The Future of the Housing Revenue Account Training for Tenants

Document Sample
The Future of the Housing Revenue Account Training for Tenants Powered By Docstoc
					The Future of the Housing Revenue
                          Account :
          Training for Tenants with
                             TPAS

                      6th May 2011


                     Simon Smith
                      ConsultCIH
                 What are the aims of Today


• Understand the key components of
  the HRA
• What is housing subsidy and why is
  it being reformed?
• How it will affect your Council
• How it will affect you and how you
  can work with your Council for the
  future
                                                Course Content

• What is the Housing Revenue Account
   – Format, and relation to the General Fund
   – The various forms of income
   – The various forms of expenditure
• What is Subsidy, Debt and Depreciation
• What is Capital Income & Expenditure
• What is and why is there reform of the HRA through Self-
  financing
   – Why is it better?
• The future of the Housing Revenue Account
   – A Housing Business plan – why have one
   – By understanding it how you can get involved
                              Introductions


• Who is here today?
• What do you want to get from
  today?
• Is there anything missing from the
  Course Content?
                                          What is the HRA


• Councils have to account for their spending and
  income re Government regulations
• Day to Day income and expenditure is within an
  account called the General Fund
• Where there is Housing stock an additional account is
  required called the Housing Revenue Account or HRA.
• It specifically accounts for spending an income relating
  to the management and maintenance of the stock.
• It has to be „ring-fenced‟ via the Local Government and
  Housing Act 1989
                        What does the HRA Look Like?

 Income               £‟000      Expenditure        £‟000
Rent                   18,992    General Management    2,750
Voids                   190)     Special Management    1,500
Service Charges          275     Other Management        500
Non-Dwelling Rents       175     Bad Debts                95
Grants                    85     Rent Rebates              -
Other Income              15     Revenue Repairs       3,850
                                 Capital Charges       1,032
Interest on Balances       10    Depreciation          3,400

Subsidy                (6,035)   AMRA                  (100)
                                 RCCO                   250
Total Income           13,327    Total Expenditure    13,277
Surplus                    50
                       What is the difference between Capital &
                                                     Revenue?

 • The HRA is the day to day income and expenditure
 • Spending to maintain, improve or add to the property
   and other housing assets is Capital
Expenditure:             £‟000       Financed By:              £‟000
Decent Homes Works         3,400     Major Repairs Allowance     3,300
Disabled Adaptations        150      Right to Buy Receipts         -
                                     Capital Grants                -
                                     RCCO (Revenue Contb)         250
                                     Borrowing                     -

Total Expenditure         3,550      Total Income               3,550
                                     HRA Income: Rents (1)

 Main source of income to HRA
 A central rent policy „Rent Restructuring‟ introduced in April
  2002
 In principle rents for the same property in the same area will
  be the same if Council or Housing Provider
 Each property has a „formula‟ or „target‟ rent based on a
  formula
 This formula rent increases by Inflation (RPI) plus 0.5%
 Actual rents are to converge by April 2015 (latest guidance
  though has varied from 2011 to 2023)
 Actual rent not to increase by more than RPI plus 0.5% plus
  £2
 “To cover „Bricks and Mortar‟ only”
                              HRA Income: Rents (2)

 So how is the formula rent calculated?
  Based on Capital Value 30%
  Regional Average Earnings and Bedsize 70%

 Example:
  3 Bed House (Bedroom weighting 1.1)
  January 1999 Valuation is £40,950
  Local (County) Earnings Index £304.30 (per week)

  Average Rent £54.62 across sector
  Average Value £49,750
  Average Earnings £316.40
                                HRA Income: Rents (3)


• The Calculation!
   – Stage 1:
   – (£54.62 x 70%) x (£304.30 ÷ £316.40) x 1.1
   – Stage 2:
   – (£54.62 x 30%) x (£40,950 ÷ £49,750)
   – Stage 1 + Stage 2 = Formula (Target Rent)

• Formula Rent = £53.94 (April 2000)

• When inflated by RPI + 0.5% = £77.50 (April 2011)
                                       HRA Income: Rents (4)

• How is the budget of £18.992m set?

