Communities and Local Government Committee
Oral evidence: DCLG Annual Report and Accounts 2016, HC 863.
Wednesday 11 January 2017
Ordered by the House of Commons to be published on 13 January 2017.
Members present: Mr Clive Betts (Chair); Bob Blackman; Helen Hayes; Kevin Hollinrake; Julian Knight; David Mackintosh; Melanie Onn; Mr Mark Prisk; Alison Thewliss.
Questions 1 - 106
Examination of Witnesses
Melanie Dawes, Permanent Secretary, Department for Communities and Local Government; Simon Ridley, Director General, Decentralisation and Growth, Department for Communities and Local Government.
Q1 Chair: Good afternoon, welcome, and thank you very much for coming in to give evidence to the Committee this afternoon. I think you have both been here on previous occasions. As you appreciate, this is a one-off session on the Department’s annual report and accounts for 2015‑16. Just to begin with, I will ask Committee members to put on record any particular interests they may have that are relevant to this session. I am a vice-president of the Local Government Association.
David Mackintosh: I am a Northamptonshire county councillor.
Julian Knight: I employ a councillor in my office.
Bob Blackman: I am a vice-president of the LGA.
Helen Hayes: I employ a councillor in my parliamentary team.
Chair: Those are our interests on the record. For our record, could you just say who you are and your position in the Department?
Melanie Dawes: Thank you very much, and thank you for inviting us today. I am Melanie Dawes, the Permanent Secretary at the Department for Communities and Local Government.
Simon Ridley: I am Simon Ridley, director general for decentralisation and growth at the Department for Communities and Local Government.
Chair: That is a different role from the one you had last time.
Simon Ridley: Indeed it is, Chair.
Q2 Chair: Let us begin with what is obviously a very current and real issue—not that other issues in your Department are not current and real, but this is the issue of social care and how we are going to fund it next year and beyond. There was some concern, when the idea of the precept was raised initially, in the previous year, as a means of funding social care, that it was not really sufficient or appropriate. Having listened to those concerns, the Department decided to increase the amount of precept that local authorities could raise. Was that an appropriate response to the concerns that had previously been raised?
Melanie Dawes: I should say that, of course, the wider funding package includes the use of the social care precept but also additional money through the better care fund. Social care was a really big issue for us in the last spending review. I acknowledge your opening remark that this is a very important and current set of issues. On the use of the precept, the Government have given councils the ability to bring forward their use of the precept into 2017, 2018 and the following year. We will acknowledge that, while significant funding for social care is coming through towards the end of the spending review period, it was the earlier years where councils were saying that they still needed more support. In providing that ability to be flexible, we have responded to some of those concerns. Overall, as you will be aware, the precept cannot go up by more than a total of 6% over the three or four years.
Q3 Chair: It is bringing it forward, isn’t it? It is actually not new. Over a three-year period, this will not amount to any more money that councils can raise.
Melanie Dawes: No, it will not amount to any more by the end of the period, but it is more money during those early years. If you look across the spending review period as a whole, some £650 million of extra funding is available for services.
Q4 Chair: One of the other criticisms is the fact that the precept will not raise sufficient money to do anything other than pay for the living wage. That is still the case, isn’t it? Even next year, the size of the precept, if an authority puts its precept up by 3%, is probably just about going to cover the increased costs of the living wage in that year and nothing more.
Melanie Dawes: We did factor the increase in the living wage into our spending review analysis and advice, so that is not something that is new now. It was all part of our initial calculations.
Q5 Chair: It is true, isn’t it? For many authorities, if they put the precept up 3%, it will cover, or probably in some cases not even cover, the extra costs of the living wage.
Melanie Dawes: We do not have any national figures for that, so I am not sure I recognise the picture that it is not covered.
Q6 Chair: The LGA has produced some, hasn’t it?
Melanie Dawes: There are a number of figures out there, but we have not sought to match, through any particular funding stream, any of the cost pressures that are present for social care services.
Q7 Chair: It is just plucked out of the air, then.
Melanie Dawes: No. Both in the spending review last year and then in putting together this year’s settlement, we have sought to respond to the representations made to us by the sector, the analysis done by the sector and our own analysis, with Departments, of the local government finance system as a whole, with regards to opportunities, risks and issues.
Q8 Chair: You have not done your own calculations of what those pressures are.
Melanie Dawes: We and the Department of Health do not have a particular figure that we have published for the overall living wage costs for social care. It is clear that there are those costs. For many people in the sector, this is a very important increase in their income, and a significant portion of the workforce will benefit from it. We would not deny in any way that it is part of the cost pressure that the sector is facing.
Q9 Chair: You have not thought about those calculations.
Melanie Dawes: We have not published particular figures.
Q10 Chair: Have you done any calculations?
Melanie Dawes: We have done calculations.
Q11 Chair: You have not published them.
Melanie Dawes: We have not published them, no.
Q12 Chair: But you know them, do you?
Melanie Dawes: There are a range of estimates, and there is not a definitive number that 100% represents the figure.
Q13 Chair: Do you accept that a 3% increase in precept will not cover the costs of the living wage in many authorities? You have done the figures, so let us have the answer.
Melanie Dawes: I do not have figures here that say what those figures are, authority by authority.
Q14 Chair: You must recognise that that is probably true.
Melanie Dawes: No, we do not recognise that. We need to look at the funding in the round. It was never the case that the precept was intended just to match the increase in the living wage.
Q15 Chair: Let us go on and look at the precept. It is understood, and the Department and Ministers have accepted, that the precept brings different amounts of money into different authorities, and the amount of money going into an authority will not necessarily match the needs of that authority and the people who live there. When you allocated the money from the new homes bonus, you had two choices. You could have allocated it, as you have done, according to the grant assessments; or you could have allocated it according to the better care fund formula. Why did you not do the latter, when that is specially designed to benefit authorities that can raise the least from the precept?
Melanie Dawes: I should say, of course, that all these figures are out for consultation until the end of this week, and then they will come through for parliamentary approval. You are right that we have allocated this coming year’s additional grant, the one-year extra funding for the social care authorities that comes from the new homes bonus savings, on the basis of social care need. Of course, that is in the context of the very significant shift a year ago that the Government made in allocating revenue support grant on the basis of a broader view than just the service needs and looking at the extent to which councils were able to raise revenue in different places. The decision to allocate that extra social care grant this year was made in that broader context. It is not unusual for a one-year spending amount, which is a one-year additional grant, to look specifically at the service pressures for which that grant is intended.
Q16 Chair: It is sitting alongside, as the other measure to help try to deal with the costs of social care, the ability to bring the increase in the precept forward, as you have just described. Given that the better care fund is specially designed in its allocation to help those authorities that benefit least from an increase in precept, why did you not allocate the new homes bonus on the basis of the better care fund distribution? Did you not look at that as an alternative and why did you dismiss it?
Melanie Dawes: Obviously, these are decisions that Ministers have taken in the round, as I said, on the basis of the wider settlement that was published last year and the four-year deal that councils have had. As I said, there were a number of options available. Ministers decided, bearing in mind the broader settlement and the way that it was distributed, including the better care fund and the revenue support grant, that, for this money for social care, which is intended specifically to help social care authorities in 2017 and 2018, they would allocate the funding on the basis of the social care needs formulae that we are familiar with.
Q17 Chair: Do you accept, in the meantime, that the extra money raised will go according to an authority’s ability to raise through the precept, and will not be offset by any particular methodology in terms of the new homes bonus distribution?
Melanie Dawes: I am sorry, I have not quite understood the question.
Chair: You are basically accepting that the precept increase will benefit some authorities far more than others, not on the basis of need but according to their ability to raise the money, and there will be no offsetting of that in the rest of the settlement.
Melanie Dawes: When we introduced all the changes a year ago, the fact that the precept, as you say, most benefits those with a stronger council tax base was all part of a wider analysis that we did of the options for Ministers as part of last year’s spending review decisions and the provisional and then final settlement decisions. That overall envelope for council tax and for the precept was set in that context. In bringing that forward and allowing larger increases next year and in the following year, that is in the context of the wider analysis and the allowance that was made for the strength of the tax base in allocation of grant.
Chair: I am not sure what that answer meant, but let us move on.
Simon Ridley: I will just reinforce what Melanie said. Melanie is saying that, with regard to the four-year settlement, which is the larger chunk of the resources to local authorities and to social care authorities in particular, a year ago we changed the methodology by which we distribute, to take account of council tax and business rates. The reductions in revenue support grant over the four years do adjust for those tax bases in a different way. For the additional money for social care this year, as Melanie said, we have used the needs formula. That is in the context of a settlement that overall is taking account of the ability of councils to raise taxes.
Q18 Chair: We will have to reflect on that, and we might come back to you with some further questions on it in writing, if that is okay. This is the here and now, and we are trying to sort the problems out for the next three years. There is a lot of discussion, and indeed the Prime Minister accepted this at the Liaison Committee, about the need to find a longer‑term settlement, however we go about doing that. What discussions are you having with other Departments now, because this is more than a one Department issue, about trying to find a sustainable system for the future, including hopefully some form of better integration with health care?
