As we are running a little late and the officials from the Scottish Executive development department are here to give evidence on the Housing (Scotland) Bill, I invite them to take their seats. We will move on to agenda item 5 and come back to agenda item 4 on voluntary sector funding.
Good morning, gentlemen.
A fair amount of work on the right to buy has been undertaken with officials from the development department and from outside bodies, including the Scottish Federation of Housing Associations and the Council of Mortgage Lenders. A working group, which was chaired by the department, considered the issues in some detail. A sub-group also considered some of the financial issues.
I want to clarify what you have said. The Council of Mortgage Lenders takes the view that, because there is a 10-year exemption, existing tenants will not have a right to buy for 10 years.
That is right, although there is a provision for housing associations to opt into the right to buy for their tenants before the 10 years is up.
Okay.
Broadly speaking, lenders are satisfied that that is the case. There will always be some cases at the margins where that may or may not be the case but, broadly speaking, across the sector, it is true that lenders are satisfied.
Yet there is obviously an associated risk, which would be factored in by the lender when deciding the rate at which he is willing to lend. The existence of the right-to-buy provision will therefore increase the risk for the lender and have an associated cost. Have you assessed that?
Lenders will take that into account when they plan for future funding. They already take into account a range of risks as part of their normal planning process.
However, this is a new risk. It is news to me that the CML would be comfortable with it—it is a development on the evidence that it has previously given.
As I understand it—clearly, I cannot speak for the CML—the CML is more concerned about the longer-term impact that right to buy could have on rental income and economies of scale and so on. My understanding is—and, again it is for the CML to say—that broadly lenders are happy that the receipts from the sale of houses will cover their costs.
My question is, I guess, on the implications of allowing that to take place. There will be transaction costs plus the risk that the sale of houses will not be enough to meet the debt. It is obvious that the implications do not appear in the financial memorandum. When the financial memorandum was being drawn up, was there any assessment of the implications?
I do not have any detailed knowledge of that. I can investigate to see whether that particular point has been covered. It has probably been looked at, but I am not clear whether any conclusions have been reached. I can certainly come back to you on that point.
My second question on housing associations is on the proposed withdrawal of section 54 grants, which cover housing associations' corporation tax. I believe that Scottish Homes pays the corporation tax at the moment and I understand that 25 per cent of housing association surpluses are related to that. Do you have any comments on the fact that the withdrawal of grants made under section 54 of the Housing Act 1988 did not appear in the financial memorandum?
In the memorandum, we have tried, as far as possible, to go through all the main elements of the bill. In a sense, the repeal of section 54 of the Housing Act 1988 is not a direct financial consequence of the bill. There is a policy proposal to withdraw section 54 grants, which Geoff Huggins will talk about. The fact that the bill repeals the power is simply a piece of tidying up because we have no intention of using the power in the future. Therefore, for the sake of legislative tightness, we have repealed the power. However, the impact comes from the policy decision to withdraw the grants rather than from the bill itself.
Let me clarify. Section 54 of the Housing Act 1988 is phrased in discretionary terms. The minister indicated, when she issued the consultation paper, that she had decided that she would not in future use her discretion to meet the corporation tax on housing associations' surpluses.
I am still not quite sure why that did not appear in the financial memorandum.
There was no attempt to mislead or hide the minister's intention. She publicly indicated her intention in the consultation paper. However, I am sure that we can look at that issue for future memorandums.
I want further clarity on this. You say that the minister made it clear in the consultation that she intended to withdraw formally something that she was not going to use anyway. I accept that that is true. However, that is a quite separate question from whether the financial implications of such decisions should be included in the financial memorandum. As the knock-on impact for housing associations of the withdrawal of section 54 grants potentially is not insubstantial, of course it should have been included in the financial memorandum.
The impact on housing associations is a consequence of the minister's decision; it is not a consequence of the fact that the bill repeals section 54. Whether or not we had decided to repeal section 54, the intention was that, over time, a payment that was currently being made would be halted. That was entirely within the minister's power. Clearly, there is a degree of ambiguity as to whether that should be included in the financial memorandum. I am certainly happy to take account of what the committee has to say, but there was no intention to hide the minister's intention.
