Oral evidence: MHCLG Annual Report and Accounts 2018, HC 1737

Oral evidence, 21 January 2019.

Witnesses

Melanie Dawes, Jeremy Pocklington and Dr Jo Farrar.

Chair

Good afternoon, Permanent Secretary. Thank you for coming to this one-off session of the Committee on the Ministry’s annual report and accounts for 2017 and 2018. I will ask Members of the Committee to put on record any interests they have that may be particularly relevant to this inquiry. I am a vice-president of the Local Government Association.

Teresa Pearce

They are on my register of interests. I also employ two councillors in my office.

Mr Dhesi

I am a councillor as per the Register of Members’ Interests.

Helen Hayes

I also employ a councillor in my team and I am a vice‑president of the Local Government Association.

Bob Blackman

I am a vice-president of the Local Government Association.

Mary Robinson

I employ a councillor in my team.

Andrew Lewer

I am another vice-president of the Local Government Association.

Chair

Permanent Secretary, thank you very much. Could you introduce yourself and your colleagues, for the sake of our records, to begin with? Thank you.

Melanie Dawes

Yes. Thank you very much for inviting us. I am Melanie Dawes, the Permanent Secretary at the Ministry of Housing, Communities and Local Government. On my right is Jo Farrar, who is our director-general for local government and public services, and on my left is Jeremy Pocklington, who is director-general for housing and building safety.

Chair

One of the big challenges around at present is for local councils and their spending levels. The Government have said the financial settlement increases spending power, on average, by 2.8%. Do you think that is enough to meet the rising demand, particularly in areas such as social care?

Melanie Dawes

As you say, it means that there are now, on average, real increases between 2017-18 and 2018-19. We were very glad to secure that extra funding for next year. In our judgment, the system is sustainable for the remainder of this spending review, which takes us to the end of this coming financial year. But there is a lot of pressure on the system and we need to look very carefully, particularly in social care services and some of the other services that councils deliver for vulnerable people, to make sure that, in the spending reviews to come, we can put the sector on a sustainable financial footing for the future.

Chair

You expect a lot more money in the spending review, then, do you?

Melanie Dawes

We will need to do a very thorough assessment, but we need to make sure that all those pressures and opportunities—there are some opportunities for efficiency savings—are taken into account.

Chair

The figure of 2.8% was an average. What is the range of spending power increases that you are anticipating for next year, between the ones that are getting the least increase and the ones getting the most?

Melanie Dawes

The increase was focused on upper-tier authorities, those delivering social care services and children’s services, which is where the pressures were greatest, so it was higher for those authorities. I do not know if Jo has any figures for that range; I do not have them in front of me, but we did see that difference, mainly between those delivering upper-tier services and those not.

Chair

What is the range?

Dr Farrar

Apologies, I do not have that in front of me.

Melanie Dawes

I do not have the figures in front of me today.

Chair

But you can provide them to us.

Melanie Dawes

Yes, we can.

Chair

That would be helpful. One of the issues in the past has been that spending power has reduced, on average, far more in some areas than in others.

Melanie Dawes

Yes, but it has increased proportionately more for the upper-tier areas, where we thought the pressures were greatest, in this coming year. Indeed, in most of the recent years, we have put more money in through Government grant or allowed for higher council tax.

Chair

I am looking not just for how much it is for upper-tier authorities against lower-tier, but the range of individual authorities.

Melanie Dawes

Yes, we could provide some information along those lines.

Chair

The spending power increases are sustained by quite large increases—6% increases—in council tax, and by many authorities drawing continually on their reserves. Neither of those two issues is sustainable, is it, in the long term? Council tax increases of 6% are not going to be sustainable in the long term, and neither are reserves going to continue to be able to be depleted.

Melanie Dawes

On the question of reserves, I would agree with what the National Audit Office said in its report on the financial situation of the sector about this time last year. It said that, if reserves carried on being drawn down in the way that had happened in recent years, that would not be sustainable, and we agreed with that judgment. We saw a reduction in the drawdown of reserves for 2017-18, so that was a slightly encouraging picture for that one year, but we keep a very close eye on the reserves figures by type of council, not just for the system as a whole.

Chair

Is the level of reserves one of the amber flashing lights that you look at in determining financial sustainability for the future?

Melanie Dawes

It is certainly a very important metric for us. The Office for Budget Responsibility also has it in its analysis. We have reported on that before, but the ratio of reserves to spending is an important metric, at individual council level and for the sector as a whole.

Chair

When you say that you are now a bit more comfortable with the issue of reserves, does that mean they are not being depleted as quickly as they were?

Melanie Dawes

In 2016-17—perhaps Jo can correct me if I am wrong—we saw around two-thirds of upper-tier authorities drawing down their reserves, whereas, in the next financial year, 2017-18, it was more like 50/50. We had seen an increase in the number and we saw that moderating down again. We saw just as many councils, in fact, increasing their reserves in that year. It is something we keep a close eye on.

Chair

Are there any reasons that some authorities can add to reserves and others are having to draw from them?

Melanie Dawes

Yes, there are quite a lot of reasons behind that.

Dr Farrar

Yes. Some of it is to do with the fact that local councils are seeing 2019-20 as a particularly difficult year. At the moment, without the information that they need from the spending review, they are putting money aside to prepare for that. We also allowed for some additional money for adult social care, which local authorities were unable to spend in year, because it takes time to contract for adult social care services, for example. We think part of the reason for the rise is to make provision for adult social care as we move forward.

Chair

Uncertainty means putting money on one side.

Dr Farrar

We would expect them to be sensible, and local government chief executives prepare for difficult years, so we tend to see reserves put aside. One of the reasons for having reserves is to make sure that you have enough money to cover your expenditure, particularly if you think you have a challenging period. As I said, they are being prudent by doing this and we need to wait to see the outcome of the spending review. I was going to come back on your point on council tax, and about council tax being different for different areas. We tried to rebalance that through the improved better care fund, where we took account of areas that were not able to raise as much in council tax, and our distribution, therefore, takes account of that and evens out finances as a result.

Chair

In terms of business rate retention, you have run some pilots. When are we going to see the results of your analysis of them?

Melanie Dawes

We are running some more pilots, looking particularly at county areas, which will be new and very interesting because it will look at the split across the tiers. I am not entirely clear what timing we have for releasing the results of those but, in the end, all of this is feeding into the spending review, which we expect to happen during the course of this year.

Chair

Are we going to see the information on the pilots before the spending review?

Melanie Dawes

I do not think you are. I do not know whether we are going to be releasing any evaluation but we will be taking it into account as we approach the spending review.

Chair

Some are quite old now, are they not, and have been going for a little while?

Melanie Dawes

I can certainly give you some information that we know we already have. We are seeing that the higher the share of business rates that is retained, the more councils feel able to be confident in investing in growth priorities.

Chair

Are these the results from the initial pilot?

Melanie Dawes

Yes. We are seeing an impact on councils from the 50% business rates still flowing through in their decision-making, as well as the impact of the pilots. It is quite hard to disentangle those two things. We are seeing some of the incentives we intended to create coming through the system.

Chair

Perhaps we could have some information on that.

Melanie Dawes

Yes, we can give you the information that we have.

Chair

What is the time period for the fair funding review and the move towards 75% business rate retention?

Melanie Dawes

We are aiming to conclude decisions on all of these at the same time as the spending review. The question of distribution and the question of quantum go hand in hand, so that will be during 2019.

Chair

So we will not see anything on those until the spending review announcement.

Melanie Dawes

This is all for this year that we are now in: 2019.

Dr Farrar

Of course, we have a consultation on both business rates retention and fair funding review, which is running at the moment, so we will want to have a look at those results. We will end that consultation towards the end of February.

Chair

But proposals from the Department will not come until the autumn.

Melanie Dawes

They will be the summer and the autumn. In the end, we are talking about budgets for 2020-21, so we need to settle these questions during the course of this year.

Mary Robinson

At the Public Accounts Committee at the end of last year, you indicated that councils’ sustainability was assessed by considering their ability to deliver statutory services only. Can you provide some more detail of what you meant by this?

Melanie Dawes

Yes. What I said, and what I would say again today, is that we look at the statutory services but we also make sure in our assessment that we take into account the flexibility councils need to deliver non-statutory services and to respond to events. It is not just about statutory services, but we do place most effort into looking at the costs and the service levels for statutory services, particularly where vulnerable people are concerned. It is not just statutory services; I did say to the PAC that we look at other things as well.

Mary Robinson

Councils cannot, then, just sit and think that all they have to do is provide statutory services. That will not do.

Melanie Dawes

No, and no council would consider that to be an adequate debate with central Government. They are absolutely clear with us that their role is not just to deliver statutory services; they believe, and they are right, that they have a much wider leadership role in their areas.

Mary Robinson

You said previously that there are no other councils in a similar situation to Northamptonshire. How do you know this is the case, given that the NAO has found weaknesses in your oversight arrangements?

Melanie Dawes

We do a pretty comprehensive view, both top down of all the fiscal numbers on the sector, as well as bottom up of every individual council, looking at their finances, looking with the Departments for Education and Health in particular at service levels, where we have a lot of information from inspections and so on, and then looking at leadership, which comes out particularly from Local Government Association peer reviews. We put all that together, and our assessment is that no council is as high up the risk register as Northamptonshire. It was in a unique position. It popped up on services, on finances and on leadership, to be honest. I could never say with certainty that another council was not in that situation, but we were not surprised by the situation that Northamptonshire got into by the end. It is very regrettable, but we do not see any other council that is close to that situation at the moment, and we keep it extremely closely under review.

