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Agenda Item No. 6(f)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL: 7TH DECEMBER, 2011

 

REFERENCE FROM CABINET: 16TH NOVEMBER, 2011

 

 

C1515           FINAL HOUSING BUSINESS PLAN 2011 (L AND HCS) (SCRUTINY - CORPORATE RESOURCES) -

 

Cabinet, at its meeting held on 19th October 2001 had considered the Draft Housing Business Plan (Minute No. C1480 refers).  At that time the Cabinet had resolved that

 

(1)      The changes to the draft Housing Business Plan as outlined in the report be noted.

 

(2)       The draft Plan be referred to the Scrutiny Committee (Corporate Resources) and to the Scrutiny Committee (Housing and Public Protection).

 

(3)       The draft Plan be referred for consultation with the Tenants Panel.

 

(4)       The Housing Business Plan be brought back to Cabinet following consultation.”.

 

Since the above date the Plan had been considered by the Scrutiny Committees (Housing and Public Protection) and (Corporate Resources).  In addition, the Tenants Panel had been consulted on the draft document on 3rd November 2011. 

 

As a consequence of response to the consultation exercise an additional capital expenditure of £2m. had been included in the Final Business Plan compared to the draft (£1m. in year 3 and £1m. in year 4).  Other changes included the incorporation of the additional information presented to Scrutiny Committees, most notably the Investment Programme to 2016/17.  The final Housing Business Plan was attached at Appendix 1 to the report. 

 

Other changes to the Base Model included the incorporation of the most recent investment requirements as identified by the 2007 Stock Condition Survey conducted by Savills, adjusted for works carried out since that date.  The undermentioned summary set out the major changes made to the base model assumptions within the Final Housing Business Plan 2011 compared to the last approved Plan in 2010:

 

Assumption

November 2010

October 2011

Minimum level of balances to be maintained

£450,000 in real terms

£600,000 in real terms

Rents

£68.50 per week (average) calculated on a 52 week basis for 2010/2011, and to increase by inflation target + 1% from 2011/12 onwards in line with the notional rent guideline increase as per latest WAG determination.

£72.24 per week (average) calculated on a 52 week basis for 2011/2012, and to increase by inflation target +1% from 2012/13 onwards in line with the notional rent guideline increase as per latest WAG determination.

All other revenue income and expenditure

Based on 2010/11 budget

Based on 2011/12 budget including additional staff, consultancy fees and IT improvements and investments.

Estate Safety Improvements

None

£50k pa (Year 2-6)

 

In regard to the minimum level of balances to be maintained, this had been increased to £600,000 (real terms) which approximated to 5% of gross expenditure.  This was considered to be a prudent level.  As for rents, the actual average rent for all Council dwellings had been adjusted accordingly to reflect year 1 as 2011/12.  The base still assumed rents would increase by inflation targets plus 1% which was in line with guidance from the Welsh Government.

 

Two additional posts were required to deliver WHQS during Years 1-6 and these were set out in the report. 

 

Other revenue expenditure included the following:

 

·       Consultancy Fees £20,000 (Year 1) to assist with the implementation of the Keystone Asset Database

·       IT Improvements £20,000 (Year 2) to maintain and improve the existing Housing IT system

·       IT Investment £150,000 per annum (Years 7 - 11) and (Years 22 - 26) to replace the Housing IT system

·       Additional Licence Fees £30,000 per annum (Years 7 - 30) additional costs as a result of a new Housing IT system.

 

All prices were at today’s prices and were uplifted at the rate of inflation in the Business Plan. 

 

As for Estate Safety Improvements, an allowance of £50,000 per annum for Years 2 - 6 had been set aside to improve the safety of estates through community safety initiatives such as fencing, street lighting and landscaping.

 

The following additional staff positions could be funded from the 8% fee element of the Capital Programme as provided for in the Housing Business Plan i.e. the Quantity Surveyor, the Framework Manager, 4 x Maintenance Officers, technical salary costs equivalent to 1 x PO3 post and Building Surveyor.

 

The latest projections were set out in Appendix H(i) and H(ii) to the Plan.  These showed a reduction in the maximum amount of unsupported debt (Prudential Borrowing) at any time to £31.73m. (previously £35.12m.) and an increase in the revenue surplus after 30 years to £102.17m. (previously £58.68m.)  Based on Prudential Borrowing of £32.88m. it was anticipated that the Council could make early repayments during the later years of the Plan and replay any outstanding debt by 2029/30 (previously 2034/35).

 

Consideration was also given to the undermentioned summary of the movement in the financial position compared to the previous Base:

 

 

November 2010

November 2011

Difference

WHQS Target

2016/17

2016/17

No Change

Prudential Borrowing

£38.06 million

£32.88 million

-£5.18 million

Peak Debt

£35.12 million

£31.73 million

-£3.39 million

Repayment of Debt

2034/35

2029/30

-5 years

Revenue Surplus in year 30

£58.68 million

£102.17 million

+£43.49 million

 

One of the major risks to the Council was the impact of Prudential (unsupported) Borrowing, which was required to ensure WHQS was met in 2016/17.  The costs of borrowing must be able to be met from the HRA and it needed to be borne in mind that should the stock transfer in the future, any outstanding unsupported borrowing would fall to be met from the General Fund.  The implications for this were set out in the Business Plan.

 

There were also a number of risks associated with the assumptions used in the financial projections for the Business Plan with some of the potential risks modelled in the Plan.  This list was not exhaustive but outlined some risks to the main financial parameters and provided an indication of impact.  Additionally, the Council may experience one or a combination of factors for a period greater or less than that modelled.  In addition, some of the sensitivities had an “upside” e.g. if repairs cost increases were less than assumed.

 

For sensitivities 6 and 7 (risk in the receipt of the Major Repairs Allowance) modelled in the Plan, whilst the Council’s Housing Business Plan was technically viable the level of peak debt could be potentially viewed by the Council as an unacceptable level of risk.  Additionally, the HRA reserve surplus at year 30 was considerably reduced.  There was capacity for the Council to absorb a degree of risk however, significant changes to some assumptions could have a severe impact and potentially make the existing investment programme financial unviable.   A further risk to the Council was changes to the financial regime in which it operated e.g. rules on Prudential Borrowing so that the Council was unable to borrow to carry out improvements.

 

There were extensive monitoring and regulatory arrangements that governed the Council’s finances.  In reality the Council would take steps to avoid severe financial consequences and so the risks were consequently more likely to impact on the level of improvement to properties and the level of service provided to tenants.  Whilst all sensitivities result in a plan that was financially viable, the level of Prudential Borrowing could potentially be very high and so the Council would need to consider the risk to the Council that is deemed reasonable.

 

Leaseholders would be responsible for a proportion of the costs of the improvement works.  There was a need for formal consultation as there were a set of stringent steps that needed to be followed in order to ensure the cost of works were recouped by the Council.  The legal implications were currently being reviewed, including the importance of timescales such as an observation period where leaseholders could nominate an alternative contractor. 

 

It was important to note that the Housing Business Plan assumed that capital and revenue works to leasehold properties were recoverable from the leaseholder.  It was therefore critical that  a procedure was in place to minimise any unrecoverable costs. 

 

This matter was for Council approval.

 

RESOLVED - T H A T the Cabinet recommends to Council the approval of the Housing Business Plan.

 

Reason for decision

 

To obtain approval for the Housing Business Plan so that it may be submitted to the Welsh Government.”