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Chamber and committees

Meeting date: Wednesday, November 29, 2017

Local Government and Communities Committee 29 November 2017

Agenda: Housing (Amendment) (Scotland) Bill: Stage 1, Draft Budget Scrutiny 2018-19


Contents


Housing (Amendment) (Scotland) Bill: Stage 1

The Convener (Bob Doris)

Good morning. I welcome everyone to the 29th meeting in 2017 of the Local Government and Communities Committee. I remind everyone present to turn off their mobile phones. As meeting papers are provided in a digital format, tablets may be used by members during the meeting. We have received no apologies; we have a full house this morning.

We move to agenda item 1. The committee will take evidence on the Housing (Amendment) (Scotland) Bill at stage 1. I will introduce all our witnesses together. I welcome George Walker, chair, and Michael Cameron, chief executive, from the Scottish Housing Regulator; Sally Thomas, chief executive of the Scottish Federation of Housing Associations; David Bookbinder, director of the Glasgow and West of Scotland Forum of Housing Associations; Daren Fitzhenry, the Scottish Information Commissioner; and John Marr, senior policy adviser from UK Finance. Thank you all for coming.

We move straight to questions. We will ask questions in a structured way, because the bill is quite technical. That said, we always start with a very general question. Do the witnesses agree with the Scottish Government’s policy intention to ensure that the Office for National Statistics can reclassify registered social landlords as private bodies? In particular, what would the implications be if RSLs were not reclassified as private bodies? Everything else works around the premise that the policy intent is correct, so we should get something on the record about that.

David Bookbinder (Glasgow and West of Scotland Forum of Housing Associations)

There is widespread recognition—certainly within the housing association sector but I think well beyond it too—that the bill is necessary. Thankfully, the reclassification has not had an impact on the way in which housing associations run their business day to day.

As the committee will be aware, ultimately the bill is about how housing association debt is treated. It will be treated as Scottish Government debt if the decision to reclassify RSLs is not reversed. Treating that debt as such would be bad at any time, but it is really bad at a time when there is a welcome, hugely ramped-up development programme. A number of us have whimsically wondered how and why all the bodies represented today and the Scottish Government have spent so much time dealing with the matter, when, in the past few weeks, the decision to reclassify has been reversed south of the border. You wonder about all that time and effort, but we know that the bill is absolutely necessary, purely in terms of the debt. There are issues that a number of us will want to discuss—in particular, with the regulator—about looking at a slightly different kind of regulatory regime, but there is not much doubt within the sector that the bill is necessary.

The Convener

What would the implications be if the bodies were not reclassified?

David Bookbinder

The obvious one is the impact on the development programme. We could not build 50,000 homes because so much money would have to be set aside against our associations’ borrowing.

As a representative of community-based housing associations, I think that there is a real feeling among associations—certainly in our sector, but I suspect that it is shared in the sector across Scotland—that housing associations are not truly public bodies. Yes, they benefit from public money and perform a number of public functions, but they are managed by voluntary committees and boards. Although it is only a statistical reclassification, it still means something in a symbolic sense. It will feel better to be reclassified as a private body, even though being a private body does not necessarily do us justice.

Sally Thomas (Scottish Federation of Housing Associations)

I reiterate the point that David Bookbinder has made. The SFHA is absolutely of the view that the reversal of the reclassification is necessary.

I want to make two points about that. First, it will protect the Scottish Government’s interests and ambitions in the housing programme, which has, as far as I understand, cross-party support. The housing that the people of Scotland need and deserve will be protected if we reverse the reclassification.

Secondly, it will provide assurance to lenders. The lending industry is critical to the housing programme and the ability of housing associations and co-operatives to build at scale and within a timeframe that is appropriate to the needs of the population.

We also think that reversal of the reclassification will achieve a level playing field across the United Kingdom, which is important for the lending industry and the financial profile. That will give the sector the headroom that we need alongside the lending industry to be able to fund the programme that we require to provide in the coming period.

George Walker (Scottish Housing Regulator)

We absolutely agree that the response is appropriate, right and proper. The SHR will, of course, operate within any legislation that Parliament passes, but it seems to us that the bill is proportionate and will deal with the issues at hand.

I make it clear that the bill will not impede or change our statutory objectives and functions as a regulator. Certain elements mean that we will have to operate in different ways, but we are broadly comfortable that we can do that. Indeed, the coincidence of our doing a regulatory framework review, which we flagged up the last time that we visited the committee, is fortunate, as it means that we can take into account in that review the issues that the legislation raises. We are very comfortable with the approach that is being taken.

John Marr (UK Finance)

I will pick up on points that Sally Thomas and George Walker have made.

As the trade body that represents commercial funders and investors in the RSL sector in Scotland, we certainly agree that it is appropriate to take the bill through the Parliament. Having looked at the proposals in detail, we see that they are broadly consistent with measures that have been taken elsewhere, and they are proportionate to the challenges that the ONS decision has set. We recognise the strength of regulation in protecting and safeguarding existing and future investment in the sector. Although the bill will make changes to regulation and how it works in Scotland, we are confident that those changes will still enable the regulator to deliver an effective regulatory function.

