Infrastructure and Capital Investment Committee

Meeting date: Wednesday, October 26, 2011

Official Report 452KB pdf

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Draft Budget 2012-13 and Spending Review 2011

Agenda item 2 is evidence on the housing aspects of the draft budget and spending review. A few days ago, the committee received level 4 figures on the draft budget, and our witnesses have been provided with that additional information. It is perhaps regrettable that the information did not arrive earlier, but I hope that members and witnesses have had the opportunity to digest some of the figures in the time available. We will certainly give them further consideration.

I welcome our witnesses, who are Councillor Harry McGuigan, the Convention of Scottish Local Authorities spokesman for community wellbeing and safety; Caroline Johnston, policy manager with COSLA; Dr Dan Barlow, head of policy with WWF Scotland, and Michael Levack, chief executive of the Scottish Building Federation, both of whom are here to represent the existing homes alliance; Maureen Watson, policy and strategy director with the Scottish Federation of Housing Associations; Gordon MacRae, head of communications and policy with Shelter Scotland; and Jonathan Fair, chief executive of Homes for Scotland. Our witnesses do not all have to answer every question. If you agree with a previous speaker, just say that, rather than repeat what has been said already, because we have a lot to get through.

What are the witnesses’ views on the adequacy of the housing and regeneration budget, in terms of the overall allocation and the balance between capital and resource expenditure?

Overall, Shelter Scotland wants to say that this is the second year running in which the housing budget has taken a disproportionate share of the cuts. It is particularly disappointing that housing has been targeted when other areas of capital investment have had increases year on year. We share the view of many in the housing sector that investment in housing is a particularly beneficial form of public investment, as it delivers a triple bottom line of the revenue stream from social homes, homes for people and a public asset.

The level 4 figures for the infrastructure and capital investment portfolio are welcome, although we have not seen the level 4 figures for local government, which contributes a sizeable proportion of the housing supply funds. From the figures, it is clear that we will struggle even to begin to address housing need in Scotland in the next few years. We welcome the Scottish Government’s decision to listen to the evidence from Shelter Scotland and the Chartered Institute of Housing in Scotland that about £600 million is needed just to sustain the sector as it is. In the past couple of years, the housing supply funds have moved from being in a critical condition in the intensive care ward and into the high-dependency ward, but we are still a long way from recovery. We remain concerned that we are only beginning to touch the margins of the housing need in Scotland.

Gordon MacRae has said a fair bit of what I wanted to say, but it is important that I echo the analysis that he put to the committee.

We have seen a continuing drop in available resources for social housing and affordable housing. We recognise that there are budget issues and we appreciate that we must work in partnership with the Scottish Government on the budget. However, we must keep reminding the Scottish Government and you as MSPs that the resources available to local authorities and registered social landlords are extremely limited, given the problems that we face. We have a real commitment to dealing with homelessness by 2012. That is not just an aspiration any more, because local authorities have made considerable progress towards that target. However, we are very concerned that it could be one of the casualties of the reduced level of funding.

Alongside that, there is a need to build more houses for people in their communities and in places where there are particular needs. We are anxious that the available resources should be allocated to meet such needs; in other words, the resource allocation should be worked out in a collaborative way with all partners to meet the needs that exist in our communities. It is simply not acceptable—to local authorities, anyway—for local housing strategies not to be worked out in a partnership fashion, which I think all of us sitting around this table would agree should be the case.

Who builds the houses is not too important, but it is very important that they are built in the right places to meet communities’ needs. We think that, given the reduction in resources, there are serious risks if we do not ally ourselves and take a collaborative approach rather than the competitive approach that has been taken for the past three or four years—the innovation and investment fund approach.

As far as sustainability is concerned and the ability to provide the houses that our communities need, we must ensure that we work collaboratively on the visions that are developed, based on evidence, in our local housing strategies.

Those are some of the key points that I want to bring to members’ attention, and I will answer any questions on them.

The particular interest of the existing homes alliance is, of course, in the availability of funds to support improving the energy efficiency of existing stock.

Our coalition has three pillars. The first is to ensure that the energy efficiency of our existing homes is improved so that they meet our climate change targets. Homes are responsible for a quarter of our emissions, so it is important to have a step change in that area on our approach to energy efficiency in order to meet the commitments in the Climate Change (Scotland) Act 2009. The second pillar is fuel poverty. There is a Government commitment to eradicate fuel poverty by 2016. More than a third of Scottish households currently live in fuel poverty. The third pillar is the massive opportunity for green jobs in the field of retrofit.

In the budget, there is an increase in spending on energy efficiency and fuel poverty compared with last year. However, it still falls short of the funding that was available in previous years. If we compare the current funding proposals with what we think is necessary to be confident of meeting the climate change targets and the fuel poverty eradication target, we believe that they will fall short of the funding that is necessary to meet those important targets.

