ASA Adjudication on Defend Fenland Council Housing

Ad

A regional press ad, for Defend Fenland Council Housing, was headed "VOTE NO to privatisation" and claimed "... Around the country council tenants are saying NO to PRIVATISATION ... BEHIND ALL THE GLOSSY SPIN, HERE ARE SOME OF THE DANGERS ... 2. Huge Business Empire ... Roddons Housing Association won't be local - it will be part of the huge and expanding Circle Anglia empire. Circle Anglia are involved in building luxury homes for sale and market rent and are expanding the development side of their business. Are you sure you want our homes to be used as a guarantee in their business deals? … 3. Higher Rents and charges … Circle Anglia rents are up to 40% higher than Fenland council rents ... The average rent charged by companies in the Circle Anglia empire varies from £62.09 a week (16% higher than Fenland council) to £75.34 (41% higher than Fenland council). (Figures from the Housing Corporation, 2005) ... Circle Anglia don't just rent out social housing … It also has a portfolio of supported housing accommodation, shared ownership, market rent and private sale properties … Circle 33 Lifespace which was set up in 2004 to build and market private properties … Remember Circle Anglia already has a billion pounds worth of debt, and is diversifying into all kinds of schemes including a joint venture with private developers Wildacre. Our homes will be a guarantee for this. What's the betting that if they try to expand too far, too fast, tenants will pay the price for their grandiose schemes."

Issue

The National Housing Federation (NHF), a trade body that represented housing associations, challenged whether the:

1. use of the word "privatisation" in the ad was misleading because it implied that the housing would be transferred to a profit-making company;

2. comparisons between the rents charged by Fenland Council and Circle Anglia were misleading because they compared the price of rents in Fenland with the price of rents in other, more expensive, areas of London and the South East;

3. claim "Higher Rents and charges" misleadingly implied that rents would rise if the properties were transferred to Circle Anglia, because Fenland Council had promised that the rents would remain the same whether the transfer was made or not; and

4. claims in the ad about property developments misleadingly implied that Circle Anglia were motivated by profit, when they were a not-for-profit organisation.

CAP Code (Edition 11)

Response

Defend Fenland Council House (DFCH) said the ad was in the context of a political debate about the transfer of Fenland Council's housing stock to an independent housing association. They said stock transfer was a matter of public interest, which affected the homes of several thousand tenants of Fenland Council. They maintained that, during the debate, both sides produced material that was full of political opinions and facts and was designed to persuade tenants to vote one way or the other.

1. DFCH believed stock transfer was privatisation both in law and in practice, and maintained that the claim was a statement of their political opinion. They acknowledged that registered social housing landlords (RSLs) were not strictly profit-making but maintained that whether or not an organisation distributed profits to shareholders did not determine whether an organisation had been privatised. DFCH pointed out that the Oxford English Dictionary defined privatisation as 'to make private, assign to private as distinct from State control or ownership'.  DFCH considered that handing over ownership and control to an RSL constituted taking homes out of public control and ownership. They believed it was irrelevant that an RSL might be limited by guarantee instead of shares, a registered charity or any other permitted variation.

DFCH pointed out that transfer of housing from council ownership to an RSL was governed by the Housing Act 1985. They said the Act referred throughout to the receiving organisation (i.e. the RSL) as a "private sector landlord".  They pointed out that RSLs were defined as companies in the private sector.  DFCH believed RSLs were private organisations because they were not considered to be public bodies under law.  They pointed out, for instance, that RSLs were not categorised as public authorities for the purposes of judicial review, they were exempt from the Freedom of Information Act and their records and decision-making were not required to be in the public domain. DFCH provided excerpts from several academic works, records of a parliamentary statement by the House of Commons Council Housing Group, which, they believed, demonstrated that the term privatisation was in common and official use when housing-stock transfers were referred to.

