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I formally open today's proceedings in public and, as usual, welcome everyone warmly to the meeting, especially the minister. This is an important meeting for us, as it is the culmination of a thorough and robust process of evidence taking. Those who have followed the consultation procedure will know that we have been looking forward to this meeting, at which we intend to pursue several lines of questioning.
Thank you, convener. I am delighted to be here. As everybody knows who has been involved in this matter—both out there in Scottish housing and in the Executive—we are trying to do some fairly radical things. I would not want to pretend that we have dotted all the i's and crossed all the t's—this is an iterative process. However, the important thing is that we are embarking on radical change, using the housing bill as the foundation. We look forward to the committee's report and stress that we regard it as part of an on-going dialogue as authorities choose whether their tenants are to vote to move towards stock transfer.
Thank you, minister. That was very brief. We also thank you for your memorandum, which was substantial and informative. We will pursue issues that are related to that, but I would like to start by asking the big questions about the vision. Housing is clearly on the political agenda in Scotland; all members of the committee welcome that. Can you outline the main problems that face Scottish housing?
The main problem has been a prolonged period of under-investment. From reading the considerations of the committee, I know that people are aware that the tenanted market value of all the housing stock in Scotland is assessed to be around £2 billion. Nevertheless, there is a huge, overhanging debt. The issue is how we deal with the debt burden and achieve a step change in investment. That would begin to deal with many of the problems that the stock condition survey has highlighted, notably the 500,000 houses in Scotland that suffer from dampness and/or condensation.
That was a comprehensive outline of the problems as well as of the measures that the Executive is taking. If there were one thing that you wanted to achieve as the minister responsible for housing, what would it be?
I want to create a vision of sustainable communities in some of the areas that have suffered most. That means starting with Glasgow because, although only one in eight households in Scotland are located in Glasgow, it has one third of Scotland's homelessness and one quarter of its dampness. If we can demonstrate a new approach that works in that city, we will be creating a beacon of hope for the rest of the country.
We will deal with Glasgow as a separate issue. I have some more questions about your vision. You are energetic and pushing hard on this issue. What is the biggest obstacle that you face to implementing your vision?
Fear.
From whom?
There has been such under-investment—some of it calculated—that people no longer have hope. Let me pursue the Glasgow example. Glasgow has a housing debt of £1 billion. Over the past 20 years, another £1 billion has been invested, but the housing stock is valued at less than £100 million. When tenants know that there is an outstanding debt of £1 billion and that another £1 billion has been invested, but that the value of the stock stands at something less than £10,000 a house, that leads to a climate of despair. When we seek to turn that around by a step change in investment—by saying that it is not enough to take the debt away and that we need large-scale new investment over a short period—people fear that that means privatisation. We have seen a lot of unfortunate and misinformed commentary suggesting that community-based landlords and non-profit organisations are in some sense equivalent to privatisation. Fear has fed off this culture of despair. The challenge is to address that.
I want to move on to community ownership and to pick up the point that you have just made about privatisation. Some people fear privatisation. There are arguments about that—we all know what they are. However, as a member of the Labour party, are you not concerned about bringing the private sector into the public sector? People do not feel well protected by the private sector. Some of us would argue that the market has never delivered for the poorest tenants of Glasgow. Why should we let the private sector in and pretend that it can protect them?
We are not inviting in the private sector to manage the housing stock, but I think that you are right. The history of social housing is about recognising market failure and the fact is that that market failure will continue. However, at no point in history has it been inappropriate to harness resources, expertise and finance from the private sector to deliver on social objectives. We want to ensure the continuance of social housing. What we are doing is shifting from a municipal model of social housing to a community model of social housing that has access to private investment. We have given a commitment that no landlord will make a profit out of our proposals. People can become a landlord only if they are non-profit distributing. That was a conscious political choice that we made; I do not think that other Administrations would have made the same choice. They might have decided that, as we have a small private rented sector, they could let a thousand flowers bloom and allow landlords to make a profit, as long as they managed their properties effectively.
On community ownership, what comparisons can be made between the situation in Scotland and the large-scale transfers that have occurred in England? Can you give examples of good community ownership and bad practice in community ownership?
The English situation is not particularly helpful in understanding what we are trying to achieve in Scotland. A lot of people in England have adopted aspects of our policy. What has worked in Scotland is tenant-management co-operatives within the council housing sector and housing associations within the rest of the socially rented sector. There is a strong Scottish tradition of community-based housing associations, which are typically smaller than their English counterparts. We should try to build on our good record in that area. We need to consider those landlords who are operating in local community-based housing associations or tenant-management co-operatives in councils that have had difficulty accessing private investment.
Are there examples of the process going wrong? Do you have worries about the process failing?
Scottish Homes has conducted some 142 ballots, of which I think around 130 have been successful. People have the opportunity to say no to the proposal and our challenge is to make the positive case and learn lessons from failures elsewhere.
Your memorandum talks about affordable housing, which is important to anyone with a social inclusion agenda. What do you mean by affordable housing?
Affordable housing is housing in which people can afford to live. One of the perverse facts of recent years is that rents in the city of Glasgow have gone from being the second lowest in the country in 1979 to being the highest. The people managing the under-investment recognised that, as more than 75 per cent of the rent revenue came directly from the Treasury, one of the ways of dealing with progressive under-investment was to jack up rents.
I know that you are familiar constituencies such as mine, which include very deprived areas in which tenants have a high dependency on housing benefit. If we are going to achieve affordability, value for money and social inclusion, the rent levels are very significant, particularly if we want to get people back into work. How does your policy address that issue and deliver social inclusion?
First, people need the opportunity to go back to work. The Government is addressing that by aiming to cut long-term unemployment by 40 per cent.
Surely the housing benefit levels mitigate—
Secondly, people need to have a warm, dry house. We all know that rents have risen in order to deal with repairs, which have escalated because the underlying work has not been done. Our responsibility is to bring in new investment without relying on rents as the only vehicle for revenue.
I am sure that other members will pursue the housing benefit issue. Will the Executive move towards a common measure of affordability?
No. That is not something that we are considering.
We may come back to that at some point. I have two further questions. I know that you are a great admirer of the chancellor, Gordon Brown, who is very prudent with public spending, as we all know—we can debate the success of that another time. Are you trying to keep public spending down, rather than addressing the profound needs of the poorer areas of Scotland, where there is large-scale poverty, exclusion and terrible housing conditions? We need public investment to address that issue and we need it now.
What is needed is investment in social housing. I am unclear about the advantages of squeezing out investment that might be more effective if it were put into schools or hospitals when we can access private investment for social housing needs. There would be controls on the process even if we were to put investment on the books by using public money. People can argue about whether they like the current controls, but there will certainly be some controls. If we bring in the investment through arm's-length organisations, which are not on the balance sheet, it would be possible to make the step change with speed. If we simply put in more money, we will not realise the benefits of community ownership.
My final question: will there be council housing in Scotland in 10 years' time?
Definitively, yes. I think that underlying your question is whether stock transfer is the answer for everybody; it is not. Stock transfer is appropriate where there is a huge debt and where a lot of repairs are required. If I thought that stock transfer was the answer for everybody, I would have cut into the capital allocations that continue to run at £180 million a year and that have been unchanged since we came into power. We have funded this entire programme through surplus revenue that became available through the retention of receipts from English council house sales, from which we consequentially gained. The entire programme is funded through that windfall. The fact that there has been no attempt to cut into capital allocations to councils has been somewhat lost in the debate.
We will now examine some of those issues in more depth. John McAllion will ask about objectives and options.
I would like to find out how you arrived at your policy objectives, with particular reference to the new housing partnerships. You have mentioned decent, affordable and high-quality housing, sustainable and secure communities, and long-term benefits for tenants. Those are all good things, but they are of such a general nature that any crackpot would support them—even Lord James Douglas-Hamilton would have been in favour of them during his spell as housing minister. That was a friendly jibe at Lord James.
Absolutely—I could not have put it better myself.
Are new housing partnerships the only means of achieving those three objectives?
The only way in which we can fully deal with the debt overhang is through whole stock transfer. As you know, the new housing partnerships have two elements: development and regeneration partnerships, and whole stock transfers. We are embarking on whole stock transfers only this year. John is familiar with the situation in Aberdeen. There is a difficulty if you try to do partial stock transfers: how can you attribute the outstanding debt? If Glasgow has a debt of £1,000 million, how do you tell which bit is Castlemilk's and which bit is Easterhouse's? It is not attributable.
Are the unique characteristics of the new housing partnership policy that it will deal with the debt overhangs that affect specific councils across Scotland and that it will lead to a stepped increase in investment in social rented housing? In the long term, will you assess the success or failure of new housing partnerships on whether they achieve those limited objectives?