I will follow the advice that the convener gave us and just say that I agree with what all four of the previous speakers said. However, I stress that there is a strong economic and social case for making investment in housing, particularly social housing, a national priority. Like those who have just spoken, we were extremely disappointed to see housing taking a further cut. There is a strong economic case for investing in housing because of the construction jobs that that creates. We can forward figures to the committee about that.

We also think that there is a strong case for investing in housing as preventative spending. The Finance Committee was keen that we take that sort of approach to the budget this year, to build on the approach taken in previous years. We also think that we are heading towards a housing crisis that, unless investment in housing is made a national priority, we will not be able to resolve.

We have had a huge cut in our capital spend from the Westminster Government. You will have done the sums, taking into account all the other pots of money, because you are all employed to do that in this area of housing. Harry McGuigan said that we should not have a competitive approach but we know that there are lots of people sitting on lots of money and not building any houses with it.

The Chartered Institute of Housing in Scotland says in its written evidence:

“The Scottish Government has reason to be confident about its targets being met even through the much reduced funding over the spending review period. Its recent announcement of the ... Innovation and Investment Fund ... saw approval given for 3,462 homes.”

The Scottish National Party Government has previously met its targets, despite the reduced funding. We expect you to say, “There’s not enough money”—the reduction is on the headlines—but because of all the pots of money, is it that much of a reduction?

I hear what you say. We are all facing extremely difficult economic times. However, we are simply not building enough houses. We cannot escape from that priority. We want to tackle homelessness and respond to people’s aspirations. We are trying to deal with homelessness but we also have growing waiting lists throughout Scotland and, if we are going to tackle that, we must build homes. That is the issue.

We will of course work constructively and positively with the Government to try to ensure that the resources that we receive are used where they are most necessary and address the needs of communities. At the same time, though, we would not be acting responsibly if we did not point out that we will not be building sufficient homes for people throughout Scotland. I have to keep repeating that to the committee.

The convener hit on an important aspect of the budget, which is an increased emphasis on a range of tenure solutions, even within affordable housing provision. Homes for Scotland is concerned to see housing budgets reduced quite substantially in absolute terms. However, there needs to be an informed debate about the range of subsidy levels required for different types of tenure in the mix within the affordable housing label. It is only by looking objectively at that and understanding the relative needs and requirements of each type of tenure that we will ensure that we have a sustainable affordable housing investment programme in the long term. That is where much of the debate needs to go in future.

Our views are most closely aligned with those of CIH Scotland. The jury is still out on whether the revised subsidy targets are sustainable in the longer term. There has certainly been a successful outcome to the innovation and investment fund in the current year but the question remains whether that is repeatable over a protracted period. That is where most of the work of the parties that are giving evidence to the committee today needs to be focused.

Members may be aware that Shelter Scotland and the CIH made a joint submission to the Scottish Government before the comprehensive spending review. We share many of the CIH’s assumptions.

The convener asked whether the Scottish Government will achieve its target. It is important to unpick that slightly because as far as the Scottish Government is concerned the target has remained 6,000 affordable homes.

At Shelter Scotland, we were delighted that before the election the SNP committed to 6,000 social rented homes. The SNP was the only party to put a figure beside its house building target. While other forms of affordable housing have an important role to play, social rented homes go to the poorest and those in most acute need. Soon after the election, our analysis of the money available to the housing directorate showed that there was enough money for about 1,500 social rented homes.

10:15

Following the submissions before the CSR, we were pleased that the Scottish Government saw fit to recalibrate the money and to set a target of 4,000 social rented homes, although that is still some way short of 6,000 and is considerably short of the minimum that we believe is required to address need, which is about 10,000 social rented homes a year. However, we recognise the budgetary constraints, which is why our submission with the CIH to the spending review set out a programme for what we think is possible in this budgetary climate.

As Jonathan Fair and the CIH are right to say, it remains to be proven how deliverable those units are given the subsidy level and whether we can achieve the 4,000 social rented homes and the other 2,000 from other sources during the year. It is important to recognise that RSLs and council landlords will be required to pay more per unit, which will reduce the model’s sustainability in subsequent years, as landlords will have to shoulder more of the debt earlier and will find that their borrowing capacity reduces more quickly than under the more traditional model.

We very much appreciate the Scottish Government’s commitment to and understanding of how important capital and infrastructure investment is. We have only to look at the SNP’s manifesto to see the importance that is placed on housing.

Unfortunately, the cuts in the available budget—we appreciate that times are hard—mean that I cannot help thinking that we are storing up serious trouble for the future, particularly in company failures and the loss of skills and jobs. I appreciate that we are—technically—out of recession but, when the real recovery comes, significant inflationary pressure will be placed on build costs. We might be back to where we were in 2005, when RSLs got shocks every Friday at 12 o’clock as they opened tender envelopes and saw the cost of delivering housing.

The problem is even more acute in rural areas, whether the Borders, Orkney, the Western Isles, the Highlands or Argyll and Bute, where many small local builders—many of which are second or third-generation businesses that employ local people—are struggling. Sometimes, consideration of housing nationally becomes a bit of a numbers game and we forget the provision of housing in small rural communities and on smaller sites.

