Oral evidence: Right to Buy, HC 880

Oral evidence, 9 March 2016.

Witnesses

Melanie Dawes, Permanent Secretary, Department for Communities and Local Government, and Peter Schofield, Director General, Housing and Planning, DCLG, gave evidence.

Chair

While we are getting settled, a reminder that our hashtag today is #righttobuy. We are here to look at the Government’s policy of extending Right to Buy to housing association tenants, which is currently going through the House of Lords. I am pleased to welcome Melanie Dawes, the Permanent Secretary of the Department for Communities and Local Government, and Peter Schofield, who is director general for housing and planning at the Department for Communities and Local Government. Melanie Dawes, we know and appreciate that you are in an interesting position here. The Committee is keen to do pre-scrutiny, as you know, to ensure that we safeguard taxpayers’ money as the policy is developed. We appreciate, though, that there may be some constraints on what you can tell us, because you will still be advising Ministers on certain things. We appreciate your constitutional position, but we are hoping for as much transparency as possible. The aim, which I hope you share, is to make sure that a good, workable policy comes out that, whatever our views of the policy, is actually delivering as much value for money for taxpayers as possible. First, as accounting officer for this policy and its implementation, how do you see it fitting in with wider Government policy on housing? Your Department is responsible for delivering housing policy overall.

Melanie Dawes

Thank you very much for your statement recognising the position that Peter and I are in today. We will endeavour to answer your questions as fully as we can. We want to be transparent with you but, as you say, there are some constraints on us. How do these two policies fit more widely into the Government’s overall policy for housing? Well, we published our single departmental plan, along with other Departments, a little while ago. We have two high-level objectives on housing: one is to increase the supply of housing, with an ambition for 1 million homes; the second is to increase home ownership. The Right to Buy for housing association tenants fits into both those objectives, as does the sale of high-value assets, because with one-for-one replacement in particular, both policies are intended to increase the overall stock of housing, and of course the Right to Buy has a direct impact on home ownership. At the very broadest level, both policies fit in with the Government’s big strategic objectives.

Chair

We heard earlier about the tension between one-for-one replacement and like-for-like replacement, and the danger with one-for-one is that we will lose certain sizes of properties at social rent levels. How does that fit with Government policy to make sure that there is a degree of affordable housing—we may disagree about the levels—available for people on low incomes who will never be able to buy their own home?

Melanie Dawes

As you say, it is not like-for-like but one-for-one overall. We will probably want to come on to London, where we are looking for a higher degree of replacement from the high-value asset sales; we are working with the London boroughs and the GLA towards that. In the end, what Ministers have been trying to do is to ensure that there is some flexibility for housing associations and local authorities to make sure that they are able to reflect local housing need and that they are not too constrained in having to sell or replace to too rigid a national prescription. We are balancing the need for flexibility, partly as a way to ensure implementation of one-for-one replacements.

Chair

So to be clear: there will be different models in different regions of the country. Will that be by negotiation? How are you going to work that?

Melanie Dawes

We are still working through some of that, but let me talk a little more about the flexibility. For local authorities the Government has said—and actually this has been welcomed by local government—that we will almost certainly adopt a formula approach rather than requiring particular homes to be sold, so that local government can then make sure that they are not selling, for example, properties where there is a very specific housing need that they need to cater for in their area.

Chair

So the totals will just be the cash sum from sales.

Melanie Dawes

Yes. That is the sort of flexibility that we are considering. Obviously the details of how all that will work, and also things like exemptions for certain types of property and the portable discount for housing associations is designed to give housing associations flexibility where they think they need it, on the kinds of properties they sell.

Chair

We are going to come on to some of those specific properties in a moment. On the issue around the cash sum that local authorities will be having to pay out of their housing revenue account, will that be expected at a particular point in the financial year, or will it be expected to be received after sale of those properties?

Melanie Dawes

Well that is something that we are working through at the moment. We are going to need to go through all that detail with local government.

Chair

So the simple answer is you don’t know at this point.

Melanie Dawes

We don’t have a settled decision on the profiling at this stage.

Chair

Okay—well “okay” is perhaps not the right word, but you know what I mean. In terms of targeting, you talked about possible differential approaches in different regions, I will bring in Karin Smyth in a moment, but there are some areas—you mentioned London—where if some of these high-value properties are sold and not replaced like for like, there will be swathes of people who cannot afford to rent privately and cannot afford to buy, and there will be fewer social housing properties offered for social rent available. Have you done an impact assessment of the impact in certain parts particularly of London and the south-east, where this is going to be an issue?

Melanie Dawes

We have certainly worked very closely with the London boroughs.

Chair

So have you done an impact assessment?

Melanie Dawes

We have looked at a lot of the numbers with them. Our impact assessment, all our value-for-money analysis on the high-value asset sales, is a continuing process as we get more information, and as our Ministers make decisions along the way; so this is a continuous process of constant evaluation. Peter may want to say more about this, but as you can imagine we had a very strong representation from London last summer that they wanted to work with us to manage the impact of the high-value asset sales policy. It is already the case in London that some boroughs find it hard to replace after the Right to Buy, or indeed to build in accordance with the affordable housing programme. It is a variable picture, of course, reflecting the variance in land values across the city. There has been a lot of interest from the boroughs in how they can work together and how they can work together with the GLA; and we have been working alongside them.

Chair

I am just bit concerned. The Bill is going through the Lords and legislation is being enacted, but what you are saying to me is you don’t know the full impact. I picked on London, because I have got a particular interest there, as have many others, and it is going to be a big issue. You don’t actually know the full impact on London.

Peter Schofield

It is not fair to say we don’t know the full impact.

Chair

Okay, share it with us. Tell us, if you can.

Peter Schofield

Exactly as the Report from the NAO sets out, this is a continuous process. We have been going through a process of engagement, of data collection; in fact we have got about 16 million different pieces of data that we have collected over the quarter.

Chair

What is it telling you?

Peter Schofield

It is telling us where the valuable assets are; it is telling us about the rate of churn.

Stephen Phillips

What do you mean by “rate of churn”?

Peter Schofield

What I am talking about here is the frequency with which those properties become vacant. Alongside that, we are obviously also doing our ongoing evaluation on the rate of replacement of Right to Buy from the old scheme, and some of the implications in different parts of the country. So we are pulling it together. It comes together in advice that we put to Ministers. We are not at the moment at the point where we can talk about exactly what it is telling us.

Chair

It is just interesting that we have got a Bill about to become law—subject to their Lordships’ scrutiny of it, of course—and yet there is not a full impact assessment. That suggests to me that there is a lot of room for discussion, manoeuvring and local negotiation about how or whether this policy is implemented exactly in a uniform form across the country.

Peter Schofield

I think the key point about the legislation is it sets an enabling power; then the precise nature of the formula will be set out in secondary legislation, following Royal Assent. In terms of the nature of parliamentary scrutiny, it is important to see it in the context of the steps with which this is being introduced.

Chair

I know you have to say that. I will hand over to Karin Smyth in a moment, but my final question, for now, is about housing benefit. You heard from the previous set of witnesses, and we have had evidence on this from elsewhere, about concerns that the housing benefit bill will simply go up. Ms Dawes, you highlighted the fact that there are already areas—London boroughs in particular—that are finding it hard to house people who qualify for social housing but for whom there is no social home. As you know, they are very often being housed in temporary accommodation in the private sector, at huge expense to the taxpayer through housing benefit, because there is no option. Is not the danger that if the wrong number of properties in high-value areas are sold, the individuals who would move into those larger high-value homes will end up in the private sector? Sometimes there are even people in the same property in the private sector. That will raise the housing benefit bill. Have you done a full analysis of the impact?

Melanie Dawes

The answer is yes, we do look at the housing benefit impacts of these policies.

Chair

You do, but have you done it for this policy?

Melanie Dawes

Yes, we have done it. We did it for the 2012 changes to the scheme, with the extension of the Right to Buy, and we are factoring that in now, in accordance with the Green Book. That is one of the things we take into account. Can I clarify something? I said earlier that some London boroughs find it hard to build replacement homes—that was the point I was making.

