Housing and Regeneration Bill

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Clause 111

Profit-making and non-profit organisations
Mr. Raynsford: I beg to move amendment No. 61, in clause 111, page 45, line 28, at end insert—
‘(10) If the regulator thinks that what—
(a) is a non-profit organisation is considering becoming a profit-making organisation, or
(b) was a non-profit organisation has become a profit-making organisation,
it shall remove the body from the register and direct it to reapply for registration, subject to section 114.’.
The Chairman: With this it will be convenient to discuss Government amendments Nos. 196, 219, 257, 258 and 302.
Mr. Raynsford: We now come to the extremely important issue of the registration of profit-making organisations as opposed to non-profit-making organisations. Clause 111, as currently drafted, enables the register to designate a body as either a non-profit organisation or a profit-making organisation. There is no problem with that approach, which I entirely welcome. It is absolutely right that profit-making organisations can contribute towards housing needs, and if so, in my view, they should be registered, which was, of course, the subject of the debate on the previous clause.
It is important for the public to be aware of which category specific providers are in. That is provided for at the start of the registration process, because organisations have to designate themselves as either profit-making organisations or non-profit-making organisations. However, what will happen when an organisation changes its status? That issue is not purely theoretical, because subsection (9) clearly provides for a change in status. It states:
“If the regulator thinks that what was a profit-making organisation has become a non-profit organisation, the regulator must change the registered designation accordingly.”
There is explicit provision for circumstances in which a profit-making body changes to a not-for-profit body, but the Bill does not include a provision to cover circumstances in which an organisation changes, or seeks to change, its status in the opposite direction, from not-for-profit into profit-making.
When the issue came up in the second of the evidence sessions on 11 December, Official Report, column 40, the chief executive of the National Housing Federation pointed out that, because of the rules governing industrial and provident societies, it would be difficult for organisations to transfer from not-for-profit status to profit-making status. However, the possibility still exists, even if it is not easy, and Mr. Orr made it clear in his evidence that he thought that it would be a good thing if there were greater clarity. I agree, which is one of the reasons for this amendment.
The other reason why I tabled the amendment is the speculation that we are increasingly hearing about the possibility of housing associations converting into profit-making organisations. This is mainly a subject of the rumour mill, as David Orr said in his evidence to us in that session, but nevertheless, there are other straws in the wind suggesting that that might come about.
I recently read the annual report of one of the country’s largest housing associations, which opens with a clear description of how the organisation would like to be seen by the outside world:
“We are a property development and management company.”
There is no reference whatever to registered social landlords or to not-for-profit; it is a property development and management company. Another of its publications is its “Corporate Social Responsibility Report 2007”, which is admirable. It includes lots of references to doing things in the wider social interest, but it is written exactly as a company would produce its corporate social responsibility report and does not refer at any stage to its different status as a registered social landlord.
Straws in the wind suggest that some organisations would welcome the opportunity to transfer to a profit-making status, or at least to have a corporate structure that would allow them to do so. In those circumstances, it is in my view essential that there is absolute clarity about the status of organisations and the procedure to be followed, if there is to be any change in status. The situation must be transparent, because it would be quite wrong for there to be scope for an organisation to change its status and for the process to involve no explicit recognition that that change of status has taken place. That is the purpose of the amendment.
Mr. Raynsford: Clearly, a great deal would depend on the formal status of the organisation. Most registered social landlords are either industrial and provident societies or companies limited by guarantee rather than companies that distribute shares, so there would have to be a change of company status. We are dealing with a much more complex world, where some large housing associations have stocks of 50,000 or 60,000 properties and have clear distinctions between different divisions. Some of those are doing outright work for sale, some are doing shared ownership and low-cost home ownership and others are focusing purely on social housing. It is not difficult to foresee the creation of a structure in which some parts of an organisation are clearly profit-making. There is definitely a restriction in the case of charities, as charity law would preclude that, but not all housing associations are charities, so one of the issues would be the status of the organisation. David Orr, in his evidence to the Committee, said that it is not easy for an industrial and provident society to change, which I recognise, but he acknowledged the element of doubt, which is why he agreed on the need for clarification.
