Examination of Witnesses(Questions 1-19)
MR TONY
MCNULTY
MP, MR DAVID
GREEN AND
MS SARAH
MILLINGTON
WEDNESDAY 8 JANUARY 2003
Chairman
1. Can I welcome you here, Minister. You will
know that this is an unusual format in which we are meeting today.
In fact it is the first time that we have done this, two committees
meeting jointly. There are two reasons for that. One is that the
Regulatory Reform Committee, by legislation, has to work under
a tight timetable and we wanted to involve the expertise of the
ODPM Select Committee and we also felt that corresponding backwards
and forwards was a little bit too slow to eliminate some of the
concerns of my Committee. We have had some correspondence backwards
and forwards and there are a number of questions. Obviously we
want to meet the timetable and to be able to deliver our report.
I cannot prejudge what that report will say, but we want to meet
that timetable. Could you introduce your team to us.
(Mr McNulty) Yes, certainly. This is Sarah Millington,
Legal, and David Green, Housing.
2. Can I begin from the start. Why was it discovered
so late that there was no legislative power to undertake the kind
of projects which are envisaged under this proposal and what is
the deadline for implementing these changes and what would happen
if the deadline was not met?
(Mr Green) The reason why the issue came up so late
was largely because it depends on a matter of interpretation in
respect of section 27. As you well know, we have had these "pathfinder"
PFI projects with authorities underway, but it was not really
until authorities started drafting contract conditions that they
and bidders became aware of this particular issue. It is not one
which has arisen in the past.
3. And what is the deadline for implementing
the changes?
(Mr Green) Well, we have had local authorities which
are looking for quite a long time at the procurement process and
are now looking to sign contracts and we are hoping that at least
one or two of them will sign this financial year and hopefully
one next month, so basically the change needs to be in place this
financial year. If it is not, we are working on interim measures
which will enable the projects to proceed, although they are not
satisfactory. There are a couple of proposals at the moment which
I do not know whether you will want me to elaborate on. One is
where the SPV lets sub-contracts, but the local authorities are
party to those contracts and you get, therefore, the delegation
of management functions in that way. The other is for sub-contractors,
their management staff to come under the wing of the SPV, so all
the management function lies within the SPV. These are not satisfactory
solutions and would need changes to the contract documents at
the moment and they are not ones that the private sector are particularly
happy with, nor the local authorities. So there is the potential
for projects still to proceed and if our Regulatory Reform Order
fails, then we would have to look at the possibility of looking
perhaps at the Housing Act which is being proposed, but obviously
that would delay things quite considerably. A further impact of
the Order not going through would be market confidence which we
are particularly concerned about.
Andrew Bennett
4. Could we be specific. What was the date when
you first discovered that there was a problem?
(Mr Green) Probably about June of last year, I think.
No, before that in fact, probably April of last year.
5. And what was done about it between April
and now?
(Mr Green) We had discussions within the Department
with our legal advisers and others. We spoke to our "pathfinder"
authorities and 4ps[1]
about the issue. We discussed with colleagues about the best way
to pursue the change and, as I mentioned before, we did look at
the housing legislation as a way of proceeding and also by attaching
it to a Bill, and we produced the consultation paper which went
out in August of last year.
(Ms Millington) I think it may have been
slightly earlier than April of last year. It might have been the
previous autumn. We started discussing it in the autumn of 2001,
I think. It was sort of late, just before Christmas, something
like that.
6. You are trying to convince us that it is
urgent and yet there seems to be great vagueness as to when it
became urgent.
(Mr Green) We can come back to you with the dates,
if you like.
7. I think there are some problems about the
time, but you think it might have been the autumn of 2001?
(Ms Millington) Just before Christmas, around that
date.
8. So it is over twelve months ago when you
first started to think that there was a problem?
(Mr McNulty) Well, when the problem was identified.
Clearly twelve months on, it is twelve months more towards a degree
of urgency.
9. So which is the local authority which is
in difficulties if you do not get this Order?
(Mr Green) We have three authorities who are nearing
contract signature. One is Manchester, the other is Islington
and the other is North-East Derbyshire.
10. As far as the Manchester one is concerned,
what specific scheme in Manchester is it dealing with?
(Mr Green) It is near the Ardwick part of the town.
(Mr McNulty) The Plymouth Grove/Stockport Road estate.
Chairman
11. Are you now satisfied that there has been
time for you to consider all of the potential implications of
the changes and do you think that there is any possibility that
people will suggest that the necessity for getting the changes
through in time for the contracts to be signed on pre-existing
projects has perhaps resulted in poorly-prepared pieces of legislation?
(Mr McNulty) Well, I am certainly not going to sit
here and say, "Yes, it is terribly poorly prepared and we
are very, very sorry, but it was all a big rush". I think
given the twelve months plus that we have just alluded to in terms
of looking at the process and given that these problems arose
only as and when the details of contracts were being explored,
I think now using the RRO process, we are in a position, especially
by going far wider than just addressing specifically contractual
problems with PFI, where if the new Order is secured, the future
of transferring and sub-contracting housing management will be
robustly done rather than done in a hurry or in some sort of cack-handed
way. I think we are fairly confident about the robustness of this
as a vehicle.
Chairman: I am going to move to perhaps an absolutely
key issue and that is the appropriateness of the measure which
is the crucial issue on which the Committee has to judge every
proposal which comes before us.
Brian White
12. There are two key things we have to consider.
One is whether it is controversial and the other is whether it
is adding new burdens or not. Given that you have got a Local
Government Bill going through at the moment, why did you not use
that rather than the RRO? What was it about the RRO which was
particularly appropriate for this?
(Mr McNulty) The short and kind of technical, procedural
answer to that is that it would have widened the scope of the
Local Government Bill as per the long title of the Local Government
Bill and would have turned it into another Bill above and beyond
what the scope of its long title was. You will know from the Queen's
Speech that this year we are going to bring out and publish a
draft Housing Bill, but again, given that the emphasis there is
on "draft", that would not fit in appropriately with
the timetable, and given the nature of what we are trying to do
with this specific aspect of the transfer of housing management,
we thought that the regulatory reform was the appropriate process
to use.
13. The Department has tried to argue that they
accept that PFI is politically controversial and the Government
has given an undertaking that they will not bring large and controversial
measures through the Regulatory Reform Order. The Department has
tried to argue that although PFI is controversial, this is a technical
amendment which is on the periphery. Is this not going to affect
whether you actually deliver PFI or not, this particular amendment,
and therefore it goes to the crux of PFI?
(Mr McNulty) I do not think so. As David said earlier,
what this will do is deliver these specific contracts, although,
you understand, it goes far, far beyond that in terms of its scope,
so it will deliver these contracts in the most satisfactory way
for local authorities as well as for contractors rather than going
other routes which are clearly being explored on a contingency
basis, but by common consent on both sides, contractors and local
authorities would be less than satisfied with the alternatives
than to going this specific route.
14. But there are four options that the Government
has identified for local authority housing which is direct provision,
ALMOs, PFI and stock transfer. This only applies to the three
privatisation routes, not to direct provision, as Mr Green said
in his previous evidence to this Committee, so is it not really
the fact that it is about the ending of council housing and, therefore,
it is politically controversial?
(Mr McNulty) Well, at the risk of being controversial
myself, I do not accept that either of the three alternatives
are privatisation routes, number one, not least because overwhelmingly
the ownership of the housing stays exactly with the council in
most cases, but clearly if the Order is about transferring sub-contracting
down on particular aspects of housing management, it is not going
to prevail or be an option in terms of directly-provided municipal
housing because it is directly provided, so you are not sub-contracting
anything down. So yes, it does only apply to PFI, ALMOs and stock
transfer[2]
in that sense, so three of the four options, but within that is
providing what we see as the most satisfactory, the most efficient
route for any current and future ways of exploring housing management
as part of each of those three options.
15. Given that, why then did you not identify
the particular burdens which are going to be put upon the management
that local authorities are going to have to face in managing these
contracts when they have to decide who is the agent and what is
the actual definition? The response from the Department was that
there are no real additional burdens.
(Mr McNulty) Well, I am not terribly sure that there
are.
16. So if you are actually managing contracts
and deciding who is an agent and a sub-agent and things like that,
that is actually going to add to the amount of work that local
authorities have to do.
(Mr McNulty) It will increase part of the work that
local authorities do on a daily basis in the course of being local
authorities. I do not think the management and control of an additional
or a series of additional contracts adds significantly in terms
of burden, time or effort to a local authority any more than,
as you will well know, the complexities of managing a range of
contracts which local authorities do on a regular basis, so in
that sense it is it not adding any significantly additional burden.
Mr Cummings
17. The Committee have been told in evidence
by Unison that the consultation exercise has not been widely drawn
as far as tenants and trade unions are concerned. I understand
that you have had very few responses from tenants' groups as distinct
from tenants' organisations. Can you tell the Committee what consultation
was carried out between tenants' groups and what responses the
Department have received?
(Mr Green) As we said in our response to the Committee,
we listed the tenants' organisations whom we consulted with, the
National Housing Federation, the Local Federation of Housing Associations—
18. We have the list in front of us and it does
appear to be quite extensive from organisations as distinct from
tenants' groups who would be at the sharp end of any PFI. Did
you target specifically tenants' groups who are actively involved
at the sharp end of this exercise?
(Mr Green) We did ask all of the authorities which
are involved in PFI projects to bring these issues to the attention
of their tenants' groups.
19. And was that done?
(Mr Green) That was done, yes.
1 4ps, a branch of the Local Government Association
which advises on public/private partnerships and procurement. Back
2
The proposals will only apply to ALMOs, PFI and any similar arrangements.
Where stock transfers to a housing association, how the services
are provided is a matter for the successor landlord (the housing
association) which is contrained by section 27. Back
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