House of Commons:Committee of Public Accounts:Housing Market Renewal:Pathfinders

Thirty-fifth Report of Session 2007-08, HC 106, 3 July 2008

Select Committee on Public Accounts Minutes of Evidence

Memorandum submitted by Des McConaghy


  This note refers to the NAO's Housing Market Renewal Report (HC 20). The C&AG has said it is unclear whether intervention has led to the improvement in the problems of low demand. But it is also important that the main deficiencies of the programme are fully understood in a historical setting since they point to Whitehall's perennial difficulties in organising a reasonably comprehensive response to urban and regional tasks.


  The persistence of Whitehall's fragmentary approach to inner city tasks is amazing. For over 30 years their inability to take a holistic approach has added to management confusion especially in inner city areas where "across-the-board intervention" is obviously required. And this failure is absurd in any attempt at "housing market renewal". My criticism is no reflection on HMRA officials dealing with clients at the coal face-where haphazard arrangements and inappropriate and often uncertain funding just cannot provide a sensible interface with the market issues identified in the NAO report. Moreover the need to meet relatively arbitrary central targets within a bureaucratic mechanical ethos can throw local teams into conflict with their client groups: the balance between renewal and rehabilitation is just one factor which requires a very finely tuned local approach. But the blame for the persistent "bad copy" in the press lies with Ministers and with their senior staff.


  So as a practical matter the focus must remain on Whitehall management. I refer to my letter of 20 March 2004 to the NAO at the time of the earlier Report on the "New Deal for Communities" programme (Annex A). Those same NDC failures now undermine the "Housing Market Renewal" programme (and Liverpool Kensington NDC is also a market renewal area). So my NAO meeting and correspondence deliberately focused on Whitehall's inability to fashion a cross departmental strategic response ("supply chain") for any such concentrated problems or indeed exceptional tasks such as the exampled "Thames Gateway Project". And my analysis of this abiding Whitehall inability to fashion a "strategic" approach (and remedy!) was set down in February's issue of "Public Money & Management".


  But it must also be said that few if any NAO reports on these matters have prompted any great improvement in the DCLG or its predecessors-or across Whitehall. And within the inner city areas Departments carry on as usual as they leap from one separate initiative to another. I believe this lack of response to the NAO and PAC is partly due to a familiar weakness in our public audit system itself since there is no systematic read across to our parliamentary supply procedure (itself a notoriously unsystematic and incoherent procedure). In any event the problem of fragmented action has continued-over three decades-and gets steadily worse!


  The "Housing Market Renewal" Report is especially interesting by demonstrating how the DCLG pursues the physical or architectural tasks of urban renewal quite separately from any effective corresponding effort to improve the local economic environment. This is exactly why the C&AG cannot find "a direct correlation with low demand". In the early 1969-72 Shelter Neighbourhood Action Project (SNAP) we saw how local housing markets relied very heavily on the local economic environment's ability to improve real incomes. In this important respect there was little real success then-or indeed ever since then! But in the meantime the same equation was perversely reversed at Treasury and national policy levels; the "management of the economy" came to rely on debt financed personal consumption secured on the inflated value of existing and otherwise unproductive housing stock. This inevitably led to the present economic crisis.


  Anecdotally it may be interesting to note that back in 1971 I was warned by Housing Minister Paul Channon that our pilot work in helping low income Toxteth clients to buy improved houses was in danger of encouraging them to assume responsibilities beyond their circumstances. This sub-programme was then just part of our multi-programme attempt "to arrange the rungs of the (betterment) ladder closer together". And that particular programme was encouraged by a visiting young building society official with an interest in "market succession". He later did well, and as the society's general manager led its conversion to a limited public company: "Northern Rock"!


  One important lesson is that housing real estate viability depends less on any physical characteristics of the housing stock and more on its occupiers. More specifically what counts is whether those occupants are succeeding or failing in terms of economic prosperity. For example if one took a "magic shovel" to any inner city block (even one condemned as unfit for habitation!) and lifted it, without disturbing a single brick, and placed it carefully down in Chelsea and Kensington, precisely the same block would immediately attract an astronomical market value. Conversely we can also create brand new housing areas but if the local economic base is deteriorating (and if the occupants are becoming more dependent) then that new housing and that physical fabric will also begin to deteriorate. Then, too, a local environment which loses its ability to satisfy even modest aspiration can face "abandonment"; an embarrassing phenomenon given a national housing shortage!


  It was this same fear of "abandonment" (and dread of "municipalisation") which frightened government and triggered the 1974 Housing Act's reliance on housing associations -while ignoring the more basic need for comprehensive and integrated public action. Thirty three years later the HMRA were triggered by similar fears of abandonment but again without providing a coordinated response.