Chair

Okay, well, I would put it to you that some find it hard to find any home. I had someone at my surgery who has a two-year-old and is pregnant, and she and her husband are currently living in a hostel and paying £245 a week, with the support of housing benefit. It is very difficult for them to try to work with that environment. I think they are working a bit, but it is difficult. If they are lucky, they will get into private sector accommodation—that is probably their best option—at an even higher rent than the £245 a week, and it will be housing benefit footing that bill. That is not uncommon for those of us who are London MPs. I am sure it is true for other Members as well, but I plead the London point for a moment.

Karin Smyth

I have tried to map the process that underpins how this works. I wonder whether you can help me to understand how it works from your perspective. The first thing is that a high-value asset is identified. Who identifies it?

Peter Schofield

I will describe the process. Obviously the Bill is still going through Parliament—

Karin Smyth

Who identifies the high-value asset? I want to understand the first bit of the process.

Peter Schofield

I feel I need to start by setting out the legislative framework we are working within, because I think that explains it.

Karin Smyth

What I mean is, is it identified in Whitehall or locally?

Peter Schofield

What happens is that there will be a determination set by Government around a formula, which will then identify how much is anticipated in net receipts from each stock-holding authority. That will be based on information that has been provided by the local authority about the value of its properties and the rate at which they become vacant. It is then up to the local authority to decide how it meets that net receipt determination. Obviously it can do that by way of—

Karin Smyth

That’s not my question, is it? We have talked about London where there is lots of expensive property, but property is also very expensive in Bristol and there is great demand in the housing market. I might have a view about what is a high-value asset. Will that be determined in Bristol or in Whitehall?

Peter Schofield

There will be a process in which we set a formula—

Karin Smyth

Okay, in Whitehall.

Peter Schofield

Well, it will be based on information provided by every local authority that is a stock-holding authority.

Karin Smyth

But that final decision will be determined in Whitehall.

Peter Schofield

There will be secondary legislation determined in Parliament to set out the nature of the formula. That will then set a determination, so Bristol will be told that there is a net receipt that’s required—

Karin Smyth

That’s very helpful: Bristol will be told what the value is. Thank you. So each different part of the country will identify different levels of high-value assets.

Melanie Dawes

That’s not quite correct. We have asked all local authorities to give us details of the stock that they hold now—the housing that they have—and to band that and tell us what those values are. We have taken in that information in the past few months and we are now working that through. On the back of that, the Government will decide the formula by which they expect to ask local government to provide receipts to us. That will be subject to consultation. We are legally bound to do that. Once we have agreed those formulae, local authorities will decide which assets they wish to sell.

Stephen Phillips

So there will be a formula. Presumably you are designing it by reference to the information that you have had from local authorities.

Melanie Dawes

Yes.

Stephen Phillips

So the definition of a high-value asset will be in accordance with the formula, but will vary from local authority area to local authority area because you will take into account, for example, rurality and average house price—a number of different things will feed into the formula. Is that right, Ms Dawes?

Melanie Dawes

Yes, but I should say that all these details have yet to be determined. We do not yet have a final—

Stephen Phillips

The concern for the Committee and certainly for this individual member of the Committee is that Whitehall’s ability to construct these formulae—we can look, for example, at the police funding formula—is worse than notoriously bad. How will you ensure that you get it right?

Melanie Dawes

This is one reason why we have invested in the data collection. It has been a big exercise and has taken a number of months, but that is why we thought it was extremely important that we did it. I think that was the responsible thing to do. We have engaged very actively with local government during that period as well. We have been talking to well over 100 local authorities. This policy applies to all stock-owning authorities. We have had direct contact with almost all of them and also with the LGA and other local government representing bodies, and we are having very detailed discussions about how this should work. It will be subject to consultation as well.

Stephen Phillips

Two years down the line, I will be able to look at the formula and say, “Right, a high-value asset in the North Kesteven local authority area is a local authority home that is worth more than £200,000. A high-value asset in Hackney or Bristol is one that is worth more than £400,000.” Is that right?

Melanie Dawes

That depends on how we set the formula.

Karin Smyth

I think the point has been made. Do you have any idea of how many of these high-value assets, once they are determined, there will be in the country? You don’t, because of the formula.

Melanie Dawes

We do not have final decisions on the costings—

Karin Smyth

So we do not know how many there will be. Can you explain the levy that is then paid by the local authorities?

Melanie Dawes

Once we have worked out what we think the appropriate contribution is from each authority, we will set that out in a determination, on which we will consult, and then that will be the amount that each local authority is required to pay us. As I said, the timings of that have yet to be determined; the amounts have yet to be determined; and the formula has yet to be determined. But those are the details we are working through at the moment.

Karin Smyth

Up to 30% of the value of the asset can be held by the local authority, so that money would stay in Bristol, plus the future income stream, plus the cost of any land, and it would then build another property in Bristol. Is that right? Is that the process?

Peter Schofield

It is not quite that. The 30% relates to the existing regime. If we apply the same approach, it is 30% of the replacement cost of the new home. It is not 30% of the receipt from the home that is sold; it is 30% of the replacement cost. Then the remainder is funded by borrowing by the council against the income stream that comes from the rent going forward. That is how, together, you fund the cost of the replacement, and it is set with reference to the same structure that we use for homes built by housing associations, where under the affordable rent model we pay a grant component and then—

Karin Smyth

I own these assets in Bristol, because I am a Bristol council tax payer, and I am just trying to establish how much of my Bristol council tax paid-for asset starts to go across the system. So 70% goes to housing associations. The 30%—

Peter Schofield

No, sorry, this goes back to my point—

Karin Smyth

That 70% goes to housing associations.

Peter Schofield

No, no, no. This goes back to my point that the 30% does not relate to the value of the proceeds; it relates to the cost. It is 30% of the cost of a replacement home. Once the council have sold their high-value asset home, they will have to, first, pay down the debt that is associated with that. They will then need to look at how the formula works in terms of the cost of transactions, but there will then be a remaining amount. If we follow the scheme that we currently have for right to buy, the local authority will be able to use up to 30%—the amount that is equivalent to 30% of the cost of the replacement of the home. The remainder would come back to Government to fund the right to buy discounts.

Karin Smyth

That sounds like a lot of cost to a local authority. Do you consider this to be a new burden on local authorities?

Peter Schofield

We are taking account of the cost to local authorities in the impact assessment, and we are looking at this in the context of the way we set the formula. It is one of the things that has come out of our engagement with local authorities, thinking particularly about the transaction costs associated with doing the sales. So that is one of the things that we are considering how we factor in. But the 30%, as I say, is what is retained. That is 30% of the value of the cost of replacing—

Karin Smyth

Local government has an asset that it could do something with. It will be charged a levy on that asset—that is already a cost to the local authority if it holds on to the asset. If it sells the asset, it retains up to 30% to do as you described in the formula. It then has another transaction cost in terms of producing the like for like, hasn’t it? These are new burdens on local authorities, by definition, aren’t they? There is a lot of cost to local authorities in this process.

Peter Schofield

No. Let me talk through one way of how this could work. As I say, the final formula has not been set out, but I will try to provide a bit of clarity. The local authority raises the funds from selling its high-value asset. It then deducts the value of the debt associated with the home. It then deducts the transaction cost that it has incurred in selling the asset. It retains an amount equivalent to 30% of the cost of building a replacement home. It is not 30% of the receipts. You think about what the cost of replacing the home would be, then you take 30% of that. The remainder is what then would return to Government in the form of a payment that would cover the cost of right-to-buy discounts.

Karin Smyth

Why was the figure of 30% settled on?