Melanie Dawes: You are absolutely right that these are not just for DCLG. They are not just for the Department of Health. Some of them raise potentially quite big fiscal questions for the Treasury. As the Prime Minister has said, there are medium and longer-term questions here and the Government have begun consideration of those. We are working with the Department of Health and the Cabinet Office to think about those issues.
What is also relevant is the way that we finance local government. The business rates retention proposals will be part of the thinking here, as will the overall funding for the NHS and the way that we develop the better care fund and seek to build on integrated health and social care plans beyond this Parliament. It is partly about funding, but it is also about service delivery. It will need to be a system-wide view.
Q19 Chair: That seems to be a description of looking at how you might take the existing system forward. Is there any blue-sky thinking going on between Departments that might offer options to Ministers about completely different ways of funding health and social care?
Melanie Dawes: I am very conscious that there is a lot of conversation going on about this at the moment, and indeed it was a topic at Prime Minister’s Questions today. I know that you and your fellow Committee Chairs have written to the Prime Minister. All I can say is what our Ministers have already said, which is that these are issues that need to be under consideration, but I do not think you can expect me to be giving any details that the Prime Minister and other Ministers have not already been able to share.
Q20 Kevin Hollinrake: To clarify a point you made earlier, you understand the future need pressures in different local authority areas for adult social care, but you just have not correlated that with what can be raised through the precept. Is that a fair assessment of what you said?
Melanie Dawes: Yes. What I am saying in response to your questions about the national living wage, and about the precept, is that we have not tried to match individual changes to individual needs or pressures. We have looked at this across the system as a whole. This is, these days, largely an un-ring-fenced pot of funding that goes to local government. We have sought to look in the round, which is why it is difficult to then say, “Why is this grant in this particular form of distribution?” It needs to be seen in the context of the whole system and all the allocations that we made, both a year ago and in the changes that have been made for this second year of the spending review. That is the main point that I would wish to get across. We have not seen it in the context of particular pots of money funding particular areas of pressure.
Q21 Kevin Hollinrake: Would you agree that a future longer-term solution needs to match the two to a local area? North Yorkshire, for example, which I represent, has certain demographic pressures, and it needs to make sure that the money it raises matches those pressures without having an unfair burden on the local council tax payers in those localities.
Melanie Dawes: We will always need to consider the spending power that local councils have in different areas and that, for some councils, the council tax or business tax base is not as strong or growing as fast as it is in other areas. We will always need to take that into account, as we did last year in the settlement. At the same time, we will need to take into account the needs and particular pressures in different areas. That is why I mentioned earlier the business rates retention proposals and the commitment of the Government to a fair funding review, to look at some of these issues in the round. Those will be questions for the next spending review period and the next Parliament, rather than for this one.
Q22 Kevin Hollinrake: I was going to come on to that exact point, on the fair funding review. Where are we with that? When we will see the outcomes of it? There are bound to be winners and losers; it has to be some kind of zero-sum game. How will we manage those processes?
Simon Ridley: As you will be aware, the Government published a discussion document about the fair funding review before the summer break. We had a number of responses to that. The Government are considering that alongside the consultation on the 100% business rate retention. We will be bringing forward further consultation on the fair funding review, which goes into more detail about how it will be taken forward, as we go forward with 100% business rate retention in the coming weeks and months.
We are working incredibly closely with the Local Government Association and local government sector on this. The steering groups and technical groups around these reviews are co-chaired. We are publishing the papers on it. An enormous amount of technical work needs to be done. The needs formulae are complicated. There is a balance between complexity and specificity about the right data to use. The purpose of the fair funding review is to grapple with the real question of need in different places, and the balance between that and the ability to raise resources. The conclusions of it all will come forward at the point of introduction of the 100% business rate retention scheme. As to precisely when that is, the Government’s commitment is that it will be done by the end of the Parliament.
Q23 Kevin Hollinrake: Will it be simple enough for a parliamentarian to understand it? We had a session on this, and the current formula is hugely complex and nobody really understands it. That was the impression we got.
Simon Ridley: It is an incredibly technical subject. With the 50% business rates, we tried write a number of documents in plain English to help members of the public. We will continue to try to explain things as simply as we can, so that everybody can understand at least the major trade-offs, choices and issues. The reality, when considering even just an individual service and the pressures and the needs around social care, divided by 150 local authorities all with different tax bases, is that it gets very complicated very quickly.
There is a real trade-off at the heart of it between the simplicity of a formula and its responsiveness to the number of different factors. The more different factors we layer into a formula, the more different data sources people want to use and the more precise statistical regressions people want to apply to it, the more complex it invariably gets. One of the real choices in the review, which we will be exploring in the next round of consultations, is how to think about that balance and the best approach to that. We will be doing work, and I dare say others will be. We will be exploring that, I am sure, with this Committee and others in the future.
Q24 Kevin Hollinrake: I have one final question. You mentioned co-Chairs looking at this. There have been a number of calls to look at the difficulties we have of funding healthcare and adult care cross-party, with a long-term, strategic solution. How realistic is that politically? For instance, we are producing a report. The Health Committee has produced a report. Are those things taken seriously? We will make cross-party, long-term suggestions on how we might deal with this. Will these suggestions really be taken into account by the relevant Departments?
Melanie Dawes: You are raising quite a big political question for Ministers. We are aware, and our Ministers are all aware, of the desire for a long-term review and a cross-party approach. I cannot really say any more than has already been said by the Prime Minister and others in the last few days on that. On the specific question of whether your reports are taken seriously, yes, they are. I know that Marcus Jones is giving evidence to your inquiry in a few weeks’ time, and we will definitely be interested to know your conclusions. I am sure that joining up with the Health Committee is something that we will try to do with the Department of Health as well. If there is anything we can do to facilitate that, we are happy to do it.
Q25 David Mackintosh: I want to talk about the troubled families agenda. The national evaluation of the programme was published on 17 October last year. Do you think it was a mistake to expand the programme before the evaluation was complete?
Melanie Dawes: We already had quite a lot of good, early evidence on the programme, about what was working and where we could improve it, when the decision was taken to expand it. Although the national evaluation is a very important piece of research, we already had information from payment by results outcomes. We had early evaluation studies, particularly looking at families’ experiences, of the nature of new services that local authorities were managing to put together with their partner agencies. There was a good body of evidence already to show where the programme was succeeding and the things that we could do to improve it.
Q26 David Mackintosh: Was that confirmed in the evaluation?
Melanie Dawes: The evaluation had a really big and quite comprehensive evidence base. There were six strands to it. As I am sure you will know, it was not able to show, at a national level, looking at national administrative data, that the improvements in family circumstances were solely due to the programme. As I said in evidence to the Public Accounts Committee, this is a very big ask of any programme, particularly in this complex field of social policy. We were not able to prove that through the evaluation.
That was disappointing, but it does not detract from some of the other positive responses that we have seen in the evaluation, including very clear evidence on families’ perceptions of the programme. It also does not undercut the responses that were paid for in the payment by results mechanism. For us, it is about learning, improving and developing a programme for the future, which is what we are seeking to do.
Q27 David Mackintosh: The evaluation said it was unable to find consistent evidence that the troubled families programme had any significant or systemic impact. Do you think it is good value for public money?
Melanie Dawes: As I said earlier, we feel that there are clear outcomes we can point to. It is just that the evaluation was not able to confirm at a statistical level, which as I said is a very high bar, that the improvements we saw were solely due to the programme. On the question of whether it is value for money, again, we have very good local evidence from individual local authorities about how they believe the troubled families programme has reduced their costs. For example, Leeds and Sheffield are two authorities that have either reduced or steadied the numbers of looked-after children in their areas, and they assign some of that benefit to the improvements they put in place to services through troubled families and getting to families earlier before they got to that level of need. That has definitely saved them money. We were not able, through the evaluation, to put a national number on that, for the same reasons as we were not able to prove at a national level, incontrovertibly, the impact of the programme. We are confident that the savings are there, and we have developed what we call our cost savings calculator to help local authorities drive the savings out with their local partner agencies. We remain hopeful that we can get some stronger national numbers. As I say, if we can do that, it will be a real first. Most programmes do not seek to do that or to be so ambitious, and it is a very high bar to set ourselves.
Q28 David Mackintosh: I am pleased to hear that, because before I was in Parliament I was a council leader when the troubled families programme started. Anecdotally, I saw exactly the same thing you described, which was a huge impact on communities and on families. However, it will take a long time to build the evidence base to see it, so it is right sometimes to ignore what you are seeing coming through in the figures, because you are getting anecdotal evidence.
Melanie Dawes: In the new programme, we are putting more effort into looking at sustained, longer-term outcomes. One of the criticisms of the last programme is that the results we looked at were quite short‑term. That was the nature of what we were trying to do. For the new programme, we are collecting data continually, so that we can confirm that this is a sustained improvement and so that local authorities and their partner agencies can respond accordingly. That is quite a big improvement. Also, the data will be available much more regularly, rather than just at the end of the programme. One of the big investments we have made here is in joined-up data locally, which will help us to join up services in the future.
