On the 30th of October 2015 the Office for National Statistics (ONS) announced that it had decided to reclassify providers of social housing in England as part of the public sector for accounting purposes. This decision has proven to be hugely important. With housing associations considered part of the public sector, their debt – in the region of £60 billion – has been transferred to the UK Government. It is not surprising that the Government has been eager to reverse this decision. Whilst the ONS’s decision to reclassify social housing providers only applies in England, its significance has already been recognised in Wales, with reports appearing in Inside Housing that the Welsh Government are now considering moves to pre-empt such a reclassification here in Wales. As such it is important to examine the ONS’s reasoning for reclassifying housing associations in England and the steps taken by the UK Government to try and counteract that decision.
The ONS’s reclassification report sets out that the UK Government’s powers over the social housing sector in England, either exercised by the Government directly, or on their behalf by the Homes and Communities Agency (HCA), had led them to reclassify English housing associations. The ONS announced that they would be conducting their review into the status of English housing associations in September 2015. In the months preceding this, the new Conservative Government had started to implement its housing policy. Amongst the policies bought forward were a 1% cut in social rent and the extension of the right to buy to housing associations in England. These proposed changes would increase the UK Government’s control over the social housing sector in England. The ONS however does not refer to these changes in its reclassification report.
The ONS report focuses on the regulatory powers of the UK Government and the HCA under the Housing and Regeneration Act 2008. In outlining its reasoning for the reclassification the ONS identifies five powers in particular that it felt indicated that housing associations should be viewed as part of the public sector. Amongst these are the Government’s powers over the management of housing associations and the Government’s consent powers, (housing associations must get the consent of the HCA before they can dispose of property or make amendments to their constitution and structures). As a result the ONS reclassification is to apply from the 22 of July 2008, the date of enforcement for that Act. This may have some very significant consequences for us here in Wales.
The 1% cut in social rent and the extension of the right to buy are not policies being pursued by the Welsh Government. If it had been these policies that had led the ONS to its decision then a future Welsh reclassification might be seen as less likely. Given that it was the Government and the HCA’s regulatory powers under the Housing and Regeneration Act 2008 that had led it to its conclusion however, this is not the case. The regulatory powers of the Welsh Government as set out in the Housing Act 1996 are very similar to the powers of the UK Government under the Housing and Regeneration Act 2008. Welsh associations must also get the regulator’s consent before making a property disposal or making a structural change and the Welsh Government also has powers over the management of housing associations. Given these and other similarities it would appear that if such a review was to be undertaken in Wales, then there would be a real possibility that housing associations would be reclassified as part of the public sector.
In this light it is not surprising that there are reports emerging that the Welsh Government are considering making pre-emptive deregulatory moves. Given the similarities that exist between the UK and Welsh Government’s control powers then it would appear likely that both Governments would have to adopt similar deregulatory moves.
The UK Government intends to introduce its deregulation through the Housing and Planning Bill. Amongst the most significant changes that would be introduced by the Bill would be the reduction in the HCA’s consent powers. Associations will only be required to notify the HCA of a disposal and whilst they will still be required to get the consent of the HCA before winding up, they will only be required to notify the HCA of other constitutional and structural changes. Such changes would provide housing associations with much greater freedoms than what they currently enjoy, but at what cost?
There have been suggestions in England that housing associations might find it harder to borrow money as lenders view the sector as posing a greater risk. This would have a significant impact on the work of housing associations and on their ability to develop property in particular. In order to try and minimise these concerns the Housing and Planning Bill would establish a new special administration regime in England, under which the Courts will be able to issue an order, appointing an individual to manage an association. It might take some months to see whether the regime does manage to ease any concerns that lenders may have.
In addition to tackling the concerns raised by the ONS the UK Government has also tried to minimise the impact of its new policies. The extension of the right to buy for example is now being introduced on a voluntary basis following a deal between the Government and the National Housing Federation, and housing associations will not be bound by “pay to stay”. Whilst the Welsh Government may not have to adopt a deregulatory programme with regard to these policies, there are other areas where the Welsh Government exercises tighter control over housing associations than their counterparts in Westminster. One such example is the remuneration of board members. In Wales housing associations are not permitted to pay their board members, this is not the case in England. It remains to be seen how the ONS would view such control.
It is not yet clear whether the steps taken by the UK Government in the Housing and Planning Bill will be sufficient in making the ONS reverse its decision. A number of potential problems with their proposals have emerged. One such issue is the suggestion that housing associations which are registered with the Charity Commission (around a 1/3 of registered providers) could be required to get the consent of the Commission before undertaking a disposal, if they were not required to get the consent of the HCA. Another potential issue for the UK Government could be their unwillingness to reverse their decision over the 1% social rent cut.
With the Assembly election approaching in May the next few months were always set to be an interesting time for those involved in Welsh housing. These developments in England seem set to add another unexpected dimension to the Welsh housing debate.