DFCH believed the legal aspects of privatisation were not merely a matter of academic definition and pointed out that the housing-stock transfer affected tenants directly in several ways. They said secure tenancies, which could be granted by public authorities under the Housing Act 1985, would be replaced by 'assured' tenancies under an RSL. They maintained that the subsequent Housing Act 1989 granted RSLs greater powers over 'assured' tenancies. DFCH said the governance and control of housing owned by an RSL was no longer democratically accountable as the elected representatives of a local authority were replaced by a board of directors. They pointed out that the involvement of private finance resulted in new financial pressures on RSLs effectively making them accountable to creditors.

2. DFCH said they had not compared Fenland Council housing rents with London rents. They said they had made the most accurate comparison possible from the most up-to-date figures provided by the Housing Corporation. They said they took the average rent for Fenland Council and compared it to an average figure for Circle Anglia. DFCH acknowledged that finding an average rent for Circle Anglia was difficult because of its multiple subsidiaries and the figures stated were the average for all stock owned by Circle Anglia across the country. They pointed out that the small print of the ad stated the range of rents charged by Circle Anglia.

3. DFCH pointed to a National Audit Office (NAO) report, which stated that transferred homes cost more to run than local authority homes due to high transaction costs and the higher cost of private finance. They acknowledged that RSLs had access to more resources than local authorities (i.e. they were allowed to retain all of their rents) and, to an extent, that offset the higher costs. DFCH maintained, however, that the increased management costs of supporting expanding group structures and paying competitive market salaries, coupled with the resources being diverted into development and the reduction in government grant levels resulted in upward pressures on rents greater than those affecting local authorities.

DFCH said only secure council tenants had the statutory right to a 'reasonable' rent, i.e. those whose homes were still owned by a public sector organisation. They pointed out that RSLs were allowed to charge a 'market rent' by law and it was only government policy that currently prevented them doing so. They maintained that RSL rents were higher than local authority rents. They said stock-transfer landlords previously made time limited 'rent guarantees' at the time of transfer, which allowed councils to claim that tenants' rents would be protected. DFCH, however, maintained that, in the long term, those promises were shown to be false. They said the NAO report showed that, despite rent guarantees, rents did rise following transfer.

DFCH said government policy now focused on 'rent convergence', which was intended to standardise by 2012 the way rents were calculated for council and RSL tenants. DFCH said loopholes existed in the current rent convergence policy. They pointed out that new tenants who moved in after transfer were not protected by the rules on increasing rent gradually and could be charged at higher rates straightaway. They added that doubts had been raised recently about how the rent convergence policy would be implemented because local authorities had experienced difficulties in raising their rents quickly enough to bring them into line with RSL rents.

DFCH also said the "offer document" in Fenland stated "Roddons Housing Association plans to charge all new tenants the same rent as they would charge an existing tenant for a similar property." DFCH maintained, however, that that promise had little force in law as promises in the offer document could only be legally enforced by the council, not by tenants. They also pointed out that the statement used the vague phrase "plans to charge" and not the definite phrase 'will charge'. DFCH also maintained that the proposed new tenancy agreements (i.e. the part of the document that is legally enforceable by a tenant) did not include a guarantee that reflected the government's rent convergence policy.

DFCH pointed to several examples, in the Scottish Boarders, Glasgow, Hackney and Basingstoke, where rental guarantees made at transfer had been broken by the RSL.

4. DFCH acknowledged that RSLs did not distribute profits as dividends to shareholders, which was a requirement of an RSL's registration with the Housing Corporation. They believed, however, that did not mean there were no profits involved in the privatisation of council housing because many RSLs made what was, technically, a 'surplus'. DFCH maintained that the effect of the desire to make a 'surplus' did not differ greatly from the effect of actual 'profit-making'.  They maintained that the combined 'surplus' generated by RSLs totalled some £276 million per year. DFCH said the desire to generate a 'surplus' led to several differences in the way many RSLs behaved compared with public authorities.

