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The Council is required by the Local Government and Housing Act 1989 (section 74) to keep a Housing Revenue Account (HRA) which records all revenue expenditure and income that relates to the provision of council dwellings and related services. The use of this account is heavily prescribed by statute and the Council is not allowed to fund any expenditure for non-housing related services from this account.
At 31 March 2007 the Council had 3,147 dwellings, including shared ownership dwellings. This number is expected to go down by about 42 properties over the medium term due to Right to Buy sales and the lack of any new build or acquisitions. Although the Council’s housing stock has reduced by approximately 10% over the past 5 years it still has management responsibilities for flats sold under a long lease.
In the future it is intended that the reduction in dwellings will be compensated for by the provision of new housing stock that will be planned for through Housing Associations within the District.
Over the course of 2008/09 the HRA Business Plan will be reviewed and updated. The current business plan clearly indicates that the Council can maintain its properties to the Decent Homes Standard for the full 30 years of the plan (which runs to 2036). The plan does however show that at the time of drafting a revenue deficit was anticipated after 2013, although the latest estimates indicate that this in not now likely to happen for a number of years later. The options that are available to ensure that a surplus is able to be sustained will be considered as part of drafting the new business plan and a set of actions planned for, which could include a reduction in the annual revenue costs, stock transfer of some or all of the houses and the achievement of efficiency savings through joint working with neighbouring councils.
Changes to the law in 2007 gives the Government powers to allow local authorities to opt out of the housing revenue account subsidy system, provided that they can become self-financing from rental income. The implications of this will be reviewed as part of the new Business Plan, which will form the basis of the HRA elements of the next Medium Term Financial Plan.
The main strategic objectives of the Housing Revenue
Account, which provide the underlying principles for financial planning are summarised in the box below. This strategy accords with the current HRA 30 Year Business Plan and has been used as the basis on which this Medium Term Financial Plan has been developed.
The Council’s Housing Revenue Account Strategy is:
As with the General Fund Revenue Account, the HRA budget is arrived at after the consideration of inflationary increases; growth in expenditure arising from service led demands and other pressures; reductions in expenditure through the realisation of efficiencies; and changes in income through rent increases and the impact of the sale of council houses.
The HRA is charged with costs that relate to the day-to-day maintenance of the Council’s housing stock, which includes supplies and services on improvement and repairs to the buildings, as well as the cost of council employees that are involved in the management of the housing function.
In line with the budget assumptions for the General Fund Revenue Account, growth has been factored in for pay increments and an annual cost of living rise of 2.75% (as with the General Fund only 2.5% of this relates to budgetary growth, the rest is being funded from the existing budget for the Benenden Health Scheme). Inflation has been provided for only where it is contractual or has been previously notified e.g. utilities, with RPI having been assumed at 3%.
As with all budget development the starting point is a review of existing budget provisions against income and expenditure projections for the previous year, which is used to identify possible areas of over–estimation of expenditure budgets and under-provision for income targets. This has been done as part of developing this medium term plan and as a result the level of bad debt provision is able to be reduced in the first year by £56k, this is a prudent reduction and it may be possible to realise even greater savings in the future, which will be reviewed as part of developing the next medium term financial plan.
As a result of improved management of some of the Council’s maintenance contracts and a more strategic approach to planning for repairs and maintenance works, efficiency savings have been able to be identified which have been factored into this medium term plan. The MTFP also reflects savings that are anticipated in energy costs, which have come about as a result of the new fixed term contract for heating and the programme of over-cladding to HRA Properties that has been in place in recent years.
Although it is too early to reflect in this plan, the Council is exploring the possibility of entering into a joint arrangement with other councils to collaborate in the letting of a single maintenance contract for housing repairs and maintenance services. This would be expected to bring significant improvements in value for money and could also potentially deliver substantial financial savings in the medium to long term.
The Council will continue to explore all options to improve efficiencies and with the planned revision of the 30 year HRA Business Plan more firm projections on future savings will be able to be made in the next Medium Term Financial Plan.
The Council receives income from a variety of sources in respect of its council houses, including that raised from rents and from service charges to residents of flats for communal services in order to recover its costs.