Mary Robinson

Given that you are examining so many areas, what sort of weighting do you apply to the areas in that matrix that you are using?

Melanie Dawes

We do not come up with a point number that pops out of a model. We have what we call our local authority sustainability tool, which looks at eight core metrics, including the ratio of reserves, as I was discussing with Mr Betts earlier, and the percentage of spend that is on those very constrained vulnerable people’s services. We look at a variety of metrics. That gives us, if you like, a heat map, where we can delve in where we have a concern. Where we have a concern, we might call the council. Usually, they will already have rung us if they have issues, because in the end they are trying to do good jobs. It may be that local government peer review or some other review, possibly work by CIPFA, has drawn something to our attention.

Mary Robinson

Should councils be looking at these eight core metrics that you have and be judging themselves against them?

Melanie Dawes

Interestingly, and Jeremy might say a bit more about this, CIPFA suggested something that is not that different from our risk tool as something that councils could and, indeed, should look at themselves. Back in the summer and autumn of this year, they had consulted on that. You will probably remember that the sector was not very keen to measure itself against that metric. There was a bit of pushback about something that was not too simplistic, but this has provoked quite a helpful debate. We and CIPFA think that good section 151 officers should be looking at these sorts of metrics. It is a question, really, of whether they are required to. That might be going too far, perhaps, but certainly it would be good practice.

Mary Robinson

You sound confident that your monitoring systems are effective. If that is the case, why did you not raise the alarm about Northamptonshire sooner?

Melanie Dawes

We first had an audit report on Northamptonshire at the very end of 2016 and our Secretary of State launched the best value inspection in the early months of 2018, so it was just over a year. In that time, we were concerned to make sure that the council had time to put its own affairs in order. There were some changes of leadership. There was a pretty hard hitting Local Government Association peer review in the autumn of 2017, and it was the council’s failure to act on that that our Secretary of State felt gave us the evidence with which to launch what is quite a drastic step of a best value inspection. We can always look at these things but we did act quite smartly, always with the aim of having the council look after its own affairs first.

Andrew Lewer

May I just pick up on LGA peer reviews? I want to declare an interest: I was deputy chairman of the LGA before and did some of these peer reviews myself. Is there anything in the Department that would allow you to see the fact that an authority has not asked for a peer review, either council-wide or department-specific, for a long time as being, in itself, a warning signal that all is not well?

Melanie Dawes

Yes. If a council was refusing help or refusing a peer review, that is something that we would be worried about.

Andrew Lewer

Or thinking that it did not need one.

Melanie Dawes

Yes, exactly. As you may know, we have a contract with the Local Government Association, where we fund it to do this work. We regularly discuss with the LGA where its concerns are and we put all that together with our own analysis. If a council was not really answering the phone to the LGA, we would see that as a warning sign.

Andrew Lewer

That was the state of affairs with Northamptonshire for quite a while before the LGA’s flashing bells and whistles report came out. The thing with LGA reports is that, normally, when you read them, you have to speak LGA to be able to see the warning signs, whereas, with that one, you did not have to be able to read LGA at all. It was unbelievably obvious.

Melanie Dawes

Yes. There are some questions for us. Ms Robinson mentioned earlier the National Audit Office report on our oversight. The NAO has done a number of reports in this area, which I find extremely helpful. There is a lot of risk in the system. This is a very important role that the Department has, particularly without the Audit Commission to do that oversight. They have said that we are doing a lot of the right things. I would always expect them to be pushing us to make sure that we are good enough. Their latest report, which came out about a week to 10 days ago, certainly suggests a number of areas, and there will be a Public Accounts Committee hearing on this in a month or so, we expect. We will look at those recommendations and see where we can improve our oversight.

Matt Western

If I remember rightly, in the case of Northamptonshire—and forgive me but I do not know a huge amount of the detail—the Secretary of State visited Northamptonshire and was opening the new offices there. You are suggesting that he was aware of the situation, because you were aware of the situation, yet he did not seem to refer to it at the time. Is that the case?

Melanie Dawes

I cannot remember exactly when that visit was.

Matt Western

It was in autumn 2017.

Dr Farrar

That was about the time that the LGA peer review was taking place. At that point, we had encouraged the council to have an LGA peer review. It had a reasonably new leader who had made efforts to address the problems in Northamptonshire, but this was largely a failing of leadership on the officer side. We brought the evidence together after the Secretary of State’s visit, and the Secretary of State then felt that he had enough evidence for a best value inspection. The threshold is quite high to undertake a best value inspection, but the peer review gave us the evidence that we needed.

Matt Western

I just seem to remember, from the speech made by the Secretary of State, that he seemed to be oblivious. The language he was using sounded as though he was not quite aware of some of the detail that was going on. Perhaps if we can move on to the heat maps that you were describing, is that the sort of stuff that we can access as MPs in terms of our local authorities?

Melanie Dawes

We do not publish our own internal risk assessments of the sector or, in particular, the councils that we think are higher up that risk register. We publish nearly all the metrics, or they are published somewhere, separately, and we can explain, as we have done before the Public Accounts Committee, what those metrics are. That is the situation at the moment. More transparency here is better and I acknowledge the questions around this and the desire for more to be published. That is the situation at the moment, however.

Matt Western

As MPs, it would be very useful for us to be aware of what is coming down the track and where the lights are flashing. We hear about Somerset being a concern, or other counties, but you do not seem to be as concerned as other people about Somerset, for example.

Melanie Dawes

To be clear, we can give you some more information on the framework we use, but I would not expect us to be able to provide a commentary on exactly in which councils we see the risks at any point in time. We are happy to write to you to describe the framework. We have all read reports in the press and the trade press on a number of other councils. Where we see those things reported, it is reassuring to us that, so far, they have generally accorded with our understanding of where risks lie. In the case of Somerset and some other counties, of course there are pressures—the social care pressures are evident and we have responded to that with additional funding—but, as I said, we do not think that any are in the same situation as Northamptonshire was in towards the end of 2017.

Chair

In terms of transparency, I just want to be clear on what you think can be released and what cannot. You can tell us—and you told the Public Accounts Committee—the indicators you use as warning signs for what is happening but you cannot then tell us how you use those indicators and with what information for each authority.

Melanie Dawes

That is the advice we provide to Ministers. We have had this debate with the Public Accounts Committee as well and have given quite a lot of information through the National Audit Office report. It has published a very useful chapter that describes broadly what we do, and we can supplement that with a little more detail. That advice to Ministers on what the metrics are suggesting to us, combined with all the information we have of a more qualitative nature at any point in time, is not something that we have previously released.

Chair

The metrics from which people can work out the numbers are available and we can have them, but we cannot have the qualitative judgment that you are using, which then goes to Ministers. Is that what you are saying?

Melanie Dawes

That is essentially what I am saying, yes.

Chair

If we could have what you have, that would be helpful.

Andrew Lewer

Staying on Northamptonshire for a while before we, just to reassure you, move on to the rest of the country, I was there for that Northampton Angel Square opening ceremony. I would say that it was not so much that the Secretary of State was oblivious but that performing an opening ceremony was probably not the best moment to tell everyone that they were in dire financial straits and that everything was terrible. Given that that was a discussion about how we got to where we got to, let us now have a look at where we are going to go with it from there. One of the main planks of that is that Northamptonshire County Council has been granted a derogation by MHCLG to use capital receipts to fund the deficit or to use capital for revenue, essentially, for its running costs. Why has the Department allowed capital for revenue in a way that it usually does not, given that that is not, by definition, a sustainable way of managing finances?

Melanie Dawes

It is exceptional. It is not unprecedented. We give this flexibility to councils for very specific reasons, and that is what we have done here. It is not something that we would expect to be repeated over time; that would not be sustainable, but, as an exceptional situation, we recommended that our Ministers approve it.

Andrew Lewer

Given that Northamptonshire has come up with slightly too clever for their own good capital-to-revenue-type ideas in the past, and they have not really worked out very well, putting it mildly, what is different now about this particular proposal of capital to revenue from the ideas along these lines, even if they did not require a specific derogation, that the county has employed previously?

Dr Farrar

The two commissioners in Northamptonshire at the moment are very experienced: a chief executive, ex-deputy chief executive and finance director. They inherited, when they took over, a large deficit, which is hindering their ability to balance the budget. That is a very unusual situation. We have looked at capitalisation to make sure that they are able to deal with the deficit from last year, so that they can then balance their budget and move forward. They have very sensible plans for the next years, which do not include the need for capitalisation, so we are seeing it very much as a one-off to help them to deal with that situation from last year and make sure that they have enough money in reserve to deliver the very ambitious saving targets that they have.

Andrew Lewer

One of the big capital elements in this is the headquarters. Some people say that the sale and leaseback deal will increase their annual running costs; others will talk about getting rid of loads of other little buildings around Northampton that cost them more money on an annual basis. Given that there are two versions of that, how confident are you that it is a robust way of funding their ongoing difficulties through lease and payback transfer from capital to revenue, and do you know how much that payment is per year?

