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Ujima Housing Association

Volume 475: debated on Tuesday 6 May 2008

I am delighted to have secured this important debate. The collapse of Ujima housing association is a warning to the entire sector that must be taken extremely seriously by the Government. If more disasters of a similar nature are not to occur, lessons must be learned, and quickly. There is a danger that we will believe that what happened to Ujima is an isolated case, but we cannot be so complacent. When I consider the scale of what happened there, I am astonished by the national media’s lack of interest in the matter, for example. Ujima is the first housing association ever to have become insolvent and effectively gone into receivership, putting at risk the homes of more than 5,000 families in London, Slough and Reading, including a number of families in my constituency.

The case came to my attention at about 4 o’clock on new year’s eve, when I received an e-mail from the Housing Corporation, which regulates the sector. Perhaps I am being unfair, but the fact that the e-mail had been sent on new year’s eve made me think that there might be a little more to the matter than the Housing Corporation was letting on, and I asked myself whether late on new year’s eve was perhaps a good time to bury bad news. I decided to dig deeper into the matter, and I quickly found a series of whistleblowers who felt that the whole episode had, at best, been handled incompetently. I found fraud and corruption on a sizeable scale within Ujima, as well as considerable incompetence. The Housing Corporation’s management were asleep at best, and negligent at worst.

I shall deal first with the fraud and corruption within the housing association. I reported the case to the police on 17 January this year. They came to see me, and I provided them with an extensive dossier of information. In a letter of 20 February, they confirmed that an investigation was under way. I have now heard that it is coming to its first fruition, as three arrests have been made on suspicion of money laundering and conspiracy to defraud Ujima housing association. I sincerely hope that the police will be able to make further arrests, but as a formal criminal investigation is under way, I must be careful about what I say, and I will avoid referring to particular individuals.

I shall outline the areas in which I believe fraud and corruption has taken place in Ujima housing association. First, considerable funds were paid to suppliers without any recognisable form of the tender process required by EU procurement legislation. Secondly, large invoices flagged as dubious by loyal and committed staff were ordered to be paid by those in authority at the housing association. Thirdly, a director and shareholder of Ujima’s primary maintenance contractor was also appointed as Ujima’s acting property services director, in direct breach of schedule 1 of the Housing Act 1996 and the Housing Corporation’s good practice note 3, “Maintaining standards of probity”. The note also sets out what action might be taken. Strangely, the Housing Corporation seems reluctant in this case to follow the advice in its own briefing note.

Fourthly, loan covenants were consistently breached, yet it is alleged that further loans were sought without the breaches having been declared to the banks concerned. There is some evidence that banks are now much more careful about lending money to housing associations. Andrew Heywood, deputy head of policy at the Council of Mortgage Lenders, said that the demise of Ujima would exert “upward pressure” on the sector “on its own”, meaning without any reference to the current credit crunch. In a briefing note on the Housing and Regeneration Bill, which has just gone through the House of Commons, he refers extensively to the same subject and the results of Ujima’s effectively going into receivership. As a result of what happened at Ujima, the cost of lending to the sector has risen, adding to the global credit crunch. That means that there is

“‘no certainty’ housing associations will be able to raise the estimated £15 billion private finance needed to meet government house building targets”.

That comes directly from the Council of Mortgage Lenders.

Fifthly, no management accounts were produced for Ujima’s audit committee for nine months, yet no formal questions were raised about that, which I find astonishing. Sixthly, Ujima did a series of land deals about which the best that one can say is that they look unusual and irregular. Whistleblowers allege that some of the deals were actually corrupt. I have passed information about some of those deals to the police, and I hope that they will thoroughly investigate them.

As an aside, the matter throws up a wider issue within the sector. I have been alerted to the fact that a number of other housing associations are failing to get best value on deals for land development sites, thus failing to get full value for taxpayer money. However, that is not a matter for today’s debate. Perhaps I will be able to return to that on another occasion.

Further allegations revolve around the expensive and luxurious redevelopment of Ujima’s offices at a cost of several million pounds while tenants’ basic maintenance problems were not being fixed. A small number of the senior team were alleged to be leading lavish lifestyles well beyond their personal means.

I hope that the Minister will listen carefully to what I am about to say. If only a tenth of the allegations are true, it is jaw-dropping that the problems were not spotted and stopped. But, of course, many of them were spotted—by Ujima’s committed, hard-working and loyal staff. I have rarely seen such a procession of whistleblowers from a single organisation. Several were sacked for their honesty and dedication. One employee took his case to a tribunal, which criticised Ujima severely, stating:

“We don’t understand why an employer would want to get rid of this employee.”

