Housing and Regeneration Cabinet Committee. The Review of HRA Subsidy System and Council Rents Cabinet Member for Community Services

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1 AGENDA ITEM: 5 Page nos. 1 7 Meeting Date 9 March 2009 Subject Report of Summary Housing and Regeneration Cabinet Committee The Review of HRA Subsidy System and Council Rents Cabinet Member for Community Services This report provides an overview of the national review of the HRA Subsidy System and progress with work to determine the best option for managing the Council s housing stock beyond 2010, as well as information about the council rents and HRA subsidy contributions to the treasury from Barnet. Officer Contributors Status (public or exempt) Wards affected Enclosures For decision by Function of Reason for urgency / exemption from call-in (if appropriate) Paul Shipway, Acting Head of Housing and Environmental Health Public All None Cabinet Executive Not Applicable Contact for further information: Paul Shipway, Housing Strategy and Business Support Manager, , paul.shipway@barnet.gov.uk 1

2 1. RECOMMENDATIONS 1.1 That the Committee notes plans to progress work to determine the best option for the management of the council s housing stock beyond 2010 that take into account: Work already undertaken by the Council and Barnet Homes The need to carry out a more detailed assessment of the investment needs of the housing stock The need to consult with residents on their aspiration and priorities for maintaining and improving their homes The outcome of the national review of the HRA subsidy system expected later this year. 1.2 That the Committee comments on the contributions that are made from the HRA to the Treasury and that this is noted. 1.3 That the Committee receives a further report once the outcome of the national review of the HRA subsidy system has been published. 2. RELEVANT PREVIOUS DECISIONS 2.1 Cabinet approved the existing HRA Business Plan on 3 November 2003 (Decision Item 5) 2.2 Cabinet approved the establishment of Barnet Homes on 19 Jan 2004 (Decision Item 8) 2.3 Cabinet approved programme of work to update HRA business plan 29 th Oct 2007 ( Decision 6 regarding Item 5) 2.4 Housing and Regeneration Cabinet Committee 27 th October The Committee noted the options identified in sections of the Cabinet Member s report to meet these needs, the appraisal of which would now need to get under way. 3. CORPORATE PRIORITIES AND POLICY CONSIDERATIONS 3.1 The Housing Revenue Account (HRA) Business Plan supports the council s objective to support the vulnerable, and the council s Housing Strategy Housing objectives of improving the quality of Housing and delivering Decent Homes, and providing quality services. 3.2 The review of the HRA will also support the corporate priority of more choice, better value, by ensuring the council's housing stock is managed and maintained efficiently and in a way that takes account of the views of council tenants and leaseholders 4. RISK MANAGEMENT ISSUES 4.1 A preliminary analysis of the HRA shows existing reserves will be exhausted in 2013/14 if the current national subsidy system does not change. 2

3 4.2 The Council s housing stock will start to fail the Decent Homes standard beyond 2010 if a plan to fund the capital investment needs of council homes is not developed. 4.3 Delays in our estate regeneration programme associated with the current economic downturn could result in addition financial demands on the HRA to manage and maintain stock on the regeneration estates over an extended period. 5. EQUALITIES AND DIVERSITY ISSUES 5.1 Analysis shows that council tenants in Barnet are very diverse and often from vulnerable groups. Face to face surveys undertaken by Barnet Homes show that 36% of tenants are aged over 60 of which 12% are aged over 80. Closely related to this is that 35% of tenants consider themselves as having a longstanding illness, impairments or infirmities that limit their activities. 25% of tenants are from black and minority ethnic (BME) backgrounds with 13% black and 8% Asian. 5.2 If the Council s housing stock is not well maintained, this will impact negatively on these households who are among the most vulnerable in our community. 6. FINANCIAL, STAFFING, ICT AND PROPERTY IMPLICATIONS 6.1 The HRA is regulated by the Local Government and Housing Act Under its terms local authorities are not permitted to budget for a deficit on the HRA, and if during the course of a year it finds it is heading for a deficit, it must take such action as to prevent this occurring. 7. LEGAL ISSUES 7.1 No legal comments outside the context of this report 8. CONSTITUTIONAL POWERS 8.1 Constitution, Part 3 Responsibility for Functions Section 3.6 Terms of reference of Cabinet Housing and Regeneration Committee To monitor the delivery of the Council s housing needs, both within and outside the regeneration schemes, including delivery through Barnet Homes, Registered Social Landlords and the regeneration development partners. To make recommendations on the above to Cabinet or Cabinet Resources Committee as appropriate 9 BACKGROUND INFORMATION Review of Council Housing Finance 9.1 In March 2008 the Government launched a major review of Council Housing Finance. This was to be a joint review led by the Treasury and the 3

