Select Committee on Regulatory Reform Fifth Report

Part II: Assessment of the proposal against the Standing Order criteria

Inappropriate use of delegated legislation

  34. Of itself, this proposal is not inappropriate for delegated legislation. It would allow local authorities more flexibility in the way they delegate their housing management responsibilities—a clear example of the kind of deregulatory measure envisaged under the Regulatory Reform Act. We do not therefore object to the passage of the proposal on this ground.

35. However, the proposal's close connection with the politically controversial Private Finance Initiative (PFI) has caused us to consider the implications of its introduction by means of the regulatory reform procedure—a procedure which, in normal circumstances, allows no opportunity for debate in the House. PFI in local authority housing is a matter in which many Members of the House have an interest, and which directly affects the lives of a large number of their constituents. The interest of our colleagues on the Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Committee in the proposal demonstrates that those with more detailed knowledge of the subject consider it worthy of further scrutiny and debate. It may therefore be the case that, whilst not inappropriate for delegated legislation, this proposal merits wider debate than is possible within the confines of this Committee. Standing Order No. 18 provides a mechanism for ensuring debate on the floor of the House in these circumstances. If and when this proposal returns to us as a draft order, for "second-stage" scrutiny, we shall consider the matter further. If our recommendation as to whether the draft order should be approved were to be divided upon, the provisions of Standing Order No. 18 would ensure a debate on the draft order on the floor of the House.

Adequate consultation

  36. We are satisfied that the proposal has been the subject of, and taken appropriate account of, adequate consultation. A consultation paper was issued in England and Wales on 2 August 2002 on behalf of the Deputy Prime Minister and the Secretary of State for Wales, inviting views on the proposals. The closing date for responses was 27 September 2002, representing a period of only eight weeks. The reason given by the Department for the attenuation of the consultation process was that the issue with which the proposal is concerned only came to light fairly recently and, as some housing PFI projects were nearing contract signature, it was felt important to have the change in place as soon as possible.[24] The Department stated that it had, however, taken account of all available responses, including those that were received after the closing date.[25]

37. The paper was distributed to all local authorities, those building contractors, finance houses, Registered Social Landlords, advisors, consultants and other groups currently involved in housing PFI projects, and to tenants' and leaseholder groups. In addition, copies were sent to trade unions and others who might have an interest.[26]

38. Prior to the issue of the consultation paper, the Department was engaged with the 4ps (the representative body of local authorities in these matters) in drafting guidance on PFI in housing for local authorities. The Department included the consultation paper issues when seeking views on the draft guidance and has, it says, taken account of those responses in preparing the proposal where the consultees were not otherwise represented. The Department has also held three workshops with public and private sector organisations involved in housing PFI projects, where the issues were discussed in some detail.[27]

39. The Department reports that it took particular care to include tenants' and residents' groups in its consultation, and contacted them directly to ask them to respond. The Department also specifically arranged that those authorities pursuing housing PFI projects should engage with their tenant groups and likewise encourage them to respond. As a result, the Department received ten responses from this sector, representing 18% of the total responses.

40. A summary of the main points raised in consultation may be found at Chapter 12 of the explanatory statement. A paper drawing together all the responses to the questions asked is at Annex D of the statement.


  41. There is just one point raised in consultation to which the Department did not respond satisfactorily in its original explanatory document which we wish to discuss here. Unison, the trade union representing large numbers of local authority workers who may be affected by these changes, noted that the consultation paper has little to say on the potential effects on staff. In particular, Unison noted that a separate consultation on "arm's length management organisations" (ALMOs) specifically took workforce issues into consideration, whereas the consultation on this proposal did not. The Department's explanatory statement acknowledged that Unison "raise[d] a number of pertinent points in relation to staff who transfer to a PFI contractor", but, unfortunately, made no attempt to respond to those points. Our subsequent request to the Department to respond to Unison's comments and questions regarding the effect of these proposals on the workforce elicited an inadequate response.[28] Only when the Minister appeared before us in person were we able to get a satisfactory response to questions which the Department itself had acknowledged were relevant.

42. The Minister confirmed that there would be "no specific variation of the current national provision in terms of TUPE[29] or any other transfer of staff or undertakings that are unique to this Order in any way."[30] He went on to assure us that this proposed order would not worsen the position with regard to employment protection.[31] On the basis of this assurance, we are satisfied that appropriate account has been taken of the points made by Unison in their response to the consultation.


  43. Three changes were made in response to the consultation:

We do not consider any of these changes to be so significant as to have required re-consultation.

