“Council housing transfers”
Item 3 is a briefing from the Auditor General on his report "Council housing transfers".
The report is about management of, and value for money in, a key part of the Executive's housing programme. In the report, we consider council's transfer of large numbers of houses that they own to alternative not-for-profit landlords. Since 1998, councils have transferred more than 100,000 houses to new landlords. Three councils transferred their entire stock in 2003, including Glasgow City Council, which transferred 80,000 houses.
Between 2006 and 2007 six more councils will, if everything goes to plan, transfer another 50,000 or so houses. My report concentrates mainly on the earlier transfers, although we also refer to some of the more recent activity.
The report is very full and contains a lot of detailed analysis of the implementation of the complex transfer policy. All that I can do today is summarise some of the main messages. The team and I will attempt to answer questions.
I will describe briefly the main findings, many of which are positive. The main message is that tenants are seeing benefits from the transfer, but there are important qualifications to that. Although management of transfers is improving, the planning and implementation of the earlier transfers could have been stronger. Better and clearer measures are needed to assess value for money.
The report is divided into three parts: the first part provides the context and concerns the basis of the housing transfer policy; the second part considers how well the transfers have been implemented; and the third part is about transfers and value for money.
I will first say a brief word about the basis of the transfer policy. Transfers are designed to increase investment in housing, improve efficiency and increase tenant control. High levels of debt have constrained councils' ability to invest in housing, and council surveys indicate that £7.5 billion is needed to improve the current housing.
For councils that have transferred all their housing, the Treasury has repaid £1.3 billion of historical housing debt. The chart on page 7 of the report highlights the relationship between housing debt and rent income for the 29 councils that still retain their housing stock. Many, if not all, councils with higher debt are now pursuing transfer; repayment of historical debt is a major incentive for them.
Transfer is not just a financial consideration. Transfers are expected to encourage community ownership, which means that they should also bring additional wider benefits such as better services and more effective housing management and should, ultimately, contribute to community regeneration. From a policy perspective, those additional benefits justify the debt repayment for any council that elects to transfer its houses to another landlord.
Although the management of transfers is improving, the Executive's guidance for the first round of transfers did not provide a good route map to assist the process. The workload proved to be significantly greater than had been forecast and the first transfers took an average of three and a half years to complete. Incentives to control the substantial transaction costs, which amounted to £59 million for the first transfer, were limited and there was no pilot work to help the planning and implementation of the first transfers.
The Executive stated clearly that its priority was to tackle Glasgow, which had the most extreme housing problems. Given the size of that transfer, a question that is raised by my report is whether some of the £43 million transaction costs for the Glasgow transfer could have been reduced if other smaller transfers had been completed first and lessons learned from them. We have to acknowledge that the transfer process is complex; we have attempted to summarise that in exhibit 8, on page 13. Although there was review and challenge of the costs, the Executive did not use clearly defined gateways with financial limits to control the total costs of the big Glasgow transfer.
At certain key stages of the transfer—in 2002 and 2003—it was necessary for the Executive to agree significant financial changes, including a grant of £409 million to support the business plan of the Glasgow Housing Association in its first 10 years. On page 17, exhibit 12 summarises the main changes that affected the level of grant to the new landlord in Glasgow. However, lessons have been learned and the overall management of transfers is improving. The Executive now has much better guidance and better financial controls that are founded on a clear gateway process, and new national standards and targets about housing quality are now in place. The gateway process is summarised on page 21, at exhibit 16.
The third part of the report examines value for money. The report provides some assurance that the desired outcomes from transfers, such as increased investment and rent guarantees, are being provided. However, it provides a more qualified assessment about greater tenant control and it questions the value-for-money assessment process that is used by the Executive. On investment, the seven completed transfers that are examined in the report will result in some £3.2 billion of improvements to homes over the next 30 years. In most cases, the investment in the next 10 years will be significantly more than the predecessor council spent since local government reorganisation in 1996. Rents will rise by 1 per cent a year or less in real terms, compared with average rises of 3 per cent a year in real terms under council ownership.
