Finance Committee, 10 Feb 2004

Meeting date: Tuesday, February 10, 2004

Official Report 301KB pdf

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Fire Sprinklers in Residential Premises (Scotland) Bill: Financial Memorandum

Before we consider the next item, I ask everyone to stand for a minute's silence to remember those who died in the terrible fire at Rosepark care home in Uddingston.

Thank you.

The Fire Sprinklers in Residential Premises (Scotland) Bill is a member's bill, which Michael Matheson introduced on 17 November 2003. To help us in our consideration of the bill, we have David Bookbinder, who is a policy and practice co-ordinator from the Scottish Federation of Housing Associations; Alister McDonald, who is the depute chief executive of Bield Housing Association; and John Blackwood, who is the director of the Scottish Association of Landlords. I welcome you all to the meeting. Do the witnesses wish to make an opening statement?

The Scottish Federation of Housing Associations believes that tenants' safety in any housing is paramount. We have no doubt that the bill is well intentioned. We welcome last Wednesday's ministerial statement, which referred to continuing research into the effectiveness of a range of fire prevention methods, including sprinklers. Legislating now for the introduction of a single measure would be premature.

It is difficult to see the bill's justification for covering houses in multiple occupation and sheltered housing, which are different from care homes or large nursing homes. It is important to point out that the bill would not cover nursing homes such as Rosepark.

Since 2000, HMOs have been subject to mandatory licensing, which imposes stringent fire safety standards. Licensed HMOs are much safer than most ordinary houses in the community, because of the standards that they must meet. On the other hand, sheltered housing is built so that each self-contained flat is an individual fire cell, in accordance with building regulations. That ensures that fire is unlikely to spread.

The financial memorandum greatly underestimates the cost of installing sprinklers and the cost of the bill's affecting every HMO in Scotland. It might not be clear from the explanatory notes that every existing HMO would be affected as soon as it had a change of occupancy. The costs would have to come from the public purse or from tenants' rents. Our concerns are about costs and about the effectiveness of sprinklers in the types of housing that the bill covers.

The Scottish Association of Landlords echoes many of the comments that have been made, so I will not labour the point. We have policy issues with the bill. Fire prevention and tenant safety are paramount, but we are concerned about a blanket licensing condition for all HMOs when the current system is adequate. Our objections are based largely on financial aspects and relate to the cost that tenants might be required to pay in the long run through rents. That may be unnecessary at this stage.

I remind committee members that it is not our job to deal with the bill in principle—that is the Communities Committee's job. Our responsibility is to ensure that the full financial implications, should the bill be approved as a policy approach, are properly quantified and identified. Our responsibility in relation to a member's bill is no different from that in relation to an Executive bill.

The Scottish Federation of Housing Associations has expressed concerns about the definition of sheltered housing. The definition may have an impact on the financial memorandum because, if it is loose, many more people could be affected. The definition in section 15 says:

"‘sheltered housing' means any house or group of houses which, having regard to design, size and other features, is particularly suitable for occupation by people who are elderly, disabled or infirm or in some other way vulnerable".

The definition also refers to facilities, but it contains nothing about individual fire cells. The other thing that struck me about the definition was that it could, in some interpretations, surely cover nursing homes and residential homes, in that they, too, would be particularly suitable for occupation by a particular group of people and would have facilities that were substantially different from those of ordinary houses. Do you think that the interpretation might be so wide that it could bring in a lot of providers other than those that it intends to bring in?

Our difficulty with the definition of sheltered housing is that the provision of fire sprinklers relates to the building regulations, but the regulations do not include a definition of sheltered housing. I am sorry to get into the technicalities, which are not really financial, but sheltered housing, when it is built, is classified as a dwelling, whereas care homes are classified in a different category as residential accommodation, along with student accommodation and various other types of accommodation.

