REPORT OF THE STRATEGIC DIRECTORS OF SUSTAINABLE
REGENERATION AND CUSTOMER AND SUPPORT SERVICES
TO JOINT LEAD MEMBERS FOR HOUSING AND CUSTOMER AND
SUPPORT SERVICES ON MONDAY 1st JUNE 2009
Subject: Housing Revenue Account (HRA) Rent Restructuring 2009/10
following Government Announcement in May 2009
______________________________________________________________
RECOMMENDATIONS: Lead Members are asked to:
1
Approve a revised rent increase for the Council at an average rent level
of £1.72 per week (52 week basis), £1.86 (48 week basis) for 2009/10
in line with year eight of the rent restructuring plan (Annex Three
refers).
2
Approve a revised increase for current service charges of 3.05%, apart
from those which are Supporting People funded which will only be
increased by the same as any inflation awarded to providers by the
Supporting People Commissioning Body.
3.
Approve that this increase replace that previously agreed by the Joint
Lead Member briefing held on 2nd February 2009 to be effective from
1st April, 2009.
4
Note that a further report will be presented later in the year when
Government announces how rent increases for 2010/11 and rent
restructuring will be adjusted.
EXECUTIVE SUMMARY:
Members will recall decisions previously taken on rent restructuring for
2009/10 and the changes arising from the Governments’ recent consultation
paper which amends the 2009/10 Housing Subsidy Determination.
BACKGROUND DOCUMENTS:
Report to Council on the 19th February 2003 and 18th February 2004
Report to Joint Lead Member 2nd February 2009 to approve the rents for
2009/10
Report to Joint Lead Member 20th April 2009 to approve the response to the
consultation paper on lower rents for 2009/10.
Housing Revenue Account Subsidy Amending Determinations 2009/10 from
Communities for Local Government 26th March 2009 and 20th May 2009.
ASSESSMENT OF RISK:
Failure to accept the Governments offer of additional Housing Subsidy to
offset a lower rent increase would not allow the average rent increase to be
reduced from 5% to 3.05% and as such would be of no benefit to tenants.
If no action is taken on service charges then these would still be charged with
a 5% increase for 2009/10 which would be higher than the 3.05% proposed
for rents.
THE SOURCE OF FUNDING IS:
The loss of rental income to the Housing Revenue Account by implementing a
lower increase will be compensated for by the Government through additional
Housing Subsidy.
LEGAL ADVICE OBTAINED: Not required.
FINANCIAL ADVICE OBTAINED:
Report prepared by Principal Group Accountant for Housing
CONTACT OFFICER: Nigel Dickens 0161 793 2585
WARDS TO WHICH REPORT RELATES: Central Salford
KEY COUNCIL POLICIES: Budget Strategy
1.
Background
1.1
Members will recall that Cabinet approved a revision to Housing
Revenue Account rent review policy on the 16th July 2002 to align it
with the Housing Revenue Account budget process with effect from the
1st April 2003.
1.2
Cabinet also noted policy objectives to:




