HRA BudgetReport Ealing Council by alicejenny

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									                                                      Report for:
                                                      DECISION

                                                      Item Number:
                                                                     11


Contains Confidential       NO
or Exempt Information
Title                       Housing Revenue Account (HRA) Budget
Responsible Officers        Pat Hayes- Executive Director of Regeneration and Housing
Authors                     Matt Rumble x 8280
                            Carol Maduka/David Ewart x 7884
Portfolio(s)                Cllr Hitesh Tailor (Housing)
                            Cllr Yvonne Johnson (Finance & Performance)
For Consideration By        Cabinet
Date to be Considered       24th January 2012
Implementation Date if      6th February 2012
Not Called In
Affected Wards              All
Affected Area               All
Committees
Keywords/Index              Housing Revenue Account (HRA) 30-year business plan, budget
                            for 2012/13, rents, service charges, Medium Term Financial
                            Strategy (MTFS) for 2012 to 2014

Purpose of Report:
This report considers the Housing Revenue Account (HRA) and sets out

         The proposed tenant rent and service charge level for 2012/13 and for 2013/14
         Recommendations for improving the way leaseholder services charges are
          administered to costs are recovered.
         An update on the 2011/12 budget and forecast outturn
         The proposed HRA budget for 2012/13 and medium term financial strategy
          (MTFS) for 2012 to 2014
         The HRA Capital programme for 2012 to 2015 and the capital programme outturn
          for 2011/12.
         The 30-year business model for the HRA under self-financing and the
          assumptions underlining the 10/30 year business Model.



      1. Recommendations

               1.1   That Cabinet approves:
                    The Housing Revenue Account budget for 2012/13 as set out in Appendix
                     1, the updated three year capital programme at Appendix 2 (subject to final
                     Council approval) and agrees savings totalling £3m bringing the total
                     achieved to £5m over three years (as set out in Appendix 3).
                    The medium term financial strategy 2012/13 to 2013/14.

               1.2   That Cabinet approves:
           Increases to rents and tenant service charges by an average of 6.7% for
            2012/13.
           Indicative increases to rent and tenant services charges in line with inflation
            for 2013/14 (assumed at 2.5%, based on the provisional modelling of the
            new financial regime).
           Freezing garage charges and rents for HRA shops and commercial
            properties for 2012/13 and agrees to the principle of charging in line with
            rent review outcomes in 2013/14.

    1.3     That Cabinet authorises the Executive Director of Regeneration and
            Housing to consult leaseholders on proposed changes to charging for
            the leasehold management function carried out by the Home Ownership
            Team and delegates authority to the Executive Director of Regeneration
            and Housing to restructure the charging system subject to consideration
            of responses received through consultation with leaseholders. The
            proposal being to move from a percentage of annual bill to a flat fee
            charge for all leaseholder from 2013/14 onwards.

    1.4     That Cabinet delegates authority to the Executive Director of
            Regeneration and Housing to review and set district heating charges,
            once the level of gas prices is known to ensure that the Council recovers
            the full costs of services.

    1.5     That Cabinet note the intention to increase rent and tenant services
            charges in line with inflation for 2013/14 (assumed at 2.5%, based on the
            provisional modelling of the new financial regime).

    1.6     That Cabinet note the revised HRA 2011/12 budget and forecast
            outturn position as at November 2011.

    1.7     That cabinet note the summary HRA 10/30-year business model


2       Reason for Decisions and Options Considered

    2.1     This report is required in order to set the Housing Revenue Account
            budget and the level of Council tenants rents for 2012/13. It is proposed
            that the 2012/13 rents take effect from 2nd April.

    2.2     The Council is required by law to give tenants at least 28 days notice of
            any variation to the rent charged.

    2.3     To agree this Cabinet needs to consider the 2012/13 budget and MTFS
            for 2012 to 2014 and the impact on the longer term 10/30-year HRA
            business model that have been prepared to take account of the new
            HRA self-financing arrangements.



3     Key Implications
    3.1    This report recommends rent and service charges increases for tenants
           with effect from 2nd April 2011. The report also recommends the level of
           other charges relevant for the HRA and proposals to consult on charging
        leaseholders a set management charge towards the cost of the
        leasehold management function.

 3.2    Growth and savings figures are identified to ensure that all known factors
        are taken into account when setting rents and protecting the financial
        health of the HRA.

 3.3    The report highlights the Medium Term Financial Strategy for the HRA
        and provides an indication of the future level of HRA reserves, based on
        assumed rent increases, efficiencies and other variables.

