MPs slam the HCA for a lack of transparency

A report today by the Communities and Local Government committee criticises the way the regulator rates the financial viability of housing associations.

The report says the HCA is reluctant to give housing associations lower viability ratings, or use statutory powers, for fear of triggering re-pricing of debt. It calls for this practice to ‘cease’ and for the HCA to ‘publish accurate financial viability ratings.’

Clive Betts, chair of the CLG committee, said: ‘If a housing association was in serious financial difficulty, nobody would have a clue.’

Mr Betts said the approach ‘lacks openness and is confusing.’ ‘It is unfair to expect tenants, taxpayers and lenders to understand and decipher the regulator’s coded messages,’ he added.

HCA chair Julian Ashby told the committee in July that the regulator tends ‘to use the governance rating as the way of signalling our concerns about an association’. The report also pointed to the fact that not a single housing association out of 134 assessed by the HCA has so far been downgraded to a ‘V3’ rating, meaning it does not comply with the viability standard. The only association to be deemed non-compliant was Cosmopolitan, which received the lowest ‘V4’ rating following its rescue by Sanctuary.

The committee criticised the timing of the HCA’s downgrading of Cosmopolitan’s rating in December, calling it a ‘futile exercise in locking the stable door after the horse has bolted.’

The report warned that using informal approaches as the regulator’s ‘exclusive method of operation’ risks compromising ‘the independence or judgement of the regulator’.

It called for an experienced former regulator in another sector to review social housing regulation. ‘The review’s reports, conclusions and recommendations should be published,’ it said. It also said the HCA should work with other regulators to see how they have addressed its concerns that the use of statutory powers might be counter-productive.

The report also:

-Said Mr Ashby has interpreted the HCA’s remit for dealing with consumer complaints  as ‘narrowly as possible’. ‘We formed the impression the regulator has treated consumer regulation as a distraction,’ it said.

-Called for the HCA to arrange for an annual evaluation of the way it handles tenant complaints. It also said the government should publicise the correct complaints procedure.

-Raised concerns about the regulator’s resources, saying ‘current arrangements may not be adequate’, and called for a report into the regulator’s capacity when it has completed a planned structural overhaul.

-Welcomed the HCA’s decision to revise controversial ‘ring-fencing’ proposals, but criticised Mr Ashby for not telling the committee of this move before revealing it in his Inside Housing column.

-Raised concerns about the CLG department’s blocking of a review into the Cosmopolitan saga on cost grounds.

In response to the criticisms, the HCA said it will in future make it clear a provider is under review if it is danger of being downgraded significantly. It is understood this could be a ‘watch list’ published on the agency’s website. It also said it will re-word its ratings to make it clear the HCA regards a ‘V3’ judgement as ‘a very serious issue’ as opposed to just a concern.

However, the HCA defended its overall approach to viability ratings, saying non-compliance with the viability standard should be rare as housing providers have a strong asset base, predictable revenues and receive substantial levels of public subsidy.

A HCA spokesperson said: ‘Our regulatory approach is to spot and resolve emerging problems, in line with our statutory objective to ensure the on-going viability of a sector, before a V3 or V4 rating is necessary.

‘Where a provider does not meet either our governance or viability standard we will say so.’

It said the timing of the Cosmopolitan judgement last year was due to the fact the problems with the group emerged at a time when the HCA was still considering the format of its judgements.

The spokesperson said the HCA has now reached an agreement with the CLG department to commission a review into the Cosmopolitan case.