Examination of Witnesses (Question Numbers
1-19)
JOHN HEALEY
MP, PETER RUBACK
AND KEN
SWAN
13 JULY 2009
Q1 Chairman: Welcome to this session,
Minister. We look forward to probing you about the Housing Review
announcement, and those matters that are not yet clear. I am hoping
that by the end of the session there will be quite a lot of matters
where we are a lot clearer!
John Healey: Dr Starkey, can I
introduce my colleagues?
Q2 Chairman: Indeed. If it is more
appropriate, if you want to bring them in, I leave it entirely
up to you.
John Healey: This is Peter Ruback
who is Deputy Director of our Local Authority Housing Finance
Team, and this is Ken Swan who heads up the team that looks after
the Decent Homes Policy, Arms Length Management Organisation policy
and transfers. Can I say I very much welcome this session and
the Committee's interest in the Housing Revenue Account Subsidy
system! I know you have asked questions on this from time in evidence
sessions before. I hope you will have seen the written Ministerial
Statement I laid before Parliament on 30 June. That set out some
of the principles of the reforms I want to put in place. We are
shortly going to publish a fuller consultation report on that,
and so we will do our best to answer the questions, but it may
be then rather than now that some of the detail of what we propose
becomes clear.
Q3 Chairman: I might ask the last
question first, then. Do you have a date for when you are going
to publish the consultation document?
John Healey: I said in my statement
30 June. I aim to do this before recess.
Q4 Chairman: This week or next week?
John Healey: I aim to do it before
recess. In all likelihood it is going to be next week rather than
this week.
Q5 Chairman: Can I go back to the
beginning! I just want to get a feeling from you as to what you
think are the main disadvantages from the Government's point of
view of the current system of council housing finance.
John Healey: I think they are
as follows. The operation of any national formula tends to take
away a degree of proper local control. I think it takes away a
strong degree of local accountability, and so I think that is
its first weakness. Secondly, it is a national formula and a system
that operates annually, so it undermines the proper ability of
local authorities to plan for the long term, to manage for themselves
over the long term the standard of the housing stock and improvements.
Third, which is in the nature of national formulae as to the way
they apply at local level, I think it lacks openness; it is difficult
to understand; and I think it is a combination of those three
factors which argues the case for me most strongly, that this
is a system that we should now set out to dismantle, although
there are clearly some strengths in the system that we need to
make sure are there in the system we put in its place.
Q6 Chairman: I think the mirror image
of that would be: in what way does the new system, the alternative
system, deal with each of those three problems that you have just
identified?
John Healey: As I set out in my
Ministerial Statement at the end of June, I want a system that
is run by local government rather than central government. I want
a system that is essentially—I suppose you could describe
it as a local self-financing system in which a local authority,
once the starting base was set, was able then to plan the management
standards and improvements for their tenants over perhaps thirty
years, that allowed them to keep and manage all the rent, all
the receipts, any efficiencies, and gives them the scope to borrow
where they might want to make improvements so that they can reasonably
and prudentially sustain that borrowing. Thirdly, with that greater
responsibility comes a greater accountability. In other words,
it is clearer that councils are responsible for the standard of
their homes as well as the standards of the services to tenants;
it is clear councils are responsible for whether or not they build,
whether or not they improve the standards, and generally they
are clearly more responsible for meeting the housing needs of
people in their area. At the moment councils to some extent can
say, "We are hamstrung by central government and the system
of financing here, and it prevents the willing from doing what
is needed and it gives an alibi to the unwilling, who have no
intention of doing what is needed in their area to meet the housing
needs."
Q7 Sir Paul Beresford: It sounds
great, except as I understand it what you may have missed out
is that you are going to redistribute debt, and this, whenever
you do that on a national basis, means that the good and competent
authorities that manage well, that have managed their housing
well and managed their debt well, are going to be clobbered and
the incompetent—and some of those have been incompetent
for decades—are going to actually benefit.
John Healey: There are two points
there, Sir Paul. Firstly, the current system does the same to
some extent; it deals with notional debt and in effect redistributes
it each year across the system. The second is—and I have
tried to get to the bottom of this and I find it quite hard, given
this sort of system has been in place in some shape or form for
sixty or seventy years—the actual debt that housing councils
tend to carry derives from a mixture of circumstances from previous
building programmes in the regimes they might have happened to
have those financed under, the position they are in from the sales
receipts from a certain amount of their stock. It is not a straightforward
argument to say that those with no debt are the most efficient.
