Mr Clive Betts
MP for Sheffield South East · Labour · United Kingdom
“I wholeheartedly welcome the Foreign Secretary’s statement, both its content and its tone. I would like to ask about his discussions with our colleagues and allies in other countries who are looking to implement similar sanctions.”
“I offer two congratulations: first, to my right hon. Friend and constituency neighbour, the First Secretary, on her well-deserved promotion—I am sure she will do an excellent job. Secondly, I congratulate her and the Prime Minister for their real commitment to devolution, which I have wanted to see for an awfully long time.”
“I apologise for the fact that—as I have explained to you, Madam Deputy Speaker—I will have to leave straight after my question to chair Westminster Hall. I thank my right hon. Friend for doing this very challenging piece of work. I think that the theme of fairness, for the people who need benefits and for taxpayers, is right.”
“On the other hand, so many constituents with really serious conditions get turned down for PIP, and can get it only if they struggle through the appeal system, sometimes without any help at all. So the system is not fair to anyone at present.”
“When the previous Government let the contract, we were in a situation in which procurement could not properly take account of the past record of companies, and I understand that the Government have now changed that.”
“I will dive very deeply into the question, Madam Deputy Speaker. The Chair of the Committee sends his apologies for his absence; he is presently in a Committee meeting.”
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“I am sure that the Minister will have a response on when the guarantee will get the shovels digging. The idea of a guarantee is not a bad one if it works, but perhaps it should be linked to some wider proposal for an investment bank. Something that came out in our recommendations is that, if there is a limited amount of public money, it can sometimes work for the best by assisting to leverage in private funding and by providing some guarantee for that private funding. We can then make the most of the two sources of funding together.”
“It is a ring-fenced account. It should be in the other direction: it is a safer form of borrowing for authorities. It is not only the Local Government Association, but councils such as Westminster, Kensington and Chelsea and Hammersmith and Fulham that are saying, “Get rid of the artificial cap that has been put on housing revenue account borrowing. Why is it there? Why can we not rely on the prudential rules that are in place for all other forms of local authority borrowing?” Ministers always have fall-back powers under the Local Government Act 2003 if they need them. Why can that not be relaxed to allow more borrowing and building?”
“We have to be cautious, however. What might be right for associations such as the G15 in London, where the private market is buoyant and rents are appropriately high, will not be right in other parts of the country where there is not the same ability to leverage funds. We have to be careful and recognise that a one-size-fits-all solution is not necessarily available. The Committee looked at the role of local authorities. They have not been great contributors to new house building in recent years, and we ought to change that. We welcome the housing revenue account reforms, because they give local authorities the opportunity to take investment decisions, but why, of all the investments made by local authorities, is housing the only form of investment that is controlled beyond prudential rules? Why is it different?”
“That is one way in which the solidity of their balance sheets is helping them to raise money for a purpose that should, in the longer term, be self-funding. These are interesting ideas. The Committee also looked at the housing grant. The so-called grant is sat on the books of housing associations and is counted as a debt. Changing that to a genuine grant or equity could release a lot of funds for investment, and is clearly supported by the housing association movement. We suggested that the Government look at that, because we recognised that there could be problems with overloading some associations in some circumstances with too much debt. Nevertheless, we thought that in principle it was an idea worth considering. We hope Ministers will look at it, because some of the stronger, more robust housing associations might want to pursue it.”
“We welcome the Government’s commitment to the pilots, which are going ahead, and we have had further information during our more recent inquiry into the impact of welfare reform on local authorities. We will reach some further conclusions about the direct payment issue. Clearly, the Government must be aware of the impact on housing associations. Returning to the point the hon. Member for Meon Valley (George Hollingbery) raised a few moments ago, the Committee recognised that there are a number of ways to get more leverage from housing association assets, and people gave evidence on what they were doing in that regard. It is interesting that only yesterday the G15, the 15 big housing associations in London, made an announcement about a common investment vehicle to raise money to enter the private sector housing market.”
