Examination of Witness (Questions 240-259)
MR JOHN
PERRY
TUESDAY 9 JULY 2002
240. Do you think as the Government is reviewing
the revenue support grant formula that it ought to be reviewing
the housing subsidy system as well?
(Mr Perry) Yes, very definitely. I think there is
an opportunity here. The Government has embarked on a series of
reforms starting with rent restructuring which is intended to
be tackled by 2010, as you know. The achievement of the Decent
Homes standard (if it is achieved and there is a question mark
over that) will be done by 2010 as well. One can hope that between
now and 2010 the housing benefit system will have been radically
reformed. At least they are talking about it.
Chairman
241. The Deputy Prime Minister told us over
three years ago that it was a shambles and needed reform so it
is about time he got on with it, is it not?
(Mr Perry) It is very definitely. If we have a range
of critical factors being reformed by 2010, by that date we would
like to see a different shape for local authority housing and
a shape for it which gives much more autonomy to local authorities.
Because of the complexity of the system it is going to take that
amount of time to change, but we ought to encourage the Government
to think over that sort of timescale for getting significant changes
in local authorities and giving them the freedoms that housing
associations have.
242. Can I take you on to Clause 10. Have you
got any views on the pooling of capital receipts?
(Mr Perry) This is another of the difficult issues.
The previous witness said that there were conflicting views on
this. I know that you have had evidence from one authority that
is very worried about the pooling of receipts because it does
very well from receipts in the present system. It helps if we
distinguish the two main kinds of housing receipts, right to buy
receipts and receipts resulting from transfer. There is a prima
facie case for right to buy receipts being directly recycled
by the local authority in the way that, for example, housing associations,
broadly speaking, can do so—
243. Can do so or should do so?
(Mr Perry) Can do so. I do not think they have to
do so but they can do so.
244. Would you like them to have to do so, certainly
in areas of housing shortage or affordable housing shortage?
(Mr Perry) Are we talking about housing associations
now?
245. No, I was talking about local authorities
and whether they should be replacing right to buy stock.
(Mr Perry) Certainly in areas of housing shortage
I think local authorities should do so. Whether they should be
compelled to do so is perhaps a different question. The vast majority
of authorities would do so if they had the ability to re-use 100
per cent of right to buy receipts. Can I pick up on the issue
of stock transfer receipts because obviously these are very significant
as well. There is an issue here and that is that certainly up
until recently the majority of stock transfers have been in what
I call the "leafy suburbs" where there has been surplus
value in the stock and the issue there really is that those houses,
whilst they stay in the national stock, contribute to the national
pooling system that we have been talking about. Obviously the
authorities want to escape that and really at the point of transfer
that is a one-off opportunity to scoop some of that surplus value
back into the national pot. The CIH has always supported the stock
transfer levy and has argued that perhaps the levy should be higher
than 20 per cent, I think there is a case for saying that local
authorities should pool some of the resources they get in if their
stock has a positive value at the point when they transfer.
Chris Grayling
246. I wanted to pick up on this point. One
of the very obvious potential concerns is that this proposal seems
to be intended to be a way of shifting money from "rich to
poor" but, in reality, the most acute problems with affordable
housing tend to be in the richer authority areas. We have seen
in the various inquiries we have done, into empty homes for example,
that the classic inner city areas are not necessarily, with the
exception of London, areas of particular housing shortage, whereas
in Waverley in this evidence there is an acute need for affordable
housing in the "richer areas" so there is a worry that
this will distort rather than help.
(Mr Perry) A lot depends on the kind of formula that
you use, the extent to which there are some receipts left at local
level and the transparency of the overall operation. One of the
dangers would be that, as happens at present, the receipts are
scooped into a national pool and nobody ever knows the relationship
between the national pool established from receipts and the bigger
pool set aside by the Treasury for resources generally. We want
much more transparency about the level of resources needed to
be put in by Treasury and the relationship between that and the
capital receipts pool, if I make myself clear.
Chairman
247. Debt-free status was supposed to be a carrot
to encourage local authorities. It has got nibbled at a fair bit
by the rabbits by this proposal. Do you think people are still
going to want to be debt-free authorities?
(Mr Perry) It is difficult to say because there are
other advantages to being debt free although I accept Waverley's
case that they particularly went for that status in order to have
access to the capital receipts and I think, yes, it would be difficult
to disagree that their position would be unfair if they found
themselves now penalised. The devil will be in the detail to see
how much local resources are left in places like that. One would
hope that Waverley would not lose all of its receipts into the
national pool and if it lost some it would get some back because
of its need to spend because of the level of demand in that sort
of area.
248. In the vague theory that Parliament should
decide these things rather than ministers, ought not the face
of the Bill to show how that deal is going to be struck?
(Mr Perry) I would rather support the discussion that
arose in the earlier session about the publication of draft Regulations
at the time of the Bill. These things are devilishly difficult
to get right. If it was in the Bill and therefore in the Act it
would be rather fossilised. If it was in the Regulations and went
wrong there might be some chance of changing the regulations.
249. So you would like to see the regulations
at least at the point at which the Bill is finally published?
(Mr Perry) The key areas of concern as far as Regulations
are concerned are about capital receipts and the issue that Mr
Betts was talking about earlier, the redistribution of surpluses
in Housing Revenue Accounts, and those are the areas on which
we would like to see more transparency.
Christine Russell
250. Mr Perry, there seems to be an underlying
presumption in the proposals that housing is a national service
and therefore money can be readily moved from one area to another.
Do you agree with that?
