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Housing and Regeneration Bill

I could not disagree with that. I am grateful to the noble Lord for moving his amendment, as I hope it will enable me to provide reassurance about the proportionality that we have provided here. The amendments raise issues of principle. I shall set out some technical explanations as to why we are taking this approach, but they are serious issues that affect a range of the regulator’s most serious enforcement powers. I should stress that most of the existing powers are held by the Housing Corporation. The most important of these is the ability to transfer land, which in the past has been used most sparingly in cases where a provider is not viable in order to pass its assets, including social housing, to another provider before winding it up. The amendments would also affect the regulator’s powers to restrict providers’ dealings and to suspend or remove the officers of a provider during or following an inquiry. They would also affect some new powers, such as those relating to the transfer of management, appointing managers and amalgamation. These are mainly new powers taken to meet Cave’s recommendations that the regulator should intervene more flexibly and proactively in the interests of tenants. The amalgamation powers were added in another place following a proposal by colleagues of the noble Lord, Lord Dixon-Smith, and the noble Earl, Lord Cathcart, for a more flexible approach to the regulated transfer of land of industrial and provident societies. The problem I have with the noble Lord’s amendments is that I see them as making these powers rather more difficult to use. His argument is essentially that the regulator should not be able to use its more serious powers, such as those in relation to the transfer of land, on the basis of a trivial breach of standards; nor should it be able to transfer land on the basis that the transfer would be likely to improve the management of the land or that it would be likely to improve the management of some or all of its social housing. The noble Lord also queried how action could be taken on the basis of a breach of standards or improved management when an inquiry under Clause 203 can be held only where the regulator suspects that there has been mismanagement. First, I need to reassure the noble Lord, just as my colleague in another place sought to reassure housing associations. The power relating to the transfer of land and the other powers here could never be used on the basis of a trivial breach of standards or simply because the regulator felt that it might be a good idea. We have just discussed Clause 215, which requires the regulator, when using enforcement powers such as these, to consider not only the desirability of providers being free to run their own businesses—a very important protection—but also the materiality of any breach. That means whether it is serious, whether it is recurrent and whether it is urgent. It applies not only to whether to intervene but to which power to use and how to use it. The regulator will have to have regard to the fundamental objectives, and objective 10 requires it to minimise interference and be proportionate. There will be a materiality test and a proportionality test to satisfy before the regulator can use these serious enforcement powers. Furthermore, the regulator would have to issue, consult on and have regard to guidance on the use of its enforcement powers. It is simply not possible to use a power as extreme as that relating to the transfer of land on the basis of anything less than the most serious of breaches. I want specifically to address the point that the regulator should not be able to use a transfer of land power or appoint new management simply on the grounds that the land or management would be improved by the change. Perhaps I may explain why it is necessary that this should remain. Again, this is not a new ground for action; it is part of the current system under the Housing Act 1996. If we removed it, it would make the transfer of land power and other powers much harder to use than at present. Perhaps we would consider removing it if the powers were currently too easy to use or were being abused. However, the reality is that in practice it is very hard to use transfer of land powers. For example, the regulator would be depriving the provider of its property and the Human Rights Act would be engaged. This simply would not permit these powers to be used on non-serious grounds, and I believe that it would be extremely unwise to limit them beyond the overarching safeguards in the Bill. It would undermine the regulator’s power to act in extreme cases and increase the risk of insolvency. As I have said, the Housing Corporation rarely uses transfer of land and uses it only where all else fails. In fact, in a recent case it spent several years working with an association to improve its capacity and encourage a voluntary solution, but to no avail. This is a last resort, partly because I hardly have to say that the individual cases are time-consuming, extremely expensive and highly contentious, and there must be a watertight case before there is any legal challenge. The Secretary of State must give approval, and that is not given lightly, and it needs to find a stable organisation to transfer to, one that will accept the liabilities which transfer along with the land. The Housing Corporation and, in future, the regulator, do not act only on the basis of mismanagement, rightly in my view. Mismanagement is retrospective, but what is important here is that the regulator must also be concerned with the future management of homes and the best interests of tenants and the public. In all of the last four transfer of land cases considered by the corporation’s board, it concluded that transfer was justified on both of the acceptable grounds for action: that mismanagement had taken place and that the management of the land would be improved if it were transferred. The noble Lord made the point that an inquiry may be held only when the regulator suspects that the affairs of a provider may have been mismanaged, so why should action be taken on any other basis? Let me be clear that the test for starting an inquiry is retrospective, but that does not mean that the aims of the inquiry set by the regulator or its findings are restricted to whether there has been mismanagement. Other concerns may be uncovered during the inquiry that the regulator needs to take into account when deciding what action to take. It is possible that it might even conclude that there had been no mismanagement in relation to the matters under investigation, but nevertheless it needs to act. Each case must be decided on its individual characteristics. The status quo works. It gives the regulator flexibility within the overall framework of checks and balances, and it is fair. Housing associations have strong protections both in the Bill and in the courts. An arbitrary reduction in this power might be justified if there had been any unfair or arbitrary exercise of those powers or if they were unconstrained, but there have not been. Transfers so far have shown benefits for tenants and public money. Restricting this power so heavily may instead result in a severe and substantial prejudice which would only be to the advantage of the worst providers, those playing a long game and seeking to wear down the regulator in terms of time and cost. I hope that I have convinced noble Lords that it would not be advisable to alter or restrict in the way proposed the grounds on which the regulator’s most serious powers may be used, and I hope that putting this explanation on the record will allay the concerns that have been expressed. However, the amendments are not limited to that because they would also apply many powers that currently are used only for non-profit providers to profit makers. I shall come on to the issue of how to apply the transfer of land powers to profit makers in a moment. We have laid amendments to do this in respect of their social housing, because that is vital. We have already amended the Bill so that in the main it treats non-profit and profit-making registered providers in the same way, but there is no point in applying powers to profit makers in exactly the same way when they cannot apply or are inappropriate. What matters to tenants is that they have similar outcomes, even if the process is slightly different. We should not take unnecessary and disproportionate powers over any private sector provider. For example, there is no point in applying the powers on amalgamation to profit makers. This power applies only to industrial and provident societies and it is extremely unlikely that profit makers will have that organisational structure, and in any case it is simply not possible to merge only a profit-making provider’s social housing because all the provider’s assets would be bound to form part of a merged body. It would not be appropriate for the regulator to measure assets that are not connected to social housing. I am also reluctant to extend the powers in Clauses 255 to 260 to profit makers. Clauses 255 to 257 prevent an association making poor financial decisions such as selling assets without the regulator’s consent during or immediately after an inquiry. As I have said before, we can restrict the disposal of social housing by a profit maker because consent can be refused. I think it would be excessive to go further and enable the regulator to usurp shareholders’ powers by suspending or sacking a profit maker’s directors, especially as social housing is likely to form a small proportion of their business. We have tried to come to a fair and sensible position in relation to the grounds on which the most serious powers can be used and how they apply to profit makers. I think we have the balance right between protecting tenants and assets and being too intrusive. I have had to go into great detail, but I hope that the noble Lord will feel able to withdraw his amendment. [The Sitting was suspended for a Division in the House from 6.58 to 7.08 pm.]