Q29 Julian Knight: I will follow up on troubled families. In Solihull, in the same way as my colleague here has mentioned, anecdotally, we have seen up to a 40% reduction in police call-outs in certain parts of north Solihull. Is there not a fundamental failure here with the evaluation process? I know that these things are pretty difficult, but it is the job, effectively, of the Civil Service to put numbers to this sort of thing. How do you account for that failure and what are you going to do about it?
Melanie Dawes: I would not describe it as a failure.
Q30 Julian Knight: You cannot tell me whether the scheme is a success. As policymakers, we need to know that.
Melanie Dawes: We tried in the evaluation to do something very ambitious, which was to take data from local programmes in 150 areas, across a range of services, join it up to national administrative data that was taken from different sources, and then prove impact at a national level. With hindsight, we may have expected too much from that evaluation. We only ran the evaluation for between 12 and 18 months. We only looked at data for the first 12 to 18 months. In some cases, for example improvements in school attendance by children, if you did not get into the programme in the first three months, there was no way that you were going to be able to see an outcome, because the data would not have been collected soon enough. With hindsight, given the sheer ambition and scale of this, because we only ran the evaluation for a short period of time, we probably should have been clearer that we were not going to get the results we were looking for from it. Equally, we have made a huge investment here, in data, analysis and having the infrastructure to join up local data with national administrative data. We have gone through, cleaning out the errors that you inevitably get in analysis like this, and we now have firm foundations on which to build stronger results for the future.
I come back to this: nowhere else in Government has done something on this scale. To be honest—and this was before my time as Permanent Secretary—the Department should be commended for the ambition, but perhaps we should not have been quite as optimistic as we were about getting the clear results.
Q31 Julian Knight: I can take the second half of your answer, effectively; you have answered that quite fully in terms of what you anticipate for the future. I still find it pretty extraordinary that you do not say that this is a failing. You are basically telling the Committee that not being able to tell policymakers whether the money was correctly spent is not a failure.
Melanie Dawes: We can show that we have achieved significant outcomes here. The payment by results outcomes that the programme points to were not disputed by the wider evaluation. They were just not able to link that at a national level and say beyond any statistical doubt that that was solely due to the troubled families programme. They confirmed that those improvements were achieved for those families. They just were not able, as a matter of statistics, to prove that they were just because of the programme. To be honest, you have to dance a bit on a pinhead around these analytical points. It is quite a nuanced point that the evaluation was making. Those outcomes were not in doubt.
The wider evaluation clearly shows very high levels of statistical proof that families have experienced a far better service and feel that their lives have been improved, in a way that they had not experienced before. I am confident that I can point to positive outcomes here. I cannot point to it being all due to troubled families and quantify it down to the nth degree, which the evaluation had perhaps set us up to think that we might be able to achieve. Again, in Government, we sometimes have to test new approaches to evaluation, and that is partly what we were doing here.
Q32 Julian Knight: You are the Permanent Secretary in charge of this now, at this point in time. Can you say that, having learnt the lessons of hindsight, the collection of data will be robust enough to report back to policymakers in the future, definitely, that this programme is either working or not working?
Melanie Dawes: We can certainly say that there have been significant improvements in the data. This is partly the challenge of taking 150 local authority datasets from a range of partner agencies, such as the police, as you have said, and other agencies that are not part of the local authority. I do not find it surprising that that data was a bit rough around the edges in every local authority to begin with. It always is.
Q33 Julian Knight: I am not asking you to comment on the past. I am talking about now. You are in charge for the future.
Melanie Dawes: We have definitely improved on that. Local authorities have learned where the likely errors are going to be in their data collection. Having gone through the experience with the evaluation of linking that up to the national datasets, we know where the likely issues are and where we will need to improve on that analysis. Yes, I can say that there will be a much greater degree of confidence.
Can I say exactly what the next round of the evaluation will show? I cannot, no. That is the nature of these things. I cannot make that prediction. We have to wait for that work to be done. I can say, though, that the early success of the programme looks to be good. We are seeing the early qualitative results confirming that we have the right families in the programme. They definitely have the level of need we were looking for. The survey responses we are getting are strong. We are certainly hearing anecdotally, as you were saying earlier, that local authorities and their partners are experiencing positive results and continue to be big fans of this programme.
Q34 Julian Knight: You cannot guarantee that the statistics in the future, on your watch, are going to be robust enough. Can you guarantee that?
Melanie Dawes: The nature of statistics of this level of complexity is that there will always be margins of error around them. I can say they are significantly better than they were before, yes.
Q35 Julian Knight: You are saying that they are significantly better. You can say that, when you come in front of this Committee again, it will be significantly better and we will know more about the success of this programme or otherwise.
Melanie Dawes: Yes, although it will still be early days in the programme, of course.
Chair: You were winning until that point.
Melanie Dawes: As you were saying earlier, these are complex families with high levels of need, and we do not want to over‑claim success early in the programme if it has not been achieved. I can say that the statistical basis is improving all the time.
Q36 Bob Blackman: I am turning to a much easier subject, homelessness. In a letter that has been circulated this morning, the Secretary of State has claimed—I just want to clarify which figures we are talking about here—that £315 million will be provided to local authorities and £149 million has been retained as central funds to be spent over the next four years on homelessness prevention. Equally, the £50 million homelessness prevention fund has been announced, and I am assuming that that is an increase from the £40 million that was announced on 17 October. That would be £20 million to combat rough sleeping, £10 million for social impact bonds and £20 million on prevention trailblazers. Can you confirm how much your Department is spending on homelessness prevention and other aspects in this financial year?
Melanie Dawes: I am sorry that I have not seen the letter that you refer to from this morning. My apologies; that just has not reached me during the course of the day.
Q37 Bob Blackman: I can understand. I understand that it has gone to colleagues in areas where the prevention trailblazers are operating. It has not gone to every colleague, but it has certainly come to me.
Melanie Dawes: I am afraid I do not have detailed numbers for 2016‑17, this current financial year, either, but I am very happy to provide those and to make sure that we do so in the context of the letter that you refer to. Essentially, we will be spending money on the homelessness prevention grant of the order of £70 million to £80 million. There is the early spending on the social impact bonds, the rough sleeping fund and the prevention trailblazers. Those figures are as you described for the whole spending review, but we have some early spending in 2016‑17 as well.
We are also expecting some early spending on the capital move‑on grant, which is the £100 million that we announced for extra provision for move‑on spaces for people who need them. I do not have a precise figure for you, but I am very happy to come back on that.
Q38 Bob Blackman: It would be very helpful if we could have a note on exactly what is being spent, because the second point that the Secretary of State has made is that, in addition to all that funding, he is making funding available to support my private Member’s Bill that is going through, which this Select Committee has been involved in. We do not know yet and are waiting with bated breath to hear the amount of money that is going to be provided. I want to make sure that this is additional funding and not substituted or squirreled away from somewhere else, so that we are not affecting other programmes. Can you confirm that this is new money that is going to be provided and it will not be subverted from the existing funds that are allocated for homelessness prevention?
Melanie Dawes: I can certainly confirm that the Government’s intention is to fund any new burdens, to use a technical term, that local authorities face. We all hope that, over the longer term, it may reduce costs if it reduces the number of homelessness acceptances. We completely accept that there will be costs in the short term and our intention is to confirm our figures on that. I am very happy to confirm how that relates to other areas of spending, next week or shortly thereafter, after the next Committee discussion. That is Marcus Jones’s plan.
Q39 Bob Blackman: The next Committee will be the last Committee, next Wednesday. It would be terribly helpful to know by then what the finances are, and I think colleagues will vigorously agree with that. Clearly there is uncertainty at the moment, and I just want to be clear when we are going to get that announcement and that it is additional money.
Melanie Dawes: It is certainly additional money for local authorities, in meeting these new obligations. I am very happy to take that request to have those figures before next week’s Committee hearing. Can I just say how much we have appreciated the collaborative approach that you and the Committee have taken as we have worked through the Bill with you? We have found it a very positive experience. I know the officials working on it have found that.
Q40 Bob Blackman: From our side, the officials who have been working on it have been very helpful and very proactive in assisting us. Coming to the key point, however, homelessness is on the rise and rough sleeping is on the rise. At the moment, within your plan, there are no targets to combat this. Have you set an internal target to reduce the levels of homelessness and rough sleeping?
Melanie Dawes: The Government do not have any internal or external targets here. I am sure it is going to be something that remains a matter of debate. At the moment, the focus is on working with you on the Bill, getting that prevention effort much stronger and the cultural change that that will need in local authorities. The question then is: do targets help us to get the improvement that we want to see or not? Sometimes, in my experience in Government, that really helps, and sometimes it can be a bit counterproductive. At the moment, there are no targets.
Q41 Bob Blackman: What are you going to do if the homelessness figures continue to rise, even after the various different measures have been implemented?
Melanie Dawes: We will need to keep that under review. Everything that we have experienced in the Department over the last few years has confirmed that all our Ministers, including Ministers across a range of Government Departments as well as our own, take this very seriously and are very concerned to act and to make sure that we do not see a further rise in homelessness. Indeed, hopefully we will see some reductions. It is something that we take very seriously.
