Draft Insolvency of Registered Providers of Social Housing Regulations 2018

Jim Fitzpatrick Excerpts

Wednesday 21st March 2018 General Committees

[The Minister for Housing (Dominic Raab)]

I beg to move,

That the Committee has considered the draft Insolvency of Registered Providers of Social Housing Regulations 2018.

It is an enormous pleasure and an honour to serve under your chairmanship, Mr Evans.

The regulations were laid before the House on 7 February 2018. Increasing the supply of homes is a top priority for the Government, and that includes increasing the number of homes for social and affordable rent to help people access decent housing in which to build and improve their lives. Since 2010, we have delivered more than 357,000 new affordable homes, including 257,000 affordable homes for rent. The Prime Minister recently announced an extra £2 billion of funding for affordable housing, which will increase the overall affordable homes programme budget to more than £9 billion. The new funding will support councils and housing associations to build more affordable homes where they are needed most—where families are struggling with rental costs and some are at risk of homelessness. Only last week, the Chancellor announced a further £1.67 billion to provide an extra 26,000 homes to further boost affordable housing in London.

Housing associations are a key part of the delivery of those new homes. Three things enable housing associations to borrow cheaply: a stable operating environment, a robust regulatory framework and the fact that there has been no default in the sector that has resulted in loss to lenders or investors. Insolvencies in the sector are rare. To date, there has only been one insolvency since the moratorium arrangements were introduced back in 1996. Both lenders and providers value very highly the no loss on default record of the sector, meaning that no lender has lost money in the event of a housing association insolvency. It is vital that we maintain that robust financial regime so that housing associations continue to deliver the homes we need.

We also want to protect tenants so that their homes are not put at risk should any landlord get into difficulty. That is why, in the Housing and Planning Act 2016, we introduced a special administration regime for the social housing sector. The regime will give the Secretary of State the power to apply to the court to appoint a housing administrator in the event of a private registered provider being at risk of insolvency proceedings. In introducing those changes, we were responding to concerns that the existing moratorium provisions were not suitable for modern, large, developing and complex housing associations that might conceivably get into financial difficulty. Although financial failure is extremely rare, the housing association sector has changed significantly in recent years. The level of private finance has grown from £48 billion in 2012 to £70 billion last year.

Having introduced the main provisions in the 2016 Act, the regulations extend the housing administration framework in that Act to registered societies and charitable incorporated organisations. For those who are unfamiliar with those terms, a registered society is defined in the 2016 Act as having the same meaning as in the Co-operative and Community Benefit Societies Act 2014. It is a particular type of legal entity. Registered societies include co-operative societies, community benefit societies and pre-commencement societies registered before August 2014. They need to be registered with the Financial Conduct Authority. A charitable incorporated organisation is defined within the 2016 Act as a charitable incorporated organisation within the meaning of part 11 of the Charities Act 2011. Again, it is a particular type of legal entity. There are four main types of charitable structure: the incorporated organisation, the charitable company, which is limited by guarantee, the unincorporated association and the trust.

Due to drafting complexities, the provisions in the 2016 Act apply only to those housing associations that are companies. That is the key reason we are here today. There are 1,483 non-local authority private registered providers of social housing in England, providing 2.6 million homes; 885 charitable incorporated organisations with more than 2 million properties; 336 companies with 380,000 properties; and 262 registered societies with more than 95,000 properties.

A further piece of legislation will be needed before the special regime can be enacted: a statutory instrument setting out the rules that apply to administrators’ conduct of a housing administration. That will follow the negative procedure.

Under the law at the moment, where a housing association gets into financial difficulty and steps are taken towards entering a formal insolvency procedure, a 28-day moratorium begins that restricts creditors’ ability to enforce their security during that period. If the regulator cannot reach a solution with creditors during that 28-day period, or during an extension, creditors are able to call in loans and seek to recover their debts through the sale of assets, which can include social housing stock.

