municipal year 2010/11 report no. 177
TRANSCRIPT
MEETING TITLE AND DATE: CABINET - 9 February 2011 COUNCIL - 2 March 2011 JOINT REPORT OF: Director of Health, Housing & Adult Social Care Director of Finance & Corporate Resources Contact Officers: Sally Mcternan, extn 4465, DDI 8379 4465 Email: Sally [email protected] Fiona Peacock, extn 5033 DDI 8379 5033 Email: [email protected]
MUNICIPAL YEAR 2010/11 REPORT NO. 177
1. EXECUTIVE SUMMARY 1.1 The report presents for approval the revenue estimates of the Housing Revenue
Account (HRA) for 2011/12 following consultation with residents on the HRA budget position.
1.2 The Cabinet is asked to approve the level of rents and service charges to be operative with effect from 4th April 2011 for Council tenants.
1.3 The report also includes HRA projections over the medium term to 2015/16.
2. RECOMMENDATIONS 2.1 That the detailed revenue estimates of the Housing Revenue Account for 2011/12
be approved and the forecast for the medium term be noted (table 1). 2.2 That the formula rents be increased by 6.80% in line with Government guidance.
This will result in an average increase of 5.95% for Enfield tenants. (The difference between formula and actual is caused by the combination of RPI of 4.60% this year and other factors within the rent restructuring calculation.)
2.3 The level of service charges as set out in Paragraph 15 for those properties receiving the services be agreed for 2011/12.
2.4 That the proposals for increases in other income as detailed in Appendices 2 and 3 be agreed for 2011/12.
2.5 That the Temporary Accommodation rents as set out in Appendix 5 be agreed for 2011/12.
2.6 That the HRA capital programme of £12.3m be agreed and that approval be given to increase the programme once the outcome of the bid for decent homes funding is known. Although the funding for Decent Homes is not known it is anticipated that this will be in the region of £20m.
2.7 That authority should be delegated to the Cabinet Member for Housing and Area Improvements and Director of Health, Housing and Adult Social Care to approve tenders for Decent Homes and general works.
SUBJECT:
Housing Revenue Account Estimates 2011/12 and Medium Term Financial Plan (Rent Setting – HRA & Temporary Accommodation)
ALL WARDS
CABINET MEMBERS CONSULTED: CLLR OYKENER
CLLR STAFFORD
Item: 6 Agenda – Part: 1
3. BACKGROUND 3.1 Each year the Council is required by law to set the level of rents for Council
dwellings for the forthcoming financial year after consultation with tenants. The decision must be taken early enough for tenants to be advised of any change at least 4 weeks prior to the date of change. The following sections of the report set out the financial position on the HRA for Cabinet and Council to consider.
3.2 The 2011/12 Government subsidy determinations are based on an average
guideline rent increase of 6.8% applied to the 2010/11 formula rent. 3.3 The rent increase for 2010/11 was based on a formula rent increase of 5.0% with an
inflation increase of -1.4%. 4. FORMULA RENTS and SERVICE CHARGES 4.1 The Government decided in 2003/04 that Local Authority and Registered Social
Landlord rents should be calculated using a formula based system. Accordingly, since 2003/04 Enfield rents have been calculated using the formula based on the market value of the property, average earnings for London manual workers and the national average council rent. The formula also takes account of the number of bedrooms in the property.
4.2 In addition to the rents, tenants may also be charged a service charge for certain communal services as appropriate. Government guidance gives some discretion over which services may be charged separately. The proposed charges for 2011/12 are shown in paragraph 15. It is proposed to extend existing caretaking services to sheltered units and tenants have been consulted. The Concierge contract has been re tendered and this has resulted in a reduction in this charge. There is a small inflationary increase anticipated for grounds maintenance and caretaking charges.
4.3 The change to formula rents, together with the separate charging for services, would have meant significant increases or decreases for some tenants if introduced immediately. In recognition of this the Government decided that the move to the new formula rents would be phased and that no rent should increase by more than £2 per week plus inflation after adjustment for the annual guideline increase set by Government.
4.4 Members will be aware that under the current system most of the additional rent raised is in effect paid to the Government through the subsidy mechanism. This payment has increased from £7.659m following the 2010/11 determination to an estimated £8.437m in 2011/12. This is due to an increase in the guideline rents i.e. the rents payable to the Government. This has increased from 3.1% uplift in 2010/11 to 6.8% for next year’s budget.
4.5 The rents and budget are set on the basis of the subsidy determination from the Department for Communities and Local Government (CLG). The subsidy determination for 2011/12 is likely to be the last subsidy.
5. REVIEW OF COUNCIL HOUSING FINANCE & HRA SELF FINANCING
5.1 The Council responded to the consultation Council Housing a real future on 6th July (confirmed at Cabinet on 14th July). The Council was broadly in favour of the self financing proposals as set out in the consultation.
