APPENDIX A

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APPENDIX A Powered By Docstoc
					Report to
Value for Money Overview & Scrutiny                      13th January 2009 Wards All
Commission

Cabinet                                                  26th January 2009


     Review of locally defined discounts for the Collection of Council Tax: financial
                   impact assessment in relation to Council Housing

Report of the Head of Corporate Finance, on behalf of the Director of Corporate
Resources and the Director of Housing, on behalf of the Assistant Chief Executive.


1.      Purpose of the Report and Summary

       1.1     To provide the Scrutiny Commission and Cabinet with a cost benefit analysis
               of applying a full Council Tax discount to long term empty Council housing
               stock, including the impact on the Housing Revenue Account and General
               Fund Budget both in the short and long term1.

       1.2     To identify potential non-financial impacts of applying the full Council tax
               discount.

2.      Recommendations

       2.1     That the existing policy of not granting Council Tax discount for long term
               empty properties is maintained.

3.      Introduction

       3.1     The Value for Money Overview & Scrutiny Commission considered a report
               entitled “Review of locally defined discounts for the Collection of Council Tax”
               at it’s meeting on 9th December 2008.

       3.2     Members have requested a further report in relation to one aspect of this,
               namely the discounts in relation to property owned by the Council.




1 Report entitled “Review of locally defined discounts for the Collection of Council Tax” was submitted to
cabinet on 15 December 2008.

minute 110 (c) refers: that no changes be made to existing Council Tax discounts under Sections 11A except
that further analysis be undertaken to determine accurately the cost benefits of applying a full discount to
long term empty Council housing stock, including the impact on the Housing Revenue Account and Revenue
Budget both in the short and long term, with the information being submitted to the Value for Money
Overview and Scrutiny Commission in January 2009 prior to submission to the Cabinet for decision.
     3.3   This report details the discretionary discounts available (section 4) and
           places this in the context of the Fiscal Review, details of which are given in
           section 5.

4.   Discretionary discounts available

     4.1   The original report dealt with a variety of possible discounts that might be
           exercised by the Council.

     4.2   The relevant extract of the original report is reproduced below:

           Discounts for Long-term empty property Section11A.

           5.5    The Local Authority removed the existing 50% Council Tax Discount
                  which was awarded pre 1 April 2004 to zero%, effective 1 April 2004
                  for unfurnished long term empty homes. The purpose of this change
                  was for it to act as a driver to reduce the number of empty properties
                  within the city.

           5.6    There are currently 2309 properties that fall within this category
                  citywide compared to 2261 in 2007/08 and 2402 in 2006/07.

           5.7    For long term empty properties the Council will have its Revenue
                  Support Grant adjusted to reflect any additional income raised by the
                  alteration of this discount. This means there is no financial benefit to
                  the Authority by the implementation of this category. There was,
                  however, a “one-off” benefit to the Council during the first year
                  (2004/05) the discount was removed estimated at £800K

           5.8    This provision applies to council housing as well as private sector
                  properties. The cost to the Housing Revenue Account for 2008/09 is
                  estimated at a revised figure of between £300 & £400k.

           5.9    The Local Authority, via the Executive, does possess powers to
                  exempt its own properties from the reduced discount, however, use of
                  this provision may be perceived as unfair relative to the treatment of
                  private sector property owners. In addition such an exemption would
                  adversely affect the overall Council Tax base which would not be
                  taken into account for revenue grant funding purposes until 2011/12.

           5.10   Following the removal of the discount, there continues to be very little
                  feedback from private sector property owners regarding the additional
                  tax burden.

           5.11   For 2009/10 the Revenue Support Grant has been based on a
                  calculated tax base as at 6 October 2008. This calculation takes into
                  account the current zero percent discount for long term empty
                  properties. The General Fund Revenue Support Grant will not be
                  adjusted retrospectively, should the discount be adjusted.

     4.3   Under prescribed regulations a discount of between zero and 50% can be
           awarded under Section 11A. Since 2004 the Council has chosen to award a
               zero discount on all long term empty property, that is, empty longer than 6
               months. Up to 6 months there is a nil charge as the property is exempt.

       4.4     As at 15th December 2008:

                  There were 1,015 Local Authority empty properties and of these 533 have
                   been empty in excess of six months. These properties are not considered
                   uninhabitable; and

                  There were a further 600 properties that have been exempted from
                   Council Tax as they are uninhabitable and awaiting demolition.

       4.5     Should members support a change to re-instate the discount of 50% for
               properties owned by the local authority then there will be an impact of
               between £150k and £200k on the general fund until the Council Tax base is
               adjusted for purposes of revenue support grant which will happen in 2011/12.
               There is therefore a pressure on the general fund for the next two financial
               years.

