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Housing Revenue Account Reform: Implications for tenants

TAROE ConferenceSteve Partridge

13th October 2010

Introduction

• HRA reform: headlines and the current position

• Key issues

• Preparing for implementation: developing roles for tenants

LA/ALMO tenants for action / HA tenants for info

HRA proposals in summary

• HRA subsidy system…– Pools rents – and distributes as ’allowances’ to spend on

management, maintenance, major repairs and historic debt– Differences are claimed as ‘positive’ or ‘negative’ subsidy– Pools 75% of Right to Buy receipts– Unpopular, complex, lacks transparency and is volatile

• Proposals follow…– Review of Council Housing Finance: and many years of pushing for

‘self financing’ in a range of formats

HRA proposals in summary

• Essentially…

– Proposal to dismantle the system and replace with a ‘one-off’ adjustment of housing debt

– Keep rents and RTB receipts locally – revenue flexibility

– But … control over capital expenditure and capping borrowing

Current subsidy position 2010/11

• National position approx £100m surplus• Would have been higher but for the 2009

(late) rent reduction

  2010/11

  £m

Guideline rents -6,191

Mgmt & Maintenance allowances 3,328

Major Repairs Allowance 1,273

Debt/Other 1,246

ALMO/PFI subsidy 244

Expenditure 6,091

Subsidy surplus -100

• c50 LAs in positive subsidy– £596m

• c128 LAs in negative subsidy– £695m

Why the link to debt?

• High level relationship between ‘in subsidy’ and ‘in debt’• Leaving aside debt, all would be in negative subsidy – hence the

proposal to reallocate debt

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What happens if nothing changes?

• ‘Splitting’ the future surplus between central and local government

• What %ages would you expect?

Rents

Allowances£100m

} £13-14 bn

LAs

• Nationally, the government would have collected a revenue surplus for the next 30 years

Govt

National position

• Nationally the subsidy system is destined for massive surplus– As rents increase faster than allowances

• Nationally, the ‘surplus’ would be £13-14bn over 30 years if nothing changes

• The ‘deal on the table’ from the previous government was to have a voluntary settlement – To ‘split’ the surplus between central and local government – Broadly, between £3-5bn ‘extra’ debt in return for keeping rents

and receipts locally

• The deal will be updated: how might it change?

Big issues nationally: the numbers

• Nationally, the proposed debt allocation was between £25-26bn– Based on the position at 2011 with increased allowances – Increases not insignificant – 5% and 28% for M&M and major

repairs– Based on assumed interest (discount) rates– Compares to projected debt at 31/3/2011 of £21.5bn– Lower interest rate leads to a higher debt that can be taken on

• For capital– ALMO decent homes -> capital grants – and nothing for anyone

else; £3.2bn vs research suggesting is £6bn – Cap on borrowing causes concern because limits investment

which might actually be more efficient

Big issues nationally: some technicals

• HRA balance sheet

• Depreciation and debt repayment

• Separation of debt between General Fund and HRA

• New ring fence guidance

• Opening up the settlement?

Progress nationally

• Responses received to the ‘prospectus’ (6th July)

• Almost universal support for self financing and the abolition of the subsidy system

• Split in responses between…– The ‘go tomorrows’– The ‘we need the number to be right before we can go’

• Current plans– Decentralisation and Localism Bill – late November tabling, royal

Asset next summer/early autumn– Further subsidy determination in 2011/12 – an update to the

numbers– Policy document due to be published in November

Should your LAs and ALMOs be modelling?

• Revenue and the short term– Many might be better off in cash terms in year one– Some will have to wait a few years before they are better off– How does it look for your authority’s HRA?

• Capital short, medium and long term– Update stock survey data: long term maintenance needs– Identifying outstanding backlogs (or not)– Phasing critical

• Journey from – TESTING IMPLICATIONS … ACTUAL BUSINESS PLAN– An 18 month journey to a proper business plan!– Capital plan becomes ‘Asset Management Strategy’

What else might LAs be doing?

• Developing a better understanding of…

– The needs of the stock– The future costs of services– Options for looking at ‘assets’ in a different way

• Consulting with tenants and other stakeholders

– Many have consulted with involved tenants and federations– Many have produced joint responses– Many would appear to have left major consultation till the ‘next

phase’– Experiences?

Two case studies…

1 Early ALMO LA / Retained-management met Decent Homes– Completed decent homes programme– Small outstanding backlog– Long term needs able to met by the self financing plan

2 Later round ALMO LA / Retained-management with backlog– If an ALMO LA, may be waiting for additional resources– For all, backlogs not fully met by decent homes or other resources– Longer term needs for improvements and remodelling

• By the way, for the avoidance of doubt: both would be better off under the new arrangements over the long term…– So not an issue about ‘better’ or ‘worse’…

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Capital Expenditure Need

Capital Finance Available

Case studies

• Case Study 1– Plan starts with no headroom on borrowing– Short term backlog would have led to borrowing - has to be deferred– Plan still viable and balances after 10 years

• Case Study 2– Up front backlog is more significant: decent homes and other needs

– Borrow up to cap in first year then constrained on ability to meet backlog

– Asset management actions required over the longer term

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Opportunities for tenants

“A meaningful role in future business planning”

• Agreeing how rent increases will be spent– Investment in services?– Investment in the stock?– Investment in new housing?

• Input to the development of long term plans– How the plan is funded: borrowing or use of receipts?– Asset management and some redevelopment

• Thoughts: how can we make this happen?

Summary: risk and reward?

• After 8+ years a definite plan to legislate to end the national HRA subsidy system

• Numbers subject to the Spending Review

Revenue flexibility – Capital challenge

• What are the risks?• What are the potential rewards?

• The best authorities and ALMOs will develop a central role for tenants in shaping and delivering future plans