   – 5,000 properties
   – 5 Right to Buys
   – 4,997.5 properties x £73.00 x 52 weeks =£18.971m

   – Shared ownership:
      • 10 properties x £40.00 x 52 weeks = £0.021m

• Voids budget £0.190m (negative)
   – Budget of 1% of rent budget
   – Equivalent to 2,599 weeks lost or 520 properties for 5 weeks
                                         HRA Income: Rents (5)

• So if the formula rent is £77.50 for April 2011 and actual rent is
  £73.00 – what is the increase for April 2012?
• Depends on RPI (September 2011), let‟s say it‟s 3.5%:

• Formula Rent = £80.60 (£77.50 x (3.5%+0.5%))

• Actual Rent
   – Stage 1 : £73.00 +(£73.00 x (3.5%+0.5%)) = £75.92
   – Stage 2 : (£80.60 - £75.92) ÷ 4 years (to April 2015)=£1.17
   – Rent is Stage 1 + Stage 2 = £77.09 a 5.6% increase

• IF stage 2 is more than £2 it can‟t go over £2
                      HRA Income: Service Charges (1)

• Charges for services and facilities NOT covered by rent
   – Examples: Community alarm systems, cleaning and electricity in
     communal areas, caretaking and grounds maintenance works
• Should be split between Tenants and Leaseholders
   – One difference is that repairs in communal areas e.g. Lift
     maintenance is recharged to leaseholders
   – Also leaseholders will have a legal agreement as to what can be
     charged
   – Charges must be based on actual costs and of a reasonable
     standard
   – Capital Maintenance is also recharged on this basis
• Leaseholder Budget £75,000
                       HRA Income: Service Charges (2)

• For tenants £200,000
   – Services used to be included in a „pooled‟ rent
   – Services are not included within Formula Rent
   – Can be on a fixed or variable cost
   – Councils have a local choice to implement

    – For existing services charges to tenants cannot see increases
      of more than RPI plus 0.5% - but can also use any spare
      capacity of stage 2 of the rent setting.
    – Example:
       • Rent £73.00 and Service Charge £5.00
       • Maximum increase £78.00 x (3.5%+0.5%) + £2 = £83.12
       • Actual Rent element £77.09 therefore service charge =
          £6.03
                           HRA Income: Other Income


• Non Dwelling Income:
   – Garages        £150,000
   – Shops          £25,000
• Supporting People Grant:
   – Budget £100,000 – under pressure nationally
• Other Income:
   – E.g. Miscellaneous Income £15,000
• Interest on Balances: £10,000
   – An allocation of interest based on the HRA reserves
     – usually on an average basis
                     HRA Expenditure: Management


• General Management : £2.750m
   – Estate Management, Rent Management
   – Salaries, Office Cost, IT
• Special/Service Management : £1.500m
   – Sheltered Housing, Service Costs
   – Funded by Service Charges/Supporting People (in-
     part)
• Other Management : £0.500m
   – Overheads allocated from General Fund
   – Democratic Services
   – Rates on void properties
                                  HRA Expenditure


• Bad Debts : £95,000
  – When former tenant rent arrears are
    uncollectable it has to be written off.
  – This is an annual provision to a reserve.
• RCCO : £250,000
  – This is called Revenue Contribution to
    Capital Outlay
  – This is a transfer from the HRA to fund
    capital works e.g. Decent homes works
                 HRA Expenditure : Maintenance


• Repairs Budget : £3.850m
  – Responsive Repairs (day to day)
  – Voids (empty properties)
  – Cyclical Maintenance (e.g. Painting and Gas
    Servicing)
  – Administration Costs


• Decent Homes works are Capital and not
  included in the above
              HRA Expenditure: Capital Charges (1)


• Councils have borrowed money in the past to build and
  maintain the stock.
• Interest has to be paid on this historic debt
• No requirement to repay this debt

• There are no specific loans attached to the HRA, a
  percentage is allocated based on historic information.
• This is called the HRA Capital Financing Requirement
  (CFR) which goes up with borrowing or down with
  voluntary repayments
            HRA Expenditure: Capital Charges (2)


• Budget £1.032m
  – HRA CFR of £20m
  – Interest Rate of 5% (CRI)
    • CRI is the Consolidated Rate of Interest (i.e.
      Average)
  – Therefore Annual Interest Charge = £1m
  – Debt Management Costs of £0.032m


• Can also include premium charges for
  early debt repayment
Break
                                       HRA Subsidy (1)