 3.4    The report also highlights the provisional 30-year HRA business model
        prepared for new HRA self-financing arrangements.


Background – The HRA

 3.5    The Housing Revenue Account covers revenue expenditure and income
        relating to the Council’s own housing stock. It is an account that is ring
        fenced from the Council’s General Fund with statutory guidance about
        the items that can be charged and credited to it. Generally speaking the
        account must include all costs and income relating to the Council’s
        landlord role (except in respect of leased accommodation for households
        owed a homeless duty). The Council has a legal duty to budget to
        ensure the account remains solvent and to review the account
        throughout the year.

 3.6    2012/13 will mark one of the biggest changes ever in the way municipal
        housing in England is funded. From this point onward, Local Authorities
        will be entirely responsible for managing their own debt and funding
        investment in and repair to their stock. As such an entirely new approach
        to looking at housing finance is required and authorities will have to think
        thirty rather than one year ahead. From April 2012, a self-financing
        model will replace the existing HRA subsidy system.

 3.7    This gives authorities financial autonomy and resulting local
        accountability for the provision of housing services. Local authorities will
        effectively ‘buy out’ or be ‘bought out’ of the existing subsidy system with
        one-off payments to or from the Government.

 3.8    On the 22nd November 2011 CLG published its consultation on the draft
        HRA settlement figure for all authorities. The consultation runs until early
        January however the published figures for Ealing can be used to set an
        HRA budget.

 3.9    For Ealing, the settlement figure (the amount CLG will pay the Council to
        reduce the level of housing debt) is expected to be £202m. This will bring
        the total debt against our stock down to £150m against a total actual
        stock value of £200.5m. This in turn means that the Council’s borrowing
        headroom will stand at £50.5m in April 2012 (the difference between the
        stock value and existing debt).

 3.10   Ealing will now need to meet all of its stock improvement, management
        and maintenance costs from within this £200.5m borrowing limit figure
        and through revenue collected from rent or existing balances.
3.11   Within the new borrowing limits council’s are effectively encouraged to
       increase rent year on year in line with or above government guidelines,
       which assumes increases above inflation. Revenue surpluses generated
       from income exceeding cost can be used to fund future capital stock
       improvement and enable new housing to be built. The indirect penalty to
       councils for not following guideline rent increases year on year is that
       surpluses will not grow, the gap between income and expenditure will
       remain the same or decrease, thereby limiting stock investment potential.

3.12   The Housing Department has prepared an indicative 10 and 30 year
       business model (appendix 4) which takes account of inflation, interest
       charges, ongoing costs and rental income. PWC has been
       commissioned PWC to provide advice and support on modelling the
       Business Plan in preparation for Self Financing. This business plan takes
       account of rent proposals and capital stock improvement and other
       housing investment proposals discussed later in this report.

3.13   For the first year operating under the self -financing system a rent
       increase of 6.7% is proposed. This level of increase is below
       Government assumed rent levels in the rent restructuring guidelines.
       Using this formula rent would have increased by 7.7% in Ealing. Other
       London Council’s have indicated that their rent levels will be set in line
       with Government guideline rent, therefore the increase in Ealing will be
       below the trend of other boroughs.

3.14   Setting a rent of below the proposed level, though possible, would
       immediately begin to undermine the long-term viability of the HRA. As
       Government maximum rent rules will continue to apply, it will be hard to
       close a developing gap between costs and income especially as stock
       deteriorates as time passes from the completion of the Decent Homes
       programme.

3.15   A rent increase at a 6.7% average would provide a sound financial base
       from which to support the following key housing projects:

          A third phase of the Council New Build programme delivering 126
           homes;
          The full high intervention estate regeneration programme;
          Essential new investment in sheltered housing schemes – upgraded
           alarm systems, improved communal areas and common rooms,
           conversions of bedsits to one-bed properties.
          The vision for Copley close estate which includes Decent Homes and
           environmental improvements to the majority of the estate and a
           Council delivered and funded regeneration scheme on viable blocks
           on the estate.
          Interim maintenance works on high intervention estates prior to their
           regeneration/ redevelopment.
          Disabled adaptations to council properties.
          On-going stock improvement programme to maintain decency across
           the stock
          A comprehensive Lift replacement programme.
          Estate remodelling and environmental works on other priority estates
           not on the HIE list.
 3.16       The proposed budget takes account of £2m savings from the
            reintegration of housing services delivered in 2011/12 and the further
            £3m identified for delivery between 2012/13 and 2013/14 as described in
            Appendix 3. The budget is also based on housing management and
            maintenance costs having been capped at 0% in 2012/13 and the
            intention to keep these at 3% below inflation in 2013/14.

