WEDNESDAY 8 JANUARY 2003

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Members present:

Mr Peter Pike, in the Chair
Andrew Bennett
Mr John Bercow
Mr Clive Betts
Mr Russell Brown
Mr David Clelland
Mr John Cummings
Mrs Claire Curtis-Thomas
Mr Jeffrey M Donaldson
Mr Dai Havard
Andy King
Mr Andrew Love
Chris Mole
Dr Doug Naysmith
Mr Bill O'Brien
Christine Russell
Mr Gary Streeter
Brian White

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MR TONY McNULTY, A Member of the House, Parliamentary Under Secretary of State, MR DAVID GREEN, Policy Adviser, and MS SARAH MILLINGTON, Legal Adviser, Office of the Deputy Prime Minister, examined.

Chairman

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.

Can I start right 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.

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 sort of 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 SPB 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 SPB, so all the management function lies within the SPB. 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

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.

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 four Ps(?) 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.

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.

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.

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.

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 sort of nearing contract signature. One is Manchester, the other is Islington and the other is North-East Derbyshire.

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

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

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.

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 satisfactory as alternatives to going this specific route.

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 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.

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.

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

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 ----

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.

And was that done?

(Mr Green) That was done, yes.

You are sure of this?

(Mr Green) In the majority of cases, though I think a couple of authorities did not.

You are saying that arising from that exercise, from your specific request, tenants' groups did not respond?

(Mr Green) I cannot remember the exact numbers that did respond, but it was very few.

Have you any idea of how many were asked?

(Mr Green) It is likely to be ten.

How many?

(Mr Green) Nine or ten.

How many tenants' groups?

(Mr Green) We have eleven authorities pursuing PFI on housing.

Dr Naysmith

Just before that, you said that a couple of authorities did not. Could you just be more specific about the number?

(Mr Green) Can I come back to you with that?

Out of eleven?

(Mr Green) Yes, we have got eleven local authorities.

Because even a couple would be at least two.

(Mr Green) Okay, nine.

(Mr McNulty) We also consulted a range of tenant federations and also TPAS, the Tenants' Participation Advisory Service, who are very up in this area, but in addition I would remind the Committee that there is significant provision for consultation with the tenants most directly affected as part of the process and we were very, very keen that that was part and parcel of the entire reform of section 27. Much of any "new burdens" that were placed on authorities as part of the change to section 27 revolved around as full a consultation as possible with the tenants who had been directly involved in this and that is terribly important.

Andrew Bennett

So the Ardwick ones that we talked about earlier, what was their response?

(Mr Green) They are very supportive of what we are trying to do. They are supportive of the proposals for change.

Dr Naysmith

You are saying that it was up to local authorities to do the consultation. Is that right?

(Mr Green) We asked them specifically to do that.

And some of them did not do it?

(Mr Green) A couple did not, yes.

Why did they not do it if you had asked them to do it?

(Mr Green) I am not sure.

(Mr McNulty) We can get back to you on that.

Mr Cummings

You also or your Department, Minister, told the Committee that you were unaware of tenants' groups who have specifically opposed the establishment of arm's length management organisations and, consequently, did not target them specifically. What consultation have you undertaken with organisations or groups who are opposed to PFI and other forms of contracting out of the local authority housing function and would you tell the Committee what response you have received?

(Mr McNulty) Well, I suspect, I do not know 100 per cent, but I suspect that the answer to that is none. I am not sure it would have been terribly useful or terribly instructive for us or the organisations concerned if we had consulted what are essentially political campaigning groups or if we are talking about something specific to local authorities and the tenants that are affected. If you are asking me did we ring up and have a chat about council housing, the answer is no.

No, I am not asking that at all. You are specifically saying that you are unaware of tenants' groups. How are you unaware of tenants' groups who have officially opposed the establishment of arm's length management organisations?

(Mr Green) We are unaware of groups who are opposed to ALMOs.

Are you relying upon people writing to you? Have you carried out an exercise in the area in which you are operating? How do you know this if you do not ask anyone? Many of these organisations are ad hoc, they are voluntary bodies, they give freely of their own time, they meet in the evening, they are not serviced by any particular organisation, so how do you know?

(Mr Green) Having said that, we did have consultee responses who were not in favour of what we were proposing, particularly leaseholder groups who had bad experiences of the previous ----

I am particularly asking about tenants' groups, Mr Green.

(Mr McNulty) The submission says very, very specifically that, "We are unaware of tenants' groups who are opposed to ALMOs", and that is just simply the truth. If you have a useful list of tenants' groups who are opposed to ALMOs specifically either in the urban areas or beyond, then I would be delighted to see it.

