| THE MANAGEMENT OF THE PROGRAMME
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| The cost of the programme
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| C&AG's Report, para 3
| 10. At the outset the Trust was working to plans to complete its redevelopment programme for £180 million (at 1995-96 prices). However, the Trust's costs have increased, and in late 1996 the Department set the Trust a lifetime maximum grant-in-aid of £227 million.
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Qs 52-56
Q 29
| 11. Our predecessors asked the Department why there had been no attempt to set a lifetime budget for each Housing Action Trust at the outset. The Department explained that setting a lifetime figure for a ten-year project is immensely difficult. They had started by budgeting for the core building element and had gone on to refine the budget as some of the uncertainty was resolved. The Department had now agreed, with about six years of the initiative to run, a lifetime grant figure for each of the Housing Action Trusts. They had asked the Trusts what they thought their lifetime cost figure would be. No Trust had received as much as it would have liked or had bid for. As a result, several Trusts were looking to bridge the gap with private finance. The Waltham Forest Housing Action Trust had revised its budget and expected to keep within its lifetime grant-in-aid of £227 million.
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| Qs 1, 15, 48-49, 51
| 12. The Committee asked why the Trust's costs had increased from £180 million to a maximum of £227 million grant-in-aid. The Department explained that the two figures were different. The £180 million referred to the cost of redevelopment, which had increased to £200 million, whilst the rest represented the recurrent costs of housing management and maintenance and community development work. These recurrent costs would have been incurred anyway, and were previously borne by the London Borough of Waltham Forest.
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| Q 2
| 13. The Department explained that most of the increased cost of redevelopment, from £180 million to £200 million, was due to two changes. The Trust had to accommodate more tenants than had previously been forecast-about 1,850 rather than 1,710-which was a measure of the success of the project. The Trust had also decided, on value for money grounds, not to refurbish four tower blocks but instead to demolish them and build street properties.
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C&AG's Report, paras 3.23, 3.25
Qs 2, 15-16
| 14. The National Audit Office found that the Trust's average unit cost for building properties in Phase One was two per cent higher than the benchmark for similar housing association properties, and the Trust's properties were built to a higher standard of design than other social housing. Our predecessors asked the Department if this was a sensible way of getting value for money. The Department accepted that the standard of the Trust's properties, when compared to those of housing associations, was at the upper end of the range, but the Department believed they were good quality properties which would last. The designs included higher standards of acoustic and thermal insulation than were required under the building regulations and the energy efficiency standards of the Housing Corporation. The Trust pointed out that the building standards had caught up, and were the same as those to which the Trust was building.
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| Qs 15-16
| 15. The Department also pointed out that the Trust had to build on sites which were already occupied, which was clearly more expensive than taking a green field site or simply acquiring an already prepared site. When allowance was made for this, the cost of building the houses was quite close to that for housing associations. In addition, the Trust explained that the properties were built to a 15 per cent higher density than the housing association benchmark, in order to accommodate as many existing tenants as possible, and this needed to be taken into account when comparing costs. The Trust had set out to build good quality homes, but was not doing so outside the range of costs of comparable organisations.
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| Tenants' choice of fixtures and fittings
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| Qs 17, 36-38
| 16. Our predecessors questioned the Department and the Trust on why some optional fixtures and fittings, which were initially offered to tenants, were later withdrawn. The Trust told us that, after consultation with the tenants, it had proposed a specification for the new homes including fixtures and fittings which tenants could choose from. In two or three cases the Department did not agree with the Trust on what should be offered. For example, the Trust wanted to supply power showers but the Department felt that power showers were not appropriate except in houses for the disabled. The choices did include carpets, because most tenants would otherwise have wanted to take their carpet with them, and the cost of moving the carpet was as much as providing a new carpet if bought in bulk. The philosophy running through the project was to give the tenants choice. This had cost a bit more, but had paid off. Tenants felt for the first time in their lives that they had some influence and felt some ownership of their homes.