Peter Schofield

None of this has been settled. The 30% relates the scheme that we currently have for Right to Buy for council housing. The 30% ensures value for money for this route for providing new affordable homes, compared with the affordable rent programme, which we deliver through housing associations. So under both schemes the landlord, whether it be the council replacing council homes or the housing association building a new affordable rent home, receives a certain amount of equity in the form of grant in the case of housing association homes, or retained receipts for replacement of Right to Buy under the 2012 scheme. The remainder gets borrowed. If we allowed local authorities to retain more than 30%, then effectively we would be spending more on replacing affordable housing through councils than we do currently through housing associations.

Chair

Can we be clear about definitions? You talk about replacing affordable housing; actually, if a social rented council home or, under the new scheme, a housing association home that is sold, under the new model of what affordable is, it is replaced not with something at a similar rent, but with something that is at a higher rate. We just need to be clear about that—it is a factual point that I want to clarify.

Peter Schofield

Yes. Normally it is at affordable rent level—

Chair

So it is not replacing. You used the word “replacing”. We’re not picking on individual words, but we need to be really clear that social housing rents and affordable rents are now defined differently, so something sold that has a social housing rent is not replaced—affordable is not replaced with affordable; it is a different type of affordable, which is actually higher rent, isn’t it? Just to be clear.

Peter Schofield

It is up to 80%. Some new homes that have been built are at a lower percentage than that. Indeed, as the NAO Report sets out, I think this Committee has looked at the affordable homes programme in the past and taken a view in terms of its value for money.

Stephen Phillips

I did not understand something you said, Mr Schofield. You said that when the high-value asset is sold, the local authority deducts the transaction cost, which I understand. Then you said that it deducts the debt that is associated with the property—that is what I understood you to say. What is that a reference to?

Peter Schofield

What I was talking about then is that new housing built by councils or by housing associations—

Stephen Phillips

Might have a loan or something associated with it.

Peter Schofield

—would have a loan attached to it covered in the housing revenue account.

Stephen Phillips

May I ask about the levy? If the local authority does not or cannot sell the high-value assets in order to fund the levy, do they have to borrow the money to pay the levy to central Government? How does that work?

Peter Schofield

These details are to be set out, but the point about—

Stephen Phillips

I understand that, and I know we are at a very early stage, but what happens in a very illiquid market, for example, if the local authority cannot sell the high-value stock in order to fund the levy to central Government?

Melanie Dawes

Those are all the sorts of thing we are taking into account now in conversation with local government about what kind of margins we might need around timings and so on. Can I just clarify the earlier point about new burdens? As Peter said, it is our intent that local authorities will be able to keep an amount of money to cover their extra administration costs for this policy. If that were not the case, it would be a new burden. It is essentially the same thing, but our intent is to cover that cost. We have also specifically identified a new burden from the extra data that we have asked them to collect over the last few months, so we are alive to the new burden issues with this policy, as you would expect.

Chair

I am sure they will be reassured.

Karin Smyth

You are almost acting as a broker in this movement of money between the local authorities and the asset and the transfer to housing associations, so presumably there is a fair degree of cost that you are holding as well. How is that being accounted for?

Melanie Dawes

We will be managing the flows of money from local government and then out again to housing associations. I should be clear that this is two sets of policies, each of which we are evaluating on value-for-money grounds, but they are connected through the financing. We are discussing with the Treasury how to manage that; there are a number of different options. I wouldn’t describe us as a broker, to be honest, but in the way that we do on many policies, we are operating as a financing system, if you like.

Karin Smyth

Okay. How much do you think that would cost you as a Department?

Melanie Dawes

For us, it is a question of our own departmental administration costs. It is our job—my job as permanent secretary—to make sure we can deliver the policies the Government asks us to deliver, and we factor in administration costs for us and for the Homes and Communities Agency. They will probably offer a prospectus and explain how it works, in a similar way to how we run the affordable housing programme. We have those mechanisms already in place.

Karin Smyth

The point that we are concerned about is that this is a very complicated process. There is a lot we do not know anything about yet, as you said. There is potential for lots of things to go wrong in different parts of the country, and we will be very keen to keep an eye on that. Can we move on to the impact assessments? To start on a positive note, paragraph 3.13 of the NAO Report commends the Department’s impact assessments of the original policy, so that is good, but there are obviously some concerns about the impact assessment of this. Do you want to comment on their conclusions? In paragraph 3.17, they have concerns about the impact assessment process.

Melanie Dawes

We are grateful for the NAO’s engagement on this, and they worked with us quickly to pull together their memorandum. There are three considerations for us when thinking about impact assessments. The first consideration for me as accounting officer is to make sure that, as we make decisions on these policies, Ministers have access to all the economic and value for money analysis that they need to do so. That is my responsibility, and I am comfortable that we have delivered on that. The NAO recognised the weight of evidence that we have brought to bear over the last few months. At the moment, this is not published information, and the NAO did not feel able to look at it, for reasons I fully understand, because it is still policy under development. We talked through the process we followed, and we have used Green Book analysis. We have drawn on the experience of the 2012 impact assessment, which I think was a good document. That is the first consideration. The second consideration for us was whether we needed to do a regulatory policy impact assessment, in line with the guidance from the Regulatory Policy Committee. We were advised by them, and we concluded that we did not need to do an analysis or a formal impact assessment of that type, because there are no impacts on the private sector here, and in the case of housing associations it is a voluntary deal. We did consider that; we are regulated by them to make sure we do not ever miss a trick by missing an analysis that we should do. That was our second consideration. The third was the impact assessment for the Bill, and what to publish alongside the Bill. There we were in an early stage of policy development; this is a big priority for the Government. It is a key manifesto commitment. Ministers were keen to ensure that the Right to Buy is available as early as it can be. As we have already explained, we have published an outline impact assessment, which is not uncommon for Bills of this nature. In fact, the Enterprise Bill has quite a similar overall impact assessment to our own Bill and the clauses that we are talking about today. Obviously, we recognise that not all the detail is available now. As the secondary legislation comes through on high-value assets, as we publish more details of the voluntary deal with housing associations, and as the evaluation of the pilots with housing associations becomes available, more detail will be made public. For us, there are three different considerations, which is why, although I absolutely agree with the NAO in terms of what we should see from value for money assessments, I do not think they have applied it, in all fairness, to the right document in looking at the impact assessment for the Bill. It was not ever intended—we do not feel it was possible at that stage, actually—to produce that level of detail.

Chair

You say it is not unusual. I think Bob Kerslake agreed in his evidence that it is not desirable for Parliament to make decisions on legislation without this information. As you mentioned the NAO, it might be worth bringing in Aileen Murphie from the NAO on the issue of the impact assessment.

Aileen Murphie

We have reviewed the impact assessment that was published in the public domain alongside the Bill, using the tried and tested methodology that we have used before. Because it does not contain much detail, our assessment is that it is weak. There is a lot of other work ongoing, but that was incomplete and not brought together in one space, so it was not possible to evaluate it at this point. As we have said in various places, so many things are yet to be determined. We analysed what we could that was in the public domain and had been presented to Parliament.

Karin Smyth

I have the Cabinet Office’s “Guide to Making Legislation”, which details this. Its requirement is that the impact assessment is for something that affects “private sector, civil society organisations or public services.” In comment No. 2, Ms Dawes, you mentioned the regulatory body—is that same as the Cabinet Office? Forgive me for not being clear on that.

Melanie Dawes

No, it is different. The regulatory policy impact assessments are different.

Karin Smyth

You said that they talked about civil society organisations and the private sector. You did not mention public services. My concern is local government organisations. Can you pick up on that, and then perhaps Aileen can come in?

Melanie Dawes

The Cabinet Office guidance is essentially designed for a Bill where all of the detail has already been determined. That is a slightly different set of circumstances from the one in which we found ourselves. It is often the case for other Bills—it is a high priority for the Government, and the legislation is being brought forward as consultation. The policy development then continues on the details in time for secondary legislation when it comes later. We discussed what our approach should be with the Cabinet Office—the authors of this guidance. They were clear and remain clear that our obligation would have been, were we covered by this, to have provided a regulatory policy impact assessment had there been an impact on the private sector, which there was not in this case.

Karin Smyth

We are talking about the public sector.

