds, certainy those of local authorities. He has made many valuable points which we have recorded and noted and I hope now that he will consider withdrawing his Amendment.
§ Lord AVEBURY
My Lords, I am extremely grateful to the noble Baroness for the thorough answer which she has given to this matter and for the several important points which she has made in the course of her speech. I would just remark that the differences between two authorities may be a great deal larger than the example she quoted where "A" was charging £4 a week and "B" was charging £5, and the question was whether to bring one of the rents down by £1 or put the other up by £1 in order to equalise them. My formula is not of a strictly arithmetical nature, so that the rents of the two authorities would have had to be made identical. The factors which I set out in the Amendment were merely those to which the local authorities should have regard, and I should have thought that differences as small as between £4 and £5 would be quite reasonable—to go back to the 1967 Act term—bearing in mind the other factors the noble Baroness mentioned.
One in particular, which she said was the most important, was the scale of building that has been the practice of a particular local authority in the past and the effect it had on current rent levels. 17 Because one local authority had been idle and had not built any new houses for several years past, then, as the noble Baroness said, it would be able to charge a lower rent because the costs it was incurring were in pounds of much less value than those of today. I am hoping that when we come to discuss later clauses of the Bill we shall see that local authorities are in fact being insulated from the burdens that have been imposed on them in previous Acts as a result of complying with Government policy. This is not a point which I wish to develop on Clause 1, but surely it is grossly unfair that local authorities should have had to charge much higher rents because of the additional costs they incurred in getting on with new building. I hope that when we come to Schedule 1 we shall be able to clarify this.
The noble Baroness was right when she said that my intention was not to return to anything like the 1972 Act formula. My reference to Milner Holland was only to the difference in the appropriate levels of rent between the private and the public sectors which that committee emphasised, and to the inapplicability of a formula which worked in the private sector to the councils where the circumstances are so different. This is the point underlying some of those factors in the Amendment. I certainly take the point made by the noble Baroness—in fact, I mentioned it in my speech—that if one did not include all the points she wanted to take into consideration by implication you might have been saying, "Do not bother about the economic and social factors which arc, as she said, of equal importance". This is why I suggested, in view of my inadequacy as a draftsman, that it might be a good alternative if the Secretary of State had an order-making power that he could require local authorities to take into account certain facts including those I mentioned. Perhaps that discussion ought to wait, as the noble Baroness suggested, until we have the long-term review of housing policy. I accept that it would be wrong to make any fundamental departure from the path we have set ourselves on now while the Government are awaiting advice. With that, I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.18
§ Clause 8 [Certain amenities to be disregarded in determining fair rent]:
§ 3.17 p.m.
Baroness YOUNG moved Amendment No. 2:
Page 5, line 38, leave out (" paragraph ") and insert (" paragraphs ")
§ The noble Baroness said: My Lords, I have put down this Amendment again on Report stage and I am hopeful that the noble Baroness, Lady Birk, will say she is able to accept it. The point of this Amendment—that is, Amendment No. 2, and the consequential Amendments which go with it, particularly No. 3 and No. 4 and the Amendments to the Schedule which I think put the Amendments in order—is to balance the effect of Clause 8 on the reckoning of a fair rent. Clause 8 states that if there is a new amenity in an area which has not been provided by a landlord, this shall be discounted for the purpose of the fair rent.
§ This Amendment says that if there is any deterioration in the amenities of the area—which again are not the responsibility of the landlord—this, too, shall count in the fair rent. Either way, it will make a difference to the capital value of the house and, to that extent, to the fair rent. We discussed this at some length in the Committee and I do not wish to take up the time of the House in going over the arguments again. But I hope very much, in view of what the Government said at Committee stage, that they will feel able to accept this Amendment this afternoon. I beg to move.
§ Lord MELCHETT
My Lords, these Amendments repeat the Amendments put down in Committee by the noble Earl, Lord Kinnoull, to make what is now Clause 8 work in both directions; that is, to require rent officers and rent assessment committees, when fixing fair rents, to disregard not only the provision of and improvements in neighbourhood amenities since the material date, as the clause requires, but also deterioration in, or disappearance of, such amenities. The latter disregards as well as the former would, under the Amendments which the noble Baroness has moved, apply to changes since the material date which is defined in subsection (2). This is certainly an improvement on the former Amendments.
