Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witness (Questions 240-259)



  240. Do you think as the Government is reviewing the revenue support grant formula that it ought to be reviewing the housing subsidy system as well?
  (Mr Perry) Yes, very definitely. I think there is an opportunity here. The Government has embarked on a series of reforms starting with rent restructuring which is intended to be tackled by 2010, as you know. The achievement of the Decent Homes standard (if it is achieved and there is a question mark over that) will be done by 2010 as well. One can hope that between now and 2010 the housing benefit system will have been radically reformed. At least they are talking about it.


  241. The Deputy Prime Minister told us over three years ago that it was a shambles and needed reform so it is about time he got on with it, is it not?
  (Mr Perry) It is very definitely. If we have a range of critical factors being reformed by 2010, by that date we would like to see a different shape for local authority housing and a shape for it which gives much more autonomy to local authorities. Because of the complexity of the system it is going to take that amount of time to change, but we ought to encourage the Government to think over that sort of timescale for getting significant changes in local authorities and giving them the freedoms that housing associations have.

  242. Can I take you on to Clause 10. Have you got any views on the pooling of capital receipts?
  (Mr Perry) This is another of the difficult issues. The previous witness said that there were conflicting views on this. I know that you have had evidence from one authority that is very worried about the pooling of receipts because it does very well from receipts in the present system. It helps if we distinguish the two main kinds of housing receipts, right to buy receipts and receipts resulting from transfer. There is a prima facie case for right to buy receipts being directly recycled by the local authority in the way that, for example, housing associations, broadly speaking, can do so—

  243. Can do so or should do so?
  (Mr Perry) Can do so. I do not think they have to do so but they can do so.

  244. Would you like them to have to do so, certainly in areas of housing shortage or affordable housing shortage?
  (Mr Perry) Are we talking about housing associations now?

  245. No, I was talking about local authorities and whether they should be replacing right to buy stock.
  (Mr Perry) Certainly in areas of housing shortage I think local authorities should do so. Whether they should be compelled to do so is perhaps a different question. The vast majority of authorities would do so if they had the ability to re-use 100 per cent of right to buy receipts. Can I pick up on the issue of stock transfer receipts because obviously these are very significant as well. There is an issue here and that is that certainly up until recently the majority of stock transfers have been in what I call the "leafy suburbs" where there has been surplus value in the stock and the issue there really is that those houses, whilst they stay in the national stock, contribute to the national pooling system that we have been talking about. Obviously the authorities want to escape that and really at the point of transfer that is a one-off opportunity to scoop some of that surplus value back into the national pot. The CIH has always supported the stock transfer levy and has argued that perhaps the levy should be higher than 20 per cent, I think there is a case for saying that local authorities should pool some of the resources they get in if their stock has a positive value at the point when they transfer.

Chris Grayling

  246. I wanted to pick up on this point. One of the very obvious potential concerns is that this proposal seems to be intended to be a way of shifting money from "rich to poor" but, in reality, the most acute problems with affordable housing tend to be in the richer authority areas. We have seen in the various inquiries we have done, into empty homes for example, that the classic inner city areas are not necessarily, with the exception of London, areas of particular housing shortage, whereas in Waverley in this evidence there is an acute need for affordable housing in the "richer areas" so there is a worry that this will distort rather than help.
  (Mr Perry) A lot depends on the kind of formula that you use, the extent to which there are some receipts left at local level and the transparency of the overall operation. One of the dangers would be that, as happens at present, the receipts are scooped into a national pool and nobody ever knows the relationship between the national pool established from receipts and the bigger pool set aside by the Treasury for resources generally. We want much more transparency about the level of resources needed to be put in by Treasury and the relationship between that and the capital receipts pool, if I make myself clear.


  247. Debt-free status was supposed to be a carrot to encourage local authorities. It has got nibbled at a fair bit by the rabbits by this proposal. Do you think people are still going to want to be debt-free authorities?
  (Mr Perry) It is difficult to say because there are other advantages to being debt free although I accept Waverley's case that they particularly went for that status in order to have access to the capital receipts and I think, yes, it would be difficult to disagree that their position would be unfair if they found themselves now penalised. The devil will be in the detail to see how much local resources are left in places like that. One would hope that Waverley would not lose all of its receipts into the national pool and if it lost some it would get some back because of its need to spend because of the level of demand in that sort of area.

  248. In the vague theory that Parliament should decide these things rather than ministers, ought not the face of the Bill to show how that deal is going to be struck?
  (Mr Perry) I would rather support the discussion that arose in the earlier session about the publication of draft Regulations at the time of the Bill. These things are devilishly difficult to get right. If it was in the Bill and therefore in the Act it would be rather fossilised. If it was in the Regulations and went wrong there might be some chance of changing the regulations.

  249. So you would like to see the regulations at least at the point at which the Bill is finally published?
  (Mr Perry) The key areas of concern as far as Regulations are concerned are about capital receipts and the issue that Mr Betts was talking about earlier, the redistribution of surpluses in Housing Revenue Accounts, and those are the areas on which we would like to see more transparency.

