Agenda item

Members noted that the Housing Revenue Account (HRA) was a separate ring-fenced account within the Council for the income and expenditure associated with its housing stock. The HRA did not directly impact on the Council’s wider General Fund budget or on the level of council tax. Income to the HRA was primarily received through the rents and other charges paid by tenants and leaseholders.

 

Whilst North Northamptonshire Council must only operate one HRA it would continue, for a limited period of time, to operate two separate Neighbourhood Accounts, these being:

 

·         the Corby Neighbourhood Account - responsible for the stock that was previously managed by Corby Borough Council and

·         the Kettering Neighbourhood Account - responsible for the stock that was previously managed by Kettering Borough Council.

 

A future decision would be required around the timeframe for which these two Neighbourhood Accounts continue – typically these interim arrangements would cover a two to three-year period.

 

Work was underway on preparing a Housing Strategy for North Northamptonshire. This would consider the challenges faced by the Council across the local housing market and would set out measures to enhance housing options for local residents. This document would form a key element of the overarching strategy for North Northamptonshire which will be reported to Members during 2022/23.

 

The report sought approval for the proposed draft budget for the HRA for 2022/23 and the key principles on which it was based together with the Medium-Term Financial Plan (MTFP) that covered the following four years (2023/24 – 2026/27).

 

The report also set out the proposals regarding rent increases for 2022/23, as required by the Housing Act 1985. A table summarised the average rent levels for 2021/22 and the proposed rent increase of 4.1% in rent levels for 2022/23.

 

Neighbourhood Account	22/22 Average Rent Levels £	Increase in Average Rent Levels £	22/23 Average Rent Levels £
Corby	77.88	3.19	81.07
Kettering	82.17	3.37	85.54

 

The draft HRA Budget had been discussed and debated as part of the Finance and Resources Scrutiny sessions and with tenants representing each of the Neighbourhood Accounts. The final budgets reflected a rental increase of 4.1% which accorded with the Government’s Rent Setting Policy and had been clarified by the Rent Regulator. The draft Budget proposals and Medium-Term Financial Plan were set out in Appendix A and Appendix B.

 

The overriding approach as part of the transition to the Unitary council for North Northamptonshire was to ensure that the arrangements were ‘safe and legal.’  It was determined that for the HRA this would, in the first instance, be best achieved through operating two Neighbourhood Accounts to be combined under a single HRA for North Northamptonshire. Work was planned to be undertaken during the course of 2022/23 to start to move to a single HRA and this included developing a new 30-year Business Plan.

 

To help maintain and protect levels of service provision and to continue investment into the housing stock the proposed average rent increase was 4.1% for each of the Neighbourhood Accounts. This was in accordance with the Government’s Rent Setting Policy. Taking into account this increase, the draft Neighbourhood Accounts showed a balanced position for 2022/23.

 

Beyond 2022/23, the Medium-term position (2023/24 to 2026/27) for the Corby Neighbourhood Account showed a deficit of £1.860m whilst the Kettering Neighbourhood Account showed a surplus of £3.921m. The main reason for the difference between the two Neighbourhood Accounts results from how the loans for self- financing were structured. The Corby Neighbourhood Account was increasing its contribution for the repayment of the loans whereas the Kettering Neighbourhood account was reducing its repayments.

 

The Medium-Term position assumed that rent increases of 2% were applied each year over the Medium-Term. Rent increases would be subject to an annual consultation with tenants and the rent levels would be dependent on the rent setting formula which was based on the CPI in September of the previous year plus 1%.

 

The scrutiny process for the Draft HRA Budget Proposals was undertaken by Finance & Resources Scrutiny at two meetings on the 6^th January 2022 and 19^th January 2022. Outcomes were reported to the Finance & Resources Scrutiny Committee meeting on 1^st February 2022. Appendix D provided a summary of comments made from the two scrutiny meetings (6^th January and 19^th January).

 

The report stated that representatives of the Kettering Tenants Forum and Corby Tenant Voice Members had been consulted and agreed a 4.1% increase in rent levels for 2022/23.

