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Fact checker: what does the reclassification of housing association debt actually mean?

Confusion has reigned in the national media over the government’s reclassification of housing association debt. Pete Apps explains what it means in practice

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Fact checker: what does the reclassification of housing association debt actually mean?

Fact checker: the change in status of housing association debt has little material impact

What does the reclassification of housing association debt actually mean? #ukhousing

Since Sajid Javid announced it in a major speech last week, there has been all manner of confusion in the national press about the reclassification of housing association debt as private.

Media reports are broadly repeating a government-briefed line about the move which runs as follows: “Last week Sajid Javid, the UK secretary of state for communities and local government, said he would alter the rules so that housing associations are treated as private companies and can borrow more freely.”

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That line features in an an otherwise excellent long read in the Financial Times and reflects the confusion (deliberately sown, a cynic might say) about the announcement.

So here is a quick explainer:

What happened?

In 2015, David Cameron’s government was pushing some fairly radical ideas about housing associations, which would have materially increased the level of control central government had over their businesses.

These proposals sparked a review by the Office for National Statistics (ONS) about how it should classify housing association debt.

This was, and is, in truth a pretty boring question about the application of European accountancy rules which require businesses materially controlled by the state to be accounted as part of it.

And so, in October 2015, mostly based on regulatory powers introduced in 2008, the ONS decided housing associations were properly classified as ‘public sector’ under the regulations and moved the £60bn total sum of borrowing onto the public sector balance sheet.

In a bid to reverse this decision, the government promised to revoke the offending parts of the 2008 legislation through deregulation.

This process finally completed last week and the ONS reversed the reclassification, as it had already indicated it would.

What did it all mean?

On this point, it’s worth having a look at what the Department for Communities and Local Government (DCLG) said back in 2015: “This statistical matter relates to an historical legislative change, made by a previous government, which came into effect over eight years ago and makes no difference at all to the way housing associations run themselves and imposes no new controls or rules.”

This was entirely true. It’s a case of shifting numbers from one spreadsheet to another – from a business point of view it was close to irrelevant.

The only material impact was a slight annoyance for the Treasury – extra debt on the books is not popular at Number 11, even if it is only 0.3% of the overall position.

But in real terms the debt has always remained the responsibility of housing associations, with lenders, regulators and government all entirely happy to basically disregard the new official status as a temporary blip.

So does the change back make it easier for housing associations to borrow?

It shouldn’t have any material effect.

In fact – lenders quite liked the tight state regulation that led to the reclassification, with deregulation seen as credit negative. As Moody’s said at the time: “The government is now signalling that it will respond to the reclassification by diluting the regulatory controls that led to it… Moody’s would view a weakening of these controls… as credit negative.”

“All this announcement does is return the ONS’s spreadsheets back to the position they were in before October 2015.”

If anything, then, the moves to bring housing associations back into the private sector risked making borrowing more expensive, not cheaper. But that doesn’t seem to have played out in the market.

In fact, all this announcement does is return the ONS’s spreadsheets back to the position they were in before October 2015.

It is more than a little mischievous of government to play it as something more significant.

In 60 seconds: the deregulation of English housing associations

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