5.2 Following that consultation further information from the Department for Communities and Local Government (CLG) has indicated that there will be a further consultation in January giving details of the proposed settlement.
5.3 The initial consultation in July showed that the proposal would be beneficial for the Council. However it is not yet known whether the revised model being issued early in 2011 will be so beneficial.
5.4 Under self financing the subsidy system is likely to cease from April 2012. The legislation for this will be included in the Localism Bill in 2011. The council will take on additional debt and will pay the charges on this additional borrowing rather than paying ‘subsidy ‘back to the government. The level of this debt and the basis for its calculation will be consulted on during 2011. The council will in future keep all the income it collects through rents. It is not possible to assess the impact on the Council until the detail is known.
5.5 The existing business plan is on the basis of the current regime. Significant financial modelling has been done on the impact of the new regime and this will be further refined when the detail is known.
6. FINANCIAL MONITORING 2010/11
6.1 Before considering the proposals for 2011/12, it is necessary to review the estimates for the current financial year to determine the anticipated balances as at 31 March 2011 and to take into consideration the ongoing impact of any major changes that have occurred during the current year. These have been highlighted throughout the year in the regular financial monitoring reports; the latest monitoring report is indicating a net surplus of £670k on the HRA.
6.2 A summary of the major changes in 2010/11 based on the November monitoring position is shown in Appendix 1. Where appropriate, the ongoing impact of these variations has been included in the draft budget for 2011/12.
7. CONSULTATION ON THE LEVEL OF RENT FOR 2011/12
7.1 Consultation will take place in early February 2011. A letter will be sent to all residents advising them of the proposed rent and service charges increases and the position on the HRA budget.
8. BASE BUDGET FOR 2011/2012 Table 1 sets out the Base Budget for 2011/12 compared to the 2010/11 figures and include projections for the next 4 years to 2015/16. These projections are based on the updated HRA business plan.
