Examination of Witnesses (Questions 1-75)
DEPARTMENT FOR
COMMUNITIES AND
LOCAL GOVERNMENT
AND HOMES
AND COMMUNITIES
AGENCY
1 FEBRUARY 2010
Q1 Chairman: Good afternoon. Welcome
to the Committee of Public Accounts. Today we are looking at the
Comptroller and Auditor General's Report on The Decent Homes
Programme. We welcome back Peter Housden, who is Permanent
Secretary of the Department for Communities and Local Government,
Sir Bob Kerslake, Chief Executive of the Homes and Communities
Agency, and Mr Richard McCarthy, who is Director General of Housing
and Planning. Obviously, Mr Housden, any programme that improves
social housing is very welcome and improvements are obviously
being delivered, but it is a very big programme costing £37
billion and, therefore, we have got to hold you to account on
value for money, which is our job. The first thing I would like
to ask you, Mr Housden, is would you refurbish your own home without
knowing what it was going to cost?
Mr Housden: Good afternoon, Chairman.
Certainly I would be looking for an estimate that would give me
an accurate picture of how much I was likely to spend.
Q2 Chairman: Good. Shall we look
at paragraphs 3.2-3.4 of the Report. It seems to me, if you look
at that paragraph, that you launched this Programme without knowing
how much it would cost. How could you allow that to happen?
Mr Housden: My sense of this,
Chairman, is that the principal concern was about the quality
of the local authority housing stock, and using the English Housing
Condition Survey the Department was able to get a serviceable
estimate of the scope of repairs and improvements that would be
required in the local authority sector to do that. The Registered
Social Landlords (RSL) sector, I think, is in much better condition,
much more likely to be able to reach Decent Homes within its own
resources. Going forward from that £19 billion, any more
detailed estimate would have rested on such a series of assumptions
as to have been of little use in the conventional sense of an
estimate against which you can compare subsequent expenditure.
I think you will have seen from the Report, which draws this out
very fairly, that the programme actually saw Decent Homes works
nested within wider improvements that the landlord was intending
to make both within the property and to the wider estate or wherever
the properties were situated.
The Committee suspended from 4.35pm to
4.40pm for a division in the House.
Q3 Chairman: I am trying to understand
your answer and it has not been made any easier because we have
been interrupted. If we look at 3.2 it says: "At the start
of the Programme, the Department did not attempt to calculate
an estimate of the total cost to local authorities and Registered
Social Landlords of meeting the Standard on social housing stock
up to 2010". It goes on to say, in fairness to you: "It
did assess the scale of the challenge for local authority owned
stock, estimating that the total cost of improving such stock
would be £19 billion". What I understand from talking
to the NAO is what this means is you did work out some sort of
costs of upgrading but not the total cost. For instance, you did
not work out the costs of registered social landlords or the fact
there were new costs with the contingency coming on schedule.
This is like painting the Forth Bridge, is it not, as soon as
you repair one lot a new one comes on. That is why we seem to
have ended up with this first sentence. Surely you should have
done that.
Mr Housden: I think
what the Department did do was to provide the Government with
a serviceable estimate which it could use for its public spending
priorities and deliberations really. The local authority sector
was where the problem was concentrated. The evidence was suggesting
that the RSL sector would be able to reach decency standards throughout
their own resources, and the evidence proves they have been able
to do that. We were focused on the right thing, the local authority,
we gave a good estimate of the likely cost of achieving those
works, and it worked for the Government's purpose. If you take
your logic further and look at what would have been required to
establish a total estimate, you would have needed to make a whole
series of assumptions about the way the work was actually going
to be conducted. I am sure we will get on to that type of detail
later in the hearing.
Q4 Chairman: We will try and get
through to that. Mr McCarthy, you have had experience of this
because you were Chief Executive of the Peabody Trust. What was
it like as a social landlord being landed with a programme when
nobody knew how much it would cost?
Mr McCarthy: I think that we recognised
as a landlord, as many did in the RSL sector, that the responsibility
rested with us and not the Department to be clear about the needs
to improve our stock to meet what was accepted as a reasonable
basic standard for social housing. I am doing the best I can to
think about how I received that as a landlord and I felt the responsibility
rested more with us than anyone else.
Q5 Chairman: Mr Housden, going back
to you, please look at figure 14 and the refurbishment standard
adopted in comparison with the Decent Homes Standard. We are looking
at ALMOs now, which are Arms Length Management Organisations.
Obviously there was some enthusiasm mildly in the Department,
as I understand it, to try and get these up and running. If you
look at that figure, almost a quarter of ALMOs have refurbished
their housing to a significantly higher standard. Would I be right
in thinking, therefore, that you gave them too much money?
Mr Housden: One of the policy
intentions of The Decent Homes Programme was to lever in—in
the jargon—additional resources from the landlords, in this
case the local authorities, and to give them scope to exceed those
standards. They were only a minimum threshold designed to trigger
action by the landlord; they were not a specification or a one-size-fits-all.
I think a further important part of the programme here, Chairman,
was about tenant choice and the dialogue that went on with tenants
about some of the strategic choices about funding major works
but also some of the detail of what was to be done in individual
schemes. That is a very important part of the overall programme
here. ALMOs, therefore, are being responsive to the ambitions
of both their host local authority and their tenant group.
Q6 Chairman: If we look at 3.24,
I suppose this is backing up what you say: "The Department
does not consider such comparisons would have been useful ...
", but why did you just not go back and see what it really
cost so you could work out how you do it better in the future?
Mr Housden: I think that is a
fair point. We did some work in the Department to look through
research at the programmes that were being instituted in different
places, but I think the Report draws out fairly that we could
have done more in that area. I am quite clear that the frontloading,
if you like, of the value for money assessments in the programme,
that no doubt we will talk about, was the right way to engineer
value for money into this programme from the outset. I do think
we could have done more. We did some, and the evaluation we have
now commissioned will help shed some light on these programmes.
Q7 Chairman: Sir Bob, you have been
in charge of these ALMOs since December 2008. What have you been
doing to ensure they do not receive too much money?
Sir Bob Kerslake: We are continuing
the process of assessing need for ALMOs coming on to the programme
in the same way as the Department did, and continuing that pretty
rigorous process. Secondly, what we have done in the current year
is to work with a group of ALMOs, 15 selected ALMOs, to go through
in a bit more depth their business plans and funding requirements
in the process of delivery, and we are using that exercise to
get a better understanding of delivery on the ground and costs.