19 In general, the argument that what is sauce for the goose is sauce for the gander is attractive since it is founded on equity, but my honourable friend the Minister for Housing and Construction and I, after very careful consideration as we promised, are not enthusiastic about the proposed Amendments. Under the Bill as it stands, owners of tenanted dwellings in a locality which has increased in attractivenes through expenditure to which they have not contributed will not benefit financially in consequence of that expenditure. Most people, I think, would agree that this is reasonable. But the reverse proposition, as it might be described, does not so readily stand up to examination. If the clause were amended as proposed, people living in deteriorating neighbourhoods would both lose the amenities and have to pay rents reflecting the value of amenities that had diminished or disappeared.
I had hoped that the noble Baroness might have drawn your Lordships' attention to one other disadvantage of this Amendment. As the noble Earl, Lord Kinnoull, said at Committee stage, and as I accept, Clause 8 will not make the job of rent officers and rent assessment committees any easier; in fact, the noble Earl said it would add to their problems. I hoped we might have had an admission that at the very least this Amendment will double these problems.
As I said in Committee, it is open to question whether deterioration of amenities is, in general, likely to be as identifiable for disregard purposes as provision for improvement of them. Even where an identifiable amenity disappears—for instance, when an open space is built over —its loss is frequently balanced by the provision of some other benefit, such as improved public services to the area. I do not intend to ask your Lordships to divide on this Amendment, but I hope that the noble Baroness will consider carefully the effects of what she is proposing before she decides whether to pursue it.
My Lords, I am not impressed with the Minister's argument. I thought his statement that it was attractive that both sides of the coin should be reflected in the Bill was the one that should have held the field. But I cannot see the argument that the rent officer will 20 find it much more difficult to decide when an area has declined than when an area has improved. Frequently, the provision of public transport might merely have been withdrawn. The argument that if public transport comes to an estate which had none before the landlord should be refused any increase in rent, although the area has "become an attractive one for commuters, but that if public transport is withdrawn he is expected to take less rent in consequence, does not stand up logically at all.
§ Baroness YOUNG
My Lords, I should like to thank the noble Lord, Lord Hawke, for his support of my Amendment. I was sorry that the noble Lord, Lord Melchett, was not able to say that the Government would accept it. However, I hope they will reconsider. The noble Baroness, Lady Birk, undertook to look at it after Committee. So far as I can see, the difficulty about this point is the burden that will fall on a rent officer in determining a fair rent. The noble Lord, Lord Melchett, will know better than I why this clause was written into the Bill on Report in another place; it was not in the first print of the Bill. As he himself has said, it will be difficult for rent officers to take into account an amenity, and to determine at what stage something becomes an amenity which could have affected the fair rent. I imagine that the kind of factor the other place had in mind when accepting the Amendment was the provision of a playing field, a playground or a piece of public open space, or something that was expected to benefit the area as a whole and the house in particular.
I see the difficulties that this provision can have for rent officers. But, in fairness, if we are going to take into account —perhaps one should say "disregard"— an amenity provided by someone else, we must at the same time disregard a deterioration which is not, after all, the fault of the owner of the house which is being let. He cannot alter local authority decisions except by the way he votes at an election, or by influencing certain members of the council. The fact that the area is deteriorating may be against everything for which he has worked. He may have fought as hard as he can to prevent it. He may have preferred something quite different. It seems to me that as he and his livelihood will be affected 21 by this situation he, too, should be considered in the matter. What is fair for one is fair for the other.
Almost any Amendment put down to a Bill will create extra work for somebody —not least for the Government, and the Opposition when the matter is being discussed; and of course for others who follow. But I believe there is merit in this case and because of that, even though it will affect other people, I hope the Government will consider it.
§ On Question, Amendment agreed to.