Q42 Bob Blackman: One of the other issues will be whether we are getting good value for the money that is being invested here and whether it could be spent in different ways. Given that you do not have a target to reduce the level of homelessness, it is going to be quite difficult to quantify whether this money is well spent or not. How are you going to achieve that?
Melanie Dawes: It is a fair challenge, and some of this goes back to the discussion we were having on troubled families. We can look at all the individual areas of spending—the various grants that you described for rough sleeping, social impact bonds and so on—and ensure that each of those is achieving its stated objectives and, therefore, do a value for money test on those individual programmes. It is much harder to say how, overall, the Government’s intervention has changed the picture on homelessness, because it is so hard to know what would have happened in the absence of all those interventions taken together. That is genuinely a very difficult question to answer. It is similar to the problem we have on troubled families. It is a very good challenge, and that comes back to whether it therefore helps to have a target. That will remain a live debate. It is not currently part of the Government’s plans.
Q43 Mr Mark Prisk: Before we move on to the HCA, I wonder if I can touch base on the question of the social impact bonds, which are part of the homelessness programme. It is something I have raised with Ministers in the past. I think it has tremendous potential. Given that this has been out in the public domain for quite some time now, how much of the £10 million has been allocated under the social impact bonds?
Melanie Dawes: We have not allocated a very large proportion of this yet. We are expecting the money to build up towards 2018 or 2019. That is partly the nature of the way the payments are made, which is in relation to outcomes. The activity has started already, but the results come through later. It is a bit like troubled families: the payments therefore come through towards the end of the period. I will be happy to confirm our trajectories, and they are only trajectories, as part of the information we will come back to you with.
Q44 Mr Mark Prisk: It would be very helpful to give us an understanding of the nature of the activities you are referring to and the trajectory of the total £10 million—whether it will be 90% in the last year or whatever. Is that going to be in the form of a letter to the Committee? I am not a member of the Standing Committee in that instance, so, if that letter could include all members of the Select Committee as well, that would be very helpful.
Melanie Dawes: I am happy to confirm that. The basic model for social impact bonds is that they lever private or social capital, which comes in early on. Our payments then come in as the outcomes are achieved. The programmes are started but our revenue flows are slightly later.
Q45 Mr Mark Prisk: It would be very useful to see that and, therefore, the amount of money that it is levering in, because one purpose of the bond is to have a multiplier effect. Thank you for that.
Let me to turn to another agency that has risks that are beyond its immediate control, in the form of the HCA. Its capital programme is absolutely front and centre for the Government’s ability to deliver many of its housing programmes, as I think we are all familiar with. The problem, of course, is that, in the nature of what the HCA does, it relies on activities beyond its immediate control in terms of its capital budget. The annual report is quite clear about that, as it should be. What exactly happens if the HCA does not secure its capital budget to the housing programmes it is meant to deliver?
Melanie Dawes: Are you referring to the fact that some of our programmes have been slightly delayed and that, therefore, the HCA has not moved into action as quickly as we originally predicted? Or are you asking more about the outcomes? There is a range of different factors in play here.
Q46 Mr Mark Prisk: That is an element of it, but the annual report is quite clear. It states, “In terms of capital budgets the main risks are around the large amounts of income the Department needs to generate to underpin the capital budget. This mostly arises from financial transactions and the public sector land programme.” The HCA runs that and is at the heart of that for you. Clearly, if that money is not coming in, and there may be entirely legitimate external reasons for that, you are short of money to deliver that housing. What happens? Do you plug the gap out of your DEL or do you have to go to the Treasury?
Melanie Dawes: That is a very good question, and topical, as we are just finalising the supplementary estimates, of course. Each year, we have those questions about inflows and outflows on the programmes. The answer is that we have to keep a very close eye, with the HCA, on that overall balance during the year. We have a number of programmes that are effectively demand-led, such as the Help to Buy programme, but are still subject to spending constraints by the Treasury.
We then have income, which depends on private sector decisions as to when they want to buy land from us, for example, if that is where the income is coming from. We have some flexibility to adjust the timings of our own payments through the HCA. What typically happens at this time of year is a conversation with us, the HCA and the Treasury about those overall balances and where we may have flexibility from the Treasury to move spending in‑year between programmes or across years.
Our experience to date has been that income has exceeded expectations. We have been relatively cautious on that front. Partly because of the nature of the last six months or so, some of our programmes have been slightly delayed as Ministers have reconsidered them following the referendum. Therefore, we are slightly behind trajectory on some of our spending as well. The actual risk of overshooting our budget has not materialised recently, but it is a risk we have to manage. We have a collaborative relationship with the Treasury, and it is part of the conversation we have with them.
Q47 Mr Mark Prisk: At this stage, it is not ruled out that, were there to be a shortfall, there could be an impact on current housing programmes.
Melanie Dawes: That is not what we are expecting, certainly for this financial year. It goes the other way. We are balancing a number of different things. In fact, we are relatively more successful. Therefore, there is more spending on Help to Buy and more success on the income side. There are then slightly slower patterns of spending on the capital grant and loans side. When we weigh all that up, at the moment, we do not have any concerns about breaching our control totals in 2016‑17. If anything, we are looking to push forward some of our funds into subsequent years. It is a very active debate. It is challenging to manage quite a variety of programmes within annual control totals; there is no question of that.
Q48 Mr Mark Prisk: I understand that, as you say, where you have demand‑led programmes, it complicates matters. At this stage, there is no pre-agreement with Treasury that, in these instances, the programme will persist. It is entirely down to a negotiation with the Treasury if there is a problem.
Melanie Dawes: The Treasury do not really do pre-agreements, in my experience, but they are always open to a conversation. I would not describe it as a negotiation, actually. They are open to a conversation and they clearly share our objectives on housing and want to make sure that the money is being spent for the purposes for which it was originally given in spending reviews.
Q49 Mr Mark Prisk: Let me turn to the other side because, some years back, certainly prior to my time at the Department, the housing regulator was incorporated into the HCA. That was not the model beforehand. Now I understand the intention is for the social housing regulator to be taken back out of the HCA. In light of the current substantial number of mergers within the housing association sector, what is wrong with the current model?
Melanie Dawes: This was a judgment call that, given the expansion of the HCA’s activities—in particular, the HCA is now giving loans and guarantees as well as grants to housing associations—the HCA’s engagement with the sector commercially has significantly increased. It was therefore more important to have that Chinese wall between those commercial activities and the regulator. That is a debate that, as you say, has been had over the years. There are a number of different ways that you could play this, but our judgment call and the recommendation of the review was that we should separate the two arms of the HCA again.
Q50 Mr Mark Prisk: Is that driven by the substantial nature of the new organisations that are now in the marketplace, whether it is L&Q, the new Clarion Group or whatever? These are very large entities. Is that the driver for regulatory change or are there other risks that you think an independent regulator would be better able to deal with?
Melanie Dawes: It was more about dealing with any concerns about conflict in the different activities of the agency. As I said, we are now taking a commercial stake in the performance of housing associations in a way that we were not before. The judgment call was that it was better to separate that out from the regulatory functions that the HCA have had. I am sure they are going to need to keep a very close dialogue, and I hope they will. They will both remain located in the Marsham Street building, alongside DCLG. However, we felt that it was best to separate out those functions, and the previous structure has not allowed us to do that, even at board level.
Q51 Mr Mark Prisk: Will the new housing association regulator have the same budget or a larger one?
Melanie Dawes: It will have the same budget that it would otherwise have had, had it remained part of the HCA. There is no change in the funding requirements from this—or very marginal ones due to a slight change in the management structure, but they do not change the overall funding envelope.
Q52 Helen Hayes: I want to turn now to some of the provisions in the Housing and Planning Act, beginning with the extension of right to buy to housing association tenants. I wondered if you, in the Department, have worked through in detail how the extension of right to buy is going to work and how it will be funded.
Melanie Dawes: We have expanded the pilot, as you all know, for the coming year. In fact, there is research published today by Sheffield Hallam University into the first round of the pilot. We are learning as we go along about things like how the process works and is perceived by tenants, the levels of demand and the typical mortgages that tenants are proving to be able to secure. We are also hoping to explore in more detail some of the questions about how we can manage fraud. None of us wants to see this as something that just provides an opportunity for people trying to exploit a generous offer by the Government. We are learning quite a lot through the pilot, and I hope we will continue to learn as the next round gets rolled out.
The Government’s intention is to continue to roll out the voluntary right to buy deal for housing associations. We have not yet confirmed exactly what the plan will be beyond this next round of pilots. On the funding side, as you know, we have said that we are not requiring any sales of high-value assets from councils in 2017‑18. That remains under review and we will say more about that, I am sure, in due course.
Q53 Helen Hayes: Are the homes within the pilot that have been sold so far being replaced? I am really interested in how you are monitoring one-for-one replacement, both within the pilot and going forward, and how the transparency is working on one-for-one replacement of those homes that are being sold for that particular purpose, as opposed to homes that are being built anyway, to meet the existing shortfall that we have in social housing.