That is what we have done since we have taken on the role. We
have continued the tight assessment of those being approved for
funding and have developed the work on understanding the underlying
costs of delivery.
Q8 Chairman: A last question for
you, Mr Housden. Obviously this is one area which is unlikely
to be protected from public expenditure cuts. How are you going
to ensure that the stock does not start getting worse again so
we need another Decent Homes Programme in ten years' time?
Mr Housden: I make no presumptions,
Chairman, about the Government's future spending choices. I think
the important thing from our point of view is to make sure that
the level of rents and funds available to landlords, both in the
RSL and local authority sector, is sufficient not only to complete
the programme but to maintain the stock in an appropriate condition
going forward because the absence of those factors have led to
this state of degradation.
Q9 Chairman: So the weight of refurbishment
will have to be carried by increased rents on people, not by government
money?
Mr Housden: A mixture.
Mr McCarthy: May I add something
to that, Chairman. This is a two-fold answer. First of all, just
to recognise that by the end of the current Spending Review period
we will have spent about three-quarters of the money required
for ALMOs. That is not to diminish the importance of seeing that
programme through to an end. Perhaps more importantly is the review
that we have now embarked on and the consultation last July on
the future housing finance system for local authorities. The intention
is to move to a self-financing system which will give local authorities
the resources and balance of debt and income to maintain their
properties in the future to prevent the recurrence of a need for
another Decent Homes Programme. That will be done principally
by moving debt so it is more equally spread across the country
and, secondly, increasing the major repairs allowance significantly
to enable authorities to maintain their properties at the correct
standard. We are trying to move from a big capital programme,
which has not completed yet, into one which is sustained through
the local authority sector itself through its own income and resources.
Q10 Chairman: The local authority
sector will be under equal pressure, will it not?
Mr McCarthy: What you have at
the moment is a very uneven distribution of debt which means some
local authorities operate their accounts in surplus and that surplus
is used to balance deficits elsewhere. Through the mechanism that
we have proposed and are now working on, and will say more about,
I hope, in March, we are trying to balance that debt to create
freedom within current projections of income, not significantly
increasing rents, to enable housing to be sustained with rental
income as it currently is with normal levels of increases going
forward. We think the maths and the modelling we have done shows
that can be achieved. We are working our way through the consultation
responses and the Housing Minister, John Healey, is hoping to
say something in more detail on our proposals in March.
Q11 Chairman: I am not sure I understood
your answer, Sir Bob. You are carrying out this assessment, but
what is it showing? Have they been over-funded or not?
Sir Bob Kerslake: I do not think
they have been over-funded. I do not think there is any evidence
that supports that view. What I think the evidence will tell you
is that many authorities, as Peter has said, have brought in other
resources in order to do more than the basic standard. We do now
have a pretty good understanding of how much things cost and what
efficiencies can be achieved, so the funding is pretty tightly
drawn, and if authorities want to go beyond that they have to
look to other sources of funding. Earlier I mentioned specifically
the work we are doing in order to test costs on delivery and we
are also continuing with the Social Housing Efficiency Programme
which brings together groups of landlords to see if they can make
procurement savings and drive down costs that way. Through our
regional teams we also engage in direct dialogue with local authorities
about how they are delivering The Decent Homes Programme. There
is a whole series of ways we can both test how much it is costing
when they come into the programme and how they are delivering
on the ground.
Q12 Chairman: There is an implication,
Sir Bob, that this was a political imperative to get ALMOs off
the ground, to get this work out of the clutches of local authorities'
direct works departments and, frankly, they were given sweeteners.
Sir Bob Kerslake: If that is an
implication I do not think it is correct. The scale of the works
that were involved here were way beyond the reach of most direct
operations in local authorities. This was always going to be something
that would involve the procurement of work through private contractors.
If you take the case of my own authority before I came into this
job, in Sheffield, we were talking about £1 billion of spend,
a huge programme. I do not think there is any issue about sweeteners.
What I think there is an issue of is as the programme developed,
understanding of costs and how to improve procurement grew and
local authorities worked collaboratively to drive efficiencies
in the programme. There is pretty good evidence to back that up.
Chairman: I know Austin Mitchell has
taken a longstanding interest in ALMOs, so I will turn to him
next.
Q13 Mr Mitchell: Thank you. I am
getting a bit confused actually because it seems to me you do
not really know how much money is going to be necessary to bring
the rest up to the Decent Homes Standard and you do not know how
many homes have been brought up to the Decent Homes Standard.
It looks pretty curious. Paragraph 2.14 tells us: "Figures
for the number of properties made decent also include properties
that are non-decent but where tenants have refused the work or
demolition is planned." That must be a substantial number.
You do not really know how many homes you have made decent.
Mr Housden: I think, Mr Mitchell,
we can reliably indicate the year-on-year improvement in the overall
number of decent homes in the social stock.
Q14 Mr Mitchell: If Marks & Spencer
did the accounts on the same basis they would be in a financial
disaster.
Mr Housden: With respect, this
is not retailing. The important thing is we are able to have a
good and accurate measure of the level of decency within the social
housing stock and are able to estimate the gross number of houses
which have had Decent Homes work done on them.
Q15 Mr Mitchell: My understanding
is you do not know whether too much has been spent on the ALMOs
and too little on local authority stock, you do not know how much
has been spent on the housing association stock, and you do not
know the numbers either, so you cannot tell us anything about
value for money.
Mr Housden: As the Report sets
out, Mr Mitchell, we can tell you the numbers and rate at which
the housing stock has become decent. Through the measures that
Bob Kerslake was just describing—
Q16 Mr Mitchell: 2.4 says that your
estimate based on landlord returns is at 2009 the non-decent housing
had fallen by 1.1 million but the English House Condition Survey
said in 2007 that only half a million had been made decent. That
is a wide gap between those figures even though there is two years
of difference.
Mr Housden: As the Report indicates,
we found that the landlord returns are the most efficient and
valid way of measuring progress on the Decent Homes Standard.
The English House Condition Survey uses different definitions.
I think the Report indicates this and that the landlord returns
are the most reliable.
Q17 Mr Mitchell: If I was living
in one that had one definition in one survey and a different definition
in another survey I might not be too happy. The final figure looks
to be that you will not reach the target. It was a manifesto commitment
for the Labour Party and a Government target. You will miss it
by 305,000 houses this year. How would you feel if you were living
in one of those 305,000 houses?