§ Amendment moved—
Page 6, line 8, at end insert—
(bbb) any deterioration after the material date in the amentities of the locality (including the disappearance of any of them) other than a deterioration attributable to any act or omission of the landlord or a superior landlord or a predecessor in title of the landlord or a superior landlord; and ".—(Baroness Young.)
§ On Question, Amendment agreed to.
Page 6, line 11, after "(3)(bb) insert "and (bbb)".—(Baroness Young.)
§ On Question, Amendment agreed to.
§ Clause 9 [Increases of rent under controlled tenancy permitted towards cost of repairs]:
§ 3.26 p.m.
Lord AVEBURY moved Amendment No. 5:
Page 7, line 1, leave out (" 12½ per cent.") and insert (" the prescribed percentage ").
§ The noble Lord said: My Lords, if it is for the convenience of the House, may we take Amendment No. 6 with this Amendment since it is consequential upon it. These two Amendments are designed to take account of a point already touched on in Committee; namely, that a landlord cannot at present borrow money at anything like an interest rate of 12½ per cent. and therefore he will be "in the red" on any repairs carried out on controlled property. Before proceeding, I should declare interest as a landlord of controlled property.22
§ There are two alternatives here. One is the alternative that has already been suggested: to put into the Bill a higher fixed percentage, such as 15 per cent., which would bear some relation to the cost of the money which might be borrowed by a landlord for this purpose if he were to undertake repairs at today's date. The other approach, which I prefer, is that rather than aim at a figure which was realistic in today's conditions, one should provide for a variable rate which it is hoped might be reduced at some rate in the future, if the Government's efforts to bring down short-term interest rates generally are successful—and there arc signs that that is already happening.
§ If a landlord were able to borrow from the bank to finance repair costs at the moment, he would probably pay an interest rate of approximately 15½ per cent. Therefore, for every £100 he spent on repairs he would be out of pocket to the tune of about £2.50p a year in terms of the amount he received back from the tenant in consequence of the work. But if we could return to interest rates of the kind which were quite common a few years ago, 7 or 8 per cent., then 4 per cent. over the banks' base rate—the prescribed percentage as defined in the second of these two Amendments—would be only 11 or 12 per cent. and therefore lower than the amount which the Government have provided for in the Bill. So I hope, in spite of the complexity of having to carry out reviews every six months, and on grounds of equity both to the landlord at the moment and to the tenant if interest rates are reduced, that the Government will feel disposed to accept this Amendment.
My Lords, this Amendment has a great deal of merit. I hasten to add that I have no interest whatsoever as a landlord or in any other way. If one takes the case of a landlord borrowing to carry out repairs, he does not borrow at 60 years or 40 years or for an unlimited period; he must borrow on such terms as the bank lay down and repay them in a comparatively short time. On that basis, judged by today's interest rate, 12½ per cent. is utterly impracticable. How could he get a loan from anybody repayable in instalments at that rate? It is quite impossible. I am not quite sure 23 whether the noble Lord, Lord Avebury, had that in mind when he was talking about the rate. In other words, I think that not only is he correct in saying that there should be some variable factor for the rate of interest, but that it should also take into account the fact that the landlord has to borrow for a fixed term, and a comparatively short term, and repay the capital.
§ Lord ROBBINS
My Lords, may I add my support to what the noble Lord, Lord Hawke, has said. I am quite astonished that a Government Department at this time and in this place should wish to insert a precise figure relating to the rate of interest. I am no "futurologist". It may be that the noble Lord, Lord Avebury, has reason to suppose that in time to come interest rates may come down. I can easily think of cases in which interest rates will rise, and rise considerably. It seems to me to be mere expediency just to have a blanket phrase instead of a precise figure.
§ Baroness YOUNG
My Lords, once again I wish that the noble Lord, Lord Avebury, had been with us in Committee, because my noble friend Lord Kinnoull and I put down an Amendment on this point, though I am bound to say that we suggested 15 per cent. rather than 12½ per cent. However, on reflection I should be very happy to support the Amendment before us, for precisely the reasons which have been advanced by the noble Lord, Lord Robbins, and the noble Lord, Lord Hawke. This is a better Amendment. The arguments have been put forward, and I hope very much that the Government will consider the Amendment.
