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

Examination of Witness (Questions 260-273)



  260. So what you are saying is that although it may seem good, prudent financial management that local authorities should be allowed to borrow against future rental income, that has actually effectively been ruled out in the draft Bill, is that right?
  (Mr Perry) Yes. I think this is an area which is unclear and I would like to see clarification of because the explanatory notes on the Bill say borrowing against future rental income and indeed securitisation of rental income will not be permitted. I think this is a technical area which warrants some examination. I have not got the expertise probably to tell you what the difference is between that and borrowing supported by rents, which is what happens at the moment, supported by rents and subsidy. I think there are some fine lines here and I think we need to look at those regulations to see why one is possible and the other is not.

  261. Do you have any technical knowledge to share with the Committee on the extent to which limitations placed on local authorities by the Public Sector Borrowing Requirement also constrains local authorities from investing in their housing stock?
  (Mr Perry) Well, the main issue is, I suppose, the status of local authority housing. We argued in 1995 that local authority housing should be put into what we call local housing corporations which would then fall outside the Government's borrowing definition if—and this is a very important if—the Government were to use European definitions of borrowing, in other words the General Government Financial Deficit. I think we have generally accepted in the housing world we have lost that argument because the Government has moved away from the PSBR towards public sector net borrowing but that does not go as far as we would like. What we wanted to achieve was the ability of local authorities to have local authority owned companies whose borrowing would be outside the main measure of public borrowing and that has not been achieved. The current measure scoops in local authority owned companies, for example arms' length companies, and we have not made progress in that direction at all.

  262. If the legislation is enacted, what future do you see for PFI initiatives in housing?
  (Mr Perry) As far as I know—

  263. Local authority housing.
  (Mr Perry) Yes. As far as I know the Bill will not affect PFI. I think there is a much more important issue, nothing to do with the Bill, about PFI, which is its complexity. If you want to get schemes off the ground, as far as I know there are none yet—there may just be one in Manchester that is close to it—but I do not think there is an authority that has yet signed a contract for improving its estates through PFI. They have been under preparation now probably for three years or so. It is not a very productive route and I think it is going to be a side issue really in terms of achieving the decent homes standard.

Mr Betts

  264. Can we just come back to the point about arms length companies which you have referred to as being the Institute's position. Are you saying effectively that despite the failure to get a new definition on the public sector borrowing issues that as legislation stands if tenants do not want their stock transferred then arms length companies are the only realistic way forward?
  (Mr Perry) Yes. I think there is an argument certainly for making it easier to get arms length company status or get the borrowing approval which goes with the status and for putting substantial extra resources into that measure. That, at least, enables one to argue with the Treasury that there is some test of the access to the extra resources. I think there are some signs that will happen in the spending review. We will have to wait until next week.

  265. Nevertheless you are indicating in your evidence that arms length companies still are not being given the same amount of freedom as stock transfer arrangements. Would you like to see some great freedoms put into the Bill on arms length companies or indeed put in general for local authority housing which remains with the local authority in its traditional form?
  (Mr Perry) It might be too soon to start putting new freedoms for arms length companies into legislation but it is not too soon to think about the way they might develop once they have done their initial improvement work and the stock has been brought up to decent homes standard. Certainly I have been discussing with some of the authorities which have got arms length management organisations where will we take it from there, in four, five, six years' time when the stock is improved, can we then argue for more autonomy for those organisations? I suspect at that point there will be a debate then between the organisations which would like more autonomy and the local authorities which would want to keep more control of the stock locally perhaps. I would favour, for example, the ability of the local authority to transfer the stock in to the company so the company became the owner of the stock. A local authority would remain the owner of the company, it would be a single shareholder in the company but the company would not just then manage the stock but also own the stock and then you could equally borrow on the back of the value of the stock and the rental stream from the stock.

  266. Let us assume there are not those sorts of changes and the tenants anyway are resistant to transfer of any kind out of the current arrangements. You mentioned before the target of the decent standard for homes by 2010. Do you think if the current arrangements remain and there are not the requirements you would like to see in terms of freedoms, we will have very great difficulty in nationally achieving that by 2010 if tenants are resistant to new stock transfers?
  (Mr Perry) Yes, we are. We have done some work recently which showed that really of the 2.8 million remaining council homes, the Government is depending on about 1.4 million of those being transferred. Now if instead of 1.4 million being transferred the figure was more like a million, it would need to put in an extra £2 billion worth of subsidy over that period up to 2010 to sustain the stock which will stay in the public sector instead of moving across into the housing association sector.

  267. It would write off less debt, would it not?
  (Mr Perry) Yes, it would but it would also get in less capital receipts. There are swings and roundabouts here because some authorities are bringing in a positive capital receipt from the transfer and the Treasury gains from that.


  268. Surely it would be possible perhaps for local authorities, if powers in the Bill were changed, to borrow against that clear future rental income which you said you were not all that sure about?
  (Mr Perry) It comes back to this problem about the obsession with public sector borrowing, does it not? I think you asked the previous witness about the potential controls in the Bill over capital within the prudential regime or as a sort of envelope over the prudential regime. I suspect what the Treasury has in mind with the prudential borrowing regime is something like what has happened with the rules for the Post Office and something like the rules which will apply to foundation hospitals which is that they are given some freedom but the Treasury makes a guess each year about what total borrowing will result from that freedom. If the sector involved exceeds that Treasury figure then the Treasury will start getting very edgy about it. If it goes much above that figure it will want to invoke these controls. I think that will always be the case whilst local authority housing is part of the public sector and whilst it is so dependent on subsidy.

Mr Cummings

  269. Are there any other amendments or additions to the draft Bill that your Institute would wish to see?
  (Mr Perry) I just reiterate the point I made earlier about transparency. The Government itself at various stages has said that it wants the housing subsidy regime to be more transparent and I think we want transparency both on the capital side and the revenue side. That would be helped certainly by the publication of draft regulations at an early stage so we could see its intentions and some of these bits of the writing on the tin which are still covered by the label.

  270. If that is the case it would appear you appear to be highly content with the Bill and its contents?
  (Mr Perry) Certainly in the Institute we are supportive of a move towards resource accounting in local authority housing, not least because it has helped to show up the problems, the backlog of disrepair in council housing. So, in so far as the housing bits of the Bill are mainly about putting into legislation the rules that are required for resource accounting I think that is beneficial. I am not sure if the rest of the Bill, frankly, is irrelevant to housing because it concerns the general fund and non-housing capital expenditure, so there are only certain limited bits of the Bill that are actually directly relevant.


  271. What about licensing landlords in those areas where local authorities want to do it? Is that not something that ought to have been in the Bill given that the Government considers it is urgent?
  (Mr Perry) This is licensing multi-occupied properties?

  272. Both multi-occupied and ones where the landlord is benefiting substantially from Housing Benefit.
  (Mr Perry) Yes, I think both would be welcome and the measure to license multi-occupied properties is long overdue, in fact it is a disgrace that it has not been done so far.

  273. When you gave us the first few words of introduction you said that the label was obscuring what is really in the Bill. What is on the label?
  (Mr Perry) All I am trying to point out really is in terms of financial freedom for local authorities on the housing side, the Bill offers not very much. What we are obviously concerned about is that such financial freedom as already exists is not constrained even further by things that the Bill paves a way for but does not actually specify. I am thinking particularly of the capital receipts changes. We would like a wide discussion about the issue of capital receipts, particularly housing capital receipts of the two kinds I have mentioned, before the Government makes up its mind on this issue.

  Chairman: On that note, can I thank you very much for your evidence.

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