Mr Housden: The need and its wish
to complete the programme is very clear to the Government and
that commitment has been given by John Healey on behalf of the
Government. The Report sets out fairly the reasons both why we
are on track to achieve 92% over this period, which is a very
considerable success against target, and the factors that led
to us not achieving 100%.
Q18 Mr Mitchell: Will those local
authorities that do not meet the target be funded to reach it?
Mr Housden: The programme, as
it is set out, is open to local authorities and we are in active
discussion with those authorities.
Q19 Mr Mitchell: Will they be funded
to reach it?
Mr Housden: Within the scope of
the programme.
Q20 Mr Mitchell: I ask because I
spent ten days at the end of last year in High Court in Orchard
Park in Hull, which is one of six multi-storeys. The local authority
there says because they cannot get the money to bring them up
to Decent Homes Standard, and they were pretty crappy(sic)
I tell you, they have got to take out a PFI and pull them all
down and sell off some of the properties, thus rendering about
half the population of those flats homeless. That seems to be
a very curious way of maintaining the Decent Homes Standard.
Mr Housden: There is no doubt
that many of the schemes have involved large scale complex works
with challenging financial arrangements underpinning them. What
we are able to do now through the Homes and Communities Agency
is to have a serious conversation with that local authority about
the options that are available to them under the programme. It
is manifestly clear that the vast majority of local authorities
have been able to make this programme work for them and have levered
in additional resources. Of course, we stand ready to have, and
indeed are having, conversations with all those authorities where
there are works outstanding.
Q21 Mr Mitchell: A discussion with
the local authority about the options for reaching the programme
is about the same as discussions with a person who is about to
be hanged as to whether they want an English breakfast or a Continental
breakfast if you are not going to fund either, and you are not
making any commitment to fund it.
Mr Housden: The Government has
made its intentions to fund the programme to completion clear
and discussions continue with local authorities where there is
work outstanding about the best options for them within the parameters
of the scheme.
Q22 Mr Mitchell: The Chairman mentioned
the difference in funding between the ALMOs and the local authorities
and that is quite substantial. The table on page 33 shows the
average cost of bringing the ALMO properties up to Decent Homes
Standard was £10,000, whereas for retentionist local authorities
which provided the money themselves it was £6,000. This seems
particularly unfair since the Government has had a policy of trying
to force councils into getting rid of their stock and privatising
it, handing it over to housing associations, and for that purpose
they have kept them short of funds, they have kept £1.6 billion
a year out of housing revenue accounts, they have taken half a
million a year out of right-to-buy sales from the local authorities'
housing revenue accounts, they have squeezed them in all this,
they took £13 billion for daylight robbery, all this money
taken from the housing revenue accounts and then you are saying
to retentionist councils, "You must provide the cost of reaching
the Decent Homes Standard yourself, we are not going to help you".
That is a policy of discrimination to force them to privatise,
is it not?
Mr Housden: I do not recognise
the privatisation aspect of all of this. Richard McCarthy would
like to talk.
Mr McCarthy: Thank you. As you
well know, the Government has provided money to authorities through
local authority supported capital expenditure and through the
major repairs allowance.
Q23 Mr Mitchell: Which was under-funded,
of course, according to your own research.
Mr Housden: We have continued
to look at that and, as you know, we have indicated that under
a self-financing regime that would need to increase.
Q24 Mr Mitchell: It was 50% under-funded,
just for the record.
Mr McCarthy: Thank you. We provide
that money and that resource to local authorities. Some authorities
need to spend more than the money that they can achieve through
that funding mechanism on bringing their homes up to a Decent
Homes Standard. The Government and ministers made clear, and have
continued to make clear through changes of ministers, that there
were three options to attract additional money. One was stock
transfer, which does involve the ownership of the homes transferring
to a housing association or similar body, non-profit making, and
also involving a statutory tenant ballot, so ultimately it places
the power in the hands of the tenant.
Q25 Mr Mitchell: Yes, but the effect
of that is you are saying to retentionist local authorities whose
tenants may well have voted to retain the housing stock, not to
privatise it, "You're going to be punished because we're
not giving you the same money that the ALMOs are getting to bring
your homes up to a decent standard. That's your punishment".
Mr McCarthy: That is exactly why
ministers introduced the two alternative mechanisms. Under PFI
and ALMO structures your tenancy does not change, you remain a
tenant of the local authority. What happens under an ALMO is that
what ministers have said, and have consistently said, is if you
want to retain your stock and want more money and do not want
to use a PFI structure, you can do that but you must go through
an ALMO route and that way you must demonstrate you have reached
a higher standard of housing.
Q26 Mr Mitchell: If you are naughty
and you do not do what the Government wants you are going to get
less money. That is still the effect of what you are saying, is
it not?
Mr McCarthy: That is the effect.
If you choose not to take one of those options you have less money.
Q27 Mr Mitchell: If you go to a PFI,
which you suggest is an alternative, you are going to have to
sell off some of your housing stock.
Mr McCarthy: Not necessarily.
Q28 Mr Mitchell: Certainly in the
Orchard Park development the proposal is to sell off half of it,
thus rendering about 600 people homeless. That seems to me a crazy
system, to reduce the amount of public housing for rent when we
desperately need more because we have got 1.8 million on the housing
lists.
Mr McCarthy: Any local authority
exercising its options appraisal has to consider what it thinks,
with its tenants, is the best route to pursue that balances accountability,
delivery against the standards that are required, and then it
has to make that decision. If it decides, with its tenants, that
it wants to retain its stock and, therefore—
Q29 Mr Mitchell: Its tenants have
decided to be made homeless?
Mr McCarthy: —does not want
to pursue one of the options for introducing additional money
whilst allowing tenants to remain a tenant of that local authority,
then it might find in some cases it has to sell some of its homes
in order to get the funding it needs. That is for a local authority
to decide.
Q30 Mr Mitchell: You are happy to
reduce the amount of capital it has anyway.
Mr McCarthy: No.
Q31 Mr Mitchell: That means you are
putting it between—I am sorry, I did not go to Eton—Scylla
and Charybdis in this equation because you are saying, "We're
not going to give you the money, you have either got to sell off
stock or make your tenants live in decrepit conditions",
like the ones I encountered in High Court.