Daren Fitzhenry (Scottish Information Commissioner)

I note the policy intention behind the bill, but our concern is that the committee should be mindful of potential unintended second-order effects from it, particularly in relation to freedom of information and the possibility that bodies that are currently subject to the environmental information regulations would potentially cease to be subject to them. The issue is how that is managed and how the bill addresses it. The bill would potentially create uncertainty where there is a current certain arrangement in which RSLs are subject to the environmental information regulations. Our concern is that, if that is not recognised and addressed, current rights to information would potentially be lost and, at the very least, uncertainty would be caused about whether organisations were subject to the environmental information regulations.

The Convener

That is helpful. A colleague wants to pursue that issue a little further, but I have a question before we move on.

The witnesses seem to accept the general policy intent of the bill. There is an obvious question to ask before we go into a bit more detail. Is there any other way in which the policy intention could have been secured? Could anything have been done other than by using the mechanism of legislative change to ensure that we conform appropriately to ONS requirements? There might not be anything, but we want to ensure that the bill is the only mechanism in town.

Sally Thomas

Absolutely—you have just said it. The bill is the only way to do what we need to do to get the protection, reassurance and benefits that the sector, the Government and the country need.

The Convener

Rather than everyone saying the same thing, are there any divergent views? I see that there are none. That is very helpful scene setting for the committee. We will move to more detailed questions.

Andy Wightman (Lothian) (Green)

I have a question specifically for Mr Fitzhenry. You laid out in your evidence what you see as the risks to the applicability to RSLs of the Environmental Information (Scotland) Regulations 2004. It was your predecessor who made the specific ruling on the Dunbritton Housing Association, but your office made the ruling in the context of the legislation. Helpfully, you append to your submission the environmental information regulations.

It is now clear that the ONS intends to reclassify RSLs unless the bill goes through. Assuming that the bill goes through and the extent to which the regulator regulates the sector is relaxed, so that the ONS is satisfied that RSLs are no longer public bodies, are you free to interpret the environmental information regulations relating to public bodies in a different way to how the ONS interprets things, or do you feel that you cannot really deviate for two different statutory purposes?

Daren Fitzhenry

We certainly would not be bound by the ONS view in relation to that. However, we would be bound by the terms of our legislation and we would have to take a reasonable and rational interpretation of the regulations.

One of the key definitions that we look at is whether the body is under the control of a public body. The bill specifically addresses reducing that level of control. At the very least, the argument that there would be control will be reduced. I cannot bind myself to a decision at this stage because that decision will depend on the facts and the legislation presented to me at the time, including any subordinate legislation dealing with local authorities. We can safely say that the current clear position will be left, at the very least, less clear, and potentially the right could be lost.

There may be other issues. There may be an argument, under a different subparagraph of the regulations, that the body would be treated as another Scottish authority, but again there is no precedent. We are creating a lack of clarity for at least a period of time. I mentioned in my written evidence that the situation could be resolved through the potential extension of a section 5 order under the Freedom of Information (Scotland) Act 2002. That would fill the gap and make RSLs subject to freedom of information legislation, including the EIRs. However, the potential issue is one of timing. Even if the extension were made, there could still be a lacuna—the time between the implementation of the bill, if enacted, and the commencement of a section 5 order.

Andy Wightman

That is helpful. The environmental information regulations refer to a public body under the control of a person or body, so clearly the regulations still exercise a degree of control. Presumably in practical terms, if the bill passes, you would await an application or an appeal to you relating to a failure to provide information under the EIRs, and you would take a fresh view on whether RSLs are bound by the regulations.

Daren Fitzhenry

That is exactly right.

Andy Wightman

That decision would be appealable as a matter of law, in terms of your interpretation of the EIRs, to the Court of Session. Ultimately, the Court of Session would rule on your powers to determine that question.

Daren Fitzhenry

Should my decision be appealed, yes. My understanding is that the Dunbritton case was never appealed further.

Andy Wightman

I apologise if this is in your evidence, but do you have any sense of how many freedom of information requests are made to RSLs under the EIRs, but not appealed to you?

Daren Fitzhenry

Unfortunately, we do not currently gather that information. It is a matter that I have looked at and discussed with my team, with a view to seeing how we can start gathering that as a particular data source.

If there is uncertainty, people may not be able to access information—for example, relating to the types and specifications of materials used in buildings, the repairs that are commissioned or health and safety and fire safety assessments. There could be an impact—and where there is uncertainty there almost certainly will be at least some impact—with some housing associations taking a different view from others.

10:00  

There certainly will be some impact: the number of EIR requests across the board was in the region of 7,500 in the past year. There is also an important perceptional impact. If it was seen that the provision of information could be discarded or put at risk to provide a quick fix when things get a bit difficult and we are looking to make changes, the legislation and the message being put forward would have a very clear perceptional impact.

David Bookbinder

I offer the committee some reassurance on the concerns that Daren Fitzhenry has raised. I can only speculate while we await the decision on what will in effect be the extension of FOI to housing associations, but if the decision was to extend FOI on some as yet unknown date, and there was a gap between the bill coming into force and the FOI extension coming into force, we would have great faith in our members carrying on responding to requests as if RSLs were still subject to the EIRs, even if they were not under the letter of the law. Given that they are subject to the EIRs at the moment, the extension of FOI will cement and extend that thinking. If there is a small time gap, I do not think that our members will suddenly think, “Oh wow, we don’t have to answer any questions on our repair service any more.”

