Examination of Witnesses (Questions 360-380)
MR PETER
DIXON AND
MR JON
ROUSE
5 MAY 2004
Q360 Andrew Bennett: You do not have
to give them any more money if they do not co-operate?
Mr Dixon: Only if they are an
organisation in which we are continuing to invest.
Mr Rouse: You raise a very important
point, what you demonstrate through that question is the importance
of the relationship between regulation and investment. One of
our most powerful regulatory tools is the investment tap, which
we can turn on and off.
Mr Dixon: I have seen that working
at a personal level when I have been a statutory appointee on
housing association boards in previous existences. The thing which
does concentrate the mind very rapidly is no more money. You get
immediate improvement that way.
Q361 Christine Russell: What additional
levers would be useful? What additional powers could ODPM bestow
upon you to make it easier in your job of persuading individual
associations to improve their performance?
Mr Dixon: There has been discussion
in the Housing Bill about whether or not we would have the power
to appoint in effect a special manager. I think that did create
some issues in terms of where the borrowing of housing associations
might lie and Treasury had a view on that. That power or something
like it could be of benefit. I would like to see a situation where
we can charge for our supervision. We have recently had to engage
in a statutory inquiry into an association and we do not have
the facility to bill them for it; I think we should have. I think
that would be quite a strong disincentive to people.
Q362 Christine Russell: A bit unfair
on the tenants because the incompetent management would put the
rent up.
Mr Dixon: I understand that but
it is Government money one way or the other, it either comes out
of our funds or it comes out of an individual organisations. I
would argue that where an organisation is at fault it is more
appropriate that organisation pays even if a part of their income
derives from Housing Benefit.
Q363 Christine Russell: Can we move on
to the number of associations. I heard what you said earlier that
you do not want to freeze out the smaller associations but there
are over 2,000, of which I think 1,500 are quite tiny organisations.
What particular problem does that give you in terms of the burden,
if you like, of inspection and regulation?
Mr Rouse: The first thing we do,
and increasingly so, is we differentiate our regulation functions
so we have a special programme called RASA, Regulatory Approach
for Smaller Associations, which is much lighter and tries to be
relatively unbureaucratic in terms of that approach. We have also
specific ways of disseminating best practice to those smaller
associations. That is one way of managing the burden. The second
issue is on the investment side. Some of those associations have
significant assets. They are independent bodies and, first and
foremost, it is their responsibility to decide what they want
to do with those assets but clearly some of those assets could
be levered or geared more strongly to fund more affordable homes.
As Peter said earlier, there is an opportunity to encourage them
to move into some sort of group or strategic alliance structure
to make sure they can make the best use of that asset base.
Mr Dixon: We have done something
very specific in one case, taking out 80 associations from our
flock. Abbeyfield used to have all of their individual societies
registered with us and we have encouraged and worked with them
to set up something called Abbeyfield United Kingdom, which is
the umbrella for it, and most of the Abbeyfield societies have
gone into that, which has taken out a whole chunk of organisations.
We are talking with a number of the almshouse groups to do something
similar. If we can achieve that it does make life easier for everybody.
Q364 Christine Russell: At the moment
how well developed is this vision of rationalisation, whatever
you want to call it? Is it reactive that where you have an association
that is getting into problems you then look at what a local solution
could be or is someone working on a master plan for the whole
country?
Mr Dixon: There is no master plan.
Mr Rouse: Nor is it wholly reactive
either. Clearly moving associations into group structures in supervision
cases is often a sensible solution to protect the tenants and
to provide financial protection as much as anything else. That
really is only one element of our regulatory approach on a day-to-day
basis in terms of lead regulation, it is very much about continual
improvement and talking to associations about possibilities for
the future.
Q365 Mr Clelland: I may be wrong but
I get the impression Mr Dixon's pulse rate speeds up a bit whenever
we mention the Audit Commission. Can we return to the relationship
between the Audit Commission and the Corporation, how can the
current protocol between the Corporation and the Commission be
made more robust to avoid turf wars breaking out? How can the
regulatory regime of the Corporation and the inspection of the
Commission be made clear and unambiguous?