Mr McCarthy: No. Already the Government
has provided £22 billion additional funding to support The
Decent Homes Programme. The Government has put a lot of money
on the table. Your challenge may be why did you not provide further
options—that is probably what it is—and ministers
were clear that they did not want to do that. We have delivered
the programme as agreed by the Government of the day and successive
ministers have continued to pursue the options which have been
set out. These are quite broad in that under some of those options
you can remain a local authority tenant.
Sir Bob Kerslake: Can I just add
three points. The first is to reinforce the point that has been
made by Richard that the ALMO model, as the name says, is an arms
length management arrangement, it is neither privatisation nor
moving out of the local authority ownership. We do have to be
clear about this point.
Q32 Mr Mitchell: The ALMOs were John
Prescott's compromise, were they not, because the privatisation
programme was failing, so he said, "I want to do another
thing, and that's ALMOs" and now they are being pressured
into becoming housing associations or selling off to housing associations.
Sir Bob Kerslake: No.
Q33 Mr Mitchell: Is there no pressure
on them to become housing associations?
Mr McCarthy: Absolutely no pressure
at all, it is their choice with their authority as to whether
they pursue that or not.
Q34 Mr Mitchell: There is certainly
pressure on them to sell off some of the stock but that is what
is happening in, say, Camden. Yes?
Mr McCarthy: No. Camden is an
authority that has chosen to retain its stock. Its tenants voted
against the ALMO, as you well know, and they are now looking at
arrangements to rent some of the homes on a temporary basis in
the private rented sector in order to generate additional income.
Q35 Mr Mitchell: It could be from
those figures that are on table 13, page 33, that you have given
too much money to ALMOs. Sir Bob, would you like to comment on
that, and how you know, if you have?
Sir Bob Kerslake: The point I
would make on this is that judgments were made by local authorities
whether they went down the ALMO or transfer route according to
the scale of the task they had to do, and many of the authorities
that have done the process of Decent Homes as retention authorities
did so because the challenge was less for them and they could
do it within their own resources, so I am not at all surprised
that the numbers come out as they do. Those who clearly could
not fund it from their own resources had to look at one of the
options available from the Government and, therefore, it is not
at all surprising that the costs come out higher. I would make
two other points here really. When you are coming to make a decision
about funding Decent Homes in any authority, it is not simply
about how much money might be available; you also have to look
at what would constitute value for money in terms of that particular
stock. If I take the example in Sheffield, we demolished something
like a dozen tower blocks simply because it was not good value
to refurbish the blocks, and in the case of the Hull estate that
you spoke about, which I have been round, Hull bid for the Private
Finance Initiative. They did not have to bid for it, it was a
choice; and the reason was that they thought the only way they
could address the issues in that estate is by a transformation.
Q36 Mr Mitchell: I will stop you
there because it was up to the tenants, of course; they had to
vote for it. Let me take you back to the question of housing.
It seems to me if you do not know whether ALMOs have spent excessively
on their Decent Homes standards and you do not know whether the
lower costs of having it done by retentionist local authorities
represented value for money, and you do not know whether the housing
associations, the RSLs, may have spent too much or may have gold-plated
it, you have no possibility of giving us any indication about
value for money, and you have failed in the opportunity which
was there to set best standards, to tell local authorities how
to do it, to say who was doing it more efficiently, and to secure
best value for the taxpayer on that basis.
Mr Housden: Mr Mitchell, the Report
would suggest otherwise on each of the four points that you made.
We do know why there are differences between local authority retained
stock and the spend of ALMOs. Bob Kerslake just indicated specific
examples where the scale of the task was such that retention was
not a viable option, and we have during the life of the programme,
from the option appraisals onwards, applied benchmarks, done research,
and funded procurement consortia in a serious lively debate. It
is also worth pointing out, Chairman, that the local authorities
responsible for this stock had their own duties, directly to their
electorate but assisted by the Audit Commission and other patterns
of accountability, to demonstrate value for money in whatever
they chose to do, so there are some significant assurances available
to you on all those points.
Q37 Mr Mitchell: The Government has
also been paying local authorities to pay private landlords with
disadvantaged people in houses to bring their properties up to
Decent Homes standards. Can you tell us how much of that went
to North East Lincolnshire and other Humberside authorities, and
perhaps you can send us that in writing because I would love to
know, but my last question is you have paid in total £1.2
billion in that grant system. How do you know where it has all
gone, or whether you have value for money in that?
Mr Housden: We will let you have
what information we have about the regional allocations covering
that authority.[1]
It is an importantly different programme in the private sector
where local authorities properly have concerns about vulnerable
individuals' and families' housing accommodation in the private
sector. What the Government was seeking to do was to give those
authorities discretion to tackle those situations where they thought
the case was compelling, and they have access to a range of funds,
both revenue and capital, to tackle that, which they have to prioritise
fairly within their regional housing pot and own local authority
allocation, so it is run in a completely different way. We do
not ask those local authorities for detailed returns on what they
have spent, we have a broad measure of the number of homes in
that sector that are now decent, but it is a feature of this programme
as a whole that we have done all we can, on the one hand, to make
sure we have proper and demonstrable value for money but, on the
other, that we have avoided excessive data burdens particularly
in this sector.
Chairman: We are making up in quality
today what we lack in quantity, so we now have questions from
a former Housing Minister, Mr Hill, who may have a slightly different
perspective.
Q38 Keith Hill: Chairman, you have
anticipated one or two declarations of interest I was about to
make. I was indeed the nation's Housing Minister from 2003-05
when we were driving forward the Decent Homes programme, and I
was, as Mr Mitchell knows, an enormous enthusiast for the ALMO
programme. Indeed, at one stage in my life, Chairman, I probably
admired more modernised bathrooms and kitchens than I have had
hot dinners! The other declaration I should make is that I have
recently become the chair of the Lambeth ALMO and I shall be shortly
approaching Sir Bob and his HCA for our bid for something in the
order of a quarter of a billion pounds for the Decent Homes programme
in Lambeth, so let me begin by congratulating everybody here on
a magnificent achievement in this Decent Homes programme—especially,
of course, Sir Bob. On the whole this is quite a positive Report
by the NAO, and I think most government departments would be pretty
pleased with themselves if they achieved 92% of their target by
the end of the programme period. Nevertheless, to summarise the
NAO criticisms, there were two: first, the Department failed to
set a realistic budget and objectives; and, secondly, it failed
to build in adequate monitoring and evaluation, so perhaps we
can turn first to the budgeting for the programme, where again
the NAO is quite positive. It says the Department maintained good
records on direct funding as well as the non material benefits.