“They did not think that was workable in the long term. They asked for some certainty about what would happen, so that they could enter into borrowing arrangements. The Minister for Housing told us in his response that he accepted that point and that the Government would look at it closely. It would be helpful to know what the Government’s response is now, because it is clearly an issue. Moody’s has downgraded the credit ratings of 26 housing associations, and we are getting to the tricky issue of direct payments, which the Select Committee considered. The National Housing Federation certainly told us that it thought that a number of associations would end up paying more in borrowing costs because of the associated problem of rising arrears.”
“It appears that the Government have gone a bit cold on REITs and do not see them as a solution, but I am sure that we will hear more from the Minister. On social housing, there was a recognition—we might have different views about its appropriateness—that the Government had cut social housing funding over the comprehensive spending review period by 60%. Effectively, the Government are relying on housing associations in particular to increase rents towards 80% of market values on new properties and perhaps on existing properties to help to fund their balance sheets. Rents are rising to take up the slack from the reduced social housing grant that is available. The National Housing Federation and housing associations told us clearly that they were concerned that this model would not last much beyond 2015.”
“On the second point, I can see the problems. I do not think that we went into that issue in detail. I have been involved in such bodies in the past, and the important thing is to recognise that, yes, there can be issues and to try to resolve them right at the beginning. I will say a little more about housing associations in a second if the hon. Gentleman will allow me. We looked at real estate investment trusts, which are close to the Minister’s heart—or perhaps not quite so close. We wondered why, after years of having them, no one seemed to be using them, certainly not for housing purposes. We had some challenges about how the Treasury treats investment and trading profits for tax purposes and whether that could be changed.”
“That is a long-term problem going back to the 1980s—and even earlier—and the change from subsidising the building of homes to subsidising the high rents of people living in those homes. That is a major challenge for all of us.”
“We welcomed the proposed new models of governance for arm’s length management organisations, which, with more tenant involvement and more co-operative-type structures, could borrow in the private markets, as housing associations do. We also made recommendations concerning the right to buy—about trying to ensure one-for-one replacements and about how the Government could help facilitate that—and giving more freedom to local authorities in terms of discounts in areas of great housing stress and to housing associations that might want to enter the right to buy, where they think it right for their portfolios—that comes back to the point about using portfolios in a way that benefits housing associations. We face the great challenge of moving to a better situation in which we subsidise building, not benefits.”
“The Committee’s report suggests that some authorities may not want to go ahead, because they do not have a housing need. Why can there not be a swapping or trading of borrowing amounts between local authorities? The Government allow and encourage sharing between local authorities on a whole range of areas, so why not on this too? We raised with them the possibility—we did not say they should definitely do it—of changing Government borrowing rules in respect of the general Government financial deficit. To return to our visit to the Netherlands, the Dutch Government guarantee housing borrowing for housing associations, yet it does not count as Government borrowing. It is a problem in this country that Treasury restrictions weigh heavily on local authority borrowing, particularly in this area.”
“I would be more supportive of the 600,000 figure, but we probably cannot deliver that with the money available. My hon. Friend is absolutely right. She anticipates the “Let’s Get Building” report produced by the National Federation of ALMOs, the LGA and the Chartered Institute of Housing, among others. It makes the point that if the cap was lifted the amount of borrowing local authorities could enter into would rise from £2.8 billion to £7 billion. That would allow the building of 60,000 homes and put a lot of people into work. It just seems to be a simple solution. It does not require the Treasury to go out and find any money to subsidise that borrowing, because it is a ring-fenced account, a trading account, and Ministers need to accept that.”
“There are two problems with that: first, when the market collapses, there is not the alternative balance of social housing to replace it in the construction industry, so that element falls at the same time, and secondly social houses are not necessarily needed in exactly the same places as market houses.”
“There is a problem when market housing is not being built. It is because of the over-reliance on section 106 housing in the past. I know the Government have proposals to encourage, if not force, local authorities to renegotiate the terms of 106 agreements to make market housing more viable. I have reservations about that—it was not something the Select Committee considered in particular—although we recommended that any changes to 106 agreements be left to local discretion. The hon. Gentleman makes a valid point, however, about the comfort of relying on section 106 agreements to provide housing.”