DFCH said there were several important factors and differences in the way RSLs operated: increased marketing, competitiveness and consumerism; diversification; a trend towards mergers, takeovers and group structures; a trend towards smaller boards and payments made to board members; and control by lenders, not tenants. They sent a series of reports and articles, which, they maintained, supported their assertions. DFCH pointed out that the salaries of the chief executives of RSLs were typically very high, for instance, the chief executive of Circle Anglia earned £132,500 in the last financial year. DFCH believed it was fair to conclude that Circle Anglia's involvement in building homes for sale and market rent was an indication that it operated with a commercial ethos. They maintained that the fact that technically Circle Anglia made a 'surplus' and not a profit was irrelevant because the real issue for tenants was the way in which their homes were managed. DFCH said that it was entirely reasonable for tenants to be concerned that their homes would be managed in a more commercial way than under a public authority.

DFCH believed there was a considerable risk that at a future time RSLs would become 'profit-making' organisations. They sent a copy of an article 'Providers told to look at fresh avenues for finance', published in November 2006 by Inside Housing, which referred to Circle Anglia as one of the organisations looking at changing their status to allow them to distribute profits by, for example, selling bonds to private investors. They also sent an article from January 2007, entitled 'Landlord Explores Flotation'; and the 'Call for Evidence' for the Cave Review of the Regulation of Social Housing, which, they maintained, demonstrated that plans were being considered to allow RSLs to become profit-making organisations. DFCH acknowledged that some of the evidence was not available at the time of the Fenland ballot, but considered that it was ample justification for their opinion on how RSL would develop over time.

Assessment

1. Not upheld

The ASA noted the ad put forward one side of the debate about housing-stock transfer and considered that the vast majority of readers would have already seen material putting forward the benefits of transfer. We understood that the term 'privatisation' was defined, in law and public policy, to refer to a change in ownership or control away from the public sector. Although Circle Anglia was not a profit-making organisation, we noted they were regarded and defined in several respects as a private organisation. We considered that the term 'privatisation' might imply profit-making to some people. We considered, however, that in present context readers were likely to understand that it was used to emphasise the change in ownership and control away from the public sector and the potential for that to affect their rights and the way their homes were managed. We concluded that the claim was unlikely to mislead.

On this point, we investigated the ad under CAP Code clauses 3.1 (Substantiation) and 7.1 (Truthfulness) but did not find it in breach.

2. Upheld

We noted DFCH had compared Fenland Council's rents with the 2005 average rents of Circle 33, Blackwater, HTC, Old Ford, South Anglia and Wherry housing associations, all of which were subsidiaries of Circle Anglia.  We noted rents were between 42% (based on Backwater) and 16% (based on Wherry) more expensive than those of Fenland Council.  We noted the 40% figure was prefixed with "up to" and that another section of the ad gave details of the range of rents charged by Circle Anglia owned housing associations. We noted, however, Fenland Council charged rents, which were lower than those charged by Councils in the areas of London and the South East used by DCFH as the basis of comparison.  We considered that the claims in the ad were likely to lead readers to believe that rents under the proposed Roddons Housing Association could be up to 40% higher than those charged by Fenland Council.

Because the figures in the ad were based on rents in areas of the country that were not comparable with Fenland and because the ad did not make clear that the Circle Anglia rents on which the claims were based were for housing in London and the South East, we considered that the claim was likely to mislead.

The ad breached CAP Code clauses 3.1 (Substantiation), 7.1 (Truthfulness), 18.1, 18.2, 18.3 (Comparisons with identified competitors and their products) and 19.1 (Other comparisons).

3. Upheld

We understood that rents in both the local authority controlled and RSL sectors would increase naturally over time.  We considered that readers were likely to infer from the claim that rents would increase at a higher rate under an RSL than under local authority control.  We noted, however, the housing-stock transfer offer document included a promise by the Roddons Housing Association to maintain rents at a level equivalent to that which would have been charged by the local authority.  We noted the heading above the claim stated "HERE ARE SOME OF THE DANGERS" and considered that readers would understand the claims below it as the potential problems associated with stock transfer.  Although we considered that readers would realise that the ad was by a group opposed to housing transfer, we considered that DFCH needed to support the claim with evidence that showed there were reasonable grounds for them to make the assertion.