The report states that transfers have promoted greater tenant control, but more can be done. Tenants now make up at least a third of the governing bodies of the new landlords, but different approaches to tenant involvement have been developed. More than half the tenant groups that responded to an Audit Scotland survey said that the transfers have produced a big improvement in participation, but a quarter of groups reported that they have seen no difference and one in 10 said that the situation has worsened. In each case, transfer plans have been subject to significant scrutiny, and there is evidence that the new landlords are performing as required.
The report asks questions about the Executive's value-for-money assessments of the early transfers. On the specific aims of improving housing management and creating area regeneration, there is no systematic evidence to indicate what the performance level is. In the report, we say that better and clearer measures are needed to assess impact and value for money. In the first three whole stock transfers, the Scottish Executive team reviewed and challenged the landlords' projected costs, but there was no systematic review and the Executive did not set performance indicators to assess efficiency.
On page 41, exhibit 30 shows the main costs of the seven completed transfers; the general impression that we have formed is that the new landlords seem to have adopted relatively high-cost business structures. For example, the Glasgow Housing Association, which is by far the biggest, had management costs of more than £1,000 per home in 2003-04, with a 30-year forecast of an average of £834 per house.
There is a lot more analysis and information in the report than I have been able to cover in my brief introduction. For example, in appendix 4 on page 58, there are eight case studies of the transfer process, which contain a lot of detailed information about Glasgow in particular. As ever, my colleagues and I will be happy to answer questions. I am pleased to say that Dick Gill is steeped in the report, so I shall be relying heavily on him when we get into some of the more detailed questions on what is really quite a substantial piece of work.
You say in the public paper:
"Without assurance from competition and in the absence of targets or outcome measures … it is difficult to be sure that terms for the initial housing transfers provide the best possible value for money."
Who is responsible for producing those "targets or outcome measures"?
The Scottish Executive is responsible for setting out the terms for implementing the policy.
You also recommend new and better measures for quality performance and tenant involvement. Who will produce those measures and what will be the timetable for that? Do such measures exist anywhere else?
Dick Gill (Audit Scotland):
As responsibility for the policy rests with the Executive, it will be responsible for taking forward the report's recommendations. However, Communities Scotland has taken over the Executive's role in managing the transfer process and has a wider inspection and regulation role in relation to the housing association sector. As a result, both the Executive and Communities Scotland have important responsibilities in setting better measures.
Although tenant participation has improved, 35 per cent of tenants feel that they are no better off or are worse off under the new system. How is that being addressed?
You will need to ask the Executive that question. As our report says, there has been a variety of approaches to tenant involvement, some of which seem to have been more successful than others. I hope that one benefit of this full and detailed analysis will be that Communities Scotland and other organisations that are in charge of implementing the policy will examine in more detail the practices that are working well with a view to emulating and developing them in other areas.
I point out that from page 41 on in part 3 of the report, there is a lengthy discussion about the monitoring arrangements for houses that are subject to transfer.
As far as tenant participation is concerned, we felt that it was important to understand the customer's perspective. We did not find much good evidence either from the Executive or from the regulator, Communities Scotland, on how transfer had improved tenant control, so we carried out a tenant survey to get a handle on that. Most respondents felt that transfer had on the whole improved participation and control. However, as you have pointed out, because not all tenants felt the same, we have recommended that Communities Scotland and the Executive try to get a better handle on that important dimension of the transfer policy.
Has tenant participation gone no further than simply putting tenants on various boards?
Such an impression would be seriously misleading. As the report points out, things are working very well in many areas. However, a detailed look highlights the diversity of approaches to governance arrangements, for example. In some areas the arrangements are working well but in others there is scope for improvement. Because people who are involved in the oversight of new housing bodies come from different backgrounds—they might be council or tenants representatives or independent members—one of the biggest challenges is to get them to work as a team in the housing association's interests. I am sure that Communities Scotland will monitor the situation closely and assist in developing good practice.
Our report points out that tenant participation is more than simply getting tenants on the board. As Bob Black made clear, it is not fair to say that that has been the only achievement.
Our difficulty is that although there is a quite a lot of different evidence about what has been achieved, it is hard to generalise and there is a lack of objective data. One of the recommendations in the report is that the Executive should think about additional benchmarks or measures. We talk specifically about measurement of quality of service, and about tenant involvement and empowerment. The way to get evidence on those is to ask tenants what they think and to publish the results. Although there is some evidence from surveys of tenants, there is no systematic picture of how tenants are responding to stock transfer, although there is some evidence that there is frustration among some tenant groups about the amount of participation.