TA
BL
E 1
- H
OU
SIN
G R
EV
EN
UE
AC
CO
UN
T 2
010
/11
TO
20
14
/15
2010-1
1
Bu
dg
et
2011-1
2
Esti
mate
V
ari
ati
on
s
See P
ara
2012-1
3
Pro
jecti
on
£'0
00
2013-1
4
Pro
jecti
on
£'0
00
2014-1
5
Pro
jecti
on
£'0
00
Exp
en
dit
ure
S&
M G
en
era
l 11,6
30
12,2
04
574
9.2
11,9
42
12,3
00
12,6
69
S&
M S
pecia
l 6,2
17
6,1
94
-23
9.3
6,2
55
6,4
43
6,5
36
Rent R
ate
s a
nd o
ther
Charg
es
328
315
-13
324
333
343
Rent R
eba
tes
110
600
490
9.4
600
618
628
Cost of
Cap
ita
l 3,7
66
4,2
87
521
9.5
4,4
16
4,5
48
4,6
84
Depre
cia
tion
9,7
82
10,3
09
527
9.6
10,6
18
10,9
37
11,2
65
Repa
irs a
nd
Adm
in
15,4
84
15,5
06
22
9.7
15,9
71
16,4
50
16,9
43
Pro
vis
ion f
or
bad
an
d d
oubtf
ul debts
200
300
100
9.1
300
300
350
To
tal E
xp
en
dit
ure
47,5
17
49,7
15
2,1
98
50,4
26
51,9
29
53,4
18
Inco
me
HR
A S
ubsid
y -
MR
A
-9,7
82
-10,3
09
-527
-1
0,6
18
-10,9
37
-11,3
20
HR
A S
ubsid
y -
Ho
usin
g E
lem
ent
17,4
42
18,7
15
1,2
73
19,3
08
19,8
87
20,4
83
Net
Su
bsid
y
7,6
60
8,4
06
746
9.8
8,6
90
8,9
50
9,1
63
Rent In
com
e
Dw
elli
ngs
-49,4
29
-52,2
82
-2,8
53
9.9
-5
4,1
11
-56,0
05
-57,6
85
Gara
ges
-730
-707
23
9.1
-7
32
-758
-785
Sho
ps/C
om
merc
ial
-2,1
98
-2,1
90
8
9.1
-2
,396
-2,4
78
-2,5
64
Leaseh
old
er
serv
ice c
harg
es
-2,8
61
-2,9
56
-95
9.1
-3
,045
-3,1
36
-3,2
30
To
tal In
co
me
-47,5
58
-49,7
29
-2,1
71
-5
1,5
94
-53,4
27
-55,1
01
Net
co
st
of
se
rvic
es
-41
-14
27
-1
,168
-1,4
98
-1,6
83
Am
ort
ised P
rem
ium
s a
nd D
iscounts
132
95
-37
9.5
95
64
0
Inte
rest o
n B
ala
nces
-90
-80
10
-6
0
-57
-37
RT
B M
ort
ga
ge I
nte
rest
-1
-1
0
Net
Op
era
tin
g e
xp
en
dit
ure
0
0
0
-1
,133
-1,4
91
-1,7
20
Co
ntr
ibu
tio
n t
o R
ese
rves
0
0
0
0
0
0
Net
Op
era
tin
g e
xp
en
dit
ure
0
0
0
-1
,133
-1,4
91
-1,7
20
9. BASE BUDGET ASSUMPTIONS AND MAJOR VARIATIONS
9.1. Table 2 sets out the assumptions made in compiling the budget and medium term projections.
TABLE 2 - ASSUMPTIONS
Pay award 0%
Inflation on Supplies and Services 0%
Repairs and Maintenance cost increases 0%
Garage income 4.6%
Property numbers Right to Buy sales p.a. 12
Interest rate on borrowing (CRI) 3.8%
Interest rate on balances 0.4%
Government Subsidy assumptions
Formula rent increase 6.8%
Major Repairs allowance 5.1%
Management and Maintenance 4.3%
Explanations of the major variations for 2011/12, when compared with the budget for 2010/11 are as follows.
9.2. Supervision & Management General - Increase of £574k The management fee for 2011/12 has reduced by £534k due to efficiency savings
of 3% by Enfield Homes. This is offset by budget increases on Insurance, Superannuation and National Insurance. Additional funding of is required for Estates Police Community Support Officers and an additional for a Legionella & Water Mgt Officer and a Planned Maintenance Surveyor.
9.3. Special Services – decrease of £23k The decrease in Special services is as a result of a reduction in the Concierge
budget; this is partly offset by a budget pressure on Grounds maintenance and Supporting People.
9.4. Rent rebate subsidy limitation – £490k When the cost of rent rebates was moved to the General Fund the government
required the HRA to make contributions to the cost of rent rebates. It did this because it deemed the HRA rents to be too high. It is anticipated that the HRA will make a contribution of £490k to General Fund as a result of the changes to Limit Rent in the subsidy determination.
9.5. Cost of borrowing and premiums and discounts – increase of £484k This is mainly as a result of additional financing costs of £521k required for Decent
Homes. This amount is offset by a small change in the Premium & Discount payments of £37k. The borrowing from Decent Homes is supported through the HRA subsidy so there is no cost to the HRA.
9.6. Depreciation – increase of £527k There is a requirement to include an amount for depreciation of HRA assets in the
HRA. This sum is determined by the amount the government allows for Major Repairs in the subsidy calculation. This has been adjusted for the impact of properties dropping out of HRA and changes in final subsidy determination. There will be no impact on actual costs to the HRA as this is an accounting adjustment.
9.7. Repairs and Maintenance – use of repairs fund £500k Inflation has not been added to the 2011/12 budget however the intention is to
make contributions from the repairs fund of £500k to cover severe winter maintenance if necessary. This represents no change to the base budget.
9.8. Subsidy – increased payment of £746k to CLG The subsidy payment is based on the calculation of a notional Housing Revenue
Account. The government has estimated that the guideline rent should increase by £2,651k. This is offset by increases in Management and Maintenance allowances and MRA (major repairs allowance) of £1,601k. The support for borrowing has increased by £304k as a result of additional borrowings and the debt management The combination of the above and an additional allowance for loss of income due to caps and limits on rents has resulted in a reduction in the amount paid to the CLG, however there is no benefit to the council because of the increased borrowing costs for the decent homes funding and the guideline rents increase.
9.9. Dwelling rents income – increase of £2,853k This represents the additional income from an actual average increase in rents of
5.95% (based on a formula increase of 6.8% and an increase of 4.6% for RPI inflation).
9.10. Garages income – decrease of £23k This represents a 4.6% increase in total garage rent income to cover cost of
management and maintenance of the garages. However, the increase is offset by reduction in income due to high level of voids.
9.11. Shop income – increase of £8k Shop income is estimated to be higher in 2011/12 due to higher occupancy, this
results in an improvement of voids. This is offset by the cost of managing shops.
9.12. Leaseholder Service charge income – increase of £95k Leaseholder service charge income reflects the actual cost of the services
provided. The costs of these services are expected to decrease in 2011/12 as a result of a retendering of Concierge service and the extension of caretaking service to the sheltered units
9.13. Bad Debts - increase of £100k The increase in bad debt provision is as a result of increase in former tenants’
arrears and the shortfall in the budget for provision for bad debt. 10. MEDIUM TERM FINANCIAL PLAN: 2011/12 – 2015/16
10.1. It is difficult to predict future HRA costs with any certainty, mainly because subsidy
arrangements are uncertain in the medium term. As outlined in paragraph 5 it is
likely that HRA self financing will be introduced in 2012 and this will have a major impact on future financing of the HRA.
