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

Richard Graham Excerpts

Monday 6th November 2017 General Committees

[The Minister for Housing and Planning (Alok Sharma)]

I beg to move,

That the Committee has considered the draft Regulation of Social Housing (Influence of Local Authorities) (England) Regulations 2017.

It is a pleasure to serve under your chairmanship, Mr Stringer. The regulations, which were laid before the House on 14 September, are the final part of the legislation that is needed to reduce unnecessary public control over housing associations. Local authorities currently exercise this control through their ability to directly appoint housing association board members and hold share membership of these organisations.

Before I get into the details of the regulations, it may be useful if I give some context. In October 2015, the Office for National Statistics took the decision that private registered providers—more commonly known as housing associations—should be classed as public non-financial corporations for the purposes of national accounts, because the level of control exercised over them by the social housing regulator and local authorities was too high. Although the ONS’s decision was a statistical matter with no direct bearing on the management structure, ownership or legal status of the housing providers, it added approximately £70 billion to the Government’s 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 add to the Government’s debt. Equally important, housing associations need a stable investment environment in which they can play their part in fixing the housing market and get on with building new homes, and the fact that they are classified as public sector for the purpose of technical accounting is providing an unnecessary distraction. To that end, provisions in the Housing and Planning Act 2016 that came into force on 6 April 2017 have already removed the majority of controls that the ONS highlighted as a concern.

We also took the power in the 2016 Act to use affirmative regulation to limit local authority control. Our reason for not limiting it from the outset was to consider fully the ONS’s concerns. As a result of that consideration, we believe that the regulations represent a good balance between limiting local authority control over business operation and maintaining the ability of local authorities to work with housing associations to prioritise and deliver the social housing that their communities need.

The regulations will specifically remove two areas of local authority control over housing associations. First, they will exclude local authorities from holding a shareholding membership of a housing association. In the associations affected, shareholding will generally have been divided equally between local authorities, independent shareholders and tenants. Such rights may allow a local authority to block major changes being made to a housing association’s constitution, and this is seen as control over the body. The regulations will redistribute the local authority’s shareholding in equal proportions among the remaining parties. As a result, we expect that tenants will have a greater proportion of the shareholding and therefore more influence over constitutional decisions.

Secondly, the regulations permit local authorities to directly appoint up to 24% of board members, with which a local authority will be able to influence the board. They also specify that a majority decision cannot be set at more than 75% of board membership, which means that local authorities will not have the power to block decisions taken at board level. By preventing local authorities from blocking housing associations’ constitutional changes, both those measures will limit the control that a local authority can exert on a housing association. It must be right that private sector organisations should not be controlled in such a way.

That is not to say that local authorities should have no interest in housing associations; nor should the regulations prevent them from continuing some of the excellent partnership work that goes on up and down the country. Importantly, the circumstances in which they apply will generally be limited to those in which a local authority has transferred housing stock to a housing association. We estimate that approximately 100 of the 1,500 currently registered housing associations will be affected.

The devastating events at Grenfell Tower reinforce the need for sound oversight of organisations responsible for the safety of people’s homes. I assure hon. Members that the regulations will do nothing to undermine or minimise the current regulatory regime, under which the social housing regulator has overall powers to regulate the sector and sets economic and consumer standards. My right hon. Friend the Secretary of State has announced a Green Paper to provide a wide-ranging review of social housing that will explore not only safety issues, but the quality of social homes, the rights of tenants, service management and the wider issues of community and the local economy. To support that review, I am undertaking a series of events across England to listen to the concerns of social housing tenants. Those conversations will help to frame the Green Paper, which will influence both Government policy and the wider debate for many years to come.

[Richard Graham (Gloucester) (Con)]

I welcome the fact that all housing associations will be classified as private bodies, while being enabled to recruit the right skills to their boards. Will the Minister confirm whether local authority representation on housing association boards will be capped at 24%? Will it have to be kept precisely to that level if both the housing association and the local authority agree otherwise?

[Alok Sharma]

The regulations say that local authorities will have representation of up to 24% of board members. In many cases, that will mean reducing the number of board members they appoint. Ultimately, this is about demonstrating that local authorities no longer exercise the same level of control over housing associations.

In developing the regulations, we have taken views from the National Housing Federation, the Local Government Association, the National Federation of ALMOs and a selection of housing associations and local authorities. The overall message from their responses was the importance of reclassifying housing associations as private sector as soon as possible. Housing associations and local authorities have a wide-ranging relationship, and we want that relationship to be maintained. The regulations will not change that.

The regulations will give local authorities and housing associations six months to make the necessary changes. In that time, local authorities will need to reduce their board membership to 24% of the directly appointed members by choosing which members should remain and which be removed. Housing associations will need to amend their constitutions to reflect the changes required by the regulations. After the six-month period, if action has not been taken, the regulations will overwrite contracts and constitutions to reduce local authority board membership to the required level and remove shareholding membership. The shareholding membership is to be distributed pro rata among the other shareholders, meaning that tenants will hold a larger share in the association.

In summary, the regulations go only as far as is necessary to allow the ONS to consider the reclassification of housing associations as private sector.