Agenda item

(Director of Communities) To consider the attached report.

The Director of Communities, Mr A Hall, introduced the six monthly review of the HRA Financial Plan for 2016/17, part of the HRA Business Plan. The Cabinet had asked the Communities Select Committee to review the HRA Financial Plan twice each year. In addition, senior Housing and Finance officers also reviewed the Plan in July and January each year.

SDS Consultancy had acted as the Council’s HRA Business Planning Consultants for many years and had undertaken its six month review of the current HRA Financial Plan to take account of the Council’s current financial position and national and local policies and their six monthly report was attached as an appendix to the report.

The Select Committee was asked to consider this report and comment on or raise any concerns it found.

The review took account of the changes to the key assumptions and investment requirements since the February 2016 review and the annual Financial Plan. It was noted that there was currently a lot of uncertainty on the government requirements on the sale of higher value voids.

As a base principle, all income and expenditure forecasts would increase by the assumed RPI which was assumed at 2.5% throughout except where otherwise indicated. Also, in line with the Government’s latest social rent policy, existing tenants would see their rent reduce by 1% each year over a four year period. This commenced in April 2016.

It was noted that the first half of 2016/17 had seen an increase in the number of Right to Buy sales. Some 23 properties had been sold already, compared to 11 for the same period last year and 16 the year before. Therefore the Right to Buy sales projection for 2016/17 had been increased to 40, from the budgeted 20, which would result in lower rental income.

Following the self-financing settlement in March 2012 loans were taken out with the Public Works Loans Board by this Council. Given that the vast majority of the loan value was fixed, officers were certain of most of the interest that would be charged to the HRA. 

When self financing was introduced in March 2012, it was estimated that the Council could afford to provide an annual provision of £0.770 million for service enhancements throughout the life of the Financial Plan. Since 2012 approximately £0.2 million of improvements and service enhancements have been subsumed into the management budgets of the HRA for ongoing services.

New build acquisition expenditure had decreased from £52.569 million to £50.270 million for Phases 1 to 6 from 2015/16 onwards.

The Council also held a Self-Financing Reserve with the intention of building up balances within it, sufficient to repay the loans identified. Due to the increased levels of capital expenditure for the next few years against the backdrop of reduced revenue, SDS Consultancy had considered two options of either continuing to keep the Reserve in order to repay the loan due in Year 7 or utilise the balance in order to fund the Capital Programme over the first four years.  The second option would result in an inability to repay the first loan. Members were asked if they thought it beneficial to defer the initial loan as it would be the subject of a planned review of the HRA early next year.

The Council had also received certain grants and receipts from Section 106 agreements to fund the new build programme. These had been fully accounted for in the first two years of the Plan totalling £1.744 million.  There were still about £4.8 million of agreed levels of S106 financial contributions due to the Council. As and when these S106 contributions were received, it would reduce the amount of funding required from the existing Capital Programme by an equivalent amount. However, it was noted that if a development does not go ahead, or the level of S106 financial contribution was subsequently re-negotiated, this total amount would reduce accordingly.

Since the reinvigoration of the Government’s Right to Buy policy, the Council has sold in excess of 155 additional properties due to the increase of discounts available. The gross receipts were then separated into different categories for their treatment, guided by policy.

W Marshall asked about the relationship between the Government’s Pay to Stay policy and the sale of Council properties as he was concerned that more people would be encouraged to buy the property as a result of Pay to Stay. What were the figures in the report based on? A Hall replied that no account had been taken of the Pay to Stay policy when estimating Right to Buy sales. However, he went on to explain that, that day the Housing Minister had announced that the Government would be dropping the compulsory requirement for Pay to Stay.

Councillor Heap noted that the first loan had a variable interest base. How variable was this?  Mr Hall confirmed that the interest rate could vary and explained that the loan was issued by the Public Works Loan Board, and that SDS Consultancy had made assumptions on future interest rates. Councillor Heap queried that if we deferred repayments, could we actually pay 4% interest? Mr Hall said that this was just an indicative interest rate of what could happen in the future. There was no need to make a decision at present. The other loans were fixed so we knew what to plan for.

Councillor Baldwin asked if the House Building Programme was only for high value properties. He was told that the sale of high value voids was to fund the payment of the required levy to the CLG; however, it was noted that the Minister had suggested that local authorities may be allowed to retain some of the levy, provided they used it to fund Council house building. It was noted that there was no Central Government subsidy for house building.

Councillor Stavrou said that she did not think that the Right to Buy applications would decrease in the coming years as a lot of people would see this as the only way to get on the housing ladder. She thought that the assumptions used in the report were on the optimistic side and that we now needed to wait and see what the Chancellors Autumn Statement had for Local Government but, in the meantime, this report was the best forecast of what could happen. As for restructuring the loan this may change depending on what came out of the Autumn Statement.

Mr Hall agreed, as we did not know what was to come.

It was also noted that the Cabinet had recently implemented a temporary moratorium on the House-building Programme and that the Cabinet had already agreed to pass over some ‘141 Receipts’ to the government. Councillor Stavrou added that the right to buy also reduced our rental income. It was a vicious circle. Mr Marshall added that with less housing available to rent there would be an increase in the housing waiting list.

RESOLVED:

That the six month review of the HRA Financial plan 2016/17 from SDS Consultancy be noted.