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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 915-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

COMMUNITIES AND LOCAL GOVERNMENT COMMITTEE

 

 

REVIEW OF Council HOUSING FINANCE

 

 

MONday 13 JUly 2009

 

rt hon john healey, mr peter ruback and mr ken swan

Evidence heard in Public Questions 1-84

 

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 13 July 2009

Members present

Dr Phyllis Starkey, in the Chair

Sir Paul Beresford

Mr Clive Betts

John Cummings

Mr Greg Hands

Mr Neil Turner

________________

Witnesses: John Healey MP, Minister for Housing, Peter Ruback, Deputy Director, Local Authority Housing Finance, and Ken Swan, Team Leader, Decent Homes Housing Finance, Department for Communities and Local Government, gave evidence.

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.

Q20 John Cummings: What evidence do you have that councils support your proposed changes?

John Healey: Local government, having been Local Government Minister for two years, I am in a quite happy position to know how strongly local government feel about the operation of this system as it stands. I am in quite a strong position to know that actually local government is in much fitter shape than it may have been ten years ago to take on these sorts of responsibilities.

Q21 John Cummings: What soundings have you taken to support what you are saying, Minister?

John Healey: I could point you to the response of Councillor Paul Bettison, who chairs the Environmental Board at the Local Government Association, a leading Conservative councillor. He responded to the announcement that I made on 30 June by saying: "It is good news that the Government will consult on major reform of council housing finance. We have campaigned hard for town halls to keep control of proceeds from council house rents and sales." That is precisely what I will do.

Q22 John Cummings: Have your changes been discussed in any detail by the LGA?

John Healey: Yes, it was one of my predecessors, as Housing Minister, who I think in 2007 announced what has been a joint review that my department, with the Treasury, has led. That has involved not just the commissioning of specialist reviews and assessments of work, but a great deal of discussion including, and of course with, local government, the LGA.

Q23 John Cummings: So you do not think it is necessary to have a plan B in case some councils do not support the proposed changes?

John Healey: It is necessary, I think, to have legislation in place to require some that may not wish to accept the changes to do so. I think there is a widespread general support for this sort of move, including from local government, and I will set out to work - and the team of officials working with me on this will set out to work very closely with local government and others that are involved.

Mr Betts: How long will it take to bring in the new system?

Chairman: We seem to have another division! We are going to have to adjourn it and come back with the answer in ten minutes.

The Committee suspended from 5.24 pm to 5.35 pm for a division in the House

Q24 Mr Betts: I was asking about the length of time it might take to bring a new system in. Have you got a time frame for it?

John Healey: It is hard to say precisely for this reason: it will depend, I think, on the extent to which we would need to fall back on local powers in the legislation in order to complete the change. That would be the end point. It may well be that we are able to move sooner with some authorities, and there are also steps that we can take immediately towards the ultimate aim. That is why from 30 June I announced, as part of the Statement, that all rent, all receipts from sales on the new-build properties that councils put in place, will be held outside the HRA account and kept in full by the council. It may also be that we are able, in advance of the full dismantling of the HRA system to move to allow councils to retain all capital receipts, whether or not they are from new-build properties.

Q25 Sir Paul Beresford: So you are going to have the two systems running together!

John Healey: No, it would be one system in transition, which is - it is one system being dismantled in bits, but with the aim of totally dismantling it.

Q26 Sir Paul Beresford: So some councils will be using the old system and some using the new. What happens to the debt?

John Healey: Whilst the HRA subsidy system is in place it is hard to see how you could get away from that annual application of essentially a formula and a subsidy or a retention of certain rental income. I am saying that we can free aspects of this up in advance of its total removal, and that is what I am setting out to do where it is possible to do so.

Q27 Sir Paul Beresford: You mentioned primary legislation.

John Healey: Yes.

Q28 Sir Paul Beresford: What will you need that for?

John Healey: It may be when you were out of the room, Sir Paul, but what I explained was that I see this as a backstop. This may be required to ensure that all authorities accept an independent self-financing sort of baseline to work from. I would like to think we could move in negotiation and agreement with all 202 authorities. In practice it may be wishful thinking, and I think legislation will be required in order for us to do that.

Q29 Mr Betts: Would you be able to move for those authorities that are willing in advance of legislation?

John Healey: That is perfectly possible to consider and may well be a view that comes up strongly in the next consultation period.

Q30 Chairman: Will it be made clear in the consultation that were local authorities able to come to an agreement amongst themselves, maybe brokered by the LGA, then the system could be introduced more quickly for everybody?

John Healey: Yes.

Q31 Sir Paul Beresford: Tell us why the tenants might like it, especially those that are going to be carrying debt they would not expect?

