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HRA Reform
Finance Workshop
Defend Council Housing Conference
19th March 2010
Steve Partridge
www.cih.org
Introduction
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Project progress
•
•
Problems and proposed solutions
Some key issues
•
•
•
Could the finances work?
Comparing risks
Consultation
CLG: developing the ‘offer’
•
•
•
Self financing pilot project 2006-2008
Review of Council Housing Finance 2008-July 2009
Consultation -> legislation backed but call for ‘voluntary
settlement’ using Housing & Regeneration Act 2008
•
•
Project team: range of agencies and authorities
Three ‘workstreams’
–
–
–
•
Developing the financial detail
Accounting and technicalities
Capacity and awareness building
Work aimed to produce a draft voluntary settlement
What will be asked of authorities?
•
Previously felt that a definitive indication of acceptance of a
firm voluntary offer, but… timing
•
Consultation across an expected General Election
•
Likely to request a ‘willingness to work in principle with
government towards non-legislated settlement at April
2011’
– Might feel like a big draft subsidy determination(!)
•
•
What will happen if some refuse terms?
Will there be scope to ‘pilot’?
Proposals in summary
1. Dismantle the current HRA subsidy system
2. One off adjustment of housing debt
– Effectively 30 years worth of future HRA subsidy in one go
– With an assumption of increased allowances expenditure
3. Rents 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 debt profile
7. Nationally neutral between central and local government
Future rental surpluses
8,500
8,000
7,500
Net Present Value est £13bn
7,000
6,500
GL rents
6,000
Allces
incl
debt
charge
5,500
5,000
•
The overall debt
and use of surplus
is an integral part
of the ‘deal’
•
Each LA (currently
172 going forward)
gets a local NPV –
share of the debt
valuation
4,500
4,000
1
•
3
5
7
9 11 13 15 17 19 21 23 25 27 29
A ‘system’ close to ‘balance’ but destined
for massive surplus as (if)…
–
–
Rents converge to HA formulae and then
continue to rise above inflation
Allowances remain at current levels
A word on the future for public expenditure
•
Commitment to reforming
the subsidy system is
strong
‘Localisation’ of revenue
finances policy of all three
main parties
•
Proportion of GDP that is
borrowing and debt:
total and annual
90
14
80
12
70
10
60
50
8
40
6
30
4
20
2
10
0
0
8/9
9/10
10/11
11/12
PSND % of GDP
•
•
12/13
13/14
PSNB % of GDP
Pressure on public expenditure resources enormous
and will last into the Spending Review after the next
one and beyond
What kind of controls might be expected?
14/15
Big issues (1): How much debt?
•
How will debt be allocated between authorities?
•
•
•
•
When will rents be assumed to ‘converge’?
Uplift for M&M allowances: nationally and locally - 5%
Uplift for Major Repairs: nationally and locally – 24%
What did the research say?
•
Economic and discount factors
•
•
There will a distributional impact for the uplifts of debt
It will be a deal: locally and nationally
Big issues (2): Capital grants and borrowing
•
For authorities where…
– A backlog of repairs remains for decent homes and other needs and
the business plan can’t sustain needs without additional support
•
What will the grants be for? How will this be assessed? What
will be the process?
•
LAs able to ‘prudentially borrow’ –currently constrained by
the system
Unfettered borrowing not an option – what kind of controls
are necessary and appropriate?
•
•
What impact might the economic situation have?
Big issues (3)
•
RTB receipts 100% to be retained by the council
– Issues about usage
•
Ring fence guidance
•
Could the settlement be ‘revisited’?
•
Technical treatment and approach to stock transfer
Staying in – or self financing: case study
Rent £ in subsidy system
Rent £ under self financing
Surplus
Repayment/S
ubsidy
Repayment/S
ubsidy
M&M
Interest
M&M
Interest
Major repairs
Major repairs
•
•
Comparing how the Rent £ gets spent over 30 years
Self financing: more of the £ gets spent on services and
investment, less on repayment +/or negative subsidy
Why self financing has more money
• There will be more revenue money to spend over a
longer period compared to staying in an unreformed
system
• Three principal reasons…
– The uplift in allowances
– The net effect of inflation
– The effect of ‘discounting’ to work out the debt
• Key issue: how much?
Risks… from central to local
• Risk profiles change under the new arrangements
Risks reduced for a LA
• Unpredictability in revenue resources
• Loss of some future rental surplus
Unchanged risks for a LA
• Expenditure inflation greater than income inflation
• Political intervention – but lower?
Risks gained for the LA
• Treasury Management
• Interest rate fluctuations
• Stock condition the council’s (and ALMO’s)
responsibility
Discussion and consultation
•
•
•
Consulting and influencing tenants
Tenants influencing the council’s decision
Announcement is not expected to say a great deal about
tenant consultation… it’s not necessarily an ‘option’
SUMMARY
Revenue and Capital