Memorandum submitted by Des McConaghy
This note refers to the NAO's Housing Market
Renewal Report (HC 20). The C&AG has said it is unclear whether
intervention has led to the improvement in the problems of low
demand. But it is also important that the main deficiencies of
the programme are fully understood in a historical setting since
they point to Whitehall's perennial difficulties in organising
a reasonably comprehensive response to urban and regional tasks.
The persistence of Whitehall's fragmentary approach
to inner city tasks is amazing. For over 30 years their inability
to take a holistic approach has added to management confusion
especially in inner city areas where "across-the-board intervention"
is obviously required. And this failure is absurd in any attempt
at "housing market renewal". My criticism is no reflection
on HMRA officials dealing with clients at the coal face—where
haphazard arrangements and inappropriate and often uncertain funding
just cannot provide a sensible interface with the market issues
identified in the NAO report. Moreover the need to meet relatively
arbitrary central targets within a bureaucratic mechanical ethos
can throw local teams into conflict with their client groups:
the balance between renewal and rehabilitation is just one factor
which requires a very finely tuned local approach. But the blame
for the persistent "bad copy" in the press lies with
Ministers and with their senior staff.
So as a practical matter the focus must remain
on Whitehall management. I refer to my letter of 20 March 2004
to the NAO at the time of the earlier Report on the "New
Deal for Communities" programme (Annex A). Those same NDC
failures now undermine the "Housing Market Renewal"
programme (and Liverpool Kensington NDC is also a market renewal
area). So my NAO meeting and correspondence deliberately focused
on Whitehall's inability to fashion a cross departmental strategic
response ("supply chain") for any such concentrated
problems or indeed exceptional tasks such as the exampled "Thames
Gateway Project". And my analysis of this abiding Whitehall
inability to fashion a "strategic" approach (and remedy!)
was set down in February's issue of "Public Money & Management".
But it must also be said that few if any NAO
reports on these matters have prompted any great improvement in
the DCLG or its predecessors—or across Whitehall. And within
the inner city areas Departments carry on as usual as they leap
from one separate initiative to another. I believe this lack of
response to the NAO and PAC is partly due to a familiar weakness
in our public audit system itself since there is no systematic
read across to our parliamentary supply procedure (itself a notoriously
unsystematic and incoherent procedure). In any event the problem
of fragmented action has continued—over three decades—and
gets steadily worse!
The "Housing Market Renewal" Report
is especially interesting by demonstrating how the DCLG pursues
the physical or architectural tasks of urban renewal quite separately
from any effective corresponding effort to improve the local economic
environment. This is exactly why the C&AG cannot find "a
direct correlation with low demand". In the early 1969-72
Shelter Neighbourhood Action Project (SNAP) we saw how local housing
markets relied very heavily on the local economic environment's
ability to improve real incomes. In this important respect there
was little real success then—or indeed ever since then!
But in the meantime the same equation was perversely reversed
at Treasury and national policy levels; the "management of
the economy" came to rely on debt financed personal consumption
secured on the inflated value of existing and otherwise unproductive
housing stock. This inevitably led to the present economic crisis.
Anecdotally it may be interesting to note that
back in 1971 I was warned by Housing Minister Paul Channon that
our pilot work in helping low income Toxteth clients to buy improved
houses was in danger of encouraging them to assume responsibilities
beyond their circumstances. This sub-programme was then just part
of our multi-programme attempt "to arrange the rungs of the
(betterment) ladder closer together". And that particular
programme was encouraged by a visiting young building society
official with an interest in "market succession". He
later did well, and as the society's general manager led its conversion
to a limited public company: "Northern Rock"!
One important lesson is that housing real estate
viability depends less on any physical characteristics of the
housing stock and more on its occupiers. More specifically what
counts is whether those occupants are succeeding or failing in
terms of economic prosperity. For example if one took a "magic
shovel" to any inner city block (even one condemned as unfit
for habitation!) and lifted it, without disturbing a single brick,
and placed it carefully down in Chelsea and Kensington, precisely
the same block would immediately attract an astronomical market
value. Conversely we can also create brand new housing areas but
if the local economic base is deteriorating (and if the occupants
are becoming more dependent) then that new housing and that physical
fabric will also begin to deteriorate. Then, too, a local environment
which loses its ability to satisfy even modest aspiration can
face "abandonment"; an embarrassing phenomenon given
a national housing shortage!
It was this same fear of "abandonment"
(and dread of "municipalisation") which frightened government
and triggered the 1974 Housing Act's reliance on housing associations
—while ignoring the more basic need for comprehensive and
integrated public action. Thirty three years later the HMRA were
triggered by similar fears of abandonment but again without providing
a coordinated response.
Back in "the sixties", we often used
local housing employment models to keep abreast of population
characteristics in travel to work areas, and these included industry
and employment profiles. Such exercises informed housing capital
programmes along with industrial training and much else. We were
lucky if they could project within plus or minus 12% margins of
error in normal economic circumstances. But the sums were routinely
done and so a certain rationality was brought to bear across both
private and public sectors. Nothing similar seems to occur now
in Liverpool. Vastly speculative ("hot money") multi-storey
housing continues to rise around the city centre right beside
the inner city HMRAs. They remain about 34% empty, seem very speculative
and may rely on the continuation of rapid capital appreciation.
