By Harry Scoffin
The MHCLG permanent secretary Jeremy Pocklington confirmed on Tuesday that the £1bn Building Safety Fund, announced to much fanfare by Chancellor Rishi Sunak in the Budget, breaches spending rules.
The surprise intervention puts pressure on government to ensure there is no repeat of the near three-year blame game between the state, developers, insurers, freeholders and leaseholders over who should be financially responsible for fixing defective blocks of flats.
In a letter to Communities Secretary Robert Jenrick, the most senior MHCLG official says that using the taxpayer to remediate freeholders’ dangerously-clad non-ACM apartment blocks does not represent value for money:
“In the normal course of events, these costs would be borne by the private sector; the quantifiable public benefits from accelerating work are not sufficiently large to offset the costs to the public sector. This approach, therefore, does not meet the normal tests for value for money.”
Mr Pocklington stresses that the policy “remains exceptional and does not set a repercussive precedent for the future … there are strong reasons for this scheme”.
To justify signing off on the unprecedented bailout of freehold owners, many of whom will be based offshore and unknowable, Mr Pocklington provides his understanding of the approach being taken by the Communities Secretary.
He suggests that the secretary of state believes freeholders will fail to quicken the pace of the remediation for as long there are question marks around who pays for the safety-critical works.
This analysis, he believes, has convinced Mr Jenrick that only “100% grant support to building owners to pay for remediation” will resolve the cladding crisis affecting hundreds of thousands of flat leaseholders across the country.
Mr Pocklington notes that Mr Jenrick has come to the same view of his predecessor, James Brokenshire, who set aside £200m of taxpayer money in May 2019 for the removal of Grenfell-style ACM combustibles from leasehold homes in the private sector.
This earlier grant funding was conceded by Mr Brokenshire after months of campaigning from the Leasehold Knowledge Partnership, Inside Housing magazine and resident groups such as UK Action Cladding Group (UKCAG) and Manchester Cladiators.
LKP as secretariat of the All-Party Parliamentary Group on leasehold reform has organised all the Westminster meetings to address cladding, with successive ministers and numerous MPs.
There were also a number of tribunal cases that confirmed leaseholders on cladding sites would have to pay to fix their freeholders’ unsafe blocks, which would have forced Mr Brokenshire to move away from exhorting “building owners” to “do the right thing” over ACM removal.
It would, however, take nearly another year for government to commit to financial aid for leaseholders in property encased in lethal combustibles that were not on the Grenfell Tower in north Kensington, west London.
In his letter earlier this week, Mr Pocklington claims that the secretary of state ruled out “other options, including partial grants or loans” as being problematic.
Mr Jenrick wrote back to thank the MHCLG head for “shar[ing] my view that the pace of remediation, despite advice issued by this Department since 2017, remains unacceptable, particularly in the private sector.”
He added that while new building safety reforms are on their way, No 10 has demanded a more muscular approach to the cladding crisis to protect existing leaseholders from sky-high remediation bills:
“We are pushing ahead with our reforms to strengthen regulation, but we must do more now. To not do so will leave residents facing unacceptable risks and costs. The Prime Minister and I are clear that this cannot continue and that where possible leaseholders should not be facing life changing costs.”
He then suggested that freeholders should exhaust all other options first before dipping their hands in the taxpayer pot. “I expect building owners to have done everything they can to pursue other funding options before calling on the taxpayer or their leaseholders to meet the cost of work.”
“I understand that, in making these choices, the taxpayer will pick up a significant proportion of remedial costs. However, I have considered that against the safety implications for residents and the need for pace, and the benefits that will derive from these. I consider those factors to be more important, indeed I consider them to be imperative,” he concluded.
This exchange of letters between Mr Pocklington and Mr Jenrick, part of a unpublicised cache of documents uploaded to the MHCLG website on Tuesday, is not the first time a taxpayer bailout of absentee building owners has been challenged by a top civil servant.
Like Mr Jenrick, Mr Brokenshire was forced by an official to account for why he was sacrificing financial prudence with grant funding.
Melanie Dawes, Mr Pocklington’s predecessor as permanent secretary, had written to Mr Brokenshire a day before he went live with his £200m cladding initiative which, she explained, would be “regressive”, giving support to generally middle class leaseholders.
