Sunday, December 16, 2012

BBC Wales 'Housing Debts' Story

BBC Wales is running big with a story about long term loans being serviced by the Welsh Gov't, which it has persuaded the leader of Plaid Cymru to describe as a 'scandal'. Such is the attention given to this that we can but conclude that BBC Wales agree with her. So happens I was guest in the studio for Politics Show today, and know a bit (though I concede only a bit) about the background.  And I'm struggling to see anything scandalous at all.

Begin with a bit of background. On 18th Dec 1967, the then Labour Gov't set up the Mid Wales Development Corporation. It was charged with doubling the size of Newtown from about 5,500 to 11,000. Head of this body was the inspirational Peter Garbett-Edwards. In passing, I should say that he inspired me to become involved in public affairs.  He and his redoubtable mother were committed Liberals - which may have prepared me for today's coalition politics! Anyway, the MWDC set about building factories and the key worked housing to attract industry to move in. About the same time, Gov't established the National Loans Fund - which became and remains the Gov'ts 'borrowing and lending' account. In effect Gov't was lending the money to a 'quango' of its creation at terms which are now being described as scandalous. For the BBC story to have any credibility, we would need to know what other similar public sector deals were at that time. Was 60 yrs unusual for public sector housing loans? Was 14% unusually high in the 1970s. (I recall paying that rate on my farm account at 2% over base for several years) No-one then anticipated the 'Brown boom' and consequent financial crash which has delivered much lower interest rates.

Another supposedly 'scandalous' aspect of this is that the assets are not owned by the Welsh Gov't. This is plain silly. The MWDC assets moved to the Development Board for Rural Wales, and then to the Welsh Dev't Agency (following merger- I think) before being taken 'in house' by Rhodri Morgan's 'Bonfire of the Quangos. As far as I can recall, Plaid Cymru backed Rhodri to the hilt. Am trying to scratch my head about what else might have been done. The 'public benefit' is a Newtown twice as big at it was and a Mid Wales economy and population transformed from that of the mid-60s.

The housing developments built by MWDC and finished off by the DBRW,were only ever meant to be owned temporarily. Once 'New Town' powers were removed from DBRW in late 80s, the houses had to be transferred. Most went to Montgomeryshire District Council, with some going to Newtown Housing Association, a social housing landlord run by the tenants. Some have been sold under RTB scheme and a few under something called 'flexi-ownership', a rather complex partnership arrangement. Most of them are still owned by the Council (now Powys CC). As far as I can see, everything is just as it should be, and much the same as most housing authority schemes.

Couple of additional points. Firstly its supposedly 'scandalous' that the Welsh Gov't cannot pay off the debt early because the long term interest rates are so high. If lenders were required to allow borrowers to 'pay off' long term debts when interest rates dropped, the original terms would be much more onerous. These things are worked out by actuaries. And secondly, there's the matter of 'lessons' to learn. This may well be so. There were certainly plenty to be learned from Gordon Brown's disastrous rush into PFI schemes.

The reason this is an issue is that the Welsh Gov't may find itself with borrowing powers in the future. Before launching into this new world, I would expect the Welsh Gov't to take best advice it can get hold of, and do best deals it can - which I've no reason for thinking isn't what happened in the 1970s. And always remember if you borrow money, it has to be paid back. I'd welcome comment from anyone with experience from the 70's.


Peter Black said...

Glyn, why were the debts not transferred to the Council with the houses (and the revenue stream)?

Anonymous said...

If Powys own the assets funded by these loans then surely Powys should be paying the loan and the receipts from house sales be given to Powys

Jac o' the North, said...

The real scandal here is the deception behind the building of these houses back in the '60s and '70s.

The ostensible raison d’ĂȘtre for the DBRW was to stem the exodus of young people from Powys, Ceredigion and Meirionnydd. This was to be done by attracting new industry to the region. Fine.

It soon became apparent that the companies moving in were bringing all their workers with them. For it seemed everybody - including office boy and tea-lady - qualified as 'key workers'. A status that also entitled them to one of the new houses.

So the DBRW spent a considerable part of its funding on housing people who were, effectively, taking jobs that could have been done by locals. Inevitably, this did nothing to halt the exodus. The DBRW eventually admitted this.

I am strongly of the opinion that the DBRW was nothing more than an agency set up to attract English people into Wales at a time when many in London were worried about the political situation here.

It came into being shortly after the London government gave in to opposition and dropped plans for a new town of 60,00 people focused on Caersws. Remember, Glyn?