Maximise income to the Housing Revenue Account within Government
guidelines
Review rent levels and service charges annually
Achieve incremental implementation of the Government’s rent
restructuring proposals ensuring a fair and transparent system of rent
increase and service charges.
Ensure that the Housing Revenue Account is balanced in advance of
each financial year.
1.3
Members will recall that at the Council meeting of 19th February 2003
the rent restructuring plan was approved in principle.
1.4
Members will also recall that at the Council meeting of the 18th
February 2004 authorisation was given to the Lead Members for
Housing and Customer and Support Services to approve the increases
to the rents for 2009/10. This was because the increase in 2004/05 was
lower than that required for convergence and as such to ensure that
the plan was back in line with target it had to be followed.
2.
Current Rent Restructuring Plan
2.1
At the Joint Lead Member meeting for Housing and Customer and
Support Services on the 2nd February 2009 the rent increase for
2009/10 was approved.
2.2
Members will recall that had the Council followed Government
guidelines the average increase would have been 6.08% for 2009/10
with convergence by 2023/24 and this is shown at Annex One.
2.3
However in order to mitigate the impact upon tenants the Council
limited the increase to 5%, recognising that the difference would need
to be made up in future years. The approved rent restructuring plan
highlighting this and the convergence by 2023/24 is shown at Annex
Two.
2.4
The Council, similar to almost all other authorities, had made numerous
representations to Government about the size of increases being
forced upon tenants. As there had been no announcement by the end
of February 2009 then revised rent demands were sent to all tenants
for 2009/10 in accordance with the requirement to notify them 28 days
in advance of any changes being implemented.
2.5
The subsequent Government announcement on the 11th March 2009
followed by the consultation paper received on the 26th March 2009
means that the current rent increase of 5% remains in force until a
revised increase is approved.
3.
Government Consultation Paper for 2009/10 Amended Housing
Subsidy Determinations
3.1
3.2
Housing Subsidy is calculated on the Guideline rent figure and in the
original Determinations this increase was set at 6.2%.
Also within the original Determinations the inflation figure that was used
was 5% and it was this that was the primary driver behind the large
increases for the Formula rent which is the one that is used for the
calculation of actual rent increases.
3.3
The only change that the Government made to the original
Determinations is to propose a new average Guideline rent increase of
3.1% and offer additional Housing Subsidy for those authorities
implementing a lower increase.
3.4
The date for convergence remains at 2023/24. Inflation for Formula
rent is still 5% and the rent increases for 2010/11 will be considered by
Government closer to the time.
3.5
The Government requested that those authorities wishing to take up
the offer of additional subsidy indicate this by the 24th April 2009,
showing what their new planned average rent increase would be for
2009/10.
3.6
Following the Joint Lead Member meeting on the 20th April 2009 the
Council formally responded to the Government on the basis indicated
in the following section.
4.
Impact of Changes upon Rent Restructuring Plan
4.1
If the Council was to follow the revised Government guidance and the
figures within the amended Determination for 2009/10 then the average
increase would be 3.05%.
4.2
Convergence would still be achieved by 2023/24 and the revised rent
restructuring plan is shown at Annex Three.
4.3
The actual average rent increase would now be £1.72 based on 52
weeks, compared with £2.81 that has currently been approved and
implemented.
4.4
What is noticeable from the revised plan is that in order to achieve
convergence by 2023/24 larger percentage increases will be required
in future years to make up the difference of a lower increase for
2009/10. For example the original determinations of Annex One
indicate an increase of 6.14% for 2010/11, but now in Annex Three this
is 6.37%.
4.5
This indicated that in order to mitigate the impact upon tenants the
convergence date may be extended even further by Government. The
fact that Government has made no indication of how 2010/11 will be
considered, made it difficult to consider the implications of the
amended Determination for any further years than the current year 2009/10.
4.6
The above figures were those approved by the Joint Lead Members on
the 20th April to submit to Government as what the Council would seek
their approval for implementation in 2009/10.
5.
Government Amended Determinations 20th May 2009
5.1
On the 20th May 2009 the Council was formally notified by the
Government that the proposed rent reductions were approved and
Housing Subsidy would be paid to offset the cash reduction to the
Council.
5.2
The figures previously presented to Joint Lead Members in Annex
Three remain unchanged and now formal approval is required to
actually implement the rent reduction for tenants.
5.3
In the announcement of the 20th May 2009 the Government noted that
many authorities, including Salford, had requested clarification on rent
restructuring for future years and their response is replicated below:

Arrangements for 2010-11

A number of local authorities have expressed concern that rents will
have to rise by a disproportional percentage in 2010-11 to meet the
convergence deadline for rent restructuring.

The Written Announcement made in the House of Commons by the
Minister for Housing and Planning, stated explicitly that Communities
and Local Government would be looking again at 2010-11 guideline
rents, in the light of current economic climate. We have reiterated that
point on a number of occasions since, most recently in the clarifying
letter of 7 April.