• Housing Subsidy is calculated on a Government
  formula based on estimated (or notional):
   – Rent Income (Guideline or Notional Rent)
   – Management Allowance
   – Maintenance Allowance
   – Major Repairs Allowance (MRA)
   – Capital Financing Costs
• Therefore if notional management, maintenance, MRA
  and financing costs are more than rental income then
  you receive subsidy
• Annual Determination – based on information of 3
  returns
                                            HRA Subsidy (2)

• Budget £6.035m
• Rental Income                                 £18.127m
   – Notional rent with 2% void allowance
• Management Allowance                          -£2.505m
• Maintenance Allowance                         -£4.755m
• Major Repairs Allowance                       -£3.300m
• Capital Financing                             -£1.533m
   – Interest HRA Subsidy CFR £30m @ 5%
   – Debt Management Expenses

• Subsidy Payable                               £6.035m
                                        HRA Subsidy (3)


• Set to Increase – why?
• Notional Rents will converge with formula rents by
  2015.16
   – £71.00 guideline rent vs £73.00 actual rent
• Notional Rents will continue to increase by RPI + 0.5%
   – So future rent increases taken into account in
      subsidy
• Management, Maintenance and MRA to increase by
  GDP growth projections (lower than RPI)
• If Interest rates go up or down it is reflected in the
  calculation
                               HRA Subsidy (4)


• Things not included in the subsidy
  calculation:
  – Service Charges
  – Non-Dwelling Income
  – Other Income
  – Grants
                                       HRA : Rent Rebates


• As the government effectively funds a large proportion
  of rents through Housing Benefit there is a control
  mechanism – Rent Rebate Subsidy Limitation (RRSL)
• In 1996 it was introduced with a limit rent.
• If the Council‟s average rent is higher than the limit rent
  then a proportion of the amount above the limit rent is
  returned to the government.
• The limit rent will converge with formula rent in April
  2015

• RRSL does not apply in the Housing Provider sector
                                          HRA Depreciation (1)

• Depreciation is an accounting entry that represents the reduction
  in the value of assets of a company over time.
• The accounting standards board agreed that the Major Repairs
  Allowance could be used as the standard valuation methodology.
• The Audit Commission require a different methodology which
  often results in a higher charge (based on property values).
• The net charge to the HRA remains the MRA which is credited to
  the Major Repairs Reserve (MRR) with any difference reversed
  out through an adjusting transfer called AMRA.
• Budget £3.4m less AMRA of £0.1m = £3.3m Net (=MRA)
                                                                                            HRA Depreciation (2)

MRA
The LA shall receive A * B
where A is the Unadjusted MRA, calculated as
Each archetype's major repairs base weight is multiplied by an authority‟s stock
of that archetype and then summed across all archetypes
                                                                                   MRA Base Weight   Stock          MRA
Pre 1945 small terrace houses - F017mm                                                  £419.28       143         £59,957
Pre 1945 semi-detached houses - F018mm                                                  £482.77       197         £95,106
All other pre-1945 houses - F019mm                                                      £494.75        14          £6,927
1945 - 64 small terrace houses - F020mm                                                 £685.23       363         £248,737
1945-64 large terr, s-det and det houses - F021mm                                       £785.85       477         £374,852
1965-74 houses - F022mm                                                                 £776.27       918         £712,615
Post 1974 houses - F023mm                                                               £576.21      2619        £1,509,100
All houses - F024mm                                                                     £630.12       699         £440,454
Pre 1945 low rise (1-2 storey) flats - F025mm                                           £549.86        41         £22,544
Post 1944 low rise (1-2 storey) flats - F026mm                                          £818.20      2008        £1,642,941
Medium rise (3-5 storey) flats - F027mm                                                 £830.18      1166         £967,987
High rise (6 or more storeys) flats - F028mm                                            £997.89       170         £169,641
Bungalows - F029mm                                                                      £628.92      2652        £1,667,901
Pre 1945 multi-occupied dwellings - F030mm                                              £549.86        20         £10,997
Post 1944 multi-occupied dwellings - F031mm                                             £818.20        18         £14,728
Unadjusted MRA                                                                                                   £7,944,487
where B is the Regional Cost Factor                                                                                 1.02
calculated as C*D
where C is the BCIS Cost Adjustment Factor                                                                          1.04
where D is Geographical Adjustment Factor                                                                           0.98
calculated as E / F
                          How is the Major Repairs        Allowance Calculated?
where E is the sum of all Unadjusted MRA                                                                £1,281,595,221
where F is the sum of each LAs Unadjusted MRA                                                           £1,312,739,027
multiplied by it's BCIS factor
2011/12 Allowance for Major Repairs                                                                              £8,092,104

