BOROUGH OF POOLE
COMMUNITY SUPPORT AND OVERVIEW GROUP
11th JANUARY 2005
HOUSING REVENUE ACCOUNT BUDGET AND RENT SETTING 2005/2006
1.PURPOSE AND POLICY CONTENT
1.1The purpose of this report is to set out the rent level and scale of charges for Housing Revenue Account activities for 2005/2006.
1.2To present the budget and medium term financial plan for 2005/2006 onwards for the Housing Revenue Account.
2DECISION REQUIRED
2.1That the Community Support Overview Group note the following recommendations being made to the Housing Consultative Panel on the 12th January 2005, and Cabinet on the 1st February 2005:
(a)In line with the Council’s policy on Housing Revenue Account rents, an average increase of 4.10% is applied for 2005/2006. Individual properties, however, are to move towards their formula rent as required by the adoption of the rent restructuring policy.
(b)The scale of other charges as set out in Appendix E to this report.
(c)Approve the Housing Revenue Account budget for 2005/06 and Medium Term Financial Plan as set out in Appendix Bi.
3 BACKGROUND
3.1The Housing Revenue Account is a separate ring-fenced account within those of the Council and as such records the income and expenditure associated with the Council’s landlord function in respect of the Council’s housing stock. The account does not impact directly on the wider general fund budget setting.
3.3The Government has identified meeting the “Decent Homes” standard, as its highest priority for housing stock.
3.4On the 15th December 2004, the Audit Commission confirmed to the Office of the Deputy Prime Minister that Poole Housing Partnership had been assessed as a 3-Star excellent organisation. An initial allocation of £17.4 million (Supported Capital Expenditure – borrowing) will now be released. The full allocation is for £35.4 million.
3.5The Government introduced rent Restructuring from April 2002 onwards. This is explained more fully in section (4) of this report.
4 RENT RESTRUCTURING
4.1In July 2001 the government published a paper on the “HRA subsidy and rent restructuring”. This document set out the proposals for the introduction of a new rent setting structure, with the objective of ensuring that social rents should remain fair, affordable, and closely linked to the qualities tenants value in properties.
4.2Before the implementation of rent restructuring the average rent increase for the authority in 2005/06 would have been the 4.03% (2.53% GDP inflation plus a 1.5% real term increase in local authority rents). The impact of rent restructuring (which is limited by the safeguard of RPI + 0.5% + or - £2) means that the rent increase is on average 4.10%. The impact on individual tenancies is as per Appendix A.
HOUSING REVENUE ACCOUNT – FUNDING CHANGES 2005/2006
5.SUBSIDY DETERMINATION
5.1The Housing Revenue Account subsidy formula is a mechanism for distributing the resources identified as available for Local Authority Housing within the Governments spending plans. The approach is similar to the Formula Spending Share used in the General Fund in that it uses various factors to determine relative need to spend comparing one housing authority with another. The amounts made available for the various allowances (Management / Maintenance / Major Repairs) will be influenced more by the total amount being made available by Government (the quantum) than by the amount Poole actually spends on these functions.
5.2The impact of rent restructuring on the subsidy calculation is that as the rent is increased resources are reduced to local authorities. In order to compensate for these lost resources the government redistributes them in the form of additional subsidy allowances for management and maintenance. For Poole the Management allowance has been increased by 2.53% and the Maintenance allowance by 16.95%. The cumulative impact of these increases has been calculated as an additional grant of £557,000 (net of impact from stock reduction). This can then be compared with the £488,000 less grant that will be received in 200506 due to the assumed rent increases.
6 CAPITAL CHARGES AND CREDIT APPROVALS
6.1The Local Government Act 2003 introduced a new capital finance regime into local government accounts. Credit ceilings and credit approvals were abolished. The Subsidy Capital Financing Requirement (SCFR) became the measure of HRA debt for HRA subsidy purposes (previous the HRA subsidy credit ceiling). The calculation remained similar, but set-aside receipts from right to buy sales and land disposals are not included.
6.2Instead of the redistributive mechanism of set-aside receipts, a pooling system was introduced. Previously, 75% of the receipts from the Right to Buy process were used to reduce the authorities credit ceiling and this led to less HRA subsidy being receivable. Instead (from April 2004) the 75% element has been paid out in quarterly cash payments to the ODPM. Correspondingly the subsidy SCFR (credit ceiling) will not now be reduced by this element.
6.3In place of the abolished credit approvals authorities are now informed of the amount of capital expenditure that will attract revenue support via the HRA subsidy system. These amounts are referred to as Supported Capital Expenditure (SCE) allocations and these feed into the SCFR calculation.
6.4In making its determination of the amount of Supported Capital Expenditure (SCE) to be allocated to the HRA in 2005/06 the ODPM has taken account of the error that occurred on the 2004/05 allocations between them and the Government Office of the South West (GOSW). This error meant that resources intended for the General Fund, specifically to support non-HRA private sector renewal housing activity, were mistakenly added to the HRA allocation.
6.5The SCE allocation for the HRA in 2005/06 is £408,000 an amount which can be analysed into;-
a)An annual allocation for 2005/06 of £670,000.
b)An adjustment downwards of £262,000 to correct the error in the 2004/05 allocation.
