PrintLocal Authority Housing Panel
Reform of Council Housing Finance Consultation |
General CIPFA very much welcomes the Government’s proposals to dismantle the existing Housing Finance system and to replace it with a new system based on self-financing. CIPFA sees this as a major opportunity to reshape the whole sector of local authority housing and is strongly supportive of the proposed moves to enable far greater local decision-making and flexibility with resources. The conclusion that Self-Financing works nationally, with the reallocation of debt, was the culmination of a considerable body of work including four work-streams, consultation and bi-laterals, research work, modelling and options and expert submissions and CIPFA is pleased to see a positive outcome in the form of the proposals in the consultation document. However, there is, clearly, much work to be done on clarifying just what the proposals mean at the level of the individual local authority and on spelling out the details of implementation. Authorities are unlikely to want to sign up to any further extent than that of a broad welcome until they can know just how the proposals would work out. This will be particularly true of the proposals around debt reallocation. Therefore while the general thrust of the proposals is very welcome, CIPFA would strongly suggest that work needs to commence as quickly as possible on further modelling, on the detail of implementation and on the best way forward so as to maximise the potential benefits and miminise any scope for adverse effects. CIPFA also welcomes the Government’s recognition in the consultation document that management and maintenance and the MRA are currently under-funded; significant under-funding was identified in the work of CLG and other organisations, including CIPFA, leading up to the Review. CIPFA therefore welcomes the proposals to uplift them. CIPFA notes, though, that while the document allows for management and maintenance, major repairs, outstanding decent homes programmes and the backlog of improvements, the position for Aids, adaptations, Health and Safety Ratings System and asbestos works remains unclear. In CIPFA’s view, these are important areas requiring funding and we would like clarification on these. Turning to the detailed issues and specific questions posed in the consultation, CIPFA’s views are as follows:
Core and non-core services Q1. We propose that the HRA ring fence should continue and, if anything, be strengthened. Do you agree with the principles for the operation of the ring fence set out in paragraph 3.28? Accountability to tenants is another CIPFA priority and one that needs to be at the forefront of decisions over whatever changes to accounting and reporting may flow from the Government proposals. CIPFA broadly agrees with the six principles set out in Paragraph 3.28 of the consultation. CIPFA believes that clear and transparent communication with tenants on how their money is used is desirable in order to inform tenants’ views and choices. On question of revised principles for the ring fence, CIPFA understands that further detailed work has already been undertaken on the issues – could perhaps this work be published now in order to inform local authorities’ deliberations? Q2. Are there any particular ambiguities or detailed concerns about the consequences? Changes in current practice, made at a national level, could potentially have destabilising effects on expenditure in either the HRA or the General Fund at local levels. In CIPFA’s view, decisions around the detail of the ring fence are best taken locally and with input, where relevant, from tenants. Standards and funding Q3. We propose funding the ongoing maintenance of lifts and common parts in addition to the Decent Homes Standard. Are there any particular issues about committing this additional funding for lifts and common parts, in particular around funding any backlog through capital grant and the ongoing maintenance through the HRA system (as reformed)? CIPFA welcomes the addition of the lifts and common parts. It would be helpful if capital grants could be made available here because we are aware from local authorities that this really does need to be extra funding rather than a reallocation of existing resources. CIPFA hopes that the treatment of ongoing maintenance will not disproportionately affect the current proposals. Q4. Is this the right direction of travel on standards and do you think the funding mechanisms will work or can you recommend other mechanisms that would be neutral to Government expenditure? This direction of travel, that is, the move to improve standards is welcomed, but it is only likely to be a sustainable move if the funding is made available to support it. Energy efficiency is another area relevant to the standards issue. Funding for further work is limited and payback periods are lengthy. Capital grant would appear to be the appropriate funding mechanism but a greater flexibility to carry over resources from one financial year to the next would be welcome. Straightforward processes of application and administration would also be helpful. Leaseholders Q5. We propose allowing local authorities to set up sinking funds for works to leaseholders‘stock and amending HRA rules to permit this. Will there be any barriers to local authorities taking this up voluntarily, or would we need to place an obligation on local authority landlords? CIPFA would welcome moves from the Government to make financing major repairs easier for leaseholders. It is CIPFA’s understanding, though, that Local Authorities are already able to set up sinking funds, so if the government is intending this as the solution, an obligation might well need to be considered. Sinking funds work best however where major works are some years in the future. Introducing sinking funds would have some practical implications in cases where some leaseholders may already have just paid – or are still in process of paying - substantial sums for major works through loans or arrears arrangements. Debt Q6. We propose calculating opening debt in accordance with the principles set out in paragraphs 4.22- 4.25. What circumstances could lead to this level of debt not being supportable from the landlord business at the national level? CIPFA is concerned that the debt should be sustainable in the long run at national level. This is not likely to be the case if the opening debt is significantly higher that current levels, ie, if it is raised in order to fund uplifts in Management and Maintenance and in the MRA, or if the offer includes a substantial element of surplus intended for the Exchequer. However, under the self financing proposals, rent levels will have to sustain debt on an individual basis. The detailed calculations around debt will clearly be crucial. Until these can be seen, it is not possible to commit to a definite view on the proposals and local authorities will not be able to predict with any confidence the implications for debt at a local level. A concern must be that if the assumptions on which the NPV calculations are to be based turn out, in the event, to be too optimistic, particularly in the earlier years of the business plan, it could result in difficulties for some authorities and Government help may become necessary. If rents are to be effectively constrained through rent convergence, the scope to absorb any significant cost pressures from rising interest rates would be limited.