Dr Farrar

I do not know how much the payment is per year. That would be a matter for the council, but it will become apparent in its accounts and in reports to various council meetings. I am confident in the ability of the commissioners to make sure that sensible decisions are being taken going forward. They inherited a lot of these decisions that you are talking about. The capitalisation was a way to put behind them some of the decisions of the past and make sure they are on a sensible footing moving forward.

Andrew Lewer

Do you know when they expect to eliminate their annual deficit? When do you expect them to eliminate their annual deficit? How are you going to be able to work this out and track it through, given that the authority is moving, with all of its districts and boroughs, into two unitaries, which will blend different financial streams into one henceforth?

Dr Farrar

The council has been very open with us and with Ministers about its finances. We expect the council to have a balanced budget this year, and it has another ambitious saving target for next year, which will expect it to have a plan for. That will mean it can then balance the budget for next year, which will allow it to enter into any unitarisation arrangements on an equal footing. We are very confident in those plans.

Andrew Lewer

Good. That has cheered me up.

Matt Western

To pick up on the point about smaller local authorities—Northamptonshire and Warwickshire are not dissimilar in size, as are Somerset, Dorset and others—there is huge pressure on them, being very rural and with perhaps high adult social care costs as well. Are you in any way, with the LGA or others, providing tools to help unitaries examine and give transparency to the opportunity of going unitary or part-unitary, and explain the cost savings to the public, i.e. that local authorities are acting not simply in their own interests but in the public interest?

Dr Farrar

Ministers have been very clear that a decision about unitarisation is for the local area, and they expect to see agreement in that local area about that being the right solution. Having said that, we have officers with expertise who are able to work with councils that decide they want to become unitaries, to make sure they have access to that expertise and do not have to start everything themselves.

Matt Western

My concern with all these things sometimes is that it is not necessarily in the interests of those at the top of an organisation to want to cede control or lose their power to a unitary, so they are not necessarily going to examine that.

Dr Farrar

It is a decision for the local area. Ministers have been very clear about that: that it is a decision for the local area.

Mr Dhesi

Permanent Secretary, it has been more than half an hour and we have not mentioned the word “Brexit” yet, so let us look into Brexit. You issued updated guidance for councils in November 2018 regarding civil emergencies. Would you regard a no-deal Brexit as a civil emergency?

Melanie Dawes

The reason we have updated that particular guidance with the Society of Local Authority Chief Executives is that we expect that some of what councils might have to manage in a no-deal scenario would require the sorts of partnership arrangements that local resilience forums provide for. That is to bring together the various services, whether it is police, hospitals or schools, and those forums are a great partnership arrangement at a local level. The best way for us to work with local government and local partners in the event of no deal is to mobilise those sorts of structures, so that is why we focused on that. While it might not be normal for those arrangements, they are very good at dealing with whatever is thrown at them.

Mr Dhesi

Going back to the question, would you regard it as a civil emergency?

Melanie Dawes

That is a technical question under the Civil Contingencies Act but probably not. It may well throw up events that are unexpected, which would be best managed through local resilience arrangements.

Mr Dhesi

As far as you are concerned, it is not a civil emergency if we have a no-deal Brexit. What are councils themselves telling you?

Melanie Dawes

Councils are telling us, first, that they are very glad of the engagement that has been going on over the last few months. Our Secretary of State is chairing the next meeting of the Local Government Delivery Board on Thursday. We have appointed nine chief executives from around the regions in England to co-ordinate with us and to give that extra route in. For us, it is as much about listening to what they say as it is about giving them information, so it does depend. In some areas, such as where there is a port, there is a lot more for a local authority to prepare for in a no-deal scenario. Other local authorities are finding that they have concerns about the workforce and so on. It varies across the country. Some feel that they have their preparations well in hand; of course, there are uncertainties. Others are still getting there.

Mr Dhesi

If there is a no-deal Brexit, would you provide additional funding for councils and, if so, how much?

Melanie Dawes

Our Secretary of State will say something quite shortly about the allocation of the £35 million that we secured from the Treasury. I would expect he will be saying something about that quite soon, and that is designed to help councils. Also, in some cases, we have additional responsibilities that other Government Departments may need councils to take on, for example inspections or work in ports. In that case, it is about making sure that new burdens funding is provided by that Department. We have been doing work with all Departments to make sure we have a full map of all those issues.

Mr Dhesi

You have reportedly been recruiting resilience advisers to work on the EU exit. Can you spell out exactly how many extra staff you have recruited and what precisely they are doing at this present moment?

Melanie Dawes

Jo might want to say a little more about the resilience advisers. So far, we have not increased our overall departmental headcount for Brexit; we have diverted resources from some parts of the Department to others. That is of the order of 30 people so far, so quite small as a proportion of our overall headcount, and we are moving another 30, particularly into our resilience teams, right now. The reason for that is so that we can be ready, if we need to scale up. Jo might want to explain what they do.

Dr Farrar

Yes. They work with the local areas to make sure that partners in the local area are prepared for EU exit. That might be across a range of issues. The ones that we are working particularly with them on are the ports, for example, trading standards and adult social care, to make sure that local areas have considered the implications. We place resilience advisers with the local areas to make sure that they are helping them to prepare, and we also have regular calls with all those local resilience fora, so that we can see how they are preparing and the areas in which they might need more help.

Mr Dhesi

Permanent Secretary, you just mentioned that you have not recruited any other staff; you have just moved staff around within the team. Given the complexity and the huge impact that Brexit is likely to have on local government, do you think that that is a sensible measure that you have taken within the Department?

Melanie Dawes

I think we have taken the right steps so far. The other thing that is happening in many of our teams is that Brexit is the context for people’s work, increasingly. For example, our local government engagement teams are running, alongside their normal responsibilities, the engagement that is happening across the country on Brexit. Similarly, some of our housing teams are working with the sector to think about issues around workforce. It is not that it is just those people; we have some Brexit jobs particularly to do co-ordination. But, for other parts of the Department, Brexit—deal or no-deal—is the backdrop for people’s work, so we are dealing with any additional work that way.

Dr Farrar

Our resilience advisers provide a service for the whole of Government, so we are also connected to the Cabinet Office and its Civil Contingencies Unit. If there is a need to scale up resilience, we would look to the Cabinet Office to help us to do that.

Teresa Pearce

Brexit is a lot of extra work, really, especially when you do not know how we are going to leave. I wonder how much you are spending on Brexit preparations at the moment.

Melanie Dawes

The main relevant resource there would be the number of people that I mentioned earlier, which is relatively small. Our overall headcount at the moment is just over 2,000 people in the core Department. At the moment, we are talking about 30 people who have moved already and another 30 or so moving during the course of this week or next, so it is not a very large investment. The £35 million is the extra money that we have received from the Treasury.

Teresa Pearce

Is that enough?

Melanie Dawes

We have to take it in addition to the potential funding for new burdens that Departments need to consider if they are asking local government to do new things. We will keep it closely under review. We need to keep listening to the sector. As I was saying earlier, that is a really important part of our engagement. It is not just about telling them things. There is uncertainty here, but equally we need to prepare for all contingencies and remember that no-deal is not the Government’s preferred option. We are also preparing for deal-based scenarios.

Teresa Pearce

The Treasury had a £3 billion EU exit fund, which you did not bid for, so you must think that you have enough money and do not need any more. Is that right?

Melanie Dawes

We did not bid for the first half of that funding, because it was mainly about funding those Departments that need to deliver very significant new services, such as customs at the border and so on, but we did bid into the second tranche, and £35 million has come out of that.

Teresa Pearce

Is the £35 million how much you bid for? Is it less or more?

Melanie Dawes

That is what we were given by the Treasury.

Teresa Pearce

For over a year, the Government have promised to consult on a new UK shared prosperity fund. We were told by the Prime Minister that it would be launched before Christmas, but it was not. Can you let us know why the consultation has not started yet?

Melanie Dawes

My Secretary of State has written this morning, in fact, in response to the Chairman’s letter before Christmas. The Government’s intent is to publish something soon. There are some differences in the way we would pitch this in a no-deal scenario, because we would have more control of the way that we do European funding streams immediately, and we would want to reflect that earlier. There are some factors to take into account but we have not published the consultation document yet. We hope to do so soon. We have been doing a lot of engagement with partners, I should say, with LEPs and with the devolved Administrations.

Teresa Pearce

Could you clarify “soon”? Do you mean in the next month?

Melanie Dawes

I cannot say any more than what my Secretary of State said this morning, which is that it is something he hopes to do soon.

Teresa Pearce

It is a parliamentary “soon”.

Melanie Dawes

As soon as practical.

Mary Robinson

I have a very quick question, just to satisfy my understanding of this. There will be quite a lot of EU legislation that is automatically written into lots of things that councils do. Are they aware of how they are going to cope with the bureaucratic side of getting those directives rewritten in terms of how they operate?

Melanie Dawes

These are some of the things we have been working with councils and with other Departments on. We have been making sure that, particularly in a negotiated outcome, where we have that clarity about what will be happening in terms of the legal situation, we know what it might mean for councils. There are not a very large number of areas where councils will have to do more but there are some things, including environmental health work, where there might be additional responsibilities. We have all those mapped and that is a lot of the work we are doing towards the deal scenarios.

