Examination of Witness (Questions 260-273)|
TUESDAY 9 JULY 2002
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
(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
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
(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 ifand this is a very important ifthe
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 yetthere may just be one in Manchester that is close
to itbut 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.
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
(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
(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
(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
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.