  Back in "the sixties", we often used local housing employment models to keep abreast of population characteristics in travel to work areas, and these included industry and employment profiles. Such exercises informed housing capital programmes along with industrial training and much else. We were lucky if they could project within plus or minus 12% margins of error in normal economic circumstances. But the sums were routinely done and so a certain rationality was brought to bear across both private and public sectors. Nothing similar seems to occur now in Liverpool. Vastly speculative ("hot money") multi-storey housing continues to rise around the city centre right beside the inner city HMRAs. They remain about 34% empty, seem very speculative and may rely on the continuation of rapid capital appreciation.


  The adjacent HMRAs remain relatively economically depressed, and often compete with other new publicly sponsored housing areas within the same travel to work area. There is a large question mark over the local economic environment. The Department of Work and Pension's "City Strategy Pathfinder" has outsourced contractors' work and this is really only a token gesture among the many competing public agencies. Indeed there are no less than 30 separate urban funding streams in Liverpool sponsored by no less than nine separate Whitehall departments. Government Office coordination at regional level is simply "tokenism".


  So the familiar criticisms of the DCLG and its predecessors still apply. And such problems could now be exacerbated by Whitehall pressures to outsource (or even offshore) many "shared services" across the country-which, whatever other benefits, can have a progressively adverse effect on the actual interface between many public services and local clients-as well as reducing the amount of control that should be rightly exercised by local elected members. Then again, certain plans to outsource the human resource management of the Whitehall home civil service itself could progressively discourage aspiring entrants at all levels. In any event, set against all this the DCLG's recent announcements about "passing more power to town halls" must now be rigorously tested!


  Specifically we must now see what is actually proposed for the new "Local Area Agreements". As a civil servant in 1973 I personally arranged the first English "Area Management" experiment to be commissioned by Whitehall. This was known as "Liverpool District D" and it comprised 9.2% of the City's then population. That effort was accompanied by trials less formally arranged throughout the country. In Liverpool the "Area Executive" and his team reported directly to the City Chief Executive. But it was doomed from the start because Whitehall would not agree (and Liverpool would not agree) to any Area Management control over public spending. The key task of budgetary co-ordination is now vastly more demanding given the proliferation of agencies involved and the still unresolved state of local government finance.


  Finally we have an economy where massively inflated and otherwise unproductive housing stock has been used to secure unprecedented levels of personal debt and personal consumption. The folly of this (and with it the whole present sub-prime mortgage crisis) may now lead to a recession affecting all parts of the country. And in the meantime the "real level" of unemployment in Britain could be three times the official figure (Centre for Regional Economic & Social Research 2007) and we still face that same ever widening "North-South Divide" (IPPR 2007). Here in Liverpool we are still losing population-and the latest Rowntree Foundation Report shows us moving towards levels of inequality last seen back in the 1960s. The NAO's Report correctly calls for better delivery systems and I hope the Public Accounts Committee will prompt a very firm Executive commitment to adequately conceived and adequately financed cross departmental delivery systems.


Annex A


20 March 2004


  We met on 17 March to discuss the need to relate NDCs to mainstream programmes an to the co-ordination of mainstream programmes at regional and national levels. This very brief aide memoire simply lists the main items raised.


  Endemic Fragmentation. Any 30 year review finds that the fragmented nature of government action in deprived areas is endemic; an inability to "contextualise" and effectively relate action to main programmes creates misunderstanding and friction and it impedes effective delivery. The NDC programme is no different.


  Absence of Strategic Funding. The general ability to co-ordinate (wherever and whenever co-ordination is required) needs a clear definition of multi-level and interdepartmental strategic funding. Its absence handicaps every attempt at co-ordination by projects, councils, strategic partnerships, ROs and RDAs.


  Recent Reports. NAO's "Success in the Regions" Report provides the context for your NDC Report. But the RDAs and ROs exhibit the same absence of co-ordination and strategic funding. The ODPM Committee's April 2003 Report on "Regeneration Initiatives" (which included NDCs) reiterated this perennial concern about fragmentation and lack of co-ordination. (The ODPM's "ABI Guidance to Departments" is just exhortation without clear funding principles).


  Related Exceptional Tasks. The "Thames Gateway" and "Northern Way" were noted as other exceptional development proposals-and with potential positive and negative impacts on deprived areas of "parent cities". But we can be sure of little in the absence of a clear inter-departmental strategic funding definition. The creation of many ad hoc new agencies cannot address this strategy gap.


  Wider C&AG Implications. The government's recent welcome change of emphasis from central command and control to decentralised decision making may also encourage further fragmentation in the above absence of clear rules for the operation and control of strategic funding. Clearly this can also limit post hoc (and ad hoc) public audit to equally fragmented and partial reporting-especially if "strategic" aspects may be regarded as matters of "policy" beyond the ambit of strict financial audit.


  This problem finds its mirror in the absence of any clear definition of strategic funding within the Parliamentary Supply procedure. It suggests that Parliament could ask the C&AG to improve his Comptroller function in this respect as an alternative to the present notoriously unsystematic and incoherent procedure.


  In conclusion I think I was able to give you an accurate description of the persistent obstacles to real progress over three decades and indeed why our most deprived areas always point to the above general deficiencies in our overall governmental apparatus.

Des McConaghy
20 March 2004


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