At the SNP conference, I heard the exact opposite from housing associations in the Highlands—they are using small builders to build on little plots of land, because bigger builders are not interested in that.

Just last week, I introduced a senior person in a housing association to one of our member companies, because I thought that they might be able to do a bit of business together. That gentleman is normally extremely positive, but he said, “There’s no point in talking to me—I have no funds.” He had no money and no build programme. I said, “But there’ll be next year,” and he said, “I don’t think we’ll be here next year,” because he has lost staff. He is from a significant housing association.

I thank Michael Levack for a nice lead into the point that I will make. We welcomed the minister’s reassurance that two thirds of the annual programme would be for social rented housing and that he had listened to our point that that could not proceed through challenge funding. We have surveyed our members who bid successfully in both tranches of the innovation and investment fund this year and all but one has said that that is completely unsustainable and that they could not repeat that for even one further year. The one member that says that it could bid again could do so only for a small number of units.

The approach is unsustainable. A series of matters makes doing one bid easy, but a lot of abortive work is involved if a bid does not succeed. Issues include getting land at nil value and being able to make a capital contribution from reserves, but reserves can be used only once and are there to pay for maintaining existing stock, bringing it up to the Scottish housing quality standard and meeting the ever-growing commitments of climate change standards. The situation is unsustainable.

We were invited recently to talk through a better way of doing things, and we look forward to that. That can be achieved only through local authorities working in partnership with housing associations. We look forward to having such joint discussions, but what is required cannot be done at the really challenging grant rate of a £40,000 benchmark per unit.

I want to pick up on the innovation and investment fund. This year, councils received an allocation of £35 million and are able to build more than 1,000 units. In theory, if councils are able to retain £35 million of the innovation and investment fund, they will meet the Government’s target of 5,000 council houses over the period of this session of Parliament.

However, echoing Maureen Watson, our question is about the sustainability of the subsidies of £30,000 and £40,000. The expectation is that councils will use prudential borrowing to subsidise the building of those houses and will be reliant on their rental stream to be able to afford the prudential borrowing, but we are concerned about the likely impact of the forthcoming changes to welfare reform on that rental stream. So, we and our member councils, along with the SFHA, will look at the long-term sustainability of the innovation and investment fund.

We will move on.

The convener has raised the issue that I wanted to raise, but we can pursue it a bit further, as it is fundamental to our questions about the budget. Let us home in on the money for housing supply. It is agreed that combining the housing line and the housing in local government line gives us £628 million over the spending review period. Shelter makes the general point in its written submission when it points out that that £628 million is projected to build 18,000 affordable homes of which two thirds will be social rented housing. It contrasts that with the previous spending review period, in which £1.7 billion was allocated to build 21,000 affordable homes, of which three quarters were to be social rented housing.

There seems to be an enormous discrepancy. I am not saying that there is no explanation for it, but that is a puzzle for everyone, which was reflected in Shelter’s earlier comments. Shelter’s earlier projection was that the available money would build only 1,500 social rented homes, whereas we are now told that it will build 4,000. I am genuinely puzzled by the figures. I ask Gordon MacRae to follow up what he said and tell us how confident he is that the available money—which appears to be £628 million—will genuinely build 30,000 affordable homes, of which two thirds will be social rented?

In our written submission, we have taken the assumptions that the Scottish Government has provided at face value. The landlord bodies will be best placed to say how sustainable and deliverable those figures will be. I do not think that, after the budget has been passed, we should turn away and lose sight of how well Scotland is doing in delivering against that target. However, there are real questions, and on-going scrutiny will be required to ensure that the volume is delivered from reduced funds. Let me put the matter in perspective. We are told that, following a 63 per cent reduction in cash, only 16 per cent fewer affordable homes will be delivered. There is an open question about how realistic that is.

I am beginning to feel uncomfortable with myself, sitting here. I will come in with almost a mantra. You have to look at the realities that we are facing as far as resources are concerned. The level of resources has dropped considerably. We have made representation to the minister and we are anxious to work constructively with him on the issue, but there must be a shift away from the innovation and investment fund approach. The minister concedes that there are concerns about that and wants to look at it in greater detail, but his predecessor was saying the self-same thing two years ago and we have not moved away from it.

There are aspects of the innovation and investment fund that some people would say suggest that it is neither sustainable nor fair. Some people suggest that the criteria for investment under the innovation part mean that the money is sometimes not being spent on the priority need. In other words, they are saying that such challenge funding is open to unfairness and allegations of bias, which none of us wishes to be associated with.

Caroline Johnston made a point about sustainability, which is a real issue. Local authorities have to meet targets on homelessness, insulation and the Scottish housing quality standard. We must invest in the existing housing stock but we are unable to do so. Some people seem to assume that every local authority can access prudential borrowing, but many local authorities are at their limits and cannot access the additional resources that they need even if they have the desire to do so. The big question must be asked: are the resources going to be available to build the necessary homes for people in our communities?

