Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence

Taken before the Office of the Deputy Prime Minister Committee

Memorandum by Austin Mitchell MP on behalf of the Parliamentary Council Housing Group (DEC 50)

    —  The role of tenant choice; and

    —  The link between the decent homes target and other parts of the Government's sustainable communities agenda.


  1.1  We welcome the committee's investigation and hope this will expose how the decent homes target is being used to distort local debate and push local authorities and council tenants out of council housing.

  1.2  The definition of decent homes is not responsive to local needs and conditions. It distorts real priorities—what tenants want—and instead imposes a bureaucratic "tick-box" regime. Tenants with clear and defined priorities for their homes and estates are effectively told that civil servants know best about what is required.

  1.3  "Meeting decent homes" as an imperative for local authorities has in some cases put them at loggerheads with tenants who have different priorities for investment and improvement work. At another extreme it leads to demolition of much-needed council housing in areas with long waiting lists and homelessness.

  1.4  The lack of investment in council housing repairs and improvements over 25 years has undermined the condition of most council housing. Short-term neglect of repairs creates longer-term problems. Neglect of estate environment, cutting back on estate-based caretaking and management and other staff has worsened services and demoralised council housing workers.

  1.5  This is despite the £13 million "surplus" extracted from Housing Revenue Accounts and used to subsidise other areas of government spending. In 2002-03 tenants on average paid £2,500 in rent but only received £1,500 in services. That leaves £1,000 per tenant (£3.6 billion per year) that could be used to fund a massive investment programme.

  Privatisation drives up rents resulting in the Treasury paying out more in Housing Benefit. UNISON estimates that stock transfers since 1997 have cost the Exchequer £249 million a year in additional housing benefit support.

  1.6  The quickest, most reliable and best value for money way for local authorities to meet a locally-agreed set of priorities for improving council housing is through direct investment in council housing.

  1.7  Government is still seeking, however, to insist that any new investment needed to make good the backlog of repairs and improvements must come via stock transfer, PEI or Arms Length Management Organisations.

  1.8  Real choice for tenants requires a level playing field for investment opportunities. Tenants must be free to choose the option that best meets their needs and preferences—including the choice of remaining as council tenants with investment available to improve their homes. Without this, tenants are justified in calling the process "blackmail" not choice.

  1.9  If money is available to subsidise costly and time-consuming privatisation and half-way privatisation measures, we would ask the committee to consider and put to government the question council tenants all over Britain are asking: why can that money not be spent directly on improving council housing?


2.1  Decent homes—what tenants want

  Tenants and many others want to see first class, modern council housing available for all who need it. But at local level tenants who pay for council housing have no say over priorities for improvement works, despite all the talk of tenant-led change. Of course tenants want new kitchens and bathrooms. But there may be other needs which are higher priorities locally. On some estates new lifts, smoke alarms, concierge services and youth clubs are the most pressing need and decent homes targets need to be flexible enough to include these. In areas of high overcrowding and homelessness tenants and local electors may regard development of more council housing as the most urgent priority. As research by Ambrose and others in Stepney and elsewhere shows, for tenants health, housing and education are inextricably linked. But in many areas councils are in danger of narrow-mindedly pursuing a government target defined by civil servants instead of responding to tenants' local priorities.

2.2  Targets used to break up council housing

  The Sustainable Communities Plan attempts to impose stock transfer, PEI or ALMO as the only sources of new investment in existing council housing. This is not based on any sound financial case (as the NAO and PAC reports show—see below). Instead we are offered two justifications: that these changes will increase tenants' involvement, and that housing services benefit by separating strategy from day to day management. No evidence is offered to support either justification, and much existing evidence challenges and contradicts these arguments. So achieving decent homes targets has become another stick to beat councils and tenants into accepting a change of landlord, the remortgaging of council housing at exhorbitant cost/risk through PEI, or the costly half-way privatisation of Arms Length Management.

