Examination of Witnesses (Questions 200-218)
16 DECEMBER 2003
MR ROY
IRWIN, MR
ROGER JARMAN,
DR NORMAN
PERRY AND
MRS CLARE
MILLER
Q200 Mr Betts: There is a category of
local authorities where the finances for retaining stock simply
do not add up. There is insufficient public money around, they
do not have sufficient star ratings to go for an ALMO, and therefore
they are really left with no option at all.
Mr Irwin: I think there is an
option.
Q201 Mr Betts: Apart from stock transfer.
Mr Irwin: Yes.
Q202 Chairman: There are places where
people have voted down stock transfer.
Mr Irwin: Yes. I was not implying
that they had somewhere to go; that is, stock transfer. I have
already said that I doubt if people would overall in the sector
hit the 2010 target. It just seems to me that those places where,
yes, their own resources as local authorities retaining their
stock will not hit the target, their performance currently is
not good enough, and it may be that their tenants do not want
stock transfer—and those places exist—that something
is going to have to give and I doubt if it is the tenants' views.
It seems to me what will give over a longer period of time is
either that resource levels for those specific authorities will
have to be changed—perhaps some remodelling of the dowry
approach—or—and this is not impossible and we would
like to see this more often—their performance over a longer
period of time does improve and their performance drives resources.
I do not think that is going to hit the 2010 target but it will
actually bring around better quality investment and better services
for tenants and, if it does hit 2010, so be it.
Q203 Mr Betts: At this stage those authorities
would tend to say, "We'll go for stock transfer," if
the value is insufficient to go for the ALMO—and the tenants
may not want that either—then the Decent Homes target is
really not going to be achieved.
Mr Irwin: I do not think it will
be achieved, no.
Q204 Mr Betts: In terms of the freedoms
around ALMOs, even ALMOs do not have the right to borrow against
their rental stream.
Mr Irwin: No.
Q205 Mr Betts: Which is a big restriction
on them.
Mr Irwin: Yes.
Q206 Mr Betts: Is the Audit Commission
looking at whether there should be a relaxation, for local authorities
and ALMOs to borrow against their rental stream?
Mr Irwin: We are not looking at
that. We understand that ODPM and the Treasury are looking at
that and it may well be an issue that is picked up in the comprehensive
spending review 2004,
Q207 Mr Betts: You are evaluating the
impact of recent changes generally.
Mr Irwin: We are undertaking a
piece of research which we hope to publish early next year, probably
by February or March time[1].
Q208 Chairman: Is there any chance of
us having a look at a first draft?
Mr Irwin: I think we would want
to be mindful of our independence. Like Dr Perry, I would like
to take advice on that and I will come back to you.
Q209 Mr Betts: Looking at the problems
of hitting the Decent Homes Standard, do you have any idea of
the funding shortfall which you think exists in the system generally
that would cause problems in achieving that target?
Mr Irwin: No, I do not think so.
I think there are considerations. One is around the quality of
data held by local authorities and housing associations, although
I think the quality held by housing associations is likely to
be better because their average stockholding is smaller and their
stock is on average newer. There is also quality of data about
how good are current properties at hitting the standard and whether
their definitions are accurate. The second issue is about the
value for money over procurement within any resource level. The
third issue is increases of local and national building costs.
The fourth issue, if you have looked at all those, is: if that
is working as well as expected, is the amount of resource actually
available? I think at the moment the value for money issues at
a local level are not sufficiently explored by our work or by
the authorities themselves, to get to the position of knowing
that you cannot get more cost-effective. The piece of work we
are aiming to do over the next two years is looking at cost-effectiveness
of procurement in local authorities.
Q210 Mr Betts: When will you be in a
position to answer the question?
Mr Irwin: I think we are going
to be in a position to answer that question—Is the system
in receipt of resources using those resources as wisely as possible?—probably
about this time next year but with further evidence coming out
the year after.
Q211 Mr Betts: That will lead you to
be able to say what the shortfall is in funding for decent homes.
Mr Irwin: Yes.
Q212 Mr Betts: You also express some
views about the role of regional housing boards in allocating
funds for the large catch-up repairs which some authorities need.
Do you want to say a bit more about that?
Mr Irwin: Two things. With the
single capital pot within each local authority obviously there
is a political decision about how that is used. Therefore, irrespective
of how that is allocated to the authority, trying to track what
happens to that is not always clear, and does not always give
rise to what might be seen as the PSA target of decent homes or
other PSA targets all competing for the same amount of money.
The second issue is just the change issue. The regional housing
boards have only been operating for eight months. They have written
their first strategies, governmental decisions, to be announced
over the next x weeks, therefore there is a question mark in the
system: How does this compare with what went before? Obviously,
if that comes out in a way that is helpful and you can track the
money, then you can work out whether that is making an impact.
But I think at this stage it is just a question that nobody can
answer.
Dr Perry: If I may add to that.
The regional housing boards themselves have taken a strategic
view. As Mr Irwin says, it was their first go, and it has just
been announced by ministers that it will be 2005 for their next
strategy, so they will develop their analytical and methodological
tools. But they did take a strategic decision between the amount
of money they felt in their region was needed for repairs to local
authority housing and the amount that should be allocated to new
build. Those decisions and those resources will flow. As Mr Irwin
says, you then have the problem that when money reaches local
authorities there is discretion for members to decide how to spend
the capital resources that they get, so there is no guarantee
that resources allocated by regional housing boards for the improvement
of local authority housing will be spent that way. It just replicates
the problem of how do you know that money allocated to schools
gets to schools and so on. I would not want to overdo it and say
that local authorities take housing money and deliberately spend
it on something else, but, from the point of view of being able
to track the system, we do not have any certainty that you can
at the moment track the money right through to the final destination.