John Healey: It is a very good question because with a policy argument like this, it is often tenants that we lose sight of. Where this is an institutional argument between local and central government - as I said to the Committee earlier, the purpose of doing this is that it is clearer to tenants who is responsible for what and it is clearer for tenants who they can hold to account if they are not getting the level of housing service or homes that they think they need or are entitled to; or indeed if the wider housing needs are not being met properly in that area. The combination of these changes and the introduction of the Tenants' Services Authority, that will regulate the housing service standards for all social landlords not just housing associations, will help produce what I hope will be a ratchet for improving standards of housing services that all tenants, whoever their landlord happens to be, in the public sector, will benefit from.

Q32 Sir Paul Beresford: In this age of joined-up government is this going to help building houses, and what is the DWP reaction?

John Healey: What, particularly during the recession, is helping build houses is that the Government is prepared to put investment into building houses, because at a time when we have seen private sector house-building fall through the floor -----

Q33 Sir Paul Beresford: Is this system you are introducing going to make any difference?

John Healey: Well, this system should give local councils first of all greater freedom if they choose to build or commission building of new homes in their area. If we set it up in the right way, it should allow them to use the proceeds of any efficiencies, and potentially a greater borrowing freedom, to be able to make those moves if that is what they choose to do.

Q34 Sir Paul Beresford: So they could choose to build swimming pools if they wanted to, even -----

John Healey: Do you know, I had not really contemplated that!

Q35 Sir Paul Beresford: For the benefit of the tenants, not the council!

John Healey: I am sorry, I beg your pardon! I am sorry, for some reason I was thinking of homes with swimming pools.

Q36 Sir Paul Beresford: No!

John Healey: In the council estates in Rotherham it is quite a big leap. No. Part of the principal reform needs to be to strengthen rather than weaken the ring fence that is around housing. In other words, if tenants are paying rent, in order to sustain the housing services and the quality of houses that are needed it is reasonable that that is an income stream that is used for that purpose rather than potentially diverted to other things that the councils might wish to do.

Q37 Mr Betts: It is something that worries me a bit at present, that there is guidance about what HRA money can be spent on, but we see a lot of councils now that are starting to provide services for council taxpayers in general out of HRA funds, and I just wondered whether that was an issue that you intended to address when you get the new system in place. There may be an issue about clearer guidance, stricter guidance about the fact that the tax should be used for the benefit of tenants and not for the population as a whole?

John Healey: To be fair to you, Mr Betts, it is one of the quite complicated areas, which, if I am honest with the Committee - and you will see this in the consultation paper - we have quite a bit of further work to do. That is essentially to work with local authorities to see how in practice we can set this up in a way that can take account of those sorts of concerns.

Q38 Chairman: Are you suggesting that in the consultation you are setting out the kind of principle on what the HRA funding should be on, and then hoping to get guidance through the consultation as to how to do it?

John Healey: I expect to be able to set out a number of things in the consultation. First of all, the review looked at five different approaches to reforming the HRA subsidy system. I aim to be able to confirm the approach that we think is the one we want to adopt. Secondly, I want to be able to give an indication of the sort of timescales and steps we can take towards that, and how quickly. Third, there are at least three areas where immediately after the consultation we know we are going to have to do some detailed work, including with local government, as the next stage. I expect and aim for the consultation to set out those three areas and how we are going to tackle the sorts of questions that Mr Betts has raised.

Q39 Chairman: When do you expect the consultation to be completed?

John Healey: Three months.

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 an 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 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?

Q60 Chairman: Can I ask Mr Ruback to speak a bit louder! The transcriber is having some difficulty.

Mr Ruback: The overall financing settlement will reflect a level of service and a rent level. The initial financial settlement will reflect the level of service with the rent level at the start built into the initial debt settlement. Beyond then there is scope for landlords to generate efficiencies to increase the quality of service and have a degree of flexibility about rents at an individual level; but there is envisaged to be some framework of central direction at a strategic level to direct the TSA around the rent standard, simply to provide some central control over the overall housing bill.

Q61 Mr Betts: So the TSA will pass on to individual authorities what they are expected to do with their rents!

Mr Ruback: To a greater - it depends on the level of detail but to a greater or lesser extent, yes.

Q62 Mr Betts: I am lost there!

John Healey: Mr Betts, what you will need to do, if you would, is once very shortly I publish the proposed directions for the TSA, standards of services, and financial viability and financial governance, which are the three areas that the TSA under the new Act has the powers in order to operate - the question then - and those will be published in consultation. The question for all of us will be, are we striking the right balance between, in a sense, the objective that I think we probably share, which is that you want landlords to have a certain degree of discretion and freedom, if they do their job well, to be able to see the tenants benefit and to operate in a way that meets whatever the tenants' needs are, with the legitimate interests of the national taxpayer through the national government has in that the rent levels set in the housing association or the council sector clearly have an impact on the level of housing benefit spend. The latter point means that I would take the view that UDI for councils over rent levels is not entirely appropriate, and that there should be some ability for central government to set what Peter has described as the broad strategic framework without necessarily wanting to tie their hands on some of the details in the way that different local areas might want to conduct their rents and housing services policies.

