b

Cabinet 11 February 2013

Housing Revenue Account Rent and Service Charge Setting 2013/14 All Wards Cabinet Portfolio: Report authorised by:

Cabinet Member for Housing and Regeneration: Councillor Pete Robbins

Executive Director Housing, Regeneration and Environment: Sue Foster

Executive Summary

This report sets out the proposals regarding the Housing Revenue Account budget, rents and service charges for the 2013/14 rent year. These proposals have been developed in discussion with Lambeth Living and have been consulted on via area forums and Tenants Council during January 2013. The paper notes the following key points:

• That the Housing Revenue Account (HRA) continues to improve –moving from a deficit position three years ago to a surplus of £3.53m at the end of 2011/12 and holding balances of £5.58m

• That rents be set at a constrained level of 4.17%. This follows consultation with local tenants and links rent increases with income available for investment in local priorities.

• Service improvements within the management of empty properties and better delivery around disrepairs has enabled growth to be released to other areas of the HRA

• That the HRA faces considerable risk with the introduction of Welfare Reform changes which will impact on the ability to collect income from tenants

• That the 30 year business plan introduced under self financing identifies risks in future years that must be mitigated against now

• That there are some key areas where further investment can be made, these cover management of repairs and environmental developments (Estate Pride)

The HRA is now operating under the self financing regime introduced by the Government in April 2012 and the proposals for this budget setting year are driven by the 30 year business model that underpins the financial planning of this regime for Lambeth. This assumes rent setting at rent convergence levels and increased provision of bad debt to reflect welfare reform changes to be managed within the first 5 years of the model (2013/14 to 2018/19). The 2013/14 budget has been set within the assumptions set out within this business model as well as identifying known local changes and priorities and the impact of the debt management approach determined by the Housing Capital Programme. The “formula” rent model used under the “subsidy” system remains in use and rents are expected to “converge” to a formula (i.e. average affordable housing association) rent level by 2015/16. The discussions with tenants offered a choice between a constrained rent increase of 4.17% or the rent convergence level of 4.5%, in relation to the investment decisions available to tenants for improved service delivery in key areas. The feedback from tenants was that the constrained rent level was the preferred option The HRA must consider the 30 year implications of the financial model supporting service delivery. With regards to this the risk around welfare reform and repayment of debt relating to the housing investment programme are recommended to be reflected in the 2013/14 budget. This will support the management of financial risks over the next 5 to 10 years and ensure that the HRA is best placed to maintain the current strong position in terms of balances and financial management. It is recommended that increases to these budget areas are unavoidable and must be made in order to reduce financial risk in 2013/14 and future years. Other areas of unavoidable financial pressures relate to TMO’s, Angell Town, contract inflationary pressures, Rushcroft estate and Sheltered Housing and it is recommended that each of these will receive additional budget in 2013/14. Further areas of investment relate to responsive repairs and environmental improvements or Estate Pride. These areas will be subject to further discussions with tenants to ascertain priority for additional investment going forward. Summary of financial implications This report deals with rent, tenants service charges and other charges, therefore the financial implications are included in the main body of the report. Recommendations

(1) To increase rents at a constrained level of 4.17% following feedback from area forums and Tenants Council regarding approach.

(2) To set the voids income budget at 2% rather than 2.5% as per previous years

(3) To note approach to setting tenant and leasehold service charges

(4) To freeze the management fee to Lambeth Living

(5) To release funds from disrepair and temporary accommodation delegated budgets for the reinvestment into other areas of the HRA

(6) To release funds from the redundancy budget for reinvestment in other areas of the HRA

(7) To set aside £3.8m to cover risks identified in the business model relating to welfare reform and repayment of debt

(8) To set aside funding to cover unavoidable pressures within TMO’s, contract inflation, Rushcroft Road and Sheltered Housing

(9) To invest the remainder of income generated from rent increase into works to improve Estate Pride and repairs

(10) To agree the HRA budget for 2013/14

Consultation

Name of consultee Directorate or Organisation

Date sent to

consultee

Date response received

from consultee

Comments appear in report

paragraph

Sue Foster Executive Director of Housing, Regeneration & Environment

31/01/13

Christina Thompson

Divisional Director of Resources, Housing Regeneration & Environment

07/01/13 21/01/13 throughout

Rachel Sharpe Divisional Director of Housing 31/01/13

Greg Carson Governance and Democracy 07/01/13 09/01/13 Section 5

Councillor Peter Robbins

Cabinet Member for Housing 07/01/13 21/01/13 throughout

Mike Suarez Executive Director of Finance & Resources

07/01/13

Guy Ware Divisional Director Corporate Finance

07/01/13 10/01/13 throughout

Terry Gallagher Director of Resources, Lambeth Living

07/01/13 10/01/13 throughout

Gary O’Key / Tim Stephens

Governance and Democracy 21/01/13 22/01/13 throughout

Tenants Council 23/01/13

Strategic Area Housing Forum – North Area

North Lambeth & Stockwell & Vassall

07/01/13

Strategic Area Housing Forum – South Area

Streatham and Norwood 09/01/13

Strategic Area Housing Forum – Central Area

Brixton & Clapham 10/01/13

Report history

Decision type: Key decision: reason Key decision (9 November 2012) EITHER a) expenditure or savings of £500,000 or

more OR/AND: b) proposal affects significantly two or more wards

Authorised by Cabinet member:

Date report drafted:

Date report sent: Report deadline

See above 30.01.13 21.01.13

Report no: Report author and contact for queries:

243/12-13 Su Spence, Head of Business Solutions, Housing, Regeneration and Environment

Contact for queries – Carl Tomlinson, HRE Resources

020 7926 0144 sspence@lambeth.gov.uk

Y

Y

Background documents

Implementing self-financing for council housing (CLG, February 2011) Equalities Impact Assessment

Appendices Appendix 1 – HRA growth and savings items Appendix 2 – Service Charges Appendix 3 – Tenants’ Council and Area Forum Feedback

Housing Revenue Account Budget and Rent Setting Report 2013/14

1. Context 1.1 Each year local housing landlords must set its rents and budgets for the

forthcoming financial year and provide each individual tenant with statutory notice of any proposed rent change. This report sets out proposals regarding the budget, rents, service charges and other charges to tenants for the 2013/14 rent year.