10.2. The projections for 2011/12 – 2015/16 in table 1 have been calculated on the basis of the current subsidy arrangements.
10.3. The HRA business plan, based on available information and current assumptions about HRA debts and subsidy, show that the HRA will be in deficit in 2017/18; this is after assuming 3% savings in management and minimal increase in repairs expenditure. This is a similar position to a number of other London boroughs.
10.4. Savings will be needed to balance the Housing Revenue Account in future years. Action is in hand within Enfield Homes and the Council to ensure a robust efficiency programme is in place. However this will be fully developed once the impact of the changes on the Housing finance system are known. The current HRA business plan position is outlined below.
TABLE 3 – HRA BUSINESS PLAN SUMMARY Year £’Million 2010/11 10.30 2011/12 3.90 2012/13 3.00 2013/14 2.60 2014/15 1.90
2015/16 1.00 2016/17 0.30 2017/18 (0.50)
11. ENFIELD HOMES MANAGEMENT FEE
11.1. Enfield Homes went live on 1st April 2008. Enfield Homes achieved two stars in its
inspection in February 2009.
11.2. As a result of the success in the inspection CLG made available funding of £15m for the Decent Homes programme in 2009/10 and £35m for 2010/11. No funding has been confirmed after 2010/11. CLG have indicated that all landlords are expected to identify their own funding to make the last 10% of properties decent. The Council and Enfield Homes have submitted a bid to CLG in January for funding for future years. At this stage no assumption about additional funding has been included in this report.
11.3. Enfield Homes is paid a management fee by the Council for managing and maintaining the Housing stock. Details of the services to be provided are included in the management agreement. The management fee agreed for 2010/11 was £16.8m.
11.4. It is proposed that the management fee for 2011/12 should be £16.1m. This fee has been the subject of detailed negotiations between the Council and Enfield Homes. The management fee for 2011/12 includes expenditure in table 1 under the headings Supervision, Management and Special services and part of the
expenditure listed under Repairs and Rent rates and other.
11.5. A number of revenue budgets remain within the Council’s accounts but are delegated to Enfield Homes to manage. These are outlined below.
• Rents dwellings
• Leaseholders service charges
• Garage income
• Repairs and maintenance
• Contracts for services i.e. concierge, cctv and grounds maintenance 12. CAPITAL FINANCE AND PRUDENTIAL CODE
12.1. The Prudential Code for Capital Finance requires the authority to have regard to
affordability, prudence and sustainability when considering its capital investment plans and to set and keep under review a range of prudential indicators. The prudential indicators for the HRA are: - estimated capital financing charges as a percentage of net revenue stream - estimated capital expenditure - estimated capital financing requirement - incremental effect of capital investment decisions on housing rents.
12.2 The General Fund Budget report for 2011/12 elsewhere on the agenda sets out
the background to the prudential code and shows the indicators for the General Fund and the HRA.
12.3 In essence the Prudential regime gives scope for the HRA to borrow for capital investment if the forecasts show that the resulting charges can be afforded over the medium to long term.
12.4 The 2011/12 Supported ALMO funding for Housing is not yet known and dependent on the outcome of the bid submitted in January 2011. Interest payments on this figure are funded by way of Housing subsidy. However the current estimates and projections for the HRA did not include any assumptions about the revenue effects of this borrowing. In addition the HRA will fund the borrowing of £2m in 2011/12 for the Grants to Vacate programme, leaseholder buyback scheme and the estate renewal schemes.
12.5 The Prudential Indicators will be revised as a result of the additional funding received from CLG.
12.6 The Code, subject to an assessment of prudence, affordability and sustainability, gives scope to borrow above current levels. This facility was reviewed as part of the business planning process during the year. Current business plan projections show that additional unsupported borrowing is not affordable.
12.7 Enfield Homes is preparing a capital programme for 2011/12 in line with currently available resources. Projected Capital expenditure for 2010/11 is estimated to be £53.3m.
12.8 The known HRA capital resources for 2011/12 total £12.3m. This is made up of
£10.3 of Major Repairs Allowance (MRA) and £2.0m of unsupported borrowing.
12.9 A bid for decent homes funding of £23m, £27m, £10m and £8.5m for the next four
years was submitted to the Homes and Communities Agency on January 11th. It is expected that the Council and Enfield Homes will be notified of the level of funding for 2011/12 at the end of February 2011. This funding can only be used for decent homes and has to be spent within the financial year it has been allocated. Details of this funding will be reported in the first capital monitor.
12.10 Due to the uncertainty of the outcome from the Decent Homes funding allocation
process, Appendix 6 outlines two potential programmes, one presumes an allocation of £15m for Decent Homes work, Appendix 7 presumes an additional allocation of £5m equalling a total potential programme of £20m.These outline the works that would be included in the programme for the next financial year 2011/12.
