Committee Report: HRA Budget Briefing

Report to:	Cabinet
Date:	16th November, 2006
Subject:	HRA Budget Briefing
Report of:	Director of Finance & I.T., Director of Community Protection, Chief Executive of Wigan & Leigh Housing.
Contact officer:	Elspeth Brighton - 01942 486511
Purpose / summary:	To seek Cabinet’s view on the preparation of the HRA estimates for 2007/08
Alternative options considered and reason for selecting the one recommended:	Options are to follow, or not, Government guidance on setting rents. Option to follow guidelines maximises resources available for services to tenants.
Recommendation / decision:	Cabinet note the report.
Key Decision:	This report does not involve a key decision.
Implications:
Financial:	To be set out in Revenue Estimates.
Staffing:	None for Council.
Policy:	HRA Business Plan.
Equal Opportunities - Has a Diversity Impact Assessment been conducted?	No specific implications.
Wards affected:	All
Special Interest Members – Which have been consulted	None.

Tracking/Process:

Panel	Overview & Scrutiny	Cabinet	Council
	Consultation	Ward Members	Partners
	-	-	-
-	-	16.11.06	-

List of Background Papers in accordance with Section 100D of the Local Government Act 1972:

Document	Date	File Reference	Place of Inspection
DCLG Consultation material	7.11.06	electronic	By arrangement

Proper Officer	David Smith
Date	9th November, 2006

1. Background

This report gives initial comments on the HRA 2007/08 revenue budget process, including the setting of rents for Council housing next year, and seeks guidance on further preparation work. The timetable for preparation and approval of the HRA estimates is set out in the Table below.

The timetable covers the aspects of rent-setting and of determining the detail of the HRA budget as a twin-track approach. Because of the need to give tenants adequate notice of the rent rise the new rent levels need to be determined at the January Council meeting. More detailed consideration of the HRA income and expenditure can then take place alongside the General Fund budget timetable.

7th November 2006	Revised draft HRA subsidy determination received
16th November 2006	Cabinet consider implication for rents of the subsidy determination and receive HRA budget briefing
14th December 2006	Joint meeting of Overview and Scrutiny Committee and Cabinet to consider rent rise
10th January 2007	Council determines rent rise
22nd February 2007	Cabinet propose Council Tax and Budget
26th February 2007	Joint meeting of Overview and Scrutiny Committee and Cabinet to consider detailed HRA budget
28th February 2007	Special Budget Council including HRA budget

2. Subsidy Determination

The draft HRA subsidy determination was initially received on 30th October with a corrected version received on 7th November. The deadline for comments is 11th December and the final determination is expected some days after that.

3. Management and Maintenance Allowances

Following on from recent generous increases this year’s draft determination is much less favourable. Management Allowance per dwelling is set to increase by 2.6% (10.3% last year), Maintenance Allowance by 3.1% (12.4% last year). The national average increases are2.9% for management and 3.2% for maintenance this time.

The change in subsidy receivable is the net effect of increases in Management and Maintenance Allowances offset by the effect of the increase in notional rent of 7.5% and of the new Rental Constraint Allowance (discussed at paragraph 4 below). Together these produce an expected subsidy of £4.3 million in 2007/08 compared to £6.6 million in this financial year.

4. Rent Levels

The impact of following rent restructuring guidance (for the 6th year of the 10 year process) would be to increase average rents by approximately 6.93% (£3.77 per week on 48 week basis) to £58.15 per week. However theguidance again proposes a cap on the average increase of 5%, without indicating a mechanism for restricting the increase. Any method should be fair and consistent across individual rents. Possible methods include:

applying a percentage reduction once individual rents have been calculated (the method deployed last year and recommended again this year);
setting a monetary limit to individual accounts
adjusting rents for certain property types so that, for instance, there is a greater differential for larger properties.

The average rent rise, once the 5% cap is applied, would therefore be £2.72 giving an average rent of £57.10.

The draft determination includes a Rental Constraint Allowance to compensate Councils for income lost as a result of applying the 5% average. This mechanism was introduced mid year in 2006/07 but has now been incorporated into the annual subsidy determination process.

The government’s purpose in introducing the rent restructuring process was to phase in, over a ten year period, equal rents for all social housing tenants, on similar properties in an area, whether Local Authority or RSL (Housing Association) landlords.

If the draft guidelines remain unchanged and are followed the increase in average rents in 2006/07 will be greater than inflation.

It will most adversely affect those with fixed incomes who are not in receipt of Housing Benefit, for example pensioners in receipt of small occupational pensions who must meet this increase from small, fixed, disposable incomes.

It is worth noting that the aim of facilitating choice in housing to tenants, by equating the rents of Local Authorities and RSLs, is limited in this Borough by the relatively small numbers of RSL properties available.

The level of government subsidy assumes that rents are set at a level in accordance with the published guidelines. The Council may set rents at a lower level and reduce the rent payable by tenants but the subsidy would not be amended to correct this.

Any decision to increase rents at a rate lower than the guidelines would, therefore, lead to a corresponding reduction in the resources available to the HRA. This could only be addressed by reducing expenditure on services to tenants or on programmes.

