Agenda item

This matter is the responsibility of Executive Councillor Francesca Smith, Portfolio Holder for Housing   

Report Author:  Kerry Prisco, Management Accounting and Reporting Lead

This report contains information related to Somerset West and Taunton Council’s (SWT) Housing Revenue Account’s (HRA) financial performance for the 2021/22 financial year. The outturn figures included are provisional subject to the completion of the external audit of the statutory financial statements. The audit is due to be completed between July and September with the findings due to be reported to the Audit and Governance Committee on 27^th September this year.

Kerry Prisco presented the report on the provisional outturn of the HRA financial monitoring. This has been a very challenging economic environment for the HRA with greater financial restraints put upon the service but coupled with greater pressures and demands for delivery from both a political and regulatory point of view. 

There have been backlogs in responsive, planned maintenance, as well as compliance works due to rising costs in materials adding additional pressures. Covid has continued to impact business operations by increasing costs in such areas as deep cleaning on shared accommodation and staffing requirements being maintained in tenancy support. Covid has also caused delays in delivery of the capital programme, as such the senior housing management team have proposed budget returns to reel on the capital programme.  

The positive financial impact of this is that it increased investment income. In addition, there have also been two further financial one-off adjustments this year, which has helped the overall out-turn position. 

·       The first is the successful open contract project which identified major repairs as part of the void process, could be capitalised, and this reduced pressure on the revenue account. 

·       The second is that debtors in balance have been resolved during the year, resulting in a favourable one-off adjustment. 

So, whilst the overall favourable position of the HRA 2021/22 is a net underspend of £170k: the unstable economic operating environment, along with the regulatory and political pressures means the HRA will still experience high levels of volatility and financial movements that are high risk in the financial year coming up. 

Earmarked reserves are put to be at 54k and are committed to support spending in future years. During the year approval was given to return 1.044m of earmarked reserves that are no longer required, and these were put back into General Reserves. 

General Reserves are projected to be 3.413m, so that is 1.4m above recommended balance of 2million. That additional balance on reserves should provide sufficient capacity to support the medium-term financial plan. 

In terms of the capital out-turn position the actual spend for the year related to capital maintenance for the existing housing stock, and for development of new stock. 

The Housing SMT are proposing to return of 11.8m of capital money to general reserves and this will positively impact the 30 years financial business plan., as well as the council’s treasury management strategy. 

During the debate the following points were raised: 

·       The assumption on voids is that they are running on 2% void rate. Is this an accurate assessment as this can have quite an effect on the HRA. 

The 2% void rate is improving. An improvement plan was implemented in January to reduce the turnaround time and there have been gains but the system still needs refining. Most of the delays occur around the choice-based lettings as there are no provision for refusals within the parameters. 

It is also dependent on the volume of repairs required on the void property. Some take a lot longer to complete. It was recognised that some of the void properties had capital works undertaken whilst they were empty. 

Major works on void properties would also fall under the capital programme, so there needs to be an assurance that the void work is not paid for from the HRA. This is a good thing, because where costs can be capitalised, it reduces capacity and pressure on the revenue budget. 

700k was identified as being capitalised in this financial year as a one-off adjustment. Obviously going forward, the works will be aligned with the capital budget from the outset, so there will be no need to move it at year end from the housing revenue account. 

·       Underspend on assets – can the nature of the vacancies be explained? 

Underspend on salaries – in part this is a result of not employing development staff for the capital projects. These have been delayed because of COVID, subsequent supply chain issues and or changes in the programme. Some salaries have been capitalised to account for the RTB scheme, and for the void programme. (Followed up on Written Answer Tracker by Chris Brown) 

·       Concern was also expressed about the reduction in the capital spend, as well as the HRA as this would reduce the level of funding available for such projects as the carbon retrofit programme. It was noted that 5m was being returned to General Reserves as not required, but this was resulting in a reduction of spend on air source heat pumps and insulation. Disappointment was expressed that despite the declared climate emergency, budgets for housing projects that could tackle it, were being reduced. (Followed up on Written Answer Tracker by Chris Brown) 

The Housing SMT has taken a realistic approach to looking at previous carry forwards, which resulted from delays in delivery due to Covid. They have looked at outstanding work and assessed whether it is likely to be completed in the next financial year. In the likelihood that it isn’t then they have decided to return the underspend capital money to balances. The work has not been carried out due to supply chain issues, sub-contractor difficulties and tenants not allowing access to their properties during Covid.

·       Revenue is funded by the HRA and income is generated from dwelling rents, service charges and shop income. This budget can't be funded from other sources and or raised via loans. It’s a self-contained budget. The capital budget, however, needs to find alternative methods of funding which can be done via loans or grants.