I have something to say about the consequences of welfare reform for housing benefit. Welfare reform will mean reduced income, which will reverberate around the system. The risk is that less resource will come to social landlords, local authorities and so on, which will make it more difficult for them to provide the homes that we need in Scotland.

We can all argue that we need more than 6,000 affordable homes and 4,000 social rented homes. I am really asking a specific question—sorry if I gave a long preamble. Am I to understand than the whole panel is reasonably confident that the amount of resource available will deliver 30,000 affordable homes at 6,000 a year, two-thirds of which will be social rented houses? That is really the only question that I am asking at this stage.

No, we are not confident of that at all. Social rented housing must be affordable to people who are on low incomes. Housing is expensive to build, to rent or to buy, so there must be an adequate subsidy if it is to be affordable for people who are on low incomes.

There are two ways of subsidising social rented housing. It can be done either through a one-off capital subsidy—the housing association grant as we have known it up to this year—or through housing benefit. We use both systems at the moment. Whether the balance is right is a moot point—we have our own views on that. Both systems are under threat and we do not think that the two-thirds that is to be social rented housing can be built at a subsidy level of £40,000. Such a subsidy is not adequate if we are to produce genuinely affordable social rented housing.

That leads on to Neil Findlay’s question.

Government is about making choices; it is clear that the choice is not to prioritise social rented housing. That is becoming more apparent as we go on.

Shelter Scotland’s evidence about subsidy and how the system is working is quite telling. It says:

“Early analysis post-election showed that the Scottish Government had only allocated enough funds to build 1550 socially rented homes this year, some way short of the manifesto commitment, with the shortfall to be made up of other forms of ‘affordable’ housing such as mid-market rent and shared equity. This analysis has not been disputed by officials.”

So, have the very low subsidy levels for mid-market rented property and the big push that has been made on mid-market rented property made up the numbers so that we are looking at kid-on social rented or affordable rented houses?

Different types of people need different housing. Mid-market rents are not affordable or sustainable for people who are in the most acute need, especially those who are dependent on housing benefit, who could get trapped in a poverty problem. If they get back into work but their wage is relatively low, a mid-market rent might not be sustainable, which could create a longer-term problem.

The question is really about the choice that the Scottish Government makes. Should it pursue a volume approach and build as many homes as it can for the least money, or should it prioritise homes for people who are in the greatest need? Shelter Scotland would prioritise the people who are in greatest need, which is why our submissions have focused on how to maximise the number of social rented properties with the moneys that are available. In doing that, we are accepting some of the assumptions about the subsidy, although we have yet to see any evidence on how sustainable that level of subsidy will be. In the best-case scenario, assuming that the Scottish Government’s analysis is correct, 4,000 homes will be built, but there will be a shortfall and those homes will not address the needs of the people who are in greatest poverty and who are most at risk of repeat homelessness.

10:30

I take issue with the description of non-social rented homes as a form of phoney affordable housing. A wide range of tenure types are recognised as legitimate parts of the affordable housing mix. They include mid-market rent, shared equity and shared ownership, as well as homes for sale on the open market that are, by their very nature, affordable.

The question is the degree of priority that we place on the needs of individuals. All the people who buy or rent those homes have the same level of need if they do not have a roof over their head. What is different is their capacity to pay for that need and ensure that they can afford the housing that they require.

The budget statement makes it clear that there is a greater reliance on those other forms of affordable housing in order to ensure that the necessary levels are maintained.

Homes for mid-market rent and the national housing trust model are two different products. They are affordable for different groups of people, who are not the same groups at which social rented housing is targeted. I will not repeat what I said about the housing being targeted at low-income households. The mid-market rent model is used very successfully by a large number of our members around the country, but it is suitable only in certain situations and in certain locations—such as Edinburgh—where there is a market for it. If there is a market for it, our members will go ahead and use it at lower subsidy levels, because they can charge a higher rent.

The national housing trust model is entirely different. There is no security of tenure, and it eventually just delivers that housing—which has a higher rent anyway—back into the private rented sector. That is how we sum up the different models. They do not deliver the same things for the same people, but they are meeting needs. You have a choice about where you put your resources.

There is a big question around affordable owner-occupation, given that 10 and 15 per cent deposits are currently required for mortgages.

In the past six months I have spoken to a number of housing providers. I will summarise their view: they said that the subsidy regime seems to have served the social housing supply pretty well over many years, and that whatever replaces it must provide quality as well as increased quantity.

The most telling comments that I have heard suggest that the new funding mechanisms for housing are not clear, that they are far from embedded, and that they are not reserved for any coherent programme of affordable or social housing that can be planned and driven forward by all concerned in the next few years. The SFHA, the CIH, Shelter Scotland and various other organisations have expressed that concern. Would your members agree with that?

Local authorities feel that the priority is to address the social rented sector—there is no question but that it is where the greatest need is, so we should seek to ensure that we can improve the waiting list situation across local authorities. We need to focus on the real needs of the most vulnerable and marginalised people in our communities.

