Regulation of Social Housing (Influence of Local Authorities) (England) Regulations 2017

Lord Bourne of Aberystwyth Excerpts

Tuesday 7th November 2017 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

That the draft Regulations laid before the House on 14 September be approved.

Relevant documents: 6th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, the draft regulations that we are considering, if approved, are the final part of the legislation needed to reduce the control over housing associations by the social housing regulator and local authorities. This is essential to allow the Office for National Statistics to consider the reclassification of housing associations to the private sector.

These regulations deal with the control of local authorities over housing associations. The control is currently exercised through councils’ ability to appoint directly housing association board members and hold share membership of these organisations. I think it would be useful to give some context to these regulations. In October 2015, the Office for National Statistics decided that private registered providers—housing associations that are registered with the social housing regulator—should be classified as public non-financial corporations for the purposes of national accounts. This was because, in the opinion of the Office for National Statistics, the level of public sector control over these bodies through the regulator and local authorities was too high. Although the ONS decision was a statistical matter that does not have a direct bearing on the management structure, ownership or legal status of the housing providers, the consequence of the decision was to add around £70 billion of debt to government debt. We have been clear that we are committed to reducing public borrowing. If the ONS classification remains in place, any future borrowing by housing associations will be added to the deficit. We believe that this is unnecessary and unhelpful, given that housing associations play a critical role in delivering the homes that we need. Therefore, we have a clear objective to remove this borrowing from the public accounts to enable housing associations to get on and build.

These regulations are the final piece of legislation needed to achieve that objective. Noble Lords will already know that provisions were included in the Housing and Planning Act 2016, which came into force on 6 April 2017, to remove the majority of controls that the Office for National Statistics highlighted as a concern. Specifically, the Act abolished the requirement that housing associations must obtain the social housing regulator’s consent before disposing of social housing and abolished the Disposal Proceeds Fund, which placed restrictions on how housing associations could use receipts from certain kinds of property sales, although I assure your Lordships that we have retained restrictions on how historic grant can be used to protect taxpayers’ investment in the sector. The Act also restricted the circumstances in which the regulator may appoint an officer or manager of a housing association. It abolished the requirements to obtain the regulator’s consent before making some types of constitutional change, such as restructuring, winding up, changes to the business object and dissolution. In terms of today’s debate, the Act included the power to introduce affirmative regulations to reduce or remove the ability of local authorities to nominate board members and hold voting rights within housing associations.

I should explain that the reason we proposed to use affirmative regulations to limit local authority control, rather than to put the changes in the Bill, was to ensure that there was sufficient time fully to consider the concerns of the Office for National Statistics as they related to local authorities. It was important that we were clear about which areas represented a control and which areas were more about cementing the relationship between local authorities and associations in providing social housing. As a result of that consideration, we believe the regulations before your Lordships today represent a good balance between limiting local authority control over business operation but while maintaining the ability of local authorities to work with housing associations to prioritise and deliver the social housing their communities need.

These regulations specifically remove two areas of local authority control over housing associations. First, they remove the ability of a local authority to hold shares—and thus voting rights—in housing associations. Secondly, they ensure that local authorities can directly appoint no more than 24% of board membership, which will prevent them holding a controlling vote. We propose to remove these two controls because together they may allow a local authority to block major changes being made to the constitution of a housing association, thereby hindering it from making appropriate business decisions. In this, noble Lords can see why the Office for National Statistics considers this undue control over a private sector organisation.

It would also be helpful to give a sense of the scale of organisations that will be affected by these changes. The circumstances where these will apply will generally be limited to where a local authority has transferred housing stock to a housing association and has retained rights directly to nominate board members to a housing association board and act as shareholders. We estimate this to be around 100 housing associations out of the 1,500 currently registered. I can also confirm that these regulations provide an exemption for arm’s-length management organisations—ALMOs. This is because although these may be private registered providers of social housing, they are wholly owned subsidiaries of local authorities and their debt and borrowing are already accounted for in government accounts.

On the specifics of these regulations, Regulation 1 sets out the scope of the regulations in that they apply in England only, and apply to private registered providers, but exclude, as I said, arm’s-length management organisations of local authorities, which are wholly owned subsidiaries.

Regulation 2 allows for a six-month transition period. This will allow for negotiation between local authorities and housing associations over changes to board membership and constitutions and to consult with tenants. It also clarifies what constitutes a board for the purpose of these regulations.

Regulation 3 limits a local authority to directly appointing up to 24% of board membership of a housing association. There is nothing in the regulations to prevent housing associations appointing local authority councillors and officers to their board through open and transparent process. There is also nothing in the regulations to prevent the local authority representative being chair of the board.

Regulation 4 removes the need for the local authority representatives to be present at a board meeting in order for the board to be quorate and therefore take decisions. In other words, there cannot be a specific quorum provision that requires local authority members to be present, otherwise they could simply ensure that it is inquorate by staying away.