Q63 Chairman: Minister, the Housing Benefits Bill is not determined entirely by people in social housing. In fact they -----

John Healey: No, of course it is not.

Q64 Chairman: --- pay market rents.

John Healey: On the other hand, I think I am right in saying that certainly more than half of tenants in housing associations -----

Q65 Chairman: It is 67 per cent.

John Healey: About two-thirds is the figure that are on housing benefit, so it clearly has a significant impact on it.

Q66 Chairman: You could argue that if a council was able to build much more council housing and do various other things that meant its tenants increased their income and reduced the housing benefit, that that should also be taken into account, but that could be an additional cost, obviously, on the rent. It is not a simple relationship.

John Healey: No, of course it is not a simple relationship, and neither is it a simple balance to strike. But the principle I am trying to set out from is that I want to give as much control and responsibility to the local level and to local government, and therefore get rid of the system at the moment which denies them. That also has consequences that prevents their ability properly to meet needs in their area, and clearly to build or commission new building when needed.

Q67 Chairman: Can we move on to the Decent Homes Programme? Firstly, how do you intend to ensure that the standard of council housing accommodation is maintained when the Decent Homes Programme ends next year?

John Healey: By making the benchmark that we use for the standard of home and maintenance of that standard of home one of the reference points for the baseline arrangement for each of the authorities and their self-financing system. In other words, that becomes the standard against which we expect local authorities to plan for the long term. It becomes the benchmark and one of the elements against which we settle the self-financing arrangements.

Q68 Chairman: Which suggests it may stay at the same level it is at present, when there has been very significant concern about the low priority it gives, for example, to improving the environmental efficiency of council housing.

John Healey: Well, I would not first of all accept that Decent Homes has been either - gives a low priority to energy efficiency and the environment or is without impact on it. Part of the gap you see in the energy efficiency performance or the SAP rating between the public sector housing is in part as a result of Decent Homes. I saw some work a couple of weeks ago that suggested that if tenants are in decent homes, the energy bill saving was on average over £150 a year as a result of the decent homes work. The question beyond that for the future is that if either we nationally, as a government, wish to see, or locally landlords wish to see an improvement beyond the Decent Homes standard at the moment, then that would have to be funded additionally to the arrangement we are looking to put in place as our starting baseline.

Q69 Chairman: Right, okay. At the Decent Homes standard, homes are not at the level of energy efficiency that would be required if we are overall as a country to meet our requirements for decreasing greenhouse emissions and if residential homes are to play their part in that.

John Healey: That is correct, but we are not proposing to build into the removal of the HRA subsidy system allowance for Decent Homes plus; that would have to be something where it required a contribution from the public purse. That would have to be settled and introduced additionally.

Q70 Chairman: By the councils themselves or possibly by central government?

John Healey: It could be either. Clearly, you are very familiar with the way we have tried to approach new responsibilities for councils - we call it in Government the new burdens, principle; so if central government was making requirements on local councils and there is extra cost to the standards and activities that we required of them, then clearly in those circumstances it would be the responsibility of central government to find the funding to allow that to happen. That would be additional to and not built into the reform of the HRA subsidy system as we kick it off.

Q71 Mr Betts: You have said that you wanted a level playing-field between stock transfer and stock retention. Undoubtedly, where there has been a stock transfer it has been possible for housing associations in many circumstances to bring in through their private funding arrangements extra resources and more money has been spent on decent homes work than ALMOs have been able to afford. Indeed, on the environmental side ALMOs have been restricted to the 5 per cent of the total money they get to be spent on improving environmental standards in general. So how are we going to achieve this neutrality or level playing field between stock transfer and stock retention? Does it mean that in the future authorities that keep their stock will be better funded in order to bring them up to the same standard as housing associations?

John Healey: No, the neutrality, as you put it, the fairness in the system, as I might put it, means that there may well be advantages in stock transfer. There may well be tenants in current housing stock that decide they want to see that sort of move. What I think is right and only fair is that the terms of any transfer are no more advantageous or beneficial than would be the future self-financing circumstances of that council and their stock once we changed the system.

Q72 Mr Betts: I do not think I have thoroughly understood that.

John Healey: Quite bluntly, there have been those who said, "Look, in order to encourage or to support stock transfer in the past, the financing arrangements that the Government has been prepared to put in place are greater and more advantageous than if the stock was maintained by the council." What I have said in my statement is that whether or not that is the case - and I have not been involved in any of the decisions on previous transfers - I think it is reasonable to say that the decision on stock transfer needs to stand or fall on the advantages for tenants not on the terms of the transfer that the Government is prepared to support; so it will be judged against the situation that would be the case if the council would retain the stock and be able to manage it on a self-financing basis.