If you do not ask the question, you do not get the answer.

(Mr McNulty) If we are talking about specific ad hoc groups, of which of course there are plenty, which sprung up or diverted their attention as and when there was a stock transfer and were totally against it, then that list could be fairly extensive if you work on where the ballots were and work out who was for and who was not.

The question, Minister, was in relation to tenants' groups.

(Mr McNulty) Tenants' groups and ALMOs. The point in here is tenants' groups opposed to ALMOs and there are none who have written to us.

You have not asked?

(Mr McNulty) No.

How do you know?

(Mr McNulty) Whom do we ask?

Mr Cummings: The tenants' groups.

Chairman

Tenants' groups in the areas which are not involved with PFI where there might be potential for PFI.

(Mr McNulty) Some at least were involved in the process. We spoke to the Federation of Tenants' and Residents' Associations in Plymouth, Bradford, Bristol, none of whom were involved in PFI.

Mr Cummings

These are organisations, Minister, and I am talking about tenants' groups.

(Mr McNulty) If you are talking about small, ad hoc tenants' groups up and down the country, then I am -----

Mr Bercow

Mr Green, you said a moment ago when you were answering a question from Mr Cummings that the Ardwick tenants are "supportive of the proposals". My concern, not dissimilar to what Mr Cummings is trying to do, is to try to identify the specifics, so what I would like to know is was that support unanimous or was it merely a majority? Was it verbal or was it written and was it formal or was it informal? What I think we want to try to establish is the robustness of the procedure which leads you to make a claim. That is really what we want to do. When we have got that information, we can all reach our own assessments about the merits of the Government's proposals as a whole, but I am concerned about the specifics and, as I say, the robustness of the procedure.

(Mr Green) It was written and it was formal. We were not given any indication as to whether it was unanimous or majority, but I assume it was a majority view.

How many people are we talking about?

(Mr Green) We are talking of about a thousand residents affected by the scheme.

Chairman

On this, the key on the consultation is that with a shortened period of consultation from the normal period that we would have expected from twelve to eight weeks, it affects not only tenants' groups, but everybody else. Do you feel that everything possible was done to make sure that those who wanted to respond were able to respond in that period? You have had a shorter period to be able to come forward with this proposal and not for the convenience of those you were consulting with.

(Mr Green) Yes, I am convinced that we gave them sufficient time to respond effectively and I think that is borne out by the fact that we did get responses from tenants' groups and also leaseholder groups, so I do not think there was any problem there.

Do you see any other ways, other than the existing PFIs, in which these changes could be used by local housing authorities?

(Mr McNulty) The way it has been drawn, it has been quite specific to be as broad and as flexible as possible, so I would not foresee at the moment quite any way in which, for example, ALMOs or tenant management organisations would necessarily want to use this particular provision now, but they may well do in the future, which is why it is drawn in those broadest terms rather than just drawn very, very narrowly just as a reaction to the difficulties encountered with these specific contracts. So the short answer is that given the flexibility, it can be drawn far, far wider and be utilised by ALMOs, TMOs and perhaps other vehicles, but I would not foresee that in the very near future, plus these are very early days in terms of those particular models.

As a quick point following on from that, if you see that there might be potential with the position as you see it, how can you be sure that all the necessary protection will be maintained in the future? Is there not a danger that some people might think that you are using this regulatory reform procedure to slip through the potential for PFI, recognising that some people are opposed to PFI and others welcome it?

(Mr Green) I think it is unfortunate that the proposals we are talking about are proposals to legislation which have been in place for quite some considerable time. It was really the last amendment formulated to enable two specific contracts. It is probably long overdue for change itself so that it fits more with government policy and with more modern-day procurement methods and it is unfortunate that it has got tied in with the PFI aspect in that respect. 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 with 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.

Dr Naysmith

Some of these things have been going on for a while, other organisations' management of a particular part of the housing stock, so why should we get into problems now which this legislation will sort out?

(Mr Green) Probably the official answer is presumably because they have got in a sub-contractor for delegating the housing management function. The more realistic answer is probably that they may now be doing it already where they are acting illegally, but we do not know.

(Mr McNulty) When he says "illegally", that worries me, so I'll bring the lawyer in.

(Ms Millington) The intention of the proposed reform is to widen the way in which the powers of the local housing authority can be delegated to enable the person to whom it is delegated to further delegate. Now, that is constrained by the requirement that they will consult the tenants who are worst affected and they will take that person into account and the Secretary of State would in giving approval. It is envisaged that the contracts would contain a lot of elements and because of this, it is necessary for other persons to be involved in carrying out the exercise of these functions.

