COUNCIL 23/2/2012 FOR INFORMATION AGENDA ITEM 10
BOROUGH OF POOLE
CABINET
14TH FEBRUARY 2012
HOUSING REVENUE ACCOUNT, RENT SETTING AND BUDGET 2012/13:
REPORT OF THE CHAIRMAN OF COMMUNITIES OVERVIEW AND SCRUTINY COMMITTEE
PART OF PUBLISHED FORWARD PLAN: Yes
1.PURPOSE
1.1.The purpose of this report is to;
a)To set the rent and service charges for the Housing Revenue Account in 2012/13.
b)To present the Budget and Medium Term Financial Plan for 2012/13 onwards for the Housing Revenue Account.
1.2.The recommendations to Cabinet accord with the considerations of the Communities Overview and Scrutiny Committee of the 30th January 2012.
1.3.This report is based on the final Government self-financing determination, which was received on 1st February 2012, this has changed from the draft determination, details of which were submitted to Communities Overview & Scrutiny on 30th January 2012 but does not affect the decisions required. (Please see paragraph 8.4 for more information).
2.DECISIONS REQUIRED
Cabinet is asked to recommend to the Council the following:
2.1Note that the Localism Bill received Royal Assent and became the Localism Act on 13 November 2011. Self-Financing forms part of this Act and therefore Self-Financing will come into effect from 1 April 2012.
2.2That the average increase in dwelling rents in 2012/13 will be 7.1% but that individual properties will move towards their formula rent as required by the adoption of the Government’s rent restructuring policy (as shown in appendix A).
2.3That garage charges for tenants will increase by September Retail Index of 5.6% (Poole Old Town - £9.72 per week based on 48 week charge and £5.54 per week based on 48 weeks charge for the remainder of Poole). Non-tenants garage rents to increase to £13.46 per week (Poole Old Town) and £8.45 per week (Rest of Poole) charged over 48 weeks (VAT is added at 20% to Non-Tenants). See Appendix B1 for more information.
2.4That Sheltered Housing Service charges, Supporting People charges and Guest Bedroom charges for 2012/13 all remain at 2011/12 levels.
2.5That communal heating/lighting charges remain at 2011/12 levels as referred to in paragraphs 7.2 below and in appendix B1 & B2.
2.6That the amount of money paid to Poole Housing Partnership (PHP) for the provision of responsive repairs, cyclical repairs, cost of void properties and the administration of PHP is £8,070,000 (£7,873,000 in 2011/12 increased by £197,000 or 2.5%) to undertake the management and maintenance of HRA dwellings as described in paragraph 9.
2.7Approve the proposed Housing Capital Programme (as shown in appendix E1 and section 10 of this Report).
3.BACKGROUND INFORMATION
3.1.Communities Overview and Scrutiny Committee considered the issues relating to the Housing Revenue Account (HRA) at its meeting on the 30thJanuary 2012 together with the payment to Poole Housing Partnership for the management and maintenance of the Council’s Housing Stock. Since that meeting the HRA final Self-Financing Determination was received on Wednesday 1st February 2012 and the actual payment to be made to the Government on 28th March 2012 has reduced by £462,000 to £43.908M.
3.2.As Members are aware the Council has been exploring the different options for funding Council Housing in the future. The Council established a Working Party to look at the different options and report on the most appropriate way forward. During this review it became evident that the Government were looking to introduce Self-Financing as their preferred funding option for the future. A separate report was presented to Communities Overview and Scrutiny Committee which explained the implications of Self-Financing.
4.HRA FINANCIAL STRATEGY AND FINANCIAL PLAN
4.1.The financial strategy for the Housing Revenue Account is proposed as:
“To focus resources on meeting the cost of servicing the HRA outstanding debt, to ensure that income collection levels are maintained; maintaining the Decent Homes standard; maximising the funding for the HRA Capital Programme and supporting strong sustainable communities; and to continue to set rent increases in line with the Government’s rent restructuring policy”.
