29 September 2016
Article by Jonathan Baxter, National Assembly for Wales Research Service
The Office for National Statistics (ONS) today (29 September 2016) announced that Registered Social Landlords (RSLs) in Wales are to be reclassified as public sector bodies in the national accounts. This decision could negatively impact on the ability of RSLs (what most of us call housing associations) to access private finance, and consequently their ability to develop affordable housing. Analogous decisions have also been announced by ONS today in respect of Scotland and Northern Ireland.
Today’s announcement had been widely expected by the sector. It is not a political decision, but rather the ONS following international rules on public sector accounting. In 2015, the ONS reclassified English Private Registered Providers (PRPs) of social housing, also colloquially called housing associations, as public sector bodies. That decision highlighted the amount of government control over associations as the reason for reclassifying them. The UK Government subsequently brought forward a number of measures in the Housing and Planning Act 2016 to deregulate the sector in England, so the ONS will be able to return English PRPs to the private sector at some point in the near future. It now seems that the Welsh Government may have to do the same and bring forward its own legislation to reduce the government controls identified by the ONS.
The practical impact of the reclassification is to put housing association debt on the public balance sheet for national accounting purposes, greatly increasing public sector borrowing much to the chagrin of HM Treasury. In Wales, this could add over £2 billion of debt to the public sector balance sheet. In England, the decision increased public sector net debt by almost £60 billion.
The ONS made its decision to classify PRPs as public sector bodies in England primarily on the basis of legislative and regulatory changes brought about through the Housing and Regeneration Act 2008. The ONS found that the amount of control exercised by the UK Government over housing associations, primarily through the Homes and Communities Agency (HCA), meant they should be classed as part of the public sector. Although the regulation of Welsh Housing Associations is primarily governed by the Housing Act 1996, many of the same controls are exercised by the Welsh Government (in its role as the regulator of housing associations) as by the HCA. That is reflected in today’s statement by ONS, which says they:
…concluded that RSLs are subject to public sector control due to, amongst other things: Welsh Ministers’ powers over the management of an RSL, Welsh Ministers’ consent powers over the disposal of land and the disposal of housing assets, and Welsh Ministers’ powers over constitutional changes of an RSL.
While the Welsh Government is expected to be given some time to resolve this issue before the Treasury seeks to impose controls on borrowing, a decision on the way forward is likely to be made soon to avoid uncertainty, particularly amongst lenders. Community Housing Cymru, which is the representative body for housing associations in Wales, has issued a statement and will issue legal advice to its Members shortly.
Moves towards what could be perceived as deregulation of the sector may be resisted by some stakeholders, but there may be little alternative. If Welsh housing associations remain part of the public sector (for accounting purposes at least) they could be subject to Treasury caps on borrowing and the target of delivering 20,000 affordable homes by the end of the Fifth Assembly could be far more challenging.