Melanie Dawes: Yes, the true additionality. It is very important that we understand that and are clear about it. This is another area we are testing through the pilot, and it has been an important part of the dialogue we have had with the sector. Compared with local authority right to buy, we are expecting this to be a significantly easier part of the policy. Housing associations, as a matter of course, pretty much all build the bigger ones and are likely to be the most active on the voluntary right to buy deals. They are certainly active in building in the market. They are very well placed to build quickly and to manage their costs in a way that helps them to get the replacements built. We are quite confident that we can make this bit of the policy work. However, it is still quite early days, to be honest.
Q54 Helen Hayes: We have a shortfall. We need to scale up to 200,000 new homes a year in any event, urgently and as quickly as possible. In that mix, there are homes being sold that need to be replaced. How on earth are you going to track that in a way that is transparent and that gives tenants, those who are in housing need and all of us who are interested in scrutinising this policy the confidence that one-for-one replacement genuinely is taking place and that it is not just a fudge or double counting of the figures? It seems to me that that question is very difficult, and I am interested in the detail of the work you are doing on it and how we can have confidence in that process.
Melanie Dawes: I am happy to provide a bit more information on the detail of how this bit of the work is going. What we are going to do is what we have done on the local authority right to buy, which is to be very clear that we need housing associations to tell us precisely how they have used those specific funds from selling properties through the voluntary right to buy deal for replacements. We will be asking them to sign off that they are additional units, in the same way as we have done for local authorities. There is not a challenge to our local authority statistics here. There is a challenge as to whether they are building replacements, but the statistics are hopefully not in question. I am very happy to provide more detail on exactly how we are doing that.
Q55 Helen Hayes: I will just push a bit further on this. What are these additional figures in relation to? Are they in relation to the homes that housing associations had already intended to build? In that case, it is an additional planning permission or an additional unit for a scheme that would have already been built. I just find it impossible to imagine how you are going to track that they are genuinely additional homes when, as you say, there is a lot of development taking place anyway and when that development is still taking place at nowhere near the rate it needs to be.
Melanie Dawes: Typically, housing associations’ main constraint, particularly for those that are actively building, is availability of finance. This provides extra finance. It should be possible, and I hope it will be possible, for us to ask housing associations to be clear in their budgets and plans how the extra revenue they will be getting from these sales is being used. All of them have plans for building at the moment, and this is an additional revenue stream. That is something that we ought to be able to ask them to be clear about. It is more difficult when you think about, in any particular area, what housing development would actually have happened and where you can be sure that there is a particular extra unit that is new. That place-based approach to this is slightly more challenging. For each individual housing association and for their total numbers, we should be able to show those figures.
Q56 Helen Hayes: I will now turn to starter homes. Is the Department still working towards a target of 200,000 starter homes by 2020?
Melanie Dawes: The Government are expecting to publish a White Paper soon, as I am sure you will be aware. Quite how we are going to be taking forward starter homes, and indeed some of the other policies we have been discussing already, will be part of that. That is actively under consideration. We have, of course, announced the first wave of areas that are going to be benefiting from the starter homes land fund. That was the first part of the policy from some time ago and is now moving forward. We will be saying more about some of the broader questions in the White Paper.
Q57 Helen Hayes: Do you expect the definition of starter homes to change in the White Paper from the definition that was set out in the Housing and Planning Act?
Melanie Dawes: I do not think I can say any more about that at the moment, because it is subject to the final discussions and decisions, and, in the end, the announcements through the White Paper.
Q58 Helen Hayes: Do you know when we can expect the White Paper? It has been much anticipated and there has been very little clarity on the timescale for it. We would obviously welcome as much information as you are able to give today.
Melanie Dawes: It has been much anticipated. I hope it will be a matter of weeks now, but I cannot give you a precise date today.
Q59 Helen Hayes: Are you able to provide any insight into the broad thrust of the White Paper, in terms of whether it is going to be primarily about continuing to boost home ownership, which was a very strong thrust of the Housing and Planning Act, or whether it will provide a shift of focus towards supply across a range of sectors, and whether it is dealing with the demand problem or the supply problem?
Melanie Dawes: From what you have already heard from Ministers, it is pretty clear that they want to take a broader approach to tenure. The affordable housing programme has been expanded in the last few months with an extra £1.4 billion. We have also introduced more flexibility in the tenure that local areas, housing associations and local authorities can plan for. We are very aware, and this came through very clearly in the consultations that we had during the course of last year, that shared ownership, for example, does not work in some housing markets, but works extremely well in others. There is clearly an ongoing need for affordable rental properties, and that is now explicitly part of the programme, not just part of the legacy programme from the previous Parliament. Products such as Rent to Buy are also in there as part of the mix. We have already said that in the announcements that were part of the Autumn Statement.
The nature of the housing market is that there is not any single intervention that will solve the problem we have of undersupply. The undersupply question will be at the heart of the Government’s approach, and that is going to require further action on planning, on opening up and diversifying the market and on making sure that we have a broad range of tenures being built.
Q60 Helen Hayes: Finally on starter homes, the Housing and Planning Act imposes a strong obligation on local authorities to deliver starter homes, with scope for intervention by central Government if they do not meet that obligation. Is that likely to remain the case if there is a shift in the definition of starter homes? How will that obligation be enforced?
Melanie Dawes: I am really sorry to not be able to say any more about that today. These are the sorts of questions that are in play, including how far to have a national requirement in planning policy for starter homes.
Helen Hayes: I look forward to the White Paper.
Melanie Dawes: Thank you; so do we.
Q61 Alison Thewliss: Can I ask about the £1.2 billion starter homes land fund? I am an MP in Scotland, so it is not going to apply to my constituents, but I am quite curious as to how far that funding will actually go. My understanding from the regeneration company in my constituency is that it is £1 million a hectare to remediate contaminated land. The HCA data on remediation gives various estimates depending on what the land is going to be used for. If it is going to be used for housing with gardens, then obviously it is a higher standard of remediation than if it is for flats. I just wondered if you had any estimates as to how far that fund is expected to go and how many applications you have had to the fund so far.
Melanie Dawes: I am sorry that I do not have any details in front of me today, but I am happy to provide them. This is all part of the wider policy. As you say, the intention of this particular part of the policy approach is to recognise that some bits of land need significant investment that the market would not normally bear the cost of. In providing finance for that and prioritising the provision of starter homes for that finance, that is what we are trying to do. I am very happy to come back with some numbers in answer to your question. I am sorry not to have that detail.
Alison Thewliss: That is okay; it is pretty technical. That is absolutely fine.
Q62 Chair: I will just follow up on the issue of the right to buy and the sale of high-value council assets. The then Minister came before the Committee about a year ago. He said that it was expected that the financial impact assessment of the right to buy and the sale of high-value assets would be available in the spring. Did he mean the spring of 2017?
Melanie Dawes: That is a good question. I suspect at the time, if I am honest, he must have meant 2016. As I said, all of this is subject to a wider look at the overall housing strategy; some of this will be clearer in the White Paper and some of it will come later. Of course, if we proceed on high-value assets, that will require a further parliamentary agreement, as an affirmative procedure. I would expect us to produce analysis in public of all the issues that are involved.
Q63 Chair: There was an “if” in there.
Melanie Dawes: As we have said, this is under consideration. It is not proceeding in 2017-18.
Q64 Chair: Yes, but there is still an “if”. I am getting into dangerous ground, I know, but it is quite interesting to go there, for us anyway.
Melanie Dawes: I do not have anything to add on that.
Q65 David Mackintosh: I would like to talk about the business rate retention scheme. Can you set out the rationale for this and the evidence gathered behind it?
Simon Ridley: As you know, the Government introduced a 50% business rate retention scheme in 2013. The announcement of moving to 100% business rate retention builds on that. In terms of the rationale for the change to the local government finance system, it is about moving towards self-sufficiency for councils and retaining much more of the local tax directly in local authorities. It is also about introducing more of an economic incentive to local authorities in the funding they get, and a direct interest in the size of their local tax base and the way they encourage growth and work with business. The rationale for the 50% scheme follows through to the 100% scheme and, indeed, it moves us much further towards self-sufficiency.
It also means that the funding for more services will be held directly by local government, and it has enabled us to move to a more evolutionary set-up and to introduce some scope for tax flexibilities. With 100% business rates comes the ability in combined authority areas to raise an infrastructure levy up to 2%. We have learned a lot through the 50% scheme. As I mentioned earlier in the context of the funding review, we are working incredibly closely with the local government sector, the Local Government Association and other representative groups in the development and introduction of the policy. The steering group for this policy is co-chaired by our director of local government finance and by a member of the Local Government Association. Similarly, the working groups and all the papers have been up on the Local Government Association website.
In terms of what we have learned and the evidence, we have gathered a great deal about the benefits of the ways in which local authorities can work with business and encourage growth, how they have focused on their tax base in the local area and the importance of the volatility and how we manage that. We are clear that there is scope to strengthen the incentive in some ways and with the original announcement was the aim to remove the levy to enable councils to benefit more from growth in‑year and between reset.
Critically, we need to think about how appeals in the business rates system work and affect the system. There is a separate very significant bit of policy work going on about the appeal system, both the ways in which appeals come forward and how we make that system more efficient and responsive to turn officials round. That is one of the critical things.
Q66 David Mackintosh: When are we going to hear about the next steps on the 100% business rate retention scheme?