But it is not delegating things to other organisations, but it is delegating to organisations which can then delegate to other organisations?

(Ms Millington) Yes, but there are limitations within the structure of the proposed reform to section 27, so there is a requirement for the Secretary of State's approval to further sub-agreements, so it is not a change which is enabled simply by the first approval. There is also a means by which approval is not required to every change or variation of the agreement, so it is a change to enable policy to develop further and for the local authority to enable more complicated agreements to be carried out.

(Mr McNulty) And bearing in mind that this is still ultimately a local government contract, so it still sits under the internal auditing regimes local government has to abide by and it still sits under the District Auditor regime and the District Auditor is more than aware of the regulations that prevail and the back-stop of the Secretary of State having the last word in approval, not in every case, but in many cases. Also in terms of any shift or change, I go back to Mr Pike's point about protection under the revised section 27 where any number of key decisions which are made which will impact most directly on tenants, there will be provision for that ongoing tenant consultation, so in terms of protection, we are back to your earlier point, Mr Pike, and I think, if anything, it is enhanced by the Order and the changes to section 27 rather than denigrated or degraded in any way.

Chairman

It is an issue that we have to be concerned about.

(Mr McNulty) Yes, absolutely.

Mr Havard

If you did not get these changes, how would the current schemes which are running be affected and why would they be affected because when I read the original section 27, there seems plenty of discretion for the Minister to do a number of things? I am not fully understanding how they would be affected and why they would be affected if you did not have it.

(Mr McNulty) They would be affected because in many cases, like a whole range of normal contracts let by local government, rather than the delegation being once removed and that contractor doing absolutely everything, there is scope for subsequent delegation. Now, as I understand it, the way things are at the moment, as I think Dr Naysmith said, that happens, but it happens in an extremely rigid fashion and a fashion which does not bring terribly much flexibility to the game for either the local authority, the tenants who are most directly affected or the contractor, so, as Dr Naysmith has already said, there may well be a subsequent sub-let for the windows, but that is part of an overall refurbishment and management contract and if that refurbishment and management contract says, "...and the windows will be done three months into the contract", and then you will move on to something else, the sub-contractor has to conform with that specific requirement in the overall housing management contract laid down as a slab and that is it whether it is convenient for the tenants to have their windows done within that three-month window at the start of the contract or otherwise. That is the only extent of any real delegation and rigidity and flexibility thus far. That is kind of over-egged for effect, but it is not that simplistic, having done it myself for many years, not put the windows in, but controlled the contract. That degree of flexibility is far more robust post the Order than it was previously. I think the points about what happens to these extant contracts or contracts which are being developed now if the Order does not get through, as David has already said, they will probably still happen, but in a far less satisfactory fashion certainly for local authorities and probably the contractors than if this Order is secured.

Mr O'Brien

On the question of tenant consultations, the question-and-answer exercise so far has always referred to the consultation with tenants on the future programme, but what about the future consultation for tenants? Is there not a risk that under the arrangements put in place tenants could be bombarded with constant consultation on the management of their homes and, therefore, if we do not explain to the tenants in the first place that there will be continuing consultation, we could find that there will be a loss of interest for our tenants after the contract and that is too late because we cannot do anything about it afterwards, so what about future consultation? Has this been made clear to tenants?

(Mr Green) I think, in my view, perhaps "consultation" is the wrong word and I would prefer to use the word "involvement". We proceed on the guidance we have issued in these instances on consultation terms. We are more concerned that tenants become involved in the whole process.

So why is that not written in the Order then to start with?

(Mr McNulty) It is and it says in the Explanatory Document basically how, if the Order is secured, the various range of ways in which consultation becomes a key and central part of the future contracts, but it leaves it to the contractors and the tenants and the local authority to devise how they best seek the way, given their circumstances, to consult and that consultation programme, for future reference, is part of the process ----

Is it consultation or is it involvement? Mr Green is saying "involvement" and you are saying "consultation". Now, if it is involvement, then it is not written into the Order. Why?

(Mr Green) There are several parts to section 27, one of which does enable the Secretary of State to issue statutory guidance.

That is the old one, but we are talking now of a new approach. If we are saying that there will be tenant involvement and the contracts will contain a lot of elements and there are elements along the way which hopefully the tenants will be involved in, therefore, if there is going to be all this pressure applied to tenants after the contract, why is that not put in the Order?