Mr Dhesi

My colleague mentioned earlier the £35 million that you will be receiving from the Treasury for 2019-20. Just to clarify, how much exactly did you bid for?

Melanie Dawes

I am not going to comment on the internal discussions. We were glad to receive the £35 million and we will be announcing what the Secretary of State expects to do with it very shortly, I hope.

Mr Dhesi

Given the importance of the Ministry of Housing, Communities and Local Government, and given the huge cuts to councils, many of which are struggling to deliver services, would you consider £35 million enough within the overall share?

Melanie Dawes

We think it will make a real difference. A large chunk of the money was to deliver very new central Government services, and it is not clear to me that having very large numbers of civil servants in our Department is the answer for councils. This is about making sure that, out there, on the ground, the job can be done, so we will keep that under review.

Chair

If I was to say that you got half of what you asked for, you would not be correcting me, would you?

Melanie Dawes

I would not be commenting, I am afraid.

Matt Western

How much does that equate to for a typical district council or county council?

Melanie Dawes

We have to work out what the allocation is.

Matt Western

It does not sound like much.

Melanie Dawes

I do not want to prejudge my Ministers’ announcements on this, which they hope to make quite soon.

Matt Western

How many county councils are there?

Melanie Dawes

There are 152 upper-tier authorities.

Matt Western

How many district councils and borough councils are there?

Melanie Dawes

There are 350 councils that do lower-tier work.

Matt Western

That is 500 in total.

Melanie Dawes

There are about 450 councils in total.

Matt Western

That does not sound like much.

Teresa Pearce

Help to Buy was originally a three-year scheme and a specific intervention to try to get people on to the housing ladder, and it is now going to run for 10 years. Are you comfortable with that?

Melanie Dawes

I will ask Jeremy to come in on this.

Jeremy Pocklington

We are comfortable with that and we made the decision to introduce a new scheme to run from 2021 to 2023 because the Help to Buy scheme is working. Last October, we published an evaluation of the scheme, led by the London School of Economics and Ipsos MORI, and that showed that 37% of people who are buying through Help to Buy would not have been able to afford a house for at least three years. It is helping people who could not otherwise buy a home to buy a house. Through that mechanism, it is also leading to increased supply. We decided to target the replacement scheme at those who needed it most by focusing it on first-time buyers and introducing regional price caps anchored to the price of first-time-buyer homes in individual regions.

Teresa Pearce

You just said 37% of people who used the scheme could not have bought a house otherwise.

Jeremy Pocklington

That is what the evaluation that we published in October showed.

Teresa Pearce

The majority of people who used the scheme could have bought a house otherwise, without the scheme.

Jeremy Pocklington

Many of those people who said they could have bought a house are buying a larger house than they might otherwise have been able to afford. The evaluation sets out in quite a lot of detail who is using the scheme, and it shows that 81% of people using the scheme are first-time buyers; 58% of people using the scheme have household incomes below £50,000. There is quite a lot of detail about the types of houses and flats that are being bought, as well as the nature of the people who are using the scheme. It is a broad scheme, designed to have the impact on the market, but it is having a positive effect.

Teresa Pearce

One of the inquiries we are doing at the moment is into leasehold properties. We have heard evidence from people who have bought leasehold under Help to Buy, and now the properties are worth less than they paid for them, because they have onerous leases. That would be a loss to your Department on the percentage of the value of the property. Have there been any calculations done on either that specific or what will happen if house prices fall?

Jeremy Pocklington

On the specific issue of leasehold houses under the scheme, this is an important issue that we take very seriously. We have announced that, under the replacement scheme from 2021, we will exclude leasehold houses from the replacement scheme, when it comes in. We were not able to do that, unfortunately, for the current scheme that is in place. On the issue of modelling the Department’s exposure, you are right that the Department has an exposure to the housing market through the scheme. That is something that we look at very closely. We do a lot of modelling against stress-test scenarios, for example those from the Bank of England, to determine what our exposure is. Of course, any losses are realised only if an individual sells their home. On the specific issue of our exposure to any losses associated with leasehold houses, they are a relatively small proportion of properties available under the scheme, whatever the terms of that lease are. At the moment, only about 4% of properties under the scheme are being sold to leasehold houses. Ideally, we want that to be even lower still.

Teresa Pearce

You say that you have done some modelling on what the loss would be to the Department if house prices go down. Would that loss be covered by the Treasury or would you have to cover that loss yourselves? Does anyone underwrite it for you?

Jeremy Pocklington

There are two mitigants to that loss. First, looking at the book as a whole and our investments since 2013, for the first few years house prices have increased quite significantly, so that provides the Department with a cushion. Secondly, the loss is crystallised in the public finances only once the house is sold and the investment is recovered.

Teresa Pearce

Because of the amount of time the scheme has been in place, some of the first Help to Buy purchasers are now starting to pay interest on Government loans. As far as you know, are there any buyers who are struggling with these repayments, and are you monitoring any of the potential effects?

Jeremy Pocklington

It is relatively early days for the interest-fee payments, but you are right that the first equity loans issued in 2013 have now reached the five-year point and we are seeing a steadily increasing number reaching that point of paying interest-fee payments this year. The Department is not expecting those interest-fee payments to be particularly significant on an overall scale—we are expecting them to total about £2.5 million by the end of March—so at this stage, the loan repayments are not particularly extensive looked at from the Department as a whole. In the vast majority of cases, Homes England is recovering the fees as expected. We have done a lot of work through the evaluation to ensure that homeowners who had Help to Buy equity loans were aware that they were going to need to pay the interest-fee charges.

Teresa Pearce

Help to Buy is a very large housing programme, based on the annual investment in it. You said earlier that 37% of first-time buyers were people who could not have afforded a house otherwise and that some people just used the scheme to buy a bigger house. Is it good value for money for the taxpayer compared to other housing programmes?

Jeremy Pocklington

It is good value for money. That is shown by the evaluation that I mentioned, which we published in October. A very high proportion are first-time buyers who we are helping get on the housing ladder. For example, it provides very strong support to those from ethnic minority backgrounds: 25% of first-time buyers supported through the scheme are from an ethnic minority, which is 7% higher than for all first-time buyers in the economy, so there are significant benefits from this scheme. As I say, it is a broad scheme; that is the decision that was taken at the time. For the replacement scheme that goes from 2021, we are focusing it on those who need the most help. The other thing I would say when thinking about value for money is that we also have an equity stake in the property. Over the full lifetime of the programme, looking decades into the future—and the Government can take that long-term view—we expect to recover the equity stakes that we are making in the properties.

Chair

There is some evidence that it has also pushed house prices up.

Jeremy Pocklington

That question has been raised, and it is an issue that we looked at carefully in the evaluation. House prices, as a whole, are set mainly by the second-hand market rather than new build; new build is only a small proportion. Only 4% of transactions in the market are Help to Buy equity-loan transactions. The issue is the question of the new-build premium, which has been raised. The evaluation showed that the new-build premium was present and growing before the scheme was introduced in 2013, and it found no evidence that the premium has been growing more quickly in Help to Buy homes than non-Help to Buy new homes, if you understand the distinction. Of course, there are reasons why there could be a new-build premium, due to consumer preferences or quality, but it is an issue that we continue to monitor.

Chair

There is evidence, is there not, that people who bought a new-build property under Help to Buy paid 10% more for their property, on average, than people who bought a new property without Help to Buy?

Melanie Dawes

That is not something that we have seen in the evaluation. We can clarify that for you.

Chair

Perhaps you could have a look at it. There was information on that in reports published in the Times back in September, following analysis that it had done.

Melanie Dawes

We will certainly check that. We can look at the specific report that you have in mind. The new-build premium varies and is small or even negative for detached and semi-detached homes, which are the majority of Help to Buy sales. The premium is highest for flats where there is generally higher quality in new-build flats compared to second-hand flats. There are various things that we look at, at a level of detail, to give us assurance, but it is something that we need to keep an eye on.

Chair

If you could come back to us on that particular point, it would be helpful.

Melanie Dawes

We will.

Matt Western

Just on that, you mentioned the equity share that is retained by the Government. What happens if prices fall? Can you just remind me?

Jeremy Pocklington

We have an exposure to the housing market if prices fall, essentially as an equity owner in the property. We take the loss first, as it were, but the key point is when those losses are realised, which goes to the point that I made previously: just because house prices fall, it does not mean that we realise the loss. Our interest would be to hold the equity loan for the long term, but it is ultimately the owner of the house and the remaining equity who makes the decision on when to sell.

Matt Western

I am sure that you have done modelling on that, to look at risks and exposure.

Jeremy Pocklington

We have.

Melanie Dawes

We have.

Matt Western

Perhaps that could be shared with us. I do not know.

Mary Robinson

You mentioned that, from 2021, you will be focusing on those who need the most help. I was just wondering what sort of criteria you are going to be looking at.

Jeremy Pocklington

We made the decision, first of all, to focus the replacement scheme on first-time buyers and, secondly, to introduce a series of regional caps. They are based on 1.5 times the average first‑time buyer price for properties in each region, with the exception of London, where the cap remains at £600,000. It sounds relatively complicated but this is designed to further restrict access to the scheme to focus on those people who need most help to get a start on the housing ladder.

Mary Robinson

Is there any potential for you to work with local authorities that are drawing up their local plans and may want to direct people to certain areas of housing, to fit in with employment as well? Is there any potential for you to work with local councils?