§ Baroness BIRK
My Lords, before I come to what seems to be the main argument against these Amendments, may I deal with one or two of the technical anomalies. The effect of the Amendment put forward so clearly by the noble Lord, Lord Avebury, would be to allow a rent increase of a prescribed, but variable, percentage per annum instead of 12½ per cent. of the cost of repairs to a controlled dwelling. This percentage would be prescribed at six-monthly intervals and would be the average of the Bank of England minimum lending rate 24 for the previous six months. First, apparently the noble Lord relies on the assumption that landlords need to borrow money to carry out all repairs and that therefore the rent increase to which the landlord is entitled should be tied directly to interest rates. If that is so, it is perhaps strange that the Amendment leaves unchanged the figure of 12½ per cent. in respect of repairs to other premises of the landlord which also benefit the tenant of the controlled dwelling. Here I refer to subsection (2) of Clause 9. Therefore the noble Lord is dealing only with a part of the problem, not with the whole problem.
Secondly, the Amendment creates an anomalous situation in relation to repairs completed after the 6th April 1973 but before this Bill comes into force. The prescribed percentage rent increase would have to be the average minimum lending rate for a period of six months before the Bill comes into force. This rate could well be different from the minimum lending rate when the repairs were completed. Assuming for the moment—although I shall have something more to say about the minimum lending rate—that the minimum lending rate is intended to be the equivalent of the cost of borrowed money, then if the rate, when the Bill comes into force, is lower than it was when the repairs were completed, the landlord would not get an adequate level of rent increase. If it were higher he would get rather more than that to which he was entitled. This is a problem which is inherent in any form of variable rate, and it is one of the reasons for having a fixed rate. With a fixed rate, people know where they are. However, there are much more serious objections to this Amendment. First of all, I am not sure—
My Lords, before the noble Baroness abandons the subject of the rate of interest, may I ask her who in this country can borrow money at the minimum lending rate?
§ Baroness BIRK
My Lords, that is exactly the point to which I was coming. The noble Lord, Lord Hawke, seems to have jumped to the point himself. The noble Lord, Lord Avebury, the noble Lord, Lord Hawke, the noble Lord, Lord Robbins, and the noble Baroness, Lady Young, do not seem to me to realise the 25 effect on landlords of the present conditions when using the Bank of England minimum lending rate for this purpose. From May to September 1974 that rate stood at 11¾ per cent. Since then, it has been gradually coming down and is at present 10 per cent. So, far from getting 12½ per cent. or the higher figures which have been suggested from time to time during the course of the discussion of the Bill, at present landlords would get only something like 11 per cent. I cannot believe that that is what the noble Lord had in mind. Maybe the noble Lord, Lord Avebury, had it in mind, but I cannot believe that the noble Lord, Lord Hawke, the noble Baroness, Lady Young, and certainly the noble Lord, Lord Robbins, had that in mind because this Amendment relates to the Bank of England minimum lending rate. With respect to the noble Lord, Lord Robbins, we are not talking about even a power to vary the rate. We are talking about something specific and we are talking about this Amendment. The Bank of England minimum lending rate is lower than the rate at which, as I am sure everybody here is aware, it is possible to borrow commercially—and that is the Amendment about which we are talking this afternoon.
Apart from this, I think that the general assumption behind the Amendment is dubious. Where minor repairs are involved, and for many landlords this applies to major repairs as well, it is quite likely that the repairs would not be completed on borrowed money. Nor could it be argued that a rent increase based on the minimum lending rate represents the real opportunity cost to the landlord who carries out repairs on his own capital. What is clear, however, is that a landlord who has sufficient capital to carry out repairs might be very reluctant to do so if lending rates were falling, particularly if we are to take what is stated in the Amendment—the Bank of England minimum lending rate. He would prefer to delay the repairs, hoping for a better return when the lending rates rose.