You asked earlier whether we can meet the target for local authority build, for example, which is 1,000 homes a year. I think that we can, in theory, although we cannot if the other pressures that we might face start to come into effect, which brings us back to the question of sustainability.

I am bit worried about some of the models. As Jonathan Fair said, it is important to investigate and analyse every model that suggests that we can improve the supply of affordable housing, mid-market rent properties and so on. We must be careful, however, that we do not become involved in building homes, at an overall cost to the taxpayer, that benefit a sector of society that is well enough off to be able to find homes by other means. We must be careful that we do not use the revenue for that purpose—that worries many of us in local authorities.

May I just ask one final question? A number of people have mentioned the competition element and the unhappiness about it. We are focusing on homelessness; obviously, there is the 2012 target. A number of authorities have said that they are in a good position to hit that target, but all they will achieve is that they will give people the right to an assessment. Surely the focus should be on providing a positive outcome for the person being assessed. What are your organisations’ positions on that?

It is important to understand that the 2012 commitment—we always refer to it as a commitment, because it is a legal requirement unlike some targets—will remove priority need. We are confident that the steps that are being taken by the vast majority of local authorities will enable that to take place and that we will remove priority need by the end of 2012. There will be an impact in that more people will have the right to temporary accommodation and longer-term settled accommodation. That will increase demand for temporary accommodation and homelessness services, which have traditionally been the Cinderella services in local government housing departments. We are realistic about that impact, but it is right for Scotland to be a nation that does not accept that some people should not have homes, and it is right for Scotland to take the necessary steps to eradicate homelessness. We need to be very clear that the 2012 commitment will not solve homelessness overnight. It is a step in the right direction and a statement of purpose by Scotland as a nation. We are pleased that the majority of local authorities are making good progress in that regard.

Landlord organisations have criticised the innovation and investment fund, with perhaps the key criticism being that it is not sustainable. The Scottish Government has been arguing that there is a need for innovative ways of funding housing, so if we are not going to have the innovation and investment fund, what new and innovative ways of funding would you identify and how would the Scottish Government promote them?

Our prime criticism of the innovation and investment fund is about sustainability. Local authorities—and RSLs, for that matter—need to be able to look to the longer term instead of having to make decisions within a timeframe of one year, but that is what local authorities have been faced with for the past four years. We must be able to look to the future and see a sensible and meetable programme of planning, strategy and resource use over that longer period. You cannot go on saying on a year-by-year basis, “Well, we’ll plan for that.”

There are good examples of local authorities and RSL partners throughout Scotland working in very innovative and sensible ways. There is no desire among local authorities to build more and more houses, but there is a desire among local authorities for more and more houses to be available in their communities. It is not so important who builds the houses; what is important is that the houses are where people want to live. We have to plan longer term for that, as opposed to planning year by year. I would be surprised if anyone sitting around the table would use their resources on a year-by-year basis and say, “We’ll build so many houses this year and wait and see about next year.”

There is potential for innovation in local collaboration and co-operation to identify where houses need to be built and how they can be built, and there are opportunities for other parties to come in and work on that. There was £10 million for the innovation and investment fund, but that does not need to be set up separately from the rest. We should encourage, and have confidence in, the capability of local government and its partners to identify ways and means of creating the housing that is needed in particular areas. Such innovation is happening and more of it will happen if the money is used as a planned resource rather than as a piecemeal resource, as it is at the moment.

If, for the sake of argument, you win your case and the Scottish Government accepts that that method of funding will stop, what would you propose be put in its place?

I cannot sit here and tell you that we have the blueprints, because we do not. The blueprints would be different in your part of the world from those in mine. It depends on the look that we take at the local housing strategies, which are supposed to be about collaborative outputs from the partners in local authority areas. If we work that way, the innovation opportunities will be understood and used. This should not be driven centrally. I believe that we can make better progress if we use the resources in the local sphere over a longer timescale, so that they are programmed in.

I guess that the challenge for us all is to try to get more for less. Obviously, for the foreseeable future there will be significant constraint on our budgets and our funding. You are suggesting that there are efficiencies in collaborative working, as opposed to competitive funding. I am just looking for ideas from around the table.

When we talk about innovation, we use the word in a positive sense. It is as though we are not allowed to criticise something because it is innovative and we all have to think outside the box and all that. Let us not forget the programmes that are already under way. One that springs to mind is the Devanha programme in the north-east of Scotland, which is about collaboration between housing associations with a view to their becoming more and more efficient in what they do. That programme was developing well, but it became a victim of the annualised funding that Harry McGuigan talked about. Where does it sit now? Probably in tatters. So, we will now go off and reinvent something, give it a new name and try to make it better. We have to focus on not dismissing things that are already in place. There is already huge innovation and a desire to do things more efficiently; we do not have to invent a new scheme and give it a new name so that everyone has suddenly to start chasing the ball in a different direction.

10:45

Like-for-like innovations are few and far between. The traditional subsidy model is well established and largely works. It depends on your definition of innovation, but one of the best innovations might be for housing to be higher up the political agenda, compared to other issues. Scotland could innovate by taking the decision that houses rather than roads will be its priority.