New housing partnerships help to create sustainable communities from communities that are at severe risk of being destabilised. Other parts of the new housing partnerships will increase the amount of socially rented housing stock. A large slice of the new housing partnership money that has not been allocated to whole stock transfer has been set aside to build 7,000 new houses, many of which will be for social rent. That is probably double the number that we could have achieved if we had not brought in private investment to complement public investment.
Will the advisory board of new housing partnerships play a role in assessing the success or failure of the policy in the long term?
Yes. There is no doubt that the steering group will have a continuing and evolving role. For example, in the next year, it will examine the proposals on whole stock transfers. It will also consider the performance of the new housing partnerships that are in place.
How long do you expect the advisory board to continue? Is it a permanent feature of Scottish housing policy?
We would be interested in your view on that point, as I do not have a fixed view on it. The advisory board was established to introduce a degree of scrutiny and expertise into how we were choosing what areas to support. We have tried to follow that principle a fair amount in the housing field. We used it in the rough sleepers initiative and in the homelessness task force. There will be a continuing need for us to talk to experts in the field, but we genuinely have not yet decided whether that should be done by the new housing partnerships in their present form.
How was the composition of the present advisory board decided? What is the board?
The board pre-dates the Scottish Executive and the election of the Parliament. However, perhaps John Breslin can recall how it was set up. I think that it was convened in 1997.
I remember that famous occasion when you were discussing the extension of the right to buy. You were highly critical of professionals in the housing field, and yet the advisory board appears to consist of no one but housing professionals. Can you explain why?
It is funny. Yesterday, I had a discussion with the Scottish Tenants Organisation, which raised with me a policy position that opposes new housing partnerships in principle. That was the first occasion on which the STO had made representations directly to me. There is at least a question—I put it no higher than that—that there is a potential conflict of interests if one opposes the success of a policy in principle and then sits on a committee that is charged with the specific task of delivering the success of that policy.
But is that a conflict of interests? Should not tenants belong to an organisation that deals with a policy that is meant to be good for tenants, regardless of whether they are opposed to that policy? They might be right to be opposed to it; it might be a good idea to change the policy.
That position raises the dilemma of how one chooses the tenant. I am sure that the 7,000 people who will live in the new houses will not be opposed to new housing partnerships. As part of the tenant participation strategy, we have worked hard to try to grow the STO into a genuinely representative organisation with a much larger number of affiliates. I look to the committee for ideas on how we can test tenant opinion most effectively. For example, in social inclusion partnership areas, we are increasingly using people's panels and citizens juries. A question mark hangs over whether some of those techniques should be imported into the housing field.
I can accept that there are problems about just how representative any tenants organisation may be, but surely it is not a good principle to run an advisory board by appointing to it only the people who agree with you. It may be a good idea to appoint people who disagree with you, especially if they represent a body of opinion among those who would be affected by the policy.
I did not make the appointments. All the decisions on funding, bar one that was taken at a meeting preceding the establishment of this Administration—
You endorsed the appointments.
I did not even do that.
I can reassure Mr McAllion that not everybody on the advisory committee agrees with the minister. [Laughter.]
That is very reassuring.
There is a genuinely serious point underlying your question. If we say that an objective of community ownership is that decisions should be made by the community rather than for it, we must be rigorous in ensuring that all stock transfer proposals are developed with the involvement of tenants.
What alternatives did you consider before deciding on new housing partnerships? There are always alternatives in politics—Mrs Thatcher was wrong to say that there is no alternative. Council housing, for example, is an alternative form of community ownership, and you have told the committee that you agree with that. Why then does your memo to the committee say that it would not be a good idea to write off council debts and allow councils to borrow further?
The entire new housing partnership programme is financed from the windfall of additional money that we have received. Support for councils continues at the same level; it has not been cut at all to finance the programme. There are other elements of the programme, such as rough sleeping and energy efficiency. Scottish Homes also has development money, which has not been cut and is increasingly being redirected to rural areas. This is not a one-club policy.
Was consideration given to moving Britain into the 21st century by giving up the 19th century Treasury definition of public borrowing, and accepting the modern European convention on general Government financial deficit, which would have allowed many councils to borrow privately without that counting against public borrowing? Has Gordon Brown completely ruled that out?
If we are going to talk about 19th century accounting conventions, we should also talk about some fairly archaic housing management approaches. Given the situation that we have inherited, what is the most effective way in which to access large-scale private investment? However, that is not enough on its own, as it does not acknowledge the benefits of community ownership. When Glasgow City Council embarked on this project, it produced a feasibility study that the housing movement widely criticised for not realising the benefits of community ownership and instead running the risks of simply creating a Glasgow City Council mark 2. Our policy is characterised both by access to new investment and by new models of management control and ownership.
Obviously, the use of private investment gets round the Treasury's attempts to control short-term borrowing. However, such investment has long-term implications for general Government revenue spending. For example, the seven stock transfers—if they go through—will cost £125 million in the first year, and £46 million up to 30 to 40 years hence. Furthermore, there are serious housing benefit implications. The housing benefit bill has spiralled out of control over the past years because of the withdrawal of subsidy for council housing. As a result, if rents increase—which is likely under new housing partnerships—there will be even greater implications for housing benefit. What assessment has been made—either by the Scottish Executive or by Westminster—of such long-term implications for public spending?
Let me start with rents. We are confident that, through the new housing partnerships, we will be able to offer people rent guarantees, which has simply not been the case in the past. Rents in Glasgow have increased in real terms by between 4 and 5 per cent over more than 15 years with no guarantees for tenants. However, we can lock in rent guarantees that will offer tenants real security.
I will pursue the issue of the comparison between the traditional way of funding housing borrowing, which is through the Public Works Loan Board, and the new way, under the new housing partnerships. Did I hear correctly in your previous answer that, with the Treasury, you had done some modelling to compare the long-term impact on capital and revenue of the two systems of funding?
No. We examined the value for money to the public purse of supporting debt servicing through the housing budget to reach an agreement on whether servicing debt was an appropriate way to use money that is available for housing.
Has the Executive—by itself or with the Treasury—undertaken a comparison of the cost of the capital borrowed under the new housing partnership proposals with the long-term cost of borrowing capital through the Public Works Loan Board? Clearly, it was much more expensive to borrow directly from the private sector than it was to borrow through the Public Works Loan Board.
Scottish Homes has done that work, but let me answer your point, as this is fundamental to the issue. One difference with our position is that the value for money of any project is not assessed by considering only the cost of finance. Doing that ignores the cost and benefit of the project as a whole—the benefit of management expertise, whole-life costing and output-based contracts. Last week we debated financing and private finance initiatives. The implication of what you said then was that, if the cost of financing was slightly more, that proved your value for money case. The National Audit Office and others—Arthur Andersen carried out work on this recently—that have undertaken appraisals of value for money of whole projects demonstrate that savings under PFI can be considerable. It is inappropriate simply to use the cost of finance as the basis for comparison.
I know that value for money is a wider concept than a comparison of the costs of borrowing, but two questions arise from your answer. First, it is clear that one reason for going down the new housing partnership route relates to the long-term public spending and borrowing implications of continuing with the status quo. I repeat my question: has any comparative analysis been done on the specific issue of the cost of borrowing as part of the value for money exercise?
Yes.
If so, will you make that comparative analysis available to the committee?
Yes.
Secondly, have you made a comparative analysis on the wider concept of the value for money of this proposal, taking into account all the other factors that you have mentioned? If so, will you provide that to the committee as well?
John Breslin will speak to the committee about the detail of the work that Scottish Homes has done.
I am sorry to interrupt, but we asked Scottish Homes exactly the same question and were told that it had done no work.
I will let my official clarify that in a moment.
With all due respect, that misses the point.
What is the point?
At issue is whether over the lifetime of these projects, 20 or 30 years, it is cheaper to borrow through the Public Works Loan Board or by the method that you are proposing. Last week we received evidence from consultants that, in their view, it would be significantly more expensive to borrow by the method that you are proposing.
How much more expensive?
Significantly more expensive. They gave an estimate of up to 0.4 to 0.5 per cent, which over the period that we are talking about is a significant amount of public money. The point that I am making is that if the sums are wrong, we will be passing on to future generations the obligation to fund substantial and potentially unnecessary increases in interest, which means potentially unnecessary increases in rent levels. I am not putting forward a point of view. I am asking for information. You are telling me that the comparisons have been done. I am asking you to tell us what the conclusions are and to make the details available to the committee.
I will offer you one point of reassurance. You suggested that the cost of private borrowing is substantially higher—
Significantly higher.
