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Supplementary Information

Agenda Item No. 9(g)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 17 DECEMBER 2014

 

REFERENCE FROM CABINET:  15 DECEMBER 2014

 

 

C2581     VOLUNTARY AGREEMENT FOR THE EXIT OF THE HOUSING REVENUE ACCOUNT SUBSIDY SYSTEM AND THE ASSOCIATED HOUSING BUSINESS PLAN 2014 (l) (HBMCS) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) –

 

Cabinet was presented with the Housing Business Plan 2014 and apprised of the Heads of Terms associated with the draft Voluntary Agreement for the exit from the Housing Revenue Account Subsidy System (HRAS).

 

The Welsh Government (WG) had been in discussions with HM Treasury since 2010 with a view to agreeing a financial settlement that would enable the eleven stock retaining local housing authorities (LHAs) to exit from the Housing Revenue Account Subsidy (HRAS) system.

 

The principle for Local Authorities buying themselves out of the system was that 'every stock retaining authority should be better off than the current position'.

 

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

 

The £73M of annual negative subsidy payments across Wales would be replaced by interest payments of approximately £40M. This would satisfy HM Treasury’s requirement that the agreement was fiscally neutral over the longer term.

 

The £40M annual interest payments would be converted to a lump sum settlement value a short period before the agreed implementation date. This would enable LHAs to consider their borrowing requirements in accordance with their local Treasury Management Strategy, to meet current business plan commitments and provide flexibility for LHAs to determine the type and period of loan. The Vale of Glamorgan's Treasury Management Strategy would require amendment to reflect the settlement figure.

 

In order to fund the buy-out, Treasury required LHAs to borrow from the Public Works Loans Board (PWLB).

 

HM Treasury required a housing related borrowing cap to be imposed on each LHA in order to control public sector borrowing. This would be known as 'the limit on indebtedness'. Failure to comply with this would result in sanctions by the Treasury. This meant that the Welsh Budget would be reduced and the reduction be passed on to each LHA as appropriate.

 

HM Treasury agreed that the eleven Welsh LHAs 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 LHAs and Welsh Ministers.

 

The powers for Welsh Ministers and local authorities to enter into a voluntary agreement was provided in section 80B of the Local Government and Housing Act 1989

 

Failure to agree and sign the voluntary agreement would result in the HRAS remaining in place in Wales until appropriate UK legislation was passed.  This meant that at least £73M would continue to be paid back to HM Treasury each year.

 

In June, 2014 the Council agreed to the terms by which it would engage with the exit process. Attached as Appendix 2 to the report was the agreed options for the distribution method for the settlement amount as provided by WG and Appendix 3, as attached to the report set out the latest draft calculation of the limit of indebtedness associated with the buyout, again provided by WG. 

 

The HRA Business Plan 2014 demonstrated that this level of borrowing was affordable over the longer term, and headroom would continue to be available as repayment of debt was made.  The available headroom below the cap along with the savings generated from exiting the HRAS would lead to significant sums being available for future spending and allowed the Council to consider building new housing and wider regeneration projects.  WG required all local authorities who retained their housing stock to submit annually an acceptable Housing Business Plan that indicated a detailed financial forecast in the form of a 30 year financial model.

 

The Housing Business Plan 2014 was attached at Appendix 4 to the report.  The Plan assumed that HRAS exit would go ahead on the planned date of 2 April, 2015.  Any associated borrowing to facilitate the buy-out had been based on the amounts provided by WG at Appendix 3 attached to the report

 

A summary of the movement in the financial position was included in the table below. 

 

 

December 2013

December 2014

Difference

WHQS Target

2016/17

2016/17

No Change

 

 

 

 

Revenue Surplus at year 30

£103.5M

£142.2M

+£38.7M

Repayment of Debt

Year 18

Year 25

+ 7 years

 

 

Increased Capital Investment as a result of exit:-

 

 

New Build & Regeneration Yrs 1-5

 

£20.1M

+£20.1M

New Build & Regeneration Yrs 6-30 estimated

 

£144.0M

+£144.0M

Total New Build & Regeneration

 

£164.1M

+£164.1M

 

 

Borrowing Requirements

 

O/s Debt

£2.1M

£5.9M

+ £3.8M estimated borrowing for 2014/15

WHQS borrowing requirement (including 2014/2015)

 

£33.9M

£30.1M

- £3.8M estimated borrowing for 2014/15

New Investment & Regeneration

 

£9.8M

+£9.8M

Borrowing required to exit HRAS

 

£63.2M

+£63.2M

Total Borrowing

£36.0M

£109.0M

+£73.0M

 

 

 

 

Peak Debt

£31.5M

£101.2M

+£69.7M

 

 

 

 

 

The Peak debt of £101.2M would leave available borrowing of £3.2M.

