Agenda Item No
The Vale of Glamorgan Council
Cabinet Meeting: 29 July, 2013
Report of the Leader and Cabinet Member for Housing, Building Maintenance and Community Safety
Welsh Local Authorities Removal from the Housing Revenue Account Subsidy System
Purpose of the Report
1. To update Cabinet on the recent announcement that the Treasury has agreed the proposals from Welsh Government to remove Welsh Local Authorities from the Housing Revenue Account Subsidy System.
1. That Cabinet note the content of this report.
2. That Cabinet agree to officers preparing a shadow business plan’, further to clarification from Welsh Government on a number of business planning assumptions.
Reasons for the Recommendations
1. To ensure that Cabinet is fully versed on progress with HRA subsidy scheme proposals.
2. To ensure that officers are adequately prepared to present business planning information to Welsh Government and Cabinet based on revised business plan assumptions.
2. Currently all local authorities in Wales, with retained housing stock, are in negative subsidy. The collective level of negative subsidy across Wales is around £73M. In effect this is money that is paid back from our tenants via the Housing Revenue Account and the Welsh Government to the Treasury. The Welsh Government has been in negotiations with the Treasury for a buyout of the Welsh HRA subsidy. In England the subsidy system was bought out some years ago. This resulted in all authorities in England (133) with retained stock borrowing a total of £12.6bn.on settlement day.
3. There are a number of issues to consider:
· The level of the buyout and the requirement of the Treasury to set a borrowing cap
· The distribution of the buyout and borrowing cap between authorities
· How borrowing is to be provided for in the housing revenue account
· The future of the major repairs allowance
4. Section 151 officers from a number of 'landlord retaining’ local authorities have been working with Welsh Government as consultees in developing a proposal. The work undertaken has been highly confidential up until recently.
Relevant Issues and Options
5. On the 9th of July the Head of Financial Services and the Head of Housing and Building Services attended a meeting with Welsh Government officials from both the Finance and Housing teams to discuss the detail of the proposed settlement.
The following details the key points from the meeting:
6. Welsh Government would like the 'buyout’ to be completed by the end of the financial year. In order for this to happen it would want a 'voluntary agreement’ with the Treasury (a legislative process would impact significantly on timescales for delivery).
7. Welsh Government would expect the details of the Voluntary Agreement to go through the appropriate political and governance structures of each local authority affected prior to adoption.
8. Welsh Government has indicated that they can potentially buyout the HRA subsidy with an annual payment of £40M to the Treasury via the Public Works Loan Board (PWLB). The way the deal has been structured is that there will be an annual interest payment of £40M based on a PWLB 30 year maturity loan. The interest rate on the settlement day will determine the capital value of the loan. Clearly, the interest on the repayment of £40M p.a. is on the face of it better than the existing negative subsidy of £73M.
9. There are however a number of issues for Welsh Government and the relevant local authorities to consider. The Capital Accounting Regulations are determined by Welsh Government. A decision needs to be made by Welsh Government on whether we retain the existing system with the 'Minimum Revenue Provision’ (MRP) or move to depreciation accounting. Currently there is a minimum revenue provision of 2% on HRA debt – this means that money is provided in the HRA balance sheet to repay the debt. In England full depreciation accounting is used, however this process can be onerous and expensive. The favoured option of the local authorities is to retain the 2% minimum revenue provision.
10. As there is a saving, the Treasury, conscious of the level of national debt, will want to impose a borrowing cap. They are worried that with the improved revenue position authorities could increase the level of unsupported borrowing. The Welsh Government has sought to negotiate a borrowing cap that will support existing borrowing plus the borrowing levels indicated in housing business plans (a shortfall currently exists in this figure).
11. The Welsh Government has taken into account the borrowing requirements of housing business plans in negotiating the borrowing cap. The borrowing cap will need to cover existing debt, borrowing to finance the buyout and headroom for new borrowing for business plans. This amounts to £1.85bn. The level of new borrowing to support the business plans will need to be revisited in the light of the buyout.
12. It is anticipated there may be some reduction in borrowing as a result on the improved revenue position after the buyout.
13. Indications are that the £40M annual interest payment will be allocated to authorities on the basis of the existing subsidy allocation. On the basis of figures available, the allocation to the Vale will be around £2.76M, compared with negative subsidy of around £5.25M. There will be a consultation paper on the distribution. The figures will need to be updated for 2013/14 subsidy and validated.
14. Assuming the current interest rates, an annual interest payment of £2.76M translates to a 30 year maturity loan of £63.3M. These are provisional figures but using these within the business case model, with various scenarios e.g. MRP and depreciation accounting, the plan remains viable.
15. In the negotiations, reference has been made to the Major Repairs Allowance. All indications are that this will continue in its present form. (However, there must be some concern over the future level of resources generally, given the Welsh Government settlement).
16. Officers from the Housing Team at Welsh Government have proposed a governance structure to take the process forward i.e. a steering group with a number of work streams focusing on:
· Transactions and Accounting
· Capacity Building and Training
17. Nominations have been sought from officers of Local Authorities to participate in the steering group or work streams. This is to be co-ordinated by the WLGA.
18. Welsh Government officials require all Councils to prepare shadow business plans however the detail on some of the elements to which business plan assumptions would be made are still outstanding from Welsh Government e.g. write down figures, MRP / depreciation figures). Welsh Government does not expect borrowing requirements within shadow business plans to increase. Changes to the Rent Policy, which may impact on business plan assumptions are still to be considered by the Minister for Housing and Regeneration.
Resource Implications (Financial and Employment)
19. As detailed within the report a shadow business plan will be presented to the appropriate committees further to clarification of business planning assumptions from Welsh Government.
Sustainability and Climate Change Implications
20. There are no implications.
Legal Implications (to Include Human Rights Implications)
21. There are no legal issues to be considered at this time however engaging in the Voluntary Agreement will have legal implications for the Council.
Crime and Disorder Implications
22. There are no crime and disorder implications.
Equal Opportunities Implications (to include Welsh Language issues)
23. There are no equal opportunity implications.
24. H13 - Review the responsive repairs and housing maintenance service to identify service improvement and increase tenant satisfaction (2013 / 2014)
Policy Framework and Budget
25. This report is a matter for Executive decision.
Consultation (including Ward Member Consultation)
26. This report is Vale wide so no specific Ward Member consultation has been carried out.
Relevant Scrutiny Committee
27. Housing and Public Protection.
Hayley Selway Clive Teague
Head of Housing and Building Services Head of Financial Services
Accountant - Housing
Operational Manager - Legal Services
Head of Financial Services
Sian Davies - Managing Director
Miles Punter - Director of Visible Services and Housing