The Housing Corporation in England, which lends to housing associations on a consortium basis, is currently offering interest rates of less than 6 per cent—less than 1 per cent above the lending rate of the Public Works Loan Board. I do not agree that we will be ripped off by significant interest rate differentials, as the market for lending has become more competitive. The assessment that has to be made is not merely a cost of finance assessment, but I take the point that you make.
Do not try to kid us.
I am not.
If I go to the Halifax for a mortgage and then go to the Bradford & Bingley, I can get a differential rate. However, the important comparator is one extending over the period of the mortgage—say, 25 or 30 years—rather than the current differential. That is why I ask for the third time whether that comparative analysis been done and, if so, can you make it available to the committee?
I will clarify the point. The interest differential for borrowing now is less than 1 per cent. I am not prepared to predict what interest rates will be 20 years into the future. When people borrow, they can choose whether to have a fixed rate or a variable rate. There are a variety of options.
I have not said that.
Minister, I think that we understand that. I shall allow John Breslin to speak, and we will try to get the information.
You are asking for a comparison between the current Public Works Loan Board rates and the current rates of the private sector. I have been working with Scottish Homes. I understood that Scottish Homes had made that information available to the committee.
Information is available, but it is limited.
We will speak again to Scottish Homes. If what you have received is not adequate for your purposes, we will ensure that you receive such a comparison. However, it is difficult to say what that comparator will be over the next 30 years. It depends on whether the PWLB loan is taken on a fixed rate over 30 years or whether it is taken as 1 per cent over the London international bank offered rate.
Let me put the question in more basic terms. The minister mentioned that, when the business plans for stock transfer come in, you will have to assess them. Let us assume that the business plans are initially for a period of five years, which I imagine is realistic. Is that the case?
The business plans will be for 30 years.
They are 30-year business plans. That emphasises my point even more. When you assess a business plan, you must make assumptions about the likely trend in interest rates and the likely requirement of rental stream to fund the borrowing, and about whether the funding that is obtained is variable or fixed over the period of time; it might be fixed over five years and be variable thereafter. When you set the criteria against which to assess and approve—or disapprove—those business plans, what assumptions, sensitivity analysis and comparators will you use to assess the viability of those business plans in respect of all the value-for-money considerations?
The housing policy people, the finance people and the economists in the department are working to finalise what that value-for-money appraisal will be. It is based on work that Scottish Homes already carries out through its appraisal system, and takes account of what the Department of the Environment, Transport and the Regions does.
Evidence from Glasgow City Council suggested that there should be a rental guarantee of five years. Two weeks ago we received evidence about Ardler, where the rental guarantee is 15 years. Can you indicate the likely period of the rental guarantee and what that guarantee will be?
It varies from case to case. It generally tends to be a minimum of five years. That is not entirely within our gift; it is for the proposer, the person who buys the houses, to specify the sort of guarantees that they want. In the case of Scottish Homes, the rental guarantee tends to be between five and 10 years, and we would consider that in finalising our appraisal.
Do you believe that new housing partnerships present challenges for anyone apart from your department? I am thinking of other Government departments, the Scottish Parliament, Whitehall, tenants, trade unions, housing professionals and the lenders.
This is a challenge for all of us. Funders have a model for funding socially rented housing in housing associations. Importing that to the local authority sector, in the case of whole stock transfers, is certainly a challenge. It is a challenge for tenants, because if we want a tenant-led strategy, we want the decisions to be made by the community.
I have asked you this question on a number of occasions. You have promised investment in housing in Scotland, but that is predicated on stock transfer. In the event of a negative vote in a ballot, what is the Scottish Executive's plan B for investment in Scottish housing?
You may have asked me the question several times, but I do not know whether you have heard the answer. There are none so deaf as those who will not hear.
I have a collection of your answers and I read them occasionally. None of them makes sense.
As I say, we are increasing investment by 40 per cent more than the Tories had planned. Not all of that is new housing partnerships money. Much of it is Scottish Homes development money, and much of it will go on our largest ever energy programme. Money for the rough sleepers initiative is up by 40 per cent.
Yes, but what is plan B?
In the event of tenants saying no, as I have said, the capital allocations programme is not being cut in any way whatsoever. The capital allocations programme will continue for Glasgow as it does for all other councils. Because of the scale of the problems in Glasgow, Scottish Homes' activity there might step up. However, if the stock transfer goes ahead and there is £1,000 million of investment available over the next decade, Scottish Homes may take more of a back seat in Glasgow and look elsewhere. Glasgow is benefiting from a regeneration and development partnership. I recently visited Castlemilk where 500 houses—
We have wandered into the world of "if".
No—
Where will the housing investment come from if tenants in Glasgow, or in any of the areas where a stock transfer has been suggested, reject it in the ballot?
From capital allocations, as it does at the moment, from which not a ha'penny has been cut.
And the additional investment that you have promised?
If Glasgow does not vote for the transfer in the ballot, we will not need all or part of the £125 million for debt write-off, or the £46 million a year thereafter. The money that would have gone to support the debt write-off will be available for Scottish Homes investment or for the other elements of new housing partnerships. New housing partnerships money is funding new developments and regeneration; it is not all about stock transfers.
As I made clear in my memorandum, a large number of authorities want to consider whether stock transfer is appropriate for them.
You said that the emphasis is on developing sustainable housing for tenants. This committee has been petitioned by a large number of tenant organisations, which are considering this issue from various perspectives. We have heard from people who reject outright and on principle the concept of stock transfer; and we have heard from people who have been neutral on the issue. However, nearly all of them have said that they seek a moratorium. What is your response to that?
Seek a moratorium on what?
On stock transfer.
Which organisations want a moratorium on stock transfer?
Tenant organisations that have petitioned this committee and have given evidence in the seat in which you are sitting.
Using the £1 million that I am making available for tenant advisers, those organisations can lobby for a moratorium or a no vote.
Has the time scale for the procedure changed any?
What procedure?
The procedure to move towards a stock transfer ballot.
In respect of Scotland?
Scotland, Glasgow, any of the relevant areas.
In Scotland, the money for debt servicing is, in large part, assigned for the financial year beginning 2001. It was assumed that it would take until April next year for the seven authorities that are considering the matter to draw up their business plans and hold a ballot.
Given the fact that an enormous amount of money has been spent on feasibility studies, is it correct to say that you have a parallel strategy that has an equal level of investment of time, human resources and finance to deal with the situation if there should be a rejection of stock transfer?
I reject the suggestion that we have spent huge amounts of money on considering the stock transfer option. Less than £10 million has been spent in Glasgow so far and we hope to lever in around £1,000 million.
I withdraw the phrase "an enormous amount of money".
We have spent 0.1 per cent of the total that is likely to be brought in, which is quite an efficient use of money.
Is there a parallel strategy to deal with the situation if the move to stock transfer is not approved? Is the same amount of resources being put into recognising that?
Yes. More than half the £330 million that has been spent on housing partnerships is not going on stock transfer but on the development and regeneration partnership. Last week, I opened the 100th house of the 500 housing partnership houses in Coatbridge. There are a further 400 in Castlemilk and 400 in Craigmillar.
You have made a strong point about tenant empowerment but it must be recognised that there is a perception that the tenants are being left out and that things are being decided by you and the councillors in the traditional smoke-filled rooms. Do you accept that that perception will take a long time to change? Would it not have been better to devise mechanisms, however imperfect, that would involve tenant organisations in the discussions that have taken place?
There have been difficulties. We have met tenant groups through the Glasgow Citywide Tenants Forum. This week Frank McAveety met with an organisation that is opposed to stock transfer.
I want to develop that point in relation to the role of housing associations. Across Scotland, housing associations have been a tremendous success in developing effective tenant representation. Do you see a major role for housing associations in taking on stock from councils and acting as receiving units?
Yes, if tenants in those communities look favourably on their local housing association and think that it has a contribution to make in managing the stock.
Will the housing associations have the opportunity to be involved in taking on parcels of stock, subject to tenant agreement, or will there be a competitive arrangement involving a variety of different groups, perhaps including English housing associations?
Housing associations should be involved, where that is what tenants want. Glasgow tenants considering the matter are more likely to be attracted to the local, community-based housing association than an organisation that they have never seen or heard of before.
I do not want to concentrate on Glasgow too much, but earlier we talked about new organisations that were not based on the specific expertise of current structures, such as federations or completely new groups. Do you accept that that might create problems, because of the time that it would take to set up such groups? It might take a couple of years to get an effective housing association going, training people and so on. Do you recognise such difficulties?
