Agenda item

(Housing Portfolio Holder) To consider the attached report (C-036-2016/17).

In view of the current uncertainty regarding the amount of resources available to the Council’s Housing Revenue Account (HRA) in the future and the need for the Cabinet to make a decision, as part of the further HRA Financial Options Review, on whether or not to refinance the first PWLB loan in order to continue with the Housebuilding Programme for Phases 4 – 6:

(1)        That a temporary moratorium on work to progress Phases 4–6 of the Housebuilding Programme be introduced with immediate effect, with the exception of progressing planning applications for the developments agreed by the Council Housebuilding Programme for Phases 5 and 6, up to their determination;      

(2)        That the action already taken by Officers to “temporarily” pay over to the Department for Communities and Local Government (DCLG) the £1.364million of 1-4-1 Receipts that accrued in Quarter 2 of 2016/17 and, if possible, the £312,000 of 1-4-1 Receipts from Quarter 1 (plus the interest payable since 1 August 2016), which would otherwise be used to part-fund Phases 4-6 of the Council Housebuilding Programme, before the expiry of the 3 year utilisation period in July 2019 be confirmed, in order to avoid paying additional interest charges in the region of £4,800 or £5,800 per month from 1 November 2016;

(3)        That, following discussions with DCLG officials, if it was no longer possible to “temporarily” pay over the £312,000 of 1-4-1 Receipts from Quarter 1 to the DCLG, they be paid over to the DCLG permanently, as soon as possible, in order to minimise the accrual of additional interest charges in the region of £1,000 per month;

(4)        That the planned further HRA Financial Options Review be undertaken as soon as possible after:

            (a)        the Government had provided the awaited details of its proposal to require councils to sell their higher value empty properties to fund the new          levy being introduced by the Government; and

            (b)        the financial effects on the Council could be assessed;

in order for the Cabinet to make early long term decisions on the future of the Housebuilding Programme and the funding of the HRA;

(5)        That any further 1-4-1 Receipts that would accrue in future Quarters be “temporarily” paid over to the DCLG when they arose, until such time as the further HRA Financial Options Review had been completed, subject to decisions being made on whether or not to recover those 1-4-1 Receipts from the DCLG before the deadline of 31st July 2017; and

(6)        That, as part of the further HRA Financial Options Review, consideration be given to whether or not further reductions should be made to the funding of replacements and improvements to the existing housing stock, through moving from the Council’s Modern Homes Standard back to the more basic Decent Homes Standard.

The Housing Portfolio Holder presented a report for the payment of unallocated “One-for-One Replacement” Right to Buy capital receipts during the first two quarters of 2016/17 to the Government.

The Portfolio Holder reminded the Cabinet that it had previously decided to expand and accelerate its Housing Programme; one of the reasons for this was to utilise the increasing amount of “One-for-One Replacement” Right to Buy (RTB) capital receipts (“141 Receipts”) that were accumulating. However, since that time, the Government had required all social landlords to reduce their rents by 1% per annum for four years from April 2016, resulting in reduced income for the Council’s Housing Revenue Account (HRA). Despite Officers working hard to utilise the “141 Receipts”, there had been a number of obstacles to overcome, which had resulted in the Council taking steps to maximise the use of “141 Receipts”. This had enabled all the “141 Receipts” that had accrued over the past 3 years, up to the middle of Quarter 1 of 2016/17, to be allocated to phases of the Council Housebuilding Programme up to and including Phase 3.

However, the Portfolio Holder stated that there was currently a lot of uncertainty around the amount of resources available to continue with the Council Housebuilding Programme beyond Phase 3 and, as part of its further HRA Financial Options Review, the Cabinet would need to make a decision on whether or not the Council should refinance its first loan from the Public Works Loan Board (PWLB) for the HRA, that was due to mature in 2022, in order to continue with the Housebuilding Programme.  However, the Options Review could not be properly undertaken until the Government’s proposals on requiring councils to sell their higher value empty properties, to fund a new levy to be paid to the Government, had been analysed - including a Government proposal that the Department of Communities & Local Government (DCLG) might be prepared to enter into agreements with Councils to reduce the amount of levy to be paid, provided that the retained payments were used to build/provide new replacement affordable housing locally.

The Portfolio Holder highlighted that if, on review, a decision was made to cease the Council Housebuilding Programme beyond the current Phase 3, in addition to all “141 Receipts” arising in future Quarters, around £312,000 and £1.364million would need to be paid over to the Government for “141 Receipts” received in Quarters 1 and 2 of 2016/17 respectively, with interest of £1,000 and £4,800 per month being payable for Quarters 1 and 2, although Officers had already taken action to avoid paying the latter interest charge, by paying the Quarter 2 “141 Receipts” over to the DCLG “temporarily”.  Officers were also currently in discussions with the DCLG to ascertain if the unallocated “141 Receipts” from Quarter 1, for which the required quarterly return had already previously been submitted to the DCLG, could also be paid over temporarily as well. In view of the current uncertainty, the Portfolio Holder, in consultation with the Leader of Council, had concluded that the proposals were the most appropriate under all the circumstances.

