Value for Money Overview & Scrutiny 13th January 2009 Wards All
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
2.1 That the existing policy of not granting Council Tax discount for long term
empty properties is maintained.
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
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
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
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
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
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
Decent Homes Fiscal and Performance Review Report - minute 78
Tender Evaluation Report for Housing Investment Project 2006-2010 - minute 120
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
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.
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
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.
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
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
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.
14.1 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.
15.1 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
Review of locally defined discounts for the Collection of Council Tax – Cabinet 15th
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
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
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