Yes. Robert has touched on some of the real challenges that we face and with which the committee must be struggling. I look forward to hearing the committee's views on that. The problem that has taken up the most time in the past year is that if we want to deal with all the debt, there can only be one ballot if it is to be a whole stock transfer. That one ballot has to pass the stock, in the first instance, to one landlord. We cannot have one ballot to pass the stock to a multiplicity of landlords. If we want to deal with all the debt, there must be one ballot and one landlord.
Would it be fair to say that you are putting a self-imposed chain round your neck by defining the circumstances under which a transfer can take place? If there were a political will to do so, you could produce mechanisms for proper valuations, which would enable some sort of equity to be achieved in proposals for direct transfer to community groups.
What do you mean by political restrictions?
You are defining a single stock transfer and saying that it is not possible to devise mechanisms under which housing could be transferred in smaller parts to landlords. I suggest that that is not the case and that the limitation is self-imposed.
If one allows people to cherry pick, one does not deal with the debt.
Unless properties are valued properly.
Then we would risk certain communities saying no and others yes, and the Glasgow debt problem would never be addressed.
The sample that we have taken of what will happen in practice has been uninspiring and seems not to take advantage of the existing expertise in housing associations and tenant co-operatives.
I am reluctant to specify the optimum size of unit; the tenants should determine that. The optimum size of the body for the management of multi-storey flats may be different from that for Mosspark or Possil. I almost said Easterhouse, but I thought that Margaret Curran's part of the world had been cited too often.
Some of my colleagues will pick up on the details of that. We have been down that road before, certainly in Glasgow, and have heard such promises in the past.
I agree wholeheartedly about the comfort that lenders derive from the quality of management in the housing association sector. That is why we think that all the landlord bodies should be registered with Scottish Homes as social landlords. We should look to Scottish Homes to fulfil that regulatory role, which gives security to the lenders and helps to manage the finance issues that Alex Neil rightly raised. A public body should carry out the regulation, to avoid the risks that are associated with landlords being unregulated in the private sector.
My final question relates to the right to buy. How will the right to buy, which you propose under the single social tenancy, affect the viability of the new landlords? I am talking about the risk element—another feature that will affect the rental stream and will have to be paid for, perhaps through higher loan charges, or something of that sort. There may be problems with the enthusiasm of volunteers, when they see themselves, in effect, acting as a vehicle for creating private ownership, which is not why they entered into it in the first place. How does that fit into the concept of what you want to do with stock transfer?
The extension of the right to buy affects the 43,000 assured housing association tenants who are not part of the stock transfer directly.
It will also affect people who do not buy at the moment because their houses are not worth buying. When those houses have been improved, there will be a vast increase in the number of people who are interested in buying under the existing arrangement.
All council tenants would have had a preserved right to buy anyway, whether or not the single social tenancy was there. From day one, lenders have factored that into their consideration. All our transfers of Scottish Homes stock have been conducted on the basis of a preserved right to buy. In many ways, that is the familiar lending environment.
With respect, that is not the point. It is not the existing tenants, but the new tenants—who will get tenancies later on in increasing numbers—who will face a new situation because of the way in which the single social tenancy affects them. That is the point.
There are 70,000 tenants at the moment. We are talking about the new tenancies that will be introduced. Of course, if the property has been done up recently, the "cost for" rule will operate for 10 years. One third of housing association tenants have the right to buy at the moment, so I do not have strong fears on that score.
We know that the right to buy will extend to new tenants, as well as existing tenants. Lenders and bidders will have to factor that in, just as they had to factor in the preserved right to buy. We will all have to face up to that.
Will it affect the cost of borrowing?
From our discussions, I do not think that the Council of Mortgage Lenders is saying that that will make borrowing more expensive. If houses were to be transferred now, done up over 10 years and then sold to Mrs Smith, the effect would be broadly neutral in numerical terms. In some areas, it would be financially beneficial to sell houses under the right to buy, because the right-to-buy value would be greater than the value of the rent if the house were kept for 30 years. Lenders accept that the right to buy is a factor, but they are not saying that it will make the scheme so expensive that it will not work.
We must move on. I should make it clear that there will be a set of questions on Glasgow, in which we will try to unravel the details of the proposal for that city. However, this is a Scotland-wide inquiry, so we need to consider Scotland-wide issues as well.
Obviously, the financial issues are key. We understand that the cost of debt servicing for the seven lead authorities is estimated at £46 million. That is net of the housing revenue account. If the cost is to be £100 million over 40 years, future Governments may face a debt-servicing commitment of £4 billion.
That is assuming total stock transfer.
I am talking about what would happen in your scenario of all seven authorities transferring completely. I understand that the figure of £46 million is contained in your advisory group's notes. What guarantee do you have that debt servicing, as distinct from the servicing of written-off debt, will continue under future Administrations?
Parliamentary Government does not allow Governments to bind their successors on public spending. In the same way that a Government could end all capital allocations to local authorities, it would be feasible for it to take a different view of debt servicing. I regard that as unlikely.
If a future Scottish Executive were to decide that it wanted to invest its resources in "education, education, education" or "health, health, health", could it withdraw debt servicing from Glasgow City Council, Aberdeen City Council and Dumfries and Galloway Council, leaving not the rent payers but the council tax payers of those areas responsible for the debt?
The arrangements for debt servicing have to be worked out in detail with councils, but my understanding is that there would be a contract between the council and the Scottish Executive. In theory at least, the Scottish Executive could take the debt from the council—that is what councils would want to happen. Councils would say that that is the only way of providing them with the assurance that debt servicing will not be withdrawn in future. We need to examine the mechanics of that.
You are talking about £4 billion over 40 years and future Scottish Parliaments. On the one hand, you cannot bind the hands of future Administrations; on the other, you are saying that we might have contracts. That key issue must be resolved.
We are not talking about £4 billion. If all the houses were sold, the receipt would be £2 billion, so there would be a net debt of £2 billion.
Let us move on to that, then. Are you aware that breakage costs could add another £1 billion on to that, and that the transaction costs for transfers could amount to £500 a house, thereby adding another £300 million to the bill?
I am aware of the breakage costs; I am also aware that they do not have to be paid immediately. Breakage is a much used word. Breakage costs mean that all the interest that would have been paid over the period of the loan is paid on the day that the loan is repaid. We have spoken to the councils and the Public Works Loan Board about the possibility of spreading those breakage costs. They do not have to be paid on day one. We understand that transaction costs are another matter.
I appreciate the technical advice that is being given by Mr Breslin, but I would like to ask the minister why the Executive is treating wholesale and partial transfers differently. I have a letter from Mr Breslin to Fife Council, from January this year, which talks about the differences for partial stock transfers. He says that, in such cases, the commitment would be given only for five years. He then says:
No. The danger with partial stock transfer is that councils will try to make us take on the worst parts of their stock and lift the worst part of their debt burden without them having to deal with the totality of the investment in their areas. As you have pointed out, if our challenge is to deal with a shortfall of £2 billion between the tenanted market value of the stock and the size of the debt overhang, it is important for the public purse that we ensure efficiency in the way in which we service the debt. The danger of taking on partial stock transfer is that councils try to load more of the debt on to us without dealing with the worst parts of their stock.
Therefore, partial stock transfer is really just part of the process of wholesale stock transfer. There is no such thing as partial stock transfer in itself.
No, it exists. However, when councils proceed with partial transfer, they cannot expect an open-ended guarantee for debt that cannot be demonstrated to be attributable to those houses.
Let us move on. Thank you for the policy memorandum. In part 8 of that memorandum, you say that you do not want simply to lift the debt burden of councils, and that that is not the ideal option. Obviously, it is an option, but from your point of view it is not the ideal option. Let us return to the reasons that you gave as to why a council—in Glasgow or wherever—cannot self-finance. The Government would service the debt, and there would be a rental stream whereby authorities could finance the same level of investment themselves.
Do you think that they could finance the same level of investment?
That argument has been put to the committee in evidence. From its rental income stream, Glasgow City Council could generate £120 million over 10 years. However, I do not want to focus on Glasgow; it is the principle that I want to explore.
They can; it just takes more than twice as long. If £120 million a year was available, it would take the councils 10 years, if that estimate was accurate. It also misses the fact that if properties remain owned by the council, I presume that the council would want to have available the capital allocations money. In the circumstance of a wholesale stock transfer, if there is no council, there will be no council capital allocation, so that money is clearly available and there is no reason for us to give it to the council.
If the debt is lifted, councils could still have the opportunity to borrow at the same levels; that would keep the borrowing requirement the same, as dictated by the Treasury.
No, the councils would not borrow at the same level. It would count against the public sector borrowing requirement and, as £100 million would already have been invested in debt servicing, the call would have been raised on public expenditure. Do you understand that, Fiona? There would be the £100 million of debt servicing plus the £50 million capital allocation, so the net borrowing from the Government would have been increased.
