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Agenda Item No 8

The Vale of Glamorgan Council

 

Homes and Safe Communities Scrutiny Committee: 7th  December 2016

 

Report of the Director of Environment and Housing

 

Initial Housing Revenue Account Budget Proposals 2017/18

 

Purpose of the Report

  1. To submit for consultation the Initial Housing Revenue Account budget proposals for 2017/18 and to inform Scrutiny Committee of the amended original budget for 2016/17.

Recommendations

It is recommended that:-

  1. The amended Housing Revenue Account budget for 2016/17 as set out in Appendix 1 be noted.
  2. The Initial Housing Revenue Account budget proposals for 2017/18 be considered and any recommendations be passed to Scrutiny Committee (Corporate Performance and Resources) as the lead Scrutiny Committee.

Reasons for the Recommendations

  1. To facilitate monitoring of the amended Housing Revenue Account budget.
  2. In order that Cabinet be informed of the recommendations of Scrutiny Committee before making a final proposal on the budget.

Background

  1. Each local housing authority is required under Section 74, of the 1989 Local Government and Housing Act to keep a Housing Revenue Account. Section 76 of the Act requires local authorities to set a budget for their Housing Revenue Account (HRA) on an annual basis. The budget must be set so that the sum held in the Housing Revenue Account reserve at year end is not in a deficit position.
  2. During the course of the year, local authorities must review their HRA expenditure and income. If on the basis of the information available, the balance of the HRA reserve is heading for a deficit, then steps must be taken as are reasonably practical to prevent this deficit. A local authority is not prohibited from being in deficit but will need to demonstrate that the deficit has arisen through exceptional circumstances and that it has revised its original proposals so far as reasonably practical to avoid the deficit. Such a deficit shall be carried forward and must be made good the following year.
  3. Each local authority should endeavour to have a working balance on the HRA reserve, for any exceptional circumstances that may arise.
  4. The level of rent increase is based on a rent policy introduced by the Welsh Government. At the time of writing this report, an announcement had not yet been made, therefore, an average rent increase of 3.5%, has been included in the 2017/18 initial budget proposals, which is equivalent to the proposals in the Housing Business Plan - February 2016.

Amended Budget 2016/17

  1. Set out below is a table comparing the original budget with the proposed amended budget.
 

2016/17

Original Budget

2016/17 Proposed Amended

Budget

Variance Favourable (-) Adverse (+)

 

£'000

£'000

£'000

Housing Revenue Account

(22)

768

+790

       
  1. The net operational budget for 2016/17 has changed from a surplus of £22k to a deficit of £768k. A review of the current budget has found potential net savings for the year of £2.51m. The main reason for this is that the estimated increase in the provision for bad and doubtful debts has been reduced by £1.018m as the Universal Credit and its effects are not likely to impact on Housing rent collection in 2016/17. There has been little increase in the actual level of rent arrears in this financial year and it is not anticipated that the provision will need to be substantially increased. In addition, there has been a reduction in the Repairs and Maintenance budget of £400k which partly relates to an external painting programme which is now due to commence in 2017/18 following the completion of the WHQS external works programme. A reduction in Capital Financing Costs of £649k is anticipated, there has been an adjustment in central recharges resulting in a decreased charge of £269k and the projected charge for Council Tax at void properties is £40k less than anticipated. Other budgets that are anticipated to outturn with an underspend are Incentive to Move £20k, survey costs £65k, compliance costs £42k and software costs of £40k. There are other minor reductions of £68k. These savings have been offset by a reduction in expected rental income from dwellings of £101k.
  2. The balance on the HRA reserve brought forward as at 1st April 2016 is £1.468m and is higher than required. In order to minimise the amount of unsupported borrowing required in year to fund the Housing Improvement Programme, it is prudent to use HRA revenue reserves up to a minimum balance. The level of Capital Expenditure funded from the Revenue Account (CERA), has been recalculated at £6.231m, which is an increase of £3.3m. This will leave a balance on the HRA reserve at year end of £700k, which is in line with the minimum amount required which has been assessed as at least £600k.