Mr Dixon: I think they are as
it happens. I think it is the commentary which creates most of
the problems. We have I think a very good working relationship
with the Audit Commission in terms of what they do and what we
do. They inspect housing management services, we regulate housing
associations. I regard those as totally different activities.
Their people on the ground talk to our people on the ground, we
have a working protocol which works and it is fine. I did find
their evidence surprising, as I said, because that seems to me
to be not necessarily as well researched as I would have expected
of them. We do not have a problem either organisationally or individually
in the way that things are working. I do not think we need to
do anything radical with the protocol at all. As it happens we
are having a working meeting with the board members of the Audit
Commission next week and we are talking through a number of these
issues, if there are any; I do not think there are. No-one likes
being inspected, nobody likes being regulated. I think everybody
makes more about the issue than actually exists.
Q366 Mr Clelland: Would you not prefer
the Corporation carried out its own inspections?
Mr Dixon: No, I would not actually.
I think it adds legitimacy to the process that it is independent.
I quite like that I am afraid.
Q367 Mr Clelland: What is your opinion
about the Audit Commission's proposals for inspection? They have
the proposal to inspect all housing providers in the same way,
is that really feasible? Housing associations and local authorities,
can they be inspected in the same manner?
Mr Dixon: If one could get complete
read across I think it would be good. I do not think I have seen
enough of the detail yet to form a view as to whether that is
going to be possible. There has to be an understanding and acceptance
that housing associations are not the same as local authorities,
they are different bodies, they are independent, they are not
part of the public sector and they are doing some different things.
There may be some areas where you cannot get complete read across.
Where you can get consistency I am all in favour of it.
Q368 Chris Mole: Moving on to the next
aspect of inspection, the Commission says that it plans to raise the
floor level from 250 to 500 units of accommodation. From your
perspective would you agree with some of the evidence that has
been suggested to us that it would be better to move towards a
more thorough risk assessment basis with a lighter touch for good
performers to determine which associations are going to be inspected?
Mr Rouse: There is a parallel
here between regulation and inspection, indeed the system we set
up in 2002 in terms of our regulation function. We are moving
much more towards a bespoke or tailored approach to regulation
on individual RSLs according to the degree of risk that we feel
there is embedded within that association in terms of its governance,
viability and so on. I think it is absolutely sensible that the
same approach is adopted in respect of inspection. Indeed if you
think about the overall Housing Corporation Assessment of RSLs
it is based on four factors, one of which is the quality of services
which flows from inspection. Consistency between us and the Commission
on this seems very sensible.
Q369 Chris Mole: That is one for your
board to board meeting next week.
Mr Rouse: To the extent there
are any differences between us, but I suspect there are not.
Q370 Chris Mole: Looking then at what
is happening with some of the large associations that have taken
on big stock transfers, how likely is it, do you think, that one
of those large associations is going to go bust because of what
it has taken on because it has misjudged its viability? The CML
have expressed some concerns to us about that possibility.
Mr Dixon: I think it is highly
unlikely that we will see a major failure in the immediate future.
The plans which were developed by the larger LSVTs in some cases
were tighter than I think one would wish now. All of the evidence
that I have seen has suggested they are going to manage to meet
their business plans and that there will not be a major failure.
I think the risk areas are probably going forward rather than
looking backwards, with RSLs taking on bigger and more diverse
ventures for the future. The quality of their management and the
quality of their initial business planning is going to be absolutely
crucial in those areas.
Q371 Chris Mole: You are more worried
about the diversity of function than you would be about the tension
between realising the maximum value for the public purse and the
viability of the association?
Mr Dixon: Obviously if the initial
valuation of the stock is set at an unrealistically high level
you are going to have a problem going forward. Typically I do
not think that has been the case.
Q372 Andrew Bennett: Rent restructuring
has caused this, has it not?
Mr Dixon: There has been a certain
amount of support needed for some organisations on rent restructuring.