I think unless you are going to argue, as the LGA has done in
the past, that somehow central government should take all the
historic debt, which is over £17 billion off councils in
the HRA system—unless you are going to argue that the central
taxpayer should pick up the annual costs of servicing that, which
is over £1 billion a year—and quite honestly at the
moment there are some very good claims on Government money that
is available and I would not get through the door of the Treasury
to argue that case, if I am honest with you—then you have
to say that it is reasonable to look to a system in the future
that can give every one of the 202 authorities a starting baseline.
Part of the flex factor in doing that is how we deal with notional
debt in future, just as in some ways the system deals with notional
debt in the present.
Q8 Sir Paul Beresford: Are you going
to use that redistribution and bear in mind the competence of
the authority and its previous performance, so that you do not
punish those that have done well with their debt and their sales
and so on and so forth, in contrast to those that have resisted
competence?
John Healey: Part of the purpose
of the next stage of the work, which is the consultation on the
approach that I am proposing, will be to tease out some of those
sorts of factors. I have got no wish to set up a system that penalises
councils that have run their stock well and have managed their
debt well, or indeed been prepared to borrow or to find other
sources of funding that has allowed them to continue to build
to meet their needs. That is probably a detailed decision to be
taken a little bit down the track, but the fact that that is a
factor that you feel we ought to be taking into account is really
useful for me at this point in the process.
Q9 Mr Turner: Obviously, debt is
right at the very heart of the process you are proposing here,
Minister. Can you tell us who will decide and on what basis will
the redistribution of debt be set out over the various councils?
John Healey: In general terms,
the consultation report I publish very shortly will set out the
approach we are proposing to take. It will set out some of the
factors that we will take into account. It will probably be two
stages. If we could get to a situation, Dr Starkey, where we could
reach a consistent and fair basis that was accepted by all 202
authorities currently in the HRA subsidy system, I would be delighted,
not least because we would be able to make this radical reform
and dismantle the system more quickly. I suspect, however, that
we are likely to need legislation as a backstop, and so we may
get to a stage where we have to use the provisions of future legislation
in a sense to define and insist upon a starting settlement. I
hope we are not going to need that in most cases. I would love
to think we did not need it in any cases, but that is the process
that we will undertake.
Q10 Mr Turner: I suspect you are
right and that there will not be universal agreement to whatever
decision you make on that. Do you envisage this as being a one-off
transfer of debt of the £17 billion spread across these 202
authorities, or are you envisaging that at some stage in the future
there might be a further redistribution of debt?
John Healey: No, I see this as
a once-and-for-all dismantling of the HRA system, so there will
not be an option for any council to continue that sort of arrangement,
and a once-and-for-all base-lining, if you like, that gives every
council currently in the system the independence, the self-financing
basis on which to be able to—and this is the benchmark,
if you like—to be able in the future to maintain the homes
that they have got to the decent standard that we are bringing
all homes up to. That will be the financial baseline and the standard
of homes benchmark against which the new system will be set up.
Q11 Mr Turner: One of the biggest
difficulties you will have is in persuading those councils that
are debt free to take on somebody else's debt, as they all see
it. How do you propose to persuade them that it is a good deal
for them?
John Healey: As I said to Sir
Paul, in practice those councils, for whatever reason they may
be debt-free now, are essentially carrying part of the burden
of servicing the notional debt that is in the system. If we were
at one and the same time to write off or somehow the Treasury
take—the central taxpayer were to pick up the cost of all
the debt that is in the system, and then simply said to councils
"there will be no balancing as we set you free", then
you would have a situation where, whatever the historical circumstances
and in some cases the historical accident that may be responsible
for the current debt situation, you would have what I regard as
an unfair situation where that council and their cost then of
maintaining their stock without any borrowing or debt to service
would be incomparably cheaper than in some other authorities that
may have some debt to carry down. My concern is not so much for
the councils and their financial situations; but my concern is
for the tenants because, clearly, in the former case they would
be able to get a standard of housing service and standard of home
that was much better for much less than any comparable tenant
in a council that carried that debt and had to service it entirely.
Q12 Mr Turner: Are you anticipating
any additional cost because of this redistribution?
John Healey: We opened up that
question. As part of the consultation we are publishing details
of two pieces of research that we have done as part of the review.