Q213 Mr Betts: Do you think with all
this change going on that ODPM is actually meddling too much in
financing, and it means that local authorities are looking at
financial systems all the time rather than delivering services
and long-term planning becomes impossible because they have no
idea from one year to the next what the situation is going to
be.
Mr Irwin: I think the introduction
of business planning for housing revenue accounts, in attempting
to replicate, not exactly, but what housing associations do as
a matter of course, is a very sensible move. It is slightly "over-technicalised"
and therefore is the preserve of accountants rather than managers,
but that is probably how organisations work.
Q214 Chairman: Is that because the civil
servants got their hands on it, and it would not have been better
just for government to give broad guidance?
Mr Irwin: I am trying to cast
my mind back to when this was introduced and what form it was
in. When it was introduced, it was quite simple. It has probably
become a bit more sophisticated since. It was introduced before
Decent Homes, so it was business planning in a context of just
making the best use of resources. The Decent Homes was not a target
when it was introduced. It has become more complicated since,
but, as I am no longer a practitioner in those fields, it is difficult
to judge. But business planning makes sense, because it is a business
and therefore making it work is important. Therefore, understanding
your local operating environment is really important. Unfortunately,
part of the system which is different between local authorities
and housing associations is the subsidy and management and maintenance
allowance arrangements—which are incredibly complicated
and which part of our research is trying to look at—does
mean that there are two levels of operating environment. There
is the real operating environment of the market place, the state
of your stock and the resources. Secondly there are the overall
national arrangements and how they play out within the notional
housing revenue account. Those are very complicated things. So
the business plan is trying to second-guess two things when actually
second-guessing the first is tough. I think that is the difficulty
for authorities.
Q215 Mr Betts: Is that a plea to leave
things as they are?
Mr Irwin: I would suggest simplifying
the system, leaving authorities to business plan within their
resources, trying to give them some continuity of resources and
kicking them hard if they do not perform within those resources.
At the moment, the rules and the arrangements change so quickly,
that their business plans which have a five-year and 30-year lifecycle
in practice probably have a 12-month lifecycle. That is not practical
business planning.
Dr Perry: I would support that.
We have learned in the corporation that requiring social landlords
to have a business planning framework is good; trying to tell
them exactly how to run it is not a very good idea. We have gone
right back from doing that over the past three to four years.
Q216 Mr Betts: There are some concerns,
with all these great targets we have got for getting standards
in by 2010, that the building industry will not be able to deliver,
either because of shortage of capacity or because that shortage
of capacity will force prices up so we will get less value for
money with the money we do have.
Mr Irwin: I think DTI is concerned
around the infrastructure—replacement, updating and new
infrastructure, in both the public and private sectors—about
how attractive the construction industry is as a place of employment,
and the rate at which people are leaving the industry versus the
rate people are joining the industry. The Barker Review that was
published last week touched upon construction industry issues.
Although they are often seen in these tower-crane settings, in
the context of decent homes it is carpenters and plumbers that
are the issue. Over a longer period of time there is a query:
will the skill base be there to do these works and to do them
well or will it start to attract an increasing premium? As disposable
income for owner-occupiers increases—and it has increased—do
they start to buy in DIY services rather than doing it themselves?
That puts more pressure on the market place. I am taking a longer
term view about whether the construction industry will be able
to sustain massive private and public sector investment over any
period of time.
Q217 Mr Clelland: Mr Irwin mentioned
earlier the importance of maintaining a good general environment,
a decent neighbourhood, in order to justify the investment in
maintaining decent stocks. Of course there are other reasons for
doing that, not least the welfare and wellbeing of the people
who live there. Is there a danger that by prioritising resources
in order to meet the decent homes target that we will actually
end up neglecting the neighbourhoods themselves?
Mr Irwin: There is always that
risk, that an organisation makes a wrong purchasing decision.
It is about understanding how the customers feel about their neighbourhood.
Given that the money for local authorities is ring-fenced to housing
revenue account functions, therefore it is around maintaining
tenancies both as a mandatory task and also as an investment task,
the skill for the organisation is to link it with other funding
streams which are not housing revenue account but lift the neighbourhood.
Therefore, it is not always the choice between spending the rent
money and however it is financed on the neighbourhood or the house;
it is spending the rent money on the home and general fund money
on the neighourhood because council tenants pay council tax. It
is not always a straight choice between the housing capital programme
invested in new street lights, better pavements, more security
arrangements—although, if it is in the stock, then that
clearly is a decision—it is about coordinating council action,
so that the streetlight programme and the housing investment programme
and the education investment programme all link together and local
transport makes a real difference.
Q218 Mr Betts: Do you think there is
sufficient coordination?
Mr Irwin: There are some excellent
examples of how it works and some appalling examples of how it
does not. Local government is spending on many different things.
There will always be exceptions to any standard. I think authorities
now are understanding the issues. They know what the questions
are. Not everybody has discovered the answers but they understand
how sustainable communities need to be either attained or maintained.
Chairman: At that point we must finish
this session. Thank you very much.
1 The Audit Commission is planning to publish the report
in April 2004. Back
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