Agenda item - HRA 30-Year Financial Plan

(Housing Portfolio Holder) To consider the attached report (C-038-2011/12).

(Housing Portfolio Holder) Attached are the views of the Housing Scrutiny Panel and the Tenants & Leaseholders Federation, as well as a benchmarking table showing rent increases for other Councils.

(1) That the report of CIHConsult, the Council’s Housing Revenue Account (HRA) Business Planning Consultants, as attached at Appendix 1 of the report, be noted;

(2) That, having taken account of the views of the Tenants and Leaseholders Federation and the Joint Meeting of the Housing and Finance & Performance Management Scrutiny Panels, the general strategic approach for the HRA Financial Plan be as follows:

(a) That provision be made within the Financial Plan to fully maintain the Council’s housing stock to a modern standard, based on current stock condition and standard industry life cycles, as opposed to maintaining the stock at the current minimum Decent Homes Standard;

(b) That, in order to achieve the Council’s aspirations to commence a new Council Housing Building Programme, provision be made within the Financial Plan to fund such a Programme on the basis that individual development packages were self-funding, without any support or funding from the General Fund, subsidised if necessary from:

(i) grant from the Homes and Communities Agency (HCA);

(ii) Section 106 Agreement contributions from developers, in lieu of on-site affordable housing provision;

(iii) if allowed by the Government, the proceeds of Right to Buy (RTB) sales as a result of the Government’s proposal to increase RTB discounts whilst ensuring that a new affordable home was provided to replace the affordable home lost;

(iv) Housing Revenue Account (HRA) surpluses; and/or

(v) cross-subsidy from the sale of other development sites within the House Building Programme on the open market;

(c) That average rent increases included within the Financial Plan be based on the following rent increases in order to achieve rent convergence by April 2017:

(i) average rent increases of 6% in April 2012;

(ii) average rent increases of the Retail Price Index (RPI) + 1.96% for the four years between April 2013 and April 2016 inclusive; and

(iii) average rent increases of RPI + 0.5% from April 2017, as assumed by the Government within the HRA debt settlement;

(d) Notwithstanding the provision for rent increases included within the Financial Plan, consideration be given each year during the HRA budget process, to the possibility and appropriateness of making a lower rent increase for the following year, having regard to the short and long term effects on the Financial Plan, the need to meet the Council’s housing and financial objectives, Government guidance and the effects on tenants; and

(e) Provision be made within the Financial Plan to fund £770,000 per annum for housing improvements and service enhancements for the next eight years, increased to £5.47million per annum from Year 10;

(3) That the Indicative HRA Financial Plan, attached at Appendix 2 of the report, based on the above assumptions be adopted, and that the final version of the Financial Plan be adopted by the Cabinet on 30 January 2012 or 12 March 2012, dependent on the date the final HRA debt settlement for the Council was confirmed by the Government;

(4) That, following consultation with the Tenants and Leaseholders Federation, the Housing Scrutiny Panel be requested to consider and recommend to the Cabinet a range of potential housing improvements and service enhancements that could be undertaken, funded from the additional £770,000 per annum provision made within the Financial Plan;

(5) That a further report be submitted to the Cabinet by the Housing Portfolio Holder on the additional staffing requirements for delivering a full maintenance programme to a modern standard; and

(6) That the Council’s Treasury Management advisers, Arlingclose, be requested to continue to provide advice to the Council on the effects of the HRA debt settlement (if any) on the Council’s General Fund.

The Housing Portfolio Holder presented a report on the Housing Revenue Account (HRA) 30-Year Financial Plan.

The Portfolio Holder reminded the Cabinet that the Government would be introducing a major change in the way that local authority Housing Revenue Accounts were funded in March 2012, called Self Financing. It was therefore necessary to agree the approach to be adopted for the Council’s 30-Year HRA Financial Plan, which would also be used to inform the treasury management options for borrowing the required finance. CIHConsult, the Council’s HRA Business Planning Consultants, had produced a report on the issue and the available options. The preferred option, as set out in the recommendations of the report, had emerged from an informal meeting with Cabinet members.

The Portfolio Holder reported that the proposed approach included: fully maintaining the Council’s Housing stock to a modern standard, as opposed to the lesser Decent Homes Standard; funding the Council’s House Building Programme without any support or funding from the General Fund; the implementation of average rent increases for the Council’s tenants to achieve convergence between the actual and formula rents by April 2015; and provision of £1.1million of housing improvements and service enhancements per annum, rising to £5million per annum from year 10 of the Plan.

Other recommendations arising from the Plan had encompassed: asking the Housing Scrutiny Panel to consider and recommend the potential housing improvements and service enhancements to be funded from the £1.1million annual allocation, after consultation with the Tenants & Leaseholders Federation; a further report on the additional staffing requirements for delivering a full maintenance programme to a modern standard; and requesting Arlingclose, the Council’s Treasury Management advisors, to continue to advise the Council on the effects of the HRA debt settlement on the General Fund.

The Portfolio Holder concluded by stating that it was proposed to pay off the expected £186.2million debt allocation over the full 30 years of the Plan, as this would hopefully avoid additional debt being allocated by the Government to the Council in the future, provide sufficient funding for the Council to maintain its housing stock to a modern standard, and would enable additional service enhancements to be provided, which would not be possible – or would be less – if the debt was repaid over a shorter period of time.

An Addendum report was tabled at the meeting, which provided the views of both the Housing Scrutiny Panel (which had considered the issues at its meeting held one week previously), to which members of the Finance & Performance Management Scrutiny Panel had been invited, and the Tenants & Leaseholders Federation, who had also considered the issues.

As a result of receiving the views of both Scrutiny Panels and the Tenants & Leaseholder’s Federation, the Portfolio Holder proposed some amendments to the report’s recommendations. The Portfolio Holder’s first amendment proposed reducing the average rent increases to:

(i) 6% in April 2012;

(ii) the Retail Price Index (RPI) + 1.96% for the four years between April 2013 and April 2016 inclusive; and

(iii) RPI + 0.5% from April 2017, as assumed by the Government within the HRA debt settlement.

The second amendment involved reducing the provision within the Financial Plan to £770,000 per annum for housing improvements and service enhancements for the next eight years from £1.1million, and increasing the provision to £5.47million per annum from Year 10 instead of £5million.

Councillor D Stallan, who represented the Chairman of the Housing Scrutiny Panel in his absence, welcomed the Portfolio Holder’s amendments as this concurred with the comments from the Housing Scrutiny Panel meeting on 28 November 2011, and highlighted the other comments made at the meeting, included within the Addendum Report that had been tabled. The Portfolio Holder highlighted that the Addendum Report also contained the comments of the Tenants & Leaseholders Federation following their consideration of the draft Plan on 1 December 2011. The Federation had suggested that the new properties provided under the Council Housebuilding Programme should be let at the level of ‘Social Rents’, but the Portfolio Holder was of the opinion that the new properties should be made available at ‘Affordable Rent’ levels.

The Cabinet welcomed the proposals and the Portfolio Holder’s amendments. It was considered sensible to use ‘Affordable Rent’ levels for new developments as a basis for the Plan rather than ‘Social Rent’ levels, and there was general agreement to maintain the Council’s Housing Stock to a modern standard. The Finance & Economic Development Portfolio Holder added that the Council was likely to borrow its full debt allocation from the Public Works Loan Board, and supported delaying the convergence of actual and formula rents until April 2017.

Decision: