Select Committee on Regulatory Reform Minutes of Evidence

Examination of Witnesses(Questions 1-19)




  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.


  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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