Extending the Right to Buy to housing association tenants Contents

1Parliamentary scrutiny and financial risk

1.On the basis of a memorandum by the Comptroller and Auditor General, we took evidence from the Department for Communities and Local Government (the Department) on its plans for implementing its policy of extending the Right to Buy to housing association tenants.1 We also took evidence from Lord Kerslake, President of the Local Government Association and Chair of the Peabody housing association; David Orr, Chief Executive of the National Housing Federation and Terrie Alafat, Chief Executive of the Chartered Institute of Housing.

2.Our evidence session was unusual, in that the policy in question had not yet been implemented, and at the time the relevant legislation was still being debated in Parliament. We were mindful, however, of both the potential impacts of the policy on a large number of individuals, and the significant amount of public money likely to be involved. We therefore wanted to look at this policy early in order to help the Government shape its approach in the most effective way.

Introduction

3.Since 1980, tenants of council housing have enjoyed a statutory Right to Buy their homes at a discount, leading to sales of 1.8 million council properties by 2013–14. Partly as a result, the number of social housing units owned by local authorities has declined substantially over this period.2 As a general rule, tenants of housing associations have, in contrast, not had the Right to Buy on the same terms (aside from those whose homes have been transferred from local authorities to housing associations, who enjoy a preserved Right to Buy).

4.In May 2015 the Department announced plans to bring forward legislation to extend Right to Buy discounts to 1.3 million housing association tenants, on the same basis as those available to council tenants. It also announced that there would be a one-for-one replacement of the homes sold with new affordable homes. Funding for the discounts would be obtained from local authorities, by requiring them to sell high-value council homes as these fell vacant.3 Following concerns raised by housing associations about the prospects of such legislation for their status as independent bodies, in October 2015 the Department concluded an agreement with the sector, via the National Housing Federation, to implement the policy on a voluntary basis.4

5.In October 2015 the Department introduced the Housing and Planning Bill 2015–16 (the Bill). While this does not itself provide housing association tenants with the Right to Buy—as this is being implemented through the voluntary agreement with the sector—it contains a provision to enable the Department to transfer funding to housing associations, and thereby cover the costs of the discounts offered to tenants. It also contains provisions which would require local authorities to make annual payments to the Government, based on the higher-value council homes which they would be expected to sell as they fall vacant. The Government also made a commitment that for each of these council homes sold, an additional affordable home would be provided on at least a one-for-one basis (and at least two-for-one in respect of council homes sold in London). The Department’s expectation is that the sales of high-value council homes would pay for the extended Right to Buy discounts, thus making the policy fiscally neutral. The Department states that key details, such as the definition of high-value council homes, will be set out in secondary legislation to follow the passage of the Bill.5

Parliamentary scrutiny

6.The National Audit Office found that the impact assessment produced by the Department to accompany the Housing and Planning Bill was, when compared with good practice guidance published in HM Treasury’s Green Book, weak in several key respects. Notably, there was no consideration of alternative options, no quantification of costs or benefits, and no justification of the assumptions made.6 The Department agreed with the evaluative criteria used by the National Audit Office in its review, but said it was not appropriate to apply them to its impact assessment, as this was an “outline impact assessment” and not intended to contain a high level of detail. The Department maintained that in line with guidance from the Regulatory Policy Committee it had not produced a more detailed impact assessment because “there are no impacts on the private sector here, and in the case of housing associations it is a voluntary deal”.7

7.In addition, the Department said it had sought advice from the Cabinet Office, which had also supported its approach.8 However, the Cabinet Office’s published guidance states that impact assessments to accompany bills should include a full assessment of economic and social impacts, covering costs and benefits, and associated risks, not merely present the high-level intentions behind a policy.9