(Mr McNulty) Well, as Mr Green said, the Order is dealing with only part of section 27, but the part of section 27 which talks about the issuing of guidance on consultation remains. It is not affected by whether the Order is secured or otherwise, as I understand it, and the Explanatory Document, as I say, sets out very, very clearly, number one, the importance of consultation and how within the process that consultation should be achieved. I think there is a kind of continuum, is there not, between involvement and what is more a day-to-day issue and broader consultation which impacts on the wider strategic programme issue. If consultation is devolved down to a proposal for a change in the housing management, you would expect some degree of involvement from the tenants in that process. Whether you are talking about some elaborate consultation process just as to whether you are going to change your housing manager or not, so it is full-blown consultation, would not stop it from being very, very serious involvement and participation for tenants.

The real concern is that if we have all these elements in the contract and you said, Minister, that the local authority contracts will be involved with audit and everything else, so the tenants are going to be responsible, but they are not going to have the authority over the elements in the contract or the local government involvement with the auditors, so all they are meant to do is to consult with the tenants that a decision will be made by the Secretary of State or the contractors themselves or the local authority. Now, all that impact upon the involvement of tenants will derive a situation where the tenants say, "Right, we can't handle this because there is too much involved". Would it not be better to leave it with the local authorities, the elected councillors, the people who have been involved, the back-up services that they have? Would it not be far better to leave it with the elected members and the local authorities than to have all this mismatch of involvement and consultation by which the tenants will be mystified because of the amount of consultation that will be involved?

(Mr McNulty) If I could be ever so slightly evocative, I would say that would assume that if you did leave it there, every single local authority in the country to an extent, a significant housing authority, would have a wonderfully good record because of their political control in terms of consulting and involving their tenants in P housing matters and that is not the case at all. There are very, very good examples of housing participation involving the tenants in processes. It is outside the scope of this Order, but I think there is a good case for saying that in any of the four examples of how we are trying to up the decency standard that there should be more and more education and training to ensure that there is proper and detailed tenant involvement, so they are not just simply being befuddled, as you say, because I think if consultation, as you say, Mr O'Brien, is simply bombarding them, then it is not going to be terribly effective. If there is not some mechanism for developing the local residents' and tenants' organisation and getting them involved in the process and allowing individuals to get involved in the process, then it is not going to be terribly effective.

Why did you not put that on the face of the Order, this question where you said just now that the tenants will be part of the exercise, but we are relying on the old legislation and then the Secretary of State will decide?

(Ms Millington) Well, there is power to make regulations to provide consultation.

Well, the fact that the tenants will be involved or whether it is involvement in consultation, I think that it would be much better if there was something specific in the Order which the tenants could refer to either to the contractor or to the local authority or to whomever that they would be involved, but as it is now, it is left to the Secretary of State.

(Ms Millington) You want something saying that they are involved?

Something saying that the tenants will have this right. If that is not going to be there then I think you ought to leave it with the elected members and the local authorities. The Minister says they are not all excellent, but in another forum we are saying that where people are not excellent at it we will give them an opportunity to improve; if not, we will send people in to show them how to do it. Why can that not apply to housing?

(Mr McNulty) What is left to the Secretary of State is approval of the consultation mechanisms that the contractor and the local authority put in place.

And agreements and sub-agreements.

(Mr McNulty) Absolutely, especially in the case where, as the guidance suggests, the consultation will come in a number of forms. Where consultation is a delegated function then the SPV, the special purpose vehicle, will consult with tenants about the appointment of a manager and all that and they would then have to put forward proposals together with details of consultations with tenants, the whole lot, to the authority and then they would have to apply something for agreement to the Secretary of State. It is more than simply the Secretary of State rubber-stamping if there has been consultation or not, there are stronger processes in place than that and the points about guidance still prevail. The way I see it, we are taking the best of the guidance and everything else from the previous regime and putting it in the body of the new Order and it still has a significant importance in the nature and style of the consultation. What I was saying about the other point, which I think is outside the scope of both the original Bill and the Order, is putting on the face of it that somehow councils should facilitate the education and training of their tenants to get properly engaged in the consultation process. Personally, I think they should, but it is outside the scope of the Order.

Mrs Curtis-Thomas

You claim that these proposals will improve conditions for tenants. Do you think it is going to improve conditions for tenants with more money in housing stock? How does your proposal bring about improvements for tenants?

(Mr McNulty) The upshot of this particular proposal is if all these contracts come to fruition 30,000 more homes will be up to and beyond the decent home standard. It is not a claim, it is a matter of fact if they go through. This needs to be seen, as Mr White said earlier, in the context of the four specific arrangements we have for public housing and it is but one aspect of that. I could go into a full routine about how housing capital has increased by 2.5 times over the last number of years and how we have £1.5 billion more now to spend on housing that Mr Prescott is going to talk about further when he makes his statement, but in the broader context of public housing this is a key element especially for the 30,000 tenants involved. I think our record is currently second to none and growing.