The other main innovation that we would like is a bit of stability around housing supply funding. There are ideas that are not fully formed; ideas about an infrastructure or a housing bank, for example, are in the ether. There are ideas that could bring stability if they could be established. However, if we look pragmatically at the comprehensive spending review’s timescale, we see that those options are not on the table. If the housing sector has already demonstrated its ability to innovate and to build more homes for less, surely that is a case for putting more money into housing, rather than for cutting it further back.

On the housing sector as a whole—not just social housing—there are suggestions such as the national housing trust and other things that have yet to mature, but which are innovations. It is accepted that the housing sector is particularly good at delivering more for less, so we argue that it should get higher priority, that it should be further up the capital expenditure priority list, and that it should get more in addition to more from less, if that is not too convoluted.

I will come in on that from the perspective of existing homes and the budget for improving their energy efficiency. On the long term and the opportunities for improving energy efficiency to be meshed with the preventative spend agenda, it is clear that relatively modest investments now in improving the energy efficiency of our existing stock will yield massive benefits over the long term. Such investments will result in significant reductions in fuel bills and in massive health benefits. We know about the issues around fuel poverty; a study in England showed that every pound that is spent on insulation saves the national health service 42p. We can see that modest investments now in improving the energy efficiency of our stock will yield massive long-term benefits for the whole of society. Climate-changing emissions will be cut, jobs will be created, and our health will be improved. That is the context in which we should view decisions on major capital and infrastructure investment programmes. We should consider their long-term benefits.

We should note the Government’s commitment to moving funding from the revenue budget into the capital budget. It is clear that within capital expenditure the Government can make many choices about what will deliver the best multiple benefits or win-win situations. We suggest that improving the efficiency of existing homes is a clear winner. Health will be improved, people’s fuel bills will be cut, the money that is available in the local economy will be increased for people who are less able to spend money on their fuel bills, and our climate-changing emissions will be cut. Our studies suggest that 10,000 jobs would be made available through improving the existing stock. Therefore, there seems to be a win-win situation.

That moves us nicely on to Jamie Hepburn’s questions.

Thank you, convener. I want to discuss energy efficiency and fuel poverty. I had a number of questions, but Dan Barlow touched on the issues earlier, as we would expect, given that he is from the WWF.

I know that we have a lot of business to get through, so I will ask one specific question. In its budget documents, the Government said that it aims

“to maximise leverage of additional funding from energy companies and other sources”

to support sustainable housing. What scope is there for the Government to be able to achieve that?

It is clear that funding is available through current industry commitments—through, for example, the carbon emissions reduction target scheme and the forthcoming energy company obligation. There are also forthcoming United Kingdom enablers in the green deal that will enable home owners to borrow against their homes and to pay the money back over a long period of time. Therefore, there will be opportunities for Scotland to look at those mechanisms and to consider how to make them work best for Scotland. Many of them will be consulted on over the coming year, and it is imperative that we ensure that the measures will deliver what we need in Scotland and that Scotland gets a fair return and a fair share of the available funding.

I return to innovation. We need to consider what innovative mechanisms we might use. We could couple the Government funding that is available with the significant funding that is available from private companies and the money that householders are prepared to put in by taking out loans against their properties. That sort of approach would resemble a model that has been piloted not only in Newcastle but in Birmingham, in a programme called Birmingham energy savers, which has enabled a substantial retrofit programme in a distinct geographical area for a quite efficient price. Over the next year, we will need to look at how those mechanisms might work in Scotland and how we can use them to maximise benefits. A lot of that is up in the air because we still have to hear many details about how the green deal and the new eco-scheme are going to work in Scotland.

With respect, all those examples have been funded or set up by the UK Government. Does the Scottish Government have any scope to lever in additional funds?

Clearly the Scottish Government will be able to make known its views on the UK proposals. In any case, some of the decisions—including whether energy performance certificates should be reformed to make them work better—will be devolved to Scotland, so there will be scope in deciding how some parts of the legislation will be implemented. We have not seen the consultation and therefore do not know the details, so it is hard for me to give more concrete ideas until I see what is being proposed at UK level, which aspects will be devolved and, therefore, what we will actually be able to do in Scotland. The Scottish Government could certainly encourage and support local authorities to look at the model that is being used in Birmingham and Newcastle and see whether it would work well here in levering in money from private companies, individuals and Government sources.

The existing homes alliance is calling for a national retrofit programme to establish by whatever means—perhaps, again, through innovation—a realistic and continuous funding stream that underpins and supports a comprehensive programme of improving the current built stock’s energy efficiency. A short-term sticking-plaster approach will not work because it will not allow us to meet the 2020 and 2050 carbon reduction targets, will not end fuel poverty in Scotland, will not provide jobs and apprenticeship places and will certainly not encourage building contractors to grasp the opportunity and use their innovation, skills and experience to tackle the need for greater energy efficiency.