Sally Thomas

I absolutely go along with that; the SFHA takes exactly the same position. It is interesting to reflect on the fact that in the transitional or standstill period between the ONS reclassification and its reversal, which has been a year or two, there has been an agreement among all interested parties that, for our purposes, we carry on as we did before. In other words, we do not suddenly depart from our normal relationships, processes, strategies, agreements, expectations and requirements. We carry on, as previously, in a constructive and positive way until there is clarification.

The Convener

That is helpful.

Daren Fitzhenry

I very much appreciate the intent from David Bookbinder and Sally Thomas on that point. However, although they may wish to comply with the spirit of the law, ultimately if an appeal comes to me and I feel that I am bound not to hold RSLs subject to the EIRs, under the law I would be unable to grant any redress relating to a decision that the applicant had disagreed with. There is still a practical risk.

I do not know whether a possible remedy to that issue would be welcomed by the committee. An additional provision could be considered, whereby the legislation makes it clear that the EIRs apply to RSLs. That could be a new provision in the bill, stating that RSLs are to be treated as Scottish public authorities for the purposes of the EIRs, or a consequential amendment to the EIRs, specifically adding RSLs either to the definition of Scottish public authorities or by reference to a schedule. I simply mention that as a potential solution, subject of course to advice from parliamentary counsel.

The Convener

The Cabinet Secretary for Communities, Social Security and Equalities will be in front of the committee in a few weeks’ time. Those are the kinds of things that we can discuss in that evidence session, so that is very helpful. Do you want to progress with your questioning, Mr Wightman?

Andy Wightman

That response was very helpful. I am sure that we will reflect further on that important point.

You have all submitted evidence on sections 1 and 2, particularly with regard to the appointment of managers. The regulator thinks that it will still be able to do what it has done in the very few cases where it has used such powers, so the bill will, in practice, make no difference. Are you content with the proposed changes to the regulator’s powers to appoint a manager and to remove, suspend and appoint officers of an RSL, as a matter of principle?

The Convener

The SHR has a variety of powers at the moment, but, looking at the issue in its broadest sense, they are going to be narrowed under the bill. Are you content with that narrowing?

David Bookbinder

In some ways, it has been interesting to remind ourselves of the original powers. The forum was certainly surprised at their breadth, but it is confident that, where statutory managers have been appointed in recent years under the current framework, those appointments have been made for much narrower purposes and to deal with very serious issues that have arisen in a small minority of associations. We think that, instead of making the regulator turn to those original and rather broad criteria, the bill, by narrowing those criteria, reflects actual practice.

John Marr

When the provisions were first drafted and we engaged with the Government on their development, we were initially concerned about the threshold of intervention being that an organisation “has failed” rather than is failing, because we felt that that might be too late, with the problem transitioning to actual failure before intervention could occur. However, as a result of our engagement and with the relatively wide definition of failure that is now in the bill, those concerns have largely been addressed.

That said, we suggest in our evidence that consideration be given to specifying in the definition in the bill that failure would include a failure to meet some of the requirements under the regulatory framework. Although lenders and investors who are familiar with the sector and with how regulation works would be able to see the link in the bill to the definition encompassing a failure to meet a regulatory requirement, investors who might be contemplating coming into the market in Scotland and who would be more distant from and less familiar with the system might not be able to make that link so easily, and that might lead to their being reticent in deciding whether to step into the market.

Sally Thomas

For us, this is about minimising risk—I think that we all agree on that. We certainly want to work closely with the regulator—as we already do—and other colleagues to ensure that the change, if it happens, does not increase risk but rather minimises it and provides the assurance and confidence that we need to give not only our individual constituencies but as a whole. We must ensure that all the changes have a positive effect and do not lead to any great increase in concerns, problems or exposure to risk.

George Walker

As the regulator’s new chair, I think that what has been very visible is the seriousness with which the word “proportionate” has been taken in the SHR’s approach to regulation. It really intervenes only where it has judged an issue to be so serious that such intervention is warranted.

Thus far, from my perspective as chair, there is no evidence that the changes would have hampered us in stepping in to intervene in any previous cases in an appropriate manner and in the proportionate way that we have done. Michael Cameron may have a comment on past interventions and how he feels about that, but I feel that, thus far, the word “proportionate” is key, because SHR has acted and will continue to act in a proportionate way, and the changes will not stop us doing that.

Michael Cameron (Scottish Housing Regulator)

We certainly set a high bar for the use of the powers, recognising their significance. The word “proportionate” is absolutely to the fore when we are considering whether we need to use such powers.

It is probably worth picking up on the point about regulatory standards and whether it would be worth having them in the legislation. Although that would certainly aid clarity, we are pretty confident, having read the bill, that regulatory standards are referenced and that the way in which the bill is constructed means that it points to statutory provisions, and regulatory standards are set through statutory provisions. Therefore, although including them would be clearer, we are still pretty relaxed about regulatory standards being the touch point for us in interpreting whether we need to intervene in an organisation.

Andy Wightman

The representatives of the regulator are saying that, in practical terms, they do not consider that the change would have made any difference to the way in which the powers have been exercised hitherto. Is that correct, in essence?

George Walker

Yes.

Andy Wightman

Forgive me for asking this, but are regulatory standards a thing in law? If you were to put them in the bill, would that demand more articulation about what was really meant?