The adjacent HMRAs remain relatively economically
depressed, and often compete with other new publicly sponsored
housing areas within the same travel to work area. There is a
large question mark over the local economic environment. The Department
of Work and Pension's "City Strategy Pathfinder" has
outsourced contractors' work and this is really only a token gesture
among the many competing public agencies. Indeed there are no
less than 30 separate urban funding streams in Liverpool sponsored
by no less than nine separate Whitehall departments. Government
Office coordination at regional level is simply "tokenism".
So the familiar criticisms of the DCLG and its
predecessors still apply. And such problems could now be exacerbated
by Whitehall pressures to outsource (or even offshore) many "shared
services" across the country—which, whatever other
benefits, can have a progressively adverse effect on the actual
interface between many public services and local clients—as
well as reducing the amount of control that should be rightly
exercised by local elected members. Then again, certain plans
to outsource the human resource management of the Whitehall home
civil service itself could progressively discourage aspiring entrants
at all levels. In any event, set against all this the DCLG's recent
announcements about "passing more power to town halls"
must now be rigorously tested!
Specifically we must now see what is actually
proposed for the new "Local Area Agreements". As a civil
servant in 1973 I personally arranged the first English "Area
Management" experiment to be commissioned by Whitehall. This
was known as "Liverpool District D" and it comprised
9.2% of the City's then population. That effort was accompanied
by trials less formally arranged throughout the country. In Liverpool
the "Area Executive" and his team reported directly
to the City Chief Executive. But it was doomed from the start
because Whitehall would not agree (and Liverpool would not agree)
to any Area Management control over public spending. The key task
of budgetary co-ordination is now vastly more demanding given
the proliferation of agencies involved and the still unresolved
state of local government finance.
Finally we have an economy where massively inflated
and otherwise unproductive housing stock has been used to secure
unprecedented levels of personal debt and personal consumption.
The folly of this (and with it the whole present sub-prime mortgage
crisis) may now lead to a recession affecting all parts of the
country. And in the meantime the "real level" of unemployment
in Britain could be three times the official figure (Centre for
Regional Economic & Social Research 2007) and we still face
that same ever widening "North-South Divide" (IPPR 2007).
Here in Liverpool we are still losing population—and the
latest Rowntree Foundation Report shows us moving towards levels
of inequality last seen back in the 1960s. The NAO's Report correctly
calls for better delivery systems and I hope the Public Accounts
Committee will prompt a very firm Executive commitment to adequately
conceived and adequately financed cross departmental delivery
systems.
Annex A
LETTER FROM DES MCCONAGHY TO NATIONAL AUDIT
OFFICE
We met on 17 March to discuss the need to relate
NDCs to mainstream programmes an to the co-ordination of mainstream
programmes at regional and national levels. This very brief aide
m
moire simply lists the main items raised.
Endemic Fragmantation. Any 30 year review finds
that the fragmented nature of government action in deprived areas
is endemic; an inability to "contextualise" and effectively
relate action to main programmes creates misunderstanding and
friction and it impedes effective delivery. The NDC programme
is no different.
Absence of Strategic Funding. The general ability
to co-ordinate (wherever and whenever co-ordination is required)
needs a clear definition of multi-level and interdepartmental
strategic funding. Its absence handicaps every attempt at co-ordination
by projects, councils, strategic partnerships, ROs and RDAs.
Recent Reports. NAO's "Success in the Regions"
Report provides the context for your NDC Report. But the RDAs
and ROs exhibit the same absence of co-ordination and strategic
funding. The ODPM Committee's April 2003 Report on "Regeneration
Initiatives" (which included NDCs) reiterated this perennial
concern about fragmentation and lack of co-ordination. (The ODPM's
"ABI Guidance to Departments" is just exhortation without
clear funding principles).
Related Exceptional Tasks. The "Thames
Gateway" and "Northern Way" were noted as other
exceptional development proposals—and with potential positive
and negative impacts on deprived areas of "parent cities".
But we can be sure of little in the absence of a clear inter-departmental
strategic funding definition. The creation of many ad hoc new
agencies cannot address this strategy gap.
Wider C&AG Implications. The government's
recent welcome change of emphasis from central command and control
to decentralised decision making may also encourage further fragmentation
in the above absence of clear rules for the operation and control
of strategic funding. Clearly this can also limit post hoc (and
ad hoc) public audit to equally fragmented and partial reporting—especially
if "strategic" aspects may be regarded as matters of
"policy" beyond the ambit of strict financial audit.
This problem finds its mirror in the absence
of any clear definition of strategic funding within the Parliamentary
Supply procedure. It suggests that Parliament could ask the C&AG
to improve his Comptroller function in this respect as an alternative
to the present notoriously unsystematic and incoherent procedure.
In conclusion I think I was able to give you
an accurate description of the persistent obstacles to real progress
over three decades and indeed why our most deprived areas always
point to the above general deficiencies in our overall governmental
apparatus.
20 March 2004
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