Christine Russell

  250. Mr Perry, there seems to be an underlying presumption in the proposals that housing is a national service and therefore money can be readily moved from one area to another. Do you agree with that?
  (Mr Perry) I think this is a big unspoken reality for local authority housing really. It applies now. It applied before the Bill and it applied before resource accounting was introduced. Local authority housing is really a nationalised industry that is run by local agencies and a large part of the financial decisions are made by central government. I think that is regrettable. It is very understandable because it is so much dependent on central government subsidy, but I would like to see a phased programme of perhaps gradual reductions in subsidy and gradual increases in autonomy on the back of authorities having brought all their stock up to the Decent Homes standard.

  251. What would that involve—rents rises?
  (Mr Perry) Rent rises are going to take place in any event. Broadly speaking, because of rent restructuring, local authorities will have to increase rents and housing associations, in most instances, will have to reduce their rents. That in itself is an example of this nationalised industry syndrome. London authorities, for example, which have got to increase their rents quite considerably, will not be able to show any benefit of those rent increases to their tenants whereas housing associations, which also have to increase their rents in many cases, will at least be able to put all of that new money back into services for their tenants. That is completely illogical. Rent restructuring is an opportunity to start giving more autonomy back to local authorities, particularly in areas where rents are going to increase.


  252. As far as some housing associations outside London are concerned, it could make big holes in their finances, could it not, if their rents are going to come down?
  (Mr Perry) Yes, there is an issue about the effects of rent restructuring on what housing associations will be able to do. One of the unfortunate consequences could be neglect of maintenance. If that happened on a long timescale housing associations could start to get into the same difficulties as local authorities with a backlog of disrepair, and that would be very unfortunate.

Mrs Ellman

  253. You argue that the Bill will not level the playing field on stock transfer. What are the most important reasons for that?
  (Mr Perry) I think that is set out in my evidence. There was a kind of myth around that the main issue about stock transfer was to create bodies that could borrow more freely and that the Bill would allow freer borrowing and therefore would remove a lot of the bumps on the playing field, as it were. Clearly prudential borrowing is one issue but it is only one of the freedoms which local authorities are trying to get when they go for a stock transfer. If you look at the list in my evidence, they are only getting that one freedom and not getting any of the others so there will still be a very bumpy playing field, if you like, in comparing one with the other.

  254. Do you think this is accidental or a deliberate policy?
  (Mr Perry) I think it is deliberate because in a sense stock transfer is a kind of Faustian Pact between the transferring agency and the Treasury. It is saying, "Okay, we will write off all of your debts in return for in future you not coming to us ever again for subsidy and any borrowing you do will not be public borrowing." If you could put local authorities in that position without transfer then you would be creating some of the conditions that the transfer bodies have, but you cannot do that because local authorities inherently remain public bodies and are probably going to remain strongly reliant on subsidy.


  255. Quite a few stock transfers have failed, have they not? I am thinking of Hattersley in Greater Manchester. Is there not going to be some problems where they fail for financial reasons as opposed to where tenants vote them down?
  (Mr Perry) When you say failed in relation to Manchester, you meant the ballot was a no vote?

  256. The one at Hattersley collapsed because the financial arrangements could not be put in place because the nature of some of those estates means that they are unattractive to the markets to risk investing in those properties.
  (Mr Perry) There is certainly an issue which does need to be addressed—I think the ODPM is looking at it—of transfers in very rundown areas which are not attractive to funders. That is true; there are areas where at the moment it would be difficult to get a transfer off the ground because you could not get an attractive enough funding package.

  257. Is it not important that you level the playing field at least for places like that, if not for places where people deliberately vote for democratic control of their housing rather than handing it over to a faceless corporation?
  (Mr Perry) There is an issue of what it would mean to level the playing field. In places like that certainly I would encourage it. In the submission we made to the Department on the Spending Review—and we made it jointly with the National Housing Federation and Local Government Association—we called for extra money to facilitate stock transfer in the kind of areas you have mentioned so that those could take place. There is a case for making partial transfers more attractive to authorities. The issue about the levelling of the playing field more generally, as I have tried to explain, is a very complicated one and I think that you have probably got to secure some key changes in local authority housing before you can give local authority housing the same freedom as housing associations. One of them might be to go hell for leather for the Decent Homes targets and then look at giving local authorities less subsidy and more financial freedom once their stock was in decent condition.

Christine Russell

  258. Mr Perry, in your memorandum you say that the proposed prudential borrowing regime will benefit municipal markets and municipal bus companies but will not be as much benefit to municipal housing. Why is that?
  (Mr Perry) I was trying to use those as examples to show where within local authorities there are some services that have direct control over their income. Nottingham, which has still got a bus company, presumably can freely decide what the bus fares are and it can put more on the bus fares if it wants to buy more buses and it can borrow to buy the buses under the new prudential regime, as far as I know, although I am not an expert on local authority capital outside housing.

  Chairman: There are only about three local authorities left with a bus company.

Christine Russell

  259. Chester has got one.
  (Mr Perry) I agree. The difficulty in housing is there is only freedom to generate extra resources at the margin and the Bill, or more especially the rent restructuring policy, will actually narrow it and will squeeze out most of that remaining limited flexibility so that at the moment some local authorities generate extra resources by having rents above guideline levels. In the rent restructuring arrangements they will still be able to have rents above the target levels but they will be very heavily penalised through the housing benefit system for doing so. On the housing side that means there is very little freedom for authorities to generate the extra resources they would need in order to command borrowing above the borrowing limits which the Government already sets for them.

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