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| Qs 18-19
| 17. The Committee further asked why these design choices had not been decided at the outset, and whether it was necessary to incur an additional cost of £370,000 which would not have been required had the Trust relied on designs developed as part of the Design and Build contracts. The Trust explained that a key feature of the project was that it was a partnership with tenants. At the outset the tenants' views were not known and the Trust had spent two to three years consulting them about their homes and the streetscape they wanted. Prior to this, the tenants had discussed their ideas with the local authority. A standard Design and Build contract would have resulted in the loss of the tenants' input. The Trust also explained that the subsequent Design and Build contract was adopted to provide price certainty. As a result, the Phase One building works had cost £52 million as estimated.
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| The cost of repairs and housing management
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C&AG's Report, para 3.12
Qs 20, 68
| 18. By March 1996 the Trust had spent £11.5 million on repairs and maintenance. The Trust had much higher repair costs than London boroughs and housing associations. The Department explained that in 1994-95 the repair costs were higher, around £1,400 per property, due to a crash programme of repairs when the Trust first came on to the site. No major work had been done on the properties to be demolished in Phase One, but sometimes remedial work had to be done for health and safety reasons. New lifts had been installed in blocks which were to be in place for another six or seven years. The Trust's repair costs had since fallen to £762 per property, and were now in line with those in London boroughs.
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C&AG's Report, para 3.15
Q 68
| 19. The Trust's housing management costs were lower than London boroughs' but higher than housing associations'. The Department explained that housing management costs depend on the kind of property that the landlord had. On average, housing associations have more modern properties and fewer difficult properties than the Trust. In the early years the Trust's properties were old and in poor condition. As the point was reached where 100 per cent of the Trust's properties were modern, the Department expected the costs to fall into line with those in housing associations.
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C&AG's Report, para 3.7
Qs 3-5, 14
| 20. The Trust's rent collection performance in 1994-95 was below that of London boroughs and London housing associations, and by March 1996 total arrears had reached £1.04 million including £0.88 million which is unlikely to be collected. Our predecessors asked the Trust how it intended to ensure that rent collection would be maintained at a reasonable rate in view of the 60 per cent increase in rent when tenants move to their new properties. The Trust reported that 1994-95 had been the only year that they had failed to meet their rent collection target. The Trust monitored rent collection for both old and new properties, and current figures showed that it was collecting 100 per cent of rent for the new properties, whilst the rent collection rate was lower in the old properties. This was largely due to the fact that tenants valued their new properties and, even though the rents were higher, they regarded them as value for money.
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| Qs 42-47
| 21. The Committee asked what would happen at the end of the Trust's ten-year life and whether the scheme would be financially viable. The Department said that it would be viable because the rents would either be paid by the tenants or by tenants assisted by housing benefit. The Department hoped that the proportion of tenants reliant on housing benefit will be substantially lower than it was at the start. The Trust added that at the outset 62 per cent of tenants were receiving housing benefit, and that this proportion was now 54 per cent.
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| The contract with the Waltham Forest Community Based Housing Association
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| C&AG's Report, paras 1.13 and 3.16
| 22. From April 1996 the Trust contracted its housing management function to the Waltham Forest Community Based Housing Association. The Association was established for this purpose and was adopted as a subsidiary by the Peabody Donation Fund, a charity and registered housing association owning a large portfolio of social housing in London. The contract between the Trust and the Association, which was awarded without competition, contains some targets for the level of service to be provided but includes no penalties for failure to achieve them.
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| Qs 40, 97
| 23. The Committee asked about how this arrangement had come about, and the extent to which Peabody would stand to gain. The Trust explained that it had decided in 1994 to set up the Community Based Housing Association, which was run by a tenant board, to take over the housing management activity in 1996. In addition, in late 1995 the Trust had found that it needed around £15 million of private finance. Because tenants were sensitive about private finance and the involvement of developers or unknown organisations, the Trust decided to use the Community Based Housing Association as a vehicle for the private finance. The Trust negotiated with the Peabody Donation Fund, who were prepared to fund the Association with a £15 million loan to build 150 houses on behalf of the Trust.
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| Qs 98-100, 104
| 24. The Trust added that Peabody had been keen to be involved because they wanted to get involved in urban regeneration in the East End of London and in tenant-based housing. There were constraints put on the new Association in terms of what they could spend on housing management. They had been given a sum equal to the amount spent previously by the Trust less 17.5 per cent to cover the VAT element. Furthermore, every year the number of staff the Association could employ went down.
