Examination of Witnesses (Question Numbers
40-59)
JOHN HEALEY
MP, PETER RUBACK
AND KEN
SWAN
13 JULY 2009
Q40 Sir Paul Beresford: Can I come
back to my joined-up government question? The second half of it
was the reaction of DWP to the freedom that councils will have
on rent.
John Healey: Freedom on rent?
I thought you were asking about the DWP reaction to more build
and more jobs that get created from that!
Q41 Chairman: No, housing benefit
was what Sir Paul was elliptically getting to, or the budget of
housing benefit.
John Healey: Essentially, probably
the concerns about housing benefit demands link more to a trend
in stretching on rents rather than the operation of a financing
system that maybe HRA or may not be HRA. That is probably the
most decisive factor for any housing benefit costs.
Q42 Chairman: Do you mean the market
rents in the private sector?
John Healey: No, I am talking
about rents in what you might term the social sector—housing
associations or councils.
Q43 Mr Betts: At least for the time
being, until we get the new system running or there are transitional
arrangements, there is still going to be the possibility of a
national service being generated. Is that going to be ring-fenced
for council housing while it exists?
John Healey: Two things: first
of all, in this year we do not expect a surplus. Secondly, last
year, in which there was a surplus, was the first time for a number
of years there was a surplus. Third, in many ways what was a fairly
modest surplus last year has been taken account of in what is
an enormous increased investment in building homes that people
can afford to rent and buy, and so that in a small way could be
seen as a contribution towards that.
Q44 Mr Betts: In the future, those
surpluses will be retained by individual authorities—individual
authorities that perform better and more efficiently and generate
that surplus. Will there be any restriction on what councils can
use their surpluses for? Will they have to use it in council housing,
and will they have to use it as a basis for increasing their borrowing?
John Healey: I think there are
two elements to that. The first is— it sounds as if you
are asking me, Mr Betts, within a broad ring-fence for housing
how could those surpluses be used. Is that correct?
Q45 Mr Betts: Or will it be restricted
to council housing, or will it be possibly used for other housing
purposes or purposes beyond housing?
John Healey: We have yet to take
final decisions on that. I suppose my principal position on that
would be that we want the councils, however they choose to manage
their housing for their tenants, to be in a stronger position
to be able to build or commission to build or to secure the sort
of housing that meets the needs in their area. In a sense, that
might broadly be within a housing ring-fence. The question of
whether it could be used to sustain borrowing—we are looking
hard with the Treasury at the moment at the case for whether and,
if so, how, to allow, under the changed system, greater freedoms
for councils to be able to borrow prudentially in order to fund
some of the developments including building that they may want
to see in their area.
Q46 Mr Betts: And maybe borrowing
against a surplus that is generated?
John Healey: One of the strengths
of housing is that particularly rental streams are pretty predictable
and pretty long-term and in many respects they are therefore ideal
as a source of revenue in order to support borrowing. Whether
you term those reliable rental streams or surpluses, it has certainly
been argued by local government that there is a strong advantage
in allowing greater freedom on the borrowing front, and that is
exactly what I am considering at the moment.
Q47 Mr Betts: Moving on to capital
receipts, again I understand local authorities should be able
to retain their capital receipts from right-to-buy and other sales.
Generally speaking, I am in favour of local authorities having
things devolved to them and making their own decisions; but is
there a potential danger here that receipts can be generated in
one area, but real housing need, the need to increase the building
programme, could be in another area, where receipts are not generated,
and central government will not then have the flexibility to ensure
that money goes to those areas where there is a need and willingness
to develop?
John Healey: I think it is perfectly
possible that that position might exist. I do not have a ready-made
answer for you on that. I suspect that that will be something
that may come out during the next three months of the consultation,
and it may well be, particularly if that is a view of the Committee,
something we will need to consider as we come to design more clearly
the details of how to make the change.
Q48 Sir Paul Beresford: There is
a contrary aspect of that, and that is that those councils that
are competent in promoting the production of capital receipts
should not lose them, because then they can turn them round to
look after the people in their own area, and their own tenants.
John Healey: Indeed, and under
the new system they would not lose them.
Q49 Sir Paul Beresford: Good. Are
you going to have any restrictions on capital receipts? Can they
flow across, or is it going to be totally ring-fenced in both
directions?
John Healey: As I said to the
Committee earlier on, in contemplating on the changes we are looking
at here, there is probably an argument for strengthening rather
than weakening the ring fence. How we do that and to what extent
is part of the decisions we will need to take down the track.
Q50 Mr Turner: Is it the intention
that you will continue to move towards rent convergence with council
rents and registered landlords' rents?
John Healey: In broad terms, yes.