 3.17       In the second year, 2013/14, it is then the intention that rent and council
            tenant service charges are capped at increases no greater than inflation.

 Current Year (2011/12) Budget Review

 3.18       The 2011/12 budget and forecast outturn based on November 2011
            figures is set out at Appendix 1.

 3.19       The 2011/12 forecast outturn is a surplus of £691k reflecting a positive
            variance of £745k from the original budgeted deficit of £54k. This is in
            addition to the savings delivered from the integration of housing services
            in April 2011.

 3.20       Key areas of variance are as follows:

            Rental & Service Charge Income – forecast reflects a slightly lower than
             budgeted loss of income from voids of an average 2.8% on dwellings.
            Housing Management & Maintenance – A higher than estimated net
             savings expected from the new repairs & maintenance contracts
             balanced against budget pressures on leaseholder legal costs.
            Subsidy & Capital Charges – increase in subsidy resulting from higher
             than budgeted Consumer Retail Index (CRI) is fully offset by a similar
             increase in the actual borrowing costs. In addition, there is a reduction
             in unsupported borrowing costs as a result of slippages in planned
             capital expenditure.

 3.21       HRA balances stood at £6.986m on 1st April 2011. The end of year HRA
            balance is predicted to be £7,678m. In addition there are £889k of
            balances maintained by Ealing Homes Ltd that are due to be received by
            the HRA when Ealing Homes is formally closed, This level of balances is
            sufficient to safeguard the HRA.

 3.22       The level of capital balances total £37.9m. This includes previously
            unspent major repairs allowance of £27.7m; capital costs recovered from
            leaseholders contributions from capital schemes and capital receipts for
            sale of HRA property or land ringfenced to the HRA. In the coming years
            these balances will be used to fund investment in the housing stock,
            regeneration and new build housing.


2012/13 Budgets and the Medium Term Financial Strategy (2012-14)

 3.23       Set out below are the key proposal contained with in the HRA budget and
            are shown in Appendix 1 of this report:

            Rents
3.24   The HRA self-financing determination contained guideline rent increases
       that the government has assumed authorities will charge to its tenants.
       These assumed rent increases are set according to government policy
       on rent restructuring. The objective of rent restructuring is that similar
       affordable rented homes in the same area should have similar rents
       regardless of who the social landlord is. The aim is to deliver more
       consistent rents and greater transparency for tenants. Under this policy,
       properties with lower/higher rents than a government set formula are
       assumed to progressively increase/decrease each year to achieve
       government’s target. The timeline for rent convergence is by the end of
       2015/16 and to achieve this in Ealing the 2012/13 rent would increase
       average rent by 7.7%.

3.25   The implementation of HRA self-financing in April 2012 now means the
       link between HRA subsidy received and rent charged has been broken.
       The Council has the right to set rents using any method that is deemed
       reasonable (within a HRA balanced budget) and within the limits set out
       in the housing benefit subsidy regulations.

3.26   In 2011/12, the average rent charged to tenants over the year was
       £85.97 per week, and this is forecast to lead to total rental income
       receipt of £57.0m (allowing for 3% voids).

3.27   The proposed average rent increase for Ealing in 2012/13 is 6.7%,
       tracking 1% below the government recommended increase. This
       proposal will increase average rent by £5.76 a week, leading to an
       average rent of £91.73 a week.

3.28   In the following year, 2013/14 It is intention that rent is capped at inflation
       (which, for modelling purposes is forecast at 2.5%).

Income from service charges

3.29   The costs of delivering estate based communal services are recovered
       directly from tenants and leaseholders through service charges.

3.30   It is proposed that tenant service charges are increased in 2012/13 in line
       with proposals for rents. This would mean an average service charge of
       £6.49 per week per tenant in 2012/13, with the recommended 6.7%
       increase.

3.31   In 2013/14 it is the intention that service charges are increased in line
       with the intended rent increase, the inflation level in 2013/14.

3.32   Leaseholders are required by law to pay their share of the actual costs of
       services provided to their estates/blocks. These costs are recovered
       through service charges calculated and billed by the leaseholder
       services section. Leaseholders receive estimated bills in March and the
       final bills not more than18 months later, by the following September.


