1. The Audit Commission appoints auditors
to local authorities and NHS bodies in England and Wales, and
promotes the best use of public money by ensuring the proper stewardship
of public finances and by helping those responsible for public
services to achieve economy, efficiency and effectiveness on behalf
of the communities they serve. The Commission works in the local
government, housing, health, criminal justice and fire and rescue
sectors and its remit now covers more than 15,000 bodies which
between them spend nearly £125 billion of public money each
year. Its responsibilities include the inspection of services
in local government and housing and the comprehensive performance
assessment (CPA) of local authorities in England. However, the
Commission does not appoint auditors to housing associations.
2. Members of the Commission are appointed by
the Deputy Prime Minister, in consultation with other ministerial
colleagues, but the Commission operates independently of Government.
This independence is among the Commission's most valued attributes,
as is its ability to look across organisational boundaries within
the public sector and take a "whole system" approach
to its inspection work. This is particularly important in relation
to matters of public policy such as social exclusion and anti-social
behaviour that are not the responsibility at local level of any
single agency, but of several. The Commission's findings and recommendations
are communicated through a wide range of publications and events.
3. The Commission has a Housing Inspectorate
which was created in April 2000 and began its inspections of local
authority housing services in England and Wales in the summer
of that year. In England, these inspections were conducted under
the best value framework provided for by the Local Government
Act 1999. The Inspectorate's remit was extended with effect from
April 2003 to include the inspection of housing associations,
the inspection of the Supporting People framework by Administering
Local Authorities and the assessment of the prospectuses of the
nine Market Renewal Pathfinders. With the extension of its remit,
the Commission's Housing Inspectorate absorbed staff from the
Housing Corporation who had previously been responsible at the
Corporation for the inspection of housing associations. It is
now primarily through the work of the Inspectorate that the Audit
Commission engages with and works in partnership with the Housing
Corporation.
4. In November 2003 the Commission issued for
consultation its draft Strategic Plan for 2004-07. The final version
of the Strategic Plan is likely to be published in March or April
following amendment to reflect points made in the consultation.
Initial analysis of the consultation responses has, however, shown
strong support for the change of direction for the Commission
which is proposed in the plan. This is summarised in the phrase
"Strategic Regulation", a new approach to its responsibilities
which the Commission has described as embracing four key elements.
Strategic Regulation is:
5. Through Strategic Regulation, the Commission
will continue to provide assurance that public funds are being
properly spent and accounted for, but will go beyond this to act
as a driving force for improvement in public services, paying
particular attention to the views and experiences of service users.
In doing so, the Commission will, through a stronger emphasis
on the value for money of public services, also protect and promote
the interests of taxpayers, alongside those of service users who
are, of course, mostly taxpayers themselves. It will further emphasise
this commitment through its strong determination to ensure that
the Commission's own activities provide better value for money.
6. Strategic Regulation will require the
Commission to focus resources where they can have most impact.
The Commission believes the public sector is over-regulated; but
this will not necessarily mean reductions in all areas of our
work as financial risks and the scope for improvement are increasing
in some parts of the public sector. A risk based approach should
therefore not be confused with a lighter touch approach; but the
Commission will adopt a lighter touch where circumstances make
this appropriate.
7. To this end, we have examined our activities
in local government and have concluded that a significant proportion
do not represent value for money. We believe that the cost of
these activities is disproportionate to the perceived benefit
to taxpayers and service users. The Commission has therefore published
proposals[8]
to reduce its work in local government in England over the next
two years by £24 million, or around 20% of current activity
levels. We will do so by discontinuing the certification of small
grant claims, reducing inspection activities in authorities that
have been assessed as excellent or good through CPA, ending mandatory
value for money studies and, subject to Parliamentary approval,
ending the requirement to audit best value performance plans.
This announcement has been warmly welcomed by local government.
8. The Commission's draft Strategic Plan
specifically endorses the recommendations of the report Inspecting
for Improvement published in July 2003 by the Prime Minister's
Office of Public Service Reform, together with the principles
set out in The Government's Policy on Inspection of Public
Services which followed that report. The Commission believes
its approach to Strategic Regulation is wholly consistent with
these principles. We have also supported the work of the Better
Regulation Task Force which listed 108 separate regulators in
an annex to its report, Independent Regulators, issued
in October 2003, but admitted that this was not a complete list.
