LONDON TENANTS FEDERATION - BRIEFING - November '02

Arms Length Management Organisations (ALMOs)

BACKGROUND ALMOs and similar ideas have been around for a few years. As 'quasi-corporations', they were floated by, housing professionals and their organisation the Chartered Institute of Housing, as a way of persuading the Government to relax council borrowing restrictions. The Government took up the idea in the 2000 Housing Green Paper. It offered a carrot of extra cash for councils who set up ALMOs - but only if they could also get a '3 stars' or 'excellent' rating from the new Housing Inspectorate (now reduced to '2 stars' or 'good'). It did not, though, offer full freedom to borrow like RSLs.

In April 2001 the Government issued its guidance for potential ALMOs. In May 2001 civil servants, councils, and consultants set up a working group to devise a 'template' for ALMO bids.

In October 2001 the Government announced that 14 councils had made final bids for the first round of ALMO special funding, with three pulling out at the last stage. Together they were asking for a total of £945 million. The lucky winners were announced a month later - eight of the fourteen would get money, but the total shared between them was only £300 million. Westminster and Hounslow were on the list from London. The others were Wigan, Derby, Ashfield, Kirklees, Rochdale and Stockton-on-Tees.

Thirteen more councils applied for funding in the 'second round' in March 2002. Some of these had already set up ALMOs in anticipation. In May, the Government agreed some money for all of them out of a total pot of £355 million. Four London boroughs were included - Brent, Hillingdon, Kensington & Chelsea and Waltham Forest. Kensington already had a unique and essentially arms length set-up in place, a form of borough-wide TMO dating from 1996. The others were Leeds, Salford, Bolton, Barnsley, Blyth Valley, Oldham, Cheltenham, Colchester, and Carrick. Hackney (!!!) was one of three areas which pulled out before the Government got to assess their proposals.

We do not know how many, if any, other councils are also in the process of setting up ALMOs without yet bidding for the extra finance.

All these funding awards were conditional on getting the 3 stars, or 2 stars for 50% of the money. In May 2002 Derby became the first authority to score the fabled 3 stars. But others did less well - Kirklees, Oldham and Leeds only got one star in their inspections. After months of whinging from housing officers, John Prescott finally agreed to reduce the yardstick to two stars in a speech made in September 2002.

The next round of bids are supposed to be due in shortly for funding from next April. However, at the time of writing (29 October 2002), the Government has not published any fresh guidance on this round's budget on its web site.

HOW IT WORKS The council still owns the stock and is the legal landlord . "Beyond that, the Government does not intend to be prescriptive about the form which arms length bodies should take", it said in the December 2000 Consultation Paper. But since then it has made some very strong recommendations. These can be found in a paper called Guidance on Arms Length Management of Local Authority Housing, published by the Office of the Deputy Prime Minister . In addition, the model constitution drawn up by the 'template working group' of civil servants and housing professionals in 2001 seems to have been closely followed.

Council-owned company

It should be a non-profit making limited company, owned by the Local Authority (i.e., the council is the only shareholder). Tenants should (though not 'must') stay as secure tenants of the council, and keep the right to buy, right to manage, and right to repair.

The Board

The board will be made up of three groups: councillors, tenants, and 'independents'. No one group should be in a majority. To quote the 'Guidance':
"2.5 The board of directors should include tenants and independent people with relevant experience in fields such as social housing, regeneration, promoting social cohesion, finance or any other area which may be relevant to the functions delegated to the arms length company. It may be appropriate to include local business people or other representatives of the local community. No one of these groups should be in a majority on the board of directors.
2.6 Tenants on the board of directors should be elected to ensure that they are genuinely representative and accountable."
Note that it's only the tenant reps who need to be elected, representative or accountable.
The preferred model drawn up by the 'template' working group is:
1/3 councillors
1/3 tenants
1/3 'independents' appointed by the council.

Size

'No more than 12,000 dwellings should be managed by any one body'.
The Government says it prefers smaller landlords (although this doesn't stop it supporting stock transfers to giant RSLs). However, a big authority could set up a 'group structure with subsidiaries', or a number of 'area boards within a parent company'.

Council control

The council could keep some control by writing clauses into the company articles requiring a shareholder resolution on certain issues. (As above, the council is the one and only shareholder.)

Functions

The council would probably keep control of stuff like: homelessness obligations; lettings policy (as opposed to 'lettings management'); housing advice; anti-social behaviour overall policy; RTB valuations; housing benefit administration (prob. overseeing contractors); tenant participation in policy decisions; rents policy; best value reviews; capital bids; setting service standards and monitoring ALMO; stock condition surveys; RSL liaison; housing needs assessment.
The ALMO would do the rest.

Finance

Little change - rent and 'subsidy' still go into the council's Housing Revenue Account (HRA) and Capital Budget. The council agrees a separate budget for the ALMO each year, which is basically the whole HRA and capital budget if the ALMO has taken over all the stock, or an agreed part if it only runs part of it. The ALMO can ask the council to borrow on its behalf from the Public Works Loan Board. 'Authorities have access to preferential rates of interest from the PWLB, and there may be economies of scale involved.'