Leaseholder Administration fee proposal
3.33   It is proposed to begin consultation with leaseholders in 2012 on a
       change in the way the Council recharges the cost of providing a
       leasehold management function.

3.34   The cost of the leaseholder management function to Leaseholders is
       paid through an administration fee, which is currently 26% of the total
       annual service charge bill. The amount of income recovered from the fee
       does not match the actual expenditure of the leasehold management
       function, as the fee, being based on a percentage of the cost of the
       services provided, will fluctuate if the overall costs of those services
       fluctuate. Any gap between the cost of this function and the income
       generated by the fee has historically been met by the HRA. In recent
       years there has been a gap and this has meant that the HRA has
       subsidised leaseholders.

3.35   This is seen as an unfair charging method by leaseholders, mainly
       because a higher service charge bill results in a higher administration
       fee, even though the cost of the management service is general the
       same for all.

3.36   The financial model for the proposed new method is to charge the same
       flat fee to all leaseholders, beginning in April 2013. This will be based on
       the total cost of the annual leasehold management function divided by
       the number of leaseholders for the same period. Using final budget costs
       for 2010/11 a current flat fee to leaseholders would be approximately
       £200.

3.37   The 2011/12 average fee, using the percentage method, is approximately
       £106 per leaseholder. The introduction of a flat fee method will see some
       leaseholders facing an increase on what they currently pay whereas
       others will pay a significant decrease.

3.38   This new method of charging would mean that council would no longer
       risk under recovery of leaseholder management costs and will also
       ensure there is a transparent and equitable process for the charging of
       fees.


Central Heating charges

3.39   The cost of providing central heating services is charged and recovered
       from the minority of tenants who live in blocks with district heating
       systems. The Council aims to fully recover these costs each year, as
       heating charges should not be subsidised by other HRA income.

3.40   The central heating reserve is now fully depleted. This requires the
       Council to increase the level of charges needed in 2012/13 to fully
       recover costs. It is proposed that authority is delegated to the Executive
       Director of Regeneration and Housing to review the level of charges
       during the year decide on any increase in charges. Current projections
       point to 5% year on year increases in energy costs but this may change
       at short notice.

Other Income
 3.41       It is recommended that garage rents be frozen at the current level, which
            is an average of £8.11 per week. Budgeted income is £500k in 2012/13.

 3.42       It is recommended that rent from HRA commercial properties that are
            subject to rent review in 2012/13 be frozen during 2012/13. This reflects
            low demand and the need to stimulate local business growth at this time.
            Budgeted income is £620k in 2012/13

 Savings 2012/13 to 2014/15

 3.43       The integration of the Housing Services will deliver £5m savings over
            four years. This is being achieved by making operational efficiencies,
            eliminating service duplications and streamlining the senior management
            structures. In the first year of the new integrated housing service
            (2011/12) a total of £2m savings have been delivered mainly from the
            deletion of vacant and senior posts and deletion of some support
            budgets. The delivery of these savings is complete.

 3.44       A further £2m savings have been found and will be delivered in 2012/13
            with the remaining £1m in 2013/14 (with a further £100K to be found in
            2014/15 following the corporate finance review). These savings will be
            delivered from operational savings arising from the integration of housing
            services. This includes reorganisation, deletion of duplicate of functions
            and accommodation costs. Savings will also be realised from the new
            contracts for repairs and servicing.

 3.45       All savings proposals are described in a summary of savings for the
            years 2011/12, 2012/13, 2013/14 and 2014/15. This is at Appendix 3.

 HRA Capital and Revenue Reserves

 3.46       The Council’s full level of HRA reserves (both capital and revenue) is
            expected to be £46.5m on 1st April 2012. This includes capital reserves
            of £38m and revenue reserves of £7.6m plus £0.9m of former Ealing
            Homes’ reserves.

 3.47       It is prudent to retain reserves of at least 5% of total budgeted income,
            which means that reserve levels should be maintained at around £3.5m.
            Proposed budgets for 2012-14 include use of existing reserves to fund
            the capital programme, which is described in more detail later in the
            report.

Reserves summary – estimated as at 31 March 2012

 3.48       Revenue reserves £8.6m

 3.49       Capital reserves

               Major Repairs Reserve (MRR)           £27.7m
               Leaseholder contributions             £7.9m
               Capital receipts                      £2.3m

 Management and maintenance budgets
3.50   The proposal in the medium term financial strategy is that Management
       and maintenance be caped at 3% below inflation in 2013/14 delivering a
       further saving based on current inflation assumptions. These savings are
       additional to those described in Appendix 3. The overall management
       and maintenance costs are part of the budget in Appendix 1

Provisions for Bad Debt and Ealing Homes Pension Deficit

3.51   Provision is included for bad debts and in light of the proposed changes
       to Housing Benefits it is proposed to increase this provision in 2013/14.