13. HRA BALANCES AND RISK ASSESSMENT
13.1. The estimated position on balances is set out below. TABLE 4: HRA BALANCES
HRA Balances £m £m £m £m General
balances Repairs Reserve
Capital Reserve
Total
Balance at 1.4.10 8.16 7.02 3.60 18.78
Expected use of balances in 2010/11 (0.69) (2.33) 0.00 (3.02)
Estimated Balance at 1.4.11 7.47 4.69 3.60 15.76
Expected use of balances in 2011/12 (1.17) (0.55) 0.00 (1.72)
Estimated balance at 31.3.12 6.30 4.14 3.60 14.04
In addition to the capital reserve there is also unspent MRA of £5.7m of which £3.7m is already committed on existing capital projects, giving total available capital resource of £2m
13.2. It must also be noted that balances cannot be used to sustain expenditure that is too high over the medium to long term. They can be used as one off funding to support specific projects in the HRA. The capital reserve is to be used to fund major works programmes.
13.3. It is anticipated that the current level of balance on Repairs fund will be maintained. However, it is expected that £500k from the fund will be used to finance severe winter maintenance in 2011/12
13.4. It is planned to use general balances to fund a number of initiatives during
2011/12. These are outlined below. TABLE 5 – HRA INITIATIVES
£ 000’s Community Festivals 90
Ladderswood (cabinet report 25/11/09) 745 Highmead (cabinet report 16/12/09) 228 Total 1,063
13.5. The resources required for Ladderswood and Highmead are included in full in the list above because the funds are already earmarked for these projects although not all expenditure will be in 2011/12, some will take place in future years. It is anticipated that the appointed developers will reimburse the Council costs as part of capital receipts.
13.6. It can be seen from paragraph 13.1, it is estimated that general balances at 1st April 2011 will total £7.47m. The risks associated with this have been reviewed. It is considered prudent to retain balances at this level for 2011/12.
13.7. In addition to the above reserves, a bad debt provision of £1.4m existed at 31 March 2010. The adequacy of this amount will be reassessed at the end of the financial year to reflect the level of rent arrears.
13.8. As part of the budget process a risk assessment has been undertaken. The detailed budget headings within the HRA were considered in terms of their risk factors (including the size of the budget, the degree to which it is demand led, its history of under or overspending and reliability of systems).
13.9. The areas of HRA expenditure identified as high risk are explained below. These budgets will be subject to close monitoring throughout the year. 13.9.1. Repairs and maintenance - £10.6m
This is a large, demand led budget that needs close monitoring throughout the year particularly given the proposed no increase in the budget in 2011/12.
13.9.2. Rents & service charges - dwellings – £55.238m The risks associated with the rents budget lie in the size of this budget along with the complex current changes under the Rent Restructuring regime.
13.9.3. Subsidy There are possible changes to the subsidy budget because of the uncertainty on the level of support for Decent Homes funding. This budget will be closely monitored during 2011/12.
14. PROPOSED RENT CHARGES FOR 2011/12
14.1. It is recommended that the 2011/12 formula rents be increased in line with Government policy by 6.8% and that the rents for 2011/12 are set in accordance with Government’s policy. This calculation takes into account RPI of 4.6%. This results in an average rent increase of 5.95% although because of rent restructuring and the need to move towards target rents there is a variation in individual changes between 2.12% and 9.03%. Rents should all be at formula by 2014/15 and will only increase by inflation in future years.
14.2. The formula rents regime sets upper limits on rents for different sized properties. In 2011/12 the caps on weekly rents as confirmed by the final subsidy determination are as follows: TABLE 6 – CAPS ON WEEKLY RENTS
14.3. In cases where the formula rent exceeds the cap level the formula rent is set at the cap level and the actual rent will be moved in stages to the cap level.
14.4. Appendix 4 shows examples of the proposed rents for 2011/12 for different property types and sizes across the Borough.
15. PROPOSED SERVICE CHARGES FOR 2011/12
It is also recommended that the following service charges be made to those tenants in receipt of the services listed below: TABLE 7 – PROPOSED SERVICE CHARGES 2011/12
15.1. These charges aim to recover the full cost of the service. Concierge charges have reduced to reflect the reduced cost of this service. There has been an increase in caretaking and grounds maintenance charges due to inflation.
15.2. In addition to the above, water and sewerage charges will continue to be collected through the rents on behalf of the water authorities.
15.3. There is a proposal to introduce a new service charge specifically for an enhanced caretaking service in sheltered blocks.