This has looked at the basic question: is there enough money in
the system currently, and is there enough money in the system
if we project forward the current trajectory of rents; and is
there enough money on the revenue side, in other words for the
maintenance and management of homes, and is there enough on the
capital side? It may be that we will need to make some allowance
particularly on the capital side in setting up this new system,
and if that is required we will.
Q13 Mr Betts: Can I just ask on the
debt side! I could see there could be cases with two authorities
side by side, and one authority has got high debts because it
has invested more in its stock, and the authority next door has
not invested as much and therefore has got lower debt. The authority
with lower debt now recognises in the future it has got to do
more investment, but then in that redistribution of debt it gets
the debt that it has not really incurred on its books when it
has had to invest as well in the future. Is that situation not
going to be a problem?
John Healey: Because we want to,
and will, use what I described earlier on as the benchmark of
the standards for Decent Homes and what we will be in a sense
designing the system to be able to service for the long term,
if you had an authority that still had some investment to make
in order to bring some of its homes up to that standard, then
that would be allowed for in the way we set up the system.
Q14 Sir Paul Beresford: It is going
to have the same effect if you have got two authorities that Clive
has mentioned, and then a third one that has managed its stock
and managed its debt and has got capital receipts in the pipeline—is
that going to be reflected positively on them?
John Healey: One of the responsibilities
of this, with local authorities in this, is not to be taking,
as we have done in the current system, the annual snapshot, which
is why part of the preparation for being able to move to a new
system will fall on local authorities because for the first time
they will need to take a view of their stock and plan how they
are going to manage their own housing business, if you like to
put it in those terms, for the next thirty years. So there is
quite a bit of planning and assessment in anticipation of those
sorts of things that will be required of local councils. That
exercise will be part of the basis on which we take our decisions
and then set them free.
Q15 Sir Paul Beresford: Is thirty
years realistic? The Treasury cannot manage one year, so how can
a local authority manage thirty; and how often will they have
to review it?
John Healey: Generally, if you
are dealing with capital assets, you are dealing with long timeframes,
and moving to this new system does have the advantage I originally
explained to Dr Starkey; that it allows that longer-term view
and longer-term planning to take place. Part of the problem with
council housing, particularly since the current legislation was
introduced in the late eighties, is that it has prevented—apart
from controlling what councils can do it has prevented that longer-term
view that it is entirely necessary if you are dealing with something
as long-lasting as people's homes and if you are dealing with
capital expenditure, and if you borrowed for any purpose you would
normally look at pay-back periods stretching to thirty years,
so I think it makes sense.
Q16 Sir Paul Beresford: How often
will you be asking them to review it?
John Healey: As I said to Mr Turner,
I am looking at this as a once-and-for-all re-basing so that we
set a new system up that can last.
Chairman: It appears we have a division.
Unfortunately none of the enunciators are working but we have
a division.
The Committee suspended from 5.07 pm to 5.18
pm for a division in the House
Q17 John Cummings: Under the new system,
Minister, how will you ensure that all councils are going to have
sufficient resources to finance their council housing, and can
you ensure that the more deprived areas will receive the resources,
both revenue and capital, that they need; and will councils have
to make substantial rent rises to remain solvent?
John Healey: There are three questions
there. The answer to the third question is "no". They
will not have to make big rent rises in some areas in order to
remain solvent. The answer to the second question is "yes".
Those areas that are most deprived will be on an even footing
with areas that are not so disadvantaged. In other words, they
will not lose out in the system that we set up. The answer to
your first question is, in many ways, covered by the ground that
we have already discussed in the Committee, Mr Cummings.
Q18 Chairman: How substantial would
you regard a "substantial rent increase", if you follow
me?
John Healey: The question of rents,
we will propose to calculate and project on the existing trajectory
of rents convergence. In other words, in setting the new baseline
we would not be expecting or calculating for large discrepancies
in the sort of rent rises that different councils would need to
put in place in order to fund their housing services from that
point on.
Q19 John Cummings: Is the successful
implementation of the new system dependent upon unanimous support
from local authorities?
John Healey: No. I want to get
rid of this system. In the document that I publish shortly I will
explain the way we will go about that. It is clearly a complex
system. It is a big change to dismantle the HRA subsidy system.
It is hard to see how you could do that in one step. There are
a number of steps that we can take, nevertheless, towards that,
based on the principles that I set out in my written Ministerial
Statement. The consultation document will set out the potential
time line and schedule, for making those sorts of changes.
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