The Scottish Executive's statistics show that there are something like 35,000 sheltered housing units throughout Scotland. An enormous range of types of accommodation is classified as sheltered housing, from older properties that have been adapted by having an alarm call system installed, to purpose-built modern facilities that have more in common with a care home in terms of design of facilities, except that each dwelling has to be built as a self-contained fire cell. All that is fairly technical, but the point is that the definition of sheltered housing is not in the building regulations.

Do you think that the fact that the definitions in the bill and in the building regulations do not concur has financial implications?

It is partly because of the lack of clarity in what constitutes sheltered housing that we are not entirely clear about the financial implications.

According to the evidence on houses in multiple occupation and sheltered housing that the various organisations have submitted, you are saying that the figures in the financial estimates are nothing like enough. In fact, you are saying that in some cases it will be twice as expensive to implement the measures. If I am right in my reading of the submission from the Scottish Association of Landlords, the real costs could be something like seven or eight times as much as the figures that have been presented to us. That seems a massive increase. Perhaps you could explain why, in your view, implementing the proposals will cost that much more than the financial memorandum indicates.

We took evidence from two members of the Fire Sprinkler Association on typical properties, specifically in the Edinburgh area. We found that the costs did not relate just to the installation and maintenance of the sprinkler systems; there would be additional costs, depending on the local area. For instance, in Edinburgh we looked at one three-bedroom property, which is at the lower end of the HMO scale. It was not a new build, but a tenement property. We found that we would not be able to install a fire sprinkler system that would be directed from the mains simply because—I gather that this is the case in a lot of cities in Scotland—the water pressure is not sufficient in certain areas.

The way around that is to install a pump at the mains, at an additional cost. However, I believe that Scottish Water objects to people doing that, because it has a detrimental effect on neighbouring properties. The other alternative is to install a separate water tank within the property, which would have to be able to hold 800 litres of water. I am not technical at all, but I believe that that is about four times the size of a normal cold-water tank. There is a cost in housing such a tank, as well as in installing and maintaining it.

Another solution, which the bill does not cover, unfortunately, is to introduce mist sprinkler systems, which we believe the Fire Sprinkler Association approves of and which are already used in some properties in Edinburgh. The City of Edinburgh Council is happy to accept those systems, but they would not be covered by the bill, so people who already have such a system in place—which would have been approved for HMO licensing purposes—would have to consider an alternative system.

The figure of £3,500 was based on that one property and did not include installing an additional tank. However, that was the minimum cost that was quoted. Basically, both people said that we were talking about at least £3,500 for a typical tenement flat.

We were also made aware of the additional problems. I understand that the majority of HMOs have higher occupancy, with perhaps four, five or six bedrooms—that is where the quote of between £5,000 and £7,000 came in. There are additional costs over and above that, which we can only estimate at this stage.

Let us take your figure of £7,000 for an HMO in, say, Edinburgh, once all the plasterwork is fixed and all the rest of it. Presumably, that figure applies to properties that house students and people who move on from year to year—the tenancy changes perhaps every year. Those people would be forced to incur the expenditure at the end of the first year of a lease. Who would pick up the cost, other than the students or the lessees? Is there any way in which the landlords can be subsidised?

There is nothing that we are aware of, unless some facility were made available for that purpose. The landlord would ultimately have to pick up the bill. It would be difficult to recoup that cost from the tenants within a short period of time. As you can appreciate, there is only so much that one can charge for rent.

Paragraph 73 of the financial memorandum refers to a £35 annual maintenance charge. The Scottish Federation of Housing Associations mentioned a maintenance charge, but did not say what it expects the cost to be, and the Scottish Association of Landlords does not mention the maintenance cost at all. Maintenance is important—for example, we all know that if smoke alarms are not maintained properly, it is a waste of time having them. What do you estimate the annual cost of maintenance to be? I would have thought that £35 a year was a small amount of money for someone to go into a house and check a system.

I do not have the costs before me. I have tried to get a figure for maintenance, because we, too, feel that £35 would not cover it. The two members of the Fire Sprinkler Association whom we approached said that the cost is an unknown quantity, because it depends on the number of sprinkler heads within a property, the size of the property and so on. There are so many variables that they were unable to give us an exact figure. We hope to have a specific cost, based on various different properties, but I do not have the figures with me to give to you.