I think, convener, that we are coming back to the same question. In politics we have to make choices and prioritise certain things. I cannot sit here and answer questions about energy efficiency, carbon emissions, home insulation and so on without looking in greater detail at the extent of the remediation that is needed in different types of homes across Scotland, at an in-depth analysis of where resources are coming from and so on.

We will always come back to this bottom line: we as politicians have choices to make and priorities to set. I believe that Adam Ingram asked about priorities—that is the key to this whole question. Are we or are we not prioritising on the basis of the need to provide homes in Scotland for people who do not have the resources to purchase them? The record suggests that we are not. We are cutting the budget. Instead, we have to get back to finding out how we can better prioritise on the basis of providing the homes that we need to the quality we expect.

I might be going on a wee bit here but, as far as efficiencies are concerned, I agree that we should always be looking for them. We should look for efficiencies that would prevent resources for social housing from being split, for example. The RSLs receive about £70 million and local authorities receive about £35 million in that regard. The funding comes in separate bundles for particular areas, such as my home local authority area of North Lanarkshire. Fortunately, we work closely with the RSLs in North Lanarkshire and have a local housing strategy that has been worked out through collaboration and identifying what communities need. That is one of the ways in which we can work towards more efficient spend. However, that does not eliminate the need to prioritise.

There are areas in which we can lever in additional private sector money. However, it is not necessarily about directly getting funds. For example, one of the ways in which the RSL sector has improved the standard of accommodation has been through its work towards the Scottish housing quality standard. The question is why areas such as the private rented sector are not similarly regulated. Sometimes one of the best ways to get people to take action is to have a better balance between the carrot and the stick. We would certainly welcome a better analysis and understanding of the tolerance in the private rented sector for higher-quality standards and corresponding legislation.

If we were to go down the road of a national retrofit campaign, which we have touched on already, what implication would that have for the Scottish Government’s budget? How do we encourage home owners to carry out a lot of the energy-efficiency improvements themselves?

There are a number of things that can be done. Programmes already exist that provide advice, encouragement and support to home owners, but the current uptake is not sufficient to deliver the scale of carbon savings that we need to meet our climate targets. It is also important that there is Government support to address social issues such as fuel poverty. Likewise, we have a statutory target to reduce our climate emissions and it is only right that the Government puts money into supporting that. The current Government proposals allocate £65 million a year for energy efficiency and fuel poverty, which is going up to £66 million. Of course, over time, that in effect becomes a real-terms decline, and it is some way short of the £100 million that we think would ensure that we could deliver on climate targets and fuel poverty commitments.

The green deal mechanism, which I referred to before, will enable home owners to borrow money against their property and invest it in improving the energy efficiency of the property. The idea is that there will be what is called the golden rule—that is, that home owners will pay an amount on the loan that will be equivalent to what they save on their energy bills, which will mean that they will be no worse off at the end of the year. However, for that to work, interest rates will have to be competitive enough to attract individuals to take up the loan and there will have to be a programme of support, awareness raising and advice so that people understand and are keen to participate in the scheme.

We also think that there should be minimum standards for all properties in Scotland so that, over a certain timescale, there is a distinct incentive and driver to invest in improving the efficiency of all Scotland’s properties using a combination of Government and private funding. The current budget and Government funding can never deliver all the funding that is necessary to upgrade our stock. We need to consider adding private funding to that. We would also argue strongly that the current Government funding proposals are not sufficient for the Government to do its share to meet the imperative to eradicate fuel poverty and cut climate emissions and ensure that we are on track to meet those targets.

That is one of the reasons why the existing homes alliance came together. It is a diverse and interesting mix of organisations. One of the things that we have very much focused on is ensuring that information for householders is coherent and easily understood and that there is no duplication of effort as we strive to achieve the carbon reduction targets.

11:00

We have learned a lot in the past few years by looking at different schemes. We have a good knowledge of which schemes are most effective in delivering carbon reductions and securing high levels of take-up of energy efficiency measures. We support the universal home insulation scheme, which is one of the schemes that deliver well, and we suggest that increasing the budget for that scheme is an efficient and effective way in which to improve the efficiency of Scotland’s building stock and deliver substantial carbon reductions.

We, too, are members of the existing homes alliance. We bring knowledge to the table because we had the benefit—through a Scottish Government grant last year—of having a member of staff co-ordinating the Scottish Government’s housing energy efficiency learning network. Through that year and a bit of experience, my colleague amassed a lot of knowledge about what works and what does not. We can therefore try to stop a lot of abortive pilots being started and instead mainstream some of the things that we already know will work from practice in the sector. That is transportable to other sectors.

As it is a wide area, we might write and ask you to tell us in more detail where you believe there is scope for more preventative spend in the housing budget. You could perhaps also go into more detail on energy efficiency measures.