“A fund to support leaseholders involves the transfer of money from the general taxpayer to private individuals and companies, and the government’s Green Book showed that the public benefit did not outweigh the costs of the transfer,” she wrote.
Her letter included an analysis of freehold speculators and the various problems with the system of landlord-controlled leaseholds in England and Wales, despite the rest of the world using commonhold tenures:
“Even when cladding has been found to be unsafe, freeholders have been slow to recognise that they need to act …
“The companies which own freeholds typically do so for their value as long-term, low-yield investments. Short of taking drastic legislative action, we have no means to compel them to undertake remedial work at their own financial risk. They are therefore reliant on up-front contributions from leaseholders before work can proceed. As a result we find ourselves in a situation where the understandable reluctance, and in some cases inability, of leaseholders to pay is now the main obstacle to further action.”
Ms Dawes suggested that moving away from third-party freeholders, who care only for the legally enforceable income streams and usually shirk the financial downsides of owning apartment buildings, with a new-and-improved commonhold, could stop similar unedifying episodes in the future. Greater financial transparency for consumers with leaseholds should happen, too:
“… reinvigorating commonhold as an alternative tenure to leasehold, including additional provisions to ensure that commonhold associations have the appropriate financial plans to respond to an emergency; and exploration of reforms to service charges to include consideration of mandatory sinking funds so that unforeseen costs of maintaining a building are accounted for and are transparent to leaseholders.”
LKP chair Martin Boyd brought the unusual and strongly worded letter to the attention of the London Assembly Fire, Resilience and Emergency Planning Committee in May last year.
Ms Dawes has since left the ministry of housing, taking over as CEO of Ofcom in March.
She clinches the much-coveted job as government plans to gift the quango far-reaching new powers to discipline tech giants over “harmful content”. (Heading the telecoms and media regulator commands a starting salary of £315,000.)
In Mr Pocklington’s letter, there is no mention of commonhold nor its potential for eliminating the sorts of conflicts, blame shifting and delays that have beset safety-critical works in the leasehold sector.
He does, however, claim that the heavily trailed Dame Judith Hackitt reforms, which will become law with the Building Safety Bill, will guard against future rows over who should pick up the tab for cladding removal and construction defects.
“We are putting in place measures to address inaction, improve safety and avoid similar funding disputes in the future. The Building Safety Bill is being drafted and we are setting up the future regulator in parallel, but it is not yet operational.”
But questions remain over the funding and independence of the new building safety regulator.
On Monday, Inside Housing magazine reported Natalie Elphicke, a Conservative MP, has been made chair of the interim New Homes Quality Board, the precursor to the eagerly awaited New Homes Ombudsman, which government had promised would be fiercely pro-consumer and free of political interference. The developer watchdog is set to be launched in early 2021.
Natalie Elphicke to chair New Homes Ombudsman set-up
Inside Housing, news, analysis, and comment about the social housing sector in the UK.
The Hackitt reforms do not appear to force building owners to behave like “long-term custodians” of apartment buildings (which lobbyists insist they are) by actually paying for their property.
Leaseholders will continue to have near-unlimited service charge liability.
While government says it “expects building owners to act responsibly and pay for the remediation of their buildings now and in the future regime”, the position in landlord and tenant law – that leasehold tenants pay for their freehold landlords’ buildings, whatever the bill – is unchanged.
There are no plans to address this, which would require quite fundamental reform.
The deficiencies of leasehold as a means to organising the ownership of flats will be hard to overcome with any regulator, however well-intentioned or powerful.
Jeremy Pocklington to Robert Jenrick on ministerial direction for £1bn Building Safety Fund
Robert Jenrick reply 26 May 2020
Melanie Dawes to James Brokenshire on ministerial direction for £200m ACM fund
James Brokenshire reply 8 May 2019
Its right leaseholders pay for the maintenance and insurance of their building because they have the use of them and they own the lease. It`s a different matter when the structure and safety of the building is at risk – the freeholder owns the building and reversionary interests on the leases, therefore have the responsibility of such.
I fear any new reforms will not appear to force building owners to behave like “long-term custodians” of apartment buildings. Reform will incorporate a mechanism to protect freeholders interests where leaseholders will continue to have near-unlimited service charge liability. Correct.
A very untenable situation.