Melanie Dawes

Yes. That was the requirement on us. We are clear that we have fulfilled the requirements. Of course, it is important that we acknowledge that we need to bring forward more information in due course. That will happen during the course—

Stephen Phillips

What does “in due course” mean?

Melanie Dawes

Well, following Royal Assent, there will be secondary legislation on the high-value assets clauses. We will bring forward a determination for local government funding, which we will be required—

Stephen Phillips

It is deeply unsatisfactory, Ms Dawes, isn’t it? The Cabinet Office tells you and every other Government Department that when you lay legislation before Parliament, you should publish an impact assessment. Yes, I appreciate that this is a high priority for the Government, but you are essentially treating all the parliamentarians around this table with contempt, because you are putting in place primary legislation that does not contain the detail that we need to know in order to form a view when we vote individually on the legislation. Then you are saying, “Don’t worry, because there will be an impact assessment when we lay the secondary legislation before Parliament.” Now, you know as well as I do that the opportunity for Parliament to debate secondary legislation, certainly in the House of Commons, is extremely limited—still less the ability to actually change or scrutinise it. You, as a Department, are asking us to take something on faith—namely, that it’s going to work—without actually laying a proper impact assessment before us.

Melanie Dawes

I must come back and say that neither I nor my Ministers would in any way intend to treat Parliament with anything other than respect. I just want to say that on the record.

Stephen Phillips

Why not do the work first and then bring the legislation forward, then?

Melanie Dawes

Well, this was a manifesto commitment, and it’s a high priority for the Government. The decision that was taken was to introduce this legislation. I believe that we’ve done all the value for money analysis that we needed to have done, and we are doing our best to get all the information we need to make sure the decisions are soundly based.

Stephen Phillips

Fine, so you must have done that value for money assessment to be able to advise Ministers and not to have to ask for a ministerial direction. You’ve advised them that this is fine and that the value for money impact assessment isn’t going to change anything, but nothing’s been laid before Parliament to enable me, Mr Mills, Mr Mowat, Ms Hillier or Ms Smyth to form the same view.

Melanie Dawes

We have done, in particular, a business case assessment for the pilots, which David Orr talked about earlier, for which we receive money from the Treasury in the spending review. On other areas, the analysis is still ongoing as the policy is in development. A lot of these decisions have not yet been taken.

Stephen Phillips

So you’re doing it on the hoof, are you?

Melanie Dawes

No, we’re doing it as one does policy well, which is to develop it in consultation and discussion with the people who are going to be affected, and with data. We are investing in data as we go along. If we had made decisions six months ago without that information, that wouldn’t have been a sensible approach. We’re actually trying to do this in the right way, and we will reveal the information as decisions are made. They haven’t been made in every area yet.

Karin Smyth

That would be very helpful. Paragraph 3.23 looks at the various groups that are to be affected by the impact assessment. We heard in previous evidence that there were perhaps better ways of doing this policy.

Chair

Different ways.

Karin Smyth

Actually, the phrasing was “better done through other ways”. That is why we are very interested in this. We have only one option before us, and we want to make sure it’s right. I think it would be very helpful if you could briefly take us through those groups. Is there anything else that you wanted to highlight, in terms of how they might be affected or what we might want to pick up, from the housing associations through to the Government?

Melanie Dawes

I don’t have a lot to add to the points that the NAO made. We can literally go through them one by one—

Karin Smyth

So you agree with the assessments that they made?

Melanie Dawes

These are the groups that are likely to have an impact on them, but the details of that will depend on how we do this. As our own impact assessment for the Bill said, we are looking at things like properties that may be exempted.

Chair

So can I just be clear about this? If you are looking at exempting properties, that suggests that you are doing an equality impact assessment as well. The bit that’s missing from this list is the people who are not yet tenants, but are future potential tenants—the woman who came to my surgery on Monday, for example. Have you done an equality impact assessment?

Melanie Dawes

We have, yes. We have those, and they are available should anybody wish to see them. That’s how the process works. We said in paragraph 4.2.6 of our high-value assets impact assessment of the Bill that, “The policy could impact on prospective new council tenants, or tenants wishing to transfer to a new council home—however, encouraging the building of more homes which reflect housing need and increasing overall housing supply is at the heart of this proposal.” We set out a few other issues there around the flexibilities for local authorities. We have identified that as one of the areas of impact, but the precise impact and the numerical cost-benefit analysis that will start to flow from that, in terms of the final value for money assessment, will depend on decisions that haven’t yet been taken, although they are under consideration.

Karin Smyth

Okay. So that list identifies that there is a bit of time lag. Obviously, this a very quick-moving feast. Is there anything in those groups that you are worried about and would like to share with us now, in addition to that list?

Peter Schofield

I was going to refer back to David Orr’s earlier evidence on the five pilots. The evidence that we are bringing out from that and the evaluation that he described quite well is going to inform the way that we develop our value for money assessment. That will cover some of the points down here, won’t it, such as the implications for housing associations and housing association tenants? There is some interesting information that will come out of that on the ease of application, the likely drop-out rate and the likely take-up rate. Some quite interesting things will come out of that, and we will reflect on that. As David said earlier, that is ongoing.

Karin Smyth

I wasn’t quite clear—when will we know that?

Peter Schofield

Well, it’s ongoing. I thought David set that out quite well in his evidence earlier. It is happening in real time. The five housing associations that are taking part in the pilots along with the National Housing Federation, which David represents, have commissioned an evaluation, and we are working very closely with them to understand that. For example, we started the scheme and tenants had the ability to register in those various areas under the five housing associations from the time of the autumn statement. Then, on 25 January, they were able to start putting applications in. We are getting evidence on the rate of take-up, and that affects, for example, our thinking about the cost of Right to Buy discounts going forward.

Stephen Phillips

Have you looked at the intergenerational impacts of the policy? That was something that I and many others were concerned about long before The Guardian got on its high horse yesterday. How does it affect, for example, the group of millennials under the age of 30 who find it almost impossible to get access to housing?

Melanie Dawes

Well, with the sort of impact assessment we do, when it comes to the value for money analysis we look at the overall impact on housing supply, and both the policies will increase housing supply.

Stephen Phillips

The answer to my question is that you do not look at the intergenerational aspects of the policy or value for money in that context.

Melanie Dawes

I am not at this moment quite sure how far the Green Book requires us to do that, if I am honest. We can look into that and come back to you and let you know what our appraisal guidance tells you.

Stephen Phillips

If you can write to us, Ms Dawes, both about what the requirement is and about any work that has been done in that area—

Melanie Dawes

But what I can say is that both these policies—the high-value assets and Right to Buy—have at their heart the building of additional homes to replace those that are sold, and that therefore has an impact on the overall housing market that is positive.

Stephen Phillips

I accept that it may have a positive impact for those under 30 who find it difficult to access affordable housing, but I would like to know that that is something that the Department has considered, if it has to.

Melanie Dawes

We have certainly done the analysis that we are required to in accordance with the Treasury Green Book, which is being revised right now, in fact, and is due to republished quite soon. So we have done a pretty comprehensive analysis in line with that. I cannot tell you right now how far those sort of age distribution issues—

Chair

I think Mr Phillips’ point is well made and reflects the views of a number of us around this table.

Karin Smyth

You have just highlighted what was going to be my final point, which is that in order for the policy to work and to contribute to new homes, the housing association tenant must be able to buy and the local authority must be able to sell a high-value property. We have established that we do not yet know what that high-value property is or how many of them there are, or where they are in the country. I want to focus on the first part of that equation, which we talked about in the earlier session, namely housing association tenants’ ability to buy. I would be interested in your view. The figures are from the Sheffield Hallam report. The percentage of housing association tenants who can afford to buy under the scheme is 13% across England, 1% in London, 6% in the south-east, 11% in the east of England and the south-west and 24% in the midlands and the north. Can we have your thoughts on that, please?