3.52   Ealing Homes had a deficit on its element of the Council’s pension fund
       and was paying higher contribution rates. Advice is being sought on how
       this should now be reflected, but a provision of £500k pa has been
       included in the budget in case a charge is required to be made to the
       HRA. If not required, this will become available for further investment.

Capital programme 2012-15

3.53   The new HRA financial regime and our associated rent income base will
       allow the Council to develop the HRA capital programme beyond the
       current level of planned maintenance and newly arising Decent Homes
       works. On Copley Close this improved resource base will enable a
       ‘Decent Homes Plus’ programme on all of the retained properties, which
       will also include some estate remodelling works. Part of the Council’s
       overall vision for the Copley Close is to invest in the redevelopment of
       parts of the estate where this is not prevented by the proximity of the
       railway tunnel, and introduce a mixed tenure element to the stock. The
       housing regeneration team are working up options to identify blocks and
       tenure-mix for a Council funded and delivered regeneration programme.
       The principal costs of one regeneration schemes has been included in
       three year capital programme and the long term budget model.

3.54   Following this work at Copley Close there will be an opportunity for
       additional modernisation and remodelling on other estates not in the
       Council's regeneration programme but nevertheless having a poor
       physical environments and significant socio-economic needs. These
       estates will be drawn from the 14 Medium Level Intervention estates that
       were identified in the Council's Estates Review in 2008. These include
       estates right across the borough such as Medlar Farm, High Lane and
       Trinity Way.

3.55   The proposed three-year capital programme as well as the 2011/12
       capital programme outturn is summarised below and the budget included
       in Appendix 2 of this report. Under the new HRA arrangements funding
       for the capital programme is to be managed across the whole
       programme instead of by individual scheme. This will provide the
       flexibility required to adequately fund and manage what are complex
       capital schemes.

Stock improvement capital programme

3.56   The revised capital programme will includes the £1.1m each year for
       additional disabled adaptations to Council Housing Stock.
3.57   Following the Sheltered Housing Review the capital programme will also
       deliver upgrades to the common rooms and common areas, an improved
       warden call system and will make provision for a conversion programme
       of bed-sits to one bed properties.

3.58   Other capital improvement items:

          Lift replacement, electrical rewires and fire safety programmes
          Provision for future interim works on High Intervention Estates (HIEs)
           – such as South Acton and Havelock.
          Budget to plan estate modernisation and remodelling work on
           medium level intervention estates.


Council New Build programme

3.59   The third phase of the Councils New Build programme has been included
       in the base HRA budget model. The total programme is split over three
       years with the total cost of £18.8m, offset by £3.7m Homes and
       Communities Agency (HCA) grant. A total of £15.1 has therefore been
       built in to the HRA capital programme for 2012/13 to 2014/15.

3.60   The third phase of the programme is still in development, however the
       programme should generate 126 new homes across the borough.

Regeneration enabling programme

3.61   The full enabling costs of the Council Regeneration programme have
       been included in the HRA capital programme for the next three years
       and the 10/30-year budget model. Over the course of the programme the
       Council’s estate regeneration model is cost neutral. The enabling costs
       are for buying back properties from leaseholders, which on the transfer
       of land to the developer partner for each scheme, are recovered entirely.
       This does however have an impact on capital cash flow/reserves, as the
       capital outlay for ‘buy backs’ is often not recovered for 18 months to two
       years. Large regeneration schemes can therefore deplete capital
       reserves for a number of years, impacting on our ability to fund other
       capital investment schemes.

3.62   There is also an allowance within the enabling programme to accelerate
       the regeneration of Rectory Park estate.

3.63   Over the next three years the planned regeneration-enabling programme
       will have a net cost of £22.6m with these costs generally being recovered
       in years 2017/18 onward.

One-off capital budgets

3.64   The capital programme as described in Appendix 2 also includes some
       items, which have been included in the capital budget for 2012/13 only
       with no further provision as yet made for future years.
              Street Properties - £700k in 2012/13 for the conversion of street
               properties to large family homes
              Homebuyers Grant – £300k in 2012/13 to help tenants purchase
               properties in the private sector and free up larger family homes.