 

Each year social landlords must set rent levels and budgets for the forthcoming financial year and provide each individual tenant with 28 days statutory notice of any proposed changes to their rent. The report set out the proposals regarding the rents, as well as the expenditure plans for the 2022/23 rent year, together with a draft Medium-Term Financial Plan (MTFP) covering the four- year period 2023/24 to 2026/27.

 

The Council housing stock in the Corby Neighbourhood Account comprised 4,621 tenanted and 631 leasehold properties (as at 1^st April 2021) with a rent roll of £18.956m in 2021/22. The Kettering Neighbourhood Account comprised 3,603 tenanted and 253 leasehold properties (as at 1^st April 2021), with a rent roll of around £15.066m. East Northants and Wellingborough Councils had no housing stock having made the decision several years ago to sell their stock. The composition of the Housing Stock for both the Corby and Kettering Neighbourhood Accounts was set out in Table 1 and Table 2 in the report.

 

Table - Corby Neighbourhood Account
		Number of Bedrooms
Type of Property		One	Two	Three	Four +	Total
Flats-Low Rise		654	338	51	1	1,044
Flats-Medium Rise		131	187	113	16	447
Houses		1	671	1,683	245	2,600
Bungalows		309	179	42	0	530
Total		1,095	1,375	1,889	262	4,621
Table - Kettering Neighbourhood Account
		Number of Bedrooms
Type of Property		One	Two	Three	Four +	Total
Flats-Low Rise		720	455	3	0	1,178
Flats-Medium Rise		235	120	10	0	365
Houses		26	492	1,033	32	1,583
Bungalows		200	275	2	0	477
Total		1,181	1,342	1,048	32	3,603

 

The Council was required by law (Local Government and Housing Act 1989, Section 76) to avoid budgeting for a deficit on the HRA. This meant the budget must not be based on total HRA revenue reserves falling below zero. In practice the Council was expected to maintain a reasonable balance of HRA reserves to cover contingencies.

 

The Executive Director (Chief Finance Officer) had reviewed the level of balances required to support the Housing Revenue Account spend annually as part of their risk assessment of the budget. The Executive Director – Finance had assessed that the minimum level of balances, taking all known risks into account, should remain unchanged at £800k for the Corby Neighbourhood Account and that the Kettering Neighbourhood Account be increased from £300k to £650k. This aligned the two Neighbourhood Accounts, so the minimum balances were around 4% of the total budget. Details of Reserves together with any estimated movements were set out in Appendix C.

 

It was not feasible to merge the two neighbourhood accounts into one when the legacy councils merged and create the operational changes that were required to ensure a safe and legal service. It was also necessary to develop a 30 Year Business Plan for a single HRA. The Council’s Corporate Strategy was approved at the Executive on 18^th November 2021, and this set out its priorities, the objectives to achieve these, key actions, and measures of success. The services delivered within the HRA would support this strategy and would be developed over the forthcoming financial year.

 

The approach to the HRA budget setting had focused on three key areas for 2022/23 and the following sections of the report take items (i) and (ii) in turn. However, it should be noted that item (iii) would be covered in separate reports on the agenda which covered both the General Fund and HRA Capital Programmes.

 

(i)      Revenue income and rent and service charge levels;

 

(ii)     Revenue expenditure plans that reflected service delivery patterns;

 

(iii)   Capital expenditure plans that would deliver essential works to the stock as well as ensuring the Decent Homes Standard was maintained and support the new build programme.

 

The HRA received income primarily from rents paid by tenants and from service charges levied. The draft budgets for 2022/23 had been compiled based on a rent increase of 4.1% - which was in accordance with the nationally recommended increase for 2022/23. When considering the rental increase it was important to recognise the long-term impact as income foregone was compounded over future years.

 

The MHCLG policy statement on rents published in February 2019 announced that rents would increase by CPI + 1% from April 2020 and this would be for a period of five years (2020/21 to 2025/26). Members were reminded of the announcement that was made in July 2015 budget statement where all social rents would decrease by 1% each year over the four-year period 2016/17 – 2019/20 during which the cumulative loss of rental income was around £70m for the Corby Neighbourhood Account and around £60m for the Kettering Neighbourhood Account. This would continue to have a significant cumulative impact on the level of income that would be available to the HRA over the course of the 30-year business plan.