If premia are however to apply, then presumably these would necessarily be subject to negotiation with lenders and the outcome of such negotiations would probably not be easy to quantify in advance. Q9. We propose that a mechanism similar to the Item 8 determination that allows interest for service borrowing to be paid from the HRA to the general fund should continue to be the mechanism for supporting interest payments. Depending on whether new debt taken on borrowing has interest rates above or below the Consolidated Rate of Interest, the effect could have a positive or negative impact for the General Fund unless a decision is taken to handle the reallocated debt differently. For example, a notional split at the point of reallocation could be considered, whereby new debt taken on could be attributed to the HRA. This would obviate the potential problem of movements in the CRI having inequitable impacts on the General Fund.
Q10. Do you agree the principles over debt levels associated with implementing the original business plan and their link to borrowing? Understandably, especially in the current financial climate, Government will be anxious about the overall levels of public debt and currently local authority housing debt is included the definition of public debt, the Public Sector Net Cash Requirement. However, if local authority borrowing for council housing could be determined locally and treated similarly to other social housing borrowing, eg by RSLs, this would provide the flexibility for local authorities to plan for much-needed investment in Council housing. CIPFA is confident that the principles behind and the provisions of the Prudential Code do and would continue to ensure that borrowing levels would remain sustainable. Q11. In addition to the spending associated with the original business plan, what uncommitted income might be generated and how might councils want to use this? CIPFA does not envisage the generation of significant uncommitted income streams in most instances, but it seems most likely that local authorities would of course want to spend any increased resources in future years on carrying out improvement works on existing properties and estates as prioritised by working together with tenants and taking into account sustainability requirements, or maybe on new build of affordable housing. Capital receipts Q12. We have set out our general approach to capital receipts. The intention is to enable asset management and replacement of stock lost through Right to Buy. Are there any risks in leaving this resource with landlords (rather than pooling some of it as at present)?
CIPFA does not see any disadvantages with these proposals. Rather they will allow local decision making to make best use of resources. Q13. Should there be any particular policy about the balance of investment brought about by capital receipts between new supply and existing stock? CIPFA does not believe there needs to be any specific Government policy or direction about the balance of investment as between new supply and existing stock. This type of decision is best made at the local level in consultation with tenants, taking into account the condition of the authority's on stock, future revenue streams and other aspects of the 30 year business plan. Q14. Are there concerns about central Government giving up receipts which it currently pools to allow their allocation to the areas of greatest need? CIPFA believes that efficacy of pooling receipts in redistributing to areas of greatest need has substantially declined. It is now more appropriate for the Government to allow resources to remain in their current area for local decision-making. Any pockets of great unmet need should then be funded directly from central government. Equality impact assessment Q15. Would any of our proposed changes have a disproportionate effect on particular groups of people in terms of their gender or gender identity, race, disability, age, sexual orientation, religion or (non-political) belief and human rights?
Q16. What would be the direction (positive or negative) and scale of these effects and what evidence is there to support this assessment? See answer to 15 Q17. What would be necessary to assemble the evidence required? See answer to 15 |