Removal or reduction of burdens

  44. We are satisfied that the proposal reduces a burden. The current section 27 imposes a burden on local housing authorities. Under section 27, an authority may permit another person (or "manager") to exercise the authority's housing management functions. However, there is no power for the authority to agree to (or indeed the Secretary of State to approve) the manager sub­contracting any of the work. As a consequence it is not possible for a local housing authority to enter into the sort of partnership arrangements with the private sector envisaged under Government initiatives such as the Private Finance Initiative and Best Value. This is because wider arrangements, whereby further agreements may be made enabling one or more further organisations to carry out the management functions under sub­contracting arrangements, are not permitted.

45. Section 27 also currently requires that the manager should exercise the management functions "as agent of the authority". Generally, an agent acts on behalf of the person who instructed him or her, so that the authority would be, as principal, a party to all the contracts which an agent makes and consequently liable for any obligations that may arise. The Department suggests that section 27 was intended to ensure that the authority should remain legally, politically and financially accountable for the actions of its agent.[32]

46. In PFI arrangements, the functions will be subcontracted under separate agreements between the main PFI operator or SPV[33] and one or more management providers. The Department suggests that the requirement that a manager act "as agent of the authority" would not fit well with such arrangements. Although the Department appears to have some difficulty in explaining why this should be the case,[34] we are satisfied that the reason is that an agent has no power to sub-delegate the powers and duties which have been delegated to him or her by the principal.

47. The proposed order would reduce the burden imposed by the current section 27 by:

    (a)  granting the ability to sub-delegate, and

    (b)  amending section 27 so as to remove the phrase "as agent of the authority", and inserting instead new subsections (13) and (14).

The combined effect of the two new subsections (13) and (14) would be to preserve the authority's existing responsibilities (legal, political and financial) in most circumstances, but to relieve the authority of responsibility where the delegated manager is liable for a criminal action. They would not, however, allow a local housing authority to contract out of its obligations towards tenants or other third parties.

Creation of new burdens and re-enactment of existing burdens

  48. Rather than simply amending the existing section 27, the proposal would replace the whole of the section with a new, amended section. In terms of the Regulatory Reform Act, the proposal would therefore re-enact most of the existing burdens currently imposed by section 27, and impose certain new burdens connected with the new power to sub-delegate housing management functions. Both new and re-enacted burdens must be proportionate to the benefit expected to result from their creation, or re-enactment.


  49. The burdens re-enacted by the proposed order are as follows. New subsections (3) and (4)[35] require an authority to include in a management agreement such provisions as may be prescribed by regulations made by the Secretary of State.[36] New subsection (6)(a)[37] requires the Secretary of State's approval to the making of a management agreement. New subsection (15)[38] enables the Secretary of State to prescribe which functions are not "management functions" for the purposes of a management agreement under subsection (1), and may not therefore be delegated by an authority.[39] The benefit expected to result from these burdens on local authorities is that of the Secretary of State's ability to ensure that those authorities exercise responsibly their power to make management agreements. We are satisfied that each of the burdens proposed to be re-enacted is proportionate to the benefit expected to result.


  50. The new burdens which would be created by the proposed order are as follows. New subsection (5)(a) requires that the local authority should have to consent to the sub-delegation of delegated management functions by a manager. New subsection (6) requires the Secretary of State's approval to the making of a sub-agreement—that is, to the sub-delegation of management functions—and, in certain circumstances, to the variation of provisions of an agreement or sub-agreement. Similarly to the re-enacted burdens discussed above, the benefit expected to result is that of the ability to ensure the responsible exercise of the new power to sub-delegate. New subsections (7) to (10) impose burdens connected with the moratorium period.[40] The benefit expected to result is that of ensuring that services may continue to be provided to tenants if a manager needs to be replaced as a matter of urgency, but that the necessary controls on sub-delegation are reapplied as soon as practicable. We are also satisfied that the new burdens which would be created by the proposed order are proportionate to the benefit expected to result.

Necessary protection

51. The main protection offered by section 27 in its current form is in ensuring that local housing authorities remain legally, politically and financially accountable for the management of their housing stock. Section 27 also protects those concerned by providing that management agreements have to be approved by the Secretary of State/National Assembly. We consider below the extent to which each of these protections would be maintained under the proposed order.


  52. Protection against local authorities delegating their management functions in inappropriate circumstances would be maintained by the requirement to seek the Secretary of State's approval for management agreements. As at present, the authority would provide the Secretary of State/National Assembly with details of the agreement and of any subsidiary agreements. If it is intended that further agreements will be made for other persons to exercise any of these management functions, then the management agreement with the authority will set out what is intended. It will require the manager to obtain the consent of the authority. The authority, if satisfied, will in turn need to seek the approval of the Secretary of State/National Assembly before the further agreement is entered into. As at present, affected tenants will be involved in and consulted about the proposed agreement before approval is sought, and the Secretary of State will have to be satisfied that this has been the case before approving any further agreement.