Michael Cameron

The Housing (Scotland) Act 2010, as it stands, includes a requirement for us to put in place standards for governance and financial management for registered social landlords, so they are empowered under statute.

Andy Wightman

So if we were minded to recommend that, would it be relatively straightforward?

Michael Cameron

You could certainly refer back to those statutory provisions.

The Convener

Mr Marr, you have already answered questions about the need for clear definitions around the failure of RSLs, including the failure to meet regulatory standards—you have put some comments on the record in that regard. I was going to ask for more detail on how, in your view, that might impact on investor confidence. You have put a lot on the record already. Is there anything that you would like to add before we move on?

John Marr

I accept what the SHR said about being quite comfortable with regulatory standards as the touch point. In considering how, or whether, to address the point, it may be that the explanatory notes to the bill could be elaborated to include that reference more specifically, if it is felt that the bill is not the place for it. We can add that into the mix as well.

The Convener

That has been a useful exchange. Thank you.

Alexander Stewart (Mid Scotland and Fife) (Con)

Following on from some of the questions for the regulator, I want to look at the removal of consent powers and how that will result in a loss of regulatory intelligence. Some clarity on that would be useful.

Michael Cameron

At the moment, all registered social landlords are required to come to us for our consent in relation to certain disposals and constitutional changes. When they do that, they present a business case that includes a series of documents, depending on what the consent request relates to. That enables us to engage with the organisation. As well as ensuring that we are able to proceed with consent, it gives us a better understanding of how the organisation conducts its business and governs itself. It gives us a level of assurance that means that we do not need to engage with the organisation in any other way to be content that it is well governed and appropriately managed.

10:15  

Alexander Stewart

You have touched on the level of risk that exists in the process. How would you address the increased level of risk for the sector as a result of the changes that the bill would implement?

Michael Cameron

George Walker touched on the fact that we have initiated a review of the regulatory framework. We will give consideration to exactly how we will be able to use our remaining powers to obtain the same level of assurance from landlords and to act where we need to act to ensure that the interests of tenants and other service users are protected.

An important point is that although certain powers are being removed or changed, we are picking up that there is no expectation that there should be a reduction in the protections that are offered to tenants and other service users. We will look at the full range of powers that the Parliament gives us to ensure that we are able to use them to maintain the level of protection.

Alexander Stewart

So you perceive that the safeguards will still be in place.

Michael Cameron

Those safeguards that are provided through the consents process will be removed, and the removal of any safeguards from a system inevitably means that there might be more risk in that system. We will look to see what we can do through our other powers and our approach to regulation to ensure that we can mitigate, where possible, any increased level of risk.

Alexander Stewart

The financial memorandum talks about your potential need for perhaps an additional three members of staff to fill the gap. That would have a cost implication for the organisation, which you have estimated as being up to £176,000. Will you explain a bit more about how that will be managed?

Michael Cameron

We identified the need for three members of staff, together with that figure, in an attempt to quantify what the impact on our resources might be. That might not necessarily translate into the employment of three members of staff, but we felt that that quantified the additional resource requirement on us if we are to obtain the type of assurance that is currently provided through the consents framework. We might need to do more than we currently do through the consents framework, because it not only provides us with regulatory assurance, but enables us to stop things that would not be in the interests of tenants and other service users. The framework also ensures that any disposal or change that happens without our consent is void. Following the proposed changes, that will no longer be the case, so there might be a bigger requirement on us to engage with organisations in which something happens that should not have happened.

The Convener

Before we move on, I want to check something. Alexander Stewart talked about the intelligence that the housing regulator gets through the system of consents, which means that you know what is going on across the sector regarding the relocation of offices, the disposal of land and so on. You get a lot of information about things that, in theory, housing associations and RSLs do not have to tell you about. Do you anticipate that, because of good practice, you would still be informed about all those things and that you would still take a view about them, even if consent was not required in statute?

Michael Cameron

Certainly, one of the discussions that we need to have through the framework review is about how we might be able to ensure that any loss of the safeguards that are in place through the consents process is addressed in other ways by using our other powers. We are very clear that we are not looking to put in place a consents process by proxy.

If Parliament decides to remove the consents framework, that is how we will operate—without our consent being required. We will look at the need for us to run more closely to more organisations if we cannot rely on receiving the type of assurance that we would have previously received through the consents framework.

David Bookbinder

We and the SFHA stress in our submissions a point about consent for something significant, such as the disposal of more than one property or a pattern of disposal. In theory, an association could seek consent—although, as the case may be, it might no longer have to do so—to convert social rented housing into mid-market rented housing or private rented housing or simply to sell it off. Housing associations do a range of due diligence. No housing association in Scotland gets rid of social housing lightly. It happens sporadically, in particular tenements and closes. It might make good asset management sense for an association that has only one remaining flat in a close to divest itself of that property. Equally, it might be sensible to acquire property.

Although it is not at all likely that there will be scale disposals to worry about, theoretically, if a housing association appeared to be making disposals that threatened the balance of its own social housing and had implications for the area—or, indeed, national implications—that would become an issue not just for the regulator but for the Scottish Government. However, I do not envisage that happening because of the care with which associations consider those important decisions.