“The challenge with self-contracting is to get the building societies and the banks to understand that they can lend money on a house that does not yet exist and—because people have to live in one home while the other is being built—to put bridging arrangements in place. In the end, however, people end up with something that costs only 75% of its market value, so we really ought to push on self-build. Our report is not a complete solution to all our housing problems. It is not right in every respect, but it contains a number of proposals, and if the Government made a clear commitment to implementing them—not necessarily all of them, but a significant number—that would go a long way towards delivering the 250,000 new homes that this country so badly requires.”
“I have not yet been invited to the turning of the first sod on such a site, let alone the first home to be finally built and opened, so I suspect we have not made as much progress as we might have. I think all members of the Committee who went were enthused by self-build and thought it was a good way forward. It needs a push from the Government and local authorities to release land—it might need the Ministry of Defence to release some—but it seemed an excellent way forward. Self-build also helps small builders, who have been hit more by the recession of the last few years than the volume builders have, because they cannot get funding from the banks and face real difficulties.”
“These individuals had either contracted a local builder or designed their own homes on the internet, as we saw at one place we visited. In effect, they had contracted their own homes. That seemed a brilliant way forward. I see no reason why we cannot build 50,000 self-build homes in this country, instead of the 10,000 we build at present. That could go a long way to meeting the gap. We found that people were satisfied because they had the homes they wanted with the money they had. They did not have to have something off the shelf that did not really meet their needs. Their homes were being built for only 75% of the cost of a similar home from a volume builder. There are clearly challenges in getting the whole thing up and running. I welcome the Government’s £30 million of funding to try to encourage such activity. How far have we got?”
“That is absolutely right. I completely agree with the hon. Gentleman. As we know, many local authorities of all political persuasions are doing just that and being sensible about it. The Committee made a recommendation about self-build—or rather self-contracting, which is what we probably saw at the massive site at in Almere. When I was told, “You’re going to see a self-build”, I expected to see the teacher, the bank manager and the postman in their wellies and overalls on a Sunday morning digging away and laying the bricks, but that was not what we saw. We saw a local authority site on which individuals had bought plots at a given price and with limited restrictions on what they could do—some areas were reserved for bungalows and others had a three-storey height limit, and obviously there was a boundary to the site.”
“I will be brief, because the Minister need give only a one-word answer. Is he prepared to look again at the cap on borrowing to fund housing at local authority level? Why is housing the only form of borrowing that local authorities cannot enter into simply because of the prudential rules?”
“Clearly, we do not want to get into a debate— I am sure, Ms Dorries, that you will pull me up if I do—on the wider issue of the benefits or otherwise of the abolition of the regional development agencies, but it clearly changed the control of ERDF funding, the responsibility for which was given to the Department for Communities and Local Government.”
“That should be done some time this year, and it will then feed into any proposals for spending during the next ERDF spending round. That is welcome. Does the Minister have any further information on that evaluation study? What is it likely to cover, when is it likely to report and when is it likely to be made public? I think he has promised that a copy will be sent to the Committee for our consideration. It would be helpful to have that further information. The Committee considered the changes that had occurred.”
“The Committee was unanimous in valuing the ERDF, which has clearly done excellent things in many parts of the country, particularly the poorer parts, which, for the obvious reason that that is what the ERDF is designed for, have benefited from the scheme. One of the first things that we examined is the fact that although everyone thinks that the ERDF is good and has done good things in the areas where it has been spent, no one can actually prove it. There was certainly little hard evidence about the ERDF’s actual impact. What is better because of it? What jobs and facilities exist now that would not have been there if not for the ERDF? The Government gave us a helpful response indicating that they are now doing more work to monitor and evaluate this round of the ERDF.”
“It is a pleasure to serve under your chairmanship for the first time, Ms Dorries. The all-party report on the European regional development fund was literally that, because all Committee members agreed with it. That is the way it should be. We took evidence, and on the basis of that evidence, we came to our conclusions. The attendance at this debate probably reflects the fact that all members of the Select Committee on Communities and Local Government are happy for me to speak on their behalf about the report and raise the few issues on which we took a slightly different view from those eventually indicated by the Government in their response.”