The extra money

ALMOs will not automatically be entitled to any extra money. Setting up an ALMO is just one step towards a council getting its hands on a source of extra dough. The second step is to get a 2 stars rating from the Housing Inspectorate. The council will also have to have an approved business plan, 'Rent Restructuring' strategy in line with the Government's aims, and tenant participation 'consistent with Tenant Participation Compact principles.'

But even a 3 star ALMO will not automatically get a penny. In each of the two bidding rounds to date, demand for ALMO funding from councils has far outweighed supply.

The amount can vary a lot. The original guideline figure in the 2001 guidance was £5000 per property (section 5.1). In fact this does not mean a straight grant of that amount. The Government pays a grant (classed as extra 'Housing Revenue Account subsidy') of eg. £500 into the councils rent account. The council is then given permission to use this capital to borrow the rest of the £5000. All this is staggered over two years.

So, when the Government publishes a headline 'allocation' figure, around 90% of the amount is not in fact a 'gift' from the government but money the council has to borrow itself.

The Government has said that councils may bid for amounts over £5000. In reality, though, most councils have got not more but a lot less. The average sum for the first round ALMOs was only £2358. We should treat councils' projections of what they can get with a big pinch of salt - on average the successful first round bidders got only 37.5% of what they asked for.

HOW TO DO IT

1. Write a business plan, consulting tenants and 'other stakeholders' (sic), which considers 'all the options' and recommends ALMO.

2. Consult tenants in accordance with section 105 of Housing Act 1985. Consult staff, who will be TUPE'd.

3. Apply for consent from Office of Deputy Prime Minister.

4. Set up company, conduct best value review.

5. Once in place 'for a reasonable period', invite Housing Inspectorate in.

6. Submit detailed application for extra money, probably in July along with the HRA business plan and HIP bid for the year.

7. Get money April next year.

KEY ISSUE 1: WHO'S IN CHARGE?

The Government is very clear that, although ALMOs are supposed to 'enhance tenant involvement', they must not actually be controlled by tenants.

To the best of our knowledge, Kensington and Chelsea is the only area that has been allowed to have a tenant majority on its ALMO board. The reason for this is that K & C already had in place a TMO (Tenant Management Organisation) structure, hence the template model would have in this case meant a loss of tenant representation.

K & C has always been in a unique position. It is clear from the other cases that the Government will not allow, or at least will strongly resist, other areas using it as a precedent. A good example of this is Kirklees.

Kirklees is renowned for the strength of its tenants' federation, which has a close and amicable working relationship with the council. Prior to setting up the ALMO, Kirklees tenant reps stated that they were confident they would be able to get a tenant majority on the board. If they couldn't get it, it seemed unlikely anyone else would.

In reality the situation in Kirklees is now this. There are two local boards for North and South areas, plus one central board. They all work on the 'template' model of 1/3 councillors, 1/3 elected tenants and 1/3 independents.

Kirklees fed has obtained three concessions. Firstly, a panel consisting of the councillor and tenant board members will choose the independents and the tenant reps will get an equal vote. Secondly, the main board is (at least at present) chaired by the chair of the tenant fed. Thirdly, three of the five 'independents' will be "residents who live in a former council house or flat." Kirklees fed will try to encourage TA reps that are leaseholders to get these places. But note that they specifically cannot go to secure tenants.

Despite the concessions, the fact remains that there will not be a majority of tenant/resident reps on the board. Indeed there is a further requirement that no more than seven of the fifteen members of any of the boards, including councillors and independents, can be council tenants.

The Kirklees constitution could be thought of as the best outcome possible for tenants. It underlines what we knew already from the Guidance - there is no way tenants are going to be allowed to be in a majority on any ALMO board.

The Guidance and any other Government statement on ALMOs also makes clear that the 'independent' places are not supposed to be open to ordinary council tenants. The intention is plainly that they should be middle class people with professional expertise in housing, regeneration or finance.

The 'template working group' suggested that the structure of an ALMO board would be essentially modelled on how Housing Associations work. In Housing Associations, 'independent' board members tend to be - ex-councillors or councillors from neighbouring areas; housing and regeneration professionals; lawyers and accountants.

KEY ISSUE 2: WHAT NO BALLOT?

In the early discussions on ALMO, many tenant reps were concerned that the Government was using them, as a way of sidestepping the ballot required in stock transfer. Councils do not have to give tenants a vote on setting up an ALMO, and can argue that a ballot is only necessary where there is a transfer of ownership whilst with an ALMO the council is officially owns the stock.

According to the Government's Guidance:
"Authorities may choose to ascertain tenants' views through a ballot, but the Secretary of State will be prepared to accept other clear evidence of tenant support."

However, of the eight first round ALMO councils, five - Derby, Ashfield, Rochdale, Kirklees and Stockton-on-Tees did ballot tenants. Wigan, Hounslow and Westminster did not. Westminster used a telephone survey to demonstrate willingness.