    3.65   The Capital programme described above can be funded through capital
           reserves and revenue HRA budget without reserves dropping below the
           recommended level or additional borrowing being required.


    Copley Close Regeneration

    3.66   As described above, the capital programme includes the costs of the
           regeneration of part of the Copley close estate as well as delivering the
           planned ‘Decent Homes plus’ programme.

    3.67   The current proposal is for a Council led and funded redevelopment of
           three blocks with the loss of 54 tenanted and 12 leasehold properties
           resulting in the development of 213 new units and significant
           environmental improvements/estate remodelling across the wider estate.

    3.68   The proposed regeneration scheme would be delivered over three years
           at an estimated cost of £44m. The scheme would return £35m over four
           years from the sale of the new additional homes. This option would
           require capital borrowing of £8m in 2013/14, which would be repaid in
           2015/16. The short-term additional borrowing costs are included in the
           HRA budget.

    3.69   Further work is still required to determine the mix of new homes, which
           could be put to market for sale, discounted sale or retained for market,
           affordable or social rent. This will in turn affect the Council’s future
           borrowing headroom, stock numbers and rental income.


4    Financial Implications

    4.1    The whole of this report is concerned with the financial position of the
           Council's HRA. Under the provisions of the Local Government and
           Housing Act 1989 the Council is required to prepare a budget that will
           ensure that the HRA is not in deficit.

    4.2    The Government's switch from a system of housing subsidy
           determination has a major effect on the Council's HRA The impact of the
           Determination and its effect on the rent restructuring arrangements are
           discussed above.

    4.3    The Executive Director Corporate Resources advises that he has
           reviewed the proposed budget and wishes to draw the following risks to
           members attention:

              Rent Collection – with the proposed changes in the Housing Benefit
               (HB) system, particularly the move to the payment of rent rebates
               directly to the majority of tenants under the Universal Credit, the
               achievement of current rent collection levels must be brought into
              question. Although the budget plans contain provision for increased
              bad debts and plans to mitigate the fall in collection rates are in place,
              these changes clearly present a very real risk to the viability of the
              HRA business plan.

             The funding without recourse to borrowing of regeneration and other
              capital works following 2013/14 depends on high levels of capital
              receipts as a result of regeneration and other schemes. Although
              there is nothing to suggest at this stage these receipts will not be
              achieved, the reliance on this form of funding does mean that the
              HRA may require additional loan finance if these receipts are delayed
              or become unachievable.

             2012/13 is the first year of the new HRA self-financing system, and
              although considerable modelling and preparatory work has been
              undertaken, a risk will remain until the new system is fully operational
              and has been working for a reasonable period.

    4.4   In view of the above risks and the level of HRA revenue balances, I
          would be unable to recommend a budget that was based on a level of
          rent increase that was not at least at, or near, that recommended in this
          report.

    4.5   However, Members should be aware that the HRA budget setting
          process is designed to produce a robust estimate of income and
          expenditure for 2012/13 and future years. The budget has been subject
          to considerable examination by the Council's officers. The saving
          proposals have been considered in detail by the departmental
          management in preparing their budget proposals.

    4.6   The HRA budget proposals are presented by its Portfolio holder and
          Executive Director at the Budget Review meetings for the HRA, which
          are chaired by the Leader of the Council and attended by senior officers
          and members including the Portfolio Holder for Finance and
          Performance, the Chief Executive, and myself. The Budget Review
          discussions are held at a detailed level and contain a significant and
          robust element of challenge. The revenue impact of decisions
          concerning capital spending is considered and incorporated in the
          budget proposals.

    4.7    On the basis of the above and subject to careful monitoring of the move
          to and working of the self-financing system and HRA budget generally, I
          am satisfied that the 2012/13 budget is realistic and the level of balances
          is sufficient for the year.

5    Legal Implications

    5.1   The Local Government and Housing Act 1989 introduced the ring fenced
          HRA with effect from 1st April 1990 placing a duty on local authorities to
          formulate proposals which will ensure that the HRA for the year does not
          show a deficit balance provided the following assumptions prove to be
          correct:
               The best assumptions made at the time as to all matters, which
                may affect the amounts falling to be credited and debited to the
                HRA for the year.

               The best estimates that they are able to make at the time of the
                amounts, which, on the above assumptions, will fall to be credited
                or debited to the HRA.

               The HRA is the account for the Council's housing stock and there is
                no power to subsidise the HRA from the General Fund or to
                transfer, surpluses out of the HRA account. In this way the account
                is 'ring fenced'.