“Absolutely, and I will say a little more about it later. It is probably consistent with the European Commission’s recommendations on trying to improve how European funds are spent by pulling the various funding streams together at a European level, thus enabling simplification within the UK, and allowing that funding to be controlled and brought together with other funds at local level, including through local enterprise partnerships. That would be entirely compatible with and would boost the direction of travel for which Lord Heseltine has been arguing. That is an important and valid point.”
“Miraculously, £1.75 million was available later in the year. I do not know where the money was found—it probably floated down the River Don and into the hands of civil servants.”
“Does the Minister know whether it exists in other areas? If it does, he probably should not be surprised, as a survey by the Local Government Association also found similar problems. It said that two thirds of councils responding were not confident that match funding was available for the rest of the ERDF money available. More than half had projects that had fallen through or were considered to be at risk of doing so. Clearly, there are issues. In Sheffield, we have been trying to get Government funding for flood defences, following the serious floods of 2007. We welcome the commitment from the Department for Environment, Food and Rural Affairs to find that money. When we were arguing early last year, we were told that ERDF funding would be necessary but that none was available; no one could find a penny.”
“Historically, with the ERDF and similar budgets, to hit the target of 100% spending, it has probably been necessary to have more than 100% commitment when moving forward. Since our report, it has come to our attention that the west midlands ERDF local management committee identified some problems with spending for which there had apparently been a commitment. The committee’s minutes for September 2012 indicate on the performance of venture capital and gap funding projects that most investment grant projects had “made few investments at this stage and are slipping between 50% and 92% from their original profiles. There can be no confidence at this stage that forecast ERDF will be spent this year, and this will have a significant impact on priority 3 in particular”. That problem was identified in the west midlands.”
“The evidence that we had—it was clear, and I do not think that there was any dissenting evidence—showed that by and large, the switch from RDAs to DCLG, as an administrative exercise, had been well managed. However, there were one or two examples of potential delays. We asked the Government to examine those, and the response was, “We can’t find any evidence of delays.” The Committee was a bit concerned—that concern has grown—that Ministers were a little complacent in saying, “We’ve got 98% of the money committed.” By “committed”, they meant projects in the pipeline as well. It was not all contractually committed; “committed” also meant projects that were moving forward but had not been finally signed off.”
“That is absolutely right. I was going to touch on that a bit later, but I am certainly happy to do so now. It is important that the European Union has recognised that, and it is important that Departments are prepared to do so. The challenge for Ministers is getting an overview and ensuring that the totality of available funding in the ERDF budget is spent, while giving local flexibility to ensure that it is spent on the right projects and in the right ways to benefit local communities. It is always a challenge for those of us with a localist bent who want more decisions to be made at a local level to ensure that that is done so as to keep national commitments and spending budgets intact. I come to the DCLG’s responsibility.”
“The Minister has probably not had a chance to look at those minutes or to ask for minutes from similar bodies across the country, but he may find that similar concerns have been expressed.”
“The money was clearly available; ultimately, DEFRA found the money in its budget. We did not think that ERDF funding was available, but it is widely known that civil servants ring up local authorities across the country on the QT and whisper, “Have you got any projects available? We may have a bit of ERDF slippage elsewhere that we could do with spending.” We had assurances from Ministers 12 months ago that all was well, all was committed and there were no problems. Of course if it is 98%, not everything is contractually committed. Even contracts have slippage. A year later, slippage will occur. That could have been anticipated. I am surprised that Ministers were as reassured as they appeared to be by the information at that stage. I assume the minutes from the west midlands are replicated elsewhere.”
“The Government, however, disagree and feel that all ERDF funding should go to the poorest areas. I declare an interest because south Yorkshire is one of the areas that has benefited from transitional arrangements, or their equivalent, in the past. Have the Government analysed the potential effect on European funding in the UK of ruling out transitional areas altogether? That is not going to happen, because the EU is proceeding with the transitional areas, but the Government seem to be shooting themselves in the foot by denying UK regions the possibility of European funding through a transitional area designation.”
