Report of the Strategic Director and Chief Financial Officer

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REPORT OF THE STRATEGIC DIRECTOR AND CHIEF FINANCIAL OFFICER

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TO CITY MAYOR on MONDAY 28th JANUARY 2013

and CABINET 1st FEBRUARY 2013

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TITLE:Rent Convergence 2013/14

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RECOMMENDATIONS:

That the City Mayor:

1In order to meet the Government’s requirements to conform to rent convergence by 2015/16 and to deliver a balanced hra, approves a Council house rent increase of 4.55% or an average of £3.09 per week (52 week basis), £3.35 (48 week basis) with effect from 1stApril 2013.

2Notes the remaining rent restructuring plan which currently shows a rent convergence which conforms with the Communities and Local Government’s target of 2015/16.

3Approves therecommended adjustments to service charges to reflect the actual costs of providing those services as outlined within the Salix Homes report of 15th January 2013.

4Approves the retention of the current policy of 48 chargeable rent weeks.

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EXECUTIVE SUMMARY:

This report sets out the factors to be considered in setting rent and service charges and seeks approval for proposed rent and service charges for 2013/14.

BACKGROUND DOCUMENTS:

Report to Council on the 19th February 2003 and 18th February 2004 – Housing Rent Restructuring Plan.

The following document contains exempt or confidential information and is not available for public inspection - Salix Homes report to Audit & Resources Committee 15th January 2013 – Service Charges

KEY DECISION:Yes

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DETAILS:

1. Background

1.1On 16th July 2002, Cabinet approved a revision to HRA rent review policy to align it with the HRA budget process with effect from the 1st April 2003.

1.2Cabinet also noted policy objectives to:

• Maximise income to the HRA within Government guidelines
• Review rent levels and service charges annually
• Achieve incremental implementation of the Government’s rent restructuring proposals ensuring a fair and transparent system of rent increase and service charges.
• Ensure that the HRA is balanced

1.3At the Council meeting of 19th February 2003 the rent restructuring plan was approved in principle.

1. Current Rent Restructuring Plan

2.1The government introduced the policy of rent restructuring during 2002 with the aim of introducing fairer, more consistent rent charges. The key to achieving this was the introduction of a common formula for both local authority and registered social landlords based on:-

• The size, condition and location of the property
• Local economic factors eg earnings

On an annual basis rent charges would reflect inflation but also the difference between formula and actual rents (smoothed out across the lifetime of the rent restructuring policy). Once convergence was reached there should be no unwarranted differences between the rents set on similar properties by social housing landlords.

2.2The Government’s target date to achieve convergence of rents amongst social landlords has changed several times since the introduction of the policy however the current target date is 2015/16.

2.3Based upon the September 2012 RPI of 2.6% a rent increase of 4.55% is required to achieve convergence by 2015/16. This equates to an average increase of £3.09 per week on a 52 week basis or £3.35 on a 48 week basis. Whilst achieving convergence there is a limit on individual rent charges set by Government at RPI plus 0.5% plus £2.

2.4The real increase in average rents (over and above the applicable RPI level) would be as follows, based on a 52 week year:

2.5In terms of impacts on individual tenants approximately 70% of tenants currently receive full or partial support through housing benefits. As at 31/12/12:-

-5,031 tenants received full benefits

-2,071 tenants received partial benefits

It should be noted that there may be a change in the numbers of tenants receiving full/partial benefits as a result of welfare reform implementation in 2013/14.

2.6Consultation with tenants relating to the proposed rent increase will be done through Salix Homes.

2.7Salix Homes has asked for consideration to be given to changing the number of chargeable rent weeks in future years. Tenants currently pay the annual rent over 48 weeks rather than 52 weeks and have four payment free weeks during the year – two at Christmas and two at the end of March. During the payment free weeks those who are in rent arrears are encouraged to pay their rent as normal to help reduce their arrears. This also reflects the current housing benefit system in which housing benefit is paid on a weekly basis.

2.7Universal Credit will start to be implemented from October 2013. Under Universal Credit, payments will be made monthly and claimants will receive 12 monthly payments which will include their housing support entitlement which they then need to pay to their landlord – this does not reflect the current system of 48 chargeable weeks. Salix Homes have recommended that there is a move to a 52 week rent year with effect from 1st April 2013.

