Chamber and committees

Do you mean the Scottish Government’s powers to borrow?

Yes, we need homes in the right place and of the right size and quality, but we must also deliver more homes. All that is a balancing act. Local authorities and RSLs are delivering high-quality homes, which is important. It is also important that there is good insulation and that we have energy-efficient homes. Does that mean that there will be fewer homes? There is a balance between delivering at scale and delivering quality.

For example, we are looking at modern methods of construction, such as off-site construction—or however you want to describe that—as potential ways of getting as much out of not only the £3.6 billion investment but the additional investment that that brings and that the sector raises.

We are talking to the sector and local authorities about innovative ways to build, including builds that can be done all year round, which would lead to economies of scale. We are also looking at the number of house types. Do we need 50 different types of two, three or four-bedroom properties, or can RSLs and local authorities come together to hone in on a smaller number of house types that can go through planning more quickly?

All of those things are important, as is looking at operating more as consortia in the delivery of homes. Homes England has done that quite successfully. We should be looking at ways of driving efficiency in the system without compromising on quality.

We need to look at all those things, to make sure that every pound that we invest in the affordable housing supply programme is going as far as it can to deliver as many good-quality energy-efficient homes as possible, in the right places.

The importance of that guide was set out in “Housing to 2040”. It is not that the current guide is not still providing an excellent standard—it is—but that we want to review it in order to better meet the needs of an ageing population, to help people to live in their homes for longer, and to learn lessons from the pandemic by recognising, for example, the importance of outdoor space and space for homework and study.

We have had to take some time in doing that, in order to get it right—to ensure that the guide is going to be fit for purpose. To be honest, that has taken a bit longer than we would have wanted, but there is a balance between taking time and getting it right.

There has been a lot of informal consultation with stakeholders. The latest that I can tell the committee is that we plan to formally consult on the proposed changes to the guide in the spring of next year. That is a bit of a delay, I will be honest, but it has been worth taking more time to get that formal consultation right.

In the meantime, there is nothing wrong with the existing guide; however, getting the new guide right has taken a bit longer than perhaps we would have wanted. I am happy to keep the committee updated as we move that work forward.

We are asking a lot of the sector in asking it to do all those things at the same time. We need to ensure that we support RSLs. The financial performance of RSLs remains robust, which means that we are starting from a good position. However, we are asking a lot of our RSLs and we need to be cognisant of that.

We need to ensure that decarbonisation of the existing stock and creating new homes that are energy efficient and of a high standard are done in bite-sized pieces. We have asked social landlords to focus on fabric first, while we put in place the building blocks that are important in taking forward investment in decarbonisation.

We have also been very clear that tenant affordability is key. We have said that decarbonising the existing stock and building new homes must be done without compromising tenant affordability—it cannot be done on the back of tenants’ rents. As you will be aware, the task force has done a lot of work on how we finance that in a way that is deliverable, affordable and does not put the onus on tenants’ rents. It is a challenge.

We have provided some quite significant funding so far, although we have also said that we know that that will not be enough to do everything that needs to be done. We will need to work closely with the sector as we make progress on the changes that are coming over the next few years. We need to support the sector in that.

We rely on local partners to consult with tenants. As a Government, we set the budgets and the targets in collaboration with local partners. I meet tenants organisations directly and regularly to hear their views. However, we expect some of the consultation on the detail of the housing plans to be done at a local level by local authorities and registered social landlords. They are required to carry out consultation on rent levels annually. We would expect them to have the reach into communities and local tenants organisations that it would be impossible for us to have. We do our bit on the national level, but we also expect that local consultation to happen.

First, I absolutely recognise those concerns and that is why Patrick Harvie and I have spent a lot of time discussing the issues with the social rented sector. We are addressing the way in which we are going to work with the social rented sector by establishing a joint group of officials and the social rented sector, to work through those issues in more detail.

It is fair to say that the vast majority of social sector rents have already been set up to 1 April 2023, because they are set earlier in the year. The social rented sector is concerned about what will happen from 1 April, rather than what will happen in the next few months. It is worth saying that, as a starting point, rent levels in the social rented sector are considerably lower than in the private rented sector.

It is important that the Parliament sees the bill when it is published. The question will be whether the powers and mechanisms in the bill extend beyond the end of March 2023. I set out earlier all the factors that we need to take into account. You mentioned the rent freeze, and I do not underestimate what the social rented sector is saying about that, but the sector will also be really concerned about interest rates going up and the costs of borrowing. It is not just one issue. All of that means that we must be very cognisant of the sector’s investment plans and must reassure UK Finance and the lenders that Scotland continues to be a good place in which to invest in affordable homes and the social rented sector.

