Housing Revenue Account (Hra) Rent Setting and Budget 2009/10: Report of the Chairman Of

AGENDA ITEM 5

BOROUGH OF POOLE

CABINET

10th FEBRUARY 2009

HOUSING REVENUE ACCOUNT (HRA) RENT SETTING AND BUDGET 2009/10: REPORT OF THE CHAIRMAN OF COMMUNITIES OVERVIEW AND SCRUTINY COMMITTEE

1.PURPOSE AND POLICY CONTENT

1.1To set the rent and service charges for the Housing Revenue Account in 2009/10.

1.2. To present the budget and medium term financial plan for 2009/10 onwards for the Housing Revenue Account.

1.3. The recommendations to Cabinet accord with the considerations and recommendations of the Communities Overview and Scrutiny Committee of the 5th February 2009.

2.DECISION REQUIRED

2.1 Cabinet is asked to recommend to the Council the following:

(a) That an average increase in dwelling rents of 6.05% is applied for 2009/10. Individual properties, however, are to move towards their Formula rent as required by the adoption of the Government’s rent restructuring policy, (Appendix A).

(b) The Housing Revenue Account budget for 2009/10 and Medium Term Financial Plan as set out in Appendices C and D.

(c) The scale of other charges as set out in Appendix B to this report.

(d) The HRA Capital Programme and funding details, Appendix E1 to E3

(e) The Management fee for Poole Housing Partnership for 2009/10 of £8.205m

3.Background/Information

3.1Communities Overview and Scrutiny Committee considered the issues relating to the Housing Revenue Account (HRA) and considered the rent setting at its Meeting on 5th February 2009 together with the PHP Management Fee.

3.2This Report has been amended and clarified for Cabinet’s consideration following that Meeting.

3.3The Communities Overview and Scrutiny Committee recommended that Cabinet approve the recommendations for Council approval on 19th February 2009.

4.HRA financial strategy and financial plan

4.1. The financial strategy for the Housing Revenue Account is:

“To focus resources on achieving the Decent Homes standard in Council Properties and supporting strong sustainable communities; to set rent increases in line with the Government’s rent restructuring policy and to provide resources to support the stock options appraisal process”.

4.2The 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.

4.3The financial plan sets out how the Council intends to deliver its financial strategy and includes separate strategies for revenue, capital and balances.

Revenue Strategy

• This year resources have been added to the PHP Management Fee to enable them to maintain an adequate working balance and the remaining resources that could have been allocated to PHP remaining in the HRA as a provision for potential future costs as a result of the Stock Options Appraisal. (please see paragraph 7 for more details).

Capital Strategy

• Capital expenditure will be used to fund
• Decent Homes improvements
• Other essential landlord capital improvements
• Investment in improvements which create future years’ revenue efficiencies
• Sustainability works (works outside the home) will be limited to 5% of the total Decent Homes programme in line with the DCLG funding for 2009/10

• Asset holding will be reviewed to ensure the best use of resources

Balances Strategy

• Balances will be held
• to recognise the inherent financial risks within the Housing Revenue Account which predominately related to the receipt of £16 million of rental income and a £9.7M capital expenditure programme.
• that recognise good practice of a minimum £150 per property benchmark
• 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 where this can be achieved.

5.Rent restructuring

5.1In 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.

5.2To 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. However changes in Government Policy have now pushed back convergence for 15 years resulting in for 2009/10 rents converging in 2023/24. However as the main part of the calculation is the Retail Price Index (RPI) for each September it is very likely that for 2010/11 the convergence date will be 2016/17.

5.3The impact of the various caps and limits on individual and average rent increases mean that by 2016/17 there will still be 235 properties (approximately 5% of the total) that have not converged with their Formula rent. By 2020/21 that number will have reduced significantly to a negligible number.

5.4The 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 2008 was 5%. For forecasting future years, the target Gross Domestic Produce (GDP) Deflator of 2.7% has been used in place of RPI.

The overall impact of rent restructuring (which is limited by the safeguard of RPI + 0.5% + £2 per week) means that the rent increase for 2009/10 will on average be 6.05%.

To increase rents above the Formula would lead to financial penalties in terms of subsidy withdrawal in future years. 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 fund services and investment.

5.5.The proposed rent increase and scale of fees and charges will be discussed at the resident led Housing Strategy Panel on the 4th February 2009.

6.Scale of charges

6.1It is to be recommended that garage rents increase in line with the average dwelling rent increase of 6.05%.