Sally Thomas

I will add a couple of points to what Michael Cameron and David Bookbinder have said. There will still be a requirement to notify the regulator on completion of any disposal of properties or restructuring, and there will still be a requirement to hold a tenant ballot. That is a very helpful protection with which we all agree. There will still be notification, but the timeline will move, so that it will be provided during or after the disposal, not in advance.

The Convener

That is helpful and takes us seamlessly to our next line of questioning.

Jenny Gilruth (Mid Fife and Glenrothes) (SNP)

My question is for David Bookbinder. In your submission to the committee, you say:

“Again our main interest has been in seeing tenant consultation and ballots protected where a change of landlord or a group structure move to a parent body is being proposed.”

Does the proposed tenant consultation do enough to protect tenants?

David Bookbinder

Yes. We recognised that the current provisions had to go because they were so inextricably linked to the regulator’s consents regime, so we have been particularly keen to deal with the issue. The forum had a key role in extending the ballot provisions in the Housing (Scotland) Act 2014 to apply equally to group structure changes, where one association joins another’s group structure. We are happy with the provisions as they stand. The bill does not include the word “ballot”, but, as the forum sees it, the only way of complying with the bill’s requirements is to hold a ballot and to abide by it, so we are happy that those important provisions are indeed protected, as Sally Thomas has just said.

Jenny Gilruth

We have discussed the bill’s proposals to remove the need for the regulator to have consent powers. Does the panel think that RSLs have robust enough governance arrangements in place to compensate for that?

Sally Thomas

That is a pertinent question. Governance of housing associations is absolutely fundamental to their success and to providing assurance to tenants that they are being run in the most efficient and effective way and that the best use is being made of taxpayers’ money. We work very closely with the regulator and other colleagues to make sure that the governance arrangements that are in place are the best that they can be. We appreciate and understand, as I think others do, that we will have to work even harder at that.

That is not to say that we expect to see governance failures or weaker governance, but as a result of the change we know that we will have to ensure that we are on the ball in terms of governance being the absolute best that it can be, in the interests of tenants, taxpayers and the development programme.

George Walker

I think that Jenny Gilruth gets to the heart of the matter—it is a very important question. We have touched on our framework review, and it is interesting that one of the key issues emerging from the review—it is an issue on which we will consult in the new year—is the idea of boards assuring themselves.

I agree with Sally Thomas, in that I do not think that anyone expects an overnight failure of governance because of the change. However, we will encourage boards to ensure that they are self-assuring in the areas where consent has been required. In the past, an association might have found comfort by asking the regulator whether something was appropriate and reasonable. As that will no longer be available, self-assurance and encouraging self-assurance will be important parts of the consultation that we will bring forward in the new year.

John Marr

I will pick up on points made by Sally Thomas and George Walker. Due diligence was mentioned in the context of disposal by an RSL. It is quite right that an RSL board should ensure that it has gone through the required due diligence before it disposes of any assets. Equally, lenders go through due diligence. Clearly, that can help offset any concerns about the loss of regulatory and business intelligence.

Self-assessment has been mentioned, I think. That will certainly have a role in ensuring a degree of comfort across the piece that where disposals are made, they are made appropriately.

We look forward to engaging with the regulator further as part of the framework review when there is more concrete detail about some of the proposals.

Elaine Smith (Central Scotland) (Lab)

I want to follow up on some of what John Marr just said, but first I would like to ask David Bookbinder specifically to comment on something that was in his submission, which says:

“The provisions may ... make it more straightforward for sensible changes to be made, where these, for example, will help associations prevent potentially disruptive individuals or groups having undue influence or control over an association’s affairs.”

Could you comment further on that statement?

David Bookbinder

Yes. I hope that that is not something that many housing associations would ever encounter. There are two points to make. Most housing associations want as many people as possible in their share membership and they want as many of those people as possible to be willing, from time to time, to stand for board or committee membership. The background to this issue is that a lot of associations are perhaps not crying out for, but are certainly very welcoming of people’s willingness to stand. We are very keen to make standing attractive to potential committee and board members.

Every now and again an association might want to make a sensible change to its rules, its constitution or its code of conduct for board members, when it encounters one or more individuals about whom the association has absolutely sound evidence that they are not there to act in the association’s best interests. At the moment, the code of conduct would enable an association to take action against a board member who, it is felt, is not acting in the association’s best interests, but not against somebody who is applying to be a board member. We know that some of our members have been looking at changing their rules to address such potential situations.

10:30  

I am not suggesting—far from it—that the regulator would not engage if there was such an instance today of one of our members going to the regulator to ask whether it would be okay to take such action. That is an example of the kind of sensible rule change that an association might want to make. That would probably be quite a traumatic time for the association, so cutting out one stage in the process—its having to go through the consent mechanism—would certainly help, where that would evidently act in the interests of the association.

I do not want to suggest that there is a big issue about our movement being under threat from lots of people trying to inveigle themselves on to boards. That is just an example of where a little less red tape would be welcome.

Elaine Smith

I am concerned about who judges what is disruptive behaviour. Who makes that decision? What constitutes that kind of behaviour? Could it just be someone taking a different position from the board and making legitimate points that the board might not be listening to? I see that Sally Thomas is nodding: perhaps there is something that she wishes to say.

How do you ensure that when a board is made up, gender and diversity are recognised?

