The TSA – A short history (1st Dec 2008 – 31st March 2012) Summary 1. Following the Cave Review of social housing regulation, an independent regulator of the sector (the Office for Tenants and Social Landlords, known as the Tenant Services Authority (TSA)) was established by the Housing and Regeneration Act 2008 (the 2008 Act). 2. In respect of regulatory functions TSA replaced the Housing Corporation, which had been responsible for investment in and regulation of housing associations and other independent social landlords. The establishment of an independent regulator was the product of substantial legislative change designed to refocus and strengthen regulation. The TSA came into existence in December 2008 and operated using Housing Corporation powers until April 2010, when it launched its new regulatory framework, which enshrined many of the principles from the Cave Review. The register of social housing contains approximately 1,800 providers of a variety of sizes and types for whom the TSA is responsible for regulating. 3. During the three years of the TSA’s existence there has been both continuity and change. The TSA built on the strong inheritance from the Housing Corporation in regulating the governance and viability of Housing Associations and very importantly steered the sector through the difficulties of the credit crunch. The new regulatory framework launched in April 2010, with significant support from stakeholders, brought with it much more clarity about the role of the regulator. Very importantly the new framework enshrined a major shift in focus for the regulator towards co-regulation: a concept that made clear that the boards and councillors who manage social housing are responsible and accountable to their tenants for delivering services and meeting standards. This was an important further step away from regulation that had Sometimes been typified as “tick box” and paternalistic, although the Housing Corporation did have a history of direct intervention when necessary. 4. Following a further review of social housing regulation published by DCLG in autumn 2010 TSA will be abolished on 1 April 2012 by the Localism Act 2011 (the 2011 Act) with regulatory functions transferred to a statutory Regulation Committee of the Homes and Communities Act (HCA). Many of the building blocks of the regulatory settlement put in place by the 2008 Act remain in place, but with important changes, particularly in the area of what has come to be known as “consumer regulation”. -1- The Cave report: regulation, choice and supply 5. In December 2006 the then Secretary of State for Communities and Local Government commissioned Professor Martin Cave to conduct a review of the regulation of social housing in England. This was the first major review of the regulatory system for many years and a particular focus for the Cave Review was to establish clear objectives for social housing regulation. 6. The Cave review report (entitled “every tenant matters”) made a broad range of recommendations to modernise and change the focus of regulation of social housing. Key recommendations included: Creating a regulatory body independent of government Clearly defining the objectives of regulation Bringing together the regulation of housing associations, local authority providers of social housing and new types of provider into a unified regulatory “domain” (called “cross domain” regulation) Setting common standards that should apply across the social housing domain (where practicable) increasing and safeguarding tenant empowerment Creating a graduated range of enforcement powers for use by the regulator Opening up the register of social housing to a broader range of providers Liberalising other aspects of the regulatory regime Reducing and managing the burden of regulation. That the regulator should act in a co-regulatory manner. . The Housing and Regeneration Act 2008: Creating the Regulator and its objectives 7. The recommendations of the Cave review were enshrined in the 2008 Act. The Act set ten objectives for the Regulator, focused on ensuring that social housing providers are well-run, that investment is protected and that tenants have appropriate opportunities to influence decision-making about their homes. 8. These objectives were not set in priority order: the TSA’s task has been to achieve an appropriate balance between objectives. However, the objective to observe the principles of Better Regulation overarches the rest. This means that in all its activities the TSA was to be proportionate, consistent, transparent and accountable and must aim to minimise interference in how -2- landlords conduct their business. The regulatory regime developed by the TSA sought to deliver on these objectives. This is discussed later. Implementing reformed regulation: Setting standards and the new framework 9. The central feature of the new regulatory framework was a suite of standards. Following from the provisions in the Act, these standards concerned the governance, viability and value for money of providers and the nature, extent, tenure and quality of homes and associated services. These standards were designed to promote good governance and underpin tenant expectations around service levels and involvement opportunities. Landlords were to be free to deliver services in ways that suit their activities and circumstances, but differences in outcomes for tenants should not arise simply because their landlord is of one type and not another. 10. The current standards framework was introduced in April 2010, following extensive engagement in three phases between January 2009 and January 2010. The consultation generated wide support among stakeholders and through the consultation process a “co-regulatory approach” was developed that made clear that boards and councillors who govern providers are primarily accountable to their tenants for delivery of quality services. The concept of co-regulation has proved central to the development of regulation away from the perception that it was about “tick box” compliance exercises. The close working with partners to develop the standards framework and the broad sense of ownership of the standards across the sector was an important part in setting the tone of the new co-regulatory settlement and building credibility of the regulator’s commitment to this approach. 