 

The number of Right to Buy (RTB) sales assumed during 2022/23 and the medium term for the Corby Neighbourhood Account was 50 and for the Kettering Neighbourhood Account was 30 – these assumptions would be kept under review. The part year income associated from these sales had been deducted from the 2022/23 income budget.

 

For 2022/23 it was assumed that 0.9% of the Corby Neighbourhood housing stock would be void at any one time and it was assumed that 1.90% of the Kettering neighbourhood housing stock would be void at any one time and therefore rent could not be charged. This was consistent with the approach taken in previous years and reduced the total income expected to be achieved by c£170,000 for the Corby Neighbourhood Account and c£290,000 for the Kettering Neighbourhood Account.

 

Acquisition and new build programmes increased the number of housing stock for the HRA. The Corby Neighbourhood Account would reflect the additional income in 2022/23 from the delivery of 3 new homes during 2021/22 at Stanion Close and would also reflect an increase in income from the delivery of 5 homes at Cannock Road.

 

The Kettering Neighbourhood Account would reflect the additional income from the delivery of 28 homes across the Scott Road (22 homes) and Albert Street (6 homes) sites. These sites were delivered in 2021/22 and a total of 28 homes had been added to the 2022/23 rental yield.

 

It was anticipated that a further 18 homes would be delivered at Cheltenham Road that would be available for rent in March 2023, this had been reflected into the revenue account for 2023/24. Further schemes would be reflected in the Medium-Term Financial Plan when there was more certainty around the timed delivery of future housing schemes.

 

In April 2012, the Government “reinvigorated” its Right to Buy (RTB) policy by reducing the eligibility period for RTB sales and increasing the maximum levels of discount. At the same time, the Government introduced a new mechanism that allowed local authorities to retain 100% of the RTB receipts (after some deductions) from the sale of Council Houses above a specified number of RTB sales set by Government each year for each council (the “RTB threshold”). These were referred to as 1- 4-1 Receipts.

 

There were two core principles for using 1-4-1 Receipts:

 

               1)      That 1-4-1 Receipts could only be used to fund no more than 30% of eligible expenditure for the provision of new homes; and

 

               2)      That 1-4-1 Receipts must be utilised within 3 years of them occurring. In order for the Government to enforce the time period in which expenditure must be accounted for, the standard agreement signed by Councils required any 1-4-1 Receipts not utilised within the 3-year timeframe to be paid over to the Government, plus interest charged at 4% above base rate compounded every 3 months. 

 

The previous sovereign Councils (Corby Borough Council and Kettering Borough Council) opted into the 1-4-1 agreement. However, COVID-19 meant that a number of planned new build schemes nationally were delayed as contractors and companies rescheduled their projects and the need to maintain social distancing would see a reduction in staff on site which could have resulted in a delay in delivery. In response to this the Government temporarily lifted the time period for which 1-4-1 receipts needed to be utilised by granting a six-month extension in 2020/21, this extension was then increased to nine months.

 

The Government announced a number of changes on how 1-4-1 receipts could be used. These changes came into effect from 1^st April 2021 and included;

 

·         Increasing the time limit for the use of the receipts from three to five years – this covered not just future receipts but existing ones (i.e., back to 2017-18).

 

·         That the use of 1-4-1 Receipts to fund eligible expenditure for the provision of new homes be increased from 30% to 40%.

 

·         Introduction of a cap on the use of Right to Buy receipts on acquisitions to help drive new supply with the phased introduction, with the cap limiting acquisitions to 50% of delivery from 1^st April 2022, then reducing to 40% from 1 April 2023, and to 30% from 1^st April 2024 onwards. The first 20 units of delivery in each year would be excluded.

 

The report indicated that the Council could set its own charges for items that attracted service charges but must review annually the costs that drive these charges as well as how that money could be utilised.

 

Leasehold service charges covered costs that were recharged to leaseholders in year to reflect either the cost of maintaining the fabric of the building or the cost of maintaining the communal areas. These charges had to reflect the full cost that was incurred by the HRA, no profit should be achieved through the levelling of these charges. Given this, the income budgets proposed reflected only an indicative level and actual charges would be reconciled the following year against actual costs incurred. Within both the Corby Neighbourhood Account and the Kettering Neighbourhood Account leasehold charges for each building would be estimated and leaseholders would be notified of the charges to be applied for 2022/23. This process was in line with that undertaken in previous years.