Many of those bodies were specific to the private sector; but
key regulators of public services that are not independent of
Government, such as the Benefit Fraud Inspectorate of the Department
for Work and Pensions, were not listed. While being committed
to working in partnership with others, the Commission believes
that there are too many regulators in the public sector and we
would therefore support some rationalisation.
9. Consultation responses to the Commission's draft
Strategic Plan have confirmed our belief that many managers of
public services, and others, find the current plethora of different
regulatory bodies wasteful and confusing. There was strong support
for fewer regulatory bodies and better co-ordination of those
that remain, perhaps with one of the remaining bodies given a
clear co-ordinating role. This has been a consistent theme within
much of the public sector for several years. For example, in the
March 1998 consultation document[9]
that foreshadowed the introduction of the duty to deliver best
value in local government services, it was suggested that external
auditors, or a separate body forming part of the Commission, might
be given responsibility for co-ordinating inspection across the
different inspectorates. In the subsequent White Paper[10]
it was stated
"The Government will ensure that the
different inspectorates work together to ensure a consistent perspective
and approach, and avoid timetabling difficulties . . . but is
not persuaded of the need for a formal lead role to be assigned
to any one body to co-ordinate the inspection function under best
value. It will keep this under review, however, . . ."
10. The Commission acknowledges that these are
matters that are primarily for Government and for Parliament to
resolve and we recognise that there are many different structural
changes to the present regulatory framework that might succeed
in addressing the issues of concern. We therefore remain willing
to work towards the success of any new arrangements that may be
decided upon. In the meantime, we recognise also, an obligation
to work in close collaboration with existing partners to provide
greater clarity and consistency, eliminate duplication and overlap,
and reduce costs. Our commitment to Strategic Regulation therefore
embraces a specific commitment to ensuring that other regulatory
agencies find us an easy partner to work with.
11. In the housing sector, the other regulatory
agencies include the Housing Corporation, English Partnerships
(EP), the National Audit Office (NAO), the Commission for Racial
Equality (CRE). Apart from the Corporation, the most significant
of these for our work in housing is English Partnerships. EP works
closely with local government and has a similar role to that of
the Corporation in promoting sustainable communities and tackling
the imbalance between supply and demand for housing. The Commission
supports, and has been impressed by the impact of, the approach
to its remit taken by EP in recent years. This appears to have
generated a more thoughtful, inclusive and purposeful agenda for
the utilisation of land in its ownership. We are nevertheless
aware of, and to an extent share, doubts that the present institutional
arrangements may limit the potential for further progress. We
consider that an alternative approach, bringing together the land
holdings of EP and the funding of the Corporation, could hold
out the prospect of enhancing delivery and increasing efficiency
in the development process. But we recognise that there are arguments
both for and against changes of this kind. We therefore remain
focused at present on improving collaboration and securing greater
clarification of the roles and responsibilities of the different
bodies involved in the housing sector.
12. One way in which greater collaboration between
these bodies has been sought in the past is though dual membership
at Board level. Until recently, Richard Arthur was a member of
the Board of both the Corporation and the Commission. Cllr Dr
Pauleen Lane is currently a Board member of both the Commission
and EP, while the Corporation's chief executive, Dr Norman Perry,
is a Board member of both the Corporation and EP. At present,
however, there is no overlap in membership of the Commission and
the Corporation. And in practice, there are differences of view
about whether links of this kind have in the past helped serve
their intended purpose of ensuring a common understanding of relevant
issues. Although it is likely that they may have contributed to
some extent, it has never been possible, and nor would it be advisable,
to rely on this method alone. There has therefore been, and continues
to be, extensive dialogue between officers of the Commission and
the Corporation.
13. It is against this background that the Commission
welcomes the Select Committee's scrutiny of the role of the Housing
Corporation in regulating and funding housing associations in
England. The remainder of this submission describes, in more detail,
the nature of the Commission's relationship with the Corporation.
We directly engage with the Corporation in two key areas, both
of which are set out under statute. Firstly, since the mid 1990s
we have been undertaking value for money studies under a joint
programme with the Corporation. Secondly, since April 2003 we
have been inspecting housing associations first under the provisions
of the Audit Commission Act 1998 and more recently under the Local
Government Act 2003. We also work closely with the Corporation
on other matters and this submission describes how we engage with
the Corporation on those issues too.