4.2.The 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 on the wider General Fund budget setting and, hence, nor on the level of Council Tax. The costs and income are shown in Appendix C. Appendix D shows an alternative and more informative breakdown for income and expenditure.
4.3.The financial plan sets out how the Council intends to deliver its financial strategy and includes separate strategies for revenue, capital and balances.
Revenue Strategy
- The payment from the HRA to PHP for the management and maintenance of the Council’s Housing Stock is calculated by taking all income deducting statutory HRA expenditure and the balance remaining is paid to PHP. However the strategy is that the remaining resources that could have been allocated to PHP will remain in the HRA as a revenue contribution to the Housing Capital Programme.
Capital Strategy
Capital expenditure will be used to fund:-
- Maintaining the Decent Homes Standard (Poole Standard)
- Other essential landlord capital investment
- Investment in improvements which create future years’ revenue efficiencies
- Asset holding will be reviewed to ensure the best use of resources and investments which increase or improve the efficiency of the HRA’s asset holding (this will include the feasibility of new investment and new build to provide new affordable homes and extra care provision).
Balances Strategy
As reported last year a risk calculation iscarried out each year on the HRA and the proposal is that Balances will be held:-
- to recognise the financial risks within the Housing Revenue Account which have been calculated to be £570,000 as a worst case scenario including interest rate risk/fluctuations.
- that based on the risk analysis, balances within the HRA are held at £570,000 and balances of £200,000 within PHP,which, taken together, exceed the Audit Commission’s current recommendation of £150 per property which equates to £690,000.
- that holds the level of balances necessary on the Major Repairs Reserve to carry forward funding to later years to match future years’ spending profiles or new investment where this can be achieved.
4.4.The HRA is attached as Appendix C with further analysis in Appendix D.
- HRA SUBSIDY
5.1As Members are aware the Government has been consulting on the complete review and removal of the current Housing Subsidy System and to replace it with a new Self-Financing system which comes into effect on 1 April 2012.
5.2Therefore the HRA Subsidy system ends on 31 March 2012 and for 2012/13 and future years the Council will no longer be paying the Government any payments under “Negative Housing Subsidy”, commonly referred to as the “Tax on Tenants”.
- RENT RESTRUCTURING
6.1In July 2001 the Government published a paper on “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.
6.2To summarise, the rent for each individual property is set by:
a)Determining a target rent (the Formula Rent) for each property, which takes account of both the property’s value, the number of bedrooms and county average earnings compared to the national average.
b)A phased move from the 2001/02 actual rent to the Formula rent in ten steps; these started in 2002/03 and originally would have been completed in 2011/12. Changes in Government Policy in 2009/10 pushed back convergence for 15 years resulting in 2009/10 rents converging in 2023/24. For 2012/13 the year of convergence has remained the same as for 2011/12 which is 2015/16 andtherefore4 yearsbeforeconvergence is achieved.
6.3The inflation measure used for setting local authority rent increases is the retail price index (RPI) plus 0.5% (the same as for Registered Social Landlords). The RPI value used is that for September, which in 2011 was 5.6%, this is the highest inflation factor for twenty years. For forecasting future years, the target Retail Price Index (RPI) of 3.5% for 2013/14 and 2.5% thereafter has been used.
6.3.1The overall impact of rent restructuring (which is limited by the safeguard of RPI + 0.5% + £2 per week) means that the rent increase for 2012/13 will on average be 7.1%, the national average is 7.8%.
6.3.2To increase rents above the Formula would lead to financial penalties in terms of loss or Housing Benefit grant above a calculated level called the Limit Rent. Similarly, to set rents below the guideline would not obviate the need to increase rents in the future to catch up with the Formula level in order to comply with rent restructuring in the long term. Furthermore it would deprive the HRA of resources required to meet the costs of debt and fund services and investments.