15.4. The above charges have also been built in to the expected income from leaseholders where appropriate.
6–bed 154.86 5–bed 147.81 4–bed 140.78
3–bed 133.74 2–bed 126.70 1–bed & bedsits 119.66
Charge per week 2011/12
£ Caretaking level (1) (resident) 2.73 Caretaking level (2) (non resident) 4.50 Caretaking level (2) Sheltered (various blocks) From 1.30 to £2.50 Concierge 10.61
Grounds maintenance 1.10 CCTV 1.19
16. LEASEHOLDER SERVICE CHARGES
16.1. Details of estimated service charges for leaseholders are included at appendix 3. This includes an estimate of all charges to leaseholders. There are several changes to last year due to an increase in repairs and insurance charges.
16.2. The administrative fee proposed for 2011/12 is £185.58 per leasehold unit, this is a 4.04% increase from 2010/11.
17. HEATING CHARGES
17.1. General Heating Charges It is proposed that heating charges are increased by 12%. The actual charges have gone up in line with increases in gas and electricity rates. This level of increase is required in order to recover the cost of providing the service and maintain a positive balance on the Heating Fund.
17.2. Alma and Bliss and Purcell
Heating charges at Alma and Bliss and Purcell are under review. It is anticipated that these charges will increase in 2011/12 however this will be following full consultation with the residents of these blocks. Proposals for these charges will be the subject of a future cabinet report.
18. TEMPORARY ACCOMMODATION RENTS
Proposed Temporary Accommodation (TA) rents for 2011/12 are attached at Appendix 5. The rents have not changed significantly from 2009/10. TA rents are now pegged to the Local Housing Allowance rate for the size of property in January 2011 less 10%, plus a flat rate management fee of £40 per week. The Government in April 2010 announced that subsidy levels would be capped at £375.00 per week and TA rents in Enfield were amended to reflect this in December 2010. The cap of £375.00 per week continues to limit rents for 4 and 5 bedroom accommodation.
19. ALTERNATIVE OPTIONS CONSIDERED Two alternatives were considered, these were not increasing rents in line with the Government guideline and increasing rents above the guideline. Both these were discounted. If rents were not increased this would mean significant loss of income and could only be met from balances or from a reduction in services. To increase rents above the guideline was also discounted because this would put additional unnecessary financial pressures on tenants.
20. REASONS FOR RECOMMENDATIONS In view of the implications of the alternatives mentioned in paragraph 19, it is recommended to increase rents and service charges in line with Government guidance in order to maximise income and maintain service levels.
21. COMMENTS OF THE DIRECTOR OF FINANCE & CORPORATE RESOURCES AND OTHER DEPARTMENTS
21.1. Financial Implications The Local Government Act 2003 requires the Chief Finance Officer to report on
the robustness of estimates and the adequacy of proposed financial reserves. The 2011/12 HRA estimates have been prepared taking into account the following:
• The estimated impact of inflationary pressures and pay awards. Allowance has been made for cost increases over and above the general rate of inflation where these are known;
• The estimated impact of increasing demands on resources where these are unavoidable;
• The estimated impact of underlying cost pressures, evidenced by financial monitoring reports in the current year; and
• An assessment of key risks and uncertainties. It is therefore the view of the Director of Finance and Corporate Resources that the HRA budget is robust and that the balances held are prudent. However, Members will note that a balanced HRA over the medium term is only achieved by assuming significant savings. The deteriorating financial position of the HRA is due to cost pressures on both repairs and management and the operation of the subsidy system. In addition the 2011/12 budget proposes to use one off resources from both the repairs fund and general reserves. Whilst this is possible in the short term, this is not sustainable in the medium term. Action is being taken to reduce costs and achieve savings necessary to maintain a balanced HRA. The HRA Business Plan has been revised and will be updated regularly.
21.2. Legal Implications Under section 24 of the Housing Act 1985, as amended by section 162 of the Local Government and Housing Act 1989 a local authority is to decide on the rent they charge their tenants. Such charge must be reasonable for the tenancy or occupation of their premises. The authority is required to review rents and make changes, as circumstances require. The Housing Act requires that the rent of houses of any class of description to bear broadly the same proportion to private sector rents. In addition, in preparing the budget for the HRA, all authorities are required to estimate as accurately as possible the total level of income that they need to raise from rents. The government introduced a formula for calculating and setting rent in 2002 which is being gradually introduced until 2012. This has been adopted at Enfield. Under Section 76 of the Local Government and Housing Act 1989 there is a duty imposed on local authorities to prevent a debit balance on the HRA. The Guide to Social Rent Reform issued by the Office of the Deputy Prime Minister (ODPM) states that local authorities retain the discretion to decide what services can be charged for in addition to rent. Local authorities are expected to set reasonable and transparent charges which closely reflect what is being provided to tenants. The Guide recommends that protecting tenants from sudden large increases in their rent and service charges should take priority. Local authorities are expected to consult appropriately before introducing new or extended service charges. If consultation has not taken place there could be a potential for challenge either by way of JR or complaint to LGO.