That money would be there irrespective of this PFI. It is not conditional on this PFI. So why does this PFI make a difference in that regard?

(Mr McNulty) Because for 30,000 people it will mean their homes come up to a decent standard.

Are you saying, Minister, and forgive me for my ignorance in this matter, that that money would not be available unless the PFI is there? My understanding is that the money is there in the housing budget.

(Mr Green) It is a means of drawing in private sector ---

But it is not the only means, is it?

(Mr Green) No.

The question I asked you is how does this PFI give them any more benefit when they could receive that benefit without it?

(Mr McNulty) Will these 11 local authorities bring these 30,000 homes up to a standard of decency without the PFI route? I suspect the answer is no.

That is a very different answer. That is using the PFI to induce a reaction from the local authorities to get them to do something and I suggest this is in view of the measures that you could choose to do that.

(Mr Green) No, it is not. We are trying to give authorities more options for how they bring about investment into their housing. It is giving more flexibility.

So it is about flexibility?

(Mr McNulty) And choice.

Mr Bercow

Minister, good morning to you. How can you assess the risks associated with the delegation of housing management without simultaneously assessing the risks of PFI? Does not the blind statement contained in the explanatory document, annex A, paragraph b, "... no risks are associated with the changes being made", demonstrate a failure to assess properly the implications of these proposals?

(Mr McNulty) I do not think so because I do not think it is a blind statement, it is accurate. In the context of the very narrow and specific changes that this Order is about there are no lesser or greater risks. In the wider context of a risk transfer in terms of the specific PFI contracts, they are part of that wider process and we all know that risk transfer is a key part of that process. Within the narrower confines of the changes to Section 27 and the shift to delegate further housing management, we do believe as a Department there are no further risks other than what there are in the contracts and that is in the contracts that have been drawn wider than specifically resolving issues around these specific contracts.

In a sense you are distinguishing between different forms of risk, risk in the general sense and risk in the rather specific and financial sense that we associate with PFI and that is a perfectly legitimate distinction for you to make. Given that we are talking about a greater delegation and given that you are the Minister on behalf of the Government recommending this change through the reform process being made, are you yourself satisfied with the specific provisions in terms of the potential for financial penalties for poor performance in relation to these contracts? And if you are about to say you are I feel sure that you will want to give us at least a brief illustration of what those specific financial penalties are in respect of contracts.

(Mr McNulty) I cannot give you the specific boundaries for the specific contracts. In the case of north-east Derbyshire and Manchester, you may think I carry round the contracts in my head but I am afraid I do not. There will be specific penalties in there for failure to deliver. You are absolutely right in the sense that my concern and the Committee's concern is specifically in terms of the risks associated with the delegation of house management and not a fuller assessment of the risk involved with the PFI contract and in that context and in the wider context about protection we spoke about earlier, the Audit Commission regime and this not being some mystical contract that is outwith the entire internal and external regime and the auditing and financial regulatory regimes that local authorities are obliged to operate within. With all those caveats I would say I am satisfied that the risks involved with the delegation of housing management are as we say, there are no real risks and it is not for me, very very happily in terms of my time and efforts, to prejudge the details of each and every individual PFI contract.

Chairman

What would happen if a PFI contract collapsed?

(Mr McNulty) Hopefully to my left or right someone else will jump in shortly. What would happen is exactly the same as would happen in any case of a contract collapsing in terms of contracts let by local authorities, there will be severe penalties involved and the local authority would have to pick up the pieces.

(Mr Green) In the event of a possible termination then the banks have a right to bring in new contractors to try and resolve the situation. In the event of a termination because of poor performance, there are compensation payments to be made to the authority.

Mr O'Brien

On the question of replacing the windows, what happens to the tenants' interests? Do we wait until the new contracts are signed? What happens to the tenants' contracts?

(Mr McNulty) The delegation would refer back to the local authority and they would continue the work.

So they will have to bring in new contractors?

(Mr McNulty) Or do it themselves, yes.

If there is a public works department.

(Mr McNulty) We are not talking about huge projects here.

If we are talking about three or four houses and tenants who have their windows out at this time of the year maybe, that is not unusual and suddenly the contractor says I cannot continue and we have tenants left in this situation, what happens to their interests?

(Mr McNulty) The council will act in their best interests and get the thing resolved as soon as possible. It is not an unfamiliar tail even with private contractors or, in one or two cases, with DLOs.

This is new.

(Mr McNulty) But the kind of contract you are talking about going belly up and the tenants being the ones most directly affected because there is work on-going, the council would have to act in an urgent capacity to get that resolved ahead of resolving the issue of who the new contractor is, but that sort of happened as well under the CCT regime.