Two sides of the fuel poverty issue are insulation and generation. I recently looked at installing photovoltaic panels on my home and I quickly realised how people can be affected by the procedure. People need £8,000 to £10,000 up front to purchase the kit to put on the roof, which then pays them back at 12 per cent or something over the long term. Instead of putting huge amounts of Government subsidy into commercial renewables, should we not put some of the money into community renewables so that councils, RSLs and other property owners can install the kit on the roof and provide cheap electricity to the tenants? The excess profits that are generated could go back to the community, the RSL or the council to enable them to continue their energy efficiency work. That approach would circulate the money. At the moment, it all seems to go to the big players in the industry, who are scooping up huge profits for their shareholders. We could be doing more socially beneficial work with the money. I do not know whether any of the witnesses are involved in that game.

From our perspective, all forms of renewables move us on, but the cheapest unit of energy is the one that we do not use. At present, we are failing to take many cost-effective measures that would cut the amount of energy that we need to produce in the first place.

There has been progress in the past couple of years. Local authorities can now use their buildings to generate energy and recover a revenue stream from that. Previously, that was precluded, so it is to be welcomed. In the coming years, a lot will rest on the viability of small-scale schemes, depending on the feed-in tariff structure and regime. At the UK level, there is clearly some uncertainty about what those levels will be. If they decline substantially at a time when the technology is starting to become more widespread and common—people are becoming familiar with it and the cost of installation is coming down—there is a risk that it will fall back at an early stage, before it becomes mature and is widely taken up. The uncertainty on those points should be resolved.

I am conscious of the time, so I will comment briefly on the challenges for older people, transitions and adaptations. The Government clearly believes that an issue is emerging and it is talking of a new national housing strategy. Adaptations appear to be down 25 per cent in the forthcoming year and the SFHA says that that is on top of a 21 per cent reduction in the previous year. I know from constituency examples that it is a considerable issue. How can the process of funding adaptations be made more effective? Should the Scottish Government be addressing other kinds of housing transitions through the budget?

I will focus on adaptations, which have been a big issue for us. We are represented on the Scottish Government’s adaptations sub-group, which is looking across the board and across tenures at new methods of funding adaptations. I will not go over the history, because it is in our written submission, but an attempt was made to change the funding arrangements for adaptations in our sector and we opposed it vigorously. We welcome the fact that the Government chose to step back on that.

We are looking for something that is tenure blind and genuinely considers the individual’s needs. We note and are disappointed by the 25 per cent cut in the level 4 figures that were published yesterday. We recommend that the committee read a report that Bield Housing Association, Hanover (Scotland) Housing Association and Trust Housing Association have just published on the social return on investment in very sheltered housing and adaptations. It includes the preventative spend information. I will give one figure from it: last year, a £1.4 million spend by those three organisations on adaptations saved the Scottish Government health and social care budgets approximately £5.3 million.

I cannot emphasise to the committee enough the benefit that preventative spending—adequate investment in housing and housing support services—has for other elements of the budget. We will provide much more detail on that in our written submission.

We have touched on the UK Welfare Reform Bill and will consider that in more detail in the next agenda item. As Maureen Watson and Harry McGuigan are staying for that item and can discuss it in greater detail with us in a minute, they may not want to answer my question right now. What, if any, concerns do the witnesses have about the proposed changes in the bill and how they might impact on the funding that is available for housing and homelessness services?

My colleague Rosemary Brotchie will participate in the next item and will give an overview of how Shelter Scotland has been working with Shelter in the UK to make representations on the Welfare Reform Bill. It is important to appreciate the impact that the bill will have on housing supply. Housing benefit is a significant revenue stream on which landlords rely to ensure that their books balance and the reforms will eat into that in no small part.

There are specific Scottish dimensions to the reforms. We are particularly concerned about the change to the single-room rate, which means that anyone under the age of 35 will receive housing benefit only to the level of that rate. That poses significant challenges for the 2012 homelessness commitment. There is a lack of shared accommodation in Scotland, so how do we find suitable settled accommodation for people under the age of 35?

We are still in the foothills of understanding what impact the bill will have, but that is the focus of our existing concerns.

The bill may have unintended consequences for some of the wider housing supply innovations that we have talked about, such as the national housing trust, under which rents are benchmarked to local housing allowance rates. Changes to the welfare system may mean that some proposals that we are trying to push are no longer viable.

The other reform that is concerning is the proposed shift from payment to the landlord to payment to the tenant, because that removes certainty of income stream for the investor.

Those aspects of the reforms are deeply unhelpful for trying to drive greater private sector involvement in the delivery of affordable housing.

Convener—

Are you not on the panel for the next item, Harry?

My comment is not about welfare reform; it is about adaptations and RSLs. The view in COSLA is that there should be equalisation between local authorities and RSLs on adaptations. We have to fund adaptations under our housing revenue account through our business plans and we feel that that is how RSLs should fund them. They currently receive the resources in a block from the Scottish Government. We feel that that money should be used in the collective resource that is available for the building of affordable social housing and the needs should be met in their business plans.

I thank the witnesses for attending and for their contributions, which have been helpful.

11:09 Meeting suspended.

11:15 On resuming—