Melanie Dawes

Well, that is obviously interesting research. I have not read it myself, but one of the things that we are going to be looking at through the pilot is precisely what kind of interest there is. David Orr was telling us earlier that he thinks that there will be a lot of interest in lower-value, lower house price areas, so we will be exploring that. It remains to be seen, however. Once we get a feel for the demand, that will help us and housing associations to work through some of the details of what the offer should be.

Stephen Phillips

Ms Dawes, you are advising Ministers on this. You need to read this.

Melanie Dawes

I have not myself read that particular piece of analysis, but I am very confident that the experts in my Department have.

Stephen Phillips

Let me say it again: Ms Dawes, you are advising Ministers on this and it is an area of developing policy. This is an important piece of work and you need to read it.

Melanie Dawes

Okay, I will read it.

Chair

But, Ms Dawes, the wider point Mr Phillips is making is that if the policy is developed, given the cost of developing the legislation, going through all the analysis you are doing in the Department and the discounts, if in the end only 1% of people in London and 6% of people in the south-east can buy a property, it may be that it is not very good value for money. So I think Mr Phillips’s point is well made. Somebody in your Department should be doing that full analysis. If you are not going to sell many properties through this to meet the Government’s stated objective of increasing home ownership, it is going to be problematic.

Melanie Dawes

We are doing that analysis.

Karin Smyth

The first part of my statement applies. The policy is dependent on being able to sell a high-value property and on housing association tenants being able to afford to buy. Otherwise, the policy simply cannot work. That is why we are so concerned about the impact assessment and those statistics. That is a crucial part of this hearing.

Peter Schofield

And that is another reason why we have been doing the pilots. I can answer the question you asked a bit earlier in terms of the timing of information coming out of the pilots. One of the things is that we have found with the reinvigoration of Right to Buy since 2012 is that it is one thing to have an assessment about affordability and another actually knowing how much of that translates into real demand and effective demand that leads to take-up. So we will get the first report from the evaluation of the pilots in May, and then that will be coming in real time every three weeks. So it gives us the opportunity over these crucial stages in the process to take account of what is really happening in terms of translating affordability into real demand.

Karin Smyth

This will be my final point. On the previous policy, 474 properties have been sold in Bristol under Right to Buy in the last three years. There have been 21 starts, which is one for every 23, so we are not feeling terribly optimistic on that policy. We really do need to learn those lessons.

Chair

Can I pick up on that? If you look at figure 1 on page 17, the chart is fairly self-explanatory, but if we take the second column, homes sold under the reinvigorated Right to Buy—not including the ones that you have assessed would have been sold already under the old Right to Buy—and we look at housing starts on site and acquisitions, there is a lag in the number of new homes built. You acknowledge that, yes?

Melanie Dawes

No, we don’t, actually. We are on track at the moment to replace the additional homes that were sold following the reinvigoration of Right to Buy. There is certainly a delay in the speed at which those homes are replaced. They are not replaced instantaneously, but local authorities have a three-year time period in which to replace them, and so far we are on track.

Chair

Right; you are on track. But looking at the projections, paragraph 2.12 lays this out so I will not repeat it all, but the last sentence says, “This would be a five-fold increase on the 423 starts and acquisitions recorded in the second quarter of 2015-16, the most recent quarter for which figures are available.” That is quite a big increase in the number of starts required. Are you confident that that is possible?

Melanie Dawes

Well, we have been working with local authorities for several years now. Most of the stock-holding authorities—all but two, in fact—have agreements with us to replace their Right to Buy homes and to build replacement homes. Some of them are doing that through housing associations and some have actually given the money back to the Homes and Communities Agency or the GLA in London to do the replacements in another way, which is fine. Of course, you are right that we do need to see an acceleration of the profile. We would expect that. This started off slowly and it is building up. It is something that we do take very seriously, though. I myself commissioned an analysis of this from the Implementation Unit last summer so that we can remain on top of it, and I said earlier that in some areas the costs are quite high and the replacement is more difficult, and that is something that we are very alive to and do take very seriously.

Chair

I am sorry, I am paraphrasing you, but you said something about it all being fine when money goes back to the Department. If you are Haringey Council that has put £15 million back because, in that window of three years, you could not recycle the money locally, that may be fine for the Department and—dare I say it—for somebody in Sleaford who might get a home built because the Department recycles the money through the Homes and Communities Agency to another constituency, but it is not fine for people in Haringey who are on the waiting list for a home. They cannot afford to rent in the private sector, they cannot afford to buy and there is a net loss of housing as a result of the right to buy. I am not talking about the policy, whatever our views on the policy might be. This just doesn’t seem to be value for money for taxpayers in that area, because there will be an increase in costs for the local authority, which will probably have to rehouse somewhere in the private sector that family who might have got a home, at cost to housing benefit. The circular story doesn’t work for the taxpayer.

Melanie Dawes

Well, for a local authority to have decided already, within the three-year time period, that they want to give the money back to central Government—or, in the case of Haringey, to the GLA—rather than to replace it themselves, is in line with the policy. That is what I meant. That is the policy that the Government set out. In some places, the Homes and Communities Agency is replacing homes directly, which is proving to be an effective route in some cases.

Chair

Can I go to the overall global figure? Who is actually accountable for making sure that there is one-for-one replacement under the current and new policies? Would that be you, Ms Dawes, as accounting officer at the Department?

Melanie Dawes

Well, overall, this is part of the policy, so it is one of the things that the Government has committed to and that it wants to see. That will remain the case for the new policy.

Chair

How are you measuring it? We have had you here in front of us before on the land disposals programme, and I have to say that your Department does not have a great track record of counting homes built. How are you making sure—let’s forget like-for-like for a moment—that there is even one-for-one replacement? How are you counting those new homes and making sure that that is actually being delivered?

Melanie Dawes

We have the data here—that is why the NAO were able to access it—and it is something that we monitor very regularly. We publish that data, too. In this case, of course, the policy is explicitly about homes being built—that is an explicit objective of the policy—and we are therefore building that into our monitoring, and it is part of the outcome that we seek.

Sir Amyas Morse

Forgive me; I hope that I have understood Peter Schofield’s explanation of how the mechanisms work. If I have this right, you take the net proceeds of the sale of a council house—just normal net proceeds—and the council keeps 30% for replacement, and the rest of it is potentially subject to levy. What is the levy? Whatever is left after those two things have been satisfied is the levy. Is that right?

Peter Schofield

Well—

Sir Amyas Morse

I am not trying to make anything nasty out of it. What I am interested in is the balance sheet effect on local government. In other words, what I am trying to understand is that, although they get some cash back, isn’t it true that, in their actual net asset position, there is inevitably—particularly if these are older houses that have been held for some time—likely to be a diminution in their net asset values? Isn’t that right? Even if it goes to a housing association, it is not in their financial statement, so it is actually coming out of their assets. Is that not true? It must be, really.

Peter Schofield

It depends a little on how they valued those assets in their accounts. I thought that David Orr was quite eloquent earlier in terms of the nature of the value uplift in some parts of the country.

Sir Amyas Morse

Even if there is a value uplift. I am just trying to understand the mechanics. If I sell a property, I get some deductions from the sale proceeds, and then the rest of it is paid over, or applied in some way. Therefore, it doesn’t remain on the council balance sheet. Isn’t that right? Let me say it like this: anything that is paid over is no longer an asset of the council. That must be right. I am saying something very basic.

Melanie Dawes

Yes, and this is a transfer from local government to central Government. Of course, it is in relation to assets that were funded originally from central Government.

Peter Schofield

Just to respond to Amyas’s specific point, the valuation will often be determined by the tenancy agreement. The question, therefore, is whether the rent that is being charged on the existing asset is the same, more or less than on the replacement property. I can’t tell you the answer to that, because that would be determined in different situations.

Chair

We are talking about cash, assets and revenue.

Peter Schofield

I think Amyas is asking a specific balance sheet question, and I am answering it.