It is obvious to me and any other independent observer why Ujima would want to get rid of an honest, hard-working staff member: because of how the organisation was being run.

Where was the Housing Corporation in all this? What was the regulator doing while the company was being pulled apart and destroyed bit by bit? Some in the sector allege that because Ujima was a black housing association, the Housing Corporation backed off for fear of being accused of racism. We need to know whether that was the case and to understand whether there is any substance to that allegation. Unfortunately, the Housing Corporation has many more questions to answer. For example, it called in Ujima’s auditors, BDO Stoy Hayward, in both 2006 and 2007 to ask questions about Ujima’s affairs, so it must have had concerns. What were those concerns, and what did the corporation do on each of those occasions? What answers did it receive? In early 2007, Ujima’s development partner status was removed, yet it was given the green light for governance later that year.

In addition, the auditors say that they wrote a very critical management letter to Ujima’s board on 11 December 2006. As I understand it, housing associations must submit such letters to the Housing Corporation. Ujima did not respond to the letter until May 2007. The response should also have been copied to the Housing Corporation. Despite those letters, in June 2007 the Housing Corporation gave Ujima a clean bill of health for viability, governance and housing. Why did it do that? How could that happen, given that six months later Ujima was nearly £200 million in the red?

In recent years, the Housing Corporation has received a number of complaints about Ujima and on several occasions asked it to carry out independent investigations, which in fact do not appear to have been very independent. What were those complaints about, and what happened as a result of the investigations? Did any of the complaints relate to financial health? If so, did the Housing Corporation look at the management accounts and cash flow projections? How was it reassured about Ujima’s overall health? In 2006, Ujima’s statutory accounts were filed late. Did that not ring any alarm bells?

In the light of the complaints to the Housing Corporation, did it attend any board meetings or look at any board minutes? If so, was it not concerned about the lack of management accounts produced between February and October 2007, which means that there were nine months without any management accounts? Was the Housing Corporation aware that Ujima’s acting maintenance director was also its primary maintenance contractor’s director and a shareholder with a direct pecuniary interest? When did it become aware, and what action did it take when it did? Was it aware of the constant breaches of European Union procurement rules? Ujima’s own rules restrict its chairman to 10 terms in office, but the chairman continued into his 12th term, before being removed in the middle of the crisis that then hit the organisation. Did the Housing Corporation know about that? If so, why did it let that happen?

According to the whistleblowers, Ujima’s board was informed that it breached its loan covenants throughout 2006. Why did the board not do anything? Was it minuted, and if so, what action did the Housing Corporation take? How did the board appoint a finance director with no accountancy background or qualifications? Did it ask any questions? What references did it take up? When did the Housing Corporation become aware that Ujima had a totally unqualified finance director, and how did the Ujima board appoint its chief executive? What checks were made on his previous employment and qualifications? What references were obtained from previous employers? What did the Housing Corporation know about his previous activities, and when did it know it? Who was checking that Ujima was getting best value for money for taxpayers with its land deals? What process does the Housing Corporation have in place to ensure that value for money?

As can be seen, there are a considerable number of questions about the performance and directors of Ujima. However, there are also questions about the Housing Corporation as the sector’s regulator. Public money seems to have been used for personal gain and the glorification of certain individuals. The organisation was run at best incompetently and, at worst, corruptly. Either way, those responsible should be prevented from ever again taking up positions in public sector-related organisations. Is action being take to ensure that that happens?

I am aware that Simon Braid of KPMG is chairing an inquiry at the moment and I await his team’s report with interest. We will see whether the scope of the inquiry enables the sector to learn lessons. Many in the sector who have spoken to me feel that it will be a whitewash, but I remain totally open-minded. Clearly, we need to be reassured that the current regulation system works. Was Ujima an isolated example of merely a few corrupt individuals taking advantage of the system, or is this kind of behaviour endemic in the sector? That question at least needs asking and, indeed, answering.

What can be done to ensure that such behaviour is not repeated and to prevent those responsible from continuing to work in the housing sector? What changes can be made to the Housing Corporation to ensure that whistleblowers are listened to more seriously? I believe that the collapse of Ujima requires full ministerial engagement and a persistence that gets those questions answered. The Government must take this matter very seriously. A regulator exists to ensure that public money is not misused and that housing association properties receive the investment that they fully deserve. Housing association tenants are often some of the most vulnerable in our society. It is a scandal that they have been left with a poor standard of accommodation while public money has been misused for personal gain.