“If projects do not do what they say on the tin, the money may be clawed back. Conditionality on individual schemes, and holding a bit of money back until they are proven to be spending appropriately, is right. We agree with the Government—or the Government agree with us, because it is that way around—that conditionality on a country basis is wrong. The UK is not a member of the euro, and we are not part of the growth and stability pact. There is general agreement that, for ERDF purposes, applying conditions to the UK that are attached to that pact would not be right. As a Committee, we believe that there is merit in transitional arrangements for regions where GDP is between 75% and 90% of the EU average. Having a cliff edge where regions below 75% get something and regions above 75% get nothing is not right.”
“The Committee welcomed, as the Government did, the European Commission’s changes to common provisions regulation, which simplified the way in which different funding streams, such as the ERDF and the social fund, may be brought together to reduce the complexity for applicants. That should also give better value by allowing the local flexibility that my right hon. Friend mentioned. We welcome the push to harmonise the regional policy funds and the idea that responsibility could be devolved to bodies such as local enterprise partnerships. The Committee is generally in line with the Government in seeing no problem with conditionality on individual projects, and it is right that those projects are properly assessed and audited, despite the problems caused by changing the goals of auditing, which my right hon. Friend mentioned.”
“We suggested that the regional growth fund should have a ring-fenced element identified for match funding because it would give the sort of flexibility that has been lost with the abolition of the RDAs by providing a pot of money so that the best value projects might more easily obtain the needed match funding. There would then be the local flexibility mentioned by my right hon. Friend the Member for Wentworth and Dearne (John Healey), which the Government ought to consider. They removed such flexibility from the table and said, “It is not something we want to do, and it is not our policy.” They should have another look. The last two things Ministers would want are an underspend or money being spent on things that do not represent value. There is agreement on that, but the Committee was driving at how best to reach that position.”
“One of our concerns is not merely that there may not be enough match funding to deliver the total spend of the ERDF but that the constraints mean that the range of projects that might go ahead may be determined by the particulars of the match funding. We will not necessarily get best value, therefore, because the schemes that might give best value are not the schemes for which match funding is easily available, which is a problem that Ministers have not addressed terribly well. I appreciate that the Minister was appointed after our report was published and that he is new to the issues.”
“I am well aware of such problems in Sheffield. That was not particularly drawn to our attention in evidence, but, in a slightly wider sense, we considered the problem of match funding itself. We stepped into the slightly controversial territory of the abolition of the regional development agencies, which were clearly a major source of match funding. The funding was flexible and available at the local level, but it has now gone. Our attention was drawn to the problem caused by the absence of match funding. The ministerial response was, “There are local authorities, universities and businesses.” It may have escaped Ministers’ attention that local authorities are not overwhelmed with spare cash to find match funding. Universities are in a slightly difficult financial position, and the private sector is also cautious.”
“We can disagree about what that might involve in the round, about referendums and their timing and about all such issues, but the Committee felt that that practical measure was a sensible proposal, which would mean less bureaucracy, less transfer of funds and more decisions made locally, but with the UK Government committed to ring-fencing the money, so that it is identified and committed for seven years and committed for spending in particular areas.”
“We commit to spend it on those regions that are identified as either below the 75% level or with the transitional region status, but we will do so in line with our own developed policies in this country.” It could be scrutinised by the EU but, essentially, we would not have to pass money backwards and forwards, or to have another level of direction from the European Union, and we would save on administration and double layers of bureaucracy. That seemed to be a remarkably sensible recommendation, and we do not understand why the Government do not get it. We thought that the Government had a general objective to bring powers back.”
“No one is arguing that that would be easy to achieve, and we would probably not get a majority for it in the next spending round anyway, but we thought there was a better alternative to passing money backwards and forwards and to having a set of European rules and a set of UK rules. The British Government could make a commitment: “This sum of money we would be transferring to Brussels and having transferred back to us, so we commit over the spending period of the European Union, over the next seven years, to spend that amount of money in the UK.”