The amendment would require the regulator, in the event that the regulator believes that an organisation is either contemplating changing its status or has actually done so, to require the organisation to deregister and to apply again to re-register as a profit-making body. That would achieve clarity and certainty, and it would ensure that all interested parties—tenants, partners and the local authorities in whose area the association operates—were aware of the change. Those parties would have an opportunity to comment, and the regulator would obviously take account of those comments before deciding whether to re-register the body. That would provide a proper safeguard, which is the purpose of the amendment.
Since the amendment was tabled, the Minister has introduced a group of amendments that seek to address the issue, albeit in a different way, and that in some ways go further than my amendment. Amendments Nos. 196, 219, 257 and 258 would prevent a registered body from deregistering or disposing of its assets, if the regulator believes that the purpose is to allow it to distribute profits, which is an important safeguard. Similarly, amendments Nos. 257 and 258 would prevent the regulator from agreeing to a change of rules, either for an industrial and provident society or a company, if it believes that that would make the organisation a profit-making company.
As I have said, the Government amendments go further than mine in some respects, and I welcome the Government’s recognition that there was a lacuna in the Bill. However, the Government amendments do not appear to allow an organisation registered with the regulator to change from not-for-profit to profit-making status, although the Bill allows the move in the opposite direction, as I have described. If the Government amendments will prevent any possibility of a move from profit-making to non-profit-making status, the safeguard is satisfactory, in which case I will willingly seek the Committee’s leave to withdraw my amendment.
I do not want to leave any element of doubt around the subject. As I stressed on Second Reading, any suggestion that housing associations may easily convert from their current not-for-profit status into profit-making and profit-distributing companies could have a profound and unhelpful impact on the development of the pluralist framework of social housing providers that the Bill supports and that has contributed enormously to the improvement and condition of the social housing stock in recent years.
The hon. Member for Welwyn Hatfield has repeatedly criticised the Government about the number of new social homes that are built, but he has been silent about the huge improvement in the condition of the social housing stock in the past 10 or 11 years. When the Government entered office, there was a shameful and huge backlog—£19 billion-worth—of substandard council housing, which was the product of years of neglect and underfunding. Tackling that backlog through the decent homes programme, the stock transfer programme and the creation of ALMOs, thereby securing huge improvements in the living conditions of millions of people and improving the quality of properties available for letting, has been one of the Government’s proudest achievements.
Grant Shapps (Welwyn Hatfield) (Con): The right hon. Gentleman has referred to something that I never spotted in our debates—the idea that we believe that less social housing should be built. In fact, he knows that my point is that more social housing was built under us than in every single year under this Government. The argument is not about the quality of social housing, although if he wants to debate that subject I can produce figures showing a 15 per cent. improvement through the decent homes standards, when the amount of money spent suggests a far better outcome was possible. Will the right hon. Gentleman accept that the problem with the approach of target-driven decent homes standards, is that in some cases the wrong standards have ended up being the outcome?
The Chairman: Order. That was a terribly good speech. The hon. Gentleman and the right hon. Gentleman may think that I have not noticed that we are drifting away from the substance of the amendment; I have noticed.
Mr. Raynsford: I shall not rise to the bait. I was making the point that in his repeated comments about the number of social housing units produced, the hon. Member for Welwyn Hatfield has fallen into same trap as many politicians in the 1960s, ’70s and ’80s of forgetting the issue of quality. Poor quality social housing has been a real problem, and it has been addressed by RSLs, ALMOs and the decent homes programme. The relevance to the amendment is that that pluralist framework is threatened by the campaigning of those who say that any change in the status of council housing, from council housing to an ALMO or an RSL, is essentially privatisation, which generates fear and anxiety on the part of tenants. There must be clarity, and there should be no allowance for that kind of propaganda, which can have a damaging effect on the programme for improving the quality of the housing stock.
That is why I have moved the amendment. I hope that my hon. Friend the Minister will give me the assurance that I seek, in which case I shall be happy to withdraw it.
The Chairman: Order. As this is a matter of written record and written records do not convey inflection, when I said that it was a very good speech, I should make it plain that I was commenting on the longevity, not the content.
Mr. Wright: My right hon. Friend raised the issue on Second Reading, when he highlighted the importance of not opening the door to existing RSLs converting from not-for-profit to for-profit status. He asked us to re-examine the matter, which, as he is aware, I have done.
