Select Committee on Deregulation and Regulatory Reform Sixth Report


Reply from the Department for Transport, Local Government and the Regions to the Clerk of the Committee

Proposal for the Regulatory Reform (Housing Assistance) (England and Wales) Order 2002

In response to the Deregulation and Regulatory Reform Committee's letter of 15 January, we can advise as follows:

1.    Park Homes and Houseboats

The reforms will extend the eligibility for mandatory Disabled Facilities Grant (DFGs) to those living in park homes and houseboats. Local authorities will be obliged to offer DFGs to park home and houseboat occupants, in the same way that they do with DFG applicants living in more permanent housing. The current legislation requires local authorities to assess the person's needs and to consider the age and condition of the property to which the works are proposed - this will apply to whatever type of accommodation is in question. I have sent you an extract from the existing guidance (Circular 17/96 on Private Sector Housing Renewal) which gives guidance to local authorities on this aspect of DFGs. Authorities would need to consider this for each individual case and would not be able to adopt a wholesale policy of not giving DFGs to park home or houseboat occupants. Alternatively, local authorities will have the power, under the Order, to help a disabled occupant to move to more suitable accommodation where the existing accommodation could not be adapted to suit their needs.

The changes to mandatory DFGs will be covered in both the housing renewal guidance and the new guidance on disabled adaptations, which this Department is producing in conjunction with the Department of Health.

2.    Requirement to produce a published policy

The committee is correct in that the draft Order makes no requirement for a local authority to have a published policy. Without a policy an authority would not be able to give assistance under its article 4 power, although they could of course adopt a policy of offering no financial assistance for housing renewal. In some authorities this might be an appropriate course to follow if the authority feels it does not have a serious problem with private sector conditions and feels that it should focus on advice and preventive measures. However we expect such cases to be very few indeed and would expect the Housing Inspectorate to take a dim view of any local authority that did not address actively its housing renewal needs. Further, local authorities' Housing Investment Programme allocations are partly determined by the existence and quality of their housing policy. On balance, however, and furthering the objective of giving local authorities maximum discretion to determine their own policies and priorities, we think that the proposal in the order linking the requirement to publish a policy to the use the power is the best way forward.

3.    Status of the guidance

The problem here seems to be the way we have explained this in the Explanatory Document, rather than the conclusion we have arrived at. We have further corresponded with Philip Bovey, the lawyer who has advised on the status of our guidance. He confirms that he did not advise that we could not require local authorities to have regard to guidance. He did however have concerns which related to the intended effect of the guidance.

He said that if the intention was simply that the guidance should consist of information, advice and exhortation then it did not accord with the Guidance on Codes to take a power to issue it. If, on the other hand, it was intended to have some legal effect then, to avoid sub-delegation, it would be better to set it out in a schedule as subordinate provision. He suggests that there is no reason why "have regard to" type considerations cannot be included in that way. This is the approach we have adopted.

Further to a discussion between Philip Bovey and our Housing Minister, Lord Falconer, it was decided that it would be better for the guidance to be administrative. Subsequent to Philip Bovey's advice, we have gone through the whole of the existing legislation, and have identified only a few additional provisions (as set out in Chapter Five of the Explanatory Document) that we think we need to include in the Order as procedural safeguards which we require the authority to follow. We propose that everything else is best left to non-statutory guidance, rather than to subordinate provisions. The guidance itself will focus mainly on setting strategic priorities (which do not lend themselves to legislation), on principles already set out in other legislation (such as the duty to obtain Best Value), and on principles already enshrined in administrative law (such as the need to act reasonably and fairly), or on procedural issues (such as steps to minimise the risk of fraud).

4.    Financial advice

Local authorities already have the power (and previously, the duty in the case of Right to Buy) to give loans and mortgages under the Housing Act 1985, so giving financial advice is not a new role for authorities. The reforms to their loan-giving powers (for the purposes of housing renewal only), at their simplest, mean that they can determine the rate of interest that will apply, rather than adhering to a market rate.

Although local authorities will be exempt from the Financial Services Authority (FSA) mortgage regulation, authorities will be answerable to the Local Government Ombudsman (LGO). The Department is currently looking at how the LGO and Financial Services Ombudsman can work together in the future. In due course the guidance will incorporate guidance from the FSA on giving financial advice and administering loans (unfortunately we hoped to include this advice in the guidance now; however we understand that Treasury are making further changes to the regulation of mortgages and financial advice and therefore the FSA guidance will not be published until 2003).

The guidance will cover the following issues:

  • Key principles - e.g. transparency, fairness.
  • Information e.g. about terms and conditions at key stages of the process
  • Use of standard formats, e.g. APR
  • Repayment conditions
  • Loan administration, with reference to the PIU report on Modernising Government Loans. use of a common assessment procedure for all loans administered by the same body
  • Dealing with complaints and redress procedures
  • Using a third party loan provider - guidance on referrals and duty of care issues
  • Provision of proper financial advice - who qualified to give; what standard to expect; duty of care issues
  • Training of staff - e.g. IFA qualifications

We hope to be able to supply the committees with a first draft of the guidance in early March.

The draft Order would also enable authorities to offer help and advice through third parties, which could be Independent Financial Advisors, Home Improvement Agencies or specialist not-for-profit organisations, such as the Home Improvement Trust (HIT) or Aston Reinvestment Trust (ART), who run equity release and small loan schemes. There are already examples of partnership working of this kind - the HouseProud scheme in Birmingham involves a partnership between the City Council and HIT and ART to deliver a range of financial assistance for housing renewal, including equity release loans. We can provide the committee with more details of how this scheme works if they are interested.