6.4 All properties that become void within the year move to their formula rent on re-let. This is explained to all new incoming tenants and this does raise additional income in the year.
6.5The impact of the various caps and limits on individual and average rent increases mean that next year (2012/13) only 504 properties will be at their formula (target) rent and by 2015/16there will still be 299 properties (approximately 6.5% of the total) that would not have converged with their Formula rent.
6.6Residents of the Housing Strategy Panel supported the recommendations in this report at their meeting on 11th January 2012.
They were concerned about the proposed level of rent increase, but understood how this came about, which was due to an unusually high inflation level of 5.6% in September 2011. They were in agreement with the need to follow the Government’s assumed formula for future rent increases, and understood the importance of following this approach to achieve a balanced HRA Business Plan.
The Panel acknowledged that other service charges were proposed to have no increase.
7.SCALE OF CHARGES
7.1Garage Rents – It is recommended that garage rents increase by September Retail Price Index (5.6%), this is below the average dwellings rent increase of 7.1%. Further capital works of £100,000 are planned in 2012/13 on some garage sites that require investment and ongoing repairs and maintenance and this increase will partially support that investment. The details are included in Appendix B1 attached to this report.
7.2Communal Heating & Lighting charges–PHP have managed to secure current prices for electricity for the next 2 financial years despite industry forecast increases of 27%. Gas contract ends on 30 September 2012 and initial contract discussions are positive regarding prices in the short term. It is therefore recommended that the charges for Communal Heating and Lighting are not increased for 2012/13. This will also counter the effect of placing more residents into fuel poverty. Furthermore the current HRA policy on Utilities is that expenditure should be matched by income and this is now the position.To further reduce the impact of energy costs on sheltered housing tenants, PHP has been carrying out a programme of improved insulation and fitting solar panels to further reduce fuel poverty, the quantity of energy consumed and to reduce carbon emissions. Details of charges are contained within Appendix B2 attached to this report.
7.2.1PHP has been and continues to manage the provision of photovoltaic panels on the roofs of Council Dwellings as part of the Fuel Poverty and Carbon Reduction Strategy.
7.3Efficiency savings have been identified in the delivery of housing support services and this is having a positive impact on both the Sheltered Service charge and Supporting People Charge for the sheltered housing stock. It is therefore proposed that charges for these services remain at 2011/12 levels. Details are contained within Appendix B1 to this report.
7.4Charges for Guest Bedrooms in Sheltered Accommodation have also been reviewed and remain at the same level as for 2011/12.There is a review planned during 2012 of this service provision and dependant upon the outcome charges may be recommended to change. The proposed charges are included within Appendix B1.
8.SELF-FINANCING DETERMINATION
8.1The Housing Revenue Account Self-Financing formula is a newly formulated mechanism for distributing the resources identified as available for Local Authority Housing within the Government’s spending plans. The approach usesvarious factors to determine relative “need to spend” comparing one housing authority with another. The amounts made available for the various allowances; Supervision & Management (“Management”), Repairs & Maintenance (“Maintenance”), and Major Repairs, are influenced more by the total amount being made available by Government (the quantum) than by the amount Poole actually spends on these functions. The Government then calculates the amount of allowances for each Local Authority over the next 30 years.
8.2The impact of rent restructuring on the calculation is that as the rent is increased resources are reduced to local authorities as it is assumed that this rent income will be recovered by Local Authorities from their tenants.
8.3Once the above allowances and rent income have been calculated (over 30 years) the Government then calculates the amount of debt from within the national housing debt pool that each Local Authority has to pay or receive as a one-off transaction on 28th March 2012.
8.4The Council received the finalSelf-Financing determination on 1st February 2012 and the Council will have to make one-off debt payment of £43.908M on 28th March 2012, this is £462,000 lower than the previous figure advised to Communities Overview & Scrutiny Committee on 30th January. In the draft determination issued on 21st November 2011 the payment to be made by Poole to the Govt on 28th March was £44.370M. The self-financing valuations and settlement payments for councils have changed from those indicated in the draft determinations. This reflects changes and updates to the data used in the self-financing model, not changes to the underlying methodology. This has reduced the national valuation of the stock by around £400m (1.3%). About half of this is due to stock transfers and half to other data changes and updates.