The total amounts involved are relatively small. We have set aside
a pot of about £15 million. From everything I have seen the
suggestion is that is more than adequate. I do have views on rent
restructuring and if we had a slightly looser rent regime where
we had the capacity to allow organisations to increase their rents
by a little more than RPI plus a half you would free up associations
to do more development, to perhaps meet the Decent Home standard
more quickly and to go beyond it. I am quite keen on the idea
of encouraging ODPM to look at some of those flexibilities so
that we can do a bit more and a bit more quickly.
Q373 Chairman: Are ministers listening?
Mr Dixon: I think they are listening.
Q374 Chris Mole: Who do you think should
hold the reign in these judgments between the value of the stock
and the viability of association going forward? Do you think there
is a greater role for the Corporation in supervising SPTs, particularly
the bigger ones?
Mr Dixon: We do regulate them,
end of story. Once they become an LSVT they are under our ambit.
The issue about the valuation is one that we have to form a judgment
on day one. Our registration committee would not permit them to
go through unless we took the view that the business plan was
viable. So far the business plans have all proved viable. The
recent PAC inquiry suggested that they have delivered on their
promises to tenants and where they have made particular commitments
they have met them and they have met them while remaining viable.
Q375 Christine Russell: Is it not a problem
that a number of the LSVTs which are now running into financial
difficulties, those original business plans were flawed? My question
to you is the scrutiny was not there in the past but are you sure
that you have now put in place better scrutiny to assess those
business plans?
Mr Dixon: In some cases the business
plans have not been necessarily kept to. You may have in mind
one particular association which I know you and I are both familiar
with, they decided that they would go off and spend £3 million
on a new head office which they could have rented. We cannot stop
them deciding they want to spend £3 million on a new head
office, but that would have been a way of not borrowing quite
so much money. That has nothing whatever to do with the initial
business case, it was a subsequent decision. We can be close to
these organisations, we can see what is going on but we cannot
run them and manage them. Hopefully we will be sufficiently close
to them to be able to take preventive action before it becomes
a problem. I hope you will find that it is that sort of decision
which has caused a problem rather than an original business case.
I am not aware of original business cases which have been found
to be seriously flawed.
Q376 Christine Russell: What about the
issue you hinted at earlier where you seem to be saying that associations
should be focusing solely on good management, good financial performance,
just core activities, if you like, but is it not true that some
associations have responded really to tenants' choices, tenants'
priorities like tackling anti-social behaviour on estates and
have perhaps gone beyond their core activities and started employing
tenancy support officers or whatever they are called. Is that
legitimate?
Mr Dixon: I would regard those
as core activities these days. I am very much persuaded by the
argument from the National Housing Federation round their own
iNBusiness agenda, RSLs need to engage with their communities
on a much wider platform than they have before. The core has expanded
rather than contracted.
Q377 Mr Cummings: One of the key issues
raised by the review in relation to the Housing Corporation's
remit is that the ODPM has not given sufficient consideration
to establish a satisfactory brief for yourselves. What should
the Government be doing? Do you need more clarity in terms of
the targets which you have to meet?
Mr Rouse: The answer is I can
only look forward and not backwards, and looking forward the answer
is yes, I am looking for more clarity in that relationship and
that is what the end to end review has concluded. That needs to
be based round a very clear corporate plan or corporate strategy
which is agreed and signed off by both parties and which has imbedded
in it both the outcomes we are trying to achieve on behalf of
tenants and also the outputs that we as a Corporation have to
achieve in terms of our operations—completions—ad
so on. I do not think we have that clarity of relationship at
the current time and it is something we need to put in place over
the next 12 months.
Q378 Mr Cummings: Have you made the suggestions
to the ODPM? If so, what has been their response?
Mr Dixon: That is implicit in
what is coming out of the end to end review. They accept we need
to be much more involved in these issues at an earlier stage in
terms of the overall policy setting and in terms of the detailed
delivery target. If we contribute to that sufficiently early on
we can influence it and there will be a much easier time for everyone
and, at the end of the day, we will get more out of it.
Q379 Mr Cummings: Do you think they will
act accordingly?
Mr Dixon: I think they are very
keen to work in that way with us.
Q380 Chairman: Thank you very much indeed
for coming this morning. I hope you did not find your experience
in the weighing room a total waste of time!
Mr Dixon: Thank you.
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