       4.6     Private sector landlords may regard this as an unfair situation and result in a
               claim of dual standards being applied

5.     The Housing Revenue Account and Decent Homes

       5.1     The financial strategy for the Housing Revenue Account (HRA) is centred
               around achieving the Decent Homes Standard under the stock retention
               strategy approved by Council in March 2005, and on providing a more
               customer focused and effective repairs and management service.

       5.2     As part of the Government Office for Yorkshire and the Humber’s (“GOYH”)
               sign off of the original stock option appraisal an annual management and
               financial review is required to demonstrate that the Decent Homes Standard
               may still be achieved under the retention approach.

       5.3     The first such annual review was received by Cabinet on 25 September
               20062 which, in conjunction with the report to Cabinet of 27 November 2006 3
               recommending acceptance of the most advantageous tenders arising from
               the procurement process, indicated that, subject to expected longer term
               savings being made from the process, and the resolution of some questions
               of detail with the providers prior to contracts formally being agreed, work to
               the standard laid down in the first report should be affordable.

       5.4     A further review was undertaken & reported to Cabinet in October 20084
               which indicated at that point there was an estimated shortfall of £78½m on
               the decent homes programme if we maintained the current standards of
               work.

       5.5     The strategy for meeting Decent Homes is based upon prudential borrowing.
               Whilst the amount that can be afforded each year is a complex and fluid
2
  Decent Homes Fiscal and Performance Review Report - minute 78
3
  Tender Evaluation Report for Housing Investment Project 2006-2010 - minute 120
4
  Decent Homes Programme, Fiscal Review and Options for the Future – minute 83
                 calculation reflecting long term projections of interest rates & costs and
                 income, we can estimate the impact of a change in the exemptions described
                 in this report based on current projected interest rates. Borrowing to meet
                 Decent Homes work is typically undertaken over 20 years, this being a
                 reasonable approximation for the life of the elemental works. Based on
                 annual savings of £175k, additional borrowing of the order of £2.134m could
                 be afforded.

         5.6     Additional borrowing of this order would support:

                    200 additional properties made decent (0.7% improvement in LAA2
                     Decent Homes target)
                    30 Construction jobs for one year.

         5.7     Whilst the charge itself applies an amount of financial pressure on the HRA to
                 re-let properties this is by no means the most significant cost pressure and is
                 thus unlikely, in of itself, be the determining factor as to whether properties
                 are brought back into use. However, this change could give the appearance
                 of incentivising the maintenance of long term voids.

6.        Options

         Option One: Do Nothing

         6.1     This would maintain a consistent approach to social and private sector
                 housing and could not be seen as an incentivisation for maintaining voids. It
                 would result in the continuation of a charge to the HRA of c. £300k to £400k
                 per annum (2008/2009) but not impact adversely on the General Fund.

         Option Two: Grant a discount of upto 50% for Council Owned Properties

         6.2     The reduction of this charge will allow Housing to support additional
                 borrowing of c. £2.1m to reduce the impact of the gap identified as part of the
                 Fiscal Review5.

         6.3     This will support 30 construction jobs for one year, make an additional 200
                 homes decent and improve our LAA2 target for Decent Homes by 0.7%.

         6.4     There will be an impact of between £150k and £200k on the general fund
                 until the Council Tax base is adjusted for purposes of revenue support grant
                 calculations. This will not happen until 2011/12 so will lead to a pressure
                 for the financial years 2009/10 and 2010/11 and so require a corresponding
                 reduction in expenditure in those years.

7.        Council Priorities

         7.1     The existing empty property discounts aim to improve the local community by
                 encouraging maximum utilisation of empty properties.


                                                                               th
5
    Decent Homes Programme, Fiscal Review and Options for the Future – Cabinet 27 October 2008
     7.2   Quality Housing is an identified priority in the One Hull Community Strategy
           and the Corporate Plan highlights the need to improve the quality choice and
           standards in housing, and to raise residents’ satisfaction with their
           neighbourhood as a place to live.

8.   Comments of the Acting Head of Democratic and Legal Services

     8.1   Section 76 Local Government Act 2003 inserted a new provision at section
           13A of the Local Government Finance Act 1992 to enable a billing authority
           to reduce the amount of Council tax payable on an individual case or class of
           cases. The report also identifies provisions at section 11A Local Government
           Finance Act 1992 (introduced by section 75 of the 2003 Act) in respect of
           Council Tax discounts and exemptions for certain classes of dwellings. The
           powers are exercisable by the executive. Where a reduction causes a loss in
           council tax revenue the loss must be met by the billing authority (Collection
           Fund (Council Tax Reductions) (England) Direction 2003)).

