Committee slams HCA's 'coded messages'
Published by Max Salsbury for 24dash.com in Central Government and also in Housing, Regulation
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The Communities and Local Government Committee has slammed the Home and Communities Agency's (HCA) financial viability ratings of social housing providers.
In a report published today, the Committee demands a stop to the HCA's use of governance ratings to signal concerns about financial viability and publish accurate financial viability ratings instead.
During questioning last month, Julian Ashby (pictured), chair of the HCA's regulation committee, told MPs that the Agency is reluctant to give housing associations lower financial viability ratings, fearing that doing so might trigger an upward re-pricing of their debt.
The Committee's chair, Clive Betts MP, said: “The Committee was surprised to find that what purported to be an assessment of the financial viability of housing associations was no such thing. As it stands, if a housing association was in serious financial difficulty, nobody would have a clue.
“The current approach of using governance ratings to signal concerns about financial viability lacks openness and is confusing. It is unfair to expect tenants, taxpayers and lenders to understand and decipher the regulator’s coded messages.
“Serious questions must be asked of a Regulator unable to use his statutory powers or provide a frank assessment of providers’ financial viability. If the sector knows he will not use his formal powers the Regulator’s position and effectiveness are undermined. The Regulator must find answers, and he must do so quickly.
The Committee said that its concerns were underlined by the case of Cosmopolitan Housing Group, which came close to insolvency in 2012. The HCA only lowered its financial viability rating for the social landlord in December 2012, despite the fact that it had been monitoring the situation for months and the possibility of insolvency had been raised in the media two months previously.
Betts said: “The eventual downgrading of Cosmopolitan amounted to a futile exercise in locking the stable door long after the horse had bolted. It exposed the serious shortcomings of the system. It comes as no surprise to the Committee that Moody's cited the episode when downgrading all but one of the English housing associations in May this year.”
The report also raises concerns about how effectively the HCA is discharging its remit for consumer regulation. Noting that of 111 complaints related to consumer standards referred to the regulator no case of serious consumer detriment was found, the Committee calls for an annual external check to be carried out to provide assurance that the Agency is discharging its duties effectively, with the first evaluation being published no later than Easter 2014.
Betts added: “The regulator has a key role to play in regulating consumer standards in the social housing sector. He appears, however, to have interpreted his remit in this area as narrowly as possible and we were left with the impression that he saw it as a distraction from his main job of economic regulation.
“It is not for us to judge individual cases. It is for us, however, to consider whether the Regulator has systems in place that allow him to discharge his duties effectively. We are not convinced this is the case.
“An annual evaluation of the regulator’s handling of consumer complaints should be carried out by an external, independent reviewer to ensure that it meets the criteria of independence, fairness, effectiveness, openness and accountability.”
The Tenant Participation Advisory Service (TPAS) has welcomed the Committee's findings. Chief executive Michelle Reid said: “The voice of TPAS members and stakeholders can be heard very clearly in the report.
"Tenants and staff are concerned about the perceived demotion of consumer regulation under the current system. It’s true that the regulator has been given a much-reduced remit in this area, and we hope that government will see fit to strengthen that remit. But we also think the 'backstop' regulator could step up a little closer to the batting plate in using the powers that already exist.”
TPAS has cautiously welcomed the recommendation that an external independent reviewer be appointed in order to “have the assurance that the regulator is discharging his consumer protection obligations effectively”. However, it feels that before this happens, it is crucial that the remit of the regulator needs to be strengthened.
The organisation is also pleased that the Committee has recognised the need to publicise and clarify the complaints procedure for tenants. Michelle Reid added: “This approach is welcome and will complement the new and emerging role of the housing ombudsman, with whom we work strategically to ensure a fair and transparent complaints mechanism for tenants and landlords."