2011/12 per dwelling Allowance for Major Repairs                                                                  £703.36
                       HRA Capital Spending & Funding

• Definition:
   – The Local Government and Housing Act states that capital
     expenditure involves buying, building, replacing or enhancing
     an asset. Enhancing an asset will:
       • Increase the value of that asset, and /or
       • Increase the life of the asset, and / or
       • Increase substantially the use of the asset

• Capital expenditure is in both the HRA and General Fund

• It can only be funded by certain income categories
• No Capital income/funding can be given to the HRA
                         HRA Capital Expenditure (1)


• The main capital expenditure for the HRA will be on
  Housing Stock for renovation or improvement.
• We currently have the Decent Homes Standard which
  can include, for example:
   – Replacement Windows & External Doors
   – Re – roofing
   – New Kitchens
   – New Bathrooms
   – Electrical Rewires
   – Replacement Heating Systems
   – Insulation Works
   – Health & Safety Works
                           HRA Capital Expenditure (2)


• Can include other types of expenditure that aren‟t
  Decent Homes related:
   – Disabled Adaptations
   – Environmental Works
   – Structural Works to Non-Traditional Properties
   – Rainwater Goods
   – Aspirational Items:
      • E.g. Alarms, Showers, External Lighting
   – Garages
   – IT Systems
   – Vans for Direct Workforces
   – Procurement Fees (Surveyors etc)
                                   HRA Capital Funding (1)

• Expenditure and Income runs through a Major Repairs Reserve
  (MRR)
• The Income streams are:
   – The Major Repairs Allowance
       • As Described before
   – Other Capital Receipts
       • From sale of garage sites, land etc
   – RCCO
       • Voluntary Revenue Contributions from the HRA as
         described before
   – Other Government Grants
       • E.g. Insulation grants
   – CLG Decent Homes Backfunding
                              HRA Capital Funding (2)


• Right to Buy Receipts
   – The receipt is „pooled‟ with 75% of the net value
     after an administration charge is taken.
   – The 25% can be spent on either HRA or General
     Fund Capital Expenditure
   – There are a „couple‟ of exceptions
• Prudential Borrowing
   – Borrowing without Government Support since 2003
   – The Council‟s prudential code is set to prove that
     the borrowing is affordable
   – Affordability is the only restriction
                                HRA Capital Budgeting


• When compiling the capital budget there will always be
  choices
   – How much do we have to spend?
   – What is the most important?
   – What benefits will the capital expenditure provide?
   – Are there any other resources available?

   – A capital programme is drawn up from this for up to
     3 years using the stock condition survey or asset
     management database (to discuss later)
   – Consideration has to be given to Leaseholders for
     works to communal areas
               So What does the future look like?


• Projections for:
  – The HRA
  – Can the capital position be funded?
• Assumptions:
  – That subsidy remains
  – RPI 2.5% (Except rents for April 2012, 3.5%)
  – Supporting People grant does not go up
  – Rent Convergence by 2015.16
  – All other costs/income go up by RPI only
                                                                The HRA (In Subsidy)

Year                              2011.12   2012.13   2013.14        2014.15   2015.16
£'000                                1         2         3              4         5
INCOME:
Rental Income                     18,992    20,035    20,928         21,855    22,819
Void Losses                        -190      -200      -209           -218      -228
Service Charges                     275       282       289            296       304
Non-Dwelling Income                 175       179       184            188       193
Grants & Other Income               100       100       101            101       102
Subsidy                           -6,035    -6,618    -7,360         -8,137    -8,951
Total Income                      13,317    13,778    13,932         14,086    14,238
EXPENDITURE:
General Management                -2,750    -2,819    -2,889         -2,961    -3,035
Special Management                -1,500    -1,538    -1,576         -1,615    -1,656
Other Management                   -500      -513      -525           -538      -552
Bad Debt Provision                  -95      -100      -105           -109      -114
Responsive & Cyclical Repairs     -3,850    -3,942    -4,037         -4,134    -4,233
Total Revenue Expenditure         -8,695    -8,911    -9,132         -9,358    -9,590

Interest Paid & Administration    -1,032    -1,233    -1,234         -1,234    -1,235
Interest Received                   10        30        30             29        26
Depreciation                      -3,400    -3,479    -3,560         -3,644    -3,730
Net Operating Income               200       185        36            -121      -290
APPROPRIATIONS:
AMRA Adjustment                    100       100       100            101       102