You are arguing that although a provision that previously existed in law could have had a financial implication if it were used, its repeal has no financial implication, because the minister has announced that there was no intention to use the provision. If the repeal or withdrawal of a power has a financial implication, I cannot understand how you can possibly argue that no mention of it should be made in a bill's accompanying documents. When we are talking about the detail of legislation, we cannot take account of what are merely expressed views. I find the argument bemusing. We should surely look at the detail and the precise financial implications of any legislative change rather than wait for ministerial views.
I understand the intellectual argument that Geoff Huggins is making, but the question that I have is more practical. Will the withdrawal of this power have an effect? In other words, is this a power that the minister has hitherto used, the withdrawal of which will have a financial consequence for the housing associations? If its withdrawal does anything more than simply make permanent what has already been the practice, the serious financial implications should be laid out, so that the housing associations fully appreciate them and so that the committee fully understands them.
At the moment, approximately 10 per cent of housing associations that operate with sufficient surpluses benefit to the tune of around £5 million a year. The Executive's view, which was set out in the consultation paper, is that that resource could be better used providing homes for people in Scotland than in meeting those costs. Within that context, however, if the Parliament were to agree not to include the repeal of section 54 in the bill, the minister's intention would continue to be not to make payments under section 54—which is entirely within her discretion.
I want to pursue that a little further. If the grant is now withdrawn and £5 million is taken out of the housing association sector, due to tax on its surpluses, surely the tax will go to the Treasury, not to the Scottish budget?
The section 54 grants are not a tax relief. At the moment, Scottish Homes pays £5 million from its budget—which is a rising figure, year on year—towards paying that tax. Our intention is that that resource will remain with Scottish Homes and will be used to provide socially rented houses in Scotland.
Thank you.
The next question concerns councils' role as strategic authorities. Councils will have a number of extra burdens placed on them as a consequence of the bill. Some councils also face the prospect of, in effect, losing their stock, as it is being transferred, yet they will still have to bear the costs of the additional burdens of the strategic function. There appears to be no estimate of the impact of that measure on council tax payers.
The difficulty is that local authorities will face a lot of change over the next few years in a number of aspects. If a local authority's stock is transferred, that will clearly have quite significant financial implications. The financial implications will have to be calculated for each authority and will be dependent on the exact process, time scales and so on.
Does that mean that those local authorities will receive more grant-aided expenditure?
The financial memorandum makes it clear that we recognise that there will be some additional costs, which will be taken into account in the periodic reviews of Executive support for local authority strategic functions.
The issue of tenant participation is covered in paragraphs 16 and 17 of the minister's letter to the committee. Although the bill says:
That is the point behind the initial £0.5 million that is mentioned in the minister's letter. There is actually an error in paragraph 17 of the letter: the £0.5 million will be used next financial year, not this financial year. I apologise for that.
I take the minister's point that there will be no tremendous on-going running costs once the system is up and running. However, will the £2 million that is projected for each of the second and third years be continued—suitably uprated in line with inflation—for the foreseeable future?
It is certainly not for me to make future spending commitments and I suspect that even ministers would—
I am speaking in terms of policy. I imagine that you expect tenant participation to continue.
Indeed.
And those estimates will be roughly the prorated running costs over future years.
The £4.5 million is largely the initial investment needed to implement tenant participation strategies and to establish good practice. Ministers will have to make decisions about the future in the light of funding commitments at the time.
The Executive is supposed to operate on a best-value basis. One of the bill's main thrusts is to provide significant discounts—handouts or whatever you want to call them—to sitting housing association tenants. Has that issue been examined on a best-value basis?
Although we have not undertaken a formal best-value study, we have examined the widest possible range of impacts, taking into account what the customers—or, in this case, the tenants—want, which is a key part of best-value practice. We have also examined what is sensible in terms of management costs and whether the interim processes are as straightforward as possible. As a result, although we have not undertaken any formal scrutiny of best value, the principles have clearly been inculcated into the process.
On making councils strategic authorities, an important area that councils will have to deal with is asylum seekers who have been given refugee status. We are talking about a substantial number of people—3,000 to 4,000 people every year. Where in the memorandum is the financial provision for dealing with that scenario?