6.2It is proposed that heating charges for the district heating scheme, which provides heating to 685 vulnerable tenants, are set taking account of the charging policy of costs being levied by the energy service suppliers. Utility costs have significantly increased and especially prices for gas. Unit costs have jumped from 1.5p per unit to 6p per unit, which would have meant a substantial increase for residents in the heating scheme. PHP has negotiated a 3 year fixed price of 3.5p per unit for gas and static electricity prices. It should be noted that heating charges are set so as to only recover the costs incurred and no more. To cover the costs of energy in 2009/10 would have meant an increase of over 60% combined (energy & gas) which is an option to consider. However, to mitigate the substantial increase to residents within the scheme it is proposed that these costs be phased over the next 3 years and therefore the cost increase in 2009/10 would be 25% if this option was adopted.

6.3To further reduce the impact of energy price rises on sheltered housing tenants, PHP has been carrying out a programme of improved insulation and fitting solar panels to reduce the quantity of energy consumed and reduce carbon emissions.

6.4The Sheltered Housing Officer charge has been increased in line with CLG’s previous advice on service charge increases. The advice is to use RPI (as per above) of 5% + 0.5% totalling 5.5%.

6.5The 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 Body. At this time that advice is to use 2.0%.

6.6In relation to the other charges the strategy adopted is to increase these in line the government’s inflationary target (GDP Deflator) which has altered slightly this year to 2.7%.

7.Subsidy determination

7.1The Housing Revenue Account subsidy formula is a mechanism for distributing the resources identified as available for Local Authority Housing within the Government’s spending plans. The approach is similar to the Formula Spending Share previously 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 - Supervision & Management (“Management”), Repairs & Maintenance (“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.

7.2The 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.

7.3The Council has received the final subsidy determination, which indicates that allowances for managing, maintaining and major repairs have increased higher then expectations. Management allowances have increased by 5.75%, Maintenance by 4.63% and the Major Repairs Allowance by 5.82%. This has resulted from adjustments in the formula as a result of building cost indicies for 2008/09 due to building costs in Dorset being comparatively higher when compared with the national average. This has a very positive impact on the HRA and results in an estimated surplus in the HRA for 2009/10.

8.PHP Management Fee

8.1In 2008/09 the management fee was based on the total available resource within the HRA after all the direct charges had been calculated and on the assumption that balances were kept to a minimum.

8.2For 2009/10 the management fee calculation has been further amended, under the arrangements described above PHP could have received a fee in excess of the requirements to meet it’s expenditure. However by aligning the fee with PHP’s need the balances on the HRA will be increased to fund potential future costs of stock option appraisal which commenced in 2008/09, costs of £115k have already been included for 2009/10.

8.3PHP has always worked to attain best possible value for money and to deliver efficiencies and in this way surpluses are now forecast to modestly build up within the HRA.

8.4Within the year 2008/09 the Board of PHP voted to transfer a surplus of £150k created through efficiency savings into the Housing Revenue Account.

1. Decent Homes Capital Programme

9.1The following tables set out the proposed decent homes programme. The programme will achieve 100% decency by 2010. The detail of the programme is subject to validation of stock condition data each year.

Year / Kitchens / Bathrooms / Boilers / Heating / Safe as Houses
2009/10 / 200 / 550 / 220 / 55 / 240
Projected
Outturn
2008/09
£ / Total Programme
£
2009/10
£ / 2010/11
£ / 2011/12
£
ALMO Decent Homes Work Programme
Bathrooms / 1,678,930 / 1,250,000 / 100,000 / 50,000 / 1,400,000
External Doors / 91,750 / 125,000 / 125,000 / 125,000 / 375,000
Kitchen Replacement Programme / 2,858,450 / 1,000,000 / 200,000 / 200,000 / 1,400,000
Warm Deal (Boiler Replacement / Central Heating Programme) / 774,830 / 600,000 / 500,000 / 400,000 / 1,500,000
Safe as Houses / 776,000 / 878,200 / 800,000 / 800,000 / 2,478,200
Building Envelope / 353,350 / 350,000 / 350,000 / 0 / 700,000
Sustainability / 173,790 / 562,000 / 362,000 / 300,000 / 1,224,000
Asbestos -actual £s will be included in all codes above / 0 / 100,000 / 100,000 / 100,000 / 300,000
Capitalised Poole Housing Partnership Salaries / 301,400 / 278,300 / 260,900 / 260,900 / 800,100
7,008,500 / 5,143,500 / 2,797,900 / 2,235,900 / 10,177,300

10.0Decent & Non-Decent Homes Capital Programme

10.1The whole capital programme (see Appendix E1) is based upon the ability to fund rather than the anticipated need of works identified from the latest stock condition survey. A number of works that are not deemed urgent have had to be deferred to future years as a result of insufficient capital resources. This work is identified as backlog and will continue to build up and will be addressed once it has reached urgent status. The Council is currently conducting a stock options appraisal to examine options for funding the long term investment in the housing stock.

Contact Officer:

KELLY ANSELL

ACTING HEAD OF HOUSING & COMMUNITY SERVICES

1