I presume that the work will be ordered by the landlord and billed as part of the rent—it will not be billed separately—so there will be no chance for tenants to opt out of paying if there is a sprinkler system. Is that how most landlords operate in relation to communal costs or annual maintenance?

Yes. The cost would have to be paid for as part of the regular maintenance costs of the property, which the landlord would incur in the first instance.

On the costs that Ted Brocklebank questioned you about, do you have any idea about the percentage increase in rent that would be required to cover the cost of installing sprinkler systems? I presume that the increase would not just be a one-off charge to cover the capital cost of installing systems, with a decrease in rent in following years because the capital cost was not being incurred. There would be a percentage increase that would cover the cost of the work over time. Do you have any idea what that cost would be?

As you say, the cost would be covered over time, not just over a year. That would largely depend on the property and its occupancy. There is a huge difference between the rent of a three-bedroom HMO and that of a six or seven-bedroom HMO.

There is an overriding concern about the huge potential boost in rents through existing HMO licensing. I know that many landlords have not upped rents simply because the market dictates that they will not be able to increase rents. Therefore, they have taken the costs on board with a view to recouping them over a period of years. We are concerned about further costs over and above those that landlords incurred in carrying out all the alterations for an HMO licence in the first place. We are also concerned that on-going, year-by-year licensing fees are not taken into account.

I think that there are serious concerns about whether the money could be recouped, although I can speak only anecdotally. We are worried that many landlords who have HMO licences and do everything that they should do to maintain their properties and to keep them fit for occupancy will leave the market. Our overriding concern relates to what that will to do to the supply of properties in areas of Scotland, but, unfortunately, we have no evidence relating to that concern at this stage.

Mr Matheson should be commended for doing a great deal of work on the bill and for producing a policy memorandum that not only provides a great deal of factual detail, but gives us statistical evidence of the impact of the installation of water sprinkler systems in other countries—the memorandum mentions Scottsdale in Arizona and Vancouver.

Mr Matheson has also directed our attention to a parliamentary answer given by Mr Raynsford, which states:

"Fire and Rescue Services in the UK attended 22 fires in dwellings equipped with water sprinklers, there were no deaths reported. In the same period, there were 64,613 fires in dwellings not equipped with water sprinklers, and 443 deaths."—[Official Report, House of Commons, 2 February 2004; Vol 417, c 740W.]

The financial memorandum deals with costs to public services, which are perhaps not strictly of interest to members of your organisations. Each death costs around £1 million from the public purse. By any account, I am sure that we would all agree that Mr Matheson has produced a piece of work that needs to be seriously considered.

My first question is whether the SFHA and Bield Housing Association responded to the consultation that was initiated in September 2001.

I am sorry, but which consultation do you mean?

I am talking about the consultation process that Mr Matheson initiated in September 2001. Did the SFHA and Bield Housing Association make submissions to that consultation?

I understand that the SFHA responded and that Bield Housing Association contributed to that response. We did not make a separate, independent response. Of course, the proposal then covered all dwellings and not only sheltered housing and HMOs.

That is an important distinction. We do not want to say that sprinklers per se are not a good idea. However, the bill relates specifically to only two types of housing, which we believe are among the safest dwellings in Scotland as a result of building regulations and the mandatory licensing of HMOs. It is not our place to comment on the value of sprinklers in other types of buildings, such as in open shopping centres, or on sprinklers themselves. However, we do not believe that the policy memorandum includes any information that justifies saying that HMOs and sheltered housing are more at risk than other types of housing.

In paragraphs 105 to 111 of the financial memorandum, Mr Matheson has identified potential savings if the bill were enacted. I do not think that you have commented on that part of the memorandum. Would you care to do so now?

Yes. That part of the memorandum, like the rest of it, does not make specific reference to figures on sheltered housing or HMOs. Those are general fire figures. The bill relates to only two types of housing.

Do you accept that if the bill was implemented, insurance premiums on properties would reduce?

No. Our members have been told that insurance premiums would increase because of the potential for water damage, both in false alarms and real situations.

I thought that you might say that. Mr Matheson might argue that there is a misunderstanding as to what type of sprinkler system he is proposing and in what circumstances that system would be activated. I am no expert in these matters, having studied them only during the weekend, but as I understand it Mr Matheson's argument is that the SFHA misunderstands how sprinklers operate. The FSA has clarified that sprinklers operate when the ambient temperature reaches 68°C and that smoke needs hot gases to be transported around a building. Those gases would be considerably hotter than 68°C so it is unlikely that there would be enough smoke produced to pose a threat to life without the fire generating enough heat to operate the sprinkler system.

I do not want to stray into substantive issues, but it is obvious that it is your view of those substantive issues that colours and dictates your approach to the financial implications, so it is relevant to talk about them from that point of view. Do you accept the FSA's criticism that your contribution misunderstands how sprinklers operate?

No. Since the bill was published, I have come to understand a lot better than I did some weeks ago how sprinkler systems operate. I therefore appreciate the difference between a residential sprinkler system and a commercial system that might operate in such places as shopping centres. They operate individually. I appreciate that each sprinkler head is operated individually by heat.

As the representative of an individual association, I cannot comment on the SFHA. We consulted our insurance brokers on the issue of whether insurance premiums would be reduced if we installed sprinkler systems. At this stage, the brokers were non-committal. They did not say whether premiums would reduce or go up; they said that they would have to look into it. That is just another area that we are not clear about.

I have never met an insurance broker who anticipated a reduction in insurance premiums. Perhaps I have led a sheltered life.

The most fundamental difference in the financial implications has been raised by Ted Brocklebank. There is a striking disparity between your figures for the cost of installing a sprinkler system and Mr Matheson's estimate of a £1,500 average cost. Mr Matheson was careful to point out that the precise cost will be different for each property. He is not arguing that £1,500 is a fixed cost by any means; quite the contrary. He has looked into the costs in some detail.

Mr Blackwood's argument seems to be based on one house in Edinburgh and on the approach taken by Scottish Water to the particular consequences for that organisation. What other information does each witness have that supports their evidence that the average cost is likely to be rather more? The figures of £3,500 and then £5,000 to £7,000 have been mentioned. What data do you rely on and have you assessed before giving us your conclusions?

At the moment we do not have reliable data on costs from across Scotland and that is why we believe that further research is needed. The evidence is very much ad hoc and hearsay that we are picking up from different sources. For example, one of our member housing associations in consultation this week with one fire authority was given an average cost for the type of HMOs in that area as between £5,000 and £10,000; I admit that that was just one fire authority. That is another piece of ad hoc evidence that builds a picture. We cannot put our finger on an exact average cost in Scotland, but a worrying picture is being built up.

We will have a final question from Fergus Ewing.

You have stated that there is a lack of data, but you have given us an average cost. The Scottish Association of Landlords has stated that the average cost will be in the region of £5,000 to £7,000 per property.

I am sorry that Mr Blackwood perhaps did not get an opportunity to answer that question. I want to make the general point that it seems to me that many aspects of the bill require careful consideration, not least substantive issues that we cannot consider today, such as those raised by Mr James Proctor in an interesting letter in The Herald this morning. Would you, as representatives of your organisation, be willing to meet Mr Matheson in order to take forward the discussions? It seems that, as yet, there has not been a meeting of minds. It would be helpful for all of us in the Parliament to be sure that we are acting on the best possible information and that we have the benefit of your full contribution to the consultation process.

Certainly, we would be delighted to do that. It would have been nice to have been approached earlier, but we would be delighted to do that.

The figure of £5,000 to £7,000 is based on actual costs for systems that have already been installed, albeit in Edinburgh. Those are actual costs for existing properties; albeit only a handful that have been done within the City of Edinburgh.

I thank the convener for being so gracious as to let me take part in the committee meeting.

Fergus Ewing made a very good point on the issue of average costs. In the information that they have gathered from their members, have the witnesses been able to ascertain any individual costs that either match or are less than the average cost of £1,500?

We have certainly not had sight or sound of information that would put the cost lower than that.

I approached members of the Fire Sprinkler Association about the matter. I said that it had come out that the cost might be £1,500 and asked whether they thought that that was within the ballpark figure for any property. One of the members said that he would not quote for less than £3,500; that was an FSA member who would be installing sprinklers. We are working on that basis.

I am interested in the process by which you got the figures that are on the table. Those were quotations. Did you manage to simulate any feel of a competitive tender?

I must admit that, because the Fire Sprinkler Association has been involved in the process I wanted to use its members and as the properties in question relate to FSA members within the Edinburgh area I was trying to get local people to give quotes. The two nearest people that I could find operate in Fife; I could not find anybody in Edinburgh who would install the sprinkler systems. The quote of between £5,000 and £7,000 was based on a property in Edinburgh that already has a sprinkler system that was installed by a company in Glasgow. Unfortunately, I have not yet had time to approach the company and get more specific costs. That information was from the association's own members. They quoted anecdotally having been given property addresses, the occupancy of the property and whether it was located on the ground or first floor or whatever. They were able to give us those figures.

Was that process conducted verbally or was it done in writing. Did you put a simulated request for tender to them and get a formal tender back?

It was done verbally because, unfortunately, I have only had the last week to try to work on the bill. In due course we will be able—I hope in time for the Communities Committee—to have the exact costs and exact estimates in writing.

Do you feel that in that climate you could get a better price and have the companies sharpen their pencil?

I certainly hope so. It would be nice to get a specific cost based on a specific property. That would be useful.

Beyond that, have you talked to any surveyors about the potential increase in value in a property with sprinklers installed?

Once again, having spoken to a couple of people over the last week, they did not feel that that would have any bearing on the market value of a property.

Was that also done verbally?

Yes.

Mr Blackwood's written submission states:

"It is the opinion of our Association, that the existing Licensing structure allows each Local Authority to determine, under their own licensing regime, where and where not Fire Sprinkler Systems are required and therefore feels it unnecessary to impose a blanket licensing condition".

Do you know of any local authorities that have imposed this condition on HMOs under their own aegis?

That has certainly happened in Edinburgh. I am sorry to dwell so much on Edinburgh, but as it is a built-up area we have found it useful to draw on some contacts locally and within the local authority.

The City of Edinburgh Council has said that, as a result of its own licensing conditions, it already requires fire sprinklers to be installed in some HMO properties. We are not against such an approach; indeed, we see the benefit of sprinkler systems in some—though not all—HMO properties. I believe that the requirement for fire sprinkler systems to be installed applies to all double upper flats, which have more than one storey. As a result, the council has had some experience with local contractors that have installed some of the systems. That bears somewhat on the costs that we have set out.

Have you been using such examples with regard to local authorities in order to estimate costs?

Yes.

I presume that you oppose a blanket requirement on HMOs to have fire sprinkler systems installed. However, some local authorities and landlords that have installed the systems have said that the move has been—there is no other word for it—a success.

As local authority representatives will be giving evidence in a couple of weeks' time, Jeremy, you will have the chance to deal with that matter then.

I am sure that the local authorities will bear out your comments. However, it is important to point out that we are not against such systems per se. They have their place in certain properties that might pose a higher fire risk than other HMO properties, simply because of their occupancy, layout and so on.

However, many HMOs are in ground-floor properties that have front and back doors, fire doors, clear fire access and an existing smoke or fire detector system. The local authority takes the view that that is perfectly adequate and that no additional conditions are necessary. Because each local authority—I am taking Edinburgh as an example—checks every property and does an individual fire risk assessment on it, it is able to determine where such measures are or are not appropriate. Like us, local authorities are saying that surely that approach is adequate and that the current HMO licensing system already gives them that power. We do not need a blanket approach.