Revenue Contribution to Capital    -250      -336      -135            0         0
Total Appropriations               -150      -236       -35           101       102

ANNUAL CASHFLOW                     50        -51       1              -21      -189

Opening Balance                    1,000     1,050     999            1,000     979

Closing Balance                    1,050     999       1,000          979       790
                                           The Capital Forecast (In Subsidy)


Year                            2011.12   2012.13   2013.14   2014.15   2015.16
£'000                              1         2         3         4         5
EXPENDITURE:

Planned Variable Expenditure    -3,400    -4,299    -5,345    -3,863    -3,406
Disabled Adaptations             -150      -154      -158      -162      -166
New Build Expenditure              0         0         0         0         0
Other Capital Expenditure          0         0         0         0         0
Procurement Fees                   0         0         0         0         0

Previous Year's B/F Shortfall      0         0         0         0         0
Total Capital Expenditure       -3,550    -4,452    -5,502    -4,025    -3,572
FUNDING:                           0         0         0         0         0
Major Repairs Reserve           3,300      3,379    3,460      3,543    3,572
Right to Buy Receipts              0         0         0         0         0
Unsupported Borrowing              0         0         0         0         0
Other Receipts/Grants              0         0         0         0         0
Revenue Contributions             250       336       135        0         0
Total Capital Funding            3,550     3,715     3,595     3,543     3,572
                    The Capital Position (In Subsidy)
In-Year Net Cashflow              0        -737     -1,907     -482       0

Cumulative Position               0        -737     -2,644    -3,126    -3,126

Major Repairs Reserve Bal:        0         0         0         0         56
                   HRA (In Subsidy) Conclusions


•   The future is not bright under Subsidy
•   Very difficult to plan forward
•   Capital Shortfalls
•   HRA going below it‟s minimum balance
    to try to fund the capital programme

• But things are going to change............
Lunch
                                   Reform of The HRA –Why?

•   Pools rents and redistributes on the basis of assessed need
    –   Based on three allowances: management, maintenance, major
        repairs
    –   And interest on historic debt
•   Pools RTB receipts 75% to the government (since 2004)

Key problems
• Difficulty in making the right assumptions about resources
• Majority in negative subsidy: overall surplus (£100m in
   2009/10)
• Unpopular: a system with „no winners‟
• Volatility, increasing complexity and lack of transparency
• Massive future surplus: who gets to spend rental surpluses ?
                                      National subsidy position

•   The subsidy system has „got to go‟: you don‟t need any greater
    evidence than the table below
•   Near 7% rent increases for tenants… less than 2% of the increase ends
    up being spent for tenants
               Est national subsidy
                      totals           2010/11      2011/12     Change
                                         £m           £m         £m
             Guideline rents             -6,191       -6,474       -283
             Mgmt & Maintenance
             allowances                   3,328        3,360        +32
             Major Repairs
             Allowance                    1,273        1,282          +9
             Debt/Other *                 1,246        1,388       +142
             ALMO/PFI subsidy *               244          91      -153
             Expenditure                  6,091        6,121
             Subsidy surplus               -100         -353       -253
             Getting to HRA Reform (Self-Financing)

•   Blue Skies debate (Autumn 2002)
    – Way forward for Housing Capital Finance (LG Act 2003)
•   NFA/CIH/HouseMark report re future of ALMOs (late 2005)
    – Linked to review of long term future of ALMOs
•   Audit Commission report (2005)
    – Also Northern Housing Consortium – critical of system
•   Self financing pilot project (2006-March 2008)
    – 6 case study authorities
•   HRA Review (2008-July 2009)
•   Reform consultation (July-Oct 2009)
•   Voluntary „offer‟ (Mar-July 2010)
•   Publication of Implementing Self-Financing for the HRA
                                   What is it in Summary? -
                                                Consultation

1. Dismantle the current HRA subsidy system
2. One off adjustment of housing debt
   – Effectively a commutation of 30 years worth of future HRA
      subsidy into one go
   – With an assumption of increased expenditure
3. Rents to be retained locally (continued rent restructuring)
4. RTB receipts retained 100% locally
5. Strengthened (more transparent) ring fence guidance
6. Original 30 year business plan with assumed expenditure and
   debt profile
7. Nationally neutral between central and local government
                                        What’s Changed?