2.8Whilst considering this request, it should be noted that not all tenants will be affected by this in 2013/14 as only working age new claimants or those with a significant change in circumstances will move to the new system of payments once implementation begins in October 2013. Another option would be to defer the change in chargeable weeks until 2014/15 when the implications of the implementation of universal credit will be clearer.

3Service Charges

3.1Increases in service charges previously followed a formula of RPI plus 0.5% inflation which would equate to an increase of 3.1% in 2013/14. However good practice requires a comparison of the costs of service provision with the income generated from service charges with the aim of ensuring that the charging policy is fair and equitable and that general rental income is not subsidising the cost of services to individual tenants. For 2012/13, service charges were recalculated to address imbalances between expenditure and income along with the outcome of service reviews. During 2012/13 Salix have reviewed current charges and have proposed revised charges as set out in the report to their Audit and Resources Committee on 15th January 2013. These proposed changes are summarised below.

Note: Gas is excluded to smooth out the changes to service charges relating to changed heating systems.

3.2A further service charge is made for furniture packages offered by the City Council. This is not included within the Salix report as the service is managed in-house by the Housing Choice and Support Team. An increase of 3.1% is proposed for 2013/14 in line with previous practice.

4 Financial Effect of Rent Increase on the Housing Revenue Account

4.1HRA self financing was implemented in April 2012. At that point, the Housing Subsidy system was withdrawn and local authorities now support their stock from the income earned from that stock (rental income and service charges). A business plan model was designed by CLG which compares assumptions of income and need to spend over a 30 year period. In order to establish the self-financing system, CLG calculated a one-off debt settlement based on these assumed cashflows. This incorporates assumptions about the level of rent increase conforming to the Government’s rent restructuring policy. Any restriction of the rental increase will mean that the income received by the HRA is lower than assumed in the settlement and will put pressure on the HRA business plan potentially leading to lesser funds being available to invest in decent homes standards. In broad terms, a reduction of 1% in rent levels will reduce the rental income coming into the HRA by approximately £340,000.

4.2It should also be noted that the Government anticipate rental convergence by 2015/16, therefore, any reduction in the rental increase for 2013/14 will need to be ‘made up’ by future rent increases leading to the year of convergence - 2015/16.

4.3The City Council is currently considering alternative delivery models for the housing stock through its stock options review. Within the financial model, developed as part of this review, is the assumption that rents will be increased in line with the Government’s rent restructuring policy.

5Conclusion

5.1Approval to the rent and service charge increases will allow the rent restructuring plan to be followed to achieve convergence by 2015/16 and assist in the achievement of a balanced budget.

5.2Should any lesser rent and service charge increase be considered appropriate, it should be noted that there will be a number of consequences:-

• Loss of income to the HRA
• Income will fall below that assumed when the government implemented self-financing (on which our debt settlement was based).
• there will be a requirement to catch up with convergence in future years, making increases higher than they might otherwise be if the proposed increases for 2013/14 are not accepted.

KEY COUNCIL POLICIES:Housing Strategy

Salix HRA Business Plan

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EQUALITY IMPACT ASSESSMENT AND IMPLICATIONS:-

The government’s rental convergence policy aims to develop consistent rental charges across all social landlords taking account of property size, condition and local economic factors. The proposed rent increase is aligned to the government’s rental convergence target of 2015/16.

The recalculation of service charges should more accurately reflect the costs associated with the services provided to tenants. This should ensure that the charges are both transparent and equitable.

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ASSESSMENT OF RISK:Low

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SOURCE OF FUNDING: The proposed increase in rents and service charges will ensure the HRA is sustainable within its own resources.

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LEGAL IMPLICATIONS :.The Council is required to set a balanced HRA budget.

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FINANCIAL IMPLICATIONS : The level of rents and service charges directly affects the financial health of the HRA.

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OTHER DIRECTORATES CONSULTED:Salix Homes have been consulted as the Council’s arms length housing provider.

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CONTACT OFFICER: Joanne HardmanTEL. NO.0161-793-3156

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WARD(S) TO WHICH REPORT RELATE(S):Broughton, Claremont, Irwell Riverside, Kersal, Langworthy, Ordsall, Weaste & Seedley, Swinton North

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C:\Users\tresjhardman\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\M0V11PKZ\Rent increase city mayor draft 18-01-13 version4.docx