2.3  Local impact: arbitrary and regressive

  The impact of decent homes targets is not producing consistent progress in areas of most need. Instead we currently have:

    —  Liverpool and Birmingham City Councils, among others, making clear that they cannot meet and are not served by the decent homes target.

    —  These and other councils considering or planning the demolition of council homes as the only means of meeting decent homes standard—despite local demand for more council housing.

    —  Reports of London authorities which cannot meet decent homes targets even if they pursue stock transfer, PEI or ALMO.

    —  The leader of Halton Borough Council and others saying they want to continue managing good quality council housing but need investment to make this possible.

    —  Sir Jeremy Beecham of the Local Government Association highlighting "the pressure on councils to transfer housing stock".

    —  "3 star" council housing departments in Hammersmith & Fulham, Bolton, Camden where tenants have expressed the preference for staying with the council with investment for improvements, being forced instead towards ALMOs.

    —  Grimsby, Macclesfield and other councils which can meet decent homes targets but are intent on pursuing stock transfer despite the resistance of local tenant organisations.

  So the decent homes PSA target, as implemented through the Sustainable Communities Plan, has an arbitrary impact which does not direct public or other investment to areas of greatest need. Indeed in some areas of the most acute need, such as Birmingham, Liverpool and parts of inner London it is leading directly to the demolition of council housing despite acute need for this housing locally. These perverse outcomes of the policy as implemented are the result of a dogmatic refusal to invest directly in council housing.

2.4  Decent homes need investment

  With an estimated £20 billion backlog in council housing repairs and improvements, the decent homes focus on improving condition highlights the need for significant sustained investment. In the context of the Sustainable Communities Plan, the decent homes target is highjacked to rule out any real choice for councils and tenants. The SCP attempts to rule out the option of council housing staying under local authority control and management, with sustained direct investment to address the backlog of repairs and improvements and more. The principles of publicly-funded investment in publicly-owned council housing are not discredited—council housing is the most efficient and equitable way to develop the homes we need, to the standard we need, at affordable rents, providing quality housing for all who need it including all essential service providers. The problems affecting council housing are the direct result of under-funding, as the decent homes target and SCP effectively show: with investment council housing can again become good quality housing of choice.

2.5  Council housing—the money is there but the rules are rigged

  A Level Playing Field needed. Council housing generates more income than is spent on its management, maintenance and improvement. The inequitable treatment of council housing compared to other forms of housing has caused and perpetuated the problems of underinvestment which are now being exploited to undermine council housing and abolish it.

  Daylight Robbery for Council tenants only £13 billion has been siphoned out of council Housing Revenue Accounts in recent years and used to subsidise other areas of government spending. Outcry at what tenants call this "Daylight Robbery" of their rents has led the government to change the mechanism by which so-called "surpluses" are extracted from HRAs. However government has retained the power to claw back from council HRAs what it regards as "unnecessary" funds—even where these funds are needed to meet decent homes or other local improvement targets. Money taken from the HRA in this way is not even ring-fenced to pay for council housing improvements. In 2002-03 tenants on average paid £2,500 in rent but only received £1,500 in services. This left £1,000 per tenant (£3.6 billion per year) that could be used to fund a massive investment programme. For 2003-04 the figure is slightly lower but the effect and potential is the same.

  Through LSVT this £1,000 is immediately released to the new landlord. This is a major disparity and a financial driver of stock transfer. It creates "unfair competition". We cannot see how it can be justified. The release of this £1,000 pa per council home would provide funding for the much-needed investment in existing council stock to create financial parity and real "choice" for tenants.


  Public money is being diverted into wasteful subsidies which are a further incentive to stock transfer. £800 million is budged for 2003-4 to write off debt to make sell-offs profitable. This is almost as much as the total £842 million budget for housing credits to fund investment in all council homes.