Simon Ridley: We have published consultations, which closed towards the end of September last year. There is a need for primary legislation, which was announced in the Queen’s Speech, to provide the framework for the 100% business rate system and bringing that forward is a key next step. In the context of that primary legislation, we will be coming forward with the necessary next consultations that bring together the main response to the work done so far but also the next stage of building towards the detail that is needed before introduction of the 100% business rate scheme.
As with the 50% scheme, the primary legislation is a reasonably broad framework and the detail comes through regulations that need to be developed nearer the time, to take account of decisions that will be made later, such as the fair funding decisions and the final decisions on what services get devolved as part of the scheme to keep it revenue‑neutral, neither of which require primary legislation. The key next step is the bringing forward of the Government’s finance Bill. That is necessary and, as it goes forward, the key next consultations will come through.
Q67 David Mackintosh: When will that happen?
Simon Ridley: I cannot give a precise date. There is work with the business managers to do, and the legislation committee and so forth. It was in the Queen’s Speech and we therefore expect it shortly.
Q68 David Mackintosh: Is implementation of the 100% business rate retention on track?
Simon Ridley: Yes.
Q69 David Mackintosh: Does that include the planned go-live date of April 2019?
Simon Ridley: The original commitment was that it would happen by 2020. Yes, we are absolutely where we planned to be. There is an awful lot still to do. I would not want to sound complacent about it or say that it is easy. We have to bring the Bill forward. We have to debate that through Parliament. There is then an awful lot of regulatory work, which will set the precise levels and the precise way in which things work. As we discussed earlier, we are doing it alongside the fair funding review, which will make sure there is the right balance between the incentives and the business rates scheme, and that our funding levels reflect need appropriately. There is a lot to do, but we are where we expected to be at this point.
Q70 Mr Mark Prisk: I will just follow on with regard to the legislative programme. You have described, quite rightly, that this is a complex process that will require a substantive primary piece of legislation. We are now in mid-January 2017, but there would then need to be further, quite significant, delegated legislation and statutory instruments. There has always been a principle that, where something like this is introduced, businesses have at least six months prior to it being introduced so that they can understand the details. The details will be absolutely fundamental in terms of the impact on billing and all the rest of it. It is the same for local authorities. Are you saying that the legislative process will be complete at least six months before April 2019?
Simon Ridley: We absolutely recognise that point, and we went through precisely this over 2012 and 2013. We have a lot of experience of that and, yes, we will be aiming to bring all the regulations forward as far in advance as we can, so that councils have as much time as possible to plan around how they will be budgeting and how they want to forecast. This is about the local government finance system, rather than the business rate system itself and how it is billed. However, those implementation and delivery issues are absolutely key to the planning.
One of the key reasons why we are working so closely with the sector and with the Local Government Association is so that as much of this is seen as possible in terms of how it is developed and in terms of the options, so that local government can plan for it as much as possible.
We do not have to do everything in series. We will be bringing forward further consultations and further work about how we will frame the regulations as we are passing the primary legislation. We do not need to get to an Act before we start the secondary regulation. Again, we did a lot of this in parallel the first time round. We are planning to have the final decisions made as far in advance as possible of the year in which the scheme will start.
Q71 Chair: I have just one point to make. The previous Chancellor made changes to the business rate system by giving relief to small businesses. The Government then announced that in the current system they would compensate local authorities for the loss of income by extra grants. After 2020, there will not be any grants. Has thought been given to what you will do in this system, where Government can still change the framework of the system and who is going to pay business rates at any time? How will local authorities then be left with those changes in the future?
Melanie Dawes: It is a fair question, and in that scenario in the future the Government would need to think about whether they needed to pay a grant as one‑off compensation for the changes or if that was not needed. It will raise questions like that. I cannot predict it exactly.
Q72 Chair: Is thought being given to that issue?
Melanie Dawes: Yes, although in the end, the Government will still have quite a lot of levers that they can use to make sure that local authorities are adequately funded. I do not see the Treasury wanting to fetter its discretion entirely on these matters, but at the same time we will need them to make sure that we are very clear what the implications are for changing the way that business rates work and adjusting for that in the finances. This is a big part of the DCLG’s overall responsibility for the health of the financial system for local government.
Q73 Julian Knight: Just to recap, when you were talking about the go-live dates, you gave two dates. It was April 2019, and then you indicated 2020. Which one is it?
Simon Ridley: Your colleague said April 2019. We have a commitment to introduce it before 2020. April 2019 is the most obvious date. We are planning with a degree of flexibility.
Q74 Julian Knight: I just wanted to double-check that.
In terms of the financial sustainability of local authorities, there is a report from the Guardian newspaper, which is not something I normally cite, which suggests that two large councils may soon be forced into emergency procedures. We also have the chief executive of the Chartered Institute of Public Finance and Accountancy, who suggested in quite dramatic language that some local authorities are close to the brink of insolvency. I am just wondering how many you anticipated filing section 114 notices. Is there any planning for that? What are you gaming, effectively? Are there any that, as the CIPFA is saying, are on the brink?
Melanie Dawes: In the Department, we keep a very close eye on the overall risk across the system, and this is something that I have invested in significantly since I arrived in the Department a few years ago as accounting officer. We look at the overall financial data and service data that we have across the system as a whole for different groups of authorities, such as districts, upper-tier authorities and so on. We look at where we have particular concerns, which might come through a number of different routes, and individual authorities where we may need to do a deep-dive and work with them to understand the pressures they are facing.
I believe, now, we have a good way of making sure we understand what the risks and pressures are. We also have support that we make available to local authorities through our financing of the LGA’s peer support programme. Often the most important thing that local authorities are looking for and need is to work out how other councils have dealt with particular questions and pressures they might be facing.
There is no question that there is pressure on the system. Local authorities have experienced some really challenging reductions overall in their budgets. They have dealt with those extremely professionally. They have a lot to teach the rest of the public sector in terms of how to go about finding efficiencies and being more imaginative about how to commission services. Over the next few months, we will go through a period where councils will be setting their budgets for next year. I do not want to prejudge whether or not all councils will come out of that clear that they can set their budgets. I have no particular reasons to expect that there will be any that have a problem in setting a budget for next year.
However, there is risk in the system, and we have an open door for any council that wants to come and talk to us. We keep a very close eye on it. That is of course one of the reasons why we responded in the provisional settlement by doing what we could to support social care budgets.
Q75 Julian Knight: There are no amber lights flashing on the dashboard at the moment.
Melanie Dawes: There are a range of risks and issues that we are looking at at any one time.
Q76 Julian Knight: There are lights on the dashboard, effectively, just to stretch my analogy to breaking point.
Melanie Dawes: Dashboard typically do have lights on them. I would not want to say exactly, in any level of detail, what particular issues might be there at any one point in time. We often find that councils, if they have a new chief executive or finance officer, look at the books and are quite worried by what they see. They are sometimes inheriting a situation where the previous regime was worried, but the new incumbents have experience elsewhere and are quite confident that they can manage their way through. It is quite variable, but a lot of this comes down to the experience and leadership of the teams in place. In most councils, the teams are strong and are doing a very good job.
Q77 Julian Knight: You sound quite collected and sanguine about the financing situation from what you can see from the other side, on the dashboard, so to speak. What do you think of the language used by the chief executive of the CIPFA, where he states very clearly that some local authorities are close to the brink? It sounds a lot more serious from him than it does listening to you.
Melanie Dawes: Rob Whiteman is entitled to express a view. We work very closely with him and his colleagues at CIPFA. All I can really do is express my own view of the overall situation. By the way, I would not want to sound complacent. That is not a word I would want applied; you did not say it, and I am glad you did not. We are aware that there are risks across the system, and we seek to be aware of those and able to respond should we need to. In the end, it is the duty of individual councils to meet their responsibilities and set their budgets. There are clear and sound statutory frameworks that have stood the test of time for many years.
Q78 Julian Knight: I am sorry to labour the point here. I can understand why the Guardian newspaper would come out with these lines, as it has a particular angle from which it comes across in many stories. However, the gentleman in question is from the CIPFA. I do not quite understand how far you are apart in terms of your analysis. I do not see him having a particular axe to grind in this regard. Am I incorrect in that? Is this yet another of the things we put up with as politicians all the time: special interest groups trying to make it seem much worse than it actually is?
Melanie Dawes: I have a great deal of respect for Rob Whiteman, who has been a chief executive and a section 151 officer in councils and is very experienced. However, I do not share quite the level of concern that he has expressed. We have very good conversations about this.
Q79 Julian Knight: You do not share much of it at all. You are quite a long way away from his level of concern.
Melanie Dawes: We have good conversations with him and his colleagues, and indeed with the LGA and others across the sector. It is certainly the case, as we have been discussing earlier, that there are real concerns about the pressures on social care. These middle years of the local government settlement period are the most challenging ones. That is our analysis, and we would share a view that the short term is the real challenge for councils.
Q80 Julian Knight: If any of the councils’ finances fall down, or a number of councils’ finances fall down, in between now and next year, how do you think you will feel looking back at the transcript of this particular discussion today and reading your words? Do you think they will reflect well?