I want to ask the housing associations—and Bield Housing Association in particular—whether any of its new build houses include sprinkler or mist systems.

No, but we include a full fire alarm system. Each house is protected as a fire cell, and contains the usual precautions of fire doors, fire closers and so on. Any building with corridor access is designed and built to comply with the current building regulations and in consultation with the fire officer. However, as fire sprinklers are not currently a requirement, we do not install them.

In response to an earlier question, Mr Blackwood said that he thought it likely that if the legislation applied to HMOs a number of people would no longer be interested in staying in the letting market. Will he quantify that in relation to the licensing arrangements that were previously imposed on HMOs? After all, fairly strict regulations have been introduced over the past two or three years. At that time, was there any evidence of properties going out of the letting market?

Unfortunately, we cannot in all fairness say that such evidence exists. We can cite only anecdotal evidence from our own members, who tell us whether they are continuing to work in the field. When HMO licensing was introduced, we had huge reservations—not, as many people thought, about the policy aspects, but about the threshold aspects, the fact that it was brought in through secondary legislation and so on. We thought that many landlords would vote with their feet and say that it was no longer the same kind of profitable business that they would rather put their money into.

HMO licensing has been in place for only a short time but, although the evidence is anecdotal at this stage, our members are now starting to see people leave the HMO sector and sell up and move on. However, we do not know whether those people have been replaced, as it could well be the case that other landlords have bought up the property. We are still working on the issue to find further evidence.

I have a greater concern about the bill that is before us because it will compound the situation by making things even more difficult for some landlords. Landlords might see the bill as the straw that breaks the camel's back. That is a slight concern, although I should say that that is only anecdotal at this stage.

I am in favour of having sprinkler systems in all types of accommodation, so I believe that the bill does not go far enough. During term time, the constituency that I represent has 10 per cent of the student population. Many of them live in halls of residence as well as in houses in multiple occupation, so I would like to see the bill go further. However, there seems to be a discrepancy about the costs of the bill. Could the witnesses clarify that in writing?

Perhaps the convener could also ask Michael Matheson to clarify the actual costs. There is a huge discrepancy between the costs that are suggested in the submissions that we have received and those that are given in the financial memorandum. If we have the opportunity, we could also take evidence from Michael Matheson on that.

I realise that, given the short timescale, it may not have been possible for the witnesses to put all the information together, but it would be useful for the committee if we could get something in writing about that cost discrepancy before we make a decision on the bill.

I would be happy to provide that once we have the information.

Likewise, I would be happy to provide information not only on installation costs but on the number of buildings that will be affected. For instance, the financial memorandum currently says that the bill would impose no costs on registered social landlords of HMOs. That is an astonishing statement, given that we reckon that the cost for RSLs of HMOs will run into millions of pounds.

Could we possibly have information on annual maintenance costs as well? Also, the Scottish Association of Landlords' submission points out that the cost in the financial memorandum is based on a sprinkler system whose pipes are exposed rather than hidden. Obviously, quality of accommodation is important as well as safety. Could we have information on how much it would cost to install an acceptable system that is operational and that would not look hideous in the kind of accommodation that we expect people to live in?

Let me add that, if we have the opportunity to speak to Mr Matheson, we will suggest that mist sprinklers should be included in the bill. Mist sprinkler systems seem to be much easier to install. The evidence that we have received so far is that they cost more or less the same as other systems. However, I imagine that mist sprinklers require fewer pipes and do not require the hassle of being connected to the mains. It might be useful to have information on that as well.

It will be useful to get that further information in writing. Obviously, that invitation applies to all three witnesses. We will take evidence from Michael Matheson and officials from the non-Executive bills unit in a fortnight's time. I may have misled the committee by saying that we would take oral evidence on the bill from the Convention of Scottish Local Authorities. In fact, we will receive written evidence from COSLA.

I thank the witnesses for coming along today and for the information that they have given us.