Council has a duty to show they have consciously addressed their mind to carrying out an Equality Impact Assessment (which includes any decision to increase or introduce charges to tenants).
22. KEY RISKS
Reform of Council Housing Finance
The proposed reform of the HRA will have major impact on the operation of the Housing Revenue Account from 2012/13. Also it is anticipated that the cost of the preparing for self financing, which will mostly be incurred in 2011/12, will have to be funded from the HRA general balances.
Decent Homes backlog funding The outcome of the Council bid on funding the backlog of Decent Homes works will not be known until the end of February. The uncertainty on the outcome of the bid, the size of the cost of the work required to achieve Decent Homes standard and the profile of payment by Housing Community Agency are few of the factors that may affect the HRA financial position in 2011/12.
Rental income from the Council’s assets The Council manages a substantial asset portfolio and is beginning to experience the effects of the economic downturn through a reduction in rental and service charges income from businesses and other tenancies
23. IMPACT ON COUNCIL PRIORITIES
Fairness for All Providing high quality housing continues to be a priority. Residents’ views were sought on the proposed budget as detailed under Putting Enfield First. Rents are set in line with Government guidance and an increase of 5.95% is low when compared to a number of other London Boroughs. Growth and Sustainability The recommendations in the report will ensure that there is a sustainable HRA. The proposals will promote positive investment in the housing stock, ensure adequate funding is made available for the Council’s landlord function and encourage compliance with the government regulation on setting rents.
Strong Communities Setting fair rents, investing in the Council’s housing stock and effective management of the Council’s housing stock by Enfield Homes are some of the areas of this report that will have positive effect on the local community.
24. PERFORMANCE MANAGEMENT IMPLICATIONS
Setting a balanced budget for 2011/12 should enable the HRA performance targets to be met. Sound medium term financial plans are essential to support the delivery of excellent services and the efficient use of resources across the organisation. The
budget proposals set out in this paper will ensure that the Council’s limited capital and revenue resources are targeted on these key priorities
Background Papers Where Located Contact Resources Working Papers
4th Floor Civic Centre Fiona Peacock ext.5033
CLG Subsidy and Item 8 Determinations
4th Floor Civic Centre Fiona Peacock ext. 5033
HRA Business Plan 4th Floor Civic Centre Fiona Peacock ext. 5033
APPENDIX 1 2010/11 BUDGET MONITORING – VARIATIONS (as at November 2010) Budget Head Variation £’000
Supervision and Management (159)
This is as a result of a one off payment from Thames Water of £199k. This is offset by cost of sheltered decants of £40k.
Rents non dwellings – shops/garages (93)
This is due to £148k additional income from shops at Highmead, retailers have been able to remain in these premises for longer than was originally anticipated, and there is also additional income of £46k from aerials. This additional income is offset by an under recovery of income of £101k from garages. This is due to a high level of voids and some demolitions
Interest on HRA balances (10)
This is due to improvement in the investment interest rate.
Subsidy 367
A detailed review of the housing subsidy calculation has identified further increases to the Housing Subsidy payments, this is partly due to changes in the consolidated rate of interest (CRI), and this will be offset by a decrease in Capital Charges.
Capital Financing 264
This is due to recalculation of capital financing charges and additional borrowing cost as a result of borrowings for Decent Homes.
Bad debt provision 100
Rents dwellings (450)
A comprehensive review of rental income was conducted this month, as a result an over recovery of £450k on rental income is now projected. This is partly due to the delay in the decant of Ladderswood tenants.
Leaseholder Service charges (160)
An over-recovery of income of £160k in leaseholders service charges has been achieved, this is mainly due to an increase in income for block repairs which was not originally budgeted for
Total (670)
APPENDIX 2
OTHER PROPOSALS FOR INCREASED INCOME IN THE HRA 1. Hostel Licence Charges
1.1. There are 11 HRA hostel premises in Enfield providing 67 units of temporary
accommodation. The rents for 2011/12 will range between £56.91 and £132.26 per week. This compares with the range in 2010/11 of between £53.05 per week and £123.94 per week. The average weekly increase is 7.11%. In addition, an amenity charge will also be levied. The charges are as follows:
.
2. Garage Rents
2.1. There are 2 types of garages, which are let to Council tenants, leaseholders and private tenants, wire cage (multi-storey block) and the standard lock-up.
