Examination of Witnesses (Questions 50
- 79)
WEDNESDAY 2 MAY 2001
DR NORMAN
PERRY AND
MRS CLARE
MILLER
Mr Griffiths
60. Dr Perry, I want to continue with figure
6, page 16. How important is it that RSLs understand the financial
ratios?
(Dr Perry) It is increasingly important that they
do and the C&AG in his Report pointed out that until recently
we had been a little coy about how we calculated those ratios.
We have now published the methodology in the consultation paper
on the Regulatory Code. Our intention is to enter into a much
more open dialogue with RSLs about them in the future.
61. So from 1993 until now you have not had
any such published explanations; is that right?
(Mrs Miller) In our recent discussion paper with the
sector on the Regulatory Code we published for the first time
how we gathered the information that we used to calculate the
ratios.
62. How important is it that the Corporation
explains the benchmarks?
(Mrs Miller) I think it is important that we explain
our benchmarks and let associations know what they are measured
against. It is our intention later this year to enable our systems
to be able to do that.
63. Why has it taken as far back as this table—eight
years—to do that?
(Dr Perry) In a real sense (because I was not there)
I cannot really answer the question. It seems to me that the Corporation
has been moving over a period of time from being a relatively
closed bureaucratic organisation to one which over the past three
to four years has opened up much more than before and it is opening
much more at the moment.
64. How important is it that social landlords
and housing associations are provided with appropriate, timely
feedback?
(Dr Perry) It is very important. The Report—
65. It is new that it has become very important,
is it not?
(Dr Perry) To an extent the realisation by the Corporation
of its importance is part of the process of opening up that has
been going on over the past two to three years.
66. It is fairly shocking on page 36 that lenders
and local authorities have not had information in the public domain.
Was this both a bureaucratic and a secret organisation until recently?
(Dr Perry) There is a distinction between them getting
information and information being in the public domain. We have
always been very careful to maintain a good relationship with
the local authorities who are active in the field of social housing
because £200 to £300 million comes from local authorities
into housing associations. They are crucial partners in the process
and our relationship with the Council of Mortgage Lenders has
also been close. We are now moving much more into public domain
lodging of information and very recently we put 60 appraisal reports
onto our website with the agreement of the associations who have
been regulated and appraised. That is a process which is now unstoppable
and which, hopefully, will just grow and grow.
67. Figure 20 shows that 38 per cent of respondents
disagreed that the Corporation provided their organisations with
appropriate feedback. That does not seem to me like a recipe for
co-operation.
(Dr Perry) That was the survey which the NAO did in
1999 and that preceded the setting up of our lead regulation system.
Prior to that time we had not had, if you like, a system of high-profile,
well-known lead regulators who would have a continuous customer
relationship with particular RSLs. Since that system came in,
I think things have improved a great deal.
68. I am pleased to hear that. Describe for
me how things were before and what your critical evaluation was
on both the quality of the feedback and the time it took to get
feedback.
(Dr Perry) Before the lead regulation system came
in?
69. Before it got better. When did it get better?
(Dr Perry) It has got better since 1999.
70. What was it like before? It is reflected
in 5.12 on page 35, I would have thought, which is the commentary
on figure 20 on page 36. That is a fair summary, is it—33
per cent thought the feedback was pretty good, I suppose, and
44 per cent, nearly half, thought that it was pretty slow?
(Mrs Miller) We have always had a system of providing
associations with feedback on our regulatory assessments. I would
accept, as Dr Perry has said, that we could have improved it and
we have subsequently done so. Nonetheless, there has always been
a system whereby we give feedback to associations on material
issues arising from our regulatory judgments.
71. I am not sure you can say that is always
the case because nearly 40 per cent, 38 per cent, disagree that
the Corporation provided appropriate feedback. On page 16, and
the four areas where there has been a deteriorating trend, the
failure rate has been 66 per cent in rent arrears, 45 per cent
in rent gearing, 41 per cent in rent losses, and 32 per cent in
the quick ratio measures. To follow from what Mr Rendel was saying,
were you setting your standards too high at 85 per cent? If you
had set it at 80 per cent or 75 per cent would that have been
better?
(Dr Perry) I do not know if you would call it better
or worse because that does imply that it is an absolute standard.
I am sorry to labour the point, but the 85 per cent was set as
a trip wire so that if an association went below it the regulator
would be alerted and would take some action, pay a visit, talk
to them, see what was going on.
72. On these figures you must have been deafened
by the alarm bells?
(Dr Perry) Yes, the issue of rents, and therefore
the amount of cash around and therefore the quick ratio, has been
affected very much in the last 18 months to two years by the emergent
situation on housing benefit. There is no mystery in that.
73. What have been your representations to government
departments on housing benefit? The problems are highlighted in
the Report.
(Dr Perry) We are working currently—there is
a meeting which I will be having with very senior staff in the
DSS before too long—and I know there has been action at
ministerial level in DETR, meetings between ministers in DETR
and DSS. There is now, as Mrs Miller has said, some pilot work
in order to allow RSLs to get involved in the verification framework.
