Council Housing Finance The Government s plans for reforming

Council Housing Finance The Government’s plans for reforming funding for council housing

The current system § The Housing Revenue Account accounts for income and expenditure associated with the Council’s housing stock § The Government uses a formula to decide how much the Council should spend on managing and maintaining its housing stock and how much rent should be charged § If the guideline rent is less than the amount which the Government says needs to be spent, then the council receives housing subsidy from the Government § If the guideline rent is more than the amount which the Government says needs to be spent, the Council is required to pay negative housing subsidy

The current system § Around 170 local authorities are in the HRA subsidy system § A quarter receive subsidy but most councils, including Kettering, pay negative housing subsidy § This year, Kettering will collect £ 13. 4 million in rent from tenants. § Negative housing subsidy payments will amount to £ 4. 5 million § £ 1 in every £ 3 that our tenants pay in rent goes straight to HM Treasury

Or, put simply………. Rent Payment to Govt £ 13 m £ 4. 5 m K B C Retained for services £ 8. 5 m G O V T S E R V I C E S

The problem with the HRA system § It’s complex § We can’t plan properly because HRA subsidy determinations can fluctuate considerably from year to year § There is no connection between the rent tenants pay and the service they receive from the Council § The system is acknowledged by the Government to be underfunded § There are year-on-year “real terms” decreases in funding

The problem with the HRA system £’ 0 We have paid DCLG £ 21. 5 m since 2005/06 0 0 116% increase since 2005/06

The problem with the HRA system In 2011/12, under the current housing finance system, § Rents went up by 6. 98% § We will collect £ 13. 4 million in rents and charges § We will pay the Government £ 4. 5 million (33%) § Only £ 8. 9 million will be available for services

The new system § In April 2012, a new self-financing system will be introduced: § We will be able to keep all our rental income § We won’t have to pay the Government § Expenditure allowances will be increased by 13% and there will be a new allowance for disabled adaptations § But, we will have to take on additional debt of £ 68. 8 m § The Government will take 75% of future sale receipts § The Government will effectively continue to ‘set’ rents

The pros and cons û System remains vulnerable to changes in national policy û Some key risks are outside council control – interest rates, house sales, bad debts, inflation û Not much change in early years ü Less volatility and uncertainty – will be able to plan with confidence over the long term ü Increase in management, maintenance and major repairs allowances and a new allowance for disabled adaptations ü More open and transparent – easier for tenants to hold the Council to account

The main issues for KBC § The fairness of the debt settlement § Structuring the debt in a flexible manner § Significant work required over the coming months

Council Housing Finance The Government’s plans for reforming funding for council housing