The financial stability and position of the social rented sector is very good. That is a good starting point. As we go forward over the next few months, we will balance all that with the sector’s investment plans and, importantly, the affordability of tenants’ rents, as well as the economic climate. We will have to balance all those things with the sector to ensure that tenants are supported and the sector continues to deliver on its investment plans. We will talk to the sector about the Government’s role in all of that, in order to ensure confidence.

I am sure that we will continue to discuss such matters in detail, not least once the bill has been introduced. Please be assured that we are spending a lot of time working on those issues with the sector, because we recognise their importance.

Yes—importantly, it was about the budget. In the resource planning allocations, we gave a five-year allocation of £3.6 billion. It was important to give certainty over five years. We are not always able to give multiyear allocations, because of all the difficulties in budgeting that we all understand. However, being able to do so has made quite a difference in terms of being able to give that certainty. That can help plans to go forward, so that, through their own borrowing, projects can generate added value to that £3.6 billion. In some cases, projects have doubled their funding.

That said, we are always looking for innovative ways of financing the affordable housing supply programme. We have looked at how we can use financial transactions to the best of our ability. Financial transactions funding of £134 million has been allocated to the budget in 2022-23. Use of FTs is quite complicated. It is not straightforward. However, we can helpfully use them.

We have also allocated £74 million to the charitable bond scheme in 2022-23, to provide private finance to RSLs and to generate charitable donations to increase provision of social housing.

We are trying to be imaginative in how we might make the money go further, if you like. We have asked officials to establish what is called an innovative finance steering group to look at innovative finance models that we have perhaps not used, in order to grow that pot even further.

We are constantly challenging ourselves, quite apart from our taking up the challenge that comes externally, because we want to do more. The sum of £3.6 billion over the current session of Parliament is a lot of money, but we need to grow it. We can grow it through the private finance that RSLs can raise and through contributions from local authorities, but if there is more that we can do for some additional programmes, we will look to do it.

The steering group will be established in the autumn. We need to give it a bit of latitude to look at all the potential sources of investment. I would not want to rule anything out, but it will ultimately be for the Government to look at the group’s recommendations. We will look at the risks, because I am mindful that anything that is directly linked to fluctuations on an on-going yearly basis could have an immediate negative impact on rent levels. That would not be a sustainable position for tenants to find themselves in. Anything that we do in relation to innovative finance has to be sustainable and has to give tenants some security in relation to affordability of rent levels.

Mid-market rents provide an important function for those who are able to afford those rents, which are still considerably lower than rents in the private rented sector. They meet a particular need for some parts of the population, which is important. There has been expansion of mid-market rents, which will continue to be an important element. There might be some financing models that can help with that part of the market.

However, we will apply any recommendations having looked at them through the lenses of affordability and sustainability.

There has been no consultation on any housing elements of the bill, certainly as far as my interests are concerned.

We have made clear our position on the bill and our concerns about it, which have been well rehearsed. Although housing policy is entirely devolved, we have no control over matters such as housing benefit, mortgage tax relief and levers that drive inflation and interest rates, all of which impact on housing.

However, the fact that delivery of housing, building of housing and building regulations are entirely devolved matters has allowed us to develop a distinctive Scottish approach that recognises the importance of affordable housing as a key lever in tackling poverty. One of the reasons why child poverty levels are lower in Scotland is the relative affordability of housing in Scotland when compared with elsewhere. We have been able to take a different approach on, for example, the right to buy, security of tenure and energy efficiency.

We would be very concerned if there was any move that would impact on that area of devolved policy. That is one of many concerns that we have about mission creep, if you like, by the UK Government into devolved matters.

The very limited scope of the Scottish Government’s powers to borrow affects not just housing but the whole gamut of our ability to respond, whether in respect of social security measures or borrowing during the Covid pandemic to support households and businesses, which is what every other Government did. We are very constrained, which places huge barriers and restrictions before us. It means that within what is, largely, a fixed budget, we have to prioritise, so increased spending in one area means reduced spending in another. That is why the fiscal framework must be reviewed as a matter of urgency; finance colleagues have been working with the UK Government to try to agree the parameters of that.

Borrowing powers clearly have to be a key aspect of any revision of the fiscal framework so that we can operate like other Governments, including many devolved Governments. Even local government has more borrowing powers than the Scottish Government. It is a critical issue; an increase in borrowing powers would allow us far more flexibility to be able to respond to peaks and troughs, the challenges of global factors and emergency events that come up, such as the cost of living crisis. It would allow us to respond far better than we can through our fixed budget.