Having let the natives think they'd won a victory it set up the DBRW to achieve a similar objective over a much wider area under the pretext of bringing employment. Softly, softly, catchee monkey!

Glyn Davies said...

Sorry Peter but I don't know the answer to that. It may be that they were, and the debts accrue from RTB losses and associated works like landscaping, roads,etc.. I'm hoping to speak to Chief Exec of a Housing association which was contemplating tendering for the houses tomorrow morning about it. Will comment further afterwards if I get to speak to him.

Glyn Davies said...

Jac - You are right and wrong (imo). The aim was indeed to reverse depopulation by creating a local economy that would provide jobs to encourage locals to stay. But I do not think the philosophy was to just create jobs for them directly. In fact if you look back through the lead up to the establishment of the Mid Wales development Corporation, you'll find it was considered a poor substitute by most public bodies in Wales which wanted a new town of 70,000 people centred on Newtown/Caersws/Llanidloes - which in effect would have been a transfer of West Midlands development to mid Wales including the people! The DBRW only finished off the work put in place by the Corporation. Its hard to believe what the position was today. The population of Montgomeryshire had fallen like a stone from over 50,000 to mid 30,000s, and the aim was to reverse this and create a population capable of sustaining an economy that would create unemployment. I won bardic chair at Montg YFC Eisteddfod with an essay advocating the 70,000 option, but late rmuch preferred the doubling of Newtown option.

Jac o' the North, said...

Are you saying, Glyn, that the intention never was to provide jobs for locals, just to hope that somehow there would be a spin-off from allowing English firms to bring in their workforces?

On what grounds could you have possibly supported a new English town of 70,000 people in Montgomeryshire? It would have been the outermost suburb of Birmingham and it would have swamped Mid Wales. In fact, it could have split Wales in two.

Talking of today's owners of these properties, didn't Mid Wales Housing also get a bit of the carcass?

Glyn Davies said...

Jac - A 'spin off' is a new way of putting it - but when you read some of the material, there's a fair element of truth in that. And I was only 19 when I wrote that essay - with my tendancy to be contrary already well developed. By the time I joined my local Community Council aged 32, such silly ideas had long gone. The scale of how silly the new town based on Caersws looks today is a measure of how desperate things were then. And I do not think Mid Wales Housing actually tendered for any of the properties in the end. It was the tenants v the Council.

Glyn Davies said...

And Jac, I should add for clarity (since the discussion has moved from just the terms of the housing loan) that the DBRW had a much broader objective than the Mid Wales Development Corporation. Not only did it have the 'New Town' powers in respect of Newtown but a remit to promote economic and social development across the whole of Mid Wales. This was the work that interested me when I was involved. Truth is I could not be rid of the New Town powers quickly enough. Many people saw it only as a 'bias' of investment towards Newtown.

Glyn Davies said...

What I'm told is that in 70s, 14% was a very reasonable rate and that 17% was not unusual. The loan periods were also long then - while today loans are usually much shorter, allowing very low interest rates. In 70s redemtion clauses were probably the norm for this type of loan, and at a time of high interest rates were a factor in reducing the rate. Some Housing Associations are in exactly the same position in that loans cannot be redemed today without penalty. In answer to Peter Black's question, it seeems that with stock transfer, sometimes the stock is worth nothing because a condition of transfer is bringing the properties up to a much improved standard. If the debt had been included in the transfer, there would not have been any takers for the properties. Indeed, there were no takers for the Newtown properties except the Council and the tenants when the debt was not included. The local Housing Association wouldn't look at it. I have not been able to speak with anyone directly involved so this comment is only my best guess.

Jac o' the North, said...

As I tweeted earlier today, there is a curious propinquity between the devolution referendum of September 1997 and the merger of the DBRW (and the LAW) with the WDA in October 1998, thereby ensuring that the debt was transferred to the new Assembly before the first elections in May 1999.

This raises the obvious question - were other debts similarly transferred to a body that had yet to be formally constituted and was therefore unable to protest?

We also need to ask if the first Welsh Government (WAG) was made aware of this Newtown debt (and possibly others) after the election of 1999? If not, why not?

Peter Black said...

That makes sense. With stock transfer nowadays the UK Government writes off the debt so that is much the same arrangement. This though was not a stock transfer but a change in ownership between two public sector bodies. I guess that if the Council would not take the debt as well then the DBRW had no choice.