Adapt or die

Arm’s-length management organisations are fighting for their lives.

At first glance, this statement may seem over the top. After all, by the end of 2005, they will be running more than half of all council homes – as big a transformation in three years as stock transfer has achieved in 16. What’s more, ALMOs have a solid track record – they can proudly point to a housing management performance that has led to tenant satisfaction levels 10% higher than for council housing generally. So why is the ALMO sector so worried?

The answer, in part, is money. As the first ALMOs make inroads into their decent homes backlog, the parent councils may begin to wonder whether the extra cost of an ALMO is really worth it in the long run. Once the additional subsidy to achieve decent homes has gone, what does the council gain from keeping the ALMO rather than taking the operation back in-house? A parent council might well reason that it could keep the benefits ALMOs have brought if the staff returned to base, which would also save the costs of running a separate company.

The question ALMOs have to ask is what can they can offer councils that’s distinctive from an in-house service. How can they justify their cost? This is the question behind a joint study being carried out by the National Federation of ALMOs, the Chartered Institute of Housing and HouseMark. The results will feed into the ODPM’s own review into the long-term future of ALMOs.

The case the ALMOs want to make is simply put. Their first few years of work have confirmed that, whether the ALMO is in London or in Cornwall, there is a much wider agenda for them to address than the one of decent homes, which they have been restricted to. It might include tackling deprivation on inner-city estates, remodelling stock to make it more lettable or addressing rural poverty. Wider regeneration is just as important to sustainability as decent homes – more so, many would argue. All ALMOs need to start tackling these issues if their job is to be really successful.

Where will the resources come from? And how can the innovation and efficiency that have characterised the ALMOs – a result of their independence – be maintained? These two questions are linked. It’s not just a question of money; it’s the freedom to decide how to spend that money as the emphasis moves from decent homes towards a local regeneration agenda that will be different for every ALMO. So the joint study has a dual purpose of proposing not only how ALMOs should be resourced in future, but how those resources can be as unfettered as possible.

Surprisingly for opponents of ALMOs, who claim they amount to privatisation by the back door, it looks as if the apparently obvious move of transferring stock to the ALMO is off the agenda. Work in the sector has focused on three reforms that will bring extra resources and greater independence. Each will require a council’s full support.

The first of these is freedom from the housing subsidy system. This may seem paradoxical. Why would ALMOs want to opt out of a system that pumps in nearly £1bn a year? The answer is that in a sense they want to do the same one-off deal with government that happens with a stock transfer. They want to put an ALMO’s debt on a basis that can be sustained from rents and without subsidy.

In return for this, the ALMO will never again claim from the subsidy system.

Can ALMOs get more borrowing freedom without forcing councils to give up a controlling interest? That’s the hardest nut to crack – but it might be possible

The advantage to the government is the whittling away of a system that mainly recycles councils’ (and tenants’) own cash anyway, and is highly complicated and expensive to run. The advantage to ALMOs is twofold: they would know where they stand (on their own two feet); and if they improve efficiency or raise income it will be tenant services that benefit – the money isn’t clawed back by the system. This is an advantage that councils should grasp pretty quickly.

The second reform is moving day-to-day responsibility for the housing revenue account from the council to the ALMO. This apparently technical change is very important – in fact, some councils have already done it. It would mean that the ALMO really is running its own business rather than operating as an adjunct of the council’s finance department, with the inevitable scope for delays, disputes and the pursuit of priorities that are not the same as the ALMO’s or its tenants’.

The ALMO would run the account, collect and keep rental income, and have the freedom to spend surpluses on better services.

But a move that is vital for the ALMO might be an unattractive loss of control for the council unless it gets something in return. This is where more serious challenges begin for the ODPM and the Treasury.

The first and second reforms are about income and running costs; the third is about borrowing and capital expenditure. Can the ALMOs get more borrowing freedoms, without having to turn themselves into housing associations and force councils to give up their controlling interest? This is the toughest nut of all to crack – with the critics waiting in the wings to cry “privatisation” if the ALMOs look as if they want to cut that politically important link with the councils.

Yet it might be possible to combine the two: for councils to retain ownership of the ALMOs, but giving them the legal basis on which they could take out loans in their own name that would not count as public borrowing. The price for greater borrowing freedom would be less (or no) ability for the council to intervene if things went wrong: any intervention or rescue arrangements would need to be agreed between the council, the ALMO and the lenders, so that (but only as a last resort) lenders could, if necessary, take charge of the income stream.

This is all work in progress. The ODPM’s review, due to be completed in the next few months, will be crucial for ALMOs but no less crucial for the deputy prime minister.

He said no to a fourth way last November, here’s a chance for him to offer an attractive future for the one model where councils keep ownership and tenants gain a bigger say in the management of their homes.