Arms Length Management was introduced in the 2000 Housing Green Paper and seen by many as a rescue clause for councils and tenants who didn't want to transfer.

Under the 2001 government guidance, councils would separate their housing strategy work from their landlord functions. An arms length company or board would take over the housing management service. The council still owns the homes and tenants are still council tenants with a secure tenancy but the arms length management organisation has a significant degree of independence from the local authority.

Models for Arms Length Management

ALMOs are companies that are 100% owned by the local authority. They have a Board of Directors which includes tenants and independents, as well as councillors. Housing staff are transferred to the new company and are no longer council staff. The contract with the council is set out in a Management Agreement and the ALMO is paid a Management Fee for carrying out its housing duties. Rents are still set by the council (or in reality, by the government) and councils still control the housing revenue account and capital investment although the arms-length board has the freedom to set its own service standards, capital programme and most policies - with the exception of the council's Lettings Policy.

There is strong emphasis from the government on local management and diversity - so initially a limit of more or less 12,000 homes was set for each arms-length company. This limit seems now to have been abandoned in practice and a group structure with area panels is seen as the solution for councils wanting to set up whole-stock arms-length bodies. Tenant management organisations can also become arms-length bodies.

Housing management staff transfer to the ALMO under TUPE protection of employment rules. ALMOs are encouraged by the Audit Commission to re-tender council contracts and opt-out of corporate tendering strategies. This may have a wider impact on the council's workforce.

ALMOs and the Decent Standard

The original aim in setting up Arms Length Management Organisations was for councils to achieve the Decent Standard by 2010. ALMOs qualify for extra resources, if they meet the Audit Commission's standards for a 2 star good service or 3 star excellent service in their Best Value inspection. This funding can be used to borrow more from the government loans board - enough to finance the investment plans of the arms-length organisation. Four funding programmes for ALMOs have been agreed by government since 2002 and another two rounds were launched in the 2004 Spending Review. Public funding for ALMOs was £321 million in 2003/04 and £590 million in 2004/05. The ALMO's extra borrowing rights and revenue to support the borrowing has to be re-negotiated with government every two years

By 2005 there were 58 ALMOs in 53 local authorities, managing 870,000 council homes. By the end of the 6th round of ALMOs, half of all remaining council homes will be under arms-length management.

Tenant Participation under the ALMOs

Tenants can become directors of the Arms Length Management Organisation, alongside councillors and independents. In many cases they have become the majority group on the Board. It is questionable whether this makes any difference in practice. The Audit Commission guidance is clear that tenants on ALMO or RSL boards are not there as representatives, or to reflect the views of a constituency. They are there as directors and their first loyalty is to the company. They have a responsibility to make sure the company is financially sound and in some cases work to a code of conduct which lays down their duty to take advice from the company's chief executive. The ALMOs' trade body argue that tenants have gained greater participation under the ALMOs and certainly satisfaction rates are up around 75%. The inspection framework of the Audit Commission has been a key factor behind improvements in performance and a widening of participation opportunities.

Future of the ALMOs

The National Federation of ALMOs are currently arguing (Winter 2006) that arms length management should be here to stay - and ALMOs should continue long after they have achieved the Decent Homes standard. They argue that tenants have been empowered by ALMOs and will not want to lose them. They are lobbying the government for extra financial powers. These powers could give ALMOs significant freedoms from local authorities, including the right to borrow on the open market and could possibly see ALMOs leasing or taking over the ownership of council housing.

Some commentators have raised concerns about arms-length management calling it "a stepping stone to privatisation." They have called for a 4th option to allow councils to invest and keep their stock.