Despite the investigation taking place, I believe that the Minister must launch a full departmental investigation into the actions, or indeed lack of action, of the Housing Corporation in response to Ujima. I would welcome today an assurance that measures will be put in place to ensure that no other housing association will find itself in the same situation as Ujima. This scandal occurred on the Government’s watch, and it is incumbent on them to act to ensure, first, that it is not repeated and, secondly, that it is not being repeated now in other housing associations.

I look forward to the Minister’s response with interest. I fully intend to continue to pursue this matter energetically. I cannot, and will not, accept a repeat of a situation in which thousands of families have their homes put at risk due to the incompetence and corruption of others, and I hope that he agrees.

It is a pleasure to serve under your chairmanship, Mr. Cook. I apologise for not being my hon. Friend the hon. Member for Hartlepool (Mr. Wright); he had some difficulties with trains this morning. However, I am very happy to congratulate the hon. Member for Reading, East (Mr. Wilson) on securing this debate and on his dogged pursuit of this matter, not only in today’s debate, but through parliamentary questions.

The fact that this is the first such serious case in which the Housing Corporation has had to step in and use insolvency powers is a sign that, in the vast majority of cases, housing associations are very well run. However, that does not diminish the seriousness of the case before us and the importance of what needs to be done in respect of the police inquiry, which the hon. Gentleman mentioned, and the work of Simon Braid.

I hope to demonstrate that we are taking this matter very seriously, to chart some of the history of the case, and to point the way forward. In October last year, the Housing Corporation placed Ujima under regulatory supervision using its statutory powers to appoint three additional independent members to Ujima’s board. That followed a review of Ujima’s governance and took into account a number of other matters of concern relating to the management of its business. The hon. Gentleman rightly says that there have been whistleblowers and allegations dating back to 2006. The Housing Corporation got involved and, although it did not find problems of fraud, it found some control weaknesses.

The review was prompted by Ujima’s very poor development performance. The Housing Corporation considered that such underperformance raised questions about the governing board’s oversight of a key area of Ujima’s business, which in turn raised questions about its oversight of the business in general. The review identified serious weaknesses in the governance of the housing association, as the hon. Gentleman mentioned. Following the statutory appointments, significant further changes were made to Ujima’s board, including the appointment of a new chair. As a result of concerns about the management of the organisation, the new board suspended the chief executive and finance director and commissioned an urgent review of the financial position.

On the 30 November 2007, on the basis of the financial review, Ujima’s board concluded that the association was in breach of its loan covenants, which meant that some £164 million of loans had become current liabilities. Management accounts to 31 October showed losses of more than £4 million and forecast a loss of £7 million for 2007-08, against a budgeted surplus of £1 million. Furthermore, cash resources were likely to run out by the end of December, with a £20 million cash shortfall by March 2008. The scale of the financial problems meant that further loan finance was unlikely to be available. The board of Ujima agreed that its financial difficulties were such that it could not sustain an independent future and sought to work closely with the Housing Corporation to identify a solution.

Having considered proposals from a number of housing associations, the board of Ujima concluded that the best option involved transferring its stock to London and Quadrant Housing Trust. London and Quadrant is a large London-based housing association which had sufficient capacity to manage the financial situation and a good track record of providing high-quality services to tenants. The proposal was unanimously supported by Ujima’s board, but did not secure the necessary 75 per cent. majority of Ujima’s shareholders at a meeting on 17 December.

Is the Minister aware that the financial impact on London and Quadrant of the fall-out from Ujima is somewhere in the region of £30 million?

I am about to discuss London and Quadrant’s role, its liabilities and responsibilities and why the Housing Corporation thinks that it is the right partner.

On 20 December 2007, at the request of lenders, Ujima issued a notice to the Housing Corporation under section 40 of the Housing Act 1996, and presented a winding-up petition to the court on the basis that it was unable to meet its debts. As the hon. Gentleman pointed out, that was in the run-up to new year’s eve. On 21 December 2007, four secured lenders served notices to the Housing Corporation and took action to appoint a receiver. Those actions triggered a 28-day moratorium under part one of the 1996 Act. It is fair to say that a 28-day moratorium over a holiday period can provoke a few issues as well. I believe that that is a matter that Simon Braid will consider in his inquiry into governance and how things can be done better.