The majority of social landlords, it says, have improved their
efficiency notably through large-scale procurement programmes
and potentially saving £590 million, and it also points out
that the registered social landlords have reduced non decency
from 21% to 8% at no cost to the taxpayer, so these are all quite
positive aspects of the budget, but naturally there is a source
of concern relating to the cost of the programme effectively doubling
from the estimated backlog of £19 billion in refurbishment,
which the present administration inherited in 1997, to a final
cost, as Mr Housden has said, of £37 billion. Why has the
budget doubled, Mr Housden?
Mr Housden: Those sums are not
comparable. The £37 billion represents the total of the Government's
investment in the social housing stock, so Decent Homes major
repairs and a range of other investments in that way, and I still
feel, Mr Hill, that the original estimate was fit for purpose,
that it enabled the Government to have a reasonable measure of
the scale of investment that would be required in the local authority
stock to base its priorities and spending choices. The value for
money strategy that was adopted was appropriate to the nature
of the programme that you developed really, because the policy
intent was not simply to tip a large amount of money into social
housing but to improve the quality of housing management, to give
tenants a stronger say in strategic choices as well as in the
detail of their programmes, and to lever in additional resources.
That seems to me to be a balanced and innovative programme that,
as you indicate and I think the Report fairly draws out, has delivered
well against its objectives. Finally, to go back to the Chairman's
point, what we are not being here is complacent because there
is work to be done, there are 300,000 situations that we want
to tackle urgently, and we accept also that in terms of some of
the follow-up evaluations on cost we could have gone further.
We could describe what we did which we think was important in
terms of benchmarking and other sorts of research, but the idea
of an evaluation that would have looked at comparable streams
of work in different places and drawn out information we accept
to have been a good insight, and the evaluation that Richard McCarthy
has recently commissioned with ministers will give us that information.
Finally, on lack of complacency, the creation of the Homes and
Communities Agency has given us a real opportunity to drive home
the further advances in the programme, so we are not complacent
on either value for money or delivery.
Q39 Keith Hill: Mr Housden, I have
not accused you of not looking for value for money or, indeed,
and of course you were answering the Chairman, of complacency,
but nevertheless the cost of the programme has doubled and it
is a legitimate question to ask why, in your view, it has. What
are the factors that have led to a doubling?
Mr McCarthy: Let's look at the
£19 billion figure based on the English House Condition Survey
assessment where you are looking at samples. Clearly what we asked
local authorities to do was analyse all of their stock and then
connect that to a matrix of options which resulted from that evaluation
and also from consulting tenants. So it is a very complex matrix
and in itself creates different solutions and derives from different
costs. It did not include inflation, or any allowance for inflation;
it did not include the RSL stock, so these figures are really
quite important to understand, and the decision was taken that
that was a very important clear figure to understand as a backlog,
and it was always talked about as the backlog. That was the inherited
position. It was never presented, therefore, as the long-term
cost. People will remember much of the discussion in 1996-97 was
about that backlog figure. There was some investment immediately
after that by which time we also started to receive some data
from local authorities, and this is really what led to the main
Decent Homes programme being announced in 2000-01 and then the
options appraisal being introduced in 2003, because we wanted
to get real detail and the only way we could get detail would
be from the local authorities themselves from the work they had
to do to really understand the scale of the task facing them.
Q40 Keith Hill: If I might just intervene
at this point, what you are saying is that the more the local
authorities drilled down into the real condition of their housing
stock the more they discovered that in fact, in practice, the
extent of non decency was greater than had been initially identified.
Plus inflation, as you say, so those are the two factors.
Mr McCarthy: That would be partly
true. Do not forget the inclusion of the RSL stock and also do
not forget that, when you are involved in things like stock transfer,
and you will find part of the negotiation with tenants might involve
some other modest improvements beyond Decent Homes, for example,
a higher level of insulation. You will also find the total figure
of £37 billion, as recognised in the NAO Report, will pick
up other capital works undertaken by local authorities which sit
outside the Decent Homes programme, for example works to communal
areas and lifts, and, as you know, we have consulted for the new
Housing Finance Review to bring those in the total funding envelope.
Q41 Keith Hill: You mentioned insulation.
In fact, the standard for Decent Homes changed twice in the period,
one was about thermal comfort and then, of course, there was the
housing health and safety rating system, which was introduced
in 2006 as a result of that famous measure, the Housing Act 2004,
which you will well recall, otherwise known as the Hill Bill.
How many properties, how many units of non decency did each or
both of those measures add to the number of non decent homes?
Mr McCarthy: I am not sure I can
answer that in that way. I can come back to you on the impact
of the housing health and ratings standard.[2]
I can do it off the top of my head for the private sector but
we can give you a detailed response on the social sector. As you
will know, though, I think nearly 900,000 homes have seen improved
insulation as part of the thermal comfort programme, and you have
seen the SAP rating for social housing go from a rating of 47
in 1996 to 58 in 2007, which is a very significant increase over
that time.
Q42 Keith Hill: You also referred
in passing to the fact that in 2002 there was a new target set
for vulnerable residents in the private sector which added 1.2
million to the number of homes which fell within the programme,
but there were other factors affecting the numbers as well. There
was the exclusion of refusals and also units due for demolition.
Do we know how many homes that took out of the calculations?
Mr McCarthy: Again, we can give
you some figures on that.[3]
Q43 Keith Hill: That would be helpful.
I am really asking about that because those particular factors
of refusals and demolition are not included in the English House
Condition Survey, and you would argue that this contributes to
the discrepancy in the figures to which Mr Mitchell alluded between
what the Department identifies as the real number of non decent
homes and what the EHCS identifies as the number of non decent
homes.
Mr McCarthy: It is a contributory
factor; there are two other reasons. You get quite a time lag
in the English House Condition Survey, about two years, so there
is an issue about the up-to-date nature of the data. Secondly,
it does not necessarily pick up what some local authorities have
chosen to adopt which is elemental programmes, for example, going
through and doing windows as a complete contract rather than a
single retrofit of an individual dwelling. People chose different
approaches depending on the nature of the housing and its condition,
so it struggled to keep up with that which is why we focused on
the landlord returns, and we will continue to publish—and
it is very important to be clear about this—the English
House Condition Survey data.