As I understand it, matters concerning refugees continue to be reserved. In the context of the UK-wide arrangements, some Scottish local authorities have entered into agreements with the Home Office to provide services to refugees. The matter is neither necessary for nor related to the Housing (Scotland) Bill.
Correct me if I am wrong, but I understand that refugees could present themselves to local authorities, which are under a requirement to house people.
Under the current arrangements, people who are refugees or who seek asylum are managed through the current Home Office system, which means that they cannot present themselves to local authorities in such a way.
Can I ask another question on that point?
No, I do not want to develop that line of inquiry. It is beyond the committee's remit.
What are the financial provisions for the new forms of RSLs that the bill can create? For example, RSLs can become private companies, which can go bankrupt. Has there been any consideration of potential liability?
The bill widens the definition of the bodies—including companies—that can register as social landlords. However, one of the statutory criteria in the bill is that those companies, which might be private, must operate on a not-for-profit basis. That distinction is important.
If new provisions are introduced after stage 1, they will not appear in the financial memorandum, which is not reproduced at stage 2. I have two questions on that. First, will you be able to say what the financial implications will be of any new measures or amendments? Secondly, why is this being done at stage 2 and not at stage 1?
On the second question, the approval of the Scottish Parliament and the Westminster Parliament is needed before we can introduce the amendments. The issue is straightforward; there is no intention to pull the wool over anyone's eyes. It is simply a timing matter related to the bill process.
I think that I am right in saying that any amendments that were introduced at stage 2 would have to be within the parameters of the financial resolution, which is passed immediately after stage 1, so although any amendment could be fairly wide, it would still have to be within those parameters.
We would also expect extensive scrutiny of any new amendments at stage 2, on the basis that they generally would not have been consulted on. Of course, any member can attend stage 2 meetings.
My final question brings us back to my first question, which is the future, function and level of housing association grant. I have spoken to a couple of housing associations, particularly Carrick Housing Association in my area, which is a relatively new organisation. It is a lot less sanguine than you appeared to be in your initial answer on housing associations' ability to develop housing. The association feels that the supply of affordable housing will be reduced. It feels that it would require additional support from housing association grant. What is the future of housing association grant, and where does it appear in the financial memorandum?
It does not appear in the financial memorandum because the bill does not deal with it—it is an existing grant system under which housing associations are funded to refurbish properties and produce new properties for social rent. The Executive has indicated its spending plans through the budget. Those plans show a continuing commitment to housing associations. With the stock transfer policy, the Executive sees housing associations as a fundamental part of its housing policy.
Indeed, but the extension of right to buy has the implications that I have indicated.
We are seeing a year-on-year increase in the number of properties that are available for social rent through housing associations in Scotland.
One of the explicit provisions in the bill is for areas of housing pressure to be designated as pressured areas and for there to be an exemption from the right to buy in those areas. That may apply to rural areas, but it could apply equally to urban situations. A local authority will examine its area, and if there is a particular problem with a shortage of social rented housing as a consequence of the right to buy, it will be able to lodge an application to designate the area as a pressured area and so exempt new lets within it from the right to buy. As the bill contains that additional protection for housing associations, the correlation that has been made is not straightforward.
On the same basis, the underlying promise that the Minister for Social Justice gave in Parliament last week in answer to a question of mine, and which has repeatedly been given, although it may not be written into the bill, is that there will be an increase in the number of socially rented houses. That will have budget implications, but I am still not clear whether they have been quantified and where the money will appear from.
There is a commitment to, I think, 20,000 new and improved homes over the three-year period of the current financial year and the next two financial years. That is a programme for government commitment, which will be delivered through two main sources: Scottish Homes development funding, to which Geoff Huggins referred; and the community ownership and new housing partnerships policy.
Next year is year 3 in terms of the Scottish Homes part of that commitment, which is to produce 18,000 new or improved houses. We are going to hit a figure of just under 13,000 going into the third financial year, so we are confident that we will meet the target of 18,000. Beyond that, we will have to set targets for the new agency in terms of its role and for local authorities that take on development funding.
That concludes our questions for you. Thank you for answering them.
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