“That was accepted and not a problem—that is part of what the EU is all about, to rebalance our total European economy and to give assistance to the poorest regions. We did look, however, at the fact that the United Kingdom gets money back from the European Union; because we are a net contributor, in effect we are paying money over to Brussels and Brussels is paying it back to us. There is a way in which that position can be improved. We talked about repatriation and thought that the Government would be all in favour of that. The Prime Minister recently made a speech about taking certain powers back to the United Kingdom from the European Union, and our suggestion would fit in with that. Strangely, it was something that the previous Government was trying to achieve as well.”
“I hope that will be the case. Clearly, we are where we are, and we ought to spend the money properly. Government support would be most welcome. Did they think through their opposition to the transitional regions? Did they consider the net impact of such resistance on the UK and our economy? Their position seemed strange. When we discuss Europe in Parliament, battle lines are increasingly drawn on a party basis, but that is not always so. The report was all-party, and it was agreed by all members of the Select Committee. We looked at the issue of ERDF funding and Britain’s contribution, which is a net contribution to the total ERDF budget. We were supportive of the United Kingdom as a relatively rich country contributing to ERDF spending in the poor regions of the EU.”
“There are major issues on which the Government response was not as good as we might have hoped: whether we can guarantee that the money will be spent; the availability of match funding and the distortion of spending through non-availability; the transition areas; and repatriation. Perhaps the Minister can offer some further explanation in due course on those matters.”
“Absolutely. It was repatriation within an overall European commitment to be consistent in the amount of money we spent and the areas in which we spent it, as well as in the general purpose of that spending. The Government response was that the Treasury cannot commit for seven years. Of course it can. The Treasury is committed to the European budget and our contribution to it over seven years. The Treasury therefore makes such a commitment anyway. Why it could not ring-fence money in the way that we recommended seemed an inadequate non-response to what we thought was a practical, sensible proposal. I have been through the Committee’s major recommendations. There are clearly areas of agreement with the Government: the value of ERDF funding; the simplifications proposed by the Commission; and doing things more locally.”
“I think that that was a reassurance from the Minister, but I got the point that £74 million was still not contractually committed, and presumably there are similar figures for other regions. Does the Minister have a total figure for money that is not contracted, and if it is all right in every region, why are civil servants ringing round, saying, “Can you deal with underspends from other regions?””
“I would not burden the Minister with having to read out the whole list, but it would help if he put the figures in writing and in the Library, so that we could see the total picture across the country.”
“I agree. I am not sure why the Minister wants to delay. He offered, here and now, to read out the figures for any region, so the figures are available. It would help to have them now; if the Minister wants to update them in due course, he can do that as well.”
“Friend’s point about the Heseltine report. I would warmly welcome such funding or funding through the Heseltine measures being further devolved to local areas, for the LEPs and local authorities to build on, together with European and city deal money, and we might eventually move to the idea of community budgets as well. I think that the Select Committee will look at those issues.”
“Just ask for it.” I then asked for it all and was told that it might come in due course when the time was right and subject to the advice of those who advise him. Well, yes, okay, we will have to leave it at that for this afternoon, but we look forward to receiving the information in the Committee and in the Library at an early date, so that we can be reassured on those matters. I still think that some projects with the best chance of delivering value might not go ahead because of the non-availability of match funding. The Government must address that problem; we have not got to the bottom of it this afternoon. I have two final points. We welcomed in our report the pooling of the spending pots. The Government are clearly seized of the importance of that. Using the LEPs as building blocks is very welcome. That relates to my right hon.”
“Secondly, on transitional regions, the Committee thinks that the Government were simply wrong in their initial objections, but I am pleased to hear the Minister say that transitional regions will be there for the next spending round and that the Government will fully commit to ensuring that the money is properly spent in those regions, with the full engagement, asked for by my right hon. Friend the Member for Wentworth and Dearne (John Healey), of the LEPs and local authorities in those regions. That is most welcome. The Minister offered reassurance about the Government’s commitment to ensure that all the ERDF money was fully spent. Again, that is welcome, although the Minister did act as a bit of a tease. He was saying, “I’ve got all this information here. You can have any bit that you want.”