Melanie Dawes: If we experience particular problems, we will seek to respond to those. We have already responded by giving longer‑term certainty through the four‑year settlement, by giving more flexibility on how councils can use capital receipts, with some of the measures we have been discussing on social care funding. Our experience so far is that councils are finding that they can manage with these budgets. They are proving very creative and innovative about new ways of generating income and providing services. We keep the situation under very close review.
Q81 Melanie Onn: You made a comment about local authorities having to be imaginative in commissioning services. I think about Sheffield Council and their consideration this week of cancelling a 20‑year commissioning contract with Veolia waste services. They have talked about it being cumbersome, impractical and inefficient. Do you purely see local authorities as being organisations that will manage contracts of this type, or do you think that there is a role for them to directly provide these services? As such, there is a limit to what they can do in terms of cuts, savings and efficiencies.
Melanie Dawes: In some cases, local authorities have chosen to take an outsourced approach to a range of services, including very sensitive services for vulnerable people. In other cases, local authorities have their own commercial arms that deliver services not just to themselves but to other councils and sometimes to the private sector. I am thinking of companies such as Norfolk’s service arm. Different councils operate quite a wide array of commercial functions. There is a lot of diversity and variety across the sector. I am not familiar with a specific contract in Sheffield; I have not caught up with that. It sounds as though you are saying that the council think they can get a better deal here.
Q82 Melanie Onn: By bringing it back in-house?
Melanie Dawes: Yes, that sometimes is going to be the right way to manage things. We have all experienced that in different parts of the public sector: you contract something out and it turns out that the contract does not work how you hoped it would. It is not ideal, but the important thing is that you can act when that happens, change the contract and bring it back in.
Q83 Julian Knight: Let us move on to the European regional development fund. According to the figures that I have in front of me, in 2015-16, the Department abandoned or wrote off £16.8 million-worth of claims from the fund. It says here, “The Department abandoned £4.3 million worth of claims because the error rate in the claims it presents to the EC was higher than the maximum threshold applied by the EC” in that regard. If that is the case—take £4.3 million from £16.8 million, and you have £12.5 million—why did you fail to claim back £12.5 million or £16.8 million? Why is there a failure there? It is a huge sum of money that should be going to some of the poorest communities in the country.
Simon Ridley: Let me talk about that. You are talking about the ERDF between 2007 and 2013, because the money is lagged. This is overall a £2.6 billion programme over that period. Over the time, we allocated all that money to over 1,500 projects. That money has been spent by those projects to deliver jobs, support and new businesses. We are given certain targets about the number of jobs and the number of businesses that need to be supported through that. In both cases, the programme did significantly better than the targets.
Quite properly, there is a very strict audit regime around European funding, and the regulations about precisely how procurement is done, how the money is spent and how things are monitored are incredibly tight. In some cases, the audit finds irregularities, if you will forgive the jargon; that is the best way of describing it. As a result of that, the European Commission does not pay the money through.
There are quite a lot of audits. We contest an awful lot of those, and recently, in a case in Doncaster that was contested, we got an irregularity of £4.3 million reduced to nought, as a result of the representations we made. However, sometimes the European Commission and European Court of Auditors determined that those irregularities were there. I accept that £12 million is a lot of money, but in the context of the programme—
Q84 Julian Knight: Sorry, Mr Ridley, can I just check something? You are talking about irregularities. Is that the £4.3 million figure or the £16.8 million figure?
Simon Ridley: There are then monies that we do not claim, which need to be written off, for projects where the money does not come through from the European Commission.
Q85 Julian Knight: That is the £4.3 million. That still leaves £12.5 million. Are you talking to me about the £12.5 million or the £4.3 million?
Simon Ridley: Sorry. I am giving the context in which the programme works overall. We are delivering over £2.5 billion-worth of spending through 1,500 projects in the context of a regulatory regime. At the end of that, there is an error rate. The figures in the accounts are correct.
Julian Knight: That is a relief.
Simon Ridley: To be clear, I am not disputing the figures in the accounts. This is how we work, and it is also how the individual projects work. Quite often, we are supporting small businesses and small groups of people to comply with all these regulations. It is quite a burdensome process that we and the projects have to work through under this programme. Regrettably, there is a level of error that comes through. That is hugely reduced in the 2007 to 2013 programme from where it was in the 2006 programme. In the context of the overall programme, this is a very small proportion of the money, although I accept that an error rate of zero would be ideal.
Q86 Julian Knight: Are you therefore accounting the £16.8 million all to errors, or is just the majority of it, frankly, an oversight? What I have in front of me is saying that £16.8 million-worth of claims have been abandoned or written off. The Department has abandoned £4.3 million because you did not comply with the EC in formulating those claims. Are we talking here about £12.5 million that has effectively fallen down the back of the sofa and is not being claimed at all, or are you saying that that is strictly part of this error process?
Simon Ridley: Money has not fallen down the back of the sofa. The fundamental way the programme works is that we sign funding agreements with projects. We then pay out that money to projects. They then deliver their project. That is then audited. We claim the money back and, if the audit finds irregularities, then we do not get the claim back or we get asked to claw it back. That is the process by which it happens.
Q87 Julian Knight: Bearing in mind that we go through this process in terms of getting paid over a period of time, and then have to effectively return monies to the EU at certain points, have we made any particular plans to mitigate the vagaries of foreign exchange? This is particularly in light of the Brexit vote, where we saw the pound fall against the euro by several percentage points. That, if we are returning money, means our money is less valuable when it is exported.
Simon Ridley: We have thought about this a lot over the years. The way we have managed it, and still do, is to hold a contingency in the budget. The question that we have worked on over the last couple of years is about whether we should hedge foreign exchange movements for some of the money we get from ERDF. We have done that particularly because, as the Department’s budget has been reduced, we wanted to hold as small as possible a contingency on the budget to free money up.
There are a couple of really important considerations in this. The first is that the money for the ERDF programme comes through in tranches, either as we are pre-paid it or as we claim it. Because that comes through over periods of time, we tend to win sometimes and lose sometimes.
Q88 Julian Knight: It is a bit like a self-build mortgage.
Simon Ridley: Yes, exactly. It balances itself out. In the previous programme, overall, we ended up getting far more pounds through the programme.
Q89 Julian Knight: You left it all to chance, effectively.
Simon Ridley: No, we managed it very closely against a contingency. The reason why we have not moved to hedging is essentially a question of value for money. It is not free to bring in the expertise we would need to really manage this properly. We have historically managed it pretty effectively within the Department against a contingency budget. You mentioned the referendum. As to the effect of the referendum, we have agreed with the Treasury that the current ERDF funding will be guaranteed until the end. Beyond that, we will not be drawing down money from the EU budget through the ERDF. The question of whether it is worth building up the expertise and spending the money necessary to hedge exchange rate risk for a couple of years or so is not at all clear. We are still thinking about it and looking at it. On the face of it, the way we manage the risk at the moment works.
Q90 Julian Knight: It sounds like you have made up your mind. Otherwise, you would have done it before the referendum.
Simon Ridley: We will think about it. We have done the work and we have looked at what the choices are, but given that this is an issue only for a relatively short period of time, and we would have to build up our expertise and redo how we do it, there is a question about whether we would really get the return on that.
Q91 Julian Knight: Did you take any measures at all, in the run-up to the referendum, in terms of protecting the currency position of this fund?
Simon Ridley: We have done an enormous amount in terms of ensuring that the ERDF programme can continue to deliver for places across England. In the wake of the referendum, in August we agreed with the Treasury that the funding would be guaranteed for projects that were signed before the Autumn Statement. That was a relatively short-term position. Later in the autumn, at the Conservative Party conference, the Chancellor confirmed that the funding for projects throughout the ERDF programme, which runs to 2020, will be guaranteed.
That enables us to sign the funding agreements for local projects, which typically run for three or more years, beyond the time at which we will probably come out of the EU budget, and therefore that funding will be guaranteed from domestic sources. We are able to give certainty to local projects in the pipeline that that funding is there until 2020, and that secures the programme and its outcomes for places across the country.
Melanie Dawes: To answer your specific question as to whether we took any steps before the referendum, the answer is no.
Q92 Julian Knight: I know you are not the only part of Government that decided not to take any particular steps. Was there any thought process at that moment to say, “This is a referendum after all. It may be a possibility. This could mean that we potentially lose some money in this respect”?
Melanie Dawes: More broadly, the Government and the Civil Service were quite clear that this was a referendum, and as you say, it could have gone either way. It was not considered appropriate for the Civil Service to be making detailed contingency plans, and we did not make any in relation to the ERDF programme, which is the main area where Europe is relevant to the Department’s activities.
Q93 Julian Knight: How will you decide whether future deals signed before we leave the EU meet our national priorities and represent value for money?
Simon Ridley: Those are the two criteria that the Chancellor has put in his letter for continuing to sign funding agreements. The first point is that those two criteria are built into the programme as it is. We appraise projects that come forward on value for money terms and the extent to which they will deliver positive growth outcomes anyway. The programme is built around domestic priorities through strategic economic plans, which are developed locally and then considered nationally as we negotiate a programme with the EU.
