Hurdles hold up housing companies

4 Jan 01
Local authorities hoping arm's length management companies will prove an attractive alternative to the wholesale transfer of council housing may face a tortuous journey setting one up

05 January 2001

Local authorities hoping arm's length management companies will prove an attractive alternative to the wholesale transfer of council housing may face a tortuous journey setting one up.

The government has set aside £160m for the establishment of arm's length companies in 2002/03. But, in a consultation paper published last month, it admits that councils might have difficulty meeting the deadline for applying for funds.
Authorities have to pass a series of stages and meet various criteria before they can even submit an application. It is open to doubt whether any will get their hands on money that year, or whether the money will end up being thrown in with the £300m due to be allocated in 2003/04.

With increasing numbers of councils poised to transfer most – if not all – of their homes to registered social landlords, arm's length companies could be the last viable way of keeping significant amounts of social housing under local authority control.

Councils which set up these companies are being asked to separate their strategic housing role from their landlord function. The new companies will set rents, manage estates and have more freedom than councils to invest in their stock. But, unlike under a transfer, ownership of the housing will remain with the council.

To establish an arm's length company and receive cash from the government, local authorities must first consider the option in the context of their Housing Revenue Account business plan and then consult tenants (possibly, but not necessarily, through a ballot), employees and other interested parties.

Having applied to the Department of the Environment, Transport and the Regions for the necessary consent, they should then get the company up and running at the same time as conducting a Best Value review.

Once the new company has been in place for an unspecified 'reasonable period', the council has to invite in the housing inspectorate to check how the company is performing.
Only companies that receive an 'excellent' rating in their inspection report will be able to apply for money from the DETR. This application must be accompanied by a business plan for the new company.

'It's certainly not going to be an easy process,' says Ken Lee, chairman of CIPFA's housing panel. 'A lot of local authorities felt that this was going to be an alternative route, but they're certainly going to have to jump through some hoops to get to it.'

Councils could opt for an inspection before deciding whether to set up an arm's length company, but this would not negate the need for a further one later. The housing inspectorate is due to consult soon on what will constitute 'excellence'. For now, local authorities do not know what standard they will need to achieve to attract extra money.

Even when they do, Lee doubts whether many will wish to invest so much time and effort in an exercise which is not guaranteed to lead to extra resources, especially when it might be simpler to transfer their stock to an RSL.

'Some local authorities will pursue arm's length companies because of political dogma, but even those which are die-hard on keeping all their houses will find the hoops unpalatable,' says Lee, director of corporate resources at West Lancashire District Council. 'Even if you pass through them all, there is no guarantee that you're going to get any money.'

Paul Lautman, head of housing at the Local Government Association, is equally disappointed that the process of setting up a company is likely to be so long-winded and cumbersome.

A new company would be unable to establish a track record and carry out a performance review in under 12 months, while the inspection could easily take another three. 'We need to find an effective way of getting these things off the ground,' he says.

Consultations continue until the end of January. Final detailed guidance, including more advice on bidding for extra resources, is expected in March.

Although the government has made setting up a company convoluted, it does not intend to be prescriptive about the exact form the bodies should take.

Companies will be limited by guarantee and local authorities must not be in a majority on the board of directors, which must include tenant representatives.

No more than 12,000 homes can be managed by a single company, but group structures will be allowed in the same way as for RSLs set up following transfers.

In many ways, the companies could end up looking like RSLs tacked onto the side of a local authority with a separate budget and business plan. They will retain any surpluses generated, while all additional resources paid to a council on behalf of a company must be passed on in full.

Companies must be given genuine incentives to 'take the key decisions relating to the stock they manage, pursue innovative solutions for doing so, and so deliver high-quality services to tenants', says the consultation paper.


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