Melanie Dawes

For the most part, the way Help to Buy works is that it is available for developers to market as part of their schemes. At the moment, the engagement generally is between the developer and the local authority about what the housing market need is in their area. Less through Help to Buy but in some of our other work, we are deepening our engagement as a Department with particular parts of the country, such as the Oxford-Milton Keynes-Cambridge arc, and we are working quite closely with some of the combined authorities that have a view across their wider region, to see how we can target our housing investment better with them. Homes England is leading that engagement generally; sometimes it is the Department. We are trying to have those deeper conversations with places as we up our ambition on targeting but it is less about targeting Help to Buy and more about some of our other programmes.

Matt Western

Just to carry on with this, looking at the Help to Buy scheme, you must model, against your budget, what you can do with the options available to you. I am interested to know what level of homelessness we have as a measure. I know it perhaps for my constituency and my district but you have a cumulative or aggregated figure, presumably, for the UK. What is that figure for homelessness? If you were to aggregate the Help to Buy budget, the new homes bonus and the affordable homes budget, am I right in thinking you could build something like 80,000 new social homes a year, and would that not be a better use of budget, given the homelessness figure?

Melanie Dawes

That would require the Treasury to allow us to treat all those budgets as capital investment budgets, or grant budgets. I cannot confirm the precise figure that you have mentioned but I do not doubt it particularly.

Matt Western

It is about £5 billion.

Melanie Dawes

Yes. Our budgets are a mix of pure grant, which is the affordable housing budget, and that is really what motors the building of social and affordable homes, together with the raising of the housing revenue account cap, as we announced last year. We also have a variety of loans and equity loans, the biggest of which is Help to Buy, but we also have loans into small and medium-sized builders, for example, and larger builders on sites. We have other grant schemes through the housing infrastructure fund. We have a range of different types of schemes, which all have slightly different accounting treatment, so we cannot really compare apples and pears quite in that way and say what we would get if we were to put it all into affordable housing. I hope that does not sound too arcane. It gets us into questions of Government finance, which can be pretty difficult to comprehend.

Matt Western

I guess the nub of the issue is about how much local authorities are spending with private landlords, for example, and much we are spending to subsidise people buying bigger properties, which is what you were saying earlier. It does not seem to make sense in terms of good use of public money. I guess that that is where I am coming from.

Melanie Dawes

What is different about Help to Buy is that it is an equity loan, so it does not have the same treatment in the public accounts as the grant schemes. We have it as a separate budget in the Department and we cannot move money from it into, say, affordable housing, without that having quite serious fiscal consequences and, therefore, needing a bit of a rethink by the Treasury in its approach to our housing budgets.

Matt Western

That loan could be made to local authorities, could it not?

Melanie Dawes

We have instead allowed for local authorities to use their own balance sheets to borrow more.

Matt Western

I understand.

Melanie Dawes

For us to loan to local government is perhaps less productive than authorities looking at their own balance sheets and thinking how they can gear those in a sensible way for housing. That is what we have done so far. Perhaps we can come on to what we are doing on homelessness.

Chair

We are going to move on to homelessness in due course.

Melanie Dawes

Housing benefit is one of the most important Government spends when it comes to helping people who cannot afford a home to live in one through rent. That is also a very important part of the equation and, indeed, the NAO has done some work on this, looking at that as one of the largest budgets of all.

Chair

We are going to come on to homelessness; we will come back to that.

Matt Western

I guess the question is this. With the housing situation, the Government are saying that the objective is to build 300,000 homes a year. With the identification that we need to build a lot of social housing, yet we have not had the funding and we have only just lifted the borrowing cap for local authorities, how are we going to deliver that social housing?

Melanie Dawes

That is a very fair question. We believe that affordable and social housing needs to be a big part of the picture. There is a big Government investment now going into affordable housing over the next few years. We are innovating. We have given longer-term deals to housing associations, for example, and we have put more money in for social rent, which was quite new in recent years, as well as the raising of the cap, as we have just discussed. The Government are doing a lot here, and it does require Government to put their balance sheet on the line and to provide grants. As we meet 300,000 homes in the middle of the next decade, we will need to make sure that we have an ambitious affordable homes programme as part of that. We have the beginnings of that for the years for which it has already been identified, but it is an important thing for us to keep emphasising and keep arguing for.

Matt Western

With the 10,000 homes that are expected to be built now that the HRA cap has been lifted, do you see these being social rented or affordable rented?

Jeremy Pocklington

That is for local authorities to determine. We think it is better for local authorities to make that decision locally on what the needs of the local population are. There are parts of the country where affordable rents are very close to social rents, but there are other parts of the country where there is a greater affordability problem. In terms of the affordable homes programme and the bit that is delivered through Homes England, what we have done, which is not lifting the HRA cap, is to focus the social rent element of that in the areas where there is the greatest need and the greatest affordability pressure, as measured by the difference between private sector rents and social rents.

Melanie Dawes

You are asking a factual question about what mix of affordable and social rents we assumed in making that estimate of 10,000. I cannot answer that today but we are happy to see if we can come back on it. I just do not have the number in front of me.

Matt Western

To realise the 300,000 target, most observes would say that that is only 100,000 social or council homes and 50,000 or 100,000 social affordable homes. How are you going to achieve the figure of 300,000?

Melanie Dawes

We have a pretty ambitious housing programme that mobilises every part of the housing market, and that is what we need to do. We need to mobilise the private sector. We need to maximise the contribution of the existing developers and housebuilders but also to expand the sector, so that we have more small and medium-sized builders coming back into the market. We also need to keep on supporting housing associations to borrow and to build. They have done very well in recent years but we have given them more certainty recently, for example over their rent levels further into the future. They are now gearing back up again. Then there is also the question of Government grant, which we have been discussing. We have an array of policies in place. Do we yet have enough? This is a very big challenge, so we are going to keep pressing on and looking at new things that we need to do. We do not yet have our budgets set for the middle of the next decade, so we have to push hard on that in the coming months as we approach the spending review.

Matt Western

You will be familiar with the Shelter report from 10 days ago or so, which recommends a much more ambitious objective on housebuilding, particularly for social homes, identifying a need for 3 million social homes in the next 20 years, or about 150,000 a year. It argues that it would make huge economic sense for us to be doing that because it would reduce the budgets for social housing and private landlords. I guess you agree with that, do you?

Melanie Dawes

We certainly agree with the ambition.

Jeremy Pocklington

The Shelter report is a welcome contribution to the debate on this issue. It highlights the importance of affordable homes of various tenures. The focus of that report is particularly on the social aims. A lot of these decisions are ultimately for the spending review and it would be wrong for us to pre-empt that, but we are continuing to prepare the evidence so that we are able to engage in that process. There are aspects of the Shelter work on which we want to have further discussion with Shelter, to understand the numbers and the detailed modelling. The report has only just been published, so that is something that we will want to do. I do not want to take away from the importance that we attach to making progress not just on private sector housing but also on affordable housing, if we are going to meet the ambition of 300,000. It is an unprecedented ambition and we are very alive to that.

Liz Twist

I want to ask about Right to Buy and the impact that it is having. How can you expect councils to invest in new social housing if they may have to sell the houses at a discount under Right to Buy? What is the incentive?

Jeremy Pocklington

I am fully aware that Right to Buy is a contested issue on which different Governments can take different views, but the case for Right to Buy is that it helps people into home ownership who would not otherwise be able to afford a home. It is something that this Government strongly support. It releases resources and receipts that councils can use to invest in their stock. When the current arrangements were put in place in 2012, the Right to Buy replacement ratio was put in place to ensure that that reinvestment took place. We are not meeting that replacement ratio at the moment. That is why we launched a consultation last summer on flexibilities that were required to help councils use their receipts. That is one of the reasons why we lifted the HRA cap to make it easier for councils to invest in their stock.

Liz Twist

From the outside, leaving political differences apart, it seems a bit strange that you are encouraging and wanting councils to build, and yet they are having to sell those houses at a discount down the line. It does not seem to make financial sense.

Jeremy Pocklington

We think the scheme is value for money. It releases resources for councils. It also brings distributional benefits for the individuals who buy homes through Help to Buy. Looked at overall, the rate at which building is taking place is much greater than homes being sold. If you look at the figures since 2010, 78,000 council homes have been sold but 407,000 new affordable homes have been built in that period. Overall, while homes are being sold, which is enabling people to own their own home who would otherwise be unable, a great many more homes are being built through all the interventions looked at in the round.

Melanie Dawes

The important thing for us is to make sure that councils can use those receipts and can invest further in their housing stock. That was not the case before the lifting of the cap on local authority housing borrowing. That is why that was an important piece of the jigsaw. As Jeremy says, we are also looking at the other flexibilities that they might need to make them able to use those capital receipts. That is something we are very alive to: making sure we are not blocking them while empowering them in a way that is a bit conflicting.

Liz Twist

Some councils are using borrowing powers to buy up houses that have been sold under Right to Buy and may now belong to individuals or landlords. Would it not have made more sense not to have sold them in the first place, rather than buy them back at that premium?