That is an interesting answer. Let me ask you a very simple question. Why are you making the debt solution dependent on the stock transfer ballot? Why are they linked? Why can you not deal with those issues separately?
Because there is a real risk of residualisation and cherry picking. We could ask Glasgow City Council to choose which parts of the stock it was going to deal with, but lenders would not lend on the worst part of the stock, which might require £20,000 or £30,000 to be spent on each unit to bring it up to standard. Given that the rental stream is the same whether the house is in Mosspark or Easterhouse, they will say that the unit of stock that they are prepared to lend on is in Mosspark, as the investment that is needed to bring that up to standard is just in windows and doors. In Easterhouse, an entire rehab might be necessary that will cost £30,000, although there is only the same rental stream available to service it. We will end up with worse residualisation of the stock unless we conduct a wholesale stock transfer.
You are obviously leaving it to the council to decide in the case of partial transfers. I have some final questions that I want to ask. Why are you choosing to service the councils' debt rather than to transfer it or write it off?
Sorry?
Why are you choosing to service the debt rather than transfer it to the Government? Is that your choice, or is it dictated by the Treasury in London?
No. We have said that we are going to service the debt in its entirety partly because there are different profiles of debt, and different arrangements for debt. In some authorities, for example, the receipt will pay off the whole of the debt; in other authorities, the receipt will pay off only part of the debt. We see no reason to centralise all that, given that arrangements will be made authority by authority, based on the business plans that they draw up. We do not recognise any net advantage in centralising it all.
Apart from in the case of council tax payers, who might face the burden of future years.
Those are the same council tax payers who are having to pick it up at the moment anyway—they are one and the same group of people.
I think that there is an issue of accountability, responsibility and democracy there.
I am sorry, but I am not clear about the question.
When Scottish Homes ceases to be a quango, is taken over and becomes an Executive agency, the Executive will have to service Scottish Homes' outstanding debt. I understand that we will receive evidence on how that will happen. That will have a knock-on effect, which means that other people will not get resources. How will the servicing of the debt be financed?
We service the Scottish Homes debt at the moment—we will in the future. As Scottish Homes has transferred its houses to housing associations—as has been done over a period of 10 years—the debt has not transferred with those houses.
I would like to respond to the point about my letter to Fife Council. Rather than blackmail, the purpose behind that letter was to say that, if we are to transfer houses to community ownership, it does not make sense that the council makes all the investment first and then tells tenants that they can decide what they want to do.
Keep the money back and the tenants find that the work is not done sooner.
That was not my intention.
Let us move on. We will now cover value for money.
Good morning, minister. You said in answer to a previous question—and perhaps even mentioned it in your introductory remarks—that value for money was not just to do with consideration of costs.
It is simply not true to say that the only thing that we are interested in is maximising the receipt. We will judge each business plan as it reaches us. Clearly, a balance has to be struck in assessment. The larger the receipt, the less money one has to pay for debt servicing. On the other hand, if we were just interested in receipt maximisation, we would not be encouraging councils to become involved in discussions around rent guarantees, for example. A judgment will have to reached as to whether the receipt is reasonable, leaving a manageable amount of debt. The package offered to tenants should also be fundable and the level of rent and other aspects of that package should not be too onerous to them.
The valuations and rental stream are important when establishing what will be offered for the stock. If there is a dispute over the value of the stock, does the Scottish Executive have its own valuers? How does the Executive enter into negotiations with the bidding organisation?
We expect all stock transfer authorities to have an independent valuer for their business plan. We will also make an independent assessment, so that there will be at least two independent valuations as part of the process—the one in the business plan and the one undertaken by the department as part of the assessment of the business plan.
It has been suggested that rents are being pushed up as we move towards stock transfer. Is that happening or do you foresee that it will? There is still the feeling that rents have been pushed up to make the figures balance.
The facts contradict that idea. From 1983 until last year, rents in Glasgow increased in real terms by 131 per cent, which equates to a real-terms increase of between 4 and 5 per cent each year. In the past two years, rent increases have been well below average, at 2.9 per cent one year and 3 per cent the next—way below the level of increase over the past 20 years.
The National Audit Office becomes Audit Scotland next week. It has been confirmed that there will be routine checks on Scottish Homes transfers to establish whether the highest price was achieved and, if it was not, whether there were reasonable grounds for accepting a lower price. That adds to the speculation that the purpose of stock transfer is to achieve the highest price. What is your response?
I am open to advice from the committee on the appropriate role for Audit Scotland in this area. How do we balance our responsibility to the Scottish taxpayer? The receipt must be reasonable so that the taxpayer is not picking up the tab unnecessarily, but the receipt that is realised must not be so large that it prejudices the ability to carry out repairs and improvement programmes. Those are technical matters, but they are appropriate matters for political judgment. I genuinely welcome the committee's views.
One of the department's letters on debt servicing said that we would expect councils to maximise the level of receipts. The fear of the committee is that that means getting the highest total price. However, one must take account of the various factors that contribute to the value of the receipt, such as rent and investment levels. As the minister said, transfer authorities have put the rents up by the rate of inflation plus 1 per cent, on average. In Scotland as a whole, rents for council properties have gone up by the rate of inflation plus 4 per cent over the past 15 years. Transfers have led to less of an increase than there would have been if the properties had stayed in council ownership.
The National Audit Office has confirmed that it will scrutinise transfers to ensure that procedures have been duly followed. I do not know how it would do so as no guidelines have been tabled or agreed. When do we expect to have the procedures for local authorities to follow?
You will have heard this answer before. The procedures are in the process of being finalised. It will be weeks yet. We had to take account of the discussions that the Executive has been having about Glasgow and other authorities in the past few months. There would be no point in putting out a set of procedures that did not take account of the Executive's position.
I take it that you are learning from the experiences that you are going through just now, minister.
There must be a balance in the guidelines between prescription on what we want and negotiation at the end of the business plan process.
John, you said that the transfer represented value for money for the public purse, not only because of issues relating to rents and repairs, but because of the levels of housing benefit. What are the implications of stock transfer for housing benefit? Have you discussed that with the Department of Social Security?
There have been discussions with the DSS about the value-for-money implications of transfer. The implications for housing benefit will depend on the level of rent increase.
I take it that you are aware of that just now and are bearing it in mind.
That is correct.
We might pick up on some of those broader issues later, but we will refer to matters relating to Glasgow now.
Minister, do you agree that the community-based housing association concept has been successful? Why do you think so?
I think that it has been hugely successful for the reasons that John Breslin and others have touched upon. It has been tenant-led, it has been able to access significant private investment and there was significant political commitment on behalf of many people to make it work. The model is now well established.
The tenants' input has been highly satisfactory. Do you agree that one of the major reasons for that has been the ability of tenants to be able to associate what they are doing with their community?
Yes. That is a feature not only of housing associations, but of tenant-management co-operatives. The notion of tenant-led, locally responsive services and management has been a major factor in the success of the initiative.
Is your preferred option that Glasgow should have a number of small community-based associations?
My preferred option is for Glasgow to have a number of community-based landlords, who will increasingly be registered social landlords. Whether they take the form of a housing association or a tenant-management co-operative is less important than the right to manage and decide on investment locally and, ultimately, the right to own.
You have highlighted the reasons why you believe that it is not possible to arrive at that position at stage 1. I would like to examine your thinking on that more deeply. You have stated that there will be the risk of cherry picking—that is, the East Possil association would probably be less acceptable than the Knightswood association. Have you taken figures from Glasgow City Council and looked at the number of houses that are in council ownership in various parts of Glasgow?
I have been in discussions about the major demand survey that is being carried out in the city, which was commissioned by the University of Glasgow. The council expects to receive that report shortly. There has been some coverage in the press about the contents of the report, such as the changing profile of demand and household composition in the future. I am anxious to see that report published and in the public domain when tenants are sitting down to discuss the future for their areas, because they should be informed.
Are you aware of the absolute figures and the percentages for the take-up of the right to buy under the Tenants' Rights, Etc (Scotland) Act 1980 in Mosspark, Knightswood and so on?
I have looked at the aggregate figures for the city as a whole and for some of the communities therein.
My point is that perhaps the difficulty with cherry picking that you envisage is not as significant as you think, because when I drive round places such as Mosspark and Knightswood, it strikes me that not many council-owned houses are left there.
The significant point with respect to Glasgow is that if you compare 1979 with today, there are only 10 per cent fewer socially rented houses within the city boundary. That implies that the growth in the community-based housing association movement, and in the housing association sector as a whole, has largely replaced sales in Glasgow. Interestingly, that pattern is not repeated all over the country. Today, there is 90 per cent of the socially rented housing that there was 20 years ago, but the landlords are different. Rather than the landlord being the council, there are other socially renting landlords.
