1. leadership innovation transformation Milton Keynes HRA Self-Financing Implementation and Business Plan Simon Smith

2. leadership innovation transformation Why Reform the HRA? Housing Subsidy pools rents and redistributes on the basis of assessed need –Based on three allowances: management, maintenance, major repairs –And interest on historic debt Key problems Difficulty in making the right assumptions about resources Majority in negative subsidy: overall surplus (c£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 ? Milton Keynes contributes £12.6m just this year

3. leadership innovation transformation What is the ‘Deal’ Now 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

4. leadership innovation transformation The Basis of Your Settlement 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%

5. leadership innovation transformation Your Debt Allocation (Now) SETTLEMENT Debt Allocation £249.646m Subsidy CFR (Debt)£88.882m Debt Adjustment£160.764m Debt Cap£249.646m Debt per Unit£19,954 ACTUAL EFFECT Actual Debt (HRA CFR) March 2012 £83.623m Debt Adjustment£160.764m April 2012 Actual Debt £244.387m Debt Cap£249.646m Headroom to Borrow £5.259m

6. leadership innovation transformation The Timetable –August 2011 Data for self-financing provided to DCLG –August 2011 onwards Data verified to November –CIPFA Consultation on Debt Pooling and Depreciation Issued –September – Questionnaire re funding the deal issued –11 th November – Draft determination published –27 th Jan 2012 Final self-financing determinations published Local authorities asked to tell Public Works Loan Board how much they wish to borrow –28 th March 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

7. leadership innovation transformation Treasury Management New HRA BP: we need something for all of these… Service standards VISION & MISSION Repairs policies FINANCIAL PLAN Debt and financing ASSET MANAGE- MENT Regeneration redevelopment Rents policy: > flexibility Refurb/green standards Governance & Risk Tenant Empowerment Value for Money strategy

8. leadership innovation transformation The Initial Financial Plan Based on 2011.12 Budgets (Incl Capital) Debt take on (as per current settlement) Current Forecast Stock Investment Requirements Future Interest Charge of 5.25% Inflation 2.5% throughout (except Yr 2 rents) Minimum HRA Balance of £2m Rents Converge and Increase RPI + 0.5% All un-pooled Right to Buy Receipts to the HRA

9. leadership innovation transformation Stock Investment Requirements Excludes: Inflation, Procurement Fees Assumes: £40,465 Spend per property over 30 Years 80% Recovery of Potential Leaseholder Liabilities Backlog spread over 5 years

10. leadership innovation transformation Capital – Initial Ability to Fund £’000 Includes: Inflation, Procurement Fees, Borrowing to Debt Cap, Shortfall spread over 5 Years Outcome: Consolidated Shortfall of £76.1m in 2016.17 – Met by 2025.26

11. leadership innovation transformation Viability of the Initial Plan £’000 The plan demonstrates that the debt could be repaid within 23 years of self-financing. Very dependant on interest rates and the repayment profile of existing loans Borrowing Restricted by Debt Cap – based on Current Proposals Assumes No Additional Investment or Service Improvements

12. leadership innovation transformation Next steps 1 Asset Management Strategy –Need to review backlog and identify key works for phasing against available resources –Need to review forecast works again against available resources for re-phasing –Asset analysis for properties with negative (NPV) contribution to the HRA and consider options

13. leadership innovation transformation Next steps 2 Treasury Management Strategy –Decide where funding may be sourced PWLB, Market, Bonds –Policy towards debt management and refinancing –Scenario planning –Repay or maintain debt –Borrowing policies – use of headroom –Use of receipts

14. leadership innovation transformation Next steps 3 1.How should we go about prioritising using the resources we will have in the business plan in the future? 2.What processes are needed with tenants? And with the council? 3.Are there governance and scrutiny implications – what are the options? 4.What approaches could be taken towards future rent flexibilities? 5.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?

15. leadership innovation transformation Questions ?