    • Decent Homes Backlog to be funded (to some/part)
    • Debt Write off for transferring ALMOs
•    Core methodology of debt settlement remains but..
    • 6.5% NPV
    • Changes to uplifts
    • Disabled Adaptations provided for
    • Debt Management expenses provided for
    • Existing Debt Premia Included
    • Right to Buys Included (assumed levels)
    • September RPI 3.5% (Also 2010 4.6%)
    • GDP 2.2% (Also 2010 2.5%)
    • PFI Out
    • National „Buyout‟ c£6.5bn
                                          Subsidy determination 2011/12 &
                                           2010/11 –Why it’s linked to Debt
    5,000                                              5,000
    4,000                                              4,000
    3,000                                              3,000
    2,000                                              2,000

    1,000                                              1,000

        0                                                  0

    -1,000                                             -1,000

    -2,000                                             -2,000

    -3,000                                             -3,000


                   Subsidy/unit 2010/11    Debt/unit            Subsidy/unit 2011/12   Debt/unit



•       Significant shift to negativity – across the board
        – 2011/12 :133 negative paying £825m – 41 positive getting £472m
        – 2010/11 :128 negative paying £700m – 50 positive getting £600m

•        Indicative debt allocation has changed from 2010 in line with this
         movement in subsidy
                         So What is the ‘Deal’?


• The Council is allocated a debt based on
  a 30 – year cashflow forecast
• It uses existing subsidy allowances for
  management, maintenance and Major
  Repairs Allowance BUT uplifted
• Rents will match existing forecasts
  (convergence April 2015 plus 0.5%
  increases above RPI)
• Assumed cost of borrowing is 6.5%
• No inflation (RPI) assumed
               SAMPLE SETTLEMENT - FOR ABC COUNCIL


        NPV                       6.5%                        £119,046,078

        Rent           M&M&MRA        Surplus            Cummulative
            £71.00       £2,379.03
Yr 1       £18,600,400    £11,895,125         £6,705,275         £6,705,275
Yr 2       £19,110,000    £11,895,125         £7,214,875       £13,920,150
Yr 3       £19,619,600    £11,895,125         £7,724,475       £21,644,625
Yr 4       £20,129,200    £11,895,125         £8,234,075       £29,878,700
Yr 5       £20,638,800    £11,895,125         £8,743,675       £38,622,375
Yr 25      £22,803,719    £11,895,125       £10,908,594       £235,868,562
Yr 26      £22,917,737    £11,895,125       £11,022,612       £246,891,174
Yr 27     The Deal for ‘Our’ Council
           £23,032,326    £11,895,125       £11,137,201       £258,028,375
Yr 28      £23,147,488    £11,895,125       £11,252,363       £269,280,738
Yr 29      £23,263,225    £11,895,125       £11,368,100       £280,648,838
Yr 30      £23,379,541    £11,895,125       £11,484,416       £292,133,254
                ABC Council Debt Settlement – Allocation

SETTLEMENT                       ACTUAL EFFECT

Debt                 £119.046m   Actual Debt (HRA      £20.000m
Allocation                       CFR)
                                 April 2011
Subsidy CFR (Debt)   £30.000m
                                 Debt Adjustment       £89.046m
Debt Adjustment      £89.046m
                                 Actual Opening Debt   £109.046m



Debt Cap             £119.046m   Debt Cap              £119.046m

                                 Plus New Build Adj        -

Debt per Unit         £23,810    Revised Debt Cap      £119.046m


                                 Headroom to Borrow    £10.000m
             ABC: Summary first year and future – Yr 1


                   Properties                          5,000


                   Subsidy 2011/12             £m      6.035
                   Projected subsidy 2012/13   £m      6.618


                   Debt adjustment             £m     89.046
                   Change in interest @ 5.5%   £m      4.898
                   Change in interest @ 6.0%   £m      5.343
                   Change in interest @ 6.5%   £m      5.788
                   Estimated Min Y1 headroom   £m      0.830
•   Immediate gain in year 1 for the HRA against what subsidy would be
    paid and replaced by interest on new additional debt allocation
                                                HRA – National Business Plan

                                                Indicative debt profile
 40,000,000

 20,000,000

          0
               1   2   3   4   5   6   7   8   9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
 -20,000,000
  £m




 -40,000,000

 -60,000,000

 -80,000,000

-100,000,000
                                                               Years