Regulation 5 removes the ability of a local authority to have shareholding membership in a housing association. It may be helpful to explain that the constitution of a housing association may include the allocation of a voting right to members, and some allocate a share of membership to different groups—for example, tenants and independent members. Generally, each group—that is, tenants, independent members and local authorities—currently holds a third of the votes cast at the annual meetings. In some cases, a local authority may be provided with an additional vote, sometimes referred to as a golden share, which affords them the opportunity to block constitutional changes. Once this passes, this will be outlawed.

Once made, the regulations will redistribute the local authority shareholding in equal proportions among the remaining parties—50:50. As a result, we expect tenants will have a greater proportion of the shareholding and therefore have more influence over constitutional decisions through that greater percentage. Going forward, it will be for housing associations to consider how best to structure their organisations and seek consent from the shareholding parties to make constitutional changes. In other words, what was generally divided into thirds will now likely be 50:50, between tenants and independents. Regulation 6 ensures that a majority vote cannot be set at more than 75% of the board. This will override any individual housing association constitution that is not compliant with it. That is necessary because, were it otherwise, the 24% would still be able to block some types of resolution at board level. Because of this provision, they will be unable to do so.

It is very important to address the issue of oversight during this debate. The devastating events at Grenfell Tower reinforce the need for sound oversight of organisations responsible for the safety of people’s homes and lives. I appreciate that there might be some concern about these regulations if they were to prevent this. I can assure the House that these regulations do nothing to undermine or minimise the regime currently in place to monitor and regulate housing associations. It is the social housing regulator which has overall powers relating to regulation of the sector. The regulator sets and has oversight of economic and consumer standards and these remain in place, including the home standard which requires registered providers of social housing to meet all applicable statutory duties and requirements that provide for the health and safety of the occupants in their homes.

As the House will be aware, we have announced a Green Paper to provide a wide-ranging review of social housing. As well as safety issues, the Green Paper will explore the quality of social homes, the rights of tenants, service management and the wider issues of community and the local economy. The Housing Minister is undertaking a series of events across England to listen to the concerns of social housing tenants. These conversations will help to frame the Green Paper, which will influence government policy and the wider debate for many years to come.

I can also provide assurances with regard to stock improvements. As I have said, these regulations will affect around 100 housing associations, mainly those where stock has been transferred from a local authority. Where a transfer has occurred, tenants will have voted for that transfer to take place. The stock transfers will have included promises around stock improvements and, through contracts with the local authority, housing associations will still be required to deliver on these promises even though local authorities will no longer have a shareholding.

In developing these regulations, we have taken on views from the National Housing Federation, the Local Government Association, the National Federation of ALMOs and many private registered providers and local authorities. The overall message from their responses was on the importance of housing associations being reclassified within the private sector as soon as possible, so that they would not be restricted by public sector borrowing caps and could continue building. One local authority was concerned that local authority representatives would not be allowed to be the chair of a housing association if their overall board membership was restricted to a maximum of 24%. As I have said, nothing in these regulations prevents a local authority representative becoming a chair of a housing association—it is entirely possible.

Housing associations and local authorities have said that they have a wide-ranging relationship through planning, housing management and so on, and that they want this relationship to be maintained. These regulations do not change this. Some responders wanted to ensure that local authorities could still sit on housing association boards. Under these regulations, housing associations are still able to appoint to their board representatives from local authorities where these appointments have been undertaken through an open and transparent process. That is, there can be up to 24% directly-appointed local authority representatives, plus others appointed not as local authority representatives but as those duly appointed or elected through a transparent process.

Stockholding arm’s-length management organisations sought to be exempted from these regulations, because as wholly local authority-owned vehicles they cannot function without council shareholding and board appointment, and because their debt is already included in national accounts. The regulations reflect this exemption.

To sum up, it is essential that we do not let technicalities or control interfere with the ability of housing associations to build the homes that as a country we need. These regulations are the final piece of the jigsaw in terms of removing unnecessary controls from essentially private sector organisations and enabling the Office for National Statistics to consider the reclassification of private registered providers back to the private sector. The regulations affect only 100 or so housing associations out of 1,500 in the sector overall. They do not affect the oversight of health and safety standards, as that is a matter for the social housing regulator; also, they do not prevent local authority direct involvement and interest in the running of housing associations, but limit that involvement to a reasonable level so that a housing association is rightly seen as a private entity. The ability of tenants to sit on housing association boards is unaffected; indeed, it is enhanced with the pro rata of voting shares, as I have explained. Housing associations will continue to build additional affordable homes and work with local authorities to meet identified housing needs.

Subject to consideration and decision on classification by the Office for National Statistics in light of these and other changes, we expect that around £70 billion of debt will be removed from the national accounts, which will ensure that housing associations have a stable investment environment. I commend these regulations to the House.