Q44 Keith Hill: Let me pursue the
question of the numbers, because it is obviously part of the judgment
about the extent to which the Department really monitored what
was happening out there with the Decent Homes programme. Is it
the case that traditional RSLs which were not part of the Decent
Homes stock transfer process, which do not have to supply information
on the number of homes they have made decent every year, nevertheless
do supply such data, and does the Department record that data?
Mr McCarthy: We do receive data
through the Tenant Services Authority, previously the Housing
Corporation. What is particularly important here is the way we
have moved into a new national standard which is the regulatory
standard which will formally adopt the Decent Homes standard with
the new regulatory regime that takes effect from April this year,
which will make it even easier for the TSA (Tenant Services Authority)
to hold all social landlords, be they local authorities, housing
associations or others, properly to account for the work they
are doing against delivering a Decent Homes standard. We are able
to tell you where we are with housing association stock in terms
of the level of non decency and therefore decency, as we can with
local authorities. As you point out, it is more difficult to tell
you how many homes were, therefore, improved in any one year,
and we have to accept that information is not available.
Q45 Keith Hill: What about the private
sector and progress on the homes occupied by vulnerable people?
Is it the case that local authorities find it difficult to complete
annual returns on progress in that sector?
Mr McCarthy: They do find that
quite challenging. You are dealing with stock you do not control
so you are trying to maintain and watch over this privately owned
stock, and not all of it is privately rented, it could be stock
in the owner/occupier sector, so it is a very challenging area
for the authorities both to deliver against and to monitor. We
have overall data which showed until 2006 that we were ahead of
our trajectory at that time and that we had 68% of vulnerable
households living in decent homes in the private sector. The introduction
of a new higher standard meant that the next year that dropped
down to 61%, but that is a consequence of the new higher standard.
Reference was made to the money invested, we think about £1.2
billion over the period of 2001 to 2011, which is provided by
government to local authorities to provide grants and loans, and
it is important to recognise that we also provide assistance to
local government primarily through our Supporting People programme
to run home improvement agencies. These work directly with vulnerable
older people and other vulnerable householders in private homes,
whether they own them or rent them, and they help arrange and
carry out improvement works no matter how they are funded.
Q46 Keith Hill: But are you reasonably
confident that the figures you have for the private sector are
robust?
Mr McCarthy: Yes, we are.
Q47 Keith Hill: And, taking the figure
of 1.4 million local authority homes which have benefited from
the programme that you estimated in November of last year, what
level of confidence would you attach to that figure?
Mr McCarthy: The 1.1 million figure
in the NAO Report we are completely robust about—
Q48 Keith Hill: But in paragraph
2.16—
Mr McCarthy: I understand that.
The 1.4 figure is an estimate which we are confident about, but
the 1.1 million in terms of homes completed is a more robust number.
What is critical is the data we have for the number of homes that
do not meet the Decent Homes standard at the end of each year.
That is why we can tell you that at present, at the end of the
last financial year, there were 580,000 homes that did not meet
the Decent Homes standard in the social rented sector. We believe
that will fall to 305,000 homes at the end of the new financial
year, 2011, and that will fall to 124,000 homes by 2014. So we
do have clarity about where we are and some real milestones about
where we think we are now heading to.
Q49 Keith Hill: I would like to move
to a question on budgeting but before I do let us try to clear
up this business of the cost of the ALMOs, and let me also say
that I think we need to be rather careful with the language we
use when describing registered social landlords and housing associations
as examples of privatisation. These are not-for-profit organisations
which, by law, are obliged to plough back all of their surplus
into their housing stock and their housing responsibilities. You
will correct me, however, in my recollection that most of the
stock transfers occurred quite early in the process of the Decent
Homes programme, and I also suspect probably amongst the smaller
authorities and perhaps the less big city authorities as well,
whereas the ALMOs were inevitably later in the process because
they were not inaugurated until 2001 and were most often, I suspect,
in larger authorities in the big cities and for that reason probably
more costly. Would those be reasonable observations about one
factor behind the differentiation of cost between ALMOs and stock
transfers in retentionist authorities?
Mr McCarthy: That is not an unreasonable
comment to make. As you know, we have had more recently more urban-based
stock transfers but there is quite a record of estate-based transfers
that precede 1997, I have to say, and this has continued to be
the case. Bob will talk to you about those in Sheffield and I
have had my own direct experience of them in Hackney and in Islington,
so you are dealing with very difficult estates where an estate-based
transfer is often the right way to formulate the right response,
and those do prove to be quite challenging and expensive. As we
move into these more difficult transfers, tenants want to proceed
but the numbers prove to be very challenging, and that is why
we introduced the gap funding mechanism, which is a very recent
development and which recognised there was not sufficient value
in the stock to transfer at nil cost and cover the cost of all
the improvements and repairs that were required. As the stock
transfers have by and large become more urban and more big-city
based, they have proved to be more challenging and I think probably
time and an evaluation will show they became more expensive, and
certainly that triggered the introduction of the gap funding mechanism
that, for example, is supporting some transfers in Liverpool.
Q50 Mr Curry: I am not sure whether
I should really intervene in this happy little dialectic which
has been going on, and I suppose I ought to declare an interest
as well as one of a long legion of former Housing Ministers, but
we ought to get the record straight. What happened was there were
stock transfers under a previous Government, the expectation or
the hope was this Government might well change it but it was less
enthusiastic when it came into power in 1997 so they slowed down.
In fact, it was not less enthusiastic at all; it was very keen
to accelerate it. Then a number of big cities either lost ballots
because they were hopelessly incompetent in how they went about
consulting their tenants or simply funked it, and there had to
be a "Third Way", and the third way was the ALMO. ALMOs
have now, on the whole, taken the place of housing associations
and the current Minister has, to all intents and purposes, pronounced
the death of the classic housing transfer. If you read the statement
last July clearly the traditional housing transfer was not going
to happen very often and only in special circumstances, and when
I asked him if that is what he meant he said "Yes",
so the geometry has shifted around.
Mr McCarthy: There was an announcement
in December about the next group of transfers to be accepted on
to the programme which included substantial transfers in places
like Oldham and so on.
Q51 Mr Curry: Yes, but they were
ones already on the horizon at the time of that announcement in
July.