Jeremy Pocklington

You are referring to the buyback allowance, which is worth about 1% of Right to Buy receipts. In the overall scheme of the intervention, it is a relatively small amount of money. If individuals who buy a property through Right to Buy sell their property within a set period, they have to repay some of the benefit that they received through the scheme. If they sell within the first year, they have to repay 100% of the benefit that they received through the scheme, and then that falls down over years. We think it is right to enable local authorities to buy those properties back and, essentially, to have the first refusal to do that. For example, if they are regenerating a block, it can be valuable for local authorities to have that capacity. Once an individual has bought their home under the scheme and has lived there a number of years, the Government want them to be part of the housing market and able to sell their property, for example, as they go through different stages of their life.

Liz Twist

It is just an unfortunate consequence that many of them end up as buy-to-let properties.

Jeremy Pocklington

Once the individuals own their own home, they are treated like other homeowners who are able to let out their properties. The issue of ensuring quality in the rental sector is something that, as you know, this Government take very seriously indeed.

Liz Twist

We are hearing reports that some councils are looking at using the HRA freedom to buy that stock back, beyond any schemes that are specifically there to buy back.

Melanie Dawes

If councils feel that the right way to manage their stock is to invest in former council properties, to perhaps get an estate back up to nearer 100% as social housing, they are free to do that. The Government have imposed any restrictions on which properties can be bought. They have never sought to constrain any particular buyer in that respect. We have given councils flexibility and, with the lifting of the borrowing cap, given them the means to have a more active management of their stock. It is about balancing out. When a property ends up back in the private rented sector, I know that sometimes the neighbours, the tenants and the council members and officers would prefer it to be back in social housing, but we are looking at the overall number of social and affordable homes and having our eye on that number, rather than trying to manage at a local level where it is or how particular homes should be built. That is what we try to keep our eye on, and challenging us on those overall numbers is very important.

Liz Twist

I understand you expect the Right to Buy pilot expenditure to peak in 2018-19 at £140 million. How many homes do you envisage being sold off under Right to Buy in 2018-19? Are there any projections for that?

Jeremy Pocklington

I may be a little confused. Are you referring to the voluntary Right to Buy scheme, which is the pilot?

Liz Twist

Yes.

Jeremy Pocklington

We have launched the voluntary Right to Buy pilot in the West Midlands. That is still at the relatively early stages and I am not, at this stage, able to give you an estimate of how many properties will be sold through that pilot. That work is ongoing at the moment. As for the total budget, this is, ultimately, up to a £200 million scheme, but the amount of money allocated to the scheme will depend on how many people buy their properties.

Liz Twist

Finally, in June last year, you promised the committee an economic analysis of Right to Buy. Has the work been done on that yet?

Melanie Dawes

Yes. We did not reply to you as fully as we should have done there. We said that we would give you some information on the value-for-money case and what the elements were. We are happy to do that. We said instead that we would be publishing an evaluation, which we will, towards the back end of 2020, but that is not quite the same as what the economic arguments are on value for money, so we are happy to correct that. Broadly, the Government are funding the discount, so that is the main outlay to the Exchequer. As for the economic benefits we get in return, housing associations have receipts that they are able to build with, so we get the usual economic benefits from new housing supply and we get distributional benefits because, generally speaking, we are talking about families on lower incomes who are able to buy and who would not, otherwise, have been able to. Those are broadly the elements of how the case stacks up.

Liz Twist

Is the full economic analysis a year and a half to two years away? You said 2020, but you can provide us some information in the meantime.

Melanie Dawes

We can certainly tell you what the shape of the arguments is likely to be. As for the numbers that will determine the final case, we will have to wait until we know what those numbers are and until we have the evaluation, but we are confident that it will stack up as a positive number.

Liz Twist

The Committee would welcome that information.

Chair

Yes. When you give your interim information to us, could you also confirm that it will include some analysis of the fact that 40% of homes sold under Right to Buy are now in the private rented sector and what the extra costs are in housing benefit as a result of that?

Melanie Dawes

Yes, we can certainly look at that for the voluntary Right to Buy.

Chair

No, for the whole scheme.

Melanie Dawes

Perhaps we can agree with you exactly what that is, to make sure that we cover all the issues you are interested in.

Chair

That would be really helpful. There was quite a bit of information in the press yesterday about it.

Mr Dhesi

Let us now delve into the Government’s response to the Grenfell Tower fire, which according to most accounts has been lamentable. Of the 203 households that needed to be rehoused after the fire, how many are still to move into permanent accommodation?

Melanie Dawes

Can I just say that I do not think the Government’s response has been lamentable? We have put a huge amount of effort into this, into some unprecedentedly difficult issues, particularly on the wider building safety questions across the country. We and our Ministers have worked incredibly closely with the local community to make sure that its needs are met to the very highest standard. I appreciate we may have a debate about this, but I just wanted to say that we really would not share that assessment. Perhaps we can give you the numbers, though, because that is a very important question.

Mr Dhesi

I will come back on that. Of the 203 households, how many are yet to move into permanent accommodation.

Dr Farrar

There are now 202 households, and all 202 households have accepted an offer of either temporary or permanent accommodation; 195 of those have accepted permanent accommodation; and 171 households have moved in.

Mr Dhesi

It is good that we are almost at the 203 mark in terms of the permanent accommodation. The reason, Permanent Secretary, that I alluded to the fact that many—including me—think it has been lamentable is the fact that, from the outset, after the tragedy, the Prime Minister made bold statements and the then-Secretary of State also made a statement to say, “Within a year, you will be offered permanent social housing at a social rent”. That was within a year; it was in June of last year. Thereafter, the Kensington and Chelsea Borough Council conceded that it could not meet that target. Let us carry on. With regards to households with children that continued to be in non-self-contained, i.e. hotel, accommodation for longer than the six weeks permitted by law, how many of those are we dealing with?

Dr Farrar

There are no households now with children in hotels. We only have three households in hotels, and none of those have children.

Mr Dhesi

That is good to hear.

Chair

Let us move on with Grenfell. We have the Minister coming to see us next week, so we will obviously have more questions for him then. With the delay in the public inquiry, it looks as if the second phase is not going to start until 2020. Is that going to delay the necessary reforms that ought to be coming out of the recommendations from the inquiry?

Melanie Dawes

We do not want it to delay the work that we do. The most relevant issues here are the introduction of the new building safety system following Grenfell and in light of Judith Hackitt’s review. We published our response to Dame Judith’s latest recommendations just before Christmas, and we are working as quickly as we can to get that implementation plan in place. We do not see the inquiry as changing that timescale. We need to make sure we listen to the inquiry. We have to balance getting on with the work with being open to recommendations that the inquiry might make, but we are not planning to have the inquiry delay us.

Chair

In terms of the recommendations and issues that are being addressed, coming back to building regulations and fire safety, we have Dame Judith coming to the Committee as well, so we will be able to go into more detail with her as to whether she feels that the recommendations are now being put into effect as quickly as possible. One of the concerns has been around the issue of ACM cladding on buildings that are privately owned, with some conflicts in some places about whether the freeholder or leaseholder ought to be paying for these. The Government have made a statement saying that local authorities should get on and use their powers under the 2004 Housing Health and Safety Rating System to get the work done if private owners are not doing it. Is that really feasible, given the likely costs of some of this work? There is no guarantee that local authorities will ever get the money back, is there?

Melanie Dawes

That is one option. It is a difficult option, as you say, so we are not ruling anything out at this stage. We felt it was important here to mobilise as many possible options for ourselves and for local government to work on these privately owned buildings, which, as you were hinting, are still a significant concern for us. We have made a lot of progress in recent months. Some of the big developers and builders have come forward and started the work, and are going to pay for it, and the guarantee schemes have also come through and helped in that respect. We have some buildings where we still need to see some action and we still need to make sure that the leaseholders do not pick up costs that really are not their fault at all, and which in any moral sense they would not be asked to pay for.

Chair

There are also some examples involving freehold. There may be a company without sufficient resources to deal with it or that claims it does not have sufficient resources. It may not be the original developer; the property may have been sold on, so the local authority goes in and does the work. Why do the Government not make it very clear that, in that situation, no local authority will lose money? Then we might get a lot sharper focus on what local authorities can do to address it, but no local authority is going to take on a multimillion pound project at the risk that no money is going to come back to it.

Melanie Dawes

We have not got to that stage yet with an authority. We are working very closely with the local authorities where all these buildings are located. We have had fantastic engagement with councils on building safety, I should say, right from the very beginning, straight after the fire. We have not got to that stage yet, but it is a big step for local authorities to step into that space. We would need to make sure that it is something they could carry out, but we have not got to that stage yet.

Jeremy Pocklington

I have a couple of points to make in addition. We have also now established the joint inspection team to help support local authorities with advice on these difficult enforcement cases, and they are not easy. This is something we are monitoring very closely as a Department, to ensure that these issues are progressed as rapidly as possible. In theory, the local authority can place a charge on the building to help recover the costs, but I do not want to take away from the bigger point that you are making. That will help in some circumstances but it may not help in all circumstances.

Chair

The local authorities can place a charge on the building but, if no one has the money to pay it, it is not very helpful, is it?

Jeremy Pocklington

I am not taking away from the bigger point that you are making. We have said that local authorities should come and talk to us if they need additional support from Government in order to use their enforcement powers. That is what we set out on 29 November.

Chair

If a local authority believes there is a category 1 hazard, it has to act on that, in this case.