The results seem to have been overwhelmingly in favour in all cases. For example, Derby council used Electoral Reform Services to run their ballot, and got a vote of 88% in favour from a 48% turnout.

In Leeds, a 'second round' ALMO, 39% of tenants sent back their voting papers in a ballot to set up six smaller ALMOs to take over the stock. 90% of the votes were in favour. But Leeds East MP George Mudie accused the council of rigging the ballot by printing a statement in favour of ALMO on the ballot paper itself, a tactic he described as "probably unheard of in electoral history outside the Soviet Union."

Apart from Leeds, where Unison officials also appear to have mounted some kind of half-hearted opposition, there does not seem to have been anyone campaigning for a No vote in an ALMO ballot. Tenants will have only seen positive publicity.

Leeds council also ran a questionnaire two months before the ballot that found 70% in favour - although council consultation questionnaires have a habit of using the right question to get the right answer.

KEY ISSUE 3: WHY?

Housing professionals, including council housing bosses, started pushing ALMO when they realised they weren't going to persuade the Treasury to change the PSBR (public sector borrowing requirement) restrictions that kept council borrowing within tight limits. They believed that the Government would allow 'quasi-corporations' to operate outside PSBR - or PSNCR as it is now called.

It is now clear that ALMOs will not be free to borrow altogether freely. But they will have the extra £500 and the ability to borrow with this. They may also get more freedom to borrow against the rest of their income than other councils enjoy. So for councils, then, the main reason for ALMO is still the financial incentive. And for ambitious councillors and senior officers, the illusion of progress and brownie points for catching on to the latest thinking.

But why is the Government keen on ALMO? Why won't it give this extra financing to non-ALMO councils? There is some talk at the moment that the Government will open up the borrowing rules for all councils in a reform of local government finance next year. However, only the very optimistic think that the government is about to backtrack entirely from its strategy of pushing councils towards housing management changes.

Officially, the government takes this line because of the 'benefits' of 'separating the council's strategic and management roles.' According to the Dec 2000 consultation paper, these benefits are:

• A clear focus on the management role as a result of an organisational framework for housing management which is distinct from that required to deliver an authority's strategic functions;
• The involvement of a more diverse range of people (including tenants) in decision-making, helping to encourage innovative and radical thinking;
• As a result, a more business-like and modern management of the stock, concentrating on delivering high-quality services which represent value for money and meet the aspirations of tenants.

All pretty clear cut, then. So obvious, in fact, that there's no need for the Government to provide any actual evidence that an ALMO would do a better or 'more business-like' job than the old set-up. Or to mention any other ways of involving tenants in decision-making - like, for example, the old housing committee system where tenants used to have voting rights in the first place.

ALMO fits in with what the Government is doing in other areas of Local Government. The Government's model council is a stripped-down authority run by a highly paid chief executive and a cabinet system, with heavy influence from private sector 'partners'. The council's role is to monitor contracts for services farmed out to a mixture of private companies including RSLs and 'arms-length' divisions.

For most purposes, the ALMO is pretty much a private contractor that just happens to be owned by the council. The council appoints board members to the ALMO just it sends board members to friendly RSLs. And the same 'independents' and tame tenants sit on the ALMO board as they do on RSLs. As with an RSL, the real business will be done by the well-paid chief executive. In fact, it would hardly be any change at all if the ALMO split away from the council altogether and set up as a full-blown RSL. And then it would be able to borrow freely like an RSL, which is the one right the Government won't give it so long as it stays in the council.

CONCLUSIONS - WHAT CAN TENANTS GET OUT OF ALMOs?

1) There is no evidence that 'separating the council's strategic and management roles' actually improves housing services. The Government simply states that this is the case. Until this evidence is produced, there is no reason to believe that services can't be run just as effectively under direct council management - so long as the money is there to do the job.

2) Councils and tenants that go for ALMOs don't believe they are inherently better. They go for them because of the chance of extra cash if you play along. This money and the ability to borrow sensibly should be available to all councils, ALMO or not. Of course, in the shorter term, it is understandable that some tenants will support ALMOs in their area if it seems this is the only way of getting funding without stock transfer.

3) The idea of tenant board members sugars the pill for tenant representative. Where tenant organisations work in partnership with their councils, this could genuinely increase tenant involvement. But in areas where councils are hostile to tenant involvement, tenant board members could well find themselves isolated and marginalised. This has certainly been the experience on many Housing Association and stock transfer boards, which have not shrunk from expelling 'bolshie' tenant reps, often on trumped-up grounds.

In any case, tenants should not need an ALMO to get effective involvement. Having tenant board members is not a radical or new idea - not long ago tenant reps had voting rights on housing committees. There is no reason why we shouldn't again have a say in directly-controlled council housing.

4) The idea of involving 'independent' professionals in managing our housing is really worrying. Whilst tenant reps and councillors are accountable to tenants in different ways, these people will be accountable to no one. Their motivations may be very different from those of council tenants. The 'cronyism' of appointed board members is one of the worst features of Housing Associations.

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