At least in theory, that could lead to a fire sale of social housing, meaning the stock would no longer be regulated and tenants would lose the protections of the social sector, including rent regulation. Therefore, the 2016 Act gives the Secretary of State, or the regulator of social housing with the Secretary of State’s consent, the power to apply to the court to appoint a housing administrator. The administrator would manage the affairs, the business and the property of the registered provider of social housing for the duration of the housing administration.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

I apologise for interrupting the Minister in mid-flow. I am not sure if it is the same in the rest of the country, but in London we are seeing a wave of amalgamations and takeovers of the smaller housing associations, apparently driven by Government policy, whether deliberate or unintentional. Is that part of the overall scheme? Does that fit into the protection that the Government are trying to introduce in terms of insolvency, or is that totally separate?

[Dominic Raab]

The hon. Gentleman makes an important point. One reason we are introducing these regulations is precisely because the housing association sector has changed. That does include some of the mergers and acquisitions—the consolidations—that we have seen with housing associations. It is ultimately a balance, but there is a real benefit to housing associations realising economies of scale in the way he has described, because that has a stimulus factor on the supply of new homes, which must be a plus.

Equally, as a responsible Government, we want to be mindful of any risks involved. The regulations can certainly be seen as ensuring that we have a strong regulatory regime in place so that we glean the benefits of the behaviour that the hon. Gentleman described, but also ensure that we mitigate the risk as best we can.

As with any administration regime, the main objective would be to rescue the organisation or return money to creditors. The crucial difference is that a housing administrator would also have a second important objective, which is to retain as much of the social housing as possible within the regulated sector. I think that goes to the point the hon. Gentleman alluded to. In addition, a housing administrator would not be constrained by a 28-day timeframe and would have the time to investigate the business and find the best solution possible in order to meet the objectives. We are ensuring that the process is flexible enough and specific to the housing association sector.

--- Later in debate ---

[Jim Fitzpatrick]

It is a pleasure to serve under your chairmanship, Mr Evans. I want to reinforce the points made by my hon. Friend the Member for Rochdale and end up by addressing the question asked by the hon. Member for Harrow East about the security of residents—tenants—were things to go awry. In my part of the world, in Tower Hamlets, a proliferation and explosion of housing associations have arrived on the scene over the past 20 years. They are registered as social landlords, partly because of the restrictions on councils being able to borrow money to build homes.

In 1997, the Labour Government took the clear view that, with 2 million homes below the decency threshold, it was going to be a long, complicated task to change the rules of local government financing and house building, so we promoted housing associations, which did not have the same financial restrictions, to move into the vacuum and build, repair and refurbish. We spent billions—that is on the record—taking 1.5 million of those homes above the decency threshold, with new windows, new kitchens, new bathrooms, central heating, double glazing, security systems and the rest. Estates in Tower Hamlets in east London that had been neglected for decades are now model estates and mixed estates, with private sales subsidising new social homes and the refurbishing of all social homes. From my point of view, that was a huge success.

Subsequent policy since 2010, and most recently the Government’s insistence that housing associations require a payment of 80% of local market rents, has meant that market rents around Canary Wharf in my constituency are way above what ordinary local people can afford. That has created great difficulty for housing associations. The Government’s policy to reduce rents by 1% put a great strain on housing associations’ budgets and future planning, so there has been a real tussle.

My question for the Minister is whether the regulations are totally separate from any concerns about collapses. Are they totally incidental to the mergers and acquisitions? He made the point about sharing back-office functions, which makes sense, given the pressures on public finances.

One of the downsides, however, is that local control has been sacrificed because of the mergers and acquisitions. Many of my housing associations were voted for by former council tenants, because they saw the improvements that they would get. Rather than having a mono-tenure, 95% council-housing monolith, tenants realised that they could have smaller local housing associations, where the line of communication between the tenants or leaseholders and the housing association’s chief executive was two steps rather than seven, so the executives lost that total anonymity. Now, much bigger housing associations mean that the people who make the decisions are further removed from the tenants and leaseholders who pay the rents and service charges and who pay for the refurbishments.

As I have said, my final question goes back to that asked by the hon. Member for Harrow East. Will a threat or jeopardy be attached to the tenants and residents in the organisations if they suffer difficulties and have to take advantage of the new legislation? Is the legislation a totally separate initiative that was introduced by Government because they spotted a gap that needed to be plugged, rather than a response to a fear that such regulations would have to be brought in anyway because of the current danger in the sector?