Mr McCarthy: Yes, but they were
not formally on the programme, so we formally accepted some more
transfers onto the programme and the Minister said in December
or November that we would now stop taking more authorities on
whilst we went through the process of introducing the new housing
finance system, and then people must make their judgment.
Q52 Mr Curry: That is what I want
to talk to you about because it is very interesting indeed, and
let me start with Mr Housden's comment that future improvements
will be "carried by rents" and your statement that we
are moving debt so it will be more fairly spread over the country.
This process of housing revenue account equalisation is not easy,
is it, because there are some big numbers involved amongst the
losers and big numbers involved amongst the gainers, running into
tens of millions?
Mr McCarthy: It is certainly not
easy, and the simple way to see it is as follows. In effect, the
way we run the housing revenue accounts and distribute money to
balance out those in surplus from those in deficit shows that
it is really effectively run as a single national account, and
in that context debt is not distributed on an even basis but on
an historic basis.
Q53 Mr Curry: That is an entirely
reasonable point to make from your point of view but, if you are
running a local authority who happens to have a significant surplus
at the moment, the idea of the more equal distribution of debt
may not be something which turns their clocks.
Mr McCarthy: I would have thought
your first reaction as an authority in surplus would be that that
would not be your preferred option. However, if you take into
the context that your housing revenue account forms a part of
a national account and that what you are being offered, regardless
of your circumstances, is the prize, which is, we understand,
what local authorities wish to achieve and what ministers wish
to achieve, then that prize is being able to have a self-financing
arrangement where, as long as you maintain rent increases within
the context of government policy and you meet the national minimum
standards for your property in the context of government policy,
you are free to run your housing as you wish and to use your surpluses,
if you have any, to support whatever you wish.
Q54 Mr Curry: So is this going down
the route to acclamation in local authorities? Are your consultations
suggesting that there is going to be such a wide degree of agreement
amongst local authorities that the Government may not have to
impose a solution in the end?
Mr McCarthy: I am afraid it is
not really my job to announce ahead of the Minister the outcome
of the consultation and the further work that we have done on
this.
Q55 Mr Curry: But given your huge
experience in this, Mr McCarthy, would your instinct tell you
that you felt the Minister would be able to say, "Halleluiah,
everybody has agreed we can get through this in a day"?
Mr McCarthy: All I can and will
tell you is that the Minister is very active in pursuing what
he sees as an extremely important reform.
Q56 Mr Curry: I do not doubt that
indeed; I have a great deal of admiration for John Healey, but
being very active does not amount to much. In fact, if there was
going to be a large degree of consensus he might be able to be
less active and he might just be able to collect the "Yeses"?
Mr McCarthy: I am going to give
you a little bit more which is I can tell you we are working very
hard with the Minister on this, and I doubt we would be doing
that if it looked like there was no chance.
Q57 Mr Curry: Does it need primary
legislation?
Mr McCarthy: That is likely.
Q58 Mr Curry: And he is going to
make an announcement in March?
Mr McCarthy: The next announcement
will be in March, and I think we should leave the Minister to
make the next announcement.
Q59 Mr Curry: I am sure he is going
to make the next announcement but, given that it is not now an
entirely closely guarded secret that the general election is going
to take place in early May, then the chance of that necessary
statutory change taking place is not huge, is it? I think you
can say that without pre-empting your Minister.
Mr McCarthy: This is a change—
Q60 Mr Curry: I know the Opposition
said they quite liked the idea but—
Mr McCarthy: It is very important
to recognise that local government across the piece wants to go
to a self-financing arrangement. Of course, there are different
views about the distribution of debt but, by and large, you have
a political consensus around the broad objective and what I am
sure John Healey is hoping to do is, if you like, set out his
vision for where the programme and that policy can go next.
Q61 Mr Curry: I am sure that the
former housing ministers here can agree that little is easier
than to get broad agreement on the broad objective, but when it
comes down to detail then it gets that little bit trickier.
Mr McCarthy: I recognise that.
Q62 Mr Curry: The funding is largely
funding per unit, and the way you do your calculation is per unit
of houses improved?
Mr McCarthy: Yes. It tends to
be recorded so we all can make comparisons.
Q63 Mr Curry: But quite often there
are some big batches to be done, as I think we have agreed before,
some huge batches?
Mr McCarthy: Yes.
Q64 Mr Curry: We have just been through,
and may well still be in, a recession in which the new housing
market has been so bad that you have almost had buy-one-get-one-free
offers from some builders. What evidence is there that they have
managed to drive down prices for this refurbishment and improvement
programme so that you are getting more bang for your buck from
construction people short of work than you would have done three
or four years ago? Do you monitor that?
Mr McCarthy: Yes. What we are
doing is using the National Change Agent. We have used our money
to support the development of this new body which is a combination
of a firm of solicitors, Trowers & Hamlins, who are specialists
in the area, and Davis Langdon, a highly respected firm of project
and programme cost managers in the building sector, and they are
working actively to help the establishment of 14 consortia working
with 122 landlords to make sure they can maximise the efficiency
gains available to them by working together and exploiting opportunities
in the market, and that is why we have real confidence in this
efficiency gain of £590 million. It is worth remembering
too that every time we look at the new bid for funding, and you
will be aware that ALMOs have to come back every two years, we
evaluate every year—
Q65 Mr Curry: ALMOs still have not
got quite the degree of freedom which housing associations have
got, have they?
Mr McCarthy: That is right, and
we evaluate bids for gap funding. We use up-to-date Building Research
Establishment data, so we expect that to be tracking the impact
of inflation or deflation within the market, so we have a very
consistently updated assessment tool.
Q66 Mr Curry: As we move on then
to the specifications themselves and what people regard as decent
is likely to change, and when this programme started the pre-occupations
about climate change and energy efficiency were less dominant
than they are now. To what extent is the programme capable of
taking into account those considerations so we do not have to
start a large retrofit for energy efficiency almost as soon as
we have finished this?
Mr McCarthy: That is a very good
question. On the very specific issue of climate change the Government
is in the final stages of developing its Household Energy Management
Strategy, which was previously called the Heat and Energy Saving
Strategy, on which it consulted last year, and that was published
by the Department for Energy and Climate Change and our own Department.