Q73 Mr Betts: How would those authorities be affected who have not transferred their stock and not gone to an ALMO because tenants have voted against any proposals and have effectively got their stocks still owned and managed by the local authority: are they going to get some benefit now, because so far the Government has not been willing to fund the Decent Homes Programme with directly managed -----

John Healey: I hope they will. There is £350 million on the table from Government as a result of the |Prime Minister's housing pledge a fortnight ago. For councils that want to build, to bid to build, there is for the first time the ability to draw down the social housing grant for councils in a way they have not been able to do before now. I am looking by the end of the month to be able to make decisions - sorry, September to be able to give first decisions on those because the bidding round closes at the end of the month. As part of the announcement I made on 30 June there is an end to any rent or receipts income from new build being sunk into the HRA subsidy system, so progressively we are looking to remove both the disincentives and the barriers that have in the past stopped councils being able to say, "Look, we need more homes in our area and we need more homes particularly for people to be able to afford rent; and we are going to play a part in building those."

Q74 Mr Betts: When you talk about the equity, between stock transfer and stock retention, by stock retention you meant with or without an ALMO. If local authorities want to choose how to manage their properties then they will not be financially disadvantaged in the future.

John Healey: Yes.

Q75 Mr Betts: Going on to ALMOs, which I have a particular interest in, presumably you see that ALMOs will remain an important part of the new system. Do you see their role evolving or changes, or do you have an open mind?

John Healey: I do see them as an important part of the system in the future and I do see them evolving in the role that they play and what they might do, depending on what their board and their tenants decide to do.

Q76 Mr Betts: You will be willing to look at suggestions that come forward! The National Federation of ALMOs is putting forward quite a few ideas on this, and I think there are consultations going on now in many ALMOs about beyond Decent Homes where they want to go to in terms of management and organisational arrangements.

John Healey: Indeed, I will.

Q77 Chairman: Minister, can I clarify about funding for major repairs, so this is outside the Decent Homes Programme. Do you think there will be need for additional plans for funding major repairs?

John Healey: By "major repairs" do you have in mind what has been outside the Decent Homes Programme in terms of things like lifts or common areas?

Q78 Chairman: Yes, not within -----

John Healey: Is that what you had in mind by "major repairs"?

Q79 Chairman: And major repairs on the houses themselves, on the properties themselves, not just lifts in flats but major repairs and refurbishments of housing over and above the Decent Homes Programme.

John Healey: No, I made clear earlier on, Dr Starkey, that the benchmark level of standard of the homes we will be looking to use is the Decent Homes standard; so if it is over and above that, that would not be taken into account in the way we set up the new system.

Q80 Chairman: But some councils will have a backlog of major repairs that they have not yet done - not to do with the Decent Homes standard but to do with other aspects of their particular housing stock.

Mr Ruback: Very briefly, in the consultation document we are expecting to set out proposals around the level of funding needed for major repairs to maintain the stock at the Decent Homes standard; secondly around types of work including lifts and common parts which were excluded from the standard. Then in the written Statement the Government said there will be a continuing need capital grant funding to deal with backlogs.

John Healey: Just to be clear, in other words it was very clear in my statement. Our commitment to complete the Decent Homes Programme is absolute.

Chairman: Yes, we understand that.

Q81 John Cummings: What implications do your new proposals have for housing associations, Minister?

John Healey: I am not sure. Am I missing something? The proposal for the dismantling of the Housing Revenue Account system is principally to deal with the constraints on councils being able to finance and manage their own housing and housing services. That is its purpose. To the extent it puts councils more on an even footing with housing associations, I guess there may be some collateral competition between the two sectors. I think that is probably a good thing in the long run and likely to be a benefit to the tenants.

Q82 John Cummings: Do you have an open mind, Minister?

John Healey: I have always got an open mind ...

Q83 Chairman: Have you examined whether the TSA can apply common standards across housing associations and councils, whether any decisions you are proposing to take in relation to council housing would have implications for housing associations?

John Healey: That general question is part of the consideration about extending TSAs' remit to council tenants and council housing services as well as housing associations. To pick up Mr Cummings's point, if there are points that come back through the consultation, points of concern or arguments to suggest we should do this in a particular way or go further, then I have an open mind about this, including the comments the Committee might have.

Q84 Chairman: Thank you very much, Minister. I am sorry for the interruptions earlier on, but I think we have had a very useful discussion and we look forward to even greater clarification when the housing document comes out.

John Healey: I will make sure that the Committee gets the first copy.

Chairman: Thank you very much.