The Amendment would also put tenants in a most unfair position. When repairs were being done, often they would have no knowledge of the percentage rate of interest upon which their new rent would 26 be based. Six-monthly alteration of the prescribed percentage would give rise to considerable confusion and difficulty in the calculation of the rent increase. There is a point here which must be stressed. All sorts of arguments, which do not come into this Amendment which is before us this afternoon, may arise about having an order with power to vary. On the other hand, however, there is a necessity in this kind of area—realising the relationship between tenants and landlords—to appreciate that one would be dealing with people who must have an element of certainty about what is to happen to them and what expenses they will incur. This is one of the main reasons, although it may have some disadvantages, for having a fixed rate, because there would also be the purely practical difficulty for the landlord of a controlled tenancy, of having to work out a calculation involving three decimal places based on a figure which many ordinary people may not readily know how to discover; nor could tenants readily know whether they would be liable to pay the increase which is being demanded of them. Obviously, with the percentage changing as frequently as this, it would not be possible to incorporate a figure into the Department's forms and leaflets.
One point which has been made constantly during this and other debates, particularly by the noble Baroness, Lady Young, is the necessity that people should know where they are and for advice to be given in leaflets and forms by the Department. The likelihood of inaccurate demands being made would be considerable. I fully appreciate the desire of the noble Lord, Lord Avebury, that there should not be an arbitrary figure, but as I have said, the main advantage of the 12½ per cent. provision is its simplicity and ease of understanding. These Amendments would destroy the simplicity for the sake of an assumption which, in my view and that of my honourable friend the Minister for Housing Construction, is not well founded. May I say that—
§ The Earl of KINNOULL
My Lords, the noble Baroness extended that confusion because the tenant would not know what rate would be charged. Could not we have written into the Bill that the rent officer be consulted and that 27 the rent officer should announce every six months what the then rate should be for that particular improvement or repair to the property?
§ Baroness BIRK
My Lords, that may be possible if we were considering the whole question and there were different Amendments before us today on the Marshalled List. However, what we are discussing today—and I find it difficult to believe that the noble Earl would support this—is an Amendment where the rate is tied to the minimum lending rate of the Bank of England.
§ The Earl of KINNOULL
My Lords, I am sorry to interrupt the noble Baroness once again. Is she therefore saying that she accepts the principle but not the Amendment?
§ Baroness BIRK
No, I am not saying that, my Lords. When the noble Earl intervened I was about to say that, in preparing the Bill and thinking about the comments which have been made upon it in various places, naturally my honourable friend had considered a number of alternatives to the 12½ per cent., including some form of variation. He came to the conclusion, and I agree with him on this, that they should not be pursued and that nothing more practical and equitable than 12½ per cent. could be decided upon. In other words, I was about to say that this had been considered, though not in the terms of the Amendment which has been put down by the noble Lord, Lord Avebury, because that is quite impracticable; and, as I have pointed out, it would be completely inadequate, anyhow. However, on the wider question, this matter has been considered. Above all, my honourable friend had in mind that a major review of housing finance is taking place and that reports such as that to which the noble Earl has referred could well in the widest aspect arise in the course of the review. While once again I say that I appreciate the motivations behind the Amendment which has been moved by the noble Lord, Lord Avebury, in view of this explanation I hope that he will withdraw his Amendment.
§ Lord AVEBURY
My Lords, I am all in favour of simplicity and ease of understanding and I hope that on some other 28 occasion the Government will bring forward a Bill which will prevent the bank from charging me more than 12½ per cent. on my overdraft. I should be perfectly happy to pay a fixed interest rate of 12½ per cent. and to know exactly where I stand with my bank instead of always having to calculate the current rate on my overdraft. If, therefore, the noble Baroness is thinking along those lines she has my wholehearted support.
§ Baroness BIRK
My Lords, I am sure the noble Lord will not mind me pointing out to him that today we have this Amendment. May we have his bank account put down as a different Amendment to a different Bill?
§ Lord AVEBURY
My Lords, I am only dealing with the principle of keeping interest rates constant in saying that if that is the principal objection which the noble Baroness has to this Amendment because she wants simplicity and ease of understanding in terms of what people will have to pay indirectly in interest rates, then we ought to apply this principle across the board and stop anybody else from having to suffer variable interest rates.