Mr Love

I apologise for the fact that I am becoming a little more confused as we go on. As I understand it all these PFIs have been introduced to arm's length management organisations. As I understand it the decision has been taken that only those housing managers who are considered to be three star or whatever is the current definition are allowed to be arm's length management organisations, so we have some security in that although it might not be very good it is the best of local Government housing managers that are going into this process. I would ask you to confirm how that is being done. The second thing is, as I understand it under the current definition only certain people can act as agents of the local authority. That limits the amount of risk that can be transferred through a PFI scheme. Can you confirm that without the changes that we are talking about here there will be some curb on the ability of an arm's length management organisation to transfer the risk to the other organisation involved in the PFI? Finally, is it housing associations acting as the PFI partner in these situations or is it other private sector organisations, i.e. building contractors or whoever? Perhaps you could give us some indication.

(Mr Green) These are two separate things. PFI housing projects are separate from ALMOs, they are two distinct forms of investment. Sorry, my mind has gone.

(Mr McNulty) While your mind is coming back let me go back to Andy's first point. I am sorry if there is some confusion. Whilst the changes to this Order can potentially impact on Brian's three privatisation routes, PFI, stock transfer and ALMOs, the contracts that we are talking about are PFI contracts that are coming to fruition and need this particular aspect to come to what we think is the most satisfactory solution. At the moment no ALMO is anticipating going down this route. We are simply saying that if it is drawn broad enough they may decide in the future to do that subcontracting. On your point about how housing departments apply to become ALMOs, it was only those who had the best value inspections who got three stars. The Chancellor in the last Pre-Budget Report or the last Budget knocked that down to two stars, so it is still the very best of local Government, but at two stars it will run at a three star level. ALMOs may use this, but at the moment the first likely use of this is PFIs and in that context all we said before about protection from the old section 27 to this remain, what I said about the local Government auditing regime remains, and hopefully by this stage Mr Green's brain is engaged again and he can pick up the other points.

(Mr Green) As the Minister says, we do not anticipate ALMOs making use of these changes. We are certainly not aware of any housing contractors being involved in ALMOs at the moment. Are there any other points?

Just the point about risk transfer under the PFI. Is that in any way constrained by the current legislation and is the change that we are talking about here in order to allow you to transfer more risk under the PFI?

(Mr Green) It makes no difference. The change from agency to the two paragraphs that we intend to insert makes no change in that respect.

(Mr McNulty) In terms of risk, they do give that dimension of flexibility.

(Ms Millington) I think there could be a slight problem with the risk transfer with the agency as agent and it is preferable not to use the words "as agent".

Chairman: Mr Bennett is going to pursue that item in a few minutes. We will leave that.

Chris Mole

Presumably as part of the risk assessment the examination would be that there would be some form of bonding for the contractor that would require that bond to pay for the additional costs that the local authority would incur for the emergency works of the sort Mr O'Brien was talking about?

(Mr Green) Yes. In the current projects we are looking at the private sector to do that and to take out insurance as well.

Chris Mole: Thank you.

Andrew Bennett

Can I go on to this question about taking out the phrase "as agent". Can you just explain to me what is going to happen as a result of subsections 13 and 14 of the proposed new section 27?

(Mr McNulty) Given that sounds like a legal question the lawyers can have a look at it.

(Ms Millington) Could you just repeat your question again, sorry?

Can you explain what the real significance of taking the words "as agent" out is?

(Ms Millington) The purpose of the proposed amendments of section 27 is to enable the local housing authority to make a management agreement giving another person the ability to exercise certain housing management functions. The purpose of the amendment is to enable that person to make a sub-agreement with another person to carry out some or all of those functions. If it is an agency as agent that implies that a lot remains with the principal under the general law of agencies. So it is clearer to remove the words "as agent" and to reflect what was in the 1994 Deregulation and Contracting Out Act as a more modern provision and to provide specifically what the relationship between the parties to the management agreement is and that is done in subsection 13. So essentially the local housing authority remains liable to third parties and subsection 14 states that that does not apply for the purposes of the management agreement or for the purposes of criminal proceedings. It enables a management agency to make arrangements between the various management agencies without having to fit in the framework of agency and principal and agent.

I am not all that much the wiser as a result of that, but perhaps other members are quicker than me. Mr McNulty, can you just explain to me where the buck stops, because you must have dealt with constituency cases and I suspect most of us round the table deal with constituency cases when you want to know whose door you can go and bang on to get something done or the tenant knows who they can take to court. As a result of this, supposing we go back to your replacement windows scenario and the windows have been put in at number eight and perhaps a Mrs McNulty is not happy with the way in which the replacement windows have been put in because the water is streaming down them and the condensation is really bad and she wants to get something sorted out, but the people who put the windows in say it is not their fault, it is the ventilation strip above the window, does that mean she still has the same rights in the future as she has now either to go to court or to go and bang on the door of the managing agents and get them to redress the problem rather than having to take on a variety of people who are providing the services?