A lot of the issues have arisen since the quite proper counter-fraud
measures were brought in. The verification framework is quite
complex and often quite burdensome for people having to produce
the original documentation. There is some pressure (which we would
support) for social landlords to be regarded as responsible bodies
who themselves can carry out this verification to ease the load
on the local authorities, which is very great. Having come a few
months ago from a local authority myself, we did not have too
many problems on housing benefit but I can recognise the pressure
that is brought to bear on local authorities. We think that RSLs
ought to be involved in that system more than they are at the
moment and hopefully the pilot work will lead to that.
74. I was interested in a comment on page 17
that the Corporation did not see the deterioration in rent arrears
and interest cover as a cause for concern.
(Dr Perry) That is because we assume that is going
to be sorted out in due course. We do not think it is a structural
issue. It is clearly a current issue. As I said in my reply to
Mr Rendel, some associations' problems could become long-term
if things do not turn around before too long. In general terms
they are a first indication nationally that the housing benefit
system is starting to recover from the earlier problems with verification.
I am not an expert in this so you would need to ask someone who
was.
75. 2.21 highlights the move from detailed performance
standards to a Code of Practice. How is the Housing Corporation
going to keep on top of a Regulatory Code of Good Practice, which
I would have thought would be harder to measure than detailed
standards, when it does not appear to have kept on top of the
detailed standards so far? Is this just a way of making life easier
for you in terms of monitoring more loosely what RSLs are doing?
(Dr Perry) Did you mean 2.21?
76. The summary under 2.21, page 19.
(Dr Perry) The Regulatory Code is intended to do something
which we regard as very important and something which I think
the financial services industry has seen which is, if you like,
the process of internalising regulation. One of the criticisms
that was made of the Housing Corporation's regulation system in
the past (which you can see had some validity) was that it was
a box-ticking process whereby regulators came in with large sheets
of forms and ticked associations through, if you like, performance
standards which, in a sense, almost created a dependency culture
within housing associations. We are very keen that regulation
is internalised so that we are looking at outcomes but that the
boards of associations, which are the key organisations, do get
regular reports almost as if it was self-regulation that was going
on. I cannot stress how important the intellectual concept of
the new Regulatory Code is to us.
77. I know exactly what you are saying and it
is commendable, but the problem is you are bringing in a new system
to ensure that feedback is sent in a timely and appropriate fashion,
when in this Report it has not been, at the same time as you are
moving to a new regime which requires that. So you are juggling
three balls when the practice in the past has not been able to
catch any of them, and that seems to be the problem.
(Dr Perry) I see the point and we are carrying through
an enormous amount of action within the Corporation and within
the RSL sector. We do think that one of the merits of the new
Regulatory Code is that it meets some of the objections that there
were to previous practice, and that when we are not doing very,
very detailed prescriptive box-ticking, then the nature of the
feedback becomes different. The feedback becomes more immediate
because it results from visits and discussions by lead regulators
rather than from a lot of number crunching because that will have
been done within the associations by their own people.
78. Fine. Again there is further criticism in
the Report—fairly serious criticism—of the length
of time that they are supervised. I must say there are some baffling
figures like between one-quarter and one-third under supervision
for more than four years. Why does it take that long to sort out
what are management or financial management problems?
(Dr Perry) As I said in reply to a previous question,
the financial issues would not take four years. They are pretty
immediate and they get sorted. We are talking about a relatively
small number—because we do not have huge numbers of supervision
cases—which are taking a long time to resolve. They ought
not to take so long to resolve and we are giving a higher priority
to sorting them out. Our board did last week decide to set up
a specialist regulation and supervision committee separating that
work from registration so that there would be greater non-executive
oversight of what we do. Also some of the constitutional issues
require external legal advice, they require new boards to be voted
in, new constitutions to be acted upon and then a number of cycles
of meetings to see if the new arrangements actually work. It can
be quite frustrating as the process unfolds and the time it takes.
The Report also makes the point that we do not have much recidivism.
It sounds silly but the longer we have an organisation under supervision
the less likely it is that we are discharging it prematurely and
that it might come back into our purview rather quickly.
Chairman: Thank you. Mr Alan Campbell?
Mr Campbell
79. Dr Perry, the Report tells us that in 1999-2000
more than 45 per cent of the validation visits resulted in RSLs
being re-classified, most of them from "satisfactory",
some to "cause for concern", others to "cause for
serious concern". To my elementary mathematics, that is somewhere
in the region of five per cent of all of the RSLs. I am looking
at figure 2 on page 10. Does that mean that there is as much as
£60 million of public money at risk each year?
(Dr Perry) The fact that a validation visit leads
to a re-assessment does not necessarily mean that a penny of public
money is at risk. It is the regulator's judgment on whether there
are issues which require the Corporation to take a closer look.
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