9.   Comments of the Head of Citizen Engagement.

     9.1   The re-instatement of the original 50% Council Tax discount would give the
           HRA a real revenue saving for 2009/10 of between £150-200K which could
           be used to finance additional prudential borrowing, as detailed in para 5.5, to
           fund the Decent Homes project. There would, however, be a reciprocal
           revenue cost of between £150-200K on the Councils Revenue budget in
           2009/10 as the Revenue Grant calculation would not be adjusted for that year
           to reflect the change in discount.

     9.2   It is also important to consider that empty properties automatically obtain
           100% Council tax relief for the first 6 months they are empty, and that the
           50% discount was originally removed to encourage landlords (private and the
           public) to make their properties available for use as quickly as possible and
           avoid significant numbers of houses in the city remaining unused. The
           reinstatement of the 50% discount for Council properties, whilst reducing the
           cost burden on the HRA, also weakens the financial incentive to promptly re-
           let empty properties.

     9.3   Should the 50% discount be re-instated for Council Houses only there is
           likely to be strong adverse reaction from private sector landlords, and
           Landlords Associations who may well take the view that the Council is using
           its discretionary powers to protect its own property stock whilst exposing
           private houses to a more onerous tax level. This view is likely to be
           particularly acutely felt following the introduction of Local Housing Allowance
           this year, which meant that private sector landlords will not normally be able
           to receive their Tenants Housing Benefit directly, whereas public sector
           landlords can. It may well result in a claim of dual standards being applied. It
           is anticipated objections will be forceful, high profile and may result in
           considerable adverse publicity for the Council, particularly in the current
           economic environment where it may be claimed private landlords also need
           financial assistance in the form of reduced Council tax for their empty
           properties.
10.   Comments of the Director of Corporate Resources/Section 151 Officer

      10.1   The Director of Corporate Resources is co-author of this report.

11.   Comments of the Head of Workforce Strategy

      11.1   The Head of Workforce Strategy notes the report but has no further
             comment.

12.   Comments of the Portfolio Holder for Housing

      12.1   My understanding is that the 50% discount was withdrawn to encourage the
             Council to reduce the number of long term empty properties. There is a
             programme now in place to bring back into use or demolish the long term
             void homes owned by the Council.

      12.2   It would appear that for a one off hit of 150k/200k on the General Fund in
             years 1 & 2, we would gain 150k/200k to the HRA each year indefinitely.
             Central Government meeting the cost after then. This year on year addition to
             the HRA would allow prudential borrowing £2.1m to reduce the gap in our
             Decent Homes investment programme.

      12.3   I, therefore, support the proposal to grant relief to Council owned properties.

13.   Comments of Overview and Scrutiny

      13.1   This report was considered by the Value for Money Overview & Scrutiny
             Commission on 13 January 2009 (Sc885) and their views will be circulated
             prior to the meeting.

14.   Conclusions

      14.1   Current legislation allows the Local Authority to review discounts for Council
             tax, including inter alia those in relation to empty properties. The Council has
             an option to apply a 50% discount to its own housing stock.

      14.2   If this option is pursued, there will be a cost to the general fund for the
             2009/10 and 2010/11 financial years of between £150k and £200k. For
             future years the revenue support grant settlement should factor in changes to
             the Council Tax base so the lost income will be for those 2 years only.

      14.3   The reduction of this charge will allow Housing to support additional
             borrowing of c. £2.1m to reduce the impact of the gap identified as part of the
             Fiscal Review. This would support 30 construction jobs for one year, make
             an additional 200 homes decent and improve our LAA2 target for Decent
             Homes by 0.7%.

      14.4   The change would represent a differential approach to the social and private
             sector and appear to incentivise the continuation of long term voids even
             though this financial issue is not a prominent factor in the approach to
             bringing properties back into use.
15.    Recommendations

      15.1    That the policy of not granting Council Tax discount for long term empty
              properties is maintained.


       Martin Fox,                           John Hocking
       Head of Corporate Finance             Director of Housing



Contact Officer:     Graeme Smith
Telephone No. :      3081

Officer Interests:   None

Background Documents: -

Decent Homes Programme, Fiscal Review and Options for the Future – Cabinet 27th
October 2008

Review of locally defined discounts for the Collection of Council Tax – Cabinet 15th
December 2008
Risk Matrix


                                        Current                                                  Residual
                                        Risk                                                     Risk




                                        Impact

                                                 Likelihood




                                                                                                 Impact

                                                                                                          Likelihood
Risk                                                          Treatment/Control Action



Option 1: Do Nothing

Opportunity for additional borrowing 3           4            Alternative cost savings within the 3       4
headroom of £2.1m on the HRA is                               HRA have to be found
lost.

Option Two: Grant exemption for
Council Owned Properties

Possible negative public reaction       2        2            Prepare strategy for dealing with 1         1
                                                              the press to minimise adverse
                                                              publicity

Additional one-off cost     to      the 2        4            Alternative cost savings within the 2       4
General Fund of £175k                                         General Fund have to be found

				
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