Sir Amyas Morse

You are quite right that it is a balance sheet question, and I understand that if it is possible to remove a sitting tenant from a property, you may find that the vacant possession value of the asset is higher. If that is possible, it was always possible, wasn’t it? What I am trying to get to is—I am just thinking about all of the many bits of legislation that affect councils at the moment. Given that not all councils own council house property, I take it you have had a look at whether there is any particular impact on the net asset position of particular councils that might be substantial property owners, considering all the other pressures that there are on them. I am asking a question.

Peter Schofield

No, no; I am listening.

Sir Amyas Morse

This is not undermining the balance sheet of any councils, is it?

Peter Schofield

We are looking very carefully at the implications.

Sir Amyas Morse

You have actually looked at that—sorry, just to be clear.

Peter Schofield

Yes, we are looking very carefully at the implications on the local authorities.

Sir Amyas Morse

But potentially there are some. Yes? There must be.

Melanie Dawes

We will have to see. The formula has not yet been set, but we are certainly looking at individual impacts on authorities, on the housing revenue account side; and we are weighing in how that compares with the non-housing side.

Sir Amyas Morse

Thank you.

Peter Schofield

It does depend on what the rent is on the new property, compared to the old.

Sir Amyas Morse

I understand that argument; although, to repeat myself, if it is as easy as that to remove a tenant, they could have taken off that depressing effect on the market value of having a tenant themselves—if it is as easy as you say, and if they don’t have to pay to remove the tenant.

Chair

That underlines some of the questions that have been asked. Can I just cover a couple of other points? One is that we heard from the witnesses earlier that there are alternative ways of delivering on the Government’s stated objective of increasing home ownership. Lord Kerslake was particularly clear that there are ways that he thought you might get better value for money for the taxpayer. Ms Dawes, have you got any comments? Did you provide Ministers with options when they expressed their aim of increasing home ownership?

Melanie Dawes

We had extensive discussions with Ministers, as you would imagine, over the summer, about the best ways to deliver on the manifesto commitment, and in the end chose a voluntary approach, in discussion with the housing associations, on the Right to Buy. A number of people suggested the equity loan proposal that Bob outlined earlier—

Chair

Lord Kerslake, to make it clear for the record.

Melanie Dawes

Yes. That of course does not deliver the objective of the manifesto, which is to deliver a discount to tenants. As an option it is interesting, but it was not one that met the manifesto commitment.

Chair

Is it something that the Department is actively considering? At some point, from the figures that Ms Smyth has indicated, the current proposal before the Lords might dry up if there are not many tenants who can afford to buy their own homes, even with the discount applied.

Melanie Dawes

The policy that we are now following through is the voluntary approach that was set out last autumn.

Chair

I will take that as it is. Terrie Alafat talked about mandatory affordability assessments, and said she hoped the Department was in touch with major lenders about making sure that people were taking on affordable mortgages. Is that something that you are doing?

Peter Schofield

It is a key part of how the existing system works for council housing, with the local authorities taking the lead. We want to make sure that we learn from best practice, as we work closely with the housing association sector.

Chair

You highlight, there, my concern. You say you want to learn from best practice, because it is not all perfect at the moment. So what are you doing to learn from best practice and make sure that there are not people who are becoming very marginal home owners, who will risk losing their home from underneath them if they lose their job or their income goes down?

Peter Schofield

There is an income assessment—as there is, obviously, for all mortgage applications—that happens as part of this process. Local authorities take the lead in assessing eligibility.

Chair

And you are confident that that is working well; I am just asking. It is a simple question.

Peter Schofield

We are confident that it is working well, but we have been taking steps over the past five years or more to address some of the other issues that your previous witnesses described, to make it as effective as we can. The key thing is working with the housing association sector, both intensively at a national level and in terms of the pilots that we talked about earlier, to try to make sure that we can do this effectively.

Chair

Mr Phillips and I raised with the previous panel the issue of people, third-party companies, that come and shop around and encourage tenants to enter an informal lending arrangement with them. Is this something that is on your radar? Is it something that concerns you and, if so, what are you going to do about it for the future scheme and, indeed, existing schemes?

Peter Schofield

No, no, exactly—in the existing scheme as you say, Madam Chair. Local authorities are in the lead and they assess the applications, but we have been working closely with stock-holding local authorities over the past five years. One of the biggest issues of fraud tends to be around tenants claiming they are eligible for Right to Buy when they are not. That is one of the biggest issues, but work has been done to address that.

Chair

I am talking particularly about these companies. That is a different thing.

Peter Schofield

No, I know. I will get on to that.

Stephen Phillips

It is important to distinguish that this is not fraud, Mr Schofield.

Chair

This is legal.

Stephen Phillips

This is me going along as an investor.

Chair

Be careful, Mr Phillips; people will think you really are.

Stephen Phillips

Someone going along as an investor and essentially taking advantage of the Right to Buy discount, which is not an incentive to benefit them.

Peter Schofield

The sorts of things that we have been particularly concerned about have been the sale and lease-back type arrangements, where effectively you put the tenant or new purchaser in a very difficult position. We have been working closely with the FCA on that and they have been making regulatory changes, which we think have clamped down on that quite significantly. This is something that we keep under review very regularly.

Chair

Overall, your Department is responsible for Government housing policy. Isn’t it a scandal, particularly with properties where you can’t get a mortgage because of the way they are built or the height of the flat, that they are being bought by these companies and often turned into not always very good private lets at very high rates, very often let to the very people who need to have social housing, at high expense to the taxpayer through housing benefit? That is an endemic failure across several Governments—I am not making a party political point—in the whole system. What are you going to do to tackle that?

Melanie Dawes

There are two separate points. One is, are there people effectively abusing the system through sale and lease-back or the other sharp practices that Peter described?

Chair

The answer is yes.

Melanie Dawes

It is a concern. As your earlier witnesses were saying when you discussed this with them, the dividing line between fraud and sharp practice is a difficult one.

Chair

But the answer is yes, people are doing what you have just said—exploiting the system.

Melanie Dawes

In some cases, yes, although as Peter says, we are trying to clamp down on that. I don’t think we are under any illusions that this will be something that is easily eliminated overnight. It would be naive of us to say that, and it is absolutely not what we are saying.

Chair

Do you have a sense of how much is leaching out of the system?

Melanie Dawes

The pilots are a really good opportunity for us to explore this with the housing associations. It is one of the things that is very much on our radar, to answer your specific question, yes it is.

Stephen Phillips

As the accounting officer, Ms Dawes, you are responsible for delivering value for the taxpayer. If you have, outside London, significant chunks of the £77,000 discount being taken advantage of by someone who is not subject to Financial Conduct Authority regulation or, in London, significant parts of the £102,500 discount being taken advantage of by someone who, again, is not subject to regulation by the FCA, it is your responsibility, as the accounting officer, to ensure that that is not happening because it is not good value for taxpayers.

Melanie Dawes

I am saying to you that we take those issues seriously and we have taken steps to clamp down on them. In the end, the section 151 officer in local authorities is responsible for making sure that fraud is identified and dealt with.

Chair

We are not talking about fraud. This is not fraudulent.

Melanie Dawes

I know. I was just adding that point in. There are a number of safeguards in the system. You asked me about my point of view as accounting officer. It is important, therefore, for me to say to you that that is one of the ways in which we have safeguards against fraud.

Stephen Phillips

Bring forward some regulations.

Melanie Dawes

I am just being honest with you that this is not an easy issue ever to stamp out completely. If I said to you that it was all straightforward, that simply would not be realistic.

Stephen Phillips

Can’t you bring forward some regulations to say where the money can come from? It can come from the tenant or from a family member or some other person who is a relative, or they have to share a close connection with the tenant.

Melanie Dawes

We do have a number of rules like that. If the Committee has ideas on this, we will be happy to listen to them. I am saying that we do take this seriously and it is on our radar. Mr Phillips asked another question about what happens to properties when they are sold. I know that some people get very concerned if those properties are then in the private rented sector later, but that is a slightly different point. I think you were making that point earlier.