               Local authorities have a responsibility to review the account from
                time to time, and if a shortfall is projected, to take reasonable
                practical steps to balance the account.

    5.2   The Housing Act 1985 and the Local Government and Housing Act 1989
          constrain the budget making process in respect of the Housing Revenue
          Account in a number of ways:

              The Council cannot set the HRA budget in such a way which will
               result in a deficit at the end of the financial year (although if, through
               circumstances which could not have been foreseen, a deficit were to
               arise, it can be made good in the following financial year); and

              Rents must be set at a “reasonable level”, and that level must be
               reviewed from time to time.

              The Council must formulate their housing revenue account budget no
               later than the end of February.

    5.3   Sections 167 to 175 of the Localism Act 2011 provided for the ending of
          the Housing Subsidy system and its replacement with a system of self-
          financing. The Act provides the Secretary of State for Communities and
          Local Government with the powers to require authorities to assist in the
          move to self-financing.

6    Value For Money

    6.1   The strategy reflects planned efficiency saving in housing management
          costs. Savings identified in the 2012/13 to 2014/15 years are set out in
          Appendix 3. A 3-year analysis of management and maintenance unit
          costs reflecting anticipated reductions is set out below:


                                      2011/12     2012/13    2013/14

              Average stock for
              year                     13,078     13,051      12,760
              Management costs
              per unit                 1,494       1,125      1,093
              Maintenance costs
              per unit                 1,232       1,242      1,243
7    Sustainability Impact Appraisal

    7.1   The HRA funds repairs and maintenance work to improve the
          sustainability of our housing stock, including improvements in thermal
          efficiency to reduce carbon emissions.

8    Risk Management

    8.1   The major risks to the HRA and its budget can be divided into two
          groups; first those affecting most authorities with retained housing stock;
          and second specific risks for Ealing.

          General Risks
             HRA self financing means the Council is no longer be subject to an
              annual subsidy determination – but now bears a greater risk form
              inflation and interest rate rises under the system of self financing.
              The sensitivities around self-financing have been modelled in the
              30-year business plan outlined above.

              The loss of tenanted stock from 25,000 properties in 1980 to just
               over 13,000, in 2011/12 through right to buy sales, the ending of 20-
               year leases and stock loss from estate regeneration results in
               reduced rental income. This puts financial pressure on the service
               where costs cannot be reduced accordingly. Future stock loss
               would require increased efficiencies in order to safeguard the HRA.
               With likely changes in the RTB discount and the way self-financing
               works additional loss of stock could result in significantly increased
               risk.

              With almost 5,000 leaseholders the management of this function
               and collection of leaseholder service charges is a major activity.
               Increasingly leaseholders are concerned about the level of charges
               being levied and the increasing challenge on these charges put
               level of estimated income at risk.

              The proposed changes in the way Housing Benefits are paid may
               impact the council’s ability to collect rent. Arrangements under
               universal credit proposals will see housing benefit paid directly to
               the individual rather than to the council. In times of hardship this
               may see the council competing with other service providers for
               tenants income, which will place a financial risk to the HRA.

          Specific Risks
             The estate regeneration projects expose the HRA to costs where it
              must forward fund consultation and project development costs
              before a developer partner is selected. In previous years £6m has
              been charged to the HRA, which is yet to be fully recovered from
              the projects. However a major change in regeneration strategy in
              the last 24 months has introduced measures to help mitigate further
              risk and enable a greater number of schemes to proceed in line with
              tenants’ aspirations. However, a large amount of forward funding is
              still required, and this may bring an element of risk to the HRA.
9     Community Safety

     9.1    The HRA contributes to the Council’s objective of reduction of anti-social
            behaviour (ASB) through a range of initiatives from enforcing tenancy
            conditions, and funding a number of officers to work on ASB cases to
            providing facilities and activities for young people.

10    Links to the 5 Priorities for the Borough

     10.1     The Housing Revenue Account budget has been configured to ensure
            delivery of the Council’s strategic objectives in respect of the housing stock.
            The management of the housing stock makes a substantial contribution to
            the Council’s corporate vision and all 5 priorities, and thus addresses
            national policies and priorities.

            Securing Public Services
               The HRA contributes to the management and maintenance of
                Ealing’s housing estates and wider council housing stock.