 

The HRA managed expenditure that covered delivery of the general housing management function as well as overheads and capital financing charges. The expenditure costs were categorised into the following six headings, further details were set out in paragraphs 4.21 – 4.33 of the report which included -

 

The Repairs and Maintenance budget included the general cost of maintaining the Council’s housing stock on a day-to-day basis. It included, repairs requested by tenants, gas repairs and servicing and costs associated with void property repairs and cleaning.

 

General Management costs included the cost of managing the housing service. They included the cost of running the landlord service efficiently and effectively including rent collection and allocating and managing tenancies.

 

Special Services represented the cost of running the Council’s sheltered housing schemes for vulnerable residents. It included all costs of maintaining sheltered housing and the services provided to residents. There were 558 properties across ten sheltered housing schemes in the Corby Neighbourhood Account and 406 properties across nine sheltered housing schemes in the Kettering Neighbourhood Account.

 

Fundamental changes to the HRA were implemented in April 2012 – this was referred to as ‘Self-Financing’. The Self-Financing settlement abolished the subsidy system and redistributed debt between authorities based on a government assessment of their ability to service the debt. This had the effect of increasing the debt held by most authorities, but in return they no longer had to pay into the national subsidy pot. Nationally there were 136authorities who were making subsidy payments and these authorities were required to make a payment to the government that amounted to around £13bn. Conversely 35authorities received a payment of £6bn from Government as they would no longer be receiving a subsidy payment. The self-financing determinations resulted in Corby Borough Council taking on debt of £70.6m and Kettering Borough Council taking on debt of £72.9m.

 

The self-financing system allowed authorities to better plan over the longer term as they no longer faced the uncertainty of annual subsidy determinations which were typically announced around December each year notifying authorities of what they would have to pay or receive in subsidy. This meant that all authorities now were able to keep all the rent they received from tenants and were fully responsible for managing their own income and expenditure.

 

The Government on 29^th October 2018 revoked the debt limits that were introduced for HRAs in December 2010 by the Localism Bill under self-financing determinations, by lifting the HRA borrowing cap. This meant the Corby and Kettering Neighbourhood Accounts would not be subject to a limit on borrowing.

 

All borrowing must conform to the Prudential Code which required that borrowing be affordable and prudent. The 2021/22 budget for the Corby Neighbourhood Account provided for the repayment of a loan of £10.646m, for which monies had been set aside annually for loan repayments in the HRA Debt Management Reserve. The outstanding debt on 31^st March 2022 was estimated to be £60m. The 2022/23 budget provided for £1.972m to be set aside which would be transferred to the HRA Debt Management Reserve which would be used to part fund the repayment of the next loan of £15m which matured in 2031/32.

 

The Kettering Neighbourhood Account was forecast to have debt of £45.724m as of 31^st March 2022. This was a combination of debt from self-financing which amounted to £42.903m and new loans amounting to £2.821m to fund new build schemes. The 2022/23 budget provided for the repayment of a loan of £3m, which would reduce the self-financing debt that was outstanding on 31^st March 2023 to £39.903m.

 

Business cases that set out how and when the HRA would borrow would be developed and submitted for approval when Business Cases arose, this would be in accordance with the Council’s Capital Strategy Approval Process.

 

Under the self-financing regime the HRA held a depreciation charge that recognised the cost of managing and maintaining the Council stock at the current level. This funding represented a revenue cost to the HRA that was then used to support the capital programme to deliver the required enhancements to the stock to keep it fit for purpose. The revenue contribution to capital expenditure as a minimum must equal the depreciation charge, the draft budget for the two Neighbourhood accounts reflected this.

 

The report indicated that one of the main areas of risk for the HRA going forward was rent arrears and the management of debt within the rent account. There was a specific risk around the ability to collect this debt as a result of COVID-19 and also as national welfare reform changes were rolled out. The spare room subsidy changes had now been in place for several years and work to manage under occupation was now business as usual.

