Beyond Redistribution Exploring New Models of Delivery By Philip Clifford September 2008

Current System: Model

Current System: Function Local authority: Collects rental income Spends available resources on management, maintenance and repair of stock Subsidy system formula establishes: Resources available to local authority based on notional need to spend Level of rental income to be returned to national subsidy system based on assumed rent levels Debt support payments National subsidy system Local debt/surplus met with positive/negative subsidy entitlement National debt/surplus met through contribution/extraction by HMT

Current System: Commentary Redistributive Local rental income captured by subsidy system and used to meet debt service charges, stock investment and other government expenditure Currently insufficient resources in the system Notional element means real need to spend not recognised Even if sufficient resources were available, system is likely to remain opaque and complex Local ring fence Typically resources used for upkeep of social housing kept separate from general fund Possible scope for limited local discretion National ring fence Could be adopted, unlikely to provide sufficient resources in itself to address current underfunding: approx £2.25bn pa.

Self Financing: Model

Self Financing: Function Following buy-out from current subsidy system: Local authorities run local HRA based on actual income and actual expenditure Debt is either taken to the centre or forms part of the buy-out transaction New properties can be built with receipts and rental income fully retained Rules and regulations governing this process complex but much of the initial work is already in train

Self-Financing: Commentary Greater local control End to year-on-year volatility of annual subsidy determination Local authorities able to establish actual need and plan expenditure appropriately Local ring fence retained Getting buyout price right is crucial element Unlikely to be significant investment opportunity in early years but long term efficiencies can be ploughed into stock improvement, service enhancement Risk that some local authorities may become bankrupt Potential for a reduction in complexity and greater transparency

Local Housing Company: Model

Local Housing Company: Function Local Housing Company established: 51% private sector partner 49% local authority Eligible for social housing grant Primarily formed to enable new build Separate housing management company takes care of rent collection, repairs and maintenance Existing local authority housing stock is included Potential for significant upgrade in stock condition Opportunity for variety of housing tenures managed by a single, local organisation Capital investment by HMT repaid via cost of capital charge, potential for debt spread to create additional borrowing headroom

Local Housing Company: Commentary Likely to require substantial local expertise and a willing private sector partner Elements of model already used in Barking and Dagenham Risk that owing to land price and availability LHC might not be suitable for all Business processes may not fit with the need to deliver a service for vulnerable client group

Full Local Discretion: Model

Full Local Discretion: Function Cessation of the national subsidy system and local housing revenue accounts Replaced with national monitoring and allocations framework the distributes resources to local authorities based on strategic spending priorities Local authorities would develop internal systems to determine need and appropriate method of intervention Social housing would form part of a package of measures available to support low income households wanting to rent and those with multiple needs Rental income would be returned to national government

Full Local Discretion: Commentary Would require quantum leap in accountability and responsibility of local authorities Radical devolution likely to require robust monitoring framework and control mechanisms Greater focus on social policy objectives rather than creation of new supply or investment in existing stock Investment, debt and revenue issues are treated in significantly different way

Local Authority Leaseback: Model

Local Authority Leaseback: Function Local authority housing stock is sold to a third party The stock is then leased back to the local authority on a long term basis Similar to stock transfer, resources for investment generated via sale but control maintained by local authority Surplus could be used to repay debt to government

Leaseback: Commentary Possible legal barriers Likely resistance from tenants fearful of stock privatisation Level of resources generated may be insufficient to warrant undertaking Limited social policy achievements and unlikely to contribute to new build

Capital Injection: Model

Capital Injection: Function Housing subsidy system ended Local HRAs operated on a self- financing basis Debt and debt support funding taken to the centre Based on assessment of adequacy of local rental income vs. need to spend HMT provides top up funding on a case by case basis

Capital Injection: Commentary Likely to be expensive: not only would Government no longer receive negative subsidy contributions but top up injections based on actual need to spend are potentially significant. However, would provide a transparent, robust mechanism to fund provision of local authority council housing Could be used as a basis for expanded delivery and stock investment

Regional Hybrid: Model

Regional Hybrid: Function (1) Essentially, self-financing with a regional ring fence and a strategic delivery fund tied to the London Board of the HCA Historic debt and debt support revenue stream taken out of the subsidy system Estimates of remaining subsidy levels indicate all but three boroughs would be in negative subsidy Instead of local buy out, negative subsidy boroughs would contribute an annual payment based on current subsidy system assumptions to meet funding requirement of positive subsidy boroughs. Currently estimated to cost approx 2.2% per annum. Local HRAs would be run under self-financing model: rental income used to meet actual need to spend

Regional Hybrid: Function (2) Local surpluses could be used to fund construction of new stock or combined with resources from the NAHP to form a London-wide Strategic Delivery Fund This would act as a vehicle to increase viability of strategic regeneration projects by pooling small local surpluses. Strategic relationship with HCA board and funding streams Crucially, boroughs would retain control over contributed resources Loss to Government of approx £265million a year in negative subsidy payments could either be written off or met through appropriate reduction of capital pot Rents could be set locally and constrained by Government limitations on Housing Benefit or regulated via the TSA Other regions could implement similar model or remain within a national subsidy system

Regional Hybrid: Commentary A pan-London solution broadly based on existing structures and mechanisms CLG would retain standards setting role but would no longer be responsible for annual administration Regional subsidy transfer ensures minimum standards of current system are not lost and transfer from negative subsidy boroughs less than existing buy out payment Capacity for boroughs to take local decisions and accrue benefits of efficiency savings At the same time, a framework for local boroughs to combine any surplus funds with others to generate economies of scale and invest in strategic priorities