English housing associations and their £63.5bn of debt ‘provisionally’ reclassified out of public sector
The Office for National Statistics (ONS) has published a provisional reclassification of English housing associations and their £63.5bn of debt, signalling a move off the public sector balance sheet and back into the private sector.
The ONS has also indicated that Welsh registered social landlords are on a similar path, with Scotland a little further behind in the process and Northern Ireland expected to take longer due to the current political situation.
Figures to March 2017 show that registered housing associations across the UK had £69.8bn of debt at March 2017, which is currently classified to the UK public sector balance sheet. Of this, £63.5bn was held by English associations.
The ONS published a provisional classification decision for English private registered providers (PRPs) yesterday (31 October 2017), after it wrote in confidence to HM Treasury at the end of August 2017 setting out its view.
HM Treasury had invited the ONS to consider a provisional classification of PRPs “in respect of some additional information it provided on 21 June 2017”.
The letter from the ONS said: “Having carried out an assessment on the additional information, ONS has determined that if the proposed regulations come into force as proposed then local authority and central government influence in combination with the existence of nomination agreements would not constitute public sector control, and English PRPs would be reclassified as Private Non-Financial Corporations.
“As such, ONS will be happy to review the classification once the secondary legislation has been enacted.”
That assessment, it said, had been endorsed by the Economic Statistics Classifications Committee and Director of National Accounts and Economic Statistics.
However, the ONS will not formally reassess the classification of English housing associations until the proposed legislation has passed through Parliament.
A main piece of the secondary legislation - Regulation of Social Housing (Influence of Local Authorities) (England) Regulations 2017 - is focused on the level of local authority representation on a housing association board, commonly referred to as a ’golden share’.
The draft legislation says this should not exceed 24 per cent of board membership, which could have a particular impact on large scale voluntary transfer (LSVT) associations and lead to the departure of a number of local authority members. The details need to go before the Joint Committee on Statutory Instruments, whose membership was only agreed this week.
An ONS spokesperson told Social Housing that while it could not be more specific on timing at present, a further review could be undertaken “relatively soon” after the passage of the respective pieces of legislation.
He added that any reclassification of the national figures would have to await a definitive decision but that it would then be implemented "as quickly as practicable" and backdated to the point at which the legislation became effective.
Formal reclassification is therefore not expected by the time of the Chancellor Philip Hammond’s Budget on 22 November 2017, ahead of which there has been a particular focus on balancing fiscal targets, public finances and calls for increased public spending.
Social Housing has asked the Office for Budget Responsibility whether it would consider a provisional reclassification in its national debt forecasts.
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Two years and counting
The ONS announced plans in October 2015 to reclassify registered housing associations, bringing an estimated £59bn of HA debt onto the national balance sheet by early 2016.
The ONS had concluded that all associations are subject to public sector control under the current regulatory regime overseen by the Homes and Communities Agency, which was formed in 2008.
The move had also sparked some fears that the UK government could take action on the sector, such as attempting to package up and sell off grant to private investors – a concept whose viability was generally questioned at the time.
A deregulatory package was hastily put together in agreement with government, focusing on the removal of consents and a new ’special administration’ regime, and put into primary legislation through the Housing and Planning Act 2016.
The ONS then took action on registered social landlords in Scotland, Wales and Northern Ireland at the end of September 2016.
The UK’s £69.8bn of registered HA debt includes £63.5bn in England, £3.2bn across Scottish RSLs, £2.5bn for Wales and £0.6bn for Northern Irish associations.
Both Welsh and Northern Irish RSLs raised concerns that moving into the public sector could ‘severely constrain’ investment.
Wales, Scotland and Northern Ireland
The ONS wrote a similarly worded letter about Welsh registered social landlords to HM Treasury on the same date in August 2017, after the Welsh Government invited ONS to consider the provisional statistical classification of RSLs, most recently in respect of additional information provided on 14 August 2017.
That followed the assessment by the Classifications Branch Secretariat of a copy of the draft Regulation of Registered Social Landlords (Wales) Bill.
It said the Secretariat determined that if the Bill receives Royal Assent in its current form, the "totality of public sector influence exercised through central government, local authorities and the existence of nomination agreements would not constitute public sector control".
However in this case it pointed out that this was “an informal assessment carried out by the Secretariat”, and has not been endorsed by the Economic Statistics Classifications Committee or the Director of National Accounts and Economic Statistics.
It added: “ONS would be happy to formally review the classification of Welsh RSLs if and when the Bill passes through the National Assembly for Wales.”
The Scottish situation is a little behind England and Wales.
The Scottish Government said immediately after reclassification that it is bringing forward legislation that will ensure RSLs are returned to the private sector.
The Social Housing Finance Conference Scotland event earlier in October 2017 heard that the particular focus there is on abolition of the consents regime and changes to intervention powers.
The ONS’s latest statement said: “Although ONS would not reassess the classification of the housing associations sector until the proposed legislation has passed through the Scottish Parliament, ONS will undertake a further review of the sector if and when this happens.”
Any efforts to reclassify HAs in Northern Ireland, meanwhile, are subject to the resolution of the current political situation between Sinn Féin and the DUP.
*Hear from the social housing regulator at the Social Housing Annual Conference on 9 November 2017. Click here for more.
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