Communities and Local Government, together with HM Treasury, the
Department for Work and Pensions, the Tenant Services Agency and
others are considering the arrangements for 2010-11 average guideline
rent increases, and the application of 2009-10 caps and limits, with a
view to making recommendations to Ministers before issuing proposals
for consultation over the summer.
5.4
When announcements are made by Government for 2010/11 these will
be reported to Members for their consideration.
6.
Service Charges
6.1
6.2
At the Joint Lead Member of Housing and Customer and Support
Services meeting on the 2nd February 2009 approval was given to
increase the service charges by 5%, the same percentage as that for
rents.
The only factor that the Government has altered in the amended
Determination is Guideline rent. Inflation is still 5% and the Government
did not make any amendments to this.
6.3
Even if the Government had altered the inflation rate it would not
compensate in cash terms any authority for any reductions in service
charges as these are not linked to Housing Subsidy.
6.4
Service Charge income should cover the cost of the service, but
historical larger inflation increases to costs such as utilities now means
this is not the situation. Consequently in order to try and mitigate this,
the increase applied by the Council has always been the maximum
permissible by Government.
6.5
If Service Charges were only increased by 3.05% rather than the
current approved 5% then this would result in a loss of income to the
Housing Revenue Account of approximately £60,000 for 2009/10.
6.6
At the Joint Lead Member on the 20th April 2009 it was agreed that
service charges would be only increased by the same amount as the
rents and as such formal approval is now sought for this to now be
3.05%.
7.
Financial effect of changes upon the Housing Revenue Account
7.1
The Council approved the Housing Revenue Account for 2009/10 on
the 18th February 2009. Members will recall that even though the
Housing Revenue Account was balanced the level of balances was
only 1%, compared to the 3% level recommended by the Audit
Commission.
7.2
As the Housing Revenue Account was set based on rent increases of
5% then the implementation of a revised increase of 3.05% would
mean that the HRA would receive approximately £583,000 less income
in 2009/10.
7.3
However as Housing Subsidy will now be calculated based on 3.1%
rather than 6.2% then the HRA will gain additional subsidy of
approximately £925,000.
7.4
The additional subsidy over and above the loss of rental income is the
Government compensating the Council for 1.07% reduction that the
Council had implemented for 2009/10 by only increasing by 5% rather
than 6.07%.
7.5
This will be partly to offset the reduction in income of £60,000 by only
increasing Service Charges by 3.05% rather than 5%.
7.6
The remaining difference could be used to replenish balances to avoid
any criticism from the Audit Commission at the end of 2008/09 for not
having identified a way to start building balances to a more prudent
level.
8.
Timetable for Implementation
8.1
Normally the decision to change rents is taken in early February to
allow an implementation at the start of April.
8.2
This is to allow the tenants their entitlement of 28 days notice for any
change to rents and this applies for reductions as well as increases.
8.3
Also within the time there has to be allowance for call in, the production
of the letters themselves and then distribution through the mail system
to ensure they are received in advance of 28 days before
implementation date.
8.4
A small working group of officers from Sustainable Regeneration,
Benefits and Salix Homes have met to consider the time required to
implement the change and how to actually pass the reduction to
tenants.
8.5
The group consider that a commencement of 3rd August 2009 would
allow due process to be followed for implementation, but have a small
amount of tolerance should anything slip by a week. It should be noted
that any changes will be back dated to the 30th March 2009 and have
effect for the whole of 2009/10.
8.6
The adjustment will be made by changing the rent accounts to reflect
higher amounts paid in the first part of the year, by giving a
compensating reduction for the remainder of the year, but overall the
full year the amount will equate to a 3.05% increase.
8.7
Due to systems and especially Benefits eligibility and processing this is
the only practical method of adjusting the accounts.
9.
Conclusion
9.1
Approval to the recommendations in this report will allow the Council to
respond to Government and take up the offer of additional Housing
Subsidy. It will allow the implementation of a lower rental increase for
Council tenants but still keeping the Housing Revenue Account
balanced.
9.
Recommendations
9.1
Approve a revised rent increase for the Council at an average rent level
of £1.72 per week (52 week basis), £1.86 (48 week basis) for 2009/10
in line with year eight of the rent restructuring plan (Annex Three
refers).
9.2
Approve a revised increase for current service charges of 3.05%, apart
from those which are Supporting People funded which will only be
increased by the same as any inflation awarded to providers by the
Supporting People Commissioning Body.
9.3
Approve that this increase replace that previously agreed by the Joint
Lead Member briefing held on 2nd February 2009 to be effective from
1st April 2009.
9.4
Note that a further report will be presented later in the year when
Government announces how rent increases for 2010/11 and rent
restructuring will be adjusted.