Building Safety

Jim Fitzpatrick Excerpts

Thursday 15th March 2018 Commons Chamber

[Sajid Javid]

My hon. Friend is absolutely right to raise this. As he will know, Dame Judith Hackitt’s work is independent, but she takes this issue very seriously. He may know that in her interim report she recommended, as one of the immediate measures, a review of Approved Document B and work to clarify it. That work has already started within my Department and we hope to consult on this in the summer.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

This is obviously another worrying development that reinforces Dame Judith Hackitt’s interim findings of the cultural change needed across the board, which the Secretary of State referred to. We look forward to her conclusions, including, I hope, on the updating of fire guidance in Approved Document B.

What assistance can the Secretary of State offer to leaseholders who face bills of thousands of pounds for fire marshals and replacement cladding, and now perhaps for new fire doors, given that they have no responsibility for the predicament in which they find themselves? I draw attention to the question asked by the hon. Member for Worthing West (Sir Peter Bottomley). The Secretary of State’s exhortations to property management companies and freeholders are falling on deaf ears, and leaseholders are having to pick up the tab.

[Sajid Javid]

I thank the hon. Gentleman for welcoming Dame Judith Hackitt’s work.

I and the Government very much understand the situation that leaseholders are in. It is obviously a very difficult and distressing situation for many people—we understand that. I do not accept that what I and others have said about owners’ moral duty is falling on deaf ears. There have actually been a number of instances in which we have got involved and some of the private owners have listened. They do not wish to be public about that—that is their choice—but at least they have listened and helped the leaseholders. I want more to do the same. I am keeping the issue under review and looking to see what more we can do.

Fire Safety and Cladding

Jim Fitzpatrick Excerpts

Tuesday 6th March 2018 Westminster Hall

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

It is a pleasure to see you in the Chair, Mr Streeter. I congratulate my hon. Friend the Member for Croydon North (Mr Reed) on securing this important debate.

I will be brief, Mr Streeter, as you have told me to be. I have two questions for the Minister. First, who should pay for the removal and replacement of unsafe cladding and for the interim remedial measures, such as fire marshals and temporary alarm systems? Secondly, when will we see progress on the review of Approved Document B, and can we have an update on the BS 8414 test?

On the first question, the Government are clear that they want landlords to pay, as they have repeatedly exhorted them to. In the social sector, with registered social landlords and local authorities, they have been largely successful, but in the private sector the opposite is true. Many freeholders and property management companies take the view opposite to the Government’s. As the Leasehold Knowledge Partnership has reported to my hon. Friend, it is leaseholders who are picking up the tab.

One thing is for sure: leaseholders have no blame in this. They did not design the buildings, choose the construction materials or draft, monitor or enforce the defective regulations, so why are they the victims? As the Minister has rightly said:

“We have been very clear that, morally, such costs should not be passed on to leaseholders.”—[Official Report, 5 February 2018; Vol. 635, c. 1237.]

However, that is exactly what is happening. Leaseholders are financially stretched to the full to meet mortgage payments for years ahead. They face huge bills, as we have heard. The Government need to do something for them now.

On Approved Document B, the all-party fire safety rescue group has sought a review of the statutory guidance and the building regulations. The last review was in 2006. Historically, reviews were carried out every five years, or at least every 10, but it has now been 12 years. New materials and construction methods mean new risks.

The Government must do more. The interim report of the Dame Judith Hackitt review called for a complete cultural overhaul. Dame Judith’s work has been widely praised and much has gone on behind the scenes, but we have heard nothing from the Government on simple matters such as the BS 8414 test or the ban that the Royal Institute of British Architects, the Association of British Insurers and the Fire Protection Association have called for on using combustible materials on the outside of buildings.

In conclusion, I would welcome the Minister’s comments on the BS 8414 test, on the review of Approved Document B and the building regulations, and on how the Government intend to protect leaseholders, who are in such a vulnerable position.