As I recall, in 1979 there were 178,000 council houses in Glasgow. We are now down to around 86,000. The houses that have been taken over by housing associations have largely been from outwith the council sector, so while I accept that there has been some transfer, it is not significant. I do not think that in the Mossparks and the Knightswoods there are many council houses left, and as such the cherry-picking problem is not nearly as significant as you think.
There are two issues here. The one about cherry-picking concerns the danger that, if we do not go for a whole stock transfer, the stock that does not need much repair and maintenance will be attractive to financiers, and the stock that requires more work will not be so attractive. For example, if the one quarter of the stock that is multi-storey flats was left on its own, the risks that are associated with the structural work that is required could mean that the tenants would face a bleak future.
I take your point about the multi-storeys and so on. That is a real problem.
We are suggesting that we do this in a oner in the sense that we go to a single landlord in the first instance, but the important point is that people do not believe that that is the end of the story. If tenants want to move towards local management and control, they have that opportunity over an agreed time scale.
Have you thought about breaking the process down into, say, 10 transfers?
If you have a single question in the ballot—yes or no to transfer—you cannot use it to transfer people to 12 different organisations. I have had extensive legal advice on that.
I have a terrible feeling of déjà vu from when I questioned Conservative ministers. You are in government, so you could introduce provisions to the housing bill to change that.
I have considered that option, but if the ballot question said, "Do you want to move to Glasgow north-west?" for example, people could say no and we would not have dealt with the debt problem. We have to start by asking question 1, "Do you want to move to a new landlord, at which point the taxpayers of Scotland will lift the entire debt burden of the city?" There has to be a yes or no answer.
This will be my final question, because I know that other members want to ask about Glasgow. Do you agree that the process has not been handled entirely happily? We have received persistent and consistent complaints from tenants associations that the degree of dialogue has been restricted. Unless the Executive and the council get their act together on consultation—I speak as one who is generally supportive of what you are trying to do—you will not get the answer that you seek in the ballot.
More than anybody, members of the committee have a sense of the complexity of this issue, as they have been struggling with it for three months. It is a difficult balance to strike to decide when there is enough agreement on a framework to be able to pass the matter to the tenants—to give them £1 million and let them consult. It would have been most dishonest to tell 90,000 tenants to talk about transfer because a feasibility study showed that there might be a funder out there, even though we had no idea of how the transfer would deliver community ownership or what the ownership structures would be—it would not be fair politics to do that. The study that we had in April last year said that the biggest deal on debt in Scotland was potentially fundable, but it said no more than that.
The question of housing stock transfer in Glasgow has being going on since October 1998. I am sure that you will sympathise with tenants groups that say that they still do not have clear details. The Glasgow Citywide Tenants Forum expressed that view clearly when it gave evidence to the committee two weeks ago.
In October 1998, the figure that we were using was £920 million. The most recent figure that we have received from Glasgow is around £870 million. It can be seen that £900 million is a round figure.
Have you projected the figure two years forward?
We have not projected the figure two years forward, because to an extent the amount will depend on such things as demolition.
The figure seems to waver.
One reason why it has been difficult to present anything to tenants is that the estimates of receipt have varied from £17 million to £227 million—that is the scale of the variation in estimates. The stock condition survey, which we expect to receive in the next month, will provide greater clarity and we hope that it will narrow the spectrum of valuations. However, the valuation will continue to vary until the business plan is prepared. Indeed, the receipt figure will vary, perhaps because the funding organisations will have different views on what it should include. However, after the stock condition survey, there will be less variation in the figures.
The final figure is important, because it has an impact on public sector borrowing. If the Scottish Executive takes on the debt, and the debt is £800 million or £900 million, what effect will that have on public borrowing in general? What might it mean for Scottish public spending as a whole?
Fiona Hyslop alluded to the NHP minutes, which make clear how much money we have set aside to service Glasgow's debt, should it proceed with stock transfer. I believe that we have set aside enough money for that, not least because, if money is available for the financial year 2001-02 and a decision is taken some months after that, the servicing resource available will be increased incrementally.
Over what period will the set-aside have to extend for the debt to be repaid?
The payment will be made for up to a maximum of 30 years. One of the benefits of this approach is that, each time one of Glasgow's loans is paid off, a new one is not taken on.
It is a receding sum.
Yes.
I take that point.
That money will cover the year following the publication of the framework document, but what arrangements will be made to ensure tenant participation if the stock remains within local authority control? Should there not be a facility that would provide local tenants organisations with the resources to participate fully in the management of their homes?
I agree whole-heartedly. We expect that, when business plans are being drawn up, tenants will specify the ways in which they want to be consulted in the future. At the moment, we have neighbourhood forums. If we move towards a situation in which ever larger numbers of tenants are managing their houses and others are going on to own their houses, things will change. Local housing associations do not have neighbourhood forums; they have management committees, which are made up overwhelmingly of local tenants. Tenants who are under more traditional management structures will have more traditional forms of representation. Those who move to local management or control are less likely to be involved in neighbourhood forums, but they are likely to sit on the management committee of their local management co-operative.
From the new housing partnership money, would it possible to fund an independent tenants adviser, either Glasgow-wide or Scotland-wide?
Yes.
We have talked about £1 million being made available to tenants in Glasgow. Glasgow City Council has bid for £13 million in total, which has been earmarked for developing a proposal if it goes ahead with stock transfer. The First Minister considered that bid on the advice of the new housing partnership steering group. He has said that, of that £13 million, £3 million will be for tenants, of which £1 million can be released once a framework document has been agreed.
That is a temporary arrangement—the money is for the year following the publication of the framework document, prior to the ballot.
The balance of the £13 million is available for tenant consultation until a proposal has been developed, but it is subject to conditions. The new housing partnership advisory group suggested—and the previous minister agreed—that £26 million would be available for feasibility and option study work in 24 councils across Scotland. A large element of that would be spent on tenant consultation. Money is available to councils to consult tenants when they are drawing up proposals.
However, it is not available for the period beyond the ballot. It is available only to assist tenants to participate in the ballot and be fully informed.
Yes.
I want to turn to the question of staffing, particularly in Glasgow. The committee took evidence from the Glasgow Joint Trade Unions Committee and the Scottish Trades Union Congress about the likely effects of the stock transfers, and both organisations very strongly made the point that there was no staff involvement in the steering group.
This has been a difficult issue. There was a concern that, if there was no agreement on proceeding with the transfers, talking to employees of another organisation would prove difficult. The important thing is that staff are made aware of any proposal as soon as it is available.
Presumably you want the stock transfers to go through. However, can that not be done by making sure that both tenants and staff are fully informed and part of the process, which they have not been up to now?
It has not been clear whether Glasgow City Council and the Scottish Executive could reach agreement on the issue. We can have discussions with staff only when there is a proposal to discuss. There have been discussions about whether there is even a basis to proceed with the stock transfer as soon as a decision to do so is made. Over the next 12 months, there will be full consultation as the proposal is drawn up, but any discussions will be led by the people who will be directly involved with the transfers. At that point, the Executive will withdraw. We have been involved up to now because we have to give a commitment in principle to devote hundreds of millions of pounds of public money over a number of years.
I accept that. However, there is great concern about job security should the transfers happen, and both council staff and council tenants have an interest in the process.
As you say, this is a growth scenario. If we are asking Scottish taxpayers to pick up the tab for the whole debt and to release rental income to support private investment—for the first time in Glasgow—people should recognise that in this case we are expecting to invest a further £1,000 million. The desire for job security has been articulated by Glasgow City Council and is a general principle that we hold. An exciting aspect of the proposal is that it is a growth scenario in which £1,000 million will be invested in construction over the next decade. The estimate of leverage rates which produced the figure of 4,000 jobs is based on work by the Chartered Institute of Housing in Scotland.
Is your estimate of 4,000 jobs a net figure?
No. Well, yes, it is a net additional figure, over and above housing management. The estimate makes no assumptions about the implications for either housing management or the repair services. The figure is generated exclusively by improvement and associated work.
So, is it a gross figure, because you will have to offset it—
Yes. Well, it is not gross in the sense that the employees are already in place.
Our information suggests that some job losses are likely to be caused by the stock transfers to housing associations.
Really? From where do you get that information?
That was the clear evidence from the trade unions, which leads me neatly on to the point that you made about the construction industry. The construction trade unions in Glasgow City Council were clear that their members' jobs were under threat, because it is often the case that, in new housing developments, house builders bring in their own staff. Those people often do not live in Glasgow—they do not even live in Scotland. They are housed at low cost, work for 12 hours a day and have none of the usual trade union or employment protection, such as holidays, sick pay and so on, which is a major concern. Can you write into the proposal that employers will be encouraged—if they cannot be legally obliged—to ensure that the maximum number of jobs are created in Glasgow, in order to maximise the impact on employment for Glasgow?