Chair

Sorry, Ms Dawes, but anyone once they own a property is entitled to sell it. That is the law of the land. The point is when it is sold through the initial right to buy with the company, as Mr Phillips described, that has a third-party interest, with the sole intention of turning that, flipping it very quickly, into a private rented sector property, because there are not many people who can buy without a mortgage, a property above the fourth floor with a concrete system. There are not many people in that position, and certainly not many tenants. I do not want to use the word “complacent”, but I am worried that not enough is being done to stop that happening. We know it has been a problem for some time, and it is likely to be a bigger problem with some of these very nice modern housing association properties being sold with a very big discount.

Melanie Dawes

We are not at all complacent about this.

Chair

So what exactly are you doing?

Melanie Dawes

This is one of the issues that we are looking at. With the extension to housing, it is something that, as David Orr said earlier, we are looking at through the pilots. It is definitely on our radar.

Chair

Mr Schofield, I mentioned figure 1 on page 17 earlier, which lists how many starts on site since 2012 under the reinvigorated right to buy scheme that is currently in operation for councils. How many new homes have so far been completed?

Peter Schofield

Can I send you a note on that? I have the number somewhere.

Chair

Please send us a note. That would be helpful. I also want to touch on the one-to-one versus like-for-like. This is a very big issue around the country. Numbers is not the same as replacing homes. We could have starter homes built for purchase, and they count as affordable homes as a result of this policy, but that does not provide the housing that is being lost. The people who are or would be in those homes cannot necessarily afford to buy. Have you done a full analysis of the likely impact on communities in relation to that loss of housing? I know you say it will be down to local decisions, but it is not quite as free as that, is it? What analysis have you done of that and will you be advising Ministers on that impact when they make their final decisions about the make-up of the scheme?

Melanie Dawes

Paragraph 3.23 of the NAO report sets out the groups that we have looked at, and prospective tenants, as our impact assessment for the Bill says, is another group. So we have looked at those impacts, yes.

Chair

I would like to invite you to come to my surgery. You would be very welcome. I seriously mean it. If you had been at my surgery on Monday, you would have seen people who have nowhere to live. They cannot afford the private rented sector, they cannot afford to buy, and they do not qualify for social housing. Under this scheme, even if they were able to qualify for social housing, there will be fewer of those homes because they will be sold, particularly in my area. There is a real concern about where they go. They may not want to go to Sleaford, although I am sure it is lovely.

Melanie Dawes

We do recognise that there are particular pressures in some parts of the country, and London is one of those where housing costs are very high. I would not want you to go away with the impression that we are not aware of that. I genuinely would be glad to come and see some of those individual stories.

Peter Schofield

To add to that, the key point that was considered when the original reinvigoration of right of buy was introduced in 2012 was whether to go for a scheme where all the proceeds were taken back to central Government and we did a national allocation, or did we leave the money with local authorities? We chose something in between. The agreement gave three years for the local authority to find alternative accommodation: precisely that in order to enable local authorities to replace in their local areas where they can. In those situations where local authorities have not done that, either because the three years is up or they have chosen to pass some money back, what we are seeing is a very good track record for the Homes and Communities Agency and the GLA in London to redeploy those proceeds. I could give you an example. If we had longer, it would be good to spend time with the NAO going through these numbers to get them audited for the benefit of the Committee. On the latest numbers we have seen, of the £15 million that has been returned to the HCA, all but £800,000 has been redeployed, and that is already delivering additional starts. We do not have such good data from the GLA, but the evidence is that they again are redeploying the money in replacement homes. So if there is the opportunity to do that—

Chair

The Comptroller and Auditor General can answer that direct point, and can come in on the other points as well.

Sir Amyas Morse

I am very pleased to come in on that. Thank you for that suggestion. We will certainly take you up on that. I seriously appreciate that. It takes me to a point that I want to put on the record now. I think it would be very valuable if we and the Committee could be having a dialogue with you about how you are going to measure performance in this policy as it is implemented. It is quite often our experience that we go into an implementation and have an endless debate about measures and relevance—“What a pity we didn’t have this information” and so forth. As you decide on the exact shape of the policy, it would be a very good idea for there to be an active dialogue about what will be of interest from the point of view of value for money and how you might be able to obtain that. In a lot of these things, if you ask for them at the beginning it is quite feasible to deliver them, but in retrospect it is harder. We have had this difficulty with the release of land from the public sector—the public sector land that we’ve enjoyed talking about so much. It might be a great idea to agree how we are going to measure these things, to at least some broad parameters, at the beginning. It would be good if you could take that on board. I have a small question: presumably, when you were preparing costing notes for the Office for Budget Responsibility you must have made estimates of the number of housing associations that would be eligible and able to afford to exercise their right to buy. You must also presumably have made some estimates of the cash value of high-value council homes. I don’t see how you could have prepared the notes otherwise. Is that right?

Melanie Dawes

The costing note was for the pilot.

Sir Amyas Morse

Oh, just for the pilot.

Melanie Dawes

Yes.

Sir Amyas Morse

None the less, it would be interesting to see how you arrived at that.

Melanie Dawes

Well, when the NAO came to talk to us we had quite a long discussion with your colleagues about the work we had done. For understandable reasons, I think they felt that they didn’t want to look at the detail of our actual work because the policy is still under development. We are very happy to share that detail with you.

Sir Amyas Morse

Sorry, perhaps I am missing the point. When you came to the view that the policy was fiscally neutral, you must have produced some evidence to support that. Just out of curiosity, how did you evidence that?

Melanie Dawes

There are a number of different parameters in play that can deliver that.

Sir Amyas Morse

Indeed.

Melanie Dawes

But the details of the policy just haven’t been decided yet.

Sir Amyas Morse

No, I understand that, but when you were asserting to the Office for Budget Responsibility that this was a fiscally neutral policy, I assume you adduced some evidence to support that, didn’t you?

Melanie Dawes

Well, that’s the policy position of the Government and that is what was set out in the manifesto. We asked for specific—

Sir Amyas Morse

So you didn’t evidence it, you just said it was neutral.

Melanie Dawes

At the time of the spending review, we were given specific funding for the pilots, so that is the one where we’ve done the full business case and the full analysis—on the basis of those pilots—but there are still a number of decisions to be made on the broader policy for the longer term.

Stephen Phillips

Is the policy fiscally neutral or not?

Melanie Dawes

Well, the Government’s policy position is that it will be fiscally neutral, but we have to—

Stephen Phillips

You’re the accounting officer; you are answerable to the Treasury. I am asking you, Ms Dawes: is the policy fiscally neutral or not?

Melanie Dawes

That is the Government’s intention.

Stephen Phillips

Is the policy fiscally neutral or not?

Melanie Dawes

That’s the intention, but the details of the policy have not yet been agreed.

Chair

So at this point you don’t know. Or are you going to make sure that it will be fiscally neutral?

Melanie Dawes

Our Ministers have yet to make a decision on exactly what those financial flows will be.

Stephen Phillips

So the intention is that the policy should be fiscally neutral.

Melanie Dawes

That is the intention that was set out in the manifesto.

Stephen Phillips

I’m trying to understand. Has the OBR signed it off as fiscally neutral?

Peter Schofield

The OBR produce two forecasts each year: the forecast at the time of the autumn statement and another at the time of the Budget, which is on 16 March.

Stephen Phillips

In the OBR forecast for the autumn statement, did they assess the policy as fiscally neutral?

Peter Schofield

For that they did not make a provision for this.

Stephen Phillips

So the answer is that they did assess it as fiscally neutral at that stage.

Peter Schofield

They didn’t make a scorecard provision for this.

Melanie Dawes

They made a scorecard provision for the pilots.

Chair

Okay. Well, we will wait to see.

Nigel Mills

Ms Dawes, if it turns out that it doesn’t look like this will be fiscally neutral, how fiscally negative does it have to get before you start to get nervous about it? When would you ask for ministerial direction?