VALUE FOR
MONEY STUDIES
IN THE
HOUSING ASSOCIATION
SECTOR
14. Under section 55 and schedule 3 of the Housing
Act 1996, and section 40 of the Audit Commission Act 1998, the
Housing Corporation and the Audit Commission may agree programmes
of comparative studies designed to allow the Commission to make
recommendations for improving the economy, efficiency and effectiveness
of registered social landlords. The legislation requires the Housing
Corporation to meet the cost of these studies and provides that
the reports of all such studies shall be published, having first
been shared in draft with the Corporation.
15. The first study in this series, Homing
in on Performance, assessed the comparative performance of
housing associations and local housing authorities and was published
in December 1995. Other studies on housing management have included
House Styles (1996), A Measure of Support (1998)
(which assessed the role of housing associations in the provision
of supported housing), and Housing Association Rent Income
(2003). Earlier in the programme several studies focused on the
value for money of housing association development activity. These
were entitled Within Site (1996), To build or not to
build (1998), and Competing for attention (1998).
16. More recently Audit Commission studies have
examined risk management issues. The first of these assessed business
planning arrangements associated with stock transfers. This report,
Stock in trade, was published in 1999. Subsequently, studies
have focused on the audit arrangements of housing associations
(A Balanced Account, 1999) and the costs and benefits of
group structures (Group Dynamics, 2001). The eleventh study
in this series focuses on tenant participation/resident involvement
in the housing association sector, and especially on the value
for money aspects. The report of the study's findings is due for
publication in the spring. At present, we are in discussion with
the Corporation about the subject for the next study which will
begin later this year.
17. The programme of studies is discussed at
meetings of a Liaison Group of senior officials from the Corporation
and the Commission. These meetings are held three or four times
a year and have been taking place since 1995. This Liaison Group
reviews potential studies, decides which studies should proceed,
monitors the progress of individual studies and clears reports
for publication.
18. The Commission has also been assessing the
cost effectiveness of housing associations. This work was commissioned
by the Treasury and has been undertaken in conjunction with the
Treasury itself, the ODPM and the Housing Corporation. This assessment
forms part of the Treasury's review of efficiency in the provision
of public services and will feed into the 2004 Comprehensive Spending
Review. So far, a desktop analysis of the management costs in
the housing association sector has been undertaken. An assessment
of housing association performance relative to cost has also been
carried out. Follow-up work with a sample of housing associations
is starting this month.
HOUSING ASSOCIATION
INSPECTION
19. In September 2002 the Deputy Prime Minister
decided to combine inspection activities for all social housing
into one organisation. As a consequence, in April 2003 the responsibility
for the inspection of housing associations transferred from the
Housing Corporation to the Audit Commission's Housing Inspectorate.
Following the announcement of this change, the Corporation and
the Commission worked closely together to define and introduce
new ways of working consistent with this shift in responsibilities.
There was also a wide range of practical issues that the Commission
and the Corporation worked together to address, including the
transfer of staff from one organisation to the other.
20. Since April 2003 we have completed inspections
commenced by the Housing Corporation in 2002-03. In addition,
we have implemented the agreed inspection programme for 2003-04
covering 87 housing associations. The 2004-05 inspection programme
has also been agreed and published on the Commission's and Corporation's
websites.
21. To help ensure that the respective roles
of the two bodies are widely understood, both within the organisations
themselves and by other stakeholders, a protocol has been developed
setting out the working arrangements that will exist between the
Corporation and the Commission on inspection and regulation. This
joint publication, Inspection of housing associations: the
roles of the Audit Commission and the Housing Corporation,
was issued in September 2003. In addition to explaining the relationship
between the two organisations, the protocol defines the objectives
of collaborative working as being to:
— inspect social housing in a way that
raises standards of housing services;
— ensure the Commission reports the results
of its inspections in a way that helps the Corporation to carry
out its regulatory functions; and
— improve the standard of both inspection
and regulation.
The intention is also to avoid duplication wherever
possible and to minimise disruption to housing associations as
a result of the work of the two organisations.
22. The protocol sets out the operational arrangements
for the two organisations on inspection and regulation issues.