David Bookbinder

Make-up of boards is a big issue for the movement. The biggest imbalance at the moment, I would hazard, is in respect of age. Many associations throughout our area and, I am sure, throughout Scotland are attempting to balance their boards and to get younger people on to them.

On how we know whether a board is making the right decision about something, I would say—and, I think, the regulator would say—that it is up to the association to get that right: the regulator will not decide for it. An association has to get such decisions right through the experience of its board, which must have a real sense of what is right for the association.

Sally Thomas

That is another absolutely pertinent question, but there is no clear and exact answer to it. Board membership—how to attract people to boards, get a balance and get diversity—is an on-going and major issue for the sector, as it is for many others.

The point about whether behaviour constitutes disruption or challenge is well made. A case will always have to be taken on its merits at the time, and there will always be a judgment of sorts.

That said, the issues of self-assurance and of doing more work to ensure that organisations’ governance is the best it can be are front and centre of what we need to do. If we do that in the right way, get all our ducks in a row and have our priorities right, we can address the issues that Elaine Smith raised. It is an on-going process, however: it is not one that we can safely say is done and dusted. We cannot say that we have done it, that we are successful and that it is all great.

To the SFHA, the Glasgow and West of Scotland Forum of Housing Associations and others, tenant representation on boards is absolutely critical. I have come from England, where tenant representation on boards has been run down for a variety of reasons, so it is an absolute pleasure to be in a place where tenant representation is treated as important, and increasingly so. We want to do everything that we can to ensure that representation is retained. Given David Bookbinder’s concerns, which are credible and realistic, and given Elaine Smith’s question, which is absolutely pertinent, we need to do the best that we can to ensure that there is tenant representation in the best way possible, and that tenants are supported to contribute in the best way possible to governance arrangements. We also need to do the best that we can to take on board and to continually review and reassess, as Elaine Smith asked, whether we are achieving good governance and diversity, and whether behaviour is a challenge rather than a disruption.

Elaine Smith

Unless anybody else wants to follow up, I have a question for John Marr—

The Convener

If you will indulge me, there is something that I want to follow up. There is a general theme that housing associations need a little bit of disruption because the same handful of tenants will have been on the board for a long time, so well-paid officials put through rent increases, rent restructuring and investment programmes that get rubber-stamped. At what point does the board become part of the co-production and corporate governance of the organisation? At what point do they just put things through on the nod? That is a challenge in the housing association movement.

Incidentally, some housing associations are superbly run—there can also be a challenge there. Challenge does not necessarily mean that the housing association is poorly run. I did not pick out that point about challenge from Mr Bookbinder’s evidence, but it grated with me a little when I heard about it because we need well-qualified disruptive individuals to challenge the housing association movement’s senior officers to make sure that an association really is a tenant-led organisation. Any observations on that would be welcome. We will then, of course, move on to Mr Marr.

David Bookbinder

That is an absolutely fair comment. The forum takes seriously the notion of committee and board members having the ability to challenge. For example, with our colleagues at Scottish Housing Associations Resources for Education—SHARE—the forum is about to produce in the next week or so a small booklet, aimed at committee members, on knowing the basics of sound financial management and knowing when to challenge. They need to do that when it is important—when they do not understand something or when they are uncertain about something. The booklet is about giving them the confidence to do that. We could never claim that a housing association is well run if there is a lack of challenge.

We have also done work this year on succession planning, which is about making sure that committees and boards are fit for the future, and having people with the right experience. That includes the critical local input that can come only from local people. We take succession planning and good governance very seriously and have produced a lot of work on them.

The Convener

Thank you for indulging me, deputy convener. You can move on with your line of questioning now.

Elaine Smith

Thank you. Mr Marr, with specific regard to sections 3 to 7, can you expand a bit more on the kind of risks that removal of the regulator’s powers of consent could pose for funders? We touched on that previously.

John Marr

We are talking about a transfer from a system of consents to a system of notifications, not only in relation to disposals but to organisational changes—which could, for instance, be proposals for RSLs to merge or form different business structures.

We mentioned in the earlier discussion that notification might mean that there could be a degree of loss of regulatory and business intelligence. However, we are comforted by and take reassurance from the fact that associations, through their own due diligence, and lenders, through their due diligence, and the possibility of an increased role for self-assessment, could help to fill some of the gaps that might arise through the change. Clearly, there will be provisions within existing loan agreements requiring the borrower to seek lender consent for specific events, which would definitely include constitutional changes. Lenders will still go through that process of engagement with their borrowers to provide consent or otherwise to those changes upon merger.

Even though we are moving to a new approach under the proposed legislation, lenders can still take comfort that existing practices—in terms of their own processes, through their loan agreements—as well as changes down the line from changes to the regulatory framework, will provide sufficient reassurance.

Elaine Smith

In your written evidence you say that you expected that funders would have to

“ramp-up their own due diligence”,

but you also suggest that funders would expect boards to strengthen their self-assessment regimes. Would that result in increased costs for RSLs?

John Marr

There may be costs associated with some changes, but it is difficult to forecast what they might be from this distance. In our submission I touch on the point that lenders might “ramp-up their ... due diligence” and the possibility of there being costs associated with that. I emphasise that that would not be changes in costs to funds per se, but rather to transactional and process costs associated with striking a deal. I would not expect those costs to be significant in the grand scheme of things—they would continue to be proportionate to the deals.