   • This is the Government‟s View on affordability of the
     deal
   • Generous‟ assumptions and discount factors should
     mean authorities have more money over the longer term
                                               The Timetable
–   March 2011 Stakeholder events with local authorities
    Local authorities planning to submit evidence on demolitions are
    advised to contact DCLG
–   June 2011 Forms sent out to collect data on stock
–   August 2011 Data for self-financing provided to DCLG
–   August 2011 onwards Data verified Nov 2011 onwards Consultation on
    self-financing determinations
–   Dec 2011 onwards DCLG and PWLB issue joint letter to each local
    authority setting out arrangements for loans and debt redemption
–   Jan 2012 Final self-financing determinations published Local
    authorities asked to tell Public Works Loan Board how much they wish
    to borrow
–   April 2012 Series of transactions between DCLG and local authorities
    enable the start of self-financing
–   March 2013 Cut-off for final payments to end the subsidy system
              CIPFA Consultation – Debt Pooling


•    Currently all long-term existing debt „split‟ between HRA
     and GF for interest
•    Suggestion is that loans will be split into two pools
•    New loans (for settlement) will be 100% HRA
•    „No‟ borrowing ahead – unless in treasury management
     strategy
•    Alternative Three Pool Approach or One stay with Pool
•    Possible Issues:
    • Can treasury management systems control 2
        portfolios?
                  CIPFA Consultation – Depreciation

•    Need to replace MRA – consistent with IFRS
•    Not linked to EUV
•    Components (up to 12) to be identified:
    • Value and life – local circumstances
    • Some can be grouped together (de minimis / life span)
•    Straight Line approach
•    Additional Voluntary Contributions
•    Non-Dwelling Depreciation – best practice
    • no AMRA adjustment – MRR benefits
•    No Back funding/Improvements
•    MRR can fund debt repayment
•    The proposal requires Impairment to be charged to the HRA an cannot
     be reversed – comments sought
•    How does it affect the HRA bottom line in the early years?
                       CIPFA Depreciation – An Example

Component                             Life   Value £   Depreciation £
£Bathroom                             20     2,500          125
Kitchen                               15     3,300          220
Boiler                                15     1,500          100
Heating Distribution                  30     2,000          67
Roof/Chimney                          50     4,000          80
External Doors                        30     1,000          33
Rewiring                              30     2,500          83
Windows                               30     3,000          100
Componentised Depreciation                                  808
Residual / Non Componentised          80     23,000         288
Total                                                      1,096
SCS Capital Profile                                       33,000
Annual Amount for Business Planning                        1,100
           Risk, reward and opening the settlement

•   Risk profiles change under the new arrangements
        Risks lost
            – Unpredictability in revenue resources
            – Loss of some future rental surplus
        Unchanged
            – Expenditure inflation greater than income inflation
            – Political intervention – but lower?
        Risks gained
            – Treasury Management
            – Experience of long-term planning
            – Interest rate fluctuations
            – Stock condition the council‟s responsibility
•   Opening the settlement: under what circumstances?
    – LGA/CIH call for „full and final‟ – schedule of circumstances
•   Legal work required on the format of the settlement
         What next and what do we need to do?


•   Any Demolitions?
•   Stock Condition Survey/Database Validated
•   Business Plan
•   Treasury Strategy
•   What are you going to use your headroom for?

•   Wait for the next session..........
Break
                             The Stock Condition Survey


• Usually a sample of properties (10%) are surveyed to
  identify the condition of the property and to estimate
  when key components need replacing
• The results are cloned across the housing stock
  depending on stock type
• The results should be fed into an asset management
  database for future interpretation
• The key elements are:
   – Life cycles of components
   – Cost of replacing
• Essential to keep this updated
                          An Asset Management Strategy


• This moves on from the stock condition survey
• It puts into words what you want to do with your stock
   –   Are they any problematic stock ?
   –   Are they any undesirable properties?
   –   What aspirations are there for improvements?
   –   How are you going to deliver the above?