Yes. I hope that I can offer you some reassurance on the three issues that you highlighted.
That positive point was made to us. However, the concern is that local authorities tend to take on apprentices whereas, in many cases, building companies do not, as they do not tend to look very far into the future.
I stress that those matters are for the people involved at each level—it would not be appropriate for the Scottish Executive to get involved until the business plan is produced. Our job is to find out whether the funders are prepared to finance the scheme and to decide whether the scheme meets the objective of community ownership. How security of employment—which is the important objective—is delivered is a matter for local negotiation.
I would like to ask about the process of stock transfer. We have already heard a number of concerns about tenant involvement from tenants and we have heard that tenants' early involvement has been a key to successful stock transfers. What mechanisms should be in place to ensure tenants' involvement in making decisions? Who will be responsible for ensuring grass-roots involvement and community participation? Who will be responsible for the strategic overview of participation and is that one of the areas into which Scottish Homes—in its new role as an executive agency—might give some input?
I am encouraged by the committee's commitment to tenant involvement and I welcome the stress on that as part of the community ownership package. There is a large constituency that says that the issue is about getting the money and that people just want new windows and doors. Those people do not want tenants to be involved in the process and they believe that tenants do not want to spend their time going to meetings. The committee has heard that variety of testimony.
Yes, we have.
Although the committee might take tenant involvement as read, that is not the case throughout Scotland. The Executive is trying hard to strike the right balance on the extent to which we should try to impose tenant-led solutions on organisations that feel that stock transfer is just a way of dealing with a debt. The funders might be unhappy with tenant involvement because the tenants do not have a proven track record. They might also feel that it would take to longer to get new windows and doors fitted because tenants would not be able to do such jobs based on economies of scale—jobs would have to wait until tenants had decided on the doors that they wanted. The Executive would welcome guidance from the committee on how prescriptive we should be in enforcing tenant leadership. There is a risk that the Executive could be accused of telling people what to do and how to do it.
Will Scottish Homes have a strategic role to play?
Yes. It will have a regulatory role, which means that it will be the backstop for enforcing the criteria for registered social landlord and ensuring that organisations work. I do not want to speak for Scottish Homes, but I think that it is fair to say that it does not want its reputation for regulating housing associations to that model to be tarnished by organisations failing to uphold the standard. We have set a high barrier by saying that every ownership organisation must meet Scottish Homes' registered social landlord criteria. Scottish Homes will be robust in ensuring that organisations measure up, not just by being not-for-profit in name, but by adopting appropriate practices.
I am glad that you mentioned regulation, as it has come up from time to time. I am particularly interested in your view on the mechanisms that are required to ensure proper regulation and monitoring of new social landlords. All of us hope that nothing will go wrong, but whose responsibility should it be when it does? At the moment, section 17 appointees are brought in. Are they enough to rectify problems at an early enough stage to ensure that a housing association does not go on to fail?
I will keep this brief. The housing interest group met yesterday. We had presentations from a variety of people—the department, Scottish Homes and the Chartered Institute of Housing in Scotland—about how to get regulation right in the new housing market in Scotland, particularly the regulation of local authorities.
My final point is about statutory obligations on local authorities in relation to housing and homelessness. The committee has heard evidence about this issue. Some local authorities find housing associations effective in allowing them to meet their statutory obligations; others have experienced some difficulties. What mechanisms will there be to ensure that if local authorities no longer have housing stock of their own, they will be able to meet their statutory obligations? What will happen if a dispute arises between a local authority and a new landlord?
Changes to the statutory obligation, deciding who is homeless and how they are to be treated are matters that the homelessness task force is considering. I know that you have taken a close interest in that. The task force's findings are due to be published shortly. It has considered changes to the statutory obligation and the new changes will go into the housing bill. You are right about there being concerns in the past but, based on the new statutory obligation, the Convention of Scottish Local Authorities and the Scottish Federation of Housing Associations are now drawing up a framework agreement for the discharge of local authority obligations. They will produce a model contract. We are giving them financial support to do that.
Has any guidance been issued on how local authority staff should be involved in the process of transfer?
That will be covered in our model guidelines, which will deal with the need to involve staff at every level in drawing up a proposal, but we do not yet have a proposal.
Will the proposal be drawn up in consultation with the joint trade union group or with the Scottish Trades Union Congress, or purely by the steering group?
I do not envisage the steering group having a long-term life. The job of the steering group was to reach agreement so that a proposal could be drawn up at local level by the council and the tenants. The Scottish Executive will issue guidelines on all aspects of transfer, stating how we expect councils, successor landlords and tenants to talk to staff about the implications of stock transfer.
Do you believe that staff in all areas that are touched by stock transfer should be involved in the process at an early stage?
Absolutely. Once a proposal is being developed into a business plan by a council, it is imperative that staff are involved.
Have you flagged up that issue with staff and unions so that they can prepare to make their input?
Yes. Glasgow City Council has indicated to its staff—I have met trade union officials several times—that our discussions have been to try to get agreement on a framework that would allow the council to go ahead and draw up a proposal over the next year.
Have you considered the appointment of an independent staff adviser?
That would be a matter for the council, as any employees are contracted employees of the council. There will be protracted negotiations, and it is important that as much security as possible is given to staff. We would encourage councils to involve staff at every step.
Particularly on the direct labour organisation. What would be your ideal role for DLOs throughout Scotland, after stock transfers?
A variety of models will emerge. A major DLO such as Glasgow, which has a big contract to service 90,000 houses and is taking on 284 apprenticeships a year, has a different set-up from the DLO in the western isles, in which there is already a high level of subcontracting. It would be wrong for the Scottish Executive to try to prescribe for councils or successor landlords the appropriate model for them to draw up in consultation with their tenants.
So, you do not have any ideas about the appropriate way forward for DLOs in those circumstances?
No. As soon as any council reaches the stage of drawing up a proposal, there needs to be lengthy consultation with staff and trade unions to devise the appropriate solution for that authority.
I am sure that that would have implications for council budgets.
Sorry, what was the question?
If DLOs transfer out, or if you do not have an ideal position, surely that will have budgetary implications for local authorities in future.
The key point is that all the work that is done at the moment, on housing repairs and so on, will continue. In some circumstances, DLOs carry out more housing maintenance work, but the width of DLO activity varies from authority to authority. Each authority will want to discuss those matters. The important fact is that the volume of work will in no way diminish; in every stock transfer, we are talking about an increase in the volume of construction work that will take place in that area. The obligation is to ensure that that new work is carried out in an appropriate way.
I would like to explore further how good the guarantee is of RPI plus 1 per cent for rent increases.
I genuinely think that that is alarmist, John.
Berwickshire Housing Association admitted that that is what it did.
That is as nothing compared with the 131 per cent real-terms increase in rents in Glasgow City Council since 1983.
So you are not saying that that will not happen; you are simply saying that it is not as bad as staying under council ownership?
No. I am saying that tenants of councils in Glasgow have not had a guarantee lasting even one year. There are two issues: the first concerns the security of rents; the other concerns overall affordability. No council tenant has the first clue what their rent will be in a year's time. In stock transfers—there are different models; some people are offered guarantees of five years, others more than five years or up to 15 years—rather than a guarantee of one year, people are being offered a guarantee of five years or more in the first instance. They might want to negotiate whether that is renewable.
Representatives of Sanctuary Housing Association in Ardler also gave evidence. They admitted that their lenders insisted that the guarantees—although they were for 15 years—apply only to transferring tenants and that new tenants who came in after the transfer date would have no such guarantees. That was at the insistence of the lenders. Is it not the case that the lenders will determine rent levels for transferred stock in the long run—not the housing associations, not the management committees, not the tenants, but the lenders?
Over the next year, every authority will decide whether they want RPI, RPI plus 1 per cent or RPI plus 2 per cent. Those decisions will be informed by discussions with lenders. Tenants will get to decide whether to go for a higher rent increase to speed up the investment profile, or to borrow more. I expect that they will ask for a guarantee so that they will have certainty for a fixed period.
I would like to be fair to councils, because they have been slurred by the suggestion that they cannot manage their affairs. Is it not the case that the massive increase in council rents in the past 10 to 15 years has been a direct result of Government policies that have been imposed on councils? I am thinking of the withdrawal of housing support grant and the revenue fund contribution, the imposition of the right to buy policy and the need to service debts. Governments—not councils—created high council rents. It is wrong for Governments to blame councils for the high levels of rents.