Elaine Smith

Do the representatives of the RSL sector have any comments on that?

Sally Thomas

The question is about a possible cost to boards of increased self-assessment. With David Bookbinder and John Marr, as part of the regulatory review, the SFHA would hope to find ways to minimise that as much as possible. The SFHA would do that by trying to provide as much information and support to advise and, where necessary, to strengthen board activity—particularly self-assessment—at minimal cost to the organisation.

There is a huge diversity of organisations in the sector—they range from very small to very big. The bigger ones can probably do what they need to do using their own means and without taking a big hit to their resources. Other organisations will find it much more difficult, time consuming and resource intensive in proportion to their size and activity. We will focus our resources as a support organisation to ensure that they are targeted in the right way in order to minimise the costs and effort that would be involved for individual organisations.

The Convener

Does anyone want to add to that?

David Bookbinder

Our lenders are our key partners and I welcome John Marr’s assurance that any further due diligence would be proportionate.

The Convener

That is now on the record—although it is not binding.

Graham Simpson (Central Scotland) (Con)

Mr Marr’s written submission suggests that there should be a sunset clause in section 8 of the bill. Can you expand on that?

John Marr

Yes. We understand the rationale for inclusion of section 8. When the bill was drafted there was still a fair degree of uncertainty about how the ONS might view the provisions and whether they would be sufficient to achieve the outcome of restoring the “private sector body” classification. Now that we have seen the ONS move relatively swiftly south of the border in restoring the classification to English housing associations, after the Westminster Government implemented the final pieces of the puzzle in the deregulatory measures of the Housing and Planning Act 2016, and given that those measures are broadly consistent with the measures that have been proposed for Scotland, we can perhaps take comfort that implementation of the legislation in Scotland will enable the ONS to move as quickly as it did down south and reverse its decision. That being the case, one could ask whether the open-ended provision of section 8 is really necessary.

Our concern is that inclusion of the provision—as I said, we understand why it is there—but leaving it entirely open ended would prolong the uncertainty for investors considering coming into the market. It would be helpful if the period within which the power could be exercised were to be limited in some way. We have suggested that the period could last until the end of the current session of Parliament, although, given how quickly the ONS has acted down south, it may be that the power is not even necessary. However, that is clearly an issue for consideration.

10:45  

David Bookbinder

Section 8 really feels like a just-in-case section. I agree with John Marr: we have good reason to be confident that the ONS will be satisfied with the bill’s measures. We are certainly relaxed about that provision being there. The Scottish Government has acted in a very consultative manner on the provision. I think that it would carry on doing that in the unlikely event that it had to use a sunset clause, as you refer to it. However, we do not see it as a threat.

Graham Simpson

The Delegated Powers and Law Reform Committee made some recommendations in its stage 1 report, one of which relates to section 8. It says:

“The scope of those powers extends to permitting any modification of the functions of the Regulator which relate to social landlords. The power is therefore drawn more broadly than is required to achieve the policy objective. The Committee considers that, in principle, the power could be framed more narrowly in accordance with the policy objective. It recommends that the Scottish Government consider this further”.

Do you have any thoughts on that?

The Convener

This might be the first opportunity that the witnesses have had to hear that recommendation in the report. We could be catching you cold a little bit, Mr Marr.

John Marr

That is a welcome progression towards narrowing the scope within which the power could be used. It still leaves the timeframe element open, which was one of our more significant concerns.

The Convener

Are there any other reflections on that? The report came out yesterday, so it is hot off the press. The witnesses seem to be generally content with the power if it is required but think that it would be good to narrow its scope a bit. Mr Marr has spoken about a possible sunset clause.

David Bookbinder

It is a theoretical argument; on the face of it, the power looks very broad. I do not think that anyone in the housing association sector believes that such a power would be misused. If it is prudent to look at narrowing it, so be it, but it is important that the power is retained as a just-in-case clause, as I referred to it earlier.

Graham Simpson

Section 9 would restrict the local authority power of nomination to an RSL board to a maximum of 24 per cent of board members. Inverclyde Council is concerned that the plans are “unduly prescriptive” and will

“not allow for the exercise of local discretion for local circumstances.”

In other words, the council is saying that 24 per cent is too restrictive. Does anyone agree or disagree with that?

David Bookbinder

As the committee knows, that generally applies to stock transfer and, probably, to the largest stock transfer associations, where having a proportion of local authority elected members was part of the transfer arrangements. It may be for others to comment. It is not as if a reduction from 51 per cent is required. We are talking about nuances of between a third and a quarter. I would have thought that, under the proposed arrangement, local authority board members would still have an influence, as they do under the current 33 per cent arrangement. It is clutching at straws to say that the proposal will make a big difference, especially if, as we believe, the ONS needs that change to happen.

Sally Thomas

While in some senses it might appear to be a loss, I would hope—certainly, we would hope as an organisation—that the relationship between local authorities and housing associations is sufficiently good that they will be able to work that out between them in discussion. If it is felt helpful by both parties to have local authority representation on boards, so be it. It is up to the individual housing association and local authority to work that out. That is just as it should be.

Graham Simpson

Does any of the witnesses think that it is appropriate that ministers should have the power to set the limit in the first place?

The Convener

No one is grabbing at that one. Maybe you could provide a bit of clarity. Do you mean that it should be open ended?