  If a national programme of debt relief was applied to council housing, with government taking responsibility for HRA debt in the same way as it does for stock transfer RSLs, councils would be in a "fair competition" with RSLs and would be more efficient at improving council housing, thereby maximising value for money. Backlog repairs could all be addressed rapidly, and funds released to finance a programme of new and improved housing. Other subsidies to privatisation

  Last year £65 million was spent on "fees of the army of consultants, surveyors, solicitors and advisers" involved in promoting stock transfer, PEI and ALMO (Social Housing July 2003). This is often supported by the work of local authority staff paid from other budgets. This huge physical and financial resource is directed to present one side of the case in the "choice" facing council tenants.

Long term cost

  Privatisation drives up rents resulting in the Treasury paying out more in Housing Benefit. UNISON estimates that stock transfers since 1997 have cost the Exchequer £249 million a year in additional housing benefit support. This money could be used instead to fund a new "investment allowance" to provide a revenue stream enabling councils to borrow to fund investment themselves. It would make the new "right to borrow in the Local Government Bill" a practical solution to give tenants real choice in how "decent homes" which meet local priorities might be achieved.

2.6  Direct investment is best value for money

  The report by the Commons Public Accounts Committee on stock transfer endorses and adds to the National Audit Office's critical report on the subject. Calculating the extra cost to the public purse of achieving decent homes and other improvement targets via stock transfer, the PAC report says "the additional cost of transfer is likely to be larger than the £1300 per home calculated by the Office [NAOII". The committee concludes that stock transfer is bad value for money, pointing out that "cost neutrality will not have been achieved in practice", that transfer has "led to the undervaluation of the homes transferred so far, resulting in a great contribution from the taxpayer than was necessary to deal with, for example, the backlog of repair." It is also sceptical of the government's non financial justification for stock transfer, questioning any improved tenant choice, participation or increased satisfaction. If the decent homes targets are to be achieved while respecting the right of council tenants and local authorities to democratic choice in this process, we need to reassert and make real the option of investment in directly-managed council housing, as tenants are demanding.

2.7  The alternatives and their problems

  Transfer, PEI and ALMO all attempt to break up and/or replace council housing with new models more dependent on private funding in the short or long term. The costs and risks associated are borne by the public sector and by tenants. Decent homes is being used as a mechanism to pursue this end.

  Stock transfer: Tenants lose security

  "The Council of Mortgage Lenders this week said the plan to do away with mandatory grounds for eviction would be a `bad move'. Housing Associations currently have the power to obtain possession orders where tenants have run up two months' rent arrears." Housing Today 7 October 2003. Costs higher, RSLs have higher rents and other charges, evictions, borrowing and management costs are higher and one in four homes do not meet decent homes standard. Transfer RSLs are an inefficient drain on public funds. Accountability lost RSLs are not accountable to local or national government. There is no effective mechanism for directing them "strategically", despite significant public funding to them. Their costs (including senior executive pay) are not controllable. Transfer RSLs can and do fail to deliver on promises. Transfer delivers investment relatively randomly—RSLs not accountable to tenants. Even where tenant board members—governed by company law act as directors. Not usually elected by tenants. Few RSLs have representative tenant organization Pressure on RSLs: to compete with private sector developers for funding, for paid board members, to merge and rationalise (leaving 150 large RSLs doing all new housing development), to respond directly to demands of lenders.


  PFI is new in housing, but has an appalling record in schools and hospitals. The National Audit Office says claims that PFI is value for money are based on "errors, irrelevant or unrealistic analysis and pseudo-scientific mumbo-jumbo." Costs escalate between bid and final contract: reportedly by over 60% in Sandwell. Financial risks are effectively underwritten by government with yet more public money. Tenants are more directly exposed to other risks, as when major subcontractor goes bust and all work is suspended (as in many current school PFI contracts including Wigan and Tower Hamlets). Tenants have no right to a ballot on PFI proposals. Public land is often "gifted" to developers with homes demolished to increase profits.


  Arms Length Management Organisations is the government's latest proposed way of breaking up council housing, introduced in face of tenants' growing resistance to stock transfer and PFI. A separate company is set up to run homes which remain at this stage council owned. The carrot is an uncertain amount of extra funding for five years. They involve large set up costs, undermine democratic control and accountability (with a board on which tenant reps are outvoted and bound by corporate responsibility).