During the moratorium, the Housing Corporation put a proposal to secured creditors under which London and Quadrant would receive a transfer of the assets and liabilities of Ujima, including all of Ujima’s housing stock. In preparing the proposal, the Housing Corporation considered all other potential options, including those from a number of other housing associations. It concluded that a transfer to London and Quadrant was the best possible option to deliver statutory obligations to tenants, creditors and taxpayers. The proposal was agreed by the secured creditors on 14 January 2008. The corporation appointed as manager Grant Thornton, which applied to the Financial Services Authority for a transfer of engagements; the transfer was registered by the FSA on 16 January. Plans to integrate Ujima into London and Quadrant’s operations have been implemented. The statutory appointees will remain in place on Ujima’s board until the accounts have been signed off and the association can be removed from the FSA’s register.

As the hon. Gentleman said, the Housing Corporation commissioned an independent inquiry, which will be led by Simon Braid of KPMG, to assess the handling of the Ujima case and whether any lessons can be learned in the context of the Housing and Regeneration Bill and the establishment of Oftenant and the new Homes and Communities Agency. The inquiry team has been interviewing key witnesses and has been commissioned by PricewaterhouseCoopers to carry out an information-gathering exercise and to consider some legal issues. As the hon. Gentleman said, the inquiry must not be a whitewash. I do not anticipate that it will be: I am sure that Simon Braid will be aware that this debate is taking place and will listen to the hon. Gentleman’s contributions attentively.

May I place on the record my enormous concern about the number of witnesses who are not being interviewed but who have very important information to give to this so-called independent inquiry? A number have contacted me saying that they are very anxious to put their comments on the record. That is why some people in the sector think that the inquiry will be some form of whitewash.

It is useful that the hon. Gentleman has put that on the record and thrown down the gauntlet.

There will now be further rounds of interviews. PricewaterhouseCoopers is expected to submit its report to the inquiry team by the end of May, provided that it is able to schedule all its interviews promptly. I appreciate that many people will want to be interviewed, but we must let Simon Braid and his team continue with their work independently.

The inquiry team will aim to publish its full report in July 2008, so the hon. Gentleman will not have too long to wait. I know that there have been concerns that a black and minority ethnic housing association has been transferred to a mainstream housing association rather than to another BME association. Ujima’s board considered a proposal from a black-led association but did not think that it represented the best solution for the association and its tenants. Because of the scale of the financial problems faced by Ujima, only a solution involving a very large housing association with considerable financial capacity, such as London and Quadrant, was likely to be appropriate.

Having set out the history of the case, I will now draw out some issues and relate them to the powers in the Housing and Regeneration Bill, with which the hon. Gentleman must be familiar. I need to reassure hon. Members that the financial circumstances of Ujima are exceptional. As regards the overall financial position of housing associations, most appear to be well managed. Traditionally, the Housing Corporation has paid very strong attention to the viability of associations. That is borne out by the fact that the moratorium and winding-up process has only been used very rarely—twice in the past 10 years, as far as we are aware. No lender has lost money in lending to registered social landlords and no property has had to be sold because a lender enforced security. In other words, the system has been overwhelmingly successful in ensuring the viability of the sector. Lenders recognise that and their lending rates reflect the fact. At the same time, we must ensure that we learn lessons from the Ujima case and that we are not complacent.

It has been claimed that the corporation has seen viability as the overarching objective of regulation and has paid insufficient attention to quality of service to tenants. Without criticising the corporation, it is clear that many hon. Members have agreed with that view over the years. That is why I am pleased to see that the Housing and Regeneration Bill places tenants at its heart. Quality of service is a key objective, with tenants being involved through consultation in the setting of standards, and the regulator ensuring that tenants have information on which they can judge the performance of their landlords. The new social housing regulator, Oftenant, will be established at arm’s length from Government and separated from investment panels. It will be focused on the activities of registered social landlords and on what they have to offer to tenants. The Bill gives the regulator new powers to secure improvement in management and new measures that are more responsive than the nuclear options that are now available to the Housing Corporation.

Taking on board the comments made by the hon. Gentleman and his assiduous work on the matter, may I say to him that, across the board, housing associations are doing a good job. However, when they do not, it is important that we learn lessons. I hope that Simon Braid’s inquiry will help us to do just that.