Housing Revenue Account Reform: Implications for tenants TAROE Conference Steve Partridge 13 th 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 allowances3,328 Major Repairs Allowance1,273 Debt/Other1,246 ALMO/PFI subsidy244 Expenditure6,091 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 National average

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’ (6 th 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 2Later 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’…

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

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