We are working actively on that and looking at ways in which we
can take further action to improve the energy efficiency standard
across our housing, including social housing, whilst recognising
the funding model for Decent Homes. Again you will have to wait
to see what that strategy says but we are very mindful of the
funding arrangements we have established, the funding arrangements
we are working on to establish for the future, and the way we
can accommodate some new change. You will be aware, again, as
I said earlier, that the new housing finance system is designed
to bring into the Decent Homes standard communal areas and communal
facilities like lifts and the external environment.
Q67 Mr Curry: We have now got not
quite a new council house building programme, although Austin
might regard it as that, it is not quite the traditional one but
at least we have gone back to councils being able to build houses,
but how confident can we be that those specifications are not
going to be changed 20 years down the road from now?
Mr McCarthy: I can tell you we
are extremely confident, and I will let Bob tell you about the
detail. We have had fantastic response from local authorities,
and the first houses are now being built.
Sir Bob Kerslake: They have to
meet the general standards we set for all of the social housing
we build, or fund, and we have also set incentives for them to
achieve higher energy efficiency. In fact, 90% of the second tranche
of local authority housing is targeted to be at Code 4 and above,
which is significantly above what we are achieving as a general
standard. The evidence suggests that they will deliver all the
standards we would expect now for formal housing generally, and
a higher standard on sustainability.
Q68 Mr Curry: Can we move the focus
a little bit? I can quite understand the importance of including
the quality of homes. Indeed, when the Government was asked why
so few new homes were being built the answer was, "We have
chosen to put our resources into this improvement programme"—a
perfectly legitimate choice, but if you go to some parts of England
you will find acre after acre of absolutely abandoned housing.
If you go to Burnley, East Lancashire, you will find houses that
were built when they were thriving mill towns—solid properties,
not jerry-built—and you will find the Asian population has
migrated out of them, as has the white population in a different
direction, and what is left is a stronghold for the BNP and a
few local pubs, but literally acre after acre of good housing
with absolutely not a soul in it. Now, Austin has pointed out
the number of people on waiting lists and, of course, the empty
houses are not necessarily where the major demands are, but what
can we do, if we are interested in urban regeneration issues more
generally, to make sure that in areas like that, where literally
you have towns which have practically ceased to exist, we can
bring back some form of active occupation of those properties?
Mr McCarthy: From the national
policy perspective ministers have been very keen to maintain and
not reduce any of the resources going to our housing market renewal
programme, which is working in places exactly like Burnley—
Q69 Mr Curry: It is very good and
I have visited it.
Mr McCarthy: —and you may
be aware that only last week they announced the name of the new
company which they have formed working with the six local authorities—
Q70 Mr Curry: I know the background.
Mr McCarthy: —but I think
that is really important because it points to the second area
which is that not only are they trying to improve the market,
and there is evidence that there is some stability that has been
achieved in terribly difficult conditions, but they are also working
with local authorities to look at future opportunities for economic
growth in that area, because it is fundamentally the economy and
its future growth that will really influence those markets.
Sir Bob Kerslake: We have recently
done a stock take on the housing market renewal Pathfinders, of
which Burnley is one in East Lancashire, and what we have found
is some have moved towards a point where they have really addressed
most of the issues around market failure, they have still some
regeneration tasks but they are way better than they were when
the programme started, and others like East Lancashire still have
quite a job to do. It is exactly as Richard McCarthy says, which
is there is a fundamental challenge about the level of housing
there and the underlying economy and, therefore, the need for
those houses, and the way to handle that is through the changed
model they have there for the Pathfinder, and through a robust
assessment of housing need going forward. You have to have that
before you can defend the level of investment you put in if you
are going to avoid the investment going into stock that is not
required.
Mr Curry: Thank you.
Q71 Mr Mitchell: Why are you continuing
with large-scale voluntary transfer ballots when you have also
told us you are changing the nature of the financial game by revising
the housing revenue accounts to allow councils to keep more of
their money?
Mr McCarthy: It is quite clear
that what you have in those areas is either very strong tenant
ballots, which confirm that is what tenants wish to do, or others
now moving to a ballot and they will make that decision themselves
in the light, no doubt, of what else they see emerging as the
alternatives.
Q72 Mr Mitchell: That is guesswork.
Mr McCarthy: No, it is about tenant
power and allowing tenants to make their own choice, which is
why ministers have put them on to that programme.
Q73 Keith Hill: Finally, could I
raise a couple of the specific criticisms made by the NAO in relation
to cost estimates? One is in paragraph 14 on page 8, which refers
to the difficulty in estimating how much the Department is spending
of the £16 billion it gave through the major repairs allowance
and the regional pot. Do you accept that the difficulty in identifying
how much of that went on the Decent Homes programme is a weakness
in the Department's approach?
Mr Housden: It is a fact that
it is difficult to isolate those figures but I think it is inherent
in the design of the programme. Once you allow the landlord the
discretion to improve and enhance, to go beyond the standards
and to integrate them with other works, the separate identification
of the specific Decent Homes strand can be difficult and uncertain,
and some of the data around all of that is less reliable than
the other forms we have spoken on.
Q74 Keith Hill: Thank you for that
interesting answer. Finally, do you accept the criticism in paragraph
13 on page 8 that "more could be done to make use of the
data received from authorities to outline costs, including cost
per home made decent, and to identify whether the amount of assistance
was reasonable and had been used well"?
Mr Housden: I think we do. That
is not to say that we feel we have done nothing in that area but
I think the criticism that we could have gone further is valid,
yes.
Q75 Chairman: Gentlemen, thank you
very much; that concludes our hearing. Clearly laudable things
have been done but we need to improve financial control and information,
so we would like to have you back, please, in a couple of years'
time to make sure that we can be updated on progress in improving
financial controls, because it seems to me that there is an issue
submerged in the presentation that we have heard this afternoon
that you seem to regard strict accountability for large sums of
money as optional, and I am sure you do not mean that but that
is the tenor of your remark, because the information, you say,
is a judgment which you make and there was too much in this case,
and I am not sure as a Committee we can accept that. For instance,
if we read paragraph 2.14 it tells us that the Department does
not have reliable figures for the number of homes made decent,
and you could have been much more successful than we have heard
today, there may be one million houses made decent or as few as
500,000, so I think we need to return to this issue over the next
two years to get a grip on exactly what is going on. Are you happy
with that?
Mr Housden: Thank you, Chairman.
Yes.
Chairman: Thank you.
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