4 Department for Communities and Local Government and would seek views from all interested stakeholders. 9.2 The genesis of the review came with the blue-sky debate that began in 2002, which in turn led to the six self-financing pilots which explored the impact of local housing authorities coming out of the national subsidy system. In addition, the Decent Homes programme was coming to an end for Round 1 ALMOs and there was a debate around what the future held for ALMOs. 9.3 Further it was clear that the national housing subsidy system was no longer fit for purpose. Based on an annual settlement it meant that there could be no long-term planning for asset management, there was too much volatility in the fixing of management and maintenance allowances (which in any case did not fully reflect the need to spend), and rent restructuring and convergence with Housing Association rents meant that rent increases were effectively controlled by central government meaning there was no link between rent levels and services provided in effect the tenants were disenfranchised. 9.4 Following the Decent Homes programme which would bring all homes up to at least a given standard there was insufficient funding available to maintain the stock and environment at an acceptable level, and there was real danger that the significant investment in Decent Homes would be wasted. 9.5 The nature of the subsidy calculation also meant that nationally the housing revenue account subsidy was moving into surplus and that this surplus would increase year on year. Although the housing revenue account (HRA) is ringfenced locally this is not the case nationally, and in 2008/9 an estimated 194m surplus was utilised by the Treasury for non-council housing purposes. The present Comprehensive Spending Review requires this surplus to rise to around 300m in 2010/ The Review covered four work streams: - Costs and Standards, Rents and charges, Mechanisms of support and the HRA itself. There have been a series of workshops for each work stream as well as regional workshops, a web forum and other opportunities to contribute to the debate. 9.7 The key issues arising from each have been as follows:- Costs and standards Were the allowances for management and maintenance allowances adequate? The Government s own research had shown that there was a greater need to spend than the allowances made available. The changing nature of housing services:- there was a growing emphasis on non-core services such as those in relation to anti-social behaviour. Widespread support for notion that the Major Repairs Allowance (MRA) was under-funded by at least 40% what should it be and what should it cover? The geographical destitution of allowances? 4

5 Rents and charges General principles of rent restructuring and convergence accepted Linking with the previous workshop was there a role for service charges to cover services to specific tenant groups? How did charges for leaseholders fit with the current HRA practices? Mechanisms of support Was a national subsidy system appropriate for 21st century? Should all authorities choose the self financing route? How should current debt be treated? If financial responsibility, how should it be done? HRA itself Operational practice and how it differs from subsidy assumptions? The ring fence (re)building it or dismantling it? Changing nature of services and how these are funded? 9.8 There was also a fifth cross-cutting work stream looking at issues arising from the other four and at the overall picture. 9.9 The Review is due to report in the Spring 2009 and will then feed into the next Comprehensive Spending Review timetable. The options appear to range across from tweaking the present subsidy system, tweaking but retaining any surpluses for redistribution, to self-financing for all If the first of these then many of the problems of volatility, uncertainty and a shortfall of resources are likely to remain. If this is combined with retention of the national surplus then, over time, this would provide for the shortfall in MRA or management and maintenance allowances, though not both fully. However there would still be the uncertainty of annual or three-year settlements and redistribution The third option appears to be the most favoured amongst practitioners. There are issues as to whether it is possible for all to move to self-financing at one time, and also how this is done. The Government are keen to retain the distributive feature of the present system this could be achieved through a one-off debt redistribution among housing authorities, or possibly through a fixed capital charge or dowry. The benefit of this approach is that there would then be the scope for real decision-making at local level e.g. the relative levels of investment in stock or services and consultation with tenants on rentsetting would become more meaningful than under the present arrangements There is also an issue with this model as to what happens with future surpluses, and how much (if any) should be returned to the Government. They could be retained locally but ring-fenced (say) to major repairs or new build, or shared with Government. The problem with the latter is that there remains an ongoing relationship with the centre. 5

6 9.13 Whatever the outcome of the review there is a need to consider the options for the future investment in the housing stock. To this end we have approached the new Homes and Communities Agency to start the Single Conversation about Barnet s Housing Investment priorities which will include the investment strategy for HRA stock Over the coming year, Barnet Homes will carry out a more detailed assessment of the investment requirements of the stock and consult with residents about their aspirations and priorities This work will link into the review of the Councils Housing Strategy which we expect to conclude in the autumn, by which time we expect to have identified the council s preferred option for management of the Council s Housing stock The impact of the present system can be illustrated from the table below:- Payments to DCLG 2008/09 ( ) 2009/10 ( ) (+/-) % Guideline Rent Income 44,992,440 47,600,027 2,607, % Mortgage Interest 54,309 48,157-6, % Payments from DCLG 45,046,749 47,648,184 2,601, % M&M allowance 19,999,558 20,709, , % Capital Charges 5,004,884 5,516, , % MRA allowance 8,060,402 8,543, , % Other 57,420 54,278-3, % 33,122,264 34,824,434 1,702, % Net Payment to/from DCLG 11,924,485 12,823, , % This illustrates that for 2009/10 whilst allowances totalled 1.702m, the guideline rent (and mortgage interest) withdrawn was 2.601m, a net increase in payment of 0.899m Since Barnet s actual rent is close to the guideline rent, of the 2.6m additional rent collected, some 0.9m goes back to Government, and around 1m meets additional capital financing charges for borrowing for the Decent 6

7 Homes funding and for the MRA, also supporting the capital programme. Thus only 0.7m, or 27% of the rent increase is available to support services to tenants This will worsen in 2010/11 and following years as a higher inflation rate is applied by Government to the rent guideline (as it is linked to rents convergence) than that for management and maintenance allowances In effect, the average council tenant rent will increase by 6.2% from a week to a week. The amount of this that has to be paid back to the treasury will increase from to or from 26.5% of the average rent to 27.1% of the average rent. 10. LIST OF BACKGROUND PAPERS 10.1 Barnet s HRA Business Plan Update 2003/ Any person wishing to inspect this document should telephone Paul Shipway, Housing Strategy and Business Support Manager, Legal: DA CFO: JB/HG 7