(Mr McNulty) I think ultimately the council are still the landlord so the responsibility lies there. I think what this does is bring into play both the overall agent, i.e. the lead contractor and to an extent the subcontractor. I wish that the sort of problem Mr Bennett is outlining was unique to the introduction of PFI and housing but it sounds terribly familiar in all sorts of other ways.

I am not suggesting that. I am suggesting it is a fairly common problem. What I want to know is that as this goes through it will not make it any more difficult to get the matter resolved because in the end the buck will stop with one individual rather than it being divided up between the responsibilities of several people.

(Mr McNulty) Despite the subsequent division the council is still the landlord and the final arbiter and the key democratic focal point. It may increase the targets for the council subsequently to get their pound of flesh once the buck does stop with them in terms of their legal responsibility being with other agents, but I do not perceive, given the detail of this, it worsening Mrs McNulty at number eight's accountability trail at all.

So what is the point of taking out the phrase "as agent"?

(Mr McNulty) The very much less than understandable legalese that my colleague on my left just went through for you. I think it is more about the division and the ability to subcontract down, as I understand it in my pidgin legalese, has to be duly apportioned elsewhere. "As agent" means you are acting on behalf of the principal, i.e. the council. That is no longer the case if you are subcontracting down and the subcontractor is acting on behalf of the main contractor who is acting on behalf of the principal. So "as agent" is too restrictive in legalistic terms and it means no more than that as I understand it.

Chairman

Mr White is our expert on plain English so I am going to ask Brian to come in.

(Mr McNulty) With the best will in the world, that does not help us where lawyers are concerned.

Brian White

One of the things this Committee has to do, Minister, as you will be aware, is not just allow departments to take legislation and copy it from somewhere else, it has to look at whether it is in plain English or not, if it is comprehensible and simply to copy it is not good enough. Why did not the Department, in bringing forward a Regulatory Order, in looking at regulatory reform, not ensure it was in plain English? Why did you not try and make subsections 13 and 14 understandable so that you could have answered the question rather than refer it to the lawyer?

(Mr McNulty) I suspect a lot of troubles in the language looks like that is exactly what we have done. You will know that however much we ask departments or individuals to use plain English, there are a set of specific legalistic buzz words that, whatever we think they might mean, mean something specific and in that context and under contract law agent has a whole range of legalistic consequences that go far beyond mine or your ken or mine or your affiliation and affection with plain English.

So why are the explanatory notes not better?

(Mr McNulty) It says in our notes, "The Department ..." - it should say Office - "... would like to apologise for any lack of clarity in the explanatory document." I think that could have been explained far better than it was and I would duly apologise to the Committee for that. I cannot apologise either for the English legal system or its vocabulary.

Chris Mole

Minister, the Department's explanatory note observes that in Unison's response they raise a number of pertinent points in relation to staff who transfer to a PFI contractor. What do you mean by the "pertinent points" in respect of the Unison response and what was the general reference to workforce issues?

(Mr McNulty) I think in the broadest sense, as it says in paragraph 14 above that, much of Unison's concerns were about TUPE positions, the transfer of undertakings, the protection of employment regulations 1981, they were very much in that context. I think if clauses 100 and 101 of the Local Government Bill secured in Second Reading yesterday go through that will regularise some of the positions that many of the unions have difficulties with under TUPE, but I think Unison's principal concerns were in regard to TUPE and general pertinent workforce issues. If I was party to it at the time I would have said otherwise, although the first port of call in terms of unions was the TUC which seemed rather strange to me in terms of a wider public consultation, but subsequently it did go to all the relevant and pertinent public sector unions, Unison, Amicus, GMB and UCATT, so their concerns are along the lines of TUPE and the transfer of staff.

But you have not responded specifically to their points in your departmental response.

(Mr McNulty) Because there is no specific variation of the current national provision in terms of TUPE or any other transfer of staff or undertakings that are unique to this Order in any way, that is why there has been no specific response to their concerns other than the other points they made about contract specifications and those sorts of elements which will partly address some of their concerns with the workforce.

So you could give an assurance to this Committee that the Regulatory Reform Order does not worsen the position with regard to employment protection for those who transferred from one contractor to a subcontractor?