11. An important development was that the standards set out regulatory expectations on providers in one place. The framework has no additional codes of practice or guidance. A clear preference from consultation and engagement with stakeholders was for standards that express in a concise, straightforward way the outcomes which providers should achieve to ensure compliance, without the need to refer to supplementary documentation. When the new framework was introduced the TSA also took the opportunity to reduce burdens on providers by removing all historic guidance (which had run to many volumes) except for a handful of documents necessary, for example, to support rent regulation. -3- Delivering regulation: putting co-regulation into practice 12. At its heart the idea of co-regulation requires good governance and strong engagement with tenants. One of the main purposes of strong governance is to maintain viability and ensure stability of individual providers and the sector as a whole. Viability and good governance are also prerequisites of good service delivery. The focus on co-regulation introduced a decisive shift away from the former system which had, at times, perhaps seen registered landlords relying too closely on the Regulator in order to navigate business challenges. Instead the regulator moved towards a more strategic, “assurance based” role. 13. The formation of the TSA coincided with the financial crisis and subsequent recession in 2008/9. Aside from the task of creating a new organisation delivering a new statutory remit, the economic circumstances of the time tested the strength of economic regulation. The financial crisis brought with it significant challenges for the social housing sector, notably unsold low cost home ownership stock and cash / collateral exposure on interest rate swap deals, all with the potential to undermine the viability of providers. The TSA played a key role in supporting the sector through this period of turbulence, whilst at the same time continuing to develop the new regulatory settlement. The continued challenging market conditions have informed the TSA’s co-regultory approach. 14. Over the three years of the TSA’s existence and particularly following the publication of the new regulatory framework in April 2010 the regulator moved towards a much more strategic approach to engaging with boards and senior executives on their governance and viability, based around understanding providers’ business models as a whole and seeking assurance on compliance with the standards which can come from a variety of sources rather than a set of prescriptive requirements. In particular regulators have worked with boards to help them understand their risk environment to maintain sound strategic decision making in the face of the market challenges noted above. 15. The TSA’s focus on governance and viability is strengthened by its engagement across the financial community: with lenders, institutional investors and ratings agencies. The TSA has maintained strategic links with organisations that fund social housing, to share knowledge on risks facing the sector and discuss emerging issues. This dialogue helps the Regulator to maintain systemic support for the sector, including encouraging new sources of finance and dealing with issues as they arise. The sector has been able to access the finance it needs to help cope with the credit crunch and subsequent economic downturn and no provider has become unviable despite difficult trading conditions. -4- 16. By promoting an environment of strong governance in the sector, focused on accountability and alert to financial challenges the TSA has helped landlords continue to deliver improved operating performance, increasing operating margins and driving down management costs. For non-profit organisations all surpluses are reinvested in service delivery and new supply. 17. Since the TSA was formed in December 2008, the private registered provider sector has continued to grow. Turnover increased by 9% to £12.6bn in 2010/11 due to new units from social housing completions and stock transfers and from rental increases. This revenue growth enabled an increase in operating surplus, with margins increasing from 14% to 21%. 18. The gross book value of private registered provider housing assets increased to £109.4bn, an increase of 16%, reflecting the sector’s ongoing commitment to investment in new provision. This asset growth was supported by grant of £5.8bn and an additional £5.0bn in private finance, continuing the historic partnership between public, private and third sectors. 19. In respect particularly of the service delivery standards (now recast as consumer standards) arrangements put in place following the 2008 Act were built on the expectation that responsibility for meeting the standards is with boards and elected members, with robust self-assessment and support to tenants to be involved in monitoring and scrutinising landlord performance. The co-regulatory settlement emphasised landlords’ responsibility for selfimprovement when things go wrong, with regulatory intervention only where self-improvement does not take place or is not effective. 20. A key foundation of the co-regulatory system involving tenant scrutiny of service delivery was the TSA's innovation of providers' annual reporting to tenants. This was introduced as a powerful tool that provided information to tenants on service performance thereby providing the transparency which is essential to support effective scrutiny. At the same time the reports reinforced accountability to tenants by making public commitments on compliance with standards and local offers. As reports were also scrutinised by the TSA, it also provided the regulator with an enforceable source of assurance about providers' performance. 21. Based on consultation it was also clear that in the early stages of the regulatory framework some additional role for the Regulator was indicated, in assisting to build capacity among tenants and providers to make co-regulation work as well as possible. This role was necessarily strategic, identifying priorities and working with others to ensure that landlords and tenants were skilled and ready to take co-regulation forward. 