We noted DFCH asserted that the NAO report confirmed that RSL homes cost more to run and, therefore, created an upward pressure on rents. We noted they acknowledged that those pressures were offset by RSLs having access to private finance and retention of all their rents, but believed that RSL rents would still increase faster than those in the local authority controlled sector.  We noted the claim beneath the subheading stated that RSL rents were "up to 40% higher" than local authority rents. We considered, however, that that was a general figure and was not representative of the situation in the Fenland area, although we noted the figure was representative of DFCH's assertion that RSL rents were subject to upward pressures.  We also noted DFCH's assertion, that the NAO report demonstrated that rental guarantees made at transfer had been broken, was contradicted by a letter from the NAO, forwarded by the NHF, which confirmed that their report provided no indication that any RSL had broken rent guarantees. We also noted a parliamentary response given in 2005, which confirmed that view.

We understood that rents in both the public and RSL sectors were expected to increase in line with the government's rent convergence policy but noted DFCH's view that rent convergence would never be achieved.  However, we considered that, although that could affect many councils and RSLs, DFCH had not shown that it would affect the rent guarantee given in the transfer offer document.  We also noted the evidence they sent about new tenants, service charges and the rent charging formula.  We considered, however, that the issue of higher rents and charges related only to sitting tenants who held the right to vote on the transfer.  We also considered that the evidence presented by DFCH on the issues of service charges and the rent charging formula was anecdotal and related to only a small number of transfers.

We noted the examples of transfers DFCH pointed to as instances of rental guarantees being broken. We understood, however, that the examples quoted by DFCH were either from Scotland, where a different regulatory and legal regime existed, or from transfers that had occurred long before the government's rent restructuring policy was implemented.  Furthermore, we noted nearly 200 transfers had taken place over the past 20 years and noted DFCH had not provided evidence that rental guarantees, of the type given in Fenland, had been breached in any of those areas or that rents had risen significantly after the period of the rental guarantee had expired.

Although DFCH had provided some evidence to support the potential for rents to rise at a higher rate under RSL control than they would have done under local authority control, we considered that DFCH had not presented sufficient grounds to support the claim. We concluded that they had not substantiated the claim.

On this point, the ad breached CAP Code clauses 3.1 (Substantiation), 7.1 (Truthfulness), 18.1, 18.3 (Comparisons with identified competitors and their products) and 19.1 (Other comparisons).

4. Not upheld

Although we noted the ad referred to Circle Anglia's involvement in commercial property development and expansion into new areas, we considered that DFCH had demonstrated that those commercial aspects were genuinely representative of Circle Anglia's activities. We noted DFCH's assertion that in some instances RSLs aimed to generate surpluses through non-social housing related activity. Although we noted the complainant's point that surpluses generated by the commercial involvement of housing associations were re-invested into housing services rather than being taken as profits, we understood that the NAO report had expressed concerns about the limited control over how such surpluses were used. We therefore considered that it was reasonable for DFCH to bring Circle Anglia's commercial activities to the attention of readers. We also considered that readers were likely to understand the ad as the view of a group opposed to housing stock transfer whose aim was to highlight the commercial aspects of Circle Anglia's activities and how that might affect the way their homes were managed. We therefore concluded that the claims were unlikely to mislead.

On this point, we investigated the ad under CAP Code clauses 3.1 (Substantiation) and 7.1 (Truthfulness) but did not find it in breach.

Action

On points 2 and 3, we told DFCH that the claims should not be repeated in their present form and advised them to consult the CAP Copy Advice team for future ads.

Adjudication of the ASA Council (Non-broadcast)