§ Baroness BIRK
My Lords, may I reply to the main point which the noble Lord has just made. It was not my principal objection, but it was one of the arguments which I was assembling, together with the others. One of the main arguments against this particular Amendment is that it is just not viable. In other words, it would not be fair and would not be workable. With great respect, I think that the noble Lord has made a mistake in the way that the Amendment itself is drafted. Therefore the objection is not just on a general ground. We are dealing with a specific Amendment, and I am resisting that Amendment for the reasons which I have given.
§ Lord AVEBURY
My Lords, perhaps I was exaggerating in saying that this was the main reason why the noble Baroness was resisting my Amendment, although I thought that it loomed large in her thinking. However, there were other objections which she made and I was going to deal with those. May I repeat that if the principle which the noble Baroness is following is that we 29 should have a constant interest rate for the sake of certainty, that ought not only to apply to people who are having to pay increased rent or repair costs.
Moving backwards in the chronological sequence of her argument, the noble Baroness asked how tenants would discover what this prescribed percentage was in order to protect themselves against inaccurate demands that might be made upon them. Under the terms of the second Amendment, the Secretary of State has to declare what the prescribed percentage is at intervals which are laid down in that Amendment. It would be for the Secretary of State to decide how these figures were best promulgated and drawn to the attention of both the landlords and tenants who had to observe them. I should not have thought there was any great difficulty here. Ministers have power to draw things to the attention of the public. They can issue Press notices and require rent officers to draw the figures to the attention of those with whom they have to deal. There are all kinds of ways in which one can make sure that all parties to deals have full knowledge of the prescribed percentage on which their rents are to be calculated. The noble Baroness, in arguments that I suppose were designed to appeal particularly to the Conservatives, pointed out that the minimum lending rate was lower than the 12½ per cent. laid down in the Bill. If I may say so, she has missed the whole point of the Amendment. What I am trying to do is to get across the principle of variable interest rates. Once that is accepted by the Government we could go on to discuss the detail.
I am sure there would be differences in philosophy between us because the noble Baroness, Lady Young, has already said that she thinks that the figure of 15 per cent. is more appropriate than the figure of 12½ per cent. which is mentioned in the Bill. The noble Lord, Lord Hawke, said that he thought that whatever figure was laid down ought to contain some element of capital repayment. However, I agree with the noble Baroness that if this money is being spent on the landlord's own property, one has to take into account the benefit which he is obtaining from it. Ultimately when he needs to sell the house with vacant 30 possession, as all landlords do if they can get it, then whatever has been spent on repairs will come back to him in terms of an improved yield from the sale price of that property. Therefore I would not agree with the noble Lord, Lord Hawke, that a landlord should expect to get something back in terms of increased rent for the capital element of the sum he has had to borrow.
The Amendment does not rely upon the assumption that the landlord has to borrow the money, because if he does the work out of capital which he has on deposit in the bank, or in a building society, or in some other form of near cash, then he has forfeited the interest on the money which has to be withdrawn. If he is receiving 12½ per cent.—although I do not know at the moment whether that is so—from a loan which he has made to a finance company, and he withdraws that loan in order to pay for the repair costs, then the 12½ per cent., or whatever is the interest that he is receiving on that money, comes to much the same as if he had to borrow it from a bank. The interest charges may not be precisely the same, but I think the noble Baroness can see that there is no difference in principle between having to borrow the money on the one hand, and forfeiting interest which one would have been receiving if one had been able to invest that money elsewhere, other than in the repair costs.
All I wanted to do this afternoon was I to try to give some opportunity to the House to discuss the principle of variable rates. This 12½ per cent. that we have heard about has a very long and no doubt honourable historical validity. It has gone on ever since I can remember, in an era of much lower interest rates than those operating now. The noble Lord, Lord Robbins, emphasised that it is time that we got around to thinking in terms of much greater fluctuations in interest rates than in the past. Although this may not be precisely the moment at which to write provisions of this kind into the Bill, I hope that as a result of my Amendment the noble Baroness will see the matter is given serious attention in the long-term review which she has already mentioned. I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.