Cllr Mohindra, as Finance Portfolio Holder, fully supported the proposals as no purpose would be served through making interest payments to the Government. Cllr Bassett lamented that the Council was having to return monies to the Government after all the measures initiated by the Council to provide new homes for residents. The Housing Portfolio Holder reiterated that the Government had changed the rules, which had unfortunately led to the Council having to now potentially return “141 Receipts” monies to the Government, although it was confirmed that monies from Section 106 Agreements were being used to build new Council housing.

Cllr C C Pond commented that this was a regrettable, but understandable, decision and enquired whether the implementation of an Arms Length Management Organisation for the development and management of the Council’s housing stock would be re-examined. The Portfolio Holder emphasised that every alternative would be studied during the forthcoming further HRA Financial Options Review.

Decision:

In view of the current uncertainty regarding the amount of resources available to the Council’s Housing Revenue Account (HRA) in the future and the need for the Cabinet to make a decision, as part of the further HRA Financial Options Review, on whether or not to refinance the first PWLB loan in order to continue with the Housebuilding Programme for Phases 4 – 6:

(1)        That a temporary moratorium on work to progress Phases 4–6 of the Housebuilding Programme be introduced with immediate effect, with the exception of progressing planning applications for the developments agreed by the Council Housebuilding Programme for Phases 5 and 6, up to their determination;      

(2)        That the action already taken by Officers to “temporarily” pay over to the Department for Communities and Local Government (DCLG) the £1.364million of “141 Receipts” that accrued in Quarter 2 of 2016/17 and, if possible, the £312,000 of “141 Receipts” from Quarter 1 (plus the interest payable since 1 August 2016), which would otherwise be used to part-fund Phases 4-6 of the Council Housebuilding Programme, before the expiry of the 3 year utilisation period in July 2019 be confirmed, in order to avoid paying additional interest charges in the region of £4,800 or £5,800 per month from 1 November 2016;

(3)        That, following discussions with DCLG officials, if it was no longer possible to “temporarily” pay over the £312,000 of “141 Receipts” from Quarter 1 to the DCLG, they be paid over to the DCLG permanently, as soon as possible, in order to minimise the accrual of additional interest charges in the region of £1,000 per month;

(4)        That the planned further HRA Financial Options Review be undertaken as soon as possible after:

            (a)        the Government had provided the awaited details of its proposal to require councils to sell their higher value empty properties to fund the new          levy being introduced by the Government; and

            (b)        the financial effects on the Council could be assessed;

in order for the Cabinet to make early long term decisions on the future of the Housebuilding Programme and the funding of the HRA;

(5)        That any further “141 Receipts” that would accrue in future Quarters be “temporarily” paid over to the DCLG when they arose, until such time as the further HRA Financial Options Review had been completed, subject to decisions being made on whether or not to recover those “141 Receipts” from the DCLG before the deadline of 31st July 2017; and

(6)        That, as part of the further HRA Financial Options Review, consideration be given to whether or not further reductions should be made to the funding of replacements and improvements to the existing housing stock, through moving from the Council’s Modern Homes Standard back to the more basic Decent Homes Standard.

Reasons for Decision:

There was currently a lot of uncertainty around the amount of resources available to the Council to continue with its Housebuilding Programme beyond Phase 3, which would be considered in detail as part of the Council’s further HRA Financial Options Review. But the Review could not be properly undertaken until the Government’s proposals on requiring Councils to sell their higher value empty properties, to fund a new levy to be paid to the Government, had been analysed.

Other Options Considered and Rejected:

To make an early decision now, in advance of the HRA Financial Options Review, that the Housebuilding Programme be continued, at least until Phase 6, by deferring payment of around £16.4million of the first PWLB loan for the HRA of £31.8million, due to mature in 2022, for 4 years (to 2026-27), without affecting the Council’s ability to repay the remaining PWLB loans, as planned, within the 30-year period of the HRA Financial Plan.

To not pay over the £312,000 of “141 Receipts” that accrued in Quarter 1 of 2016/17 and could not be used for Phases 1-3 of the Council Housebuilding Programme, but retain them until the further HRA Options Review was undertaken - accepting that interest charges of around £1,000 per month would continue to accrue until decisions on the future of the Housebuilding Programme could be made.  If the outcome of the Review was to continue with the Council Housebuilding Programme, the retained £312,000 would not have been lost and would still be available to help fund the Programme beyond Phase 3. However, if the outcome of the Review was to end the Council Housebuilding Programme, an additional £1,000 per month interest up to the time a long-term decision was made would have been paid to the DCLG unnecessarily.

To not consider, as part of the further HRA Financial Options Review, whether investment in the Council’s existing housing stock should be further reduced to move from the Council’s Modern Homes Standard back to the more basic Decent Homes Standard.