It is a bit of both. I will illustrate that. Glasgow's rent has gone from being the second lowest to the highest. There is no doubt that, in part, that increase has been made to deal with the debt-servicing burden. Glasgow has been left with stock that is worth a residual amount of money despite more than £1 billion being ploughed in over the past 20 years. That situation has arisen partly, but not exclusively, because of Government policy. That is why, John, we are not saying that all the new housing partnerships money should go towards stock transfers.
Are you telling us that for councils with unmanageable debt problems—which, in my view, have been caused by Government policy rather than by the councils themselves—there is no alternative to stock transfer?
No—
For example, John Breslin said that the money that would otherwise be used to service debt would be given back to councils. However, the existing levels of capital allocations to councils are part of the problem. Councils do not have enough money to invest in their housing as it is, so if you just leave them with their capital allocations you are not solving their problem; you are leaving them in the mire.
This is all about the time frame. If we simply left councils with the capital allocation, what requires to be done would take them more than 30 years. If we did what Fiona Hyslop suggested, and took the debt away but said that we wanted to use public money and have nothing tainted with private money, it would probably take about 17 years. If we said that we wanted the tenants to be involved in making the decisions on the investment profile, and that we wanted to hold rents to RPI or RPI plus 1 per cent, it would probably take 10 years. If we wanted to keep the tenants out of it and, from day one, make all the decisions in George Square on how to spend the money, it could be done in six years if you made it RPI plus 2 per cent.
But it is not a choice for councils such as Glasgow. Saying that the council can keep its existing level of capital allocation and its existing level of debt is not a choice—it is not a choice that any rational council will take.
I agree with you, minister, that Mr McAveety and his predecessors made a mess of Glasgow's housing.
Well done, Alex, I knew you would get one in.
Predecessors maybe, Alex.
I did not know whether we were going to get a silent Frank McAveety today.
I would like to return to an answer you gave previously, minister, about the options. I want to be absolutely clear about this: you seem to suggest that this is an issue of timing rather than of levels of investment. Remember that the main motivating force in this new approach has been to increase significantly the level of investment in housing. If the transfer in Glasgow does not go ahead as a result of the ballot, what would the impact be over 10 or 15 years on the level of investment in Glasgow's housing stock, according to your estimate?
The capital allocations would continue to be made. Glasgow is currently spending about 45p in the pound, slightly under half of its money, paying for debt. A 20-year profile will show that that figure has increased, but not dramatically. That payment eats into the rental income available for repairs. The capital allocations from the Government have been on a straight-line basis, despite a reduction in the stock. I do not think that there would be a tremendous change from the position of the past couple of years.
Let me rephrase the question. If the stock transfer goes ahead, you obviously expect a certain amount of additional investment in Glasgow housing.
Yes.
If the stock transfer does not go ahead, and if there is no additional Government funding through capital allocation or assistance with the servicing of the debt, what is the gap in investment in Glasgow over a 10 or 15-year period?
If we proceed with stock transfer, the new organisation will have the capacity to borrow up to £1.6 billion.
Absolutely, but if we maintained the status quo in relation to where the borrowing is obtained but adopted a policy whereby the management and control of municipal housing was devolved to community-based housing organisations, would that not achieve the same objective without all the hassle and all the other implications of new housing partnerships? Would that not be an option to be considered?
Some people define municipal as monopolistic. We need to define whether municipal here means monopolistic or pluralist. Secondly, tenant management co-operatives are devolved, but their problem is that they do not have any investment. It is not an either/or question, but a question of investment plus community ownership. Devolving power, as tenant management co-operatives have done, is a soul destroying experience if no new investment for the stock is available.
Is it essential to transfer the stock to achieve those objectives? Could the same objectives not be achieved while retaining local authority ownership of the stock?
It is not possible to attract up to £1.6 billion of private investment into—
But you just said that is not all about that, though.
No, I have said that it is about both—they are inextricably linked. That scale of investment cannot be attracted on the public books in that time frame.
I wish I could pursue that.
Do not worry, Alex, we will get the minister back.
I shall return to the pace. This is a big investment and improvement opportunity by anybody's account. As the minister said, it is important that the transfer is done properly and with quality. Does the construction industry have the capacity to react in the time frame that we are talking about here? Potentially, there is £1 billion of investment in Glasgow. Without causing the problems of loss of quality, high wages and so on that, relatively speaking, disfigured the big investment in tenement rehabilitation in the 1970s, would it not be better to pace this a little, particularly when we consider the need to grow the community-based organisations to manage the stock anyway?
The capacity of the construction industry to gear up is a real challenge. The council is already addressing that by taking on the apprenticeships and we have met the construction industry's training board. You are right that the more councils move to community-based models, the longer it will take communities to reach consensus about the right solution for them. That will inevitably lead to a different profile of phasing.
The question of pace comes into a lot of areas. Would it not be better to set a target of wholesale stock transfer after, say, 10 years, rather than have the big bang, with all the concomitant bureaucratic difficulties and so on that we have been identifying during this morning's meeting?
That risks residualising part of the city because it gets into apportioning debt. It does not allow the debt be lifted in a oner and to be made the responsibility of the Scottish taxpayers. That would free up the tenants to know that, for the first time in 100 years, they are starting from a debt-free level playing field. It would allow them to consider what they want to do with their community, unencumbered by their debt servicing burden.
Thank you, minister.
I am happy to offer that reassurance. Glasgow has loomed large today because it is the transfer that dominates public debate. Discussions are going on. A couple of weeks ago, I was talking to people from Dumfries and Galloway about how they are trying to realise their objectives. I have also talked to some of the island councils.
We will take lots of views. We will have a lot to say in our report.
At the moment, we are not contemplating failure.
I would not expect you to. So what is the answer?
The answer is that we do not expect failure. I do not think that Glasgow expects it. There will be change only if the tenants want it. If tenants decide that they want change, I have no doubt that a community-ownership vision will be realised.
We will get back to you on that. I am sure that we will have an interesting dialogue, especially as our report is imminent.
It has taken 10 months, but it has been massively successful.
I thank members of the committee, who have been very disciplined. We have many more questions to ask the minister and will do so when discussing other issues.
The witnesses spoke about each local authority being required to appoint an independent valuer. That is not good enough, because the Executive will appoint its own independent valuer if it does not agree with the valuation that is provided by the local authority's independent valuer. It would be worth picking up on that, as it looks as if the Executive is retaining the right to decide on the value of stock.
We will have to move quickly on that, as we are beginning to think through the chapter headings for our report.
We will want to see the comparative analysis on value for money before we can reach conclusions. We need to find out when that will be ready. John Breslin said that it would take a few weeks. It would be useful if it could be ready sooner rather than later. I suspect that it will not—if, indeed, the exercise has even begun.
I will do that speedily.
I apologise to Mike Watson for stealing one of his questions. I did not intend to.
I did the same to Lloyd Quinan.
We were given statistics of one apprentice for every 2 million or 5 million. I suspect that that has something to do with skillseekers, rather than full craft apprenticeships. That needs to be clarified.
I was intrigued by that and would like to explore it.
I imagine that we are dealing with 18-month jobs in the private sector.
Mary Taylor, Stephen Curtis and I will meet today or tomorrow to pursue that. If necessary, we can phone John Breslin's office before writing.
Is it worth asking the Executive for its definition of apprenticeship? This is a word that gets thrown round all the time—I am damned sure that we are not talking about the five-year apprenticeships that folk did when I left school. There need to be people who are already trained to train the apprentices. I heard the other day that the new hospital at Wishaw is using 20 to 30 Turkish workers from Germany because there are not enough people here to work on it. We need to know what is the model for the apprenticeships that have been talked about and whether they bear any resemblance to the trade and craft apprenticeships that some of us may be thinking about. Such apprenticeships would require the involvement of a senior, a journeyman and an apprentice who is already two years into their apprenticeship.
Are you talking about private-sector apprenticeships?
I am asking about the definition of apprenticeship.
The figure that the minister gave us was for each pound spent. Per pound spent, there were more in the private sector.
I want to know what constitutes an apprenticeship and what training is involved. Are two days in college enough?
When we come to make our recommendations, it may be useful for us to suggest ways in which the benefits to the Scottish economy of substantial investment in housing and the construction sector are maximised by ensuring that local labour is employed and so on—irrespective of whether stock transfer takes place.
At one point, the committee asked me to talk to John Swinney, as the Enterprise and Lifelong Learning Committee, which he convenes, is also looking into this question. I did that some time ago, and the Enterprise and Lifelong Learning Committee is not investigating the issue in the way that we would require. However, John Swinney has a report that he thinks would be of relevance to us. I will chase him up about that. I said that our report was likely to deal with this issue and that we would probably refer material on to him. He was very happy with that.
Good.