Graham Simpson

Should ministers be able to set a limit, whether it is 24 per cent or whatever? I am sorry for all these tough questions.

The Convener

May I clarify that, so that we get an answer that fits with the policy intent of the bill? My understanding—as the committee’s convener it is always dangerous to try to understand something—is that the reason for the restriction was to better conform with the ONS requirement that RSLs be seen as private bodies and to reduce the influence of other public bodies on RSLs. Does that mean that there has to be a cap somewhere down the line? Mr Simpson asked why such a cap should be specified by the Government. There might still be no takers for your question, Mr Simpson.

David Bookbinder

Ideally, we would not want ministers to dictate how our boards are structured. In this case, we think that, as the convener said, it is probably a proportionate response to the requirement for ONS to see a perceived reduction in public influence or control.

Graham Simpson

I should have sent my questions in advance, convener.

Elaine Smith

Having served in the Parliament since 1999, I was in the Parliament when the stock transfer legislation went through. At the time, my former colleague John McAllion and I raised concerns about the fact that stock transfer could just be seen as privatising an asset, council housing, that had previously been owned, in the public sector, by all of us. We are now taking that a step further. At the time, discussion about local authorities’ influence on boards was to try to bat off the accusation of privatisation of a public asset.

My concern now would be the implications, in areas of wholesale stock transfer, of a reduction in local authority influence on local authorities’ duty towards homeless persons. The question is specifically for David Bookbinder and Sally Thomas, but if the regulator wishes to comment I would be happy to hear from him.

David Bookbinder

The sector regarded it as really important, especially in the light of stock transfer, and of the six local authorities in Scotland that do not have any stock, that there were robust statutory measures for housing associations to support local authorities in housing homeless households.

Section 5 of the Housing (Scotland) Act 2001 has been really important. In practice, a lot of local authorities do not resort to using that provision because the more informal nominations and referral arrangements in most parts of Scotland appear to work very well. However, the duty remains critical in ensuring that all associations, particularly those in areas with no council housing, can make a proper contribution to housing homeless households.

Elaine Smith

Will it continue to work well if the local authority nominations to boards are reduced?

David Bookbinder

The forum does not associate the success of housing homeless people locally with the constitution of the board—I do not see a correlation there at all.

Sally Thomas

This is an important issue. The extent to which housing associations have influence, which represents democratic processes, the taxpayer and the public good, is important.

There is a difference between local authority influence possibly being reduced in statute in policy terms, as we have here, and reality. Who can second-guess this? I hope and anticipate that, while there might be a provision that looks ostensibly as though the impact could be to reduce local authority control and influence, the reality of it might not be that at all. The situation might well stay as it is, or their control and influence might even increase.

The joint intentions and collaborative aspects of how local authorities and housing associations work together, and the relationships that they have built up since stock transfer, are mostly good—I would not want to say that they are wholly good; that would be too much to profess—which means that that level of influence would be retained, and increased where necessary, for the provisions that you have been talking about with regard to achieving reductions in homelessness and housing people who need it.

The Convener

Given that percentages are being specified, and there is a direction of travel, does anyone really think that there will be any difference in the good governance of RSL boards, or in the partnership relationship that such boards do or do not have with the local authority, based on whether a local authority can appoint 33 or 24 per cent of board members? Is that completely missing the concept of engagement and partnership?

Sally Thomas

Yes. To follow on from my previous point, I would not want to discount that completely—it would be naive and ridiculous to do so. However, knowing what I know about how the sector behaves and what the sector, collectively, intends to do, I think that the relationships that are in place now and the historical development of those relationships over time since stock transfer will mean that we are in a much better place than we ever were then. The partnerships will reflect that; so, too, will the impact of those partnerships and relationships on the housing needs and demands that we know are out there.

Andy Wightman

I want to pick up on Graham Simpson’s points about the Delegated Powers and Law Reform Committee, of which he is the convener. That committee’s report, which came out yesterday, reveals a disagreement between the committee and the Government on the section 8 and section 9 order-making powers. The committee considers that the powers are too broadly cast; the Government says that it is content. We may need to mop up on anticipated feedback from the ONS. I am not looking for a response now, but we would find it most useful should anyone want to come back and comment on the nature of that disagreement and where the balance might be most appropriately set.

The Convener

The Scottish Government has still to respond to the report that was published yesterday—it has yet to look at the evidence in it. That is the context in which we should view that disagreement. Does anyone want to take up the cudgels on that one? There appears to be no great thirst to do so.

Sally Thomas

The member mentioned taking time to reflect and come back on the issue. That is probably the most sensible way forward for the SFHA.

Graham Simpson

The Delegated Powers and Law Reform Committee report is quite technical, but I suggest that you read it first and then come back to us.

The Convener

That is very helpful. Our committee will have to take a view on the matter, so we want to be informed not just by the Delegated Powers and Law Reform Committee’s report but by your views and those of the minister when he comes before us.

As there are no more questions, I thank everyone for coming along this morning. It was a very useful and structured evidence session, which will inform our stage 1 deliberations. Please contact the committee with any additional information that you want to give us, not just on the specific matter that Andy Wightman raised but on anything at all. I thank all the witnesses for their time.

11:00 Meeting suspended.  

11:05 On resuming—