Q51 Mr Turner: Is it the intention
under the new scheme that with the flexibility which councils
have that the Government will cap excessive rents?
John Healey: I am not sure whether
one of my colleagues wants to come in on that. I am caught, in
a way, Mr Turner, because as I said in my opening remarks, some
of the detail on what might interest the Committee will be clearer
when we publish the consultation. Other points that you are very
clearly and reasonably raising this afternoon will be matters
we can take into account and will need to do so at subsequent
stages in the process of reform.
Mr Ruback: The Government has
said that since the council housing stock will come under the
influence of the TSA in due course, it would expect to set a standard
for rents that would cover the council sector.
Q52 Chairman: I am sorry, I am having
slight difficulty in hearing. Are you saying that the TSA could
or might control excessive rents?
Mr Ruback: The TSA has ability
to set standards and the Government has the ability to direct
the TSA on standards in three areas, including on rents and it
will certainly expect to direct the TSA on rents when it takes
over the regulation of local authority housing.
John Healey: Very shortly, I shall
publish the next stage of that process in setting out the directions
that the TSA and the powers of the TSA will have on rents, as
well as on standards of housing services.
Q53 Mr Turner: You said right at
the beginning—and I agree with you—that one of the
things you want to do with this is to give local authorities greater
control and transparency and power over the rents they set and
the standard or service they provide, and this is all geared to
letting them do that; and yet at the same time you are going to
be saying to them, "The rent that you will charge for your
particular house will be X pounds per week dependent upon the
formula". It seems to me that this flies against that, in
as much that either a very efficient or a very inefficient council
is going to have decisions made for it rather than allowing them
to either reduce their rents because they are an efficient council,
or face the wrath of their tenants of having to raise their rents
because they are an inefficient council.
John Healey: The principal step
will be in setting up the baseline.
Q54 Mr Turner: Yes, I can understand
that.
John Healey: For each local authority.
It will be the anticipated trend or trajectory of rents which
will be part of that equation. Beyond that, there will be the
broad powers of the TSA, if necessary, to deal with excessive
rent rises, as part of their remit. It will less be as it is at
the moment a strongly delivered central government element of
the system.
Q55 Mr Turner: I am not sure where
we are up to now in terms of convergence, but let us say it is
2020.
John Healey: Closer than we were
six years ago!
Q56 Mr Turner: That is true, but
let us just say 2020, for picking a figure out of the air; we
reach convergence at that point and you have set this system in
place and the baseline has been drawn. Are you going to continue
to have that rent convergence and structure from the central government
area saying that it is going to be £50 a week; or are you
going to allow the local authority, because it has managed the
stock effectively, and its maintenance and management costs and
all the rest of it are less than the average—are you going
to allow them to charge £48 a week because they are that
efficient, or are they still going to have to charge £50
and create a surplus, which they may not want to use on social
housing stock because they are reasonably good at doing what they
do?
John Healey: First of all, I would
hope it is not 2020 by the time we achieve the sort of convergence
we are looking for.
Q57 Mr Turner: It is plucking a figure.
John Healey: Secondly, that far
out it is quite difficult to anticipate precisely how the Tenants'
Services Authority might exercise its powers under the direction
I am proposing for it. I will be interested to see in the consultation
the views that we get about the benefits that there may be to
tenants on reduced rents if they have a public sector landlord,
whether a housing association or in this case a council, that
can provide good services but can do it efficiently.
Q58 Mr Turner: It seems to me that
it flies against that devolution of decision-making to have that
structure once we have reached convergence.
John Healey: I can understand
that argument.
Q59 Mr Betts: Individual authorities,
ALMOs, housing associations, or whatever, will be able to come
to an arrangement, if this is going to be the case, when they
might have an agreement that service levels are going to rise,
and rents will be able to rise accordingly. If that is the consultation
I hope authorities or individually tenants may be able to choose
to have work done on their properties in return for an increase
in rent to pay for that particular improvement in the service
of their particular home. Will those sorts of flexibilities be
allowed under the new system?
Mr Ruback: Certainly the finance
system could cope with that sort of flexibility and the standards
framework of the TSA was always envisaged to have some of that
sort of flexibility, with the Government being able to direct
it at a strategic level. The one thing that has always been an
issue there is the fact that since the housing benefit bill will
pick up a proportion of the rents that there should be a degree
of control over the aggregate benefit bill that will emerge if
rents were to rise very fast to reflect a much higher quality
of services. Some flexibility was always envisaged within the
framework. The standards that the TSA sets will be under the Government's
strategic direction.
Mr Betts: How is that national control
going to relate in practice and impact on a local authority and
the council and its tenants, or housing associations' tenants
to make decisions about service standards as a whole or with regard
to particular tenancies?
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