Top

Top

Agenda Item No

 

MATTER WHICH THE CHAIRMAN HAS DECIDED IS URGENT BY REASON OF THE NEED FOR COUNCIL TO RESPOND TO WELSH GOVERNMENT BY 19 JULY, 2014

The Vale of Glamorgan Council

 

Cabinet Meeting: 16 June, 2014

 

Report of the Cabinet Member for Housing, Building Maintenance and Community Safety

 

Exit from the Housing Revenue Account Subsidy System

 

Purpose of the Report

1.         To seek views from Cabinet on the proposed arrangements for exiting the Housing Revenue Account Subsidy system.

Recommendation

1.         That Cabinet considers the report and the attached appendices and refers its views to Full Council on the process proposed and the responses to the questions posed by Welsh Government as contained within paragraph 12 (a) to (f).

2.         That the Head of Housing and Building Services submit regular reports to Cabinet and Council as necessary on the progress in exiting the Housing Revenue Account Subsidy system.

3.         That the urgent decision procedure as set out in article 13.09 of the Council's Constitution be used in view of the need to submit a response to Welsh Government by the 19 July, 2014.

Reason for the Recommendation

1.         In order for the exit from the subsidy system to be achieved by March 2015 all eleven stock retaining local authorities in Wales need to come to an agreement on the Treasury settlement 'offer' and the mechanisms by which the borrowing cap will be distributed.  The changes in how the Housing Revenue Account operates have implications for the Housing Business Plan, this is outside the current policy framework, therefore the decisions associated with these changes must be agreed at Full Council.

2.         That Full Council will need to accept the voluntary agreement to allow the Vale of Glamorgan Council to exit from the Housing Revenue Account Subsidy system by March 2015.

3.         The urgent decision procedure is invoked due to the timescales set down by Welsh Government and the availability of a Council meeting prior to this date.

Background

2.         The Welsh Government has been in discussions with HM Treasury since 2010 with a view to agreeing a financial settlement that would enable the eleven stock retaining Councils to exit from the Housing Revenue Account Subsidy (HRAS) system.

3.         The principle for Local Authorities buying themselves out the system are that “every stock retaining authority should be better off than the current positionâ€. This includes not only the financial benefits from exiting HRAS but also the benefits of becoming self-financing.

4.         Welsh Government announced in June 2013 that an agreement had been reached with HM Treasury, which together with the introduction of new self-financing arrangements is expected to generate revenue savings for the eleven Councils each year. This will allow Councils to increase their investment in their existing stock and, where possible, support the delivery of additional housing supply.

Key elements of the agreement are that:

·               Councils are required to buy themselves out of the HRAS;

·               All stock retaining Councils in Wales pay back a proportion of their rental and 'right to buy' income to Treasury as part of the Housing Revenue Account negative subsidy system.  At this time Councils in Wales pay back approximately £73m a year.  In the event of Councils exiting from the subsidy scheme these payments will be replaced by interest payments of approximately £40m. This will satisfy HM Treasury’s requirement that the agreement is fiscally neutral over the longer term; ie there is no increase in pressure on the Public Sector Borrowing Requirement.

·               The £40m annual interest payments will be converted to a lump sum settlement value a short period before the agreed implementation date. This will enable Councils to consider their borrowing requirements in accordance with their local Treasury Management Strategy, to meet current business plan commitments and provide flexibility for Councils to determine the type and period of loan.

·               In order to fund the buy-out, Treasury require Councils to borrow from the Public Works Loans Board (PWLB). Failure to comply with this would result in sanctions by Treasury. This would mean the Welsh Budget would be reduced and the reduction passed on to each Council as appropriate.

·               Guidance on the treatment pf principal repayments within Councils has yet to be issued.

·               HM Treasury requires a housing related borrowing cap to be imposed on each Council in order to control public sector borrowing.

·               The Welsh Government has worked closely with HM Treasury to identify timescales for implementation and the appropriate legislative mechanism for the setting of housing related borrowing cap. HM Treasury has advised that the borrowing cap requires UK legislation and is bringing forward provisions within an appropriate UK Bill. If provisions within the UK primary legislation is not in place HM, Treasury have agreed that Wales can exit from the HRAS system in March 2015 on condition that Welsh Government secures and manages the borrowing cap as part of a voluntary agreement with all eleven Councils.