(Mr Perry) I think this is a big unspoken reality
for local authority housing really. It applies now. It applied
before the Bill and it applied before resource accounting was
introduced. Local authority housing is really a nationalised industry
that is run by local agencies and a large part of the financial
decisions are made by central government. I think that is regrettable.
It is very understandable because it is so much dependent on central
government subsidy, but I would like to see a phased programme
of perhaps gradual reductions in subsidy and gradual increases
in autonomy on the back of authorities having brought all their
stock up to the Decent Homes standard.
251. What would that involve—rents rises?
(Mr Perry) Rent rises are going to take place in any
event. Broadly speaking, because of rent restructuring, local
authorities will have to increase rents and housing associations,
in most instances, will have to reduce their rents. That in itself
is an example of this nationalised industry syndrome. London authorities,
for example, which have got to increase their rents quite considerably,
will not be able to show any benefit of those rent increases to
their tenants whereas housing associations, which also have to
increase their rents in many cases, will at least be able to put
all of that new money back into services for their tenants. That
is completely illogical. Rent restructuring is an opportunity
to start giving more autonomy back to local authorities, particularly
in areas where rents are going to increase.
Chairman
252. As far as some housing associations outside
London are concerned, it could make big holes in their finances,
could it not, if their rents are going to come down?
(Mr Perry) Yes, there is an issue about the effects
of rent restructuring on what housing associations will be able
to do. One of the unfortunate consequences could be neglect of
maintenance. If that happened on a long timescale housing associations
could start to get into the same difficulties as local authorities
with a backlog of disrepair, and that would be very unfortunate.
Mrs Ellman
253. You argue that the Bill will not level
the playing field on stock transfer. What are the most important
reasons for that?
(Mr Perry) I think that is set out in my evidence.
There was a kind of myth around that the main issue about stock
transfer was to create bodies that could borrow more freely and
that the Bill would allow freer borrowing and therefore would
remove a lot of the bumps on the playing field, as it were. Clearly
prudential borrowing is one issue but it is only one of the freedoms
which local authorities are trying to get when they go for a stock
transfer. If you look at the list in my evidence, they are only
getting that one freedom and not getting any of the others so
there will still be a very bumpy playing field, if you like, in
comparing one with the other.
254. Do you think this is accidental or a deliberate
policy?
(Mr Perry) I think it is deliberate because in a sense
stock transfer is a kind of Faustian Pact between the transferring
agency and the Treasury. It is saying, "Okay, we will write
off all of your debts in return for in future you not coming to
us ever again for subsidy and any borrowing you do will not be
public borrowing." If you could put local authorities in
that position without transfer then you would be creating some
of the conditions that the transfer bodies have, but you cannot
do that because local authorities inherently remain public bodies
and are probably going to remain strongly reliant on subsidy.
Chairman
255. Quite a few stock transfers have failed,
have they not? I am thinking of Hattersley in Greater Manchester.
Is there not going to be some problems where they fail for financial
reasons as opposed to where tenants vote them down?
(Mr Perry) When you say failed in relation to Manchester,
you meant the ballot was a no vote?
256. The one at Hattersley collapsed because
the financial arrangements could not be put in place because the
nature of some of those estates means that they are unattractive
to the markets to risk investing in those properties.
(Mr Perry) There is certainly an issue which does
need to be addressed—I think the ODPM is looking at it—of
transfers in very rundown areas which are not attractive to funders.
That is true; there are areas where at the moment it would be
difficult to get a transfer off the ground because you could not
get an attractive enough funding package.
257. Is it not important that you level the
playing field at least for places like that, if not for places
where people deliberately vote for democratic control of their
housing rather than handing it over to a faceless corporation?
(Mr Perry) There is an issue of what it would mean
to level the playing field. In places like that certainly I would
encourage it. In the submission we made to the Department on the
Spending Review—and we made it jointly with the National
Housing Federation and Local Government Association—we called
for extra money to facilitate stock transfer in the kind of areas
you have mentioned so that those could take place. There is a
case for making partial transfers more attractive to authorities.
The issue about the levelling of the playing field more generally,
as I have tried to explain, is a very complicated one and I think
that you have probably got to secure some key changes in local
authority housing before you can give local authority housing
the same freedom as housing associations. One of them might be
to go hell for leather for the Decent Homes targets and then look
at giving local authorities less subsidy and more financial freedom
once their stock was in decent condition.
Christine Russell
258. Mr Perry, in your memorandum you say that
the proposed prudential borrowing regime will benefit municipal
markets and municipal bus companies but will not be as much benefit
to municipal housing. Why is that?
(Mr Perry) I was trying to use those as examples to
show where within local authorities there are some services that
have direct control over their income. Nottingham, which has still
got a bus company, presumably can freely decide what the bus fares
are and it can put more on the bus fares if it wants to buy more
buses and it can borrow to buy the buses under the new prudential
regime, as far as I know, although I am not an expert on local
authority capital outside housing.
Chairman: There are only about three local authorities
left with a bus company.
Christine Russell
259. Chester has got one.
(Mr Perry) I agree. The difficulty in housing is there
is only freedom to generate extra resources at the margin and
the Bill, or more especially the rent restructuring policy, will
actually narrow it and will squeeze out most of that remaining
limited flexibility so that at the moment some local authorities
generate extra resources by having rents above guideline levels.
In the rent restructuring arrangements they will still be able
to have rents above the target levels but they will be very heavily
penalised through the housing benefit system for doing so. On
the housing side that means there is very little freedom for authorities
to generate the extra resources they would need in order to command
borrowing above the borrowing limits which the Government already
sets for them.
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