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Milton Keynes HRA Self-Financing Implementation and Business Plan Simon Smith leadership innovation transformation Milton Keynes HRA Self-Financing Implementation and Business Plan Simon Smith leadership innovation transformation

Why Reform the HRA? • Housing Subsidy pools rents and redistributes on the basis Why Reform the HRA? • Housing Subsidy pools rents and redistributes on the basis of assessed need – – Based on three allowances: management, maintenance, major repairs And interest on historic debt Key problems • Difficulty in making the right assumptions about resources • Majority in negative subsidy: overall surplus (c£ 100 m in 2009/10) • Unpopular: a system with ‘no winners’ • Volatility, increasing complexity and lack of transparency • Massive future surplus: who gets to spend rental surpluses ? • Milton Keynes contributes £ 12. 6 m just this year leadership innovation transformation

What is the ‘Deal’ Now 1. 2. – – leadership Dismantle the current HRA What is the ‘Deal’ Now 1. 2. – – leadership Dismantle the current HRA subsidy system One off adjustment of housing debt Effectively a commutation of 30 years worth of future HRA subsidy into one go With an assumption of increased expenditure innovation transformation

The Basis of Your Settlement • The Council is allocated a debt based on The Basis of Your Settlement • The Council is allocated a debt based on a 30 – year cashflow forecast • It uses existing subsidy allowances for management, maintenance and Major Repairs Allowance BUT uplifted • Rents will match existing forecasts (convergence April 2015 plus 0. 5% increases above RPI) • Assumed cost of borrowing is 6. 5% leadership innovation transformation

Your Debt Allocation (Now) SETTLEMENT ACTUAL EFFECT Debt Allocation £ 249. 646 m Subsidy Your Debt Allocation (Now) SETTLEMENT ACTUAL EFFECT Debt Allocation £ 249. 646 m Subsidy CFR (Debt) £ 88. 882 m Debt Adjustment £ 160. 764 m Debt Cap £ 249. 646 m Debt per Unit leadership innovation £ 19, 954 transformation Actual Debt (HRA CFR) March 2012 £ 83. 623 m Debt Adjustment £ 160. 764 m April 2012 Actual Debt £ 244. 387 m Debt Cap £ 249. 646 m Headroom to Borrow £ 5. 259 m

The Timetable – – – – leadership August 2011 Data for self-financing provided to The Timetable – – – – leadership August 2011 Data for self-financing provided to DCLG August 2011 onwards Data verified to November CIPFA Consultation on Debt Pooling and Depreciation Issued September – Questionnaire re funding the deal issued 11 th November – Draft determination published 27 th Jan 2012 Final self-financing determinations published Local authorities asked to tell Public Works Loan Board how much they wish to borrow 28 th March 2012 Series of transactions between DCLG and local authorities enable the start of self-financing March 2013 Cut-off for final payments to end the subsidy system innovation transformation

New HRA BP: we need something for all of these… Tenant VISION & Empowerment. New HRA BP: we need something for all of these… Tenant VISION & Empowerment. MISSION Service standards Repairs policies Governance & Risk Treasury Management Value for Money strategy FINANCIAL PLAN Debt and financing Rents policy: > flexibility ASSET MANAGEMENT Refurb/green standards leadership innovation transformation Regeneration redevelopment

The Initial Financial Plan • Based on 2011. 12 Budgets (Incl Capital) • Debt The Initial Financial Plan • Based on 2011. 12 Budgets (Incl Capital) • Debt take on (as per current settlement) • Current Forecast Stock Investment Requirements • Future Interest Charge of 5. 25% • Inflation 2. 5% throughout (except Yr 2 rents) • Minimum HRA Balance of £ 2 m • Rents Converge and Increase RPI + 0. 5% • All un-pooled Right to Buy Receipts to the HRA leadership innovation transformation

Stock Investment Requirements Excludes: Inflation, Procurement Fees Assumes: £ 40, 465 Spend per property Stock Investment Requirements Excludes: Inflation, Procurement Fees Assumes: £ 40, 465 Spend per property over 30 Years 80% Recovery of Potential Leaseholder Liabilities Backlog spread over 5 years leadership innovation transformation

Capital – Initial Ability to Fund £’ 000 Includes: Inflation, Procurement Fees, Borrowing to Capital – Initial Ability to Fund £’ 000 Includes: Inflation, Procurement Fees, Borrowing to Debt Cap, Shortfall spread over 5 Years Outcome: Consolidated Shortfall of £ 76. 1 m in 2016. 17 – Met by 2025. 26 leadership innovation transformation

Viability of the Initial Plan £’ 000 • The plan demonstrates that the debt Viability of the Initial Plan £’ 000 • The plan demonstrates that the debt could be repaid within 23 years of self-financing. • Very dependant on interest rates and the repayment profile of existing loans • Borrowing Restricted by Debt Cap – based on Current Proposals • Assumes No Additional Investment or Service Improvements leadership innovation transformation

Next steps 1 • Asset Management Strategy – Need to review backlog and identify Next steps 1 • Asset Management Strategy – Need to review backlog and identify key works for phasing against available resources – Need to review forecast works against available resources for re-phasing – Asset analysis for properties with negative (NPV) contribution to the HRA and consider options leadership innovation transformation

Next steps 2 • Treasury Management Strategy – Decide where funding may be sourced Next steps 2 • Treasury Management Strategy – Decide where funding may be sourced • PWLB, Market, Bonds – Policy towards debt management and refinancing – Scenario planning – Repay or maintain debt – Borrowing policies – use of headroom – Use of receipts leadership innovation transformation

Next steps 3 1. How should we go about prioritising using the resources we Next steps 3 1. How should we go about prioritising using the resources we will have in the business plan in the future? 2. What processes are needed with tenants? And with the council? 3. Are there governance and scrutiny implications – what are the options? 4. What approaches could be taken towards future rent flexibilities? 5. What remaining challenging stock issues are there and how might they be addressed? When is the right time to bring forward a comprehensive asset management strategy? leadership innovation transformation

Questions ? leadership innovation transformation Questions ? leadership innovation transformation