8.5A significant assumption used in constructing the 30 year HRA Self-Financing Business Plan that has, as a matter of prudence, also been assumed in constructing the 2012/13 HRA Budget and Medium Term Financial Plan, is that the HRA will be required to pay interest at an average of 5% on its £100m debt cap. At the timing of writing this report it is anticipated that the Council will significantly improve upon this rate however much will depend on the prevailing money market conditions on the 26th March 2012 which is when the Council will need to drawdown the self financing loans from the Government’s Public Works Loan Board.
9.MANAGEMENT AND MAINTENANCE ALLOWANCE TO PHP
9.1The Management and Maintenance allowance paid to PHP is proposed to increase by 2.5%
Approximately half of the fee pays for repair and maintenance contracts, Service Level Agreements with the Council, Insurance, Business Rates and other charges. These are subject to inflationary increases of between 5% and 5.6%.
9.2PHP is a not-for-profit organisation and operates a value for money strategy which seeks to create efficiency savings throughout its operations.
Last year, the Board of PHP transferred £400,000 of savings to the Housing Revenue Account Capital Programme and has made similar payments in previous years.
10.HRACAPITAL PROGRAMME
10.1The Decent Homes target was achieved in December 2010 when the significant backlog works were completed and all of Poole’s Housing Stock met the Decent Homes target. The summary Capital Programme is shown below:-
10.2The Capital Programme is based on the current HRA 30 Year Business Plan and shows that estimated expenditure over the next 3 years can be funded.
10.3Appendices E2 & E3 show how the capital programme is funded and the balance on the Major Repairs Reserve.
11.LEGAL IMPLICATIONS
11.1There are no legal implications arising from this report.
12.RISK MANAGEMENT IMPLICATIONS
12.1The risk in financing management and maintenance of the housing stock from April 2012 moves from central Government to Local Government as part of the Self-Financing approach;
12.2The risk associated with future rent increases will also sit very firmly as a local decision.
- However as the self financing valuation and settlement is premised on Council’s continuing to implement the Government’s Rent Restructuring formula then any deviations will potentially undermine the financial viability of the Poole’s Housing Revenue Account.
- The Housing Revenue Accounts will be committed in the first instance to the servicing of new and existing debt.
iii. Only once debt is serviced (funded) can consideration be given to the maintenance standard of the properties and then in turn the quality of the Housing Management service.
- Income could drop as a result of the changes proposed to Housing Benefit such as:
Proposals to end Housing Benefit being paid direct to Landlords, this could significantly reduce rent income levels
Reduction in the amount paid of Housing Benefit
Increases in “Non-Dependant” charges
The need to increase bad debt provisions within the HRA
Under Occupation (i.e. where a tenant(s) has more bedrooms than required)
13.EQUALITIES IMPLICATIONS
13.1Proposed revenue budgets for 2012/13 onwards should not impact on front line service provision, and the level of capital disabled adaptations in the estimated Capital Programme should enable us to meet the needs of disabled and older residents to have aids and adaptations fitted to support their independence.
13.2Older and disabled residents have been positively affected by the changes to heating and communal utility charges; the majority have benefited from reduced personal heating charges, and a lower split of communal utility costs between all residents benefiting from these services. Furthermore the majority of older residents have seen a reduction in their Supporting People and Sheltered Warden charges for 2011/12. For 2012/13 it is proposed that charges are not increased.
13.3The services of the officers visiting homes as part of the Financial Inclusion & Fuel Poverty Programme have and continue to assist tenants in maximising their entitlement to national benefits and help mitigate increases in rents. This work becomes even more important as the current changes, and planned further changes, in benefits take effect.