(Mr McNulty) Absolutely. That would prevail under the current TUPE arrangements that prevail in the national domain. Hopefully, should the will of the Government coincide with the will of Parliament in terms of the Local Government Bill, as I read them they will be enhanced anyway in the context of some of the elements we are dealing with in the local Government Bill.

Mr Havard

As I understand it your Office has given the assurance to Unison in relation to ALMOs that they will have this protection in the way you have just described. However, one of Unison's problems is if the whole proposal gives extra flexibility to local authorities presumably it helps to improve their management processes, which would probably be a jolly good idea as well, it gives them more flexibility, but they may choose to use it more broadly than they are currently using it. I am unclear as to how they will use it and where and I have heard statements that there are no plans to do much more with it at the moment, but Unison's problem is should it then be used more extensively in the housing management field or other parts of local authority activities and does the same protection then follow. You have given them specific assurances about the current situation, but if you are giving flexibility to broaden it even further how are they protected in those circumstances?

(Mr McNulty) There is nothing in the short term with these two or three PFI contracts in mind that may or may not come to fruition with or without the Order. If ALMOs, TMOs or any other variation or model of public sector social housing were to go down this route, the one thing I cannot rule out is any change or otherwise to the TUPE system in future. As of now, the assurance already given to Unison is that there is nothing in here that worsens the protection of their members in terms of TUPE regulations and that will prevail in the future. I hope my interpretation of the clauses in the Local Government Bill are right, that changes we are doing elsewhere in a national context to TUPE especially in terms of pay and conditions for those work forces who do transfer will be enhanced and that enhancement will follow through on this, but as I understand it there is absolutely nothing in here or any subsequent utilisation of this in areas outside the PFI contracts that will lessen the protection afforded to public sector workers under the TUPE regulations now. It is a point of real concern.

Andrew Bennett

You have told us you have a problem with the five or six PFIs that are coming along. You could have chosen to have gone for a very narrow piece of regulatory reform to deal with those. You have actually chosen to go for something that is wider, as you told us earlier, which deals with a whole lot of problems. Would it not have been fairer to have dealt with the very specific problems of these five in this Order and then left the wider issues for the Housing Bill which is going to come along in due course?

(Mr McNulty) I do not think so, not least because the problems are the same. The problem is the legalistic point to do with the sub-delegation of the housing management function in the sense that there are two or three PFI contracts that may be able to be let by local authorities and in a far more satisfactory way as a result of this Order than they would otherwise. I do not think it would have been a terribly good use of the RRO process just to do it specifically round those contracts given that its application and its reform had far wider implications, neither can I prejudge the direction and evolution of ALMOs, TMOs or some of these other aspects or how they utilize them. The reform process is about deregulating a particular piece of what we now see as inappropriate legislation and a burden and barrier to flexibility for local governments. How that is utilized I think is a secondary point. It is not our job to pop back to the Committee any time we fancy changing or deleting something for specific contractual purposes but to look at the widest application and whether it is appropriate to reform things in the widest context, which is what we have done.

But this is not really deregulation, this is actually new regulation and different regulation. Does the Department have a clear line as to what should be done by primary legislation and what should be attempted through this channel?

(Mr McNulty) I think we do. I do not think we do, I know we do. We have the draft Housing Bill and we have the Local Government Bill which in a wider context will impact on local Government, so that has some degree of impact on this. The best advice we have in terms of the Parliamentary dimension is even if - and it does not really accord with our timetable - the Local Government Bill would have been the appropriate vehicle, it would have pushed the scope of that Bill in parliamentary terms beyond its long title, so it was not an appropriate vehicle. We are very clear on what we want in terms of secondary legislation and aspects of the deregulatory route in terms of securing what we want in terms of housing.

Chairman

Any other questions from members? Is there any point you feel you or your team have not made and would like to make before you go? There were a couple of points where we have said you would get a second bid. You will recognise our time-tabling means that if you want these to be taken into account they have to be dealt with speedily. Is there any point you wish to make before you depart from us?

(Mr McNulty) I would make three simple points in conclusion. Number one, I think I would disagree with Mr Bennett, this is deregulation and a release of burdens or at least an expansion of flexibility rather than otherwise, which is part of the definition of burden. Number two, it has been a great privilege to be the first Minister to appear before a Joint Committee in terms of the specifics of an RRO. Thirdly, can I simply put on record Lord Rooker's apologies for not being here. I think most of the Committee are fully aware why I am here rather than Lord Rooker. I should have said that at the beginning. Thank you very much for your time.

Chairman: We are sorry that Lord Rooker could not be with us. We more than welcome you here, but we do understand the unfortunate situation which has prevented him from being here. Can I thank you very much for coming along.