5.    Land charges

We agree with the Committee's interpretation of the existing legislation in section 138(2) of the Housing Grants, Construction and Regeneration Act 1996. It does appear to allow authorities to place a land charge immediately after a mortgage, and higher than any other secondary charges on the property, e.g. personal loan. The Order would enable local authorities to place a charge on the property and the option of deferring their own charge - which could help where the authorities are working with a lender to provide help in connection with a move. It does not, however, give them the power to place it higher than any other existing charge - we are possibly reducing a necessary protection for authorities in ensuring they can recover any assistance secured by a land charge. We will consider, in consultation with our lawyers, whether this is a protection that we need to retain in the Order.

6.    Authorship of report informing declaration of renewal areas

The Committee is correct in saying that the requirement to ensure that the report is from an approved source is not contained on the face of the Order. The proposal to remove from existing legislation (section 89(3), 1989 Act) the requirement that the report is prepared "by a person appearing to the authority to be suitably qualified" is a matter of streamlining the legislation and removing over-prescriptive provisions. We believe that this provision does not offer any substantive protective value as it is at the discretion of the local authority as to who is a "suitably qualified". We would expect the authority to ensure, in declaring a renewal area, that the report is prepared by someone who is appropriately qualified. The housing renewal guidance will include advice on this as necessary. As a final protection the revised 1989 Act will contain a power to allow the Secretary of State to issue separate statutory guidance on the declaration or extension of renewal areas, including who prepares the report, should the need arise.

7.    Guidance in Wales

We hope to be able to provide the Committees with a fuller version of the guidance in early February. Separate guidance will be issued in Wales, but will be largely based on the English guidance. The main differences will reflect different funding mechanisms in Wales and the National Assembly's National Housing Strategy for Wales. There will be appropriate cross references with other housing issues in the Strategy which will interface with the new arrangements and links with other related areas of activity which fall within the Assembly's responsibilities e.g. Social Services, Health economic/environmental issues.

We are liaising with Brendon Hilbourne at the National Assembly for Wales on this matter. He is responsible for amending the guidance to reflect Welsh procedures such as the different financial arrangements in Wales. Brendon is also on the steering group advising on the content of the guidance. We will ensure that both the Parliamentary Committees and the NAW see both versions of the guidance before the Committees make their final decision on the proposal.

8.    Start-up costs to local authorities

The costs will very much depend on what changes the local authority chooses to make to its existing housing renewal policy. Some may choose to continue their current policy of offering grants. The production of a published policy may entail some additional costs, although authorities should already have a housing renewal policy in place. Other local authorities may choose to significantly change the way they give assistance, for example through setting up a loan scheme to replace or supplement the existing grant regime. The costs will again vary depending on the size and existing resources of the authority, as well as the scale and nature of the proposed scheme. Authorities are likely to introduce new initiatives incrementally to respond to issues as and when they arise and as new forms of assistance develop, and so the costs of implementing the reforms could be spread out over several years. It may be possible for authorities to reduce the costs of administering grants, for example in replacing the means-test with a fixed-rate contribution.

Sandwell and Dudley MBC estimate that start-up costs could be in the region of £55,000, which includes a housing needs survey, consultant fees, publicity and consultation. It has cost Birmingham City Council (working with the Home Improvement Trusts) £250,000 to set up the HouseProud scheme, which offers a range of equity release loans for housing renewal. As the largest authority in England, this is not representative of the costs likely to be incurred by most authorities adopting this or a similar scheme; where authorities choose to work together to offer schemes on a sub-regional basis, costs could be significantly reduced.

The Government does not intend to allocate a separate fund for local authorities for this purpose. We hope that local authorities will take advantage of the flexibilities offered by the single capital pot to be introduced in April 2002, and commit the necessary resources to fund such a scheme, if they believe it to be worthwhile. Further, we envisage that loan recycling will enable some authorities to make better use of their resources in the medium to long term.

9.    Ability of local authorities to exercise discretion

Local authority discretion on its housing renewal policy is underlined by the introduction of the single capital pot from April. Once the new powers are available they will have wide discretion on the choice of policy to be adopted and the amount of resources allocated within overall budgetary limits. The Government has no plans to restrict this discretion although we will of course continue to monitor local authority policies and have regard to local authorities Housing Investment Programmes and reports from the Housing Inspectorate on their performance.

10.  Level of support for local authorities

There are no plans to recoup the savings made by local authorities from loan schemes - the intention is that any receipts received through a loan fund can be recycled into local authorities programmes to help additional people who need support. The Government has no plans to change the level of resources available to private sector renewal but is fully aware of the scale of the problem of poor condition stock in the private sector and the linked problem of decay and obsolescence in certain areas. These issues and the resources available for tackling it are the subject of consideration in the current Comprehensive Spending Review 2002 currently underway and to be published in June 2002.

Article 8, to which the Committee refers, is a reserve power carried over from the existing legislation which allows for the repayment of grant in cases where there has been fraud or misuses of the grant power. The draft order would allow the Secretary of State to pay and recover contributions towards' local authorities' expenditure in relation to the new power including amounts defrayed for mandatory DFGs in similar circumstances as for the existing grant regime.

11.  Changes to the discretionary DFG regime

We can confirm that there are no similar funding implications for DFGs in Wales. The funding mechanism for DFGs in Wales is different from England. The resources for DFGs (and renovation grants generally) are not ring fenced or hypothecated in Wales but are included within the General Capital Funding that the National Assembly makes available to authorities. It is for local authorities to determine the amount of those resources they wish to use to support DFGs in the light of their local priorities. The changes resulting from the Regulatory Reform Order will not affect these arrangements.

12.  Report on consultation responses

We are finalising this report and it should be available in early February. We will send it to Committees as soon as we can.

29 January 2002

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