What we have done since the letter, to make sure that we can properly and fully confirm that back to the Treasury, is to emphasise it in all the key parts of the process. We put calls out for projects, and we have been very clear about those priorities in a recent call published earlier this month for another £345 million-worth of projects. We have changed some of the details of how we do the appraisal and the expectations of the team in the Department to bring those considerations up to the top and be clear about how they fit with priorities as well as value for money.
Crucially, we are doing a quarterly return to the Treasury, which we have developed and which will monitor the management information and what is coming in. It will be clear, project by project, about the profile of spending and, therefore, about the liabilities after the point that we have exited the EU. This is the crucial thing that the Treasury are keen to make sure is understood.
Q94 Julian Knight: Are you confident, with those systems in place, that we will be ensuring that we do not have a shortfall, or do not have a substantial shortfall, in terms of what we claim and what we are due?
Simon Ridley: Yes, I am very confident, in that process, that we will meet the criteria that the Treasury has set us. As I say, quite a lot of that is built into the programme that we are delivering anyway. We are also moving to confirm the projects, to get projects and spending underway and therefore to claim money as quickly as possible. One of the side benefits, which required an enormous amount of work from the team, of having an initial deadline of projects signed by the Autumn Statement was that people who wanted projects signed moved incredibly quickly, in August and September, to bring things forward. We ended up with an enormous pile of projects to try to get through.
In terms of where we are in the programme, which is currently £2.8 billion, we have signed funding agreements for a little over £1 billion. We are considering and appraising projects for a little over £500 million. We have just put out a call for projects for £345 million. Taken together, that is about 70% of the programme. We are well down the road, for a programme that goes to 2020, of committing this money and making sure that local areas benefit.
Q95 Julian Knight: My final question on this part is directly to the Permanent Secretary. How are you getting on with working out what Brexit means to your Department?
Melanie Dawes: Like all Departments, we are going through all the areas of our work, and in particular all our legislation, to make sure that we understand what the impact is. For DCLG, most of the issues that are relevant for us are the ones that we have already been discussing. Relatively little of our legislative framework, as I am sure you will be familiar, comes from EU law. This is largely an England‑only and domestic set of legislation. However, we are playing our part in the wider Whitehall efforts, which essentially are about flushing out and putting on the table those questions, so that they can be considered as part of the wider Government preparations.
Q96 Chair: On this issue of appraisal of schemes that will be agreed before we leave the EU, you say the tests are on value for money and whether they are consistent with national priorities. Will councils, LEPs and others bringing these schemes forward know at the very beginning of considering these schemes that those two criteria are met? It would be very wrong if they spent months on working up a scheme and then at the last minute were told, “Actually, this does not meet the criteria. You cannot have it.”
Simon Ridley: That is an important question. The words in the Chancellor’s letter refer to domestic priorities rather than necessarily national priorities. A lot of these are built off local strategic economic plans, and that is absolutely fine. The answer to your question is that they will. That is the reason why we made this very clear in the call for projects. The first stage is that we put a call out, to which our projects can respond, and they bring forward a short summary of what they are planning to do. We engage at that point and will be very clear about it.
Q97 Melanie Onn: I just wonder if you could turn your mind to the Department’s costs. I understand that, towards the end of last year, you ran a voluntary exit scheme. You had over 200 staff who left the Department. I just wondered what steps you had put in place to make sure that, through that voluntary redundancy scheme, you did not lose the best and brightest talents within the Department or the crucial experience that Departments need.
Melanie Dawes: That is a very good question and one we were at pains to make sure that we addressed through that scheme. We ran a process through the autumn of 2015. In fact, we are doing a smaller-scale scheme right now, as well. It was essentially for our staff who felt, or whose managers judged, that it was not right for them to be in the Department. They could have stayed if they had wanted to, but perhaps their own skills were not the right fit for the Department’s future. We were very clear about that focus for the scheme.
The Department’s previous experience from 2010 and 2011 was of much larger-scale exits. We did lose a lot of the expertise. It is very hard to avoid that when you do cuts on the scale of 40% of your overall staff levels, which is what we did last time. This was much smaller. We have been at pains to make sure that, while we are obviously offering to some very respected colleagues the opportunity of exiting, equally, we do not make offers to those we are clear we need to keep for the future.
We did not go into this with a number or a target in mind. We have reductions that we need to achieve over the spending review period, but we did not go into the exit scheme with a particular number for the scheme itself. It is one tool among many for reducing our overall headcount again.
Q98 Melanie Onn: You mentioned that the scheme is still ongoing. Is it an open voluntary redundancy process, so you are just adding the savings as you go along?
Melanie Dawes: We have made the same offer again in the last few months.
Melanie Onn: It has reopened.
Melanie Dawes: Yes. The Civil Service terms have changed since then, of course, so it is a slightly less attractive exit package. We are now running through the applications that we have received. It will be a much smaller number than it was last year.
Q99 Melanie Onn: If you are looking at significantly reducing staff and you have fewer people there, why is your core administrative expenditure planned to go up by 28% in real terms, over the course of the spending review?
Melanie Dawes: One of the problems is that the nature of Government accounting is not always very easy to explain. I am looking now at our administration budget table, which I suspect is where you have got those numbers from. Our total admin budget across DCLG and our agencies will fall from a budget outturn of £279 million in 2015‑16 to £238 million in 2019‑20. That is the right total, but within that there are various things going on between the rows that produce slightly odd figures.
I suspect you may be looking at row F, the DCLG staff and building costs. I am sorry to continue talking at this level of detail, but I can explain that. In row H, which is basically the Homes and Communities Agency’s costs, we have some receipts and fees that the HCA gets from developers. They score as negative admin spending, and you can see those numbers fall quite significantly and in a rather odd way. Those are matched by a corresponding positive number for DCLG, because there is then a corresponding receipt again in our mainstream DEL capital tables on page 73 of the annual report. Money comes into the HCA, scored as income; that is matched by an outgoing in DCLG’s own admin numbers, so that overall it is neutral for the admin table. It finally ends up being scored as revenue again, but in the mainstream DEL capital table. It is just a peculiarity of the way that we have to score this.
I am happy to give you a note on that, if you like. As I say, it is not very intuitive. The figures are quite large by the end of the period. It does have quite a big impact as these monies move from row to row. Perhaps we should include a clearer explanatory note in next year’s account on that.
Q100 Chair: Yes, that would be helpful. Was one of the members of staff who took early retirement or voluntary redundancy a member of staff who responds to Select Committee reports?
Melanie Dawes: I am not sure I am clear about that. I am sorry; I have just realised what you are referring to. I took the question literally—my apologies.
Q101 Chair: We did a report on housing associations and the right to buy on 10 February. It is now 40 weeks overdue. I understand that the Housing and Planning Bill was going through, but it is now the Housing and Planning Act and we still have not heard anything. With regard to the consultation on the national planning policy, we did a report on 1 April and still have not had a response. Following a brief evidence session on the inquiry by the local plans expert group, we wrote on 21 July and have not had a response. These are quite big issues.
We can understand that sometimes there may be a delay. With the homelessness report, things are going on at present with regards to homelessness which we were aware of. For those three, there is not much of an excuse for not having responded to us by now, is there?
Melanie Dawes: I can only apologise for our continued late response on these reports. I know my Secretary of State shares that view and has written to you with his apologies.
Q102 Chair: He wrote to us on 3 October and it has not got any better.
Melanie Dawes: I hope it has got a little better since then. My understanding is that, on the housing association and right to buy report, and the national planning policy framework, those are related to the White Paper but should be with you soon. They are definitely actively under preparation. We perhaps need to be clearer in our conversations with you about our expected timings on those. The delay on those continues to be partly because Ministers want to respond when they have a full response to give on the wider policy framework.
On homelessness and the Homelessness Reduction Bill, we have agreed with you that we will respond to those two together. We have discussed that with you and have an agreed plan. I thought that that was understood. I am not in any way denying that this has not been a good performance by the Department, and I apologise for that. We are committed to turning it round. I am very happy to make sure that we sit down and are clear about the full list of outstanding reports that you are expecting from us.
Q103 Chair: To be very clear, we produce a report and it is pretty much in the public domain. You have eight weeks to respond, and you rarely do that.
Melanie Dawes: I appreciate that.
Q104 Chair: Take the consultation on the national planning policy. I can understand you now saying that there is a White Paper, which may have elements of those policies in it, but the report was produced on 1 April. The deadline for response was 27 May. No one had thought about a housing White Paper by then.
Melanie Dawes: I agree that the delay last summer was the beginning of what then turned into a much longer delay.
Q105 Chair: A holding reply to say “this is being considered” would have been a starting point.
Melanie Dawes: I agree with you.
Q106 Chair: The Department does not generally have targets, but eight weeks is a target for response to Select Committee reports, and we can assume those targets will be met during the next year.
Melanie Dawes: We will take those targets seriously. If there are cases where our Ministers feel that we will be able to respond better if we do so in the context of some other policy announcement that they are making, we will make sure that that is agreed with you. If it is the case, we will be clear and write to reflect that agreement once it has been reached.
Chair: That would be a considerable improvement. Thank you very much for coming to give evidence to us this afternoon. That is appreciated.