I am pleased to hear that my summary was not correct and that tenant participation has gone further than that.
My substantive question is about the role of Communities Scotland and its involvement in developing the gateway process, setting targets and monitoring and assisting with the development of the local housing associations. Will you say a little bit more about that?
Communities Scotland and the Executive need to work together in that area. If the committee wanted to take further evidence on that, it could explore it with both those bodies.
Communities Scotland has a role in supporting implementation of the policy, but the Executive owns the policy. Some of the wider policy goals—tenant participation, tenant control, and community regeneration—are important policy objectives for the Executive. Part 3 of the report mentions the need for evaluation and it is clear to us that the Executive, as the owner of the policy, will need to do the evaluation process. The Executive must do a little bit more work on that.
The committee might consider that area further.
I would like to pick up where Mary Mulligan has left off. I am interested in what you and the report say about tenant participation. I agree absolutely with the need to go beyond the involvement of tenants organisations and to use good, well-established market research techniques to find out what tenants think. I have listened to everything that you have said about that in response to Mary Mulligan's questions.
On the question of where to go from here and how to make that happen, you just said that the Executive, as the owner of the policy, should do more to evaluate what tenants think. I worry that you are saying that the Executive should be prescriptive in some sense. I presume that you do not really recommend that the Executive should facilitate that kind of practice at a local level. Will you clarify what you mean for the Official Report? I know that your report says more about the matter, but I hate to think that we are moving towards a top-down, written-guidance type of approach.
It is quite a complex area to deal with. Part 1 of the report sets out the housing transfer policy and it explains that housing transfer is important because it enables additional investment. Clearly, that is working. However, the report also says that there are wider objectives such as tenant control and participation and community regeneration.
The value for money question is about the balance between the resources that are going into housing transfer—in Glasgow, significant public resources are being put in to support the transfer process—and where the value comes from those resources. Part of the answer is that the value comes from the additional investment that is facilitated by the transfer, but it is more than simply an accounting device. What are the other benefits to the taxpayer from all the funding that is being put into the transfer? The answer to that has to be given in terms of the broad goals of tenant control and participation, improved housing management and community regeneration.
It seems to us that it is important that the Executive, as the owner of the policy and the organisation that has committed those public resources, can give a good and convincing answer to those questions. We are not saying that those benefits have not materialised. We are saying that we are not clear about how far they have materialised and that it is important—in terms of public policy making and accountability—that there is clarity about them.
I do not think that we are trying to take a top-down approach. The big transfers took place in 2003. We are now in 2006 and there are at least another six or seven big transfers to go through this year and next year. We need to be able to answer the question, "Are they working as well as they should be?"
Thank you.
Auditor General, you said earlier that one of your main conclusions is that there are—I think I quote directly—relatively high-cost business structures in place. Will you elaborate on that? Are you in a position to make any observations about whether the relative costs of those structures are related to the quality of management?
I invite Dick Gill to offer additional comments, but our analysis of the matter is captured in exhibit 30 on page 41. The exhibit shows the 30-year forecast costs for the seven completed housing transfers and gives the costs per home. For the Glasgow whole housing transfer, there are high forecast management costs over the next 30 years. As I think I said, the actual cost in the first year was more than £1,000 per home. We suggest that the area needs careful analysis.
Exhibit 29, on the preceding page, shows how the costs break down. Some 46 per cent is capital investment, but management accounts for 25 per cent, so a significant proportion of the total moneys is being spent on management costs. It strikes us that those costs seem rather high, to say the least.
The 30-year forecast costs in exhibit 30 show that the management and other running costs in Glasgow amount to £834 per home per year. The question is whether that is reasonable. Exhibit 31 gives some statistics that Communities Scotland publishes on median, lower quartile and upper quartile management and maintenance costs for the 170 or so registered social landlords in Scotland. Those figures are rather lower than the Glasgow figure. The lowest line in the table in exhibit 30 shows a median cost of £693 per unit per year. That is the current cost, whereas the figure for Glasgow is an average over 30 years and, at the moment, the actual cost is higher than the average.