Jeremy Pocklington

They have a duty to act, in those cases.

Chair

They have a duty to act on it, so they should immediately come to you and hopefully you will be helpful to ensure that the work can be done without the local authority’s finances being put at risk.

Jeremy Pocklington

We have said that we will provide financial support if necessary. Some local authorities are being very active and focused on this agenda at the moment. We want all local authorities to feel that they are in a position to be able to.

Chair

No local authority is going to want to put at risk multimillion pounds of its reserves to fund something in a private sector building if it is not pretty certain it is going to get that money back.

Melanie Dawes

That would be a financial decision that, as you say, would be very risky on their part. With my hat on in terms of oversight of the system, we would expect them to be very careful about taking on liabilities such as that. That is why they do need to have the dialogue with us.

Chair

If it is a category 1 hazard, they have to act, do they not?

Melanie Dawes

They do, but they can come and talk to us if they are concerned that they are facing conflicting priorities in this area. This is an unprecedented set of issues here around fire safety, so we do not expect councils to be able to sort all of this out on their own. That is why we have put in place the joint inspection team. It is also why our door is open for any further support they might need.

Bob Blackman

My apologies for having to go out to another meeting and come back. What is the Department’s estimate, at the moment, of the number of privately owned high rise buildings with dangerous cladding?

Jeremy Pocklington

There are 176 private sector buildings with combustible ACM cladding that we are monitoring as part of our programme. That is out of a total of 437 high rise buildings.

Bob Blackman

ROCKWOOL has estimated that it is 1,600, which seems to be a complete disparity. For everyone concerned, we want a clear position on what you are taking into account and what ROCKWOOL is reporting, so that we can end this uncertainty.

Jeremy Pocklington

I am aware of that, and we are going to meet ROCKWOOL to discuss its correspondence. My understanding is that what ROCKWOOL has raised is not just about combustible ACM cladding. It has also raised issues with other forms of cladding, and superficially, while we want to hear of concerns around building safety, we have some questions on some of its analysis, but we want to go through that in detail with ROCKWOOL. We welcome people coming to us with building safety issues.

Bob Blackman

The other issue that I have been hearing, from various developers, is that they went to their local authority, got approval under existing building regulations for the ACM cladding, and that is what they put up. Given that that is the circumstance and you are reviewing building regulations, why should private developers or owners not be funded to remove it, if they have done this? It is anecdotal and I do not have the physical evidence that it happened. If that happened, surely they should not have to fund removal, because the Department has provided for social housing, council or housing association properties in this way to be funded to remove it. If they actually lived within the building regulations as they existed, and I know there is some doubt about that, surely they should not have to suffer financial consequences.

Melanie Dawes

There are two points there. First, we find it very hard to see how any building owner could have been compliant with the regulations if they put up the combustible ACM cladding that has failed our tests. I think some people thought it was okay, but I do not think that that is now a prevailing view.

Bob Blackman

I agree with you that people would say it is not okay now, post-Grenfell. The issue is this. If you are the owner of a private block or a management company who went to the local authority and said, “We are thinking of putting this cladding on; is that going to be in accordance with building regulations?”, and got it signed off by building regulations to say that it was okay, why should you bear the cost?

Melanie Dawes

It was signed off by building control, perhaps. In the cases where that was done as part of a warranty scheme, those warranty holders who did the building control have concluded that a mistake was made and it was not compliant. When I said that people are looking at it now and realising it was not okay, that is not because we have changed the rules. We have now put it beyond doubt with the cladding for the future, but these sorts of cladding systems were not compliant before, and I do not think many people are saying that they were, now that they look again at the evidence and what was going on.

Bob Blackman

If there are people out there, the bigger owners and so on—clearly the Department is in touch with them—saying, “This is what I did”, what should they do?

Melanie Dawes

Where we have buildings on which we think the cladding is dangerous, and we think we have full understanding of those buildings—we publish that data very regularly—we are in touch with every single one of those building owners. Now, more than a year and a half after the Grenfell Tower fire, the building owners are in touch with the people who built those buildings. Conversations are going on about liability. In many cases in the private sector, the larger developers and builders, and in some cases the investors, are deciding that, even though they might legally be protected in some way, they are going to come forward and sort this out for the benefit of the residents of those buildings, and they are paying simply to sort the issue out. We welcome that. In my opinion, following the Grenfell Tower fire, everybody has to look in the mirror and look at their role in how we got to a situation where so many buildings had dangerous cladding put on them. In many cases, the private sector players are doing just that. Secondly, I wanted to clarify that we are funding the social sector remediation, because of the way that the Government regulate the wider social sector. Because of the way we control rents and the way we put funding in for affordable housing, we were clear that, if housing associations and councils had to fund that remediation work, it would affect housing supply, as they would have had no alternative but to reduce housing supply or perhaps other important repairs on their buildings. That was the case for that funding, and that was why we made it.

Bob Blackman

You mentioned the need for a change in culture. Is that the culture of the Department, or what is the change in culture that you think needs to happen?

Melanie Dawes

I certainly think that, across the industry, as Dame Judith has said, and indeed as industry players have also said, we need to think about how it was that such important, essential safety issues were not dealt with in the right way. As far as the Department is concerned, we also need to look at how we can oversee that system better in future and make sure that we prioritise that work, that we have the right technical people, and that we learn any lessons from this ourselves. We are co‑operating fully with the public inquiry in this respect. We have done so already and will continue to do so, and we will listen very carefully to any recommendations it makes.

Mr Dhesi

You have just said, Permanent Secretary, that post-Grenfell everybody needs to look themselves in the mirror. That is exactly what councils up and down the country have done, including in my own constituency, in Slough, because of moral, ethical and legal obligations. They undertook to make high rise buildings such as Nova House in Slough safe, so that the safety and security of residents was upheld. That was all good and they did all that work. The director-general has noted that councils should be getting in touch with you. That is exactly what they did. When are they going to be reimbursed for that work?

Melanie Dawes

First, I agree with you. Councils really did step up to the plate here, and so did housing associations, when it came to social housing, and we were incredibly impressed by that response. We announced last spring that we would be providing funding for the costs of that remediation work in the social sector, and that was very widely welcomed. In many cases, councils and housing associations have got on and done the work. Jeremy might be able to say something about how many have got to the stage of the funding being provided from us, but we are not aware that we are blocking anybody; we are not aware that we are holding anybody up in terms of doing that remediation work.

Mr Dhesi

Director-general for housing, when can Slough Borough Council expect its money?

Jeremy Pocklington

I cannot talk about individual councils but, of the 160 buildings in the social sector, remediation is completed on 37 of them, underway in 81, and there are very clear plans in place for a further 40. There are two further ones with complications where plans are being developed. Of the money itself, I think we are currently forecasting we will have allocated a long way north of £250 million, if not £260 million, by the end of this financial year. The money is leaving the door this financial year to provide support for those local authorities under this scheme.

Mr Dhesi

When you say financial year, is that March/April time?

Jeremy Pocklington

It is by the end of March.

Mr Dhesi

By the end of March, the likes of Slough Borough Council will be able to receive that money.

Jeremy Pocklington

Many councils have already received this money, under the social sector remediation scheme. There is a lot more to be issued to councils between now and the end of the financial year. I am afraid I cannot talk about your individual local authority.

Helen Hayes

I want to turn now to the policy area of permitted development rights. Councils and others have in the past raised concerns about permitted development, office-to-residential conversions, which since 2013 do not need a full planning application and planning permission to proceed. Your Department’s consultation, which closed last week, proposed to extend these rights further. Do you have any concerns about the quality and safety of homes converted from offices?

Jeremy Pocklington

What you have said is largely correct, in the sense that, under the office-to-residential permitted development right we have had in place, section 106 does not apply but CIL, the community infrastructure levy, can apply in some circumstances.

Helen Hayes

I was going to come on to ask about section 106 and CIL, but the first part of the question was just about the quality. We have seen examples, and there have been examples well reported in the media, about office-to-residential conversions resulting in homes that are of very poor quality, homes in the middle of industrial estates, homes that are being used primarily for short‑term Airbnb lets rather than providing permanent accommodation. The first part of my question is to what extent the Department is monitoring the quality. Do you have concerns about it?

Jeremy Pocklington

It is something we look at. Under this measure, developers will want to ensure that their homes are desirable and marketable, but we have looked at the evidence and there are evaluations of these changes that indicate that some have been of not the best quality. Others have been of very good quality. This is an additional measure that has enabled another 42,000 homes since it was introduced. It has enabled significantly more people to have access to a home than they would otherwise have done.

Helen Hayes

Of those 42,000 homes, do you know how many are being used as permanent homes? How many of them are being used as temporary accommodation? How many of them are being used as essentially holiday accommodation? We keep seeing more and more examples of office-to-residential conversions that are under the use class of residential, but which are not actually providing homes. It is of great concern that the Government are claiming this figure, and there is not yet evidence as to whether what are being provided are homes to meet the need for permanent, secure homes in this country.

Melanie Dawes

If they are meeting housing need of one kind or another, we would not want to say what any particular building should be used for. Your points about quality are very important. We hear from councils, particularly in some parts of London where the housing market is very hot, that it can be hard for councils to enforce clear breaches of the housing standards regulation. We always want to hear about that, and we have just had the consultation end on the extension of permitted development rights. I have not seen those consultation responses yet, but if there are further concerns being raised about this, we will need to look at them. It is about enforcing the standards, rather than necessarily changing the policy on permitted development rights, which have, as Jeremy has said, created quite a lot of new homes of different types over the last few years.