2.2. A ‘non Council tenant premium’ is also charged on all lets to private tenants, and any Council tenant or leaseholder who rents more than 2 garages. It is proposed that the rents be increased by 4.6%. The proposed charges for 2011/12 are:
Charge Per Week Bedsit 5.00 1 bed 7.50 2 bed 8.50
2010/11 Weekly
Net Rent £
2011/12 Suggested Net Rent
£
Category (G1) Standard Lock-up Garages 8.11 8.48
Non Council tenant premium (NCTP) 2.14 2.24
Category (G0) Garages in multi-storey blocks 4.65 4.86
3. Communal Heating Charges
3.1. The Council has 1,788 properties in 71 blocks of flats serviced by communal heating systems. The properties do not have individual metering. There is a mixture of electric, gas and oil fired systems but the charges for tenants (which are reviewed annually) are calculated on a pooled basis rather than on the cost of the fuel used by individual systems. Since 1996 leaseholders have been charged a proportion of the actual cost of the fuel used in their blocks, calculated on the basis of individual property rateable values.
3.2. It is proposed to increase the heating charge by 12% in 2011-12. 4. Detail of General Heating Fund Charges
Range of charges Bedsit 14.96 – 15.57 1 bed 17.24 – 21.84 2 bed 22.32 – 28.30 3 bed 28.95 – 33.02
APPENDIX 3 ADMINISTRATION/MANAGEMENT CHARGE FOR LEASEHOLD UNITS 1. The administration and management charge is a flat rate added to the cost of services to cover the preparation of estimates and actual costs, billing consultation on repairs and improvement works and estate management. 2. It is estimated that by 31 March 2011 a total of 4,535 flats will have been sold under leasehold arrangements. 3. At the end of each financial year, the actual cost is determined and an appropriate adjustment made to the charge. 4. The cost of administration and management for 2011/12 is estimated at £842k and it is, therefore, recommended that the charge for 2011/12 be fixed at £185.58 per leasehold unit. This compares with the 2010/11 charge of £178.38 per leaseholder unit. 5. The charges below are estimates for 2011/12, adjustments will be made mid year to reflect actual charges.
Charge per week 2011/12
£ Administration & Management Charge 3.57 Caretaking level (1) (resident) 2.73
Caretaking level (2) (non resident) 4.50 Concierge Merlin House 10.03 Cormorant House 10.52 Kestral House 9.94 Curlew House 10.80
Walbrook House 11.82 CCTV Alma Road 1.04 Walbrook House 1.80 Shepcot House 1.25 Grounds Maintenance 1.10 Paladin Bins 1.50
Insurance 1 Bed 1.56 2 Bed 1.76 3 Bed 2.01 4 Bed 2.24 Flat Repairs (Annual Charge) 1.00
Ground Rent (Annual Charge) 10.00 Estate Charge (Annual Charge) 10.00
APPENDIX 4 LB ENFIELD AVERAGE RENTS
Bedroom size Actual 2010/11
Actual 2011/12
Formula 2011/12
£ £ £ Bungalows 2 86.76 92.63 102.01
Houses 2 86.86 92.81 100.52 3 95.98 101.93 109.82 4 106.96 112.89 117.16 Flats – low rise 1 72.67 76.86 78.85 2 83.05 87.52 89.26 Flats – high rise 1 66.11 70.09 72.50 2 77.37 81.28 81.20 Maisonettes – low rise
2 80.85 85.50 87.44
Maisonettes – high rise
2 76.18 80.18 80.75
Bedsits 65.03 69.14 72.23
The above are examples of the rents likely to be charged for specific properties. They are not necessarily typical, nor the maximum or minimum rents which will be charged. Service charges have been excluded, but will be payable in addition to the rent subject to the services provided to each property. The rent calculation is a function of the formula rent (using the CLG formula) and the existing 2010/11 net rent and is subject to various caps and limits.
APPENDIX 5 TEMPORARY ACCOMMODATION RENTS
Category Weekly rent 2010/11 Weekly rent 2011/12 £ £
Shared accommodation 175.00 178.75 1 bedroom self contained 197.50 200.88 2 bedroom 247.00 247.90
3 bedroom 299.61 310.00 4 bedroom 375.00 375.00 5 bedroom and larger 375.00 375.00
Appendix 6
Capital Programme 2011/12 (Draft)
Potential (£15m) Decent Homes Programme
Indicative Programme Estimated Costs (£K)
Eldon and Bounces Road South Street Part 2 Jackson and Swinson Part 2 Cyntra Project South West Cyntra Project South East Street Properties Programme (Boroughwide) Total 12,950 Programme Costs (Estimates) Staff Cost Capitalisation (Voids/Aids & Adapts) Stock Surveys Total 2,050
Total Programme Cost 15,000
Appendix 7
Capital Programme 2011/12 (Draft)
Potential (£20m) Decent Homes Programme
Indicative Programme Estimated Costs (£K)
Eldon and Bounces Road South Street Part 2 Jackson and Swinson Part 2 Cyntra Project South West Cyntra Project South East Street Properties Programme (Boroughwide) Total 17,950 Programme Costs (Estimates) Staff Cost Capitalisation (Voids/Aids & Adapts) Stock Surveys Total 2,050
Total Programme Cost 20,000