6.6Members attention should be drawn to the fact that the level of these annual allocations to the Housing Revenue Account has fallen (2003/04 £720,000) as a direct result of the creation of Regional Housing Boards (RHBs). These boards were established in each region during 2003 and make recommendations to Ministers on how housing investment resources should be allocated. These allocations are normally in line with the regions strategic housing priorities, which means for the South West resources are focussed on the provision of new affordable housing.
6.7The financial implication of this annual reduction in resources available to the Housing Revenue Account will be highlighted in the Authorities Business Plan which will be submitted to the ODPM in the spring of 2005.
7Arms Length Management Organisation
7.1A consequence of setting up an Arms Length Management Organisation (ALMO) which has subsequently achieved a 3-star excellent assessment, one of just nine in the country, is that the Office of the Deputy Prime Minister (ODPM) has made an initial capital commitment to Poole Borough Council of £17.4 million. This commitment will be in the form of additional Supported Capital Expenditure (prior to 1st April 2004 referred to as Basic Credit Approvals or borrowing permissions) which will attract revenue support for the borrowing via the subsidy system. This capital commitment is required to be used to support the achievement of the “Decent Homes” standard. The total capital allocation totals £35.4m.
8MAJOR REPAIRS ALLOWANCE
8.1The Major Repairs Allowance (MRA) is the average estimated amount of capital spending required to maintain the stock in its current condition. The MRA can be used for any capital expenditure on HRA assets, but authorities are expected to use these resources in line with the priorities set out in their HRA Business Plans.
8.2The total level of resources being made available for Poole for the MRA is £3,015,463 compared to £2,827,413 for the previous year (a 6.65% increase). As a property specific allowance, the amount per property increased by 7.5% (£643.37 from £598.39). However, due to properties sold through the right to buy process, the increase is restricted to an extra £188,050 in 2005/2006.
9HRA 2004/2005 LATEST FORECAST
9.1Adjustments from the 2004/2005 Original Budget have been highlighted as part of the monthly Corporate Financial Monitoring reports to Cabinet.
9.2Generally the balances brought forward from 2003/2004 were higher than planned due to slippage on the capital programme. The intention is that these additional balances will be used to fund a revenue contribution to capital outlay (RCCO) in 2005/06. This will enable the capital commitments that slipped between years to be financed.
9.3Within the August Corporate Monitoring report it was identified that Poole Housing Partnership would capitalise the refurbishment costs for their new accommodation. This will create a fixed asset within their accounts and consequentially will score as capital expenditure within the HRA. As capital expenditure it will require the HRA to identify necessary financing. Funding has been established in the form of an RCCO, with the result that the HRA reserves are reduced to £653,000.
9.4 The reserves will need an additional £48,000 contribution in 2005/06 to bring them in line with the recommended reserves benchmark of £150 per property..
10HRA 2004/2005 BUDGET PRESSURES
10.1 Appendix Bi presents the budget for the Housing Revenue Account for 2005/06, in light of the funding changes outlined, along with current estimates for the following three years in line with the Council’s Medium Term Financial Planning approach.
10.2 Appendix Bii presents the budget for 2005/06 in a more detailed and specific format.
10.3 Appendix C identifies the budget pressures and the impact these will have on the investment strategy within the Housing Revenue Account.
11FUTURE YEARS 2006/07 TO 2008/09 ISSUES
11.1The Council has adopted a medium term financial planning philosophy and strives to ensure that assumptions about future years are as robust and informed as possible. However the fact the Government only issues subsidy determinations and Supported Capital Expenditure allocations for the year ahead (2005/06) will mean that future year estimates should be treated with a degree of caution.
11.2During the summer of 2004 the Office of the Deputy Prime Minister undertook a three-year review of rent restructuring. These recommendations were originally intended to be introduced in April 2004, however in order to give further consideration of the issues raised, the implementation have been deferred for a year. The main recommendations of the review are;-
- The introduction of higher rent payment weights for three, four, five and six bed-roomed properties.
- Harmonising the formula used for restructuring local authority rents with that currently used for restructuring Registered Social Landlord rents. In particular, the inflation measure used for setting local authority rent increases (currently the Gross Domestic Produce Deflator) will be changed to the retail price index.
- Tenants should continue to be protected from excessive increases by the rent caps and the limit of RPI plus 0.5% plus £2 a week per annum on individual rent increases. However the review recommend that local authorities ignore the downward limit of RPI plus 0.5% minus £2 a week.
11.3Additional resources will be released in 2007/08 as a consequence of this being the next 49 week rent year.
12CAPITAL PROGRAMME
12.1 The capital programme is attached in summary form with the probable financing requirements in Appendix D
13SCALE OF CHARGES
13.1Appendix E sets out the scale of charges for the Housing Revenue Account for the financial year 2005/06.
13.2The strategy adopted is to put the majority of charges up in line the government’s inflationary target of 2.5%.
13.3Garages and heating charges have been increased in line with previous specifically adopted strategies. Garages have again been increased in line with the average rent increase (4.1%) and heating charges in line with the charging policy of costs being levied by the Service provider (15%).
13.4The supporting people support charge is being increased in line with the advice on charges that will be supported by the grant from the Supporting People Commissioning Authority (1.8%).
Joe Logan – Chief Executive of Poole Housing Partnership
Background Papers
Nil
Name & Telephone of Officer Contact
Adam Richens, 01202-633399
30 DECEMBER 2004
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