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C&AG's Report, para 3.39 and Figure 19
Qs 39-41, 100-104
| 25. The arrangement with the Peabody Donation Fund includes a provision for the Trust to pay between £7.5 million and £22.5 million to the Association (and thence to Peabody) when the homes are transferred at the end of the Trust's life. The more tenants that vote to have the Association as their future landlord, the more that the Trust has to pay to the Association. Our predecessors therefore asked whether, at the end of period, Peabody would be the beneficiaries of all the money which had been spent in building these houses. The Trust assured us that this would not necessarily be the case. In 2001 all the tenants would be able to choose their new landlord in a ballot. If all tenants voted to go back to the local authority, then Peabody would only get back £7.5 million of the £15 million. The Department added that there was a strong incentive for the Peabody, or the Community Based Housing Association as Peabody's subsidiary, to perform well as a manager. The better the Association performed, the more tenants were likely to vote for it and the more Peabody would benefit.
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| Qs 94-98, 102
| 26. The Committee also asked whether the tenants' choice had been prejudiced in favour of the Community Based Housing Association, especially in view of the recent Trust pronouncements. The Trust's recent publicity had talked of potential cash shortfalls of around £30 million and that, should most tenants vote to return to the Council, the Trust would not have enough money to build the new houses to rehouse everyone from the older blocks. The Trust explained that the publicity had been intended to engage the tenants' interest, to get people into meetings and to start a debate. The figures reflected the fact that the Trust needed income from capital receipts. If the percentage of tenants voting to go back to the local authority or a housing association was in line with its forecasts, the Trust would probably have enough money to get through to 1999.
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| Qs 85-92
| 27. The Committee also asked about the basis for valuing the Trust's properties for transfer at the end of the Trust's life. The Trust explained that the properties would be transferred at tenanted market value, about £25,000 per property. The total value of the Trust's housing, on this basis, was about £40 million-one fifth of how much it cost the taxpayer to provide them and about one third of what the properties would sell for on the open market when unoccupied. However, if tenants voted to transfer to a housing association the tenancies would be assured; and the tenants' guarantee, which ensured that the first generation of tenants' children will also have a right to tenancy, would also apply. Thus it could be some time before the new landlord could realise the moneys invested in this housing.
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| Conclusions |
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| 28. The Trust's achievements have been made at considerable cost to the taxpayer, and we welcome the Trust's assurance that it will keep within the £227 million lifetime grant-in- aid figure the Department have now set. We are concerned that the Department did not set a lifetime budget for this and other Trusts at the outset, and we consider that all projects should start with a clear view of the likely cost to the taxpayer.
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| 29. The Trust's properties are built at a higher cost than other social housing. We recognise that much of this difference is accounted for by the higher design standards of the properties and the fact that they had to be built on a site already occupied by the properties they replaced. We note the Department's and the Trust's view that this higher cost has to be balanced against the enhanced sense of ownership which tenants feel for their new homes, and that this higher quality will mean that the properties will be more durable. We look to the Department and the Trust to monitor whether these benefits are achieved in the longer term.
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| 30. We note that the majority of the Trust's £11.5 million expenditure on repairs was required for "catching-up" repairs due to the poor quality of the housing stock it had inherited. Whilst the Trust's repair costs have been higher than those of other social landlords, the Department expect that repair costs will fall to comparable levels as more tenants move to their new properties.
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| 31. We note that the housing management contract was awarded to the Waltham Forest Community Based Housing Association without competition. Whilst the Department and Trust consider that the arrangement with the Association provides sufficient incentive for improved efficiency and service levels, we are concerned that the contract does not include targets for reducing costs and penalties for failure to achieve cost or service targets. We consider that all contracts should include such provisions, especially when they are let without competition.
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| 32. We note that when the Trust finishes its task in 2001-02 a considerable asset, built at public expense, will be transferred to a new landlord; and that the arrangements with the Association are weighted in favour of the Association as the tenants' choice to be their future landlord. We recognise that the new landlord may not be able to realise this asset for a considerable time. We nonetheless look to the Department and the Trust to ensure that the taxpayer's interest will be protected upon transfer.
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