22. An important part of this strategic engagement was the TSA’s support for local offers as a means for tenants to hold providers to account locally within the framework of national standards. This local approach – which foreshadowed the present government’s emphasis on localism – aimed to -5- show what was possible where providers and tenants worked together to agree services and ways of delivery firmly grounded in local priorities and needs. 23. Thirty-nine trailblazers drew up local offers, deciding the nature of the locality, performance expectations, and arrangements for reporting and scrutiny that were right for them. While each of the pilots was different, they shared a desire to put in place a framework in which tenants, landlords and other partners could work together in a collaborative and locally-accountable way, to improve services in their area. The report Local offer trailblazers – from planning to practice [insert link] gives examples of the challenges these projects faced and highlights their achievements. 24. In line with the recommendations of the Cave review and the powers in the 2008 Act the TSA opened up the register of social housing to new types fo provider. On the commencement of the new framework in 2010 this meant registering all Local Authority landlords for the first time and since then has involved considering applications from a range of different types of provider. Since the new registration arrangements came into place in April 2010 the TSA has registered 189 Local Authorities and 52 new providers of a variety of constitutional types. The register now comprises 1,257 Private Registered Providers owning les than 1,000 units each, 346 Private Registered Providers owning more than 1,000 units each, the 189 local authorities mentioned above and 6 For Profit Registered providers. Moving to the future: change and continuity 25. The final stage in the evolution of the TSA came with the establishment of the Coalition Government. Its policy stance included more emphasis on decentralisation and devolution of decision taking – localism and a reduction in the number of public bodies as part of its strategy for cutting the deficit. DCLG established a Review of Social Housing Regulation in October 2010 to review the application of these principles to social housing regulation. The Review reinforced the centrality of sustaining independent regulation; underlined the importance of co-regulation as a principle; recommended a new emphasis on economic regulation and a particular focus on value for money; the establishment of locality based assessments and accountability for the service performance of registered providers. Importantly, the Review endorsed the concept of an overarching framework of Regulatory Standards applicable to registered providers thus sustaining the concept of ‘domain’ regulation, while providing for a differentiated relationship between the Social Housing Regulator and different types of private and public registered provider. 26 The Housing Minister endorsed the Review’s findings and recommendations and agreed that the TSA’s reformed regulatory functions -6- should be incorporated into a restructured Homes and Communities Agency. The functional independence of regulation is being maintained by the establishment of a Regulation Committee within the HCA which, alone, has the powers and duties of the Social Housing Regulator. The recommended changes to the Regulator’s fundamental objectives and the operation of its powers are incorporated into the 2011 Act. [Insert link to Act] 27. The regulator will support the overall system by setting clear standards with which registered providers must comply, enshrining principles of transparency and accountability between landlords and tenants. Revised Directions from the Secretary of State make important changes to the compliance requirements for providers (for example on mutual exchange) and the opportunities open to providers to vary their business models (for example tenure flexibility). 28. The 2011 Act also makes changes to the regulatory arrangements for consumer standards permitting the Regulator to act where breaches of standards lead to actual or potential “serious detriment” to tenants. In parallel Boards, tenants, local groups and bodies involved in complaints processes are expected to step up and ensure as many issues between landlords and tenants are resolved at the most local level possible. Under this localist model scrutiny and service improvement are also to be initiated at the local level. 29. Taken together the changes to consumer regulation are a significant change to the regulatory landscape. 30. The TSA played an important part in the Government's Affordable Rent programme, in particular by assessing the impact of providers' bids on their compliance with the regulator's viability standard. 31. As well as continuing to deliver regulation based around the 2010 regulatory framework, a key focus for the TSA since October 2010 has been on preparing to implement the important changes in the 2011 Act. The TSA consulted on revisions to the standards necessary to reflect reforms in the Localism Act, to refocus the Regulator’s powers and also introduce new requirements for example around flexible tenancies and a renewed emphasis on value for money. The resulting new Regulatory Framework [ insert link] came into force on April 1st. 32. Co-regulation remains central to the regulatory framework and there is a great deal of continuity in the framework thereby maintaining stability in the regulatory environment. The TSA’s early commitment to strengthened local accountability and the TSA’s enduring focus on strong governance and supporting viability helps ensure that the social housing sector continues to be ready to meet new challenges and to deliver locally and nationally. The Regulation Committee of the HCA is being left a strong inheritance on economic regulation from the TSA which it will need to take on board and develop to meet the changing business environment affecting the sector. -7-