By way of example, on communications between the two organisations,
the protocol provides for this to be at three levels. Nationally,
at Member level, the Commission and the Corporation will meet
at least once a year. Board members will look at the effectiveness
of the partnership arrangements, delivery of the national programme
and the overall scope and operation of the inspection and regulation
frameworks, in the context of national housing policy. At chief
officer level nationally, quarterly meetings will be held to monitor
the development and progress of the partnership working. The Commission's
Chief Inspector of Housing and the Corporation's Assistant Chief
Executive for Regulation and Best Value will review relationships
and policy, set the annual inspection programme and monitor progress.
Business will include:
— reviewing the partnership;
— considering the impact for inspection
of changes to the Regulatory Code or to other aspects of regulation
such as registration and supervision;
— changes to the inspection framework and
ways of working;
— research and good practice programmes,
including the joint programme of value for money studies in the
housing association sector under the Housing Act 1996;
— the performance indicator framework;
— emerging national and/or regional themes
and trends from completed inspections; and
— matters that cannot be resolved at a
regional level.
23. Finally, at a regional level, managers from
both organisations will meet at least four times a year to review:
— local partnership performance;
— the setting and monitoring of regional
inspection programmes, based on regional policy priorities and
performance trends;
— associations' progress with action plans
following inspection;
— themes and trends from the regional inspection
programme;
— recent supervision action by the Corporation;
and
— stock transfer activity, including proposed
transfers and management arrangements.
24. Other areas covered by the protocol on the
inspection process include:
— planning the annual inspection programme;
— preparation for inspections;
— the respective roles of the Principal
Inspector (from the Commission) and the Lead Regulator (from the
Corporation); and
— following up inspections (including the
development and monitoring of housing association action plans).
25. The protocol also covers the way that the
Commission and Corporation handle complaints. These are grouped
under four headings:
— complaints from residents about the services
they have received from their landlord;
— complaints from stakeholders about the
performance of the housing association;
— complaints and appeals by housing associations
relating to the inspection process; and
— appeals by housing associations against
the Housing Corporation's regulatory judgements.
26. When transferring housing association inspection
to the Commission, Ministers signalled that they wanted to see,
as far as possible, the same inspection arrangements for both
local housing authorities and housing associations. This, in part,
would enable users, stakeholders and indeed Government to make
better comparisons of the relative performance of different providers
in the two sectors. Currently that is not possible as the scoring
of judgements on the performance of housing associations (developed
by the Corporation) is substantially different from the scoring
system used across the Commission. Both systems use four point
scales to deal with current services and the prospects for improvement
but the language is different. The descriptors for housing association
services relate to compliance with the Housing Corporation's regulatory
code and are widely perceived to be more difficult to understand
than the star system used by the Commission since the inception
of Best Value inspections under the Local Government Act 1999.
27. Given this background, the Commission's housing
inspection methodology is being reviewed to integrate the two
frameworks for inspecting social housing providers in England.
A consultation paper setting out the Commission's proposals was
published in December 2003[11]
The consultation period ended on 5 February 2004 and indicated
a broad level of support for the introduction of a common, consistent
methodology across both sectors. We are therefore planning to
introduce the new methods for inspecting both housing associations
and local housing authorities from 1 April 2004.
28. The key changes the Commission proposes,
consistent with our draft Strategic Plan, the guidance on inspection
produced by the Office for Public Sector Reform, and the recommendations
of the Better Regulation Task Force, are to:
— create common judgement systems for housing
association and local authority inspection to utilise the star
scoring system the Commission currently applies in local government;
— revise and standardise the structure
of public reports, and the length of those reports, around the
questions used for assessing the current standard of service delivery
and the prospects for further improvement;
— begin all inspections with a self assessment
by the housing organisation to be inspected, make greater use
of peers in assessment and inspection, and enhance user involvement
in the inspection process;
— strengthen the emphasis on value for
money and efficiency as a standard part of an inspection;
— cover the contribution of the governing
body and executive members and committees to effective service
outcomes as part of the inspection process;
— prioritise inspection recommendations
and clarify the resource implications; and
raise the floor level at which housing association
inspection starts from the current 250 to 500 units of accommodation.