 

The Base Plan assumed that all debt could be repaid within the 30 year period (at year 25). However, as the Plan could not afford to begin voluntary repayments until later years, it could well be the case that as those repayments became due, current pressures may dictate that any revenue surpluses be used for reinvestment instead.   With this in mind, the sensitivity analysis had been based on a plan where only minimum repayments of debt were made (at 2% of outstanding debt per annum).

 

There were a number of risks associated with the assumptions used in the financial projections for the Business Plan.  Some of the potential risks had been modelled to assess their impact on the viability of the business case.  The results and relative risk assessments were shown in Appendix H and I attached to the plan.

 

The Business Plan was most sensitive to the cessation or reduction of the Major Repairs Allowance.   Sensitivity 5 explored this risk and whilst the Business Plan was still viable, the limit on indebtedness would be breached. In addition, the HRA Revenue surplus at year 30 was considerably reduced.

 

At the meeting, the Managing Director explained that the value of the buy out would not be known until the interest rate had been set in March 2015.

She further commented that the Housing Revenue Account was healthy at present.

 

This was a matter for Executive and Council decision.

 

RESOLVED –

 

(1)       T H A T the Housing Business Plan 2014, as attached at Appendix 4 to the report and the Heads of Terms of the Voluntary Agreement, as attached at Appendix 1 to the report, be endorsed and that the report be referred to Council for approval.

 

(2)       T H A T it be recommended that Council grants delegated authority to the Director of Visible Services and Housing in consultation with the Head of Finance, the Head of Legal Services, the Leader and the Cabinet Member for Housing, Building Maintenance and Community Safety to agree to the exit of the HRAS system once formal notification is received.

 

(3)       T H A T it be recommended that Council grants delegated authority to the Head of Finance in consultation with the Director of Visible Services and Housing, the Head of Legal Services, the Leader and the Cabinet Member for Housing, Building Maintenance and Community Safety to agree to the final settlement amount.

 

(4)       T H A T it be recommended that Council grants delegated authority to the Head of Finance in consultation with the Director of Visible Services and Housing, the Head of Legal Services, the Leader and the Cabinet Member for Housing, Building Maintenance and Community Safety to agree a change in the Treasury Management Strategy, in order to borrow the required settlement amount from Public Works Loans Board (PWLB).

 

(5)       T H A T it be recommended that Council grants delegated authority to the Director of Visible Services and Housing in consultation with the Head of Finance, the Head of Legal Services, the Leader, and the Cabinet Member for Housing, Building Maintenance and Community Safety to agree any changes to the Business Plan if necessary before submission on 7 January, 2015 and thereafter.

 

(6)       T H A T it be recommended that Council grants delegated authority to the Head of Legal Services in consultation with Director of Visible Services and Housing, the Leader and Cabinet Member for Housing, Building Maintenance and Community Safety to finalise the terms of the Voluntary Agreement and execute the same.

 

(7)       T H A T the use of article 13.09 of the Council's Constitution (urgent decision procedure) be authorised to enable the report to be presented to Council on 17 December, 2014, in order to meet Welsh Government deadlines.

 

Reasons for decisions

 

(1)       In order that pre Cabinet scrutiny be undertaken by the lead Scrutiny Committee.

 

(2)       To accommodate exit of the HRAS system, and ensure that all key decisions and actions had been made to implement the changes.

 

(3)       To accommodate exit of the HRAS system.

 

(4)       To enable the Council to borrow the agreed settlement figure from PWLB, as per the terms of the Voluntary Agreement.

 

(5)       To enable submission of a 30 year Business Plan accompanied by application for MRA (Major Repairs Allowance) by 7 January, 2015 as per the conditions of the grant.

 

(6)       To ensure that the Council meets the required deadlines for the exit of the HRAS System.

 

(7)       In order to meet Welsh Government deadlines.

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