Amendment to the Motion

Moved by

--- Later in debate ---

[Lord Best (CB)]

My Lords, without disagreeing with anything that has been said by noble Lords so far, I support the essence of the Motion itself, which is specific. It enables local authorities still to be represented on the boards of housing associations as long as they are not more than a quarter. There is a limit that is clear—not more than a quarter. Local authority councillors can still be on boards—several of them. They can take the chair and be appointed in addition to the quarter if they have been chosen on the basis of the skills that they bring rather than simply because they are councillors. That seems a modest enough change to get us over the line to ensure that housing associations are regarded as independent bodies and not public bodies, with the convoluted arrangements that apply to public expenditure.

We need this change. Every time a housing association takes £1 in grant from the Government, at the moment, it can borrow £6 to add to that £1. That is off balance sheet and outside the scope of being on the national debt. That must continue in the future, so on the very specific aspect of the Motion, I add my support.

[Lord Bourne of Aberystwyth]

My Lords, I thank all noble Lords who have participated in the debate on these very narrow draft regulations on social housing. That is my answer to some of the points made by noble Lords who have complained that they do not deal with various matters. It is because the regulations are very focused and targeted on a particular issue. Noble Lords, particularly the noble Lord, Lord Kennedy, complained about the slow progress, but they focus on an important issue, as the noble Lord, Lord Best, just indicated. That is why the Government are acting with this laser-like focus. I will try to deal with the various matters that have been raised. Privately, the noble Lord, Lord Kennedy, is very much a Tigger and very enthusiastic. But publicly, on occasion he is very much an Eeyore, with no brick unhurled. Let me pick up some of these points.

Last week, in answer to a Question on client money protection from the noble Baroness, Lady Hayter of Kentish Town, I said that we would publish the consultation last week; she welcomed it. We did publish it last week, on 1 November, so it is disappointing that the noble Lord has taken a different stance on that. He also raised the issue of letting agent fees. I am sure he is aware that we published—again, to a wide welcome—a draft Bill last week, on 1 November. I am sure he must be genuinely pleased about those two things. He also raised an issue about planning fees. We have, as he quite fairly said, indicated an increase there—I think the House widely welcomed it—and are looking at ways of having a further increase. Those things should be welcomed.

The noble Lord said that this action does not improve accountability. In a sense it does, because it will place more tenants on boards. Perhaps I could try to set it out a bit more clearly than I did previously: in removing some local authority members and restricting their representation on the board to 24%, the number of vacated seats would fall to independent members and tenants, generally in equal proportions. The noble Lord, Lord Beecham, asked about the 24%, suggesting it was a strange figure. It is not at all; it is normally the case in company general meetings and, sometimes, board membership meetings—here we are talking about boards—that 25% representation can restrict the passage of a special resolution or particular type of activity through so-called negative control. By restricting it to 24% of the voting rights, we take that right away. It is important that we do so in terms of the reclassification, so that there is no longer negative control. That is why it is fixed at 24%. It is not a figure plucked from the air.

The noble Lord, Lord Beecham, also raised the issue of attendance of local authority members above the 24% figure. I think the noble Lord, Lord Best, answered that very effectively by saying, as I said in the introduction —perhaps not so effectively—that additional members can be appointed who are local authority members, but they would not be there as local authority representatives. I would anticipate, as is the normal way in board meetings and general meetings elsewhere, that if the board or general meeting wants to invite somebody along as an outsider to speak, that is entirely up to them. However, that person would not be a board member or have voting rights. That is the essence of the regulation.

The broader issue of the mechanics of the classification of whether this is public debt goes well beyond the range of the regulations. As I indicated, the Office for National Statistics has decided that these private registered providers are on the balance sheet. That is why we are taking this action. Certainly, Eurostat, from the European Union, recognises this as independent advice; we are acting in relation to that. The essence of the issue, which I do not think has been fully grasped by your Lordships, is that this makes a massive difference in terms of government borrowing. If something is on the public balance sheet, then of course it contributes to national debt; if it is off it, then that gives us broader scope on borrowing. It is not on it, and £70 billion is not a small amount of money. That is why we are focusing just on this—it makes a difference.

Noble Lords also referred to the Green Paper. The noble Lord, Lord Shipley, is absolutely right that the Housing Minister is going to a series of meetings around England to discuss this with organisations and tenants. That process will not be complete by the end of the year. I anticipate that we will deal with it in 2018; I do not have a particular date, but it will not be before this Christmas. We regard this as important; it is the first activity on this front for a generation. That is significant and we want to get it right, some time in 2018. I cannot give more detail than that because it depends on the progress of my honourable friend the Housing Minister in going round the country. Noble Lords will understand that he has been, and remains, incredibly busy as the Minister responsible for policy on Grenfell, meaning that progress has been slower than it otherwise would have been.

I am looking to see whether there are other unaddressed points. I think I have now dealt with the date. I take the point on consultation, although it is not as though we have not spoken to people. We have spoken to organisations and local authorities. There was not a formal consultation, but at the same time many noble Lords have said they do not want these things slowed down. Consultation, if done formally, has quite rightly to be done according to a set structure.

These regulations are important. They give us more freedom for manoeuvre. The noble Lord asked about what else remained; this is the last piece of the jigsaw. With that, I commend these regulations to the House.