Clause
111Profit-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.
Lembit
Öpik (Montgomeryshire) (LD): My
understanding is that the right hon. Gentleman believes that there is
no restriction on an organisation that starts
off as a non-profit organisation becoming a profit-making organisation
yet retaining the beneficial status that it began with as a
non-profit-making organisation. Am I right in my understanding of what
he thinks the legislation would
allow?
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. The second
subsection of amendment No. 196 would apply whenever the regulator was
considering whether to grant a request to deregister by a registered
provider. It requires that any conditions that the regulator has placed
on disposals of land, for example, relating to the use of disposal
proceeds, and any conditions of grant made by any grant funder, such as
the Homes and Communities Agency, should be taken into account before
deciding whether the organisation can be outside the scope of
regulation. 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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