            Securing jobs and homes
               As noted above, the HRA contributes to the management and
                maintenance of Ealing’s council owned housing estates and wider
                council housing stock. The service also provides secure sheltered
                accommodation for older people as well as supported housing
                services. In addition, the housing service undertakes several
                worklessness schemes through its partnership work on
                regenerating housing estates. Through this, Ealing ensures that a
                comprehensive jobs and skills training programme for local
                residents is provided by the developer partners.

            Making Ealing Safer
               The HRA contributes to the reduction of anti-social behaviour (ASB)
                through a range of initiatives from enforcing tenancy conditions to
                providing facilities and activities for young people and children with
                families through partnership working, to meet the Council’s priority
                of achieving safer communities. In addition the comprehensive
                regeneration process underway on several of the councils estates
                will enable high quality design to be incorporated ensuring improved
                levels of safety and security for residents complying with the
                “secured by design” guide.

            Delivering Value for Money
                Section 6 of this report, describes in detail how VFM is being
                 implemented both in the new integrated housing services and the
                 efficiency savings outlined in Appendix 1 support the Council’s
                 strategic objective of improved value for money.

            Making Ealing Cleaner
               The HRA also supports services to Council estates in respect of
                estate cleaning, refuse collection, graffiti removal as well as the
                removal of abandoned vehicle and grounds maintenance. All of
                these activities contribute significantly towards the Council’s priority
                to achieve cleaner streets.
11     Equalities and Community Cohesion


     11.1   An equalities impact screening assessment has been carried out on the
            budget proposals that does not identify a need for a full equalities impact
            assessment for this decision.

     11.2   A full equalities impact assessment has been carried out on the proposed
            rent and service charge increase, identifying some differential impact on
            equalities groups. This is described in appendix 5.


12    Staffing/Workforce and Accommodation implications:

     12.1   The proposals provide for a reduction in the current level of Council staff
            and accommodation except where stated. The proposed reductions include
            provisions for savings from a reduction in staffing costs from the new
            integrated housing services; the reorganisation required will be the subject
            of a series of reports to Cabinet and formal consultation.

13    Property and Assets

     13.1   The Council has already given notice to terminate its leasehold interest on
            Westgate House, with staff having vacated the premises during 2011/12.

14     Any other implications:
      14.1 None

15    Consultation

     15.1   The budget proposals will be presented to the Resident Council on 16
            January.
     15.2   A consultation plan for proposed leaseholder management fee changes will
            be developed in time for consultation to commence in February 2012.

16    Timetable for Implementation

        DATE                 ACTIVITY
        5/01/12              Training for tenant representatives
        16/01/12             Residents’ Council Business Planning
                             Meeting
        24/01/12             Cabinet meeting
        Week beginning       Letter to all tenants giving notice of rent
        13/02/12             increase
        28/03/12             Self financing debt settlement
        01/04/12             Start of self-financing
        02/04/12             Rents increase effective




17    Appendices
               Appendix 1 - HRA 2yr budget summary 2012 to 2014.
               Appendix 2 - HRA 4yr Capital Programme summary 2011 to 2015.
               Appendix 3 - Savings schedule.
               Appendix 4 - HRA 10/30-Year Business Model
               Appendix 5: EIA

18     Background Information
           HRA Item 8 and Self-Financing Determination 2012/13.
           HRA budget report 2011/12 to cabinet 25h January 2011.

Consultation

      Name of           Post held and        Date            Date       Comments
     consultee           Department         Sent to       response       appear in
                                           consultee       received     paragraph:
Internal
Ian O’Donnell        Executive Director   10 Jan 2012 13 Jan 2012 Section 4
Pat Hayes            Executive Director   10 Jan 2012 13 Jan 2012 Throughout
Peta Caine          Asst Director        10 Jan 2012   13 Jan 2012 Throughout
                    Housing
David Ewart/        Director of Finance, 10 Jan 2012   Various        Throughout
Carol Maduka        Regeneration &
                    Housing
Catherine Taylor/   Head of Legal        10 Jan 2012   10 Jan 2012/ Throughout
Keith Robertson     (Litigation)                       13 Jan 2012
Cllr Yvonne Johnson Cabinet Member for 13 Jan 2012
                    Finance Performance
Cllr Hitesh Tailor  Cabinet Member for 11 Jan 2012     13 Jan 2012 Throughout
                    Housing
External

Report History

Decision type:                            Urgency item?
: Key decision                            No
Authorised by Cabinet Date report drafted: Report deadline:       Date report sent:
member: 13.01.2012                           16.01.2012             16.01.2012
     Report no.:     Report author and contact for queries:
                     Matt Rumble ext
                     David Ewart ext 7884

								
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