8.The fact that the Department has not published a full impact assessment means Parliament has had to consider this legislation without detailed information. Lord Kerslake observed that, although the Bill was already well advanced in the House of Lords, no one was able to provide answers to key questions such as the likely cost of the discounts. In his view, this lack of information had impacted on the ability of Parliament to scrutinise the Bill’s proposals properly.10 The Department said it was important to recognise that the Bill simply contained an enabling power, with precise details to be set out in the secondary legislation which would follow it.11 Lord Kerslake, however, told us that peers were very uncomfortable with the prospect of only being able to deal with the details of the policy at the secondary legislation stage.12

9.The importance of proper scrutiny of the Department’s proposals is underlined by the concerns we heard as to the policy’s potential impacts. The Chartered Institute of Housing noted that there could be a reduction of 300,000 homes for social rent by 2020, leading those in social housing need to suffer greater overcrowding.13 The National Housing Federation told us that there would be different impacts in different areas, with certain neighbourhoods more profoundly affected, and a net flow of funding from areas with higher house prices towards other areas.14 We are also aware of particular concerns raised about the potential impacts in rural areas, for instance that landowners would become more reluctant to make land available for housing, where there was a risk such housing would not remain in the affordable rented sector.15 The Department told us it had carried out a range of internal analysis, in line with the Treasury’s Green Book principles, including examining potential impacts on existing social tenants, the geographical impacts in different areas, intergenerational and equality impacts, and potential impacts on housing benefit; but the results of this work have not been published.16

Financial risks

10.The Department’s Accounting Officer told us it was her responsibility to ensure that the policy represented value for money.17 In this context, we were concerned by analysis from the Chartered Institute of Housing which suggested both that the policy would cost up to £2 billion per year and that it was likely there would be a funding gap, as sales of high-value council homes would not cover this amount.18 When we pressed the Department on whether there might be a funding gap, it could only reply that it was the Government’s intention that the policy would be fiscally neutral. The Department was unable to say whether it had presented any evidence to the Office for Budget Responsibility to demonstrate this would be the case.19

11.Even if the policy does prove to be fiscally neutral, the Department confirmed this would only be so for central government, not the public sector as a whole: for local government it would mean a net loss, with councils required to sell their assets and make payments to central government, a proportion of which would then be transferred to housing associations.20 The Department said it was looking carefully at the implications for local authorities, but was unable to answer whether this forced sale of their assets would undermine their balance sheets.21 Nor was the Department able to say what would happen if sales of higher-value council homes did not raise enough money to cover the costs of a council’s annual levy payments.22

12.The Department sought to assure us that its policy would in all events represent value for money, as it would both lead to the provision of new housing and increase home ownership, the Government’s two strategic objectives for housing.23 We heard suggestions from the National Housing Federation and other witnesses that there were alternative policy designs that could provide better value for money, for example by delivering both more housing and home ownership for the same cost.24 The Department said it had not considered any alternative options for policy design, as it had a manifesto commitment to implement the policy as it stood.25 Even on its own terms, however, the Department did not know the size of the costs and benefits it expected from the option it had chosen. The Department revealed it did not yet “have a feel” for how many housing association tenants would take advantage of the extended Right to Buy, and thus did not know how big a contribution this policy would make to either of its strategic objectives.26

1 C&AG’s memorandum, Extending the Right to Buy, March 2016.

3 “Over a million more people given the chance to own their own home”, Department for Communities and Local Government press release, 26 May 2015.

4 “Historic agreement will extend Right to Buy to 1.3 million more tenants”, Department for Communities and Local Government press release, 7 October 2015.

5 C&AG’s Memorandum, paras 1.6-1.8.

6 C&AG’s Memorandum, paras 3.17-3.29.

9 Cabinet Office, Guide to Making Legislation, July 2015, pp 107–111.

15 Communities and Local Government Committee, Second Report of Session 2015–16, Housing associations and the Right to Buy, HC 370, paras 31–34.

16 Qq 56–7, 61–62, 88, 99, 102–3, 134, 146, 153; Department for Communities and Local Government (RTB0006)




© Parliamentary copyright 2015

Prepared 26 April 2016