Helen Hayes

Part of the problem sometimes is about location. Children playing in a car park in the middle of an industrial estate would seem to speak to a problem about the use in that location. That is not something that can be controlled by standards.

Melanie Dawes

No, you are right about that. That is not something I have heard of before.

Jeremy Pocklington

The only thing I would add is that local authorities have a power under article 4 to limit the use of these permitted development rights in their areas, and that power has been used. Quality is something that we are very focused on as a Department, and is something we treat very seriously.

Helen Hayes

Turning now to the question of affordable housing contributions, under permitted development rights, developers do not have to make section 106 contributions, CIL does not, on the whole, address the question of contributions to affordable housing, and mostly it does not address the question of local mitigation and access to social infrastructure and public services. Are you looking into this loophole as you look at further reforms and possible extension of permitted development rights?

Jeremy Pocklington

That is correct. In the consultation that closed last Monday, one idea was that there should be permitted development rights around the demolition of certain buildings, so that they could be rebuilt on the same footprint as residential. One of the issues we want to look at as part of the feasibility of exploring that option is whether and how developer contributions could apply. That is a concrete example of how we are looking at the issue. Unfortunately, the consultation only closed last Monday, and there were 400 responses, so we have not yet had a chance to analyse those. But that is an issue we are looking at in that context.

Helen Hayes

Some of those buildings are quite large. They can therefore result in, at a very local level, quite a substantial increase in the number of people living in an area, with no contribution to providing GP services, school places, parks and open spaces for the community. Are you doing any analysis at all of the kind of pressures these developments are creating in local communities, from which developers are profiting, but which ultimately leave the community even more hard pressed than it was before.

Jeremy Pocklington

As I said, in the consultation, that is a question we have raised. In terms of the existing permitted development rights, we continue to look at how these permitted development rights are being used in practice. CIL can apply, where it exists and where for example the floor space of a building changes. Almost by definition, section 106 cannot apply in those circumstances, because this is deemed planning permission and is about avoiding the complexity and the length of the planning process. That is why it cannot apply in these circumstances. It needs to be looked at as part of the overall picture and the overall strategy, to make sure we get the homes we need. This is only one small element of that, but we will continue to look at the evidence on this issue.

Helen Hayes

Is your Department undertaking any comprehensive analysis of the impact of this? It was a really significant change in planning legislation and the application of planning policy. I understand the consultation is asking the public and other stakeholders what they think about the impact of that change, but are you undertaking any comprehensive analysis at all of the impact it is having, whether it is working, the quality of what is being delivered, the pressures resulting from it, the impact on loss of employment space in some areas. Are you looking at it, because it has been a really big change that has now been in operation for several years?

Jeremy Pocklington

We do not have any further analysis underway at the moment, but we pay close attention to the analysis that has been done, for example the work of the RICS and others on this.

Melanie Dawes

I am not aware of an evaluation of the type you are describing at the moment.

Helen Hayes

Moving on, now, to the issue of homelessness, rough sleeping numbers and the deaths of homeless people are still continuing to increase. The Government have made a commitment to halve rough sleeping by 2022, and to end it by 2027. Do you think this is achievable?

Melanie Dawes

Jo has been leading our work on this, and it is a huge area of priority for the Department. There is no question about that.

Dr Farrar

That is right. It is going well, at the moment, since we launched the rough sleeping strategy. We will not know whether the numbers of homeless, rough sleeping people have reduced until we have the figures at the end of January. In our rough sleeping initiative, we have focused on the 83 most challenged areas, and the messages we are receiving from those 83 areas are very positive. We expect to see a fall in rough sleeping in those areas. When it comes to homeless deaths, we take every death extremely seriously. We do not want to see people dying prematurely. We have been working very closely with local authorities, particularly over the cold weather. We have launched a cold weather fund of £5 million, which is already funding over 400 bed spaces. That is open to all authorities to the end of March so that they can find solutions for people who are sleeping rough, particularly during this winter period.

Helen Hayes

The rough sleeping strategy provides funding of £100 million over two years. How many people do you anticipate that this funding is going to help?

Dr Farrar

I am unable to say how many people. We hope it will help most areas of the country. We are putting quite significant funding into 83 areas with the higher numbers, and we are already seeing a difference there. We have just opened bids in December for other areas of the country to bid into our rough sleeping initiative. We are also using it to fund a rapid rehousing pathway, to give people somewhere safe to stay, to give them shelter, assessment and support, and single points of contact, so that people can move from streets into accommodation. We will continue to monitor the strategy, and as we evaluate it we will be able to look more closely at the number of people we have helped. In December we published our delivery plan, which you will have seen. It has given a comprehensive overview of all the initiatives that we have under the strategy.

Helen Hayes

Back in 2017, the National Audit Office noted that you were taking a light touch approach to your work with local authorities on tackling homelessness. What has changed at the Department since then, and are you confident that local authorities are adequately meeting their responsibilities under the Homelessness Reduction Act a year after it came into force?

Melanie Dawes

A huge amount has changed since then. We now have around 80 people on the rough sleeping side in the Department, including really expert people who have worked with homelessness and rough sleeping in local areas. Jeremy Swain has joined us, who has run charitable activities out there. He is running our team. In terms of the expertise and the investment we are making in the Department to support local authorities, I do not think anyone would describe our approach on rough sleeping now as “light touch”. We are very much working alongside. Whatever local authorities need, we are there to help. On the wider homelessness side, we have implemented the Homelessness Reduction Act following the leadership of Mr Blackman. That is still in its first year. All this work is still quite new. We have made a significant increase in our efforts here in the recent past, but again, while we do not have specific targets there on the wider homelessness front, we are working really closely with local authorities as they implement the Act. There are some really encouraging signs, but it is quite early days. If we need to do more, we will.

Helen Hayes

On the cold weather fund, the Department made available £30 million to be spent in the areas where there are the highest levels of rough sleeping taking place, with some quite specific directions to local authorities about how the funding could be used. They are to spend no more than a maximum of £2,000 per rough sleeper, and it can only be spent on emergency short-term interventions, not on longer-term interventions. Yet the Department is saying it will withhold 30% of those payments unless local authorities can demonstrate sustainability with regards to the individuals who have been funded by it. How is that supposed to work?

Melanie Dawes

Jo might want to say more about this, but we are essentially trying to make our money go as far as it possibly can in tackling the problem. Perhaps Jo can say a bit more about how those conditions stack up.

Dr Farrar

We have now opened up the cold weather fund to all authorities, and as I have said it is a fund of over £5 million. It is already funding many bed spaces, over 400 bed spaces. We are having some really good examples, for example in Manchester where we have a new 36-bed night shelter, and similarly in Luton and in Camden. We are seeing authorities respond to that. What we want them to do for rough sleepers is to provide them with a pathway, so that not only can they not be on the streets during the cold weather, but they can have suitable accommodation, and help and support for the future. We are working closely with other Government Departments. We are really pleased that in the NHS plan, for example, there has been a £30 million commitment to help rough sleepers. We want to make sure that people who are sleeping rough have all the support that they need.

Helen Hayes

The letter to local authorities specifically says that local authorities cannot use that money to employ, for example, additional advisers to work with homeless people.

Dr Farrar

That is the cold weather fund. That is a very small fund, specifically for cold weather, but alongside that there is the rest of the £100 million we are putting into rough sleeping, which allows local authorities to put a package of measures in place. We also have rough sleeping advisers in the 83 areas, and homelessness advisory and support teams that cover all local authorities and can help local authorities to work out how they can get the right pathway for people who are rough sleeping and access the right funds, so that they have holistic support. On the cold weather fund, we need to make sure that people are not sleeping rough on the streets during winter, and there is adequate provision for that. It is a small amount of money.

Helen Hayes

How are you tracking the sustainability of those interventions? You would expect rough sleeping to reduce due to interventions like the cold weather fund, and then the Government to count the number of rough sleepers. That funding is for the short-term only and not there throughout the year. How are you keeping track of the extent to which those individuals who were helped out of the very harshest conditions for a short period of time are then finding their way into permanent, secure accommodation?

Dr Farrar

We are monitoring local authorities very closely, and we have staff who are based with local authorities, particularly in the 83 areas, to make sure there is a pathway for people. When we look at wider homelessness, we have also introduced a new data system, which for the first time can track individuals and their cases, so that we can look over time at how people are progressing.

Melanie Dawes

It is a mix of formal evaluation, which we have for some of our programmes, and responding to the feedback that we get. This is not about the Department telling local authorities that they must do X and Y. We are, as you say, attaching some quite stringent conditions to some of our funding, but it is very much a dialogue. I think local authorities would say that we have truly expert people here, but at the same time local areas need to work out what kind of service patterns they need in their communities. If we find that a particular intervention is working or would work better if we relieve some of the conditions next year, we will be able to respond to that. Right now, we are very conscious that this is an extremely short-term and urgent priority, so we are getting things moving as fast as we can, and then we will adapt as we go, particularly through the summer months as things tend to get slightly easier, and then we gear up towards next winter.