Base Budget 2017/18

  1. The Budget Strategy for 2017/18 outlined that, in order to establish a baseline, services should prepare revenue budgets for next year based on the cost of providing the current level of service and approved policy decisions. This means that the cost of price increases and pay awards should be included.
  2. Due to the nature of the HRA in that it is ring fenced and any growth has to be funded from the balance no cost pressures have been formally identified.
  3. The proposed 2017/18 budget is set out at Appendix 1 and is identified over the following areas.
  • Supervision & Management (General) - This budget relates to the general management of the Council's housing stock, for work carried out within the Housing service and for various issues relating to the Council tenancies excluding the repairs and maintenance function.
  • Supervision & Management (Special) - This budget relates to the running expenses and the cost of staff employed directly within the Housing service, in relation to functions such as sheltered housing schemes, running the hostel and temporary accommodation.
  • Repairs and Maintenance - This budget relates to the revenue repairs and maintenance service for the Council Housing Stock.
  • Capital Financing Costs - This relates to costs associated with financing HRA debt.
  • Rents, Rates, Taxes and Other Charges - This budget relates to items such as expenditure on Council Tax at long void properties, legal expenses, surveying costs, compensation and insurance.
  • Increase in Provision for Bad Debts - This budget identifies the amount by which the current level of provision should be increased or decreased in year.
  • Contribution from Revenue Account to Capital (CERA) - This budget relates to a contribution made from the Housing Revenue Account to fund capital expenditure.
  • Dwelling Rents - This is the net rent due to the Council for all properties whether General Needs, OAP designated, Sheltered Complexes, Hostel or Temporary Accommodation.
  • Non Dwelling Rents - This represents rental income due to the Council for HRA owned garages.
  • Interest - This budget relates to interest receivable on the average HRA Reserve Balance.
  • Charges for Services and Facilities - This budget identifies amounts due to the Council by tenants and leaseholders and some private individuals for services and facilities provided by the HRA.

Proposed Increases in Charges

  1. The charges for rent and other services provided by the Housing Service are reviewed annually. These will be subject to a future report once the guidance has been received from WG regarding the setting of rents for 2017/18. Set out below is a table summarising the original budget for 2016/17 with the proposed budget for 2017/18.

2016/17

Original

Budget

Inflation /

 Pay Award

Committed

Growth /

(Savings)

Estimated Rent

Increase

Increase/ (Decrease) in CERA

2017/18

Proposed

Budget

£000

£000

£000

£000

£000

£000

(22)

136

(138)

(579)

700

97

           
  1. A provision for general inflation includes an allowance of 1% pay awards in 2017/18. 1% increase in pay amounts to approximately £26k.
  2. The net saving of £138k is due to a number of factors;
  • An increase in Capital Financing charges of £223k in relation to unsupported borrowing being taken out in 2016/17 to fund the Housing Improvement Programme.
  • An increase in staff costs for increments and staff changes of £79k.
  • A reduction of £290k in central recharges.
  • A reduction in the cost for Council Tax at void properties of £67k.
  • Various other minor savings of £83k.
  1. An increase in Capital Expenditure from Revenue Account (CERA) to finance the Housing Improvement Programme of £700k has been assumed. The amount of revenue contribution required is dictated by available revenue balances and the value of the Housing Improvement Programme. Adjusting the level of CERA by this amount will leave a balance on the HRA Reserve of £603k, which is in line with the current minimum requirement.

Next Steps

  1. The next stage is for the estimates to be submitted to Scrutiny Committees for consultation. Corporate Performance and Resources Scrutiny Committee is the lead Scrutiny Committee and will consider both the Initial Housing Account Revenue Budget Proposals and any comments that other Scrutiny Committees have made. The responses of Scrutiny Committee must be made no later than the 13th December 2016.
  2. The Budget Working Group held a series of meetings in November 2016 with the relevant Cabinet Members and officers to consider the budget proposals. They will submit their recommendations so that the Cabinet may make its final budget proposal no later than the 20th February 2017. Before making its recommendation, the Budget Working Group will consider the comments made by Scrutiny.
  3. Cabinet's final budget proposals will be considered by Council at a meeting to be held on 1st March 2017.

Resource Implications (Financial and Employment)

  1. The Housing Revenue Account working balance at 1st April 2017 is projected to be £700k.

Legal Implications (to Include Human Rights Implications)

  1. The Council under the 1989 Local Government and Housing Act have a legal obligation to set a budget for the Housing Revenue Account. Notices of any increases have to be sent to tenants 28 days in advance of the new changes coming into effect.

Crime and Disorder Implications

  1. Many HRA activities have a positive impact on the reduction of crime and the fear of crime.

Equal Opportunities Implications (to include Welsh Language issues)

  1. Housing Services are carried out in accordance with the Councils Equal Opportunities policies and practices.

Corporate/Service Objectives

  1. This report is consistent with the Corporate Objective of an Inclusive and Safe Vale and well-being Objective 2: Provide decent homes and safe communities.

Policy Framework and Budget

  1. This report is following the procedure laid down in the Constitution for the making of the budget and so does not need to be referred to Council. However the final 2017/18 budget will require the approval of Council.

Consultation (including Ward Member Consultation)

  1. The Corporate Management Team has been consulted on this report. The initial budget proposals do not require ward member consultation.

Relevant Scrutiny Committee

  1. The lead Scrutiny Committee is Corporate Performance and Resources.

Background Papers

Housing Business Plan - February 2016

Contact Officer

Carolyn Michael - Operational Manager Accountancy

Officers Consulted

Carys Lord - Head of Finance

Mike Ingram - Operational Manager Public Housing Services

Responsible Officers:

Miles Punter - Director of Environment and Housing