• Should be done with a form of consultation over some
  of the above aspects with stakeholders
                    Asset management strategy summary
•   Long term capital management (robust SCS taken as read)
    – Setting the local standard
    – Retrofit and sustainable
    – Regeneration and redevelopment
    – Potential for new build

•   Asset management strategy may take more time to get to a
    comprehensive position
    – Detailed property by property analyses for sustainability, valuation
       and densities

•   Day-to-day repairs strategy and policies
    – Funding for day to day / revenue repairs
    – Summarising policies and finances
                   New HRA BP: we need something for
                                        all of these…

                 Tenant     VISION &          Governance &
                 EmpowermentMISSION           Risk

                                                             Treasury
 Service                                                     Management
 standards
             Value for           FINANCIAL
                                                 Debt and
             Money               PLAN
                                                 financing
 Repairs     strategy
 policies                                                    Rents policy:
                                                             > flexibility
                                 ASSET
                                 MANAGE-
We have a                        MENT
                  Refurb/green               Regeneration
lot but           standards                  redevelopment
where are
the gaps?
      Every LA self financing plan has some potential

Revenue (HRA) should be in reasonable shape…
• Rents and income are going up
    – Rents generally below „target‟ and set to converge in time
• Service costs being controlled through active VfM strategies
• Depreciation important but should be affordable
At the same time on capital…
• Decent homes backlogs cleared or deferrable
• Or… limited transfer, alternative options on asset management and
    ownership…
• Stock condition spending needs understood
• Many with headroom for borrowing

                 So… A future of RISK AND REWARD
                                 Risk management and Reward
• Risk profiles are different for self financing

• Comparing the new and old worlds we know how the system is
  changing – how do risks change?
   – Shift from „political‟ to „economic‟

• Rewards are potentially great and focus on the availability of more
  resource and the ability to plan more effectively

• What needs to be put in place to maximise the chances of getting
  effective rewards?
   – Governance, management, capacity…
    – Service agreements and support…
                    Developing a 5 year plan (with a 30 year
                                                dimension)

• 50 page word document with multiple technical appendices capturing all
  of the key plans and actions, all major policies, ALMO delivery plan
  summary (if you have one) and the consultation you have undertaken

• 15-20 page summary of the main policy choices and priorities with a
  financial summary setting out key assumptions and with links to other
  plans

• A summary presentation pack, all major decisions and planning
  priorities, accessible and easily shareable

• A one page statement of intent…
                              Checklist of areas to cover
1. Policy backdrop and the settlement
2. Governance of the project, governance of the service and
    ownership/scrutiny of the plan
3. Asset management strategy summary – long term capital
    management
4. Day-to-day repairs strategy and policies
5. Service development and improvement
6. Tenant empowerment and engagement
7. Financial assumptions
8. Debt and treasury management strategy
9. The financial plan…
10. Risk management
                    Policy backdrop and the settlement
•   Self financing – why and how
•   Other policy drivers
    – Affordable rent
    – Tenure and benefit reform
    – Future of regulation
    – Localism agenda

•   Comparing subsidy with self financing
    – Constraints vs new freedoms

•   Summarising the settlement
                                                           Governance
•   Project management/planning team for the business plan
    – Membership from all areas of the service

•   Governance of the service
    – ALMO board and management agreements
    – Alternative internal board models

•   Importance of „single point‟ ownership of the plan
    – Scattering services between directorates will weaken the planning
       and may mean opportunities remain „unexplored‟

•   Seats at the table – getting ready and going forward
                                           Financial assumptions
•   Summarising…
    – Property and stock
    – Inflation and interest rates – views from the floor
    – Depreciation policies
    – Growth in costs and income
    – Other key areas (eg SP grant funding)
    – Rent policies
•   Debt and treasury management strategy
    – Policy towards debt management and refinancing
    – Scenario planning
    – Repay or maintain debt
    – Borrowing policies – use of headroom
    – Use of receipts
                                     The HRA (Self-financing) £’000




Is the minimum balance sufficient?
                            The Capital Position (Self-financing) £’000




Can you meet all the Capital Expenditure when you need to?
                          The Initial Debt Position (Self-financing) £’000




Will it Really Look like this?
                       All or some of these– address by
                                             the autumn

1. What kind of business plan do we need to have in place by next
   April?
2. How should we go about prioritising using the resources we will
   have in the business plan in the future?
3. What processes are needed with tenants? And with the council?
4. Are there governance and scrutiny implications – what are the
   options?
5. What approaches could be taken towards future rent flexibilities?
6. Is it realistic to think about going for HCA funding?
7. What remaining challenging stock issues are there and how
   might they be addressed? When is the right time to bring forward
   a comprehensive asset management strategy?
8. Are there opportunities for development and redevelopment that
   could be taken?

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:12
posted:9/18/2011
language:English
pages:72