OTHER AUDIT
COMMISSION COLLABORATION
WITH THE
HOUSING CORPORATION
29. The Commission also works closely with the
Corporation on a range of other matters linked to policy development
and research in social housing. There has been Audit Commission
engagement with the Corporation on value for money studies in
the local authority sector since the mid 1980s, particularly where
studies were relevant to the work of the Corporation and/or housing
associations. There was particularly close working with the Corporation
on a study in the early 1990s which assessed the administration
of the housing benefit system. 12[12]
The Corporation and housing associations had an interest in this
study because of their concern that rent collection rates by associations
were being adversely affected by poor administration of the housing
benefit system by local councils. In the mid 1990s the Commission's
study of the operation of care in the community in the housing
sector also involved collaboration with the Housing Corporation.
This was because of the Corporation's role in registering and
regulating housing associations providing supported housing and
the Corporation's (then) role in funding that housing through
Supported Housing Management Grant. 13[13]
30. Relations between the two organisations became
closer after the Government decided in the late 1990s that the
best value inspections of housing authorities would be undertaken
by a specialist Housing Inspectorate within the Audit Commission.
In particular, both organisations were represented on a group
created by the (then) Department of the Environment, Transport
and the Regions (DETR) called the Best Value in Housing Group
which was established to oversee the introduction of best value
principles and practices across the social housing sector. This
group worked closely on the preparation of advice for local authorities
and housing associations on the introduction of best value in
social housing.
31. The Group also helped develop a common set
of performance indicators for social housing that were introduced
as statutory Best Value PIs in the local authority sector and
were implemented for housing associations under the Corporation's
regulatory powers. Since collaborating with the Corporation on
PIs linked to best value, the Commission has continued to engage
with the Corporation on related issues. For example, the Commission
is currently represented on a Working Group created by the Corporation
which is looking at ways that housing associations can best validate
the PIs that are submitted to the Corporation for publication.
The Commission's appointed auditors have had the responsibility
for validating the PI systems used by local authorities for over
ten years and the Corporation is naturally keen to build on that
experience in developing its own framework for ensuring housing
associations produce robust and consistent PIs for wider publication.
32. In addition, the two organisations are often
represented on research advisory groups set up by Government Departments
and others. Work of this kind helps develop a common understanding
of issues facing the respective organisations. As well as regular
contact between officials at all levels, there have also been
regular links at Board Member level, quite apart from the dual
membership arrangements referred to in paragraph 12. The new Chair
of the Housing Corporation, Peter Dixon, met the Commission's
Chairman and Chief Executive, James Strachan and Steve Bundred,
soon after his appointment. A good working relationship also existed
between James Strachan and Baroness Dean when she chaired the
Corporation, particularly regarding the transfer of housing inspection
to the Commission. CONCLUSION
33. In summary, the Audit Commission is strongly
committed to working closely with others, including other regulators,
in the sectors in which it works. To this end, we have established
good working relationships with the Housing Corporation and have
continued to develop these at all levels over the years. Our objectives
in doing so have included the elimination of waste and duplication,
and minimising the burden of regulation for housing associations.
However, despite these efforts, we recognise that there is still
a belief among some housing associations, tenants groups, lenders,
local authorities and other key stakeholders that the respective
roles of the Corporation, English Partnerships and the Commission
are not well understood. The suspicion that waste and duplication
remain was evident from the Commission's recent consultation on
our draft Strategic Plan, as was a desire within the public sector
for fewer regulators and better co-ordination of the regulatory
bodies deemed to be necessary in the longer term.
34. The Commission believes that there is over-regulation
within the public sector generally, and we favour some rationalisation
of regulatory bodies. But it is for Government and Parliament
to consider whether the arguments for change in the housing sector
outweigh any likely disadvantages. We acknowledge that there is
more than one possible configuration of bodies responsible for
funding, investment, regulation and inspection that could satisfy
any given set of policy objectives. The role of the Commission
is to work towards the success of whatever arrangements Parliament
agrees upon and we remain firmly committed to doing so. We believe
we have demonstrated this in our relations with the Corporation
to date, but will continue to question whether more could be done.
8 Strategic regulation:minimising the burden, maximising
the impact, Audit Commission, November 2003. Back
9
Modernising local government: Improving local services through
best value, paragraphs 5.4 to 5.7. Back
10
Modern Local Government: In touch with the people, Cm 4014, July
1998, paragraph 7.44. Back
11
A framework for the review of housing inspection and assessment,
Audit Commission, December 2003. Back
12
12 Remote Control: the National Administration of Housing Benefit,
Audit Commission, 1993. Back
13
13 Home Alone: the housing aspects of Community Care, Audit
Commission, 1998. Back
