Agenda item

HRA Revenue and Capital budget setting 21/22, including Dwelling Rent setting 21/22 and 30 year Business Plan Review


The report updated Members on the proposed Housing Revenue Account (HRA) Annual Revenue Budget and Capital Programme for 2021/22, the proposed Rent Setting for 2021/22 and an update on the 30-Year Business Plan Review. The proposals included in the report enabled the Council to set a balanced budget for the HRA for 2021/22.


The HRA is a ring fenced account used to manage the Council’s housing stock of some 5,700 properties, with the Council acting as the Landlord.


In April 2012, under the Localism Act 2011, the HRA (under the administration of Taunton Deane Borough Council (TDBC)) moved away from a national subsidy system (which required an annual payment from the HRA to Central Government) to become ‘self-financing’. This enabled the Council to retain all rental income to meet the costs of managing and maintaining the housing stock, as well as meeting the interest payments and repayment of debt. As part of the self-financing agreement, a one-off payment of £85.198m was made to Government.


In order to manage the freedoms gained by the HRA through self-financing, a new 30- Year Business Plan (2012-2042) was introduced. This set out the Council’s overall aims and objectives for Housing Services, as well as laying out plans to manage the increased risks and opportunities.


The HRA Business Plan has been reviewed and updated annually since 2012, with a full review undertaken in 2016 and 2020 in response to the changes in national policies and local aspiration. The 30-Year Business Plan has again been reviewed as part of the 2021/22 budget setting cycle and the key changes / updates to the plan are described in section 5 below.


The HRA continued to face a number of risks and issues, many of which could be significant but the actual financial impact is not yet known. These risks and issues are more significant for us as we proactively drive forward substantial investment in social housing development, with both existing schemes and more schemes planned for the future. These risks and issues are discussed in section 3 above.


As part of the self-financing agreement, an individual housing revenue borrowing cap of £116m was implemented for TDBC. This meant that the HRA was unable to exceed a capital borrowing requirement of £116m within the HRA Business Plan. In October 2018 this borrowing cap was officially removed.


The HRA has benefited from these freedoms in particular the ability to develop new homes; with the addition of 183 homes to the housing stock since 2012.


The HRA 2021 30-Year Business Plan Review


Whilst the business plan was updated on a regular basis, a more thorough review was undertaken again this financial year as part of the budget setting process. This was as a direct result of the significant financial and economic impact caused by the COVID pandemic as well as the need to ensure a comprehensive financial investment appraisal was undertaken for the significant social development schemes recently considered.


Independent financial housing advice was sought from Altair to support the business in undertaking this in-depth review; to provide challenge to our existing assumptions and provide assurance in the HRA’s ability to deliver the new build aspirations. The outcome of this evaluation can be found in Altair’s report found in Appendix A.


In summary, a new business appraisal model had been used and updated with the following key assumptions and projections:

· Revenue Budget Estimates for 2021/22

· Capital Programme for the next 10 years

· Dwelling Rent increase of 1.5% until 2024/25, reducing to just Consumer Price Index (CPI) thereafter

· Void loss at 2% of gross rental income

· Inflation projections that reflect the statistics published in October 2020 by the Office of National Statistic (ONS) (September CPI) and HM Land Registry (HMLR) (August House Price Index (HPI))

· Interest on new debt at 2% until 2024/25, rising to 2.5% thereafter

· Minimum reserves position of £2m

· Social housing development programme to include the recently approved Zero Carbon Pilot, Seaward Way, Oxford Inn and North Taunton Woolaway Project.


Performance measures had been used by Altair to assess affordability and financial sustainability of our operational aspirations, which have been summarised below as per Altair’s report (see Appendix A Section 4).


The Minimum General Reserves Balance was maintained at above the minimum proposed limit of £2m throughout the forecast. The business plan assumed that any “excess” rents generated were made available to repay debt.


            During the debate the following comments and questions were raised:-


·        Rent increases and the impact of this was questioned.

·        Reserves were held in case of future policy reducing rent increases or a rent freeze.

·        There was flexibility for the service to borrow more was considered important should the service be faced with adverse impacts.

·        Developing new homes in a way that’s measured and safe was a balance that the service sought to strike.

·        SWT rental rates were low in comparison to other neighbouring authorities.

·        27/28 would be the year peak debt levels were reached, this would be reduced into the future.

·        The North Taunton project was considered in December. There were regeneration projects of £2.9million, the context of this in the budget was questioned. Appendix C set out the context of this around the budget.

·        A 1.5% rent increase was considered, and if this reflected spending patterns from the pandemic and Brexit, alongside how this impacted the HRA business plan.

·        Rent arrears and debt provision as part of the business plan was considered.

·        The service had a better record than other landlords in relation to rent arrears

·        Increases were a reflection of the impact of the increase of costs on compliance and housing standards.

·        Increases in rent arrears in the background of Covid-19 was a recognised risk.

·        Reserves and the figure around rent arrears if tenants were unable to pay was discussed. Reserves were currently set at £2.7 million, this would remain above £2million to recognise the increased risk.

·        Earmarked reserves were set at £1million.

·        In year cashflow and fluctuations within the next two financial years was questioned. This was due to the development included within the 30 year HRA plan.

·        The business plan review was a constant exercise and not an annual review.

·        Grenfell implications and appointing building safety managers had been addressed, £2 million had been allocated to fire safety works and compliance.

·        There was a provision for bad debt set at £180k with a void rate at 2%.

·        The Treasury Management approach was to pursue a short term debt approach due to the low rates and competitive rates from other sources. The scale of investment and long term rates would be explored to develop plans further.

·        Funding CCTV from the HRA was queried, this was due to the cameras being located on HRA estates. There was a payment holiday to the maintenance fund, the allocation from the HRA was historic and was related to safety to protect local communities, funding was allocated pro rata.

·        Historically HRA was ring-fenced to the former Taunton Deane area, although the HRA could develop homes across the new authority which included the Seaward Way development.

·        The HRA could own and manage properties outside of the district, there were no restrictions on the boundary.

·        The Director of Housing was commended for the Fire Safety Certificates undertaken on the housing stock.

·        Public Works Loan Board borrowing restrictions were considered a risk and ongoing issue, an increase in interest rates would have a severe impact in relation to the Woolaway project. Concerns were expressed around long term borrowing with Councils inhibited in using assets as security.

·        Retrofitting and insulation to Council homes was considered alongside retrofitting of homes to zero carbon standards. It was requested for a task and finish group was created to assess retrofitting and the future of council housing alongside funding sources and approach for a zero carbon retrofit to council housing.

·        A Terms of Reference and scoping document be brought back in March.

·        This would be a working group of Scrutiny and not a wider Council working group, recognising further work was needed for retrofitting.

·        The officer capacity to support process was questioned considering the emerging factors and ongoing programme of works to the HRA, there would be an impact to HRA works and projects.

·        An ambition for all properties be to retrofitted to a EPC C standard was a first step, and incorporating zero carbon standards.


The Scrutiny Committee recommended:-


Full Council approve the following recommendations:

1. To approve the HRA Annual Revenue Budget for 2021/22.

2. To approve the increase of 1.5% (CPI+1%) to Dwelling Rents for 2021/22.

3. To approve the HRA Capital Programme for 2021/22.

4. To note the reviewed and updated assumptions in the 2021 HRA 30-Year Business Plan.

5. To approve the minimum operational balance on HRA general reserves at £2m.

6. A Task and Finish Group on funding sources and approaches for a zero carbon retrofit programme for SWT’s council housing is further investigated with a further report brought back to the Scrutiny Committee to decide on establishment, with Terms of Reference.

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