5.         A 'consultation paper' titled New Local Housing Authority Self-Financing System (HRAS Reform) on the distribution of the settlement value of the HRAS buy-out and the housing related borrowing cap was circulated by the WLGA to the 11 stock retaining local authorities prior to a meeting that was held on the 16th of May 2014.  Officer and Member representatives were asked to consider a number of questions posed by Welsh Government relating to the exit from the HRAS. In attendance for the Vale of Glamorgan Council were the Cabinet Member for Housing, Building Services and Community Safety, the Head of Housing and Building Services and the Housing Accountant.

Local Authorities were asked to consider the following questions on the day:

(a)          Do you agree with the proposal to distribute the settlement value based on negative subsidy amounts (option 1)? (attached as appendix 1)

(b)          Do you agree with the proposal to distribute the borrowing cap based upon option 3 (see appendix 2) to allow for new build commitments whilst also providing potential headroom for new build to every local authority?

(c)          Do you agree that the Welsh Government should retain a small proportion of the borrowing headroom as a contingency? (Proposed at £5M)

(d)          What are your views on how Welsh Government allocate any unallocated borrowing headroom now or in the future?

(e)          Do you agree that the borrowing cap should be reviewed every three years with the 1st review in 2018/19?

(f)           What action should the Welsh Government take on a Council who has not delivered on their ability to utilise their borrowing cap?

6.         Following this meeting the WLGA Co-ordinating Committee, made up of the 22 local authorities, met on the 23rd May 2014 to discuss the broad principles of Welsh Government's self financing proposals. The following was agreed in principle but subject to formal agreement on an authority by authority basis:

·               endorse option 3 for distribution of the borrowing cap as an acceptable option for all 11 authorities, while recognising that this is not necessarily the preferred option for individual authorities

·               endorse the prioritisation of the borrowing required to achieve WHQS and commission a high-level independent health check of submitted business plans;

·               reject the proposal that Welsh Government  hold back £5 million of borrowing capacity as a contingency;

·               endorse the preferred option for the distribution of the settlement value distributed between authorities to reflect current negative subsidy payments so that each authority benefits by 45.12% of their current payments .

·               agree that there should be flexibility in relation to the borrowing cap which will allow Authorities to ‘trade’ borrowing on a voluntary basis.  An independent periodic review to take place on a 3 year cycle starting in 2018.

Relevant Issues and Options

7.         As the timescales for UK Legislation were unclear, HM Treasury agreed that the 11 Welsh Councils could exit the HRAS system in March 2015, subject to the Welsh Government securing and managing a borrowing cap through a voluntary agreement between each of the eleven Councils and Welsh Ministers.

8.         The powers for Welsh Ministers and a Council to enter into a voluntary agreement are provided in section 80B of the Local Government and Housing Act 1989.

9.         It is essential that all eleven Council agree and sign the voluntary agreement. Failure to do so will result in the HRAS remaining in place in Wales until appropriate UK legislation is passed. This means that at least £73 million will continue to be paid back to HM Treasury each year.

10.      The voluntary agreement will act as an interim arrangement until the Wales Bill comes into force and as a fall-back position should the Wales Bill fail for whatever reason. Once the Wales Bill receives Royal Assent and the appropriate provisions are commenced Treasury will need to issue a determination to the Welsh Ministers which will set the macro borrowing cap for Wales. This will enable the Welsh Ministers, subject to consultation, to issue a determination to Councils which will set the borrowing cap for each Local Authority. There is the potential for the legislative process to replace the need for a voluntary agreement.

11.      Each stock retaining local authority has now been asked by Welsh Government to formally respond by 19th July, 2014 to the 6 questions set out within this report (a) - (f) above confirming if the Council accepts the WLGA Coordinating Committee's recommendations. 

12.      The following details the Vale of Glamorgan Council's proposed response in respect of the 6 questions posed by Welsh Government.

(a)          Do you agree with the proposal to distribute the settlement value based on negative subsidy amounts?  (Option 1 - attached as appendix 1)

·               This is acceptable.

(b)          Do you agree with the proposal to distribute the borrowing cap based upon option 3 (see appendix 2) to allow for new build commitments whilst also providing potential headroom for new build to every local authority?

