The ONS’s decision to put £60bn of housing association debt on the public sector books is no cause for panic
The day before Halloween, the Office for National Statistics reclassified housing associations as public sector corporations. The horror story to beat all horror stories. £60 billion of housing association debt now part of the public sector borrowing requirement.
The shock for the housing association sector was palpable. However, I looked around the following day and the world had not come to an end. The news hadn’t made national headlines. The chancellor wasn’t being asked to make a statement in Parliament. It felt like being in the vicinity of one of those high pitched sirens that only dogs and rowdy teenagers can hear. Lot’s of frenetic activity by the housing sector whilst the rest of the world continued about its business completely oblivious.
In part, I think this is credit to the housing association regulator who got the message out to the sector in double quick time, in the best traditions of a Downing Street rebuttal unit, filling the communications void before speculation and shroud waving could reach fever pitch. They confirmed that actually the reclassification made no real difference.
That it neither affected ‘the legal status, ownership or management structures of registered providers’ and that ‘they remain independent bodies run by their boards’. They were also pretty direct in confirming that the change does not mean that government stands behind the sector’s debt or that the sector can now borrow money from government through the public works loan board.
The only way to solve this is potentially to take away or dilute the regulator’s powers
Government played its part as well in calming the situation by issuing a Written Ministerial Statement, confirming that it would work hard to get associations reclassified as private as soon as possible and that it had no intention of imposing new controls on the sector, either over spending or borrowing.
So what is the fuss actually about? The ONS have not looked at the practice of Regulation but at the legislation that enables the regulation of housing associations, the Housing and Regeneration Act 2008 and have concluded that it is the power that determines the classification not how it is used.
A little like the debate about keeping nuclear arms as a deterrent, the strength being that you’ve got it rather than that it will ever be used. The fact that the regulator has certain powers in its armoury means it has the potential to control the activities of housing associations, as if they were public organisations. The only way to solve this as far as the ONS is concerned, it seems to me, is potentially to take away or dilute those powers. At which point Lenders get very nervous and start talking about ‘credit negative’ impacts.
It will take time to work this through. In the meantime - as always - keep calm and carry on.
Steve Douglas is a is a partner at Altair