  ALMO could be privatised by the "levering in" of private finance (high interest loans from banks) with no transfer of stock and no requirement for a ballot.

  The best-managed council housing with 3-star audit rating is being forced to become ALMO (in Bolton, Camden, Hammersmith&Fulham) despite the wish of tenants to remain in directly-managed council housing.

  Opposite of "joined up thinking"—separating housing completely from other council services (social services, education, youth etc). The flies in the face of all research pointing to need to connect services better repairs, improvement and support services are more likely to be outsourced (privatised): Hounslow ALMO has privatised its grounds maintenance; Barnsley ALMO its repairs service, Kensington & Chelsea ALMO its legal services. ALMO expenditure is money taken from council housing as a whole. It is "on balance sheet" public expenditure. If this money is available to help achieve decent council housing standards, why can't it go into council housing directly?

  The Office of the Deputy Prime Minister managed to find an extra £250 million a year to fund arm's-length management organisations by a clever "switch of resources". Local authorities are required to set aside 75% of capital receipts and further money as part of their housing revenue account to cover debt to the government. This latter "minimum revenue provision"—around 2% of an authority's "credit ceiling"—is what the Treasury has agreed to allow to be freed up for capital investment. This has been possible because of the introduction of the £1.59 billion major repairs allowance two years ago to allow councils to invest in housing. The ODPM argued to the Treasury that this funding stream meant that the minimum revenue provision was no longer required.

2.8  Tenants choice requires Fair competition

  The "Decent Homes" public service agreement target is being implemented in a way which overrules the ongoing government commitment to "tenants' choice". This results from the unfair financial competition against council housing. In this context the "decent homes" targets risk being discredited in tenants' eyes as a cynically manipulated manoeuvre to end council housing. This situation is not justified financially—the fair funding of council housing would be a prudent use of public funding. To achieve locally-agreed decent homes standards for all council housing requires measures to create a level playing field and give substance to the fourth option tenants and many local authorities want: council homes remaining under direct council management with substantial investment available directly without strings attached. This will give tenants real choice in implementing decent homes targets.

    —  What precise budget is used to meet the additional costs to government of "overhanging debt" transferred from local authorities due to transfer? [what funding available for PFI credits, and how much made available to underwrite PEI schemes in housing and other sectors including health, education? How much does this amount to and is it an equitable and justified use of public funds?

    —  What is the total cost to local and national government of stock transfer so far?

    —  What is the total "Daylight Robbery" difference between council rental income and allocated expenditure on management and maintenance and MRA? Why is this not used to fund direct investment in council housing? How does government justify transferring these so-called "surpluses" to transfer landlords?

  Liverpool Council's stock options survey estimated that it would cost around £117 million to carry out the necessary repairs to bring 13,000 of its homes up to the decency standard. Cabinet member for housing Flo Clucas said neither arm's-length management nor the private finance initiative looked like viable options, and the lack of alternatives available meant councils had their "hands tied behind their backs". "We certainly do not have enough money to bring the properties up to the standard," she said. "It's highly unlikely that we'll be able to do so. We believe there needs to be some flexibility from government."

  Birmingham Council's chief executive Lin Homer told Inside Housing there was no quick fix for the city's housing service. Ms Homer said: "I do not think we are going to turn around housing in the city overnight.

  "My focus is not particularly on what we do in the star rating this year, it's on what we do in the city over the next few years," she said. "We do not think we are in it for quick wins."

  Frances O'Grady deputy general secretary, TUC

    "The TUC wants to see a level playing field for housing investment. Sadly the Local Government Bill will encourage precisely the opposite. Councils that transfer their stock will have debts wiped out. Councils that do not transfer will continue to service their housing debt. Good quality housing is central to ensuring a decent quality of life. Government must deal with the backlog in all public housing repairs, much sooner than 2010. There are twice as many families live in council housing as in housing association housing. So it's pretty obvious that to solve the problem the government has got to invest in council housing."

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