For every £1 that average rents were set under guidelines per week (on a 48 week basis), over £1.1 million resources per annum would be lost.

5. Medium Term Prospects for the HRA

A Medium Term Forecast was submitted with the Revenue estimates in February 2006 and has been updated to reflect subsequent changes as part of the regular revenue monitoring process. This has now been rolled forward to 2010 and adjusted to reflect the draft determination. It is included as the Appendix to this report.

Compared to the forecast from earlier this year the latest projection indicates more severe downward pressures on the HRA in future years. This can only be accommodated by planning for below inflation increases in management costs, by strict control of responsive repairs expenditure and by reducing levels of revenue contribution to programmes.

6. Growth Bids

Members will recall that WALH gave an undertaking to be modest in future growth requests, recognising that significant growth had taken place in the first two years of the ALMO’s existence and also the long-term constraints on the HRA.

Consequently, apart from inflation and pay increments no growth was requested for 2005/06 and a small decrease in the Management Fee was budgeted for 2006/07.

However, despite these restrictions on the Management Fee the overall spend on net Supervision and Management is anticipated to be substantially higher in 2006/07 than it was in 2005/06. This results from a change of accounting treatment of some insurance costs, a significant under-spend on the Management Fee in 2005/06 which will not be repeated this year, and increasing energy costs coupled with changing levels of contribution from capital and a swathe of minor items. DFIT staff are working with WALH staff to improve the understanding and control of the full range of Supervision and Management budget lines with the aim of reducing the base budget.

The Medium Term Plan included here assumes only 2% growth in HRA management costs at a time when the draft determination quotes 3.6% as the relevant inflation figure, and implementation of Wigan and Leigh Housing’s job evaluation scheme has to be accommodated.

In this challenging context WALH is seeking to align its structures and expenditure to match the recently adopted vision. While some elements of the vision , for example SMART Neighbourhoods and affordable housing, bring in an element of external resources, the main restructuring together with pay increases and increments will have to be contained within the 2% figure.

7. Conclusion

Officers recommend that in the preparation of a report on HRA estimates the following assumptions be made:

that rents be increased in accordance with rent restructuring guidance, that is an overall average rent increase of 5%
that growth in Supervision and Management costs be constrained within 2% of the current position other than where additional earmarked external resources can be identified.

8. Recommendation

Cabinet note the report.

Appendix

HRA Forecast 2005 to 2010 - November-06
	2005/06	2006/07	2007/08	2008/09	2009/10
Stock at beginning of year	23,873	23,396	23,074	22,764	22,454
Revenue	£ m	£ m	£ m	£ m	£ m
Income
Rents	59.4	61.4	63.5	65.8	68.2
Voids and bad debts	-1.0	-1.3	-1.3	-1.4	-1.4
Subsidy	7.6	6.6	4.3	1.5	-1.7
Misc income			0.5
Total Income	66.0	66.7	67.0	65.9	65.1
Expenditure
Net Supervision and management	12.7	14.6	14.9	15.2	15.5
Responsive repairs	12.8	12.6	12.5	12.5	12.5
Revenue programmes		0.3	0.6	0.9	1.2
Cost of rent cap	0.5
Debt charges	14.4	15.6	15.6	15.6	15.6
Debt repayment				4.4	4.4
Major Repairs	13.4	13.7	13.7	13.7	13.8
Total Expenditure	53.8	56.8	57.3	62.3	63.0
Net surplus	12.2	9.9	9.7	3.6	2.1
Balance at beginning of year	10.8	10.8	2.3	1.9	1.6
Interest on general balances	1.3	0.4	0.1	0.1	0.1
Revenue contribution to capital	13.5	18.8	10.2	4.0	2.3
Balance at end of year	10.8	2.3	1.9	1.6	1.5
Major Repairs Reserve
Brought Forward	6.4	2.1	2.2	0.0	0.0
In	13.4	13.7	13.7	13.7	13.8
Used	17.7	13.6	15.9	13.7	13.8
Carry Forward	2.1	2.2	0.0	0.0	0.0
Capital
Capital Expenditure
5 Yr ALMO ImprovementProgramme	66.3	27.3	19.6	6.7	0.0
Capitalised repairs	3.9	4.4	4.1	3.7	3.7
Capitalised salaries	1.3	1.0	0.9	0.7	0.7
Minor programmes/ unallocated	1.3	0.9	1.8	4.8	12.0
Multi structurals			0.6	2.4	0.0
Conversions	0.2	0.3	0.3	0.3	0.3
Demolition	0.1	0.4	0.1	0.1	0.1
Total Capital Expenditure	73.1	34.3	27.4	18.7	16.8
funded by
Borrowing	39.5
Major Repairs Reserve	17.7	13.6	15.9	13.7	13.8
Revenue contribution to capital	13.5	18.8	10.2	4.0	2.3
Reimbursed improvements	1.8	1.2	0.9	0.6	0.3
Capital receipts	0.1	0.4	0.1	0.1	0.1
Capital allowance	0.3	0.3	0.3	0.3	0.3
British Gas etc	0.2
Total Capital Resources	73.1	34.3	27.4	18.7	16.8

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