It is clear to us that Glasgow's costs are relatively high, but it is difficult to say whether there are good reasons for that. There are certainly some reasons why Glasgow would have higher costs than others and we mention some of those in the report. For example, just over 20,000 of the 70,000 or so houses that were transferred to the Glasgow Housing Association are multistorey flats that have a concierge service for security and other reasons. That adds to the costs.
We have not been able to say that, in the transfer process, Communities Scotland and the Executive got the best possible deal with the GHA in relation to its management costs. It is also important to say that the Executive and Communities Scotland now have a much stronger approach to benchmarking costs as part of housing stock transfer. They now have something called a pricing model and their objective is to approve transfers only when the management costs are seen to be comparable—at least in the lower quartile, I think—with those of the wider housing association movement.
The evidence is not clear, but it looks as though Glasgow has relatively high costs. That is something for the committee to explore—if it wishes to—in its evidence-taking session with the Executive and Communities Scotland.
So it would be fair to say that we ought not to read too much into the actual level of costs but that there is more work to be done to find out whether the costs are reflected in the quality of the job that is being done. That is something that we need to probe further.
Our top-down view is that one of the policy justifications for transfers is improved management of housing. The obvious question for us is whether that means more efficiency in managing the units. Our difficulty is that although the costs seem to be reducing under transfer, we are not necessarily confident that the reduction has gone as far as it could have. Glasgow is such a big case that it is important that the hard questions are answered.
I want clarification on one final point. Am I right in saying that this is the first thorough report that has been done on the policy?
In Scotland, yes.
That was my understanding. It is important that we understand that, in contrast with some issues on which the committee has spent a considerable amount of time and on which there have been numerous reports, the report is at the leading edge in giving us an overview of a relatively recent policy.
I will continue on the theme of management costs. Do we have information about the pre-transfer management costs in each case? That is necessary to ensure that we are comparing like with like.
We asked the question, but I am afraid that we could not get a good answer. There are no baseline data to compare, which is a shortcoming in the arrangement.
That is a significant shortcoming. An awful lot of lessons have been learned, but is there information that indicates that those are being taken on board for the next lot of transfers this year and next?
We know that the Executive has now produced much better guidance. Although we have said that the management of the earlier transfers could have been improved, we have balanced that by saying that the Executive introduced much stronger guidance in 2004. Our difficulty is that that guidance applied only from 2004 or early 2005 and none of the transfers that are currently being conducted under that guidance has come to fruition. We cannot audit what has not yet happened.
We considered the Edinburgh stock transfer because we thought that we could not ignore the new transfers. The process provided some assurance that the new transfers were being helpful in that they were, for example, bringing down transaction costs and producing a slightly more rapid transfer process. However, the Edinburgh transfer did not get through the tenant ballot, so it is hard to give a definitive answer. Do those comments answer your question?
Yes.
My other concern is about tenant involvement and empowerment. Empowerment is the big issue for many of us because involvement can mean that people can just be asked for their views, but it is significant if people are empowered to find out where the money is coming from, how it is being invested and so on. Are you satisfied that sufficient capacity building takes place prior to a transfer and shortly afterwards to ensure that tenants who are involved in the transfer are fully engaged in the process and have as much knowledge as they can about it? Are the bodies involved examining what is done by other organisations, such as RSLs—some of which are very good at this and some of which are getting there—and picking up best practice.
We cover the matter in the report from page 29 onwards. Exhibit 22 might be helpful as it summarises the requirements for effective tenant participation. The issues to which it refers echo those raised in Margaret Jamieson's question. Those include the importance of
"Adequate resources and support for tenants"
in addition to
"Good leadership … Excellent communication"
and
"Early involvement".
It also refers to the need to have an effective communication strategy and the importance of the process being linked into community improvements.
On the next page, there is some analysis of what happened. One of the interesting points is that tenants certainly seemed to engage well in the process. In each of the transfer ballots, the turnout of tenants was higher than that achieved in the local government elections. As I am a former local government official, that point interested me enormously.
There is a section in the report on how transfers have increased the scope for tenant control, although there is more to be achieved. I invite Dick Gill to summarise the key findings.
I do not think that we can give the committee a definitive assurance in this area. One reason why we did the survey was that we felt that there was a gap in the evidence on transfer. The question of the quality of tenant participation and empowerment that has been achieved is very much one for Communities Scotland to address as part of its regular inspection of each transfer landlord. From our point of view, one complication is that Communities Scotland has not completed an in-depth inspection visit of a transfer landlord since the transfers were completed. That is why we are raising a question mark. We are not saying that there has not been success in the area of transfer; we are asking whether tenants have got as much as they could or should have under the policy.
Our survey in appendix 2 will give the committee answers to the questions. To take an example more or less at random, paragraph 17 on page 50 refers to a survey question that was about registered tenants organisations' perception of how they influenced housing services. Exhibit 37 on page 51 shows that about 30 per cent of respondents said that they had a lot of influence and 41 per cent said that they had some influence, but 28 per cent said that they felt that they had not much or no influence on housing services. I think that that is a critical finding for tenants in the area in question. The picture is mixed; it is broadly positive but not exclusively so. That is why we think that there must be more scrutiny and better measurement in the transfer area.
It would have been interesting for us if the figures had been broken down further into findings from those who had transferred, so that we could get an idea of whether there was a geographical issue or whether each transfer was different.
Members have no further questions, but I have one. Was a reason given as to why pre-transfer management costs were unavailable? Was it just that they were not kept? Was it too difficult to collate them?
There are accounting difficulties to do with the allocation of costs. The question is what is meant by management costs. The unfortunate fact is that different councils may have different practices in accounting for their overheads. That is one of the difficulties. It is perfectly possible to go to, for example, Glasgow City Council's accounts and pull out a figure for management costs, but we have no basis for being able to say that those are comparable with the costs that appear under the management costs line in Glasgow Housing Association's published accounts. That sort of difficulty could have been avoided with a little bit of foresight and work. However, the fact is that it was not avoided and we have that accounting problem.
Following on from your answer, although information on management accounts is now available for the new management bodies, are the accounts of each body comparable? In other words, do the bodies have similar management measurements in this area?
Again, I do not think that Communities Scotland prescribes the accounting for management costs; it just collects information about management costs. I am not sure how far it prescribes the content of such costs. On the other hand, Communities Scotland publishes statistics on management costs that are drawn from all 175 RSLs. We put an example of that in the report. There should not be an enormous difference between the costs. One of the reasons why Communities Scotland collects those costs is to ascertain whether there are differences and, if there are, to try to understand why they arise. However, I do not think that Communities Scotland is quite there yet for the analysis of GHA.
There is information on each of the local authorities' housing revenue accounts. Would that information have been too crude for measuring management costs?
The short answer is yes; it is too crude because of the accounting difficulties to which I referred.
You say that you can give us averages for RSLs' management costs. Are there figures for upper and lower limits?
Do you mean quartiles, for example, so that the question is whether there are average lower quartiles?
Yes.
The report has exactly those statistics. Exhibit 31 on page 42 is more or less a straight extract from the very full volume that Communities Scotland published, with statistics, in this area. That sort of information is available for every RSL in Scotland.
I thank the Auditor General and Mr Gill for their evidence, which is helpful. The committee will discuss in private, as the next item on the agenda, its reaction to the briefings on council housing transfers and Scottish Enterprise.
Before we move into private session, I want to take a minute to record the Audit Committee's thanks to Arwel Roberts, who is retiring from Audit Scotland at the end of the month. Arwel has attended the committee's meetings for some time and has provided us with wise counsel, both formally and informally. Another important factor is that he has been good company on many of the visits that we have undertaken to discover more about auditing. I thank Arwel for his time with us and I wish him all the best in his retirement, which I am confident will not be a quiet one.
Arwel Roberts (Audit Scotland):
Thank you very much, convener. It has been a pleasure and a privilege to be involved in the committee's work and I will continue to be an observer. Could I, in my turn, give the committee best wishes for the future in what is, after all, very important and influential work?
Thank you, Arwel. I suspend the meeting for five minutes before we move into private session.
Meeting suspended until 11:30 and thereafter continued in private until 12:47.