Due to the Authority entering into fixed term utility charges for heating and seeing the benefits of the over-cladding to HRA Properties, a reduction in the heating service charges to Tenants is proposed, which will match the reduction in expenditure planned for on this heading. The MTFP also allows for “un-pooled” service charges to increase in line with the Government’s guidelines set out in the Subsidy Determination by 4.4% (RPI at 3.9% + 0.5%).
Since April 2002 rents have had to be calculated according to a nationally determined formula that takes into account relative property values at January 1999, local earnings levels and the number of bedrooms of individual properties. The process by which the actual rent for each property moves from its current level to its target level is called rent restructuring.
Rent restructuring is a ten-year process and the target rent will increase by above inflation over this time, although actual rents may only increase by a given percentage determined by the Government. In practice, the Council uses the Government rent guidelines to determine its rent increases and under rent restructuring and current information available Thanet’s rents are forecast to become the lowest in Kent.
For budgetary purposes over the medium term is has been assumed that rents will be increased by 4.4%, which is in line with latest inflationary rates determined by the Government. Garage rents have also been shown to increase by 4.4 %. Future years have taken the average of the inflationary rates determined by Government over the last 5 years, therefore 3.8% has been assumed.
As a result of the interest rates being higher in recent months than they have in the last couple of years the budget for this heading will be increased in 2008/09 and be held at the same level for the following two years of this plan, on the assumption that the current level of rates will hold over the medium term.
The Government pays local authority housing authorities a housing subsidy to cover any shortfall between expenditure and income on the HRA, although where there is a surplus the Government recovers this by way of a negative subsidy. The MTFP assumes that Thanet will have a negative subsidy over the next three years, which will need to be paid over to the Government in 2008/9 based on provisional notifications received. It is felt to be unlikely that the final subsidy figure will vary significantly from the provisional one.
The Council keeps two HRA specific reserves that are allowable under statute; the HRA Repairs Reserve and the HRA Major Repairs Reserve. These are explained in more detail below.
This reserve is funded from annual contributions from the Housing Revenue Account and is used to meet expenditure on revenue repairs, maintenance works and capital works to HRA properties. There must always be sufficient budget in this to cover the planned expenditure. The Medium Term Financial Plan for the HRA shows a decrease of £589K in 08/09 due to a contribution to the HRA Capital Programme.
Within the HRA Subsidy is a Major Repairs Allowance (MRA) that reflects the need to replace building components as they wear out. The Council is required to place this MRA into a Major Repairs Reserve until it is needed to fund HRA capital projects. This funding has enabled the Council to maintain the housing stock in a good condition and as a result it is likely to be able to meet the target to deliver decent homes to all social sector tenants by 2010 that was part of the first Public Service Agreement. This Medium Term Financial Plan allows for increases in the MRA due to inflation which are partially offset due to changes in stock each year and assumes that the MRA will be fully utilised every year over the medium term.
The changes that are outlined in the paragraphs above have been applied to the existing budget for the Housing Revenue Account and the resulting financial projections for the HRA over the next three years are summarised in Table 10 below.
2008/09
2009/10
2010/11
£’000
EXPENDITURE
Repairs and maintenance
4,111
4,129
4,178
Supervision and management – General
2,685
2,754
2,831
Supervision and management – Special
583
598
615
Rents, rates, taxes and other charges
13
14
Negative HRA Subsidy Payable
73
294
727
Bad or doubtful debts provision
174
Cost of Capital Charge
0
Depreciation/impairment of fixed assets
2,231
2,241
2,254
Debt Management Costs
5
Gross Expenditure
9,875
10,208
10,798
INCOME
Dwelling Rents (gross)
-10,320
-10,685
-11,062
Non-dwelling Rents (gross)
-214
-218
-222
Charges for services and facilities
-248
-255
-264
Contributions towards expenditure
-208
HRA subsidy receivable
Income
-10,990
-11,366
-11,756
Net Costs of Services
-1,115
-1,158
-958
Asset Interest Charge
1,454
1, 476
1,289
HRA Investment Income
-339
-318
-331
Net Operating Expenditure/Income(-)
Housing Revenue Account Balance:
Surplus(-)/Deficit at Beginning of Year
-3,328
Surplus(-)/Deficit For Year
Surplus(-)/Deficit at End of Year
Next: Capital Programme
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E-mail: accountancy@ thanet.gov.uk
Tel: 01843 577000