Melanie Dawes

Well, it is a matter for the Government to decide on its fiscal forecasts. It is for the Treasury, in the end, to own the scorecard and to decide what money the Government wants to allocate to what. As I said, the policy intent here is that it is fiscally neutral. We have yet to agree all of the details of the policy, so the final costings have not yet been produced. As accounting officer, my responsibility is to make sure that the policy—in fact, in this case it is two separate policies—represents value for money. That is a question of Green Book analysis. It is a question of looking at the economic costs and benefits of both policies. The interim analysis we have done so far suggests that both policies do represent value for money, because in both cases they invest in new housing. There are benefits of the policy for a number of other reasons, such as distributional impacts and so on. The broad analysis we have done so far suggests that positive impact, which we said in the impact assessment for the Bill.

Chair

Have you done an analysis of whether this has a negative impact on the housing benefit bill? Have you factored that in?

Melanie Dawes

Housing benefit impacts are factored into those analyses in accordance with the Green Book. We are using the Green Book, as we should, as our guiding principle here.

Chair

Yes, you answered that question before. I just wanted to be clear.

Karin Smyth

I would be grateful for advice, so that I understand this fiscally neutral point. My earlier questioning was around the process and the cycle of how this happens and the potential for transactional cost or leakage. What you mean by “fiscally neutral” is fiscally neutral for the Government—is that right?

Melanie Dawes

Yes.

Karin Smyth

So the costs for local authorities that were mentioned earlier would not contribute to that total. Is that right?

Chair

So if there’s a cost to them, the policy still could be fiscally neutral.

Karin Smyth

I think we have established that there is a potential cost conferred on local authorities.

Melanie Dawes

Yes. This asks local government to sell their assets. In the way that Peter described earlier, they are allowed then to take into account various costs and the debt and so on, and they will then make a payment to central Government. That is in lieu, of course, of assets that were originally funded through central Government grant. It is a transfer into central Government.

Karin Smyth

It is a transfer from local to national; I think we have established that. That loss of balance sheet assets and the potential revenue cost for the local authority, as they are managing this process, would not contribute to the fiscally neutral position of the Government, would it?

Melanie Dawes

Well, we certainly look at all the detailed financial flows when we do our value for money assessments. We look at the financial impacts for different parts of Government and we then look at the broader economic costs and benefits. The Government’s policy position of it being fiscally neutral as a whole, across these two policies, is from the point of view of central Government borrowing and spending.

Karin Smyth

Right. So they’ve taken an asset from a local authority and are nationally doing things with it, and that is fiscally neutral for the Government.

Melanie Dawes

Yes. Of course, at the same time—

Karin Smyth

Can I come back on that? Our earlier questions about the impact assessment for all those groups, particularly local government, becomes really pertinent. The concern I have as a result of this hearing is that that looks hugely detrimental to local government in areas that have high value assets—Bristol may or may not be one of those. I seek advice on this: how do we make sure that that is reported or kept back in our final report?

Melanie Dawes

Can I add one quite important point? Provided that local authorities can deliver the one-for-one replacement, they will of course have a new asset on their balance sheet that they are able to use.

Chair

But they may deliver it through a housing association.

Melanie Dawes

They may, but they will have an asset locally, and they can choose to do that in a number of different ways.

Karin Smyth

They’ve got an asset; they had one.

Melanie Dawes

But the housing is replaced, and therefore that may well be on the local authority’s own balance sheet.

Chair

It may be, but a lot of local authorities no longer have the capacity to build. Can I cover off a couple of very important points? One is where local authorities no longer have local authority housing because they did a large-scale stock transfer. Our colleague Kevin Foster is not with us today, but in Torbay that is the case. Do those areas then become a net recipient of money but not actually contribute anything, because the housing association right to buys in those areas will not be backfilled by any money from the same area? They won’t have any money to give.

Melanie Dawes

If they don’t hold any stock, they are not covered by the high value assets policy.

Stephen Phillips

In fact, there’s a wider geographical point. Because of the discrepancy in house prices across the country, it is not just the local authorities that don’t still possess housing stock. There is going to be a transfer of balance sheet assets from authorities in higher house price areas to those in lower house price areas. That is one effect of the policy, isn’t it?

Peter Schofield

It depends on how the formula is put in place.

Stephen Phillips

So much seems to depend on the formula, Mr Schofield.

Chair

We are looking forward to seeing the formula. I have a couple of other points that I want to cover. We have been talking as though the 30%—from the asset sale, you can pay for up to 30% of the rebuild cost of a new property. Is that fixed in the new housing association Right to Buy, or are we talking about that figure because it is in the existing reinvigorated Right to Buy scheme?

Peter Schofield

It does not apply to— I think your context would be the sale of high value assets rather than—so, housing associations will have their own financing arrangements.

Chair

Sorry, can I just be clear? We are talking about the 30%. So, I am the leader of a council, I have to sell a large-value asset and I am doing a deal with the housing association—or the council is building a property of its own—and 30% of the value can be paid for. Is that set in stone under this new policy, or are we just talking about this figure because that is what has been going on up until now?

Peter Schofield

Sorry, I mentioned that because that is what we have for the 2012 scheme.

Chair

Yes, absolutely. Do you know yet the figure for how much will be contributed towards the cost? What percentage of a new build will be funded from this, or are you still determining that?

Peter Schofield

No, we are still determining that.

Chair

So it could be higher or lower.

Peter Schofield

Yes, one of the things that we are talking to London about in the context of delivering two for one is what that would require in terms of how much of the proceeds to retain.

Chair

Okay, so there is scope for discussion. That is very interesting. What about the sale of homes before they are occupied? My own borough and a number of the neighbouring boroughs are building council housing. They are, by their nature, brand-new properties—family-sized homes, because that is what is needed and they are therefore, very valuable. Will they be required to, or will it be up to them whether they sell those ones before they are occupied by a tenant?

Peter Schofield

That is one of many points that have been raised with us by councils as part of our engagement, so that is something that we are looking at.

Chair

Not determined after discussion.

Peter Schofield

Not determined, but the point has been well made through our engagement.

Chair

Okay. We have been talking a lot about the fact that the Bill is going through the Lords at the moment. Lots of things are still to be determined. Will a sunrise clause be implemented so that you won’t actually start doing this until all the questions that we and others have been raising are resolved?

Peter Schofield

There is no sunrise clause in the Bill.

Chair

I didn’t think there was at the moment. Was that a deliberate decision? Given that there is so much uncertainty about this important programme—[Interruption.] You don’t think it’s policy, okay. I was just thinking about value for money, if you don’t know whether it is going to work yet—

Stephen Phillips

Nice try.

Melanie Dawes

In the end that is a policy question, but there is no clause in the Bill. But there will be secondary legislation on the details on—

Chair

As accounting officer—perhaps to put it a different way—will you be happy for this to go ahead before these questions are resolved, or will all these questions have to be resolved before the actual implementation of the policy, as enacted by the Bill?

Melanie Dawes

There will come a point, which we haven’t yet reached, where all the details are finalised and, in particular, we need to nail the costings with the Treasury. That is the point at which any final value-for-money judgment needs to be made. The work that we have done so far has been informing us along the way. We have been making sure that Ministers have value-for-money analysis accessible as they are making decisions, but there is a moment still to come when any final decisions are made. That is the critical point.

Chair

Do you have any idea of the timescale? The Bill is going through and, as you say, is going to get Royal Assent, presumably fairly quickly. You then have to work out the detail and it will roll out. When do you expect that? Do you have a target date for roll-out?

Melanie Dawes

Well, Brandon Lewis said, I believe as the Bill was going through scrutiny in the House of Commons, that we expect to publish costings around the time of Royal Assent. Secondary legislation will then follow and there will be grant determinations for local authorities at about that time. That is likely to coincide with the period of the pilots still continuing. We are expecting—

Chair

The pilots finish next January, just to be clear. Melanie Dawes— I believe, a full evaluation in September of the pilots. We will be getting quite a lot of information, as Peter was saying, through the summer. I haven’t got that date in front of me, but I believe it is September.

Chair

The pilots finish in January next year, don’t they?