 

The Kettering Neighbourhood Account included a provision of £173,000 for Bad Debts and the Corby Neighbourhood Account included a provision of £104,000 for 2022/23 and the Medium-Term Plan included provision for a further £46,000 in 2023/24 for the Corby Neighbourhood Account. The contribution to Bad Debts was shown under the ‘other’ expenditure heading which also included Contingencies, Rents, Rates, Taxes and Other Charges and interest payable.

 

The 2021/22 budget included a 0.75% increase to cover the 2.75% 2020/21 pay award, only 2% was included in the 2020/21 base budget. In addition, both Neighbourhood Accounts incorporated a pay contingency for 2021/22 of 2.50%. The 2022/23 budget included a pay contingency of 3% which was aligned to the increase in costs of living. To date the pay award was still to be agreed for both 2021/22 and 2022/23 a 1% change amounts to around £63k for the Corby Neighbourhood Account and around £40k for the Kettering Neighbourhood Account. Both Neighbourhood Accounts provided for an increase in employers National Insurance Contributions which would increase from April 2022 from 13.8% to 15.05%. The Government, as part of the Autumn Budget, announced that authorities would receive additional funding. However, this has been rolled into the £1.5bn that would be distributed nationally which diluted the funding that was available by around a third to meet new costs. For the purpose of the HRA it had been assumed that this would be cost neutral as the support costs would be reduced to reflect the increase in cost as the funding would be received into the General Fund.

 

The MTFP for both the Corby Neighbourhood Account and the Kettering Neighbourhood Account were detailed at Appendix B. The MTFP’s contained several assumptions, the main ones were set out in Table 3 within the report – these assumptions would continue to be reviewed and updated but enabled an initial medium-term position to be determined for both Neighbourhood Accounts.

 

Table - MTFP Assumptions (2023/24 – 2026/27)
Assumption	Corby Neighbourhood Account	Kettering Neighbourhood Account
Income
Rent Levels	Assumes a 2% increase each year (CPI 1% + 1%)
RTB Sales	50	30
Void Levels	0.90%	1.50%
Expenditure
Pay Contingency	2.00%	2.00%

 

The Medium-Term position for the HRA had more certainty than that of the General Fund – largely in part to the self-financing system. Medium Term Financial Planning was more difficult for the General Fund owing to the annual local government finance settlement being announced very late in the budget process and typically only covering a one-year period in recent years.

 

Councillor Bunday formally MOVED the recommendations detailed in the report. Councillor Nichol formally SECONDED the recommendations detailed in the report.

 

Councillor Dalziel on behalf of the Labour Group and Councillor Fedorowycz on behalf of the Green Alliance Group provided a response to the presentation of the report.

 

The Chair invited Councillor Dalziel on behalf of the Labour Group to move an amendment relating to the report. Councillor Lyn Buckingham seconded this. The amendment was seeking HRA funding (already identified in the proposed budget) be diverted to assist the voids backlog within the Corby stock.

 

The proposed amendment was put to the vote. The amendment fell.

 

The Chair invited Councillor Fedorowycz on behalf of the Green Alliance Group to move an amendment to the report. Councillor Tubbs seconded this. The amendment proposed an additional sum of money from reserves to assist with retrofitting work on Council stock.

 

The proposed amendment was put to the vote. The amendment fell.

 

Members then debated the substantive recommendations.

 

The recommendations had previously been MOVED by Councillor Bunday and SECONDED by Councillor Nichol.

 

RESOLVED that: -

 

1.         a)           the 2022/23 Housing Revenue Budgets consisting of the Corby Neighbourhood       Account and the Kettering Neighbourhood Account as set out in Appendix A be                approved;

b)           an increase in dwelling rents for 2022/23 of 4.1% be approved (based on the Consumer Price Index (CPI) for September 2021 3.1% + 1%) which is in line with the Department for Levelling Up, Housing and Communities (DLUHC) Policy statements on rents for social; and

c)           The Housing Revenue Account Medium Term Financial Plan housing consisting of the Corby Neighbourhood Account and the Kettering Neighbourhood Account for 2023/24 to 2026/27 as set out in Appendix B be approved.