·               The preferred option for the Vale of Glamorgan Council is option 2 as this gives additional borrowing capacity in terms of new build and is based on a needs and affordability formula.  However, all 11 local authorities are compromising in order that the overall borrowing cap is not exceeded, tight timescales are met and that new build requests are in some part acceded to, therefore, option 3 is acceptable to the Vale of Glamorgan Council.

(c)          Do you agree that the Welsh Government should retain a small proportion of the borrowing headroom as a contingency? (Proposed at £5M)

·               This is rejected as the borrowing cap is a local authority borrowing cap and should be used as such.

(d)          What are your views on how Welsh Government allocate any unallocated borrowing headroom now or in the future?

·               Unallocated borrowing headroom should be distributed between the local authorities using the formula explicit within option 2 (Appendix 2) which is based on need and affordability. 

(e)          Do you agree that the borrowing cap should be reviewed every three years with the 1st review in 2018/19?

·               It should be recognised that major capital projects are complex in terms of delivery. Business plans are long term planning documents.  The rational in reviewing borrowing cap usage in such a short period of time may lead to uncertainty in relation to long term strategic planning.

(f)           What action should the Welsh Government take on a Council who has not delivered on their ability to utilise their borrowing cap?

·               It is not felt that employing sanctions in terms of not using the allocated cap would be of any benefit in this process.  Experience tells us from delivering Social Housing Grant schemes that a myriad of things can impact on an organisation’s ability to always deliver.  Flexibility in the borrowing cap allocation should only be sought between Councils through trading arrangements.

13.      The Welsh Government considers that Borrowing Cap Option 3 is the preferred option. Option 3 in terms of the Vale of Glamorgan's Housing Business Plan will give the Authority headroom to consider new build council housing (see Appendix 2). Based on existing financial assumptions the additional borrowing has been modelled and is affordable.

14.      The final decision on the borrowing cap distribution will be subject to agreement by the Minister for Housing and Regeneration. Option 3 will be  supported by the following process:

·               Each Council will be allocated an “indicative allocation†of the borrowing headroom as set out in option 3. 

·               Each Council will need to advise the Welsh Government by end of October 2014 on whether they will take up their “indicative allocation†for new build by March 2018.

15.      If a Council wishes to take up their “indicative allocationâ€, the Council will need to submit proposals to the Welsh Government by end of October 2014 which sets out how and when they could utilise this for new build and whether this together with their allocation for WHQS and % share for new build was "affordable" within the business plan.

16.      At this time we have no information on whether the additional borrowing headroom can be used for regeneration projects on council estates.

Resource Implications (Financial and Employment)

17.      Based on existing financial assumptions the additional borrowing has been modelled and is affordable.  The final details of exiting the scheme and associated accounting treatment in HRA is now yet known.

Sustainability and Climate Change Implications

18.      Good quality well maintained housing contributes to the sustainability of neighbourhoods.

Legal Implications (to Include Human Rights Implications)

19.      There are legal implications in terms of the preparation of the voluntary agreement associated with the exit from the Housing Revenue Account subsidy system.

Crime and Disorder Implications

20.      Investing in landlord services and Council housing will have positive impacts in terms of crime and disorder and antisocial behaviour.

Equal Opportunities Implications (to include Welsh Language issues)

21.      An Equality Impact Assessment will be undertaken when considering the revised business plan.

Corporate/Service Objectives

22.      This report is consistent with the Corporate Objective of the Council:

Housing:

Vale of Glamorgan residents have access to affordable, good quality suitable housing and housing advice and support.

Policy Framework and Budget

23.      This report is a matter for Executive decision by Council.  Views are sought from Cabinet prior to submission to Full Council.

Consultation (including Ward Member Consultation)

24.      No Ward Member consultation needed as the report focuses on a cross cutting issue.

Relevant Scrutiny Committee

25.      Housing and Public Protection.

Background Papers

Consultation Paper - New Local Housing Authority Self-Financing System (HRAS Reform).

Contact Officer

Hayley Selway - Head of Housing and Building Services.

Officers Consulted

Accountant - Housing

Legal - Committee Reports

 

Responsible Officer:

Miles Punter - Director of Visible Services and Housing.

 

 

Share on facebook Like us on Facebook