53. There is one exception to the above, namely, where a sub­delegated manager has to be replaced as a matter of urgency. In these instances a period of grace will be given to the PFI Operator in which to make the necessary arrangements. The Department says, "It is expected that the PFI Operator would be working closely with the authority and tenants in dealing with the situation".[41] The Secretary of State/National Assembly would have to approve the interim arrangements retrospectively.[42]

Wider application of the changes to be made by the proposed order

  54. Although the above requirements appeared to us to maintain necessary protection in the context of the particular PFI arrangements which prompted this proposal, we were concerned that the Department had not considered the wider implications of the changes. Consultees were invited to express an opinion on whether it would be appropriate to apply the proposed changes more widely than just in the context of the PFI schemes which are currently under way. Although all but one respondent to this aspect of consultation agreed that it would be appropriate to do so, there was little or no analysis by the Department of what the wider implications of the change might be. We were concerned by this lack of analysis, which suggested that the urgent need for the changes (for the continuation of existing PFI projects) might have precluded the proper analysis of wider implications which is generally desirable when making legislative changes. We therefore asked the Department what the wider application of the proposed changes might be, and whether it was satisfied that all necessary protection would be maintained across the local authority housing management sector if the proposed order became law.

55. The Department's written response did not demonstrate that any serious thought had been given to the applications of the change beyond the existing local authority housing PFI projects. It confirmed that the proposed order would give local authorities greater flexibility over the way they delegate their housing management functions, even if it was not at this stage clear how they might take advantage of that flexibility. It also stated that there appeared to be no reason to limit the application of the changes so that they applied only to the sort of projects currently envisaged. In oral evidence, the Departmental policy officer in charge of the proposal was slightly more forthcoming:

It is not just about PFI, but it should also help authorities on different levels. For instance, if they want to engage a registered social landlord to manage their housing and a registered social landlord or housing association wants to call on the expertise of specialists in, for instance, sheltered housing, that sort of arrangement would not be able to go ahead without these changes in place, so we are not just talking about big PFI contracts here, but it should help on the smaller issues for local authorities.[43]

56. The Department's response on the more important question of the maintenance of necessary protection was, however, more satisfactory. It noted that it would continue to look closely at requests for the Secretary of State's approval for any management agreement put in place under the new section 27, to ensure that all the necessary protections were maintained.[44] In oral evidence, the Minister noted that, in addition to the Secretary of State's approval, protection would be also maintained both by the ongoing requirements of the local authority audit regime and by the provision for tenant consultation.[45]


  57. Having considered the explanatory statement, the Department's later memorandum,[46] and the points made by the Minister in oral evidence, we are satisfied that the proposal would not remove any necessary protection. The continuing requirement to seek the approval of the Secretary of State to a management agreement, which would be extended to further agreements for sub-delegation, should ensure that any such agreements represent a proper exercise by the authority concerned of its powers under the new section 27. The provisions for a moratorium period should ensure that tenants continue to receive the necessary services when a manager has to be replaced, whilst allowing the Secretary of State to retain proper control over the interim arrangements. Additionally, the new section 27 will retain the existing reserve power of the Secretary of State to prescribe by regulations what provisions should be in a management agreement. No such regulations have been made to date, but the power is there for the Secretary of State to prescribe statutory guidance if he or she considers that the request to seek his or her approval to a management agreement is not sufficient to ensure necessary protection is maintained.[47]

24   Explanatory statement, para 12.2. Back

25   ibid. See also Annex C to Appendix B. Back

26   A full list of consultees is at Annex E of the consultation document. Back

27   Explanatory statement, para 12.4. Back

28   Appendix B, section A15. Back

29   "Transfer of Undertakings (Protection of Employment)" Back

30   Q87 Back

31   Q88 Back

32   Explanatory statement, para 3.8. Back

33   "Special Purpose Vehicle": see para 14 above. Back

34   See para 59 below. Back

35   Currently section 27(3). Back

36   No such regulations have ever been made; nor, the Department states, are there any plans to do so as part of the proposals in the draft order (Appendix B, section A5). Back

37   Currently part of section 27(1). Back

38   Currently section 27(6). Back

39   No regulations making such a prescription have ever been made, nor are there any plans to do so (Appendix B, para A5). Back

40   See paras 23 to 26 above. Back

41   Explanatory statement, para 9.7. Back

42   For an explanation of what the position would be if approval for anything done during a moratorium period was withheld, see Appendix B, section A3. Back

43   Q46 Back

44   Appendix B, section A21. Back

45   Q48 Back

46   Appendix B Back

47   New subsection (4). See also Appendix B, section A1, seventh paragraph; and Q53. Back

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