My right hon. Friend has graciously said that I have gone further than his amendment. Currently, only non-profit bodies can become RSLs, and they are largely limited in their ability to pay dividends. They cannot distribute profits and, importantly, they cannot ensure that valuable assets and lucrative revenue streams are not diverted away from the social objectives of the organisation. This morning, we have already discussed how we want to see a plurality of different providers to ensure that we have a well-maintained and greater number of social houses.
11 am
I was very struck by what David Orr, chief executive of the National Housing Federation, said during his oral evidence session. He said that the
“Bill as written makes it clear that private sector providers of social housing will be regulated only in respect of social housing. That is proper.”——[Official Report, Housing and Regeneration Public Bill Committee, 11 December 2007; c. 33.]
I absolutely agree with that, but I would go further and suggest that the position of the existing regulator for social stock is very different. As I said, such stock is almost wholly owned by registered social landlords, and grant has been provided in the full knowledge that they are bodies primarily concerned with housing, and that surpluses will be re-invested for the purposes of more social housing. That has been a very clear understanding when grant has been applied for, and we need to ensure and establish arrangements that protect and maintain that historical understanding.
Let me make it plain that I do not want non-profit providers to be able to distribute surpluses from past investments. I want to see the charitable or social character of RSLs—now called in the Bill non-profit providers—maintained. I would suggest that the amendments that I have tabled today bring that about and ensure strict separation from profit-distributing organisations. I recognise the very great temptations that some RSLs will have to convert to profit-distributing organisations. However, that seems to me, in policy and moral terms, to be wholly wrong. I have nothing against partnership working with regards to for-profits, and I have mentioned time and time again, not least this morning, that I am keen to see a greater degree of for-profits involvement in the provision and delivery of social housing. However, that new and exciting era must be based on rigorous grant conditions and rigorous regulation, rather than it being incumbent on RSLs trying to exploit changes in legislation for their own personal gain. I think that members of RSLs and their staff clearly have no right to expect to be able to benefit in this way from asset or product distribution, and I have introduced these amendments to prevent that from happening in future.
Let me put it on the record that I agree with the sentiments expressed by my right hon. Friend in amendment No. 61. I think that they try to achieve exactly the same objectives that I am trying to achieve. However, with the greatest of respect—I am tentatively trying to chide my right hon. Friend here—I do not think that they go as far as I do, and I do not think that they have the intended effect. Let me point out to the Committee the phrase in amendment no. 61:
“If the regulator thinks that what—
(a) is a non-profit organisation is considering becoming an profit-making organisation, or
(b) was a non-profit organisation has become a profit-making organisation,”—
this is the key point—
“it shall remove the body from the register and direct it to reapply for registration”.
I think that that could bring about loopholes in the system, and I do not want to take the risk, even if it is a temporary risk, of where a body is deregistered, we thereby lose the powers to regulate it before it comes back to be re-registered. In that respect, I understand my right hon. Friend’s intentions, but I ask him to withdraw his amendment.
The amendments tabled in my name are aimed at reducing the pressure that the regulator might otherwise come under from non-profit registered providers to allow them to turn into profit-making, profit-distributing bodies, by removing the discretion that the regulator would otherwise have to permit such changes.
Amendments Nos. 196, 219, 257 and 258 amend clauses 115, 162, 188 and 190 respectively. They thus amend the key powers that ensure that social housing is managed in line with a social and charitable objective by registered providers that are charities, industrial and provident societies, and other companies, and continue to meet these objects, especially housing objects. In particular, it should not be possible for non-profit providers to distribute assets, especially those that have been funded by contributions from the taxpayer through grants.
Under clause 115, the regulator has discretion to allow a registered provider’s request to deregister. I would suggest that the first subsection in amendment No. 196 prohibits the regulator from agreeing to deregister a non-profit registered provider if he thinks that distribution of the assets is the reason why deregistration is being sought.
If a registered provider has not used disposal proceeds as required by the regulator or failed to repay grant as required, the regulator might be more reluctant to permit it to deregister and escape further regulatory intervention. In that respect, I hope that I have gone further than my right hon. Friend suggested.
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