1.2 The Housing Revenue Account (HRA) is the ring-fenced rent account that funds the Council’s activity as a landlord. Housing management services, which are the tenant focused services arising from the Councils role as landlord, are delivered through Lambeth Living (LL), the Council’s Arms Length Management Organisation (ALMO). Front line services are mainly provided through the telephone-based Service Centre and face-to-face reception services in area offices.

1.3 The Council is required by law to avoid budgeting for a deficit on the HRA (Local

Government & Housing Act 1989, section 76). This means that the budget must not be based on total HRA revenue reserves falling below zero. In practice the Council is expected to maintain a reasonable balance of reserves, a minimum of 5% of turnover is good practice and this provides a contingency against unforeseen events and known risks. The external auditor will review the level of reserves in forming a view on the overall standard of financial management in the Council.

1.4 In December 2010 the Government released the Localism Bill which included plans to abolish the current subsidy system that supports the HRA and move to a model known as “self financing”. Under Government guidelines the objectives of the change are to give local authorities the incentives and flexibility to manage stock more efficiently over a longer term, as well as seeking to provide greater transparency for tenants in the relationship between the rent a landlord collects and the services it provides.

1.5 This self financing model is now in place and has moved the arrangements for

managing debt for the current housing stock from being held nationally and charged on a nominal basis into the local HRA managed by the Council. This is based on a calculation of the level of debt that the landlord/Council can support based on a valuation of the current housing stock, along with assumptions regarding total rental income to be generated and expenditure required to support this housing stock. The formula rent model used under the “subsidy” system has remained therefore rents are expected to converge to the “guideline” (i.e. average) rent level by 2015/16.

1.6 A key feature of the new model is the ability of landlords to borrow against the

value of the housing stock that will be held in order to invest within improvements to that stock. This borrowing must be financed from expenditure plans across the HRA and therefore introduces both risks and opportunities for managing resources in this area. As local authority borrowing is included in the national Public Sector Borrowing Requirement it must be affordable both nationally and

locally. A total borrowing limit has therefore been set for each landlord, which for Lambeth is £140m

1.7 Lambeth is expecting to borrow the full amount of funding available to it in order

to invest in the housing stock locally. This is being managed through the Housing Investment Strategy and seeks to deliver the Lambeth Housing Standard across the borough over a period of time.

1.8 The self financing arrangements have led to the development of a 30 year

business plan supporting the delivery of the HRA under the new arrangements. This makes assumptions regarding the level of income available based on the rent convergence policy and the key risks facing housing service delivery within this timeframe. The main areas of this are the management and timing of debt usage and the impact of welfare reform changes as the government policies are enacted.

1.9 The 2013/14 financial proposals have been set under the new arrangements and

the key risks and opportunities arising from this have been reflected in the plans along with local developments for driving forward change against local priorities.

2. Proposals and Reasons

2012/13 Current Financial Forecast 2.1 The HRA ended the 2011/12 financial year with a surplus of £3.53m and

balances of £5.58m. A key element of this surplus related to hostels income which is currently under review for the most appropriate treatment and investment approaches in order to maintain this service.

2.2 Having recovered a deficit of £12.217m by the close of the financial year

2009/10, the HRA has set a target to improve balances by £2m each year until it reaches balances of £10m (expected by end of 2015). This reflects the guideline 5% level of reserves as discussed in paragraph 1.3. The latest 2012/13 forecast indicates that the HRA is on target to achieve its required contribution of £2m, maintaining the delivery of this ongoing objective.

2.3 The current financial position of the HRA in 2012/13 is good with a breakeven or

better position expected. The key risk area is treatment of hostels income which will determine whether the HRA achieves a breakeven position or a surplus of £1.6m.

2.4 It is anticipated that the current forecast surplus will be re-invested into priority delivery areas before the end of the financial year and that the HRA will deliver a breakeven position for 2012/13.

HRA Budget Setting 2013/14

2.5 The approach to HRA budget setting has focused on 3 separate areas for 2013/14:

•••• income expected to be achieved and proposals around rent and service charge levels

•••• expenditure plans that reflect local priorities and service delivery patterns

•••• the impact of the self financing business model and the reserves and provisions that need to be set aside to ensure that the HRA is delivering strong financial performance over a longer period of time

2.6 Each of these areas will be discussed in turn with the proposed approach for each area set out.

Income Budget Setting

2.7 The HRA receives income from rents paid by tenants and from the service charges levied on tenants and leaseholders. The approach for each of these will be addressed separately.

Tenant Dwelling Rents

2.8 Rent to be charged to tenants is governed by the rent convergence policy and

while there is some flexibility within local arrangements the overall approach has not altered under the new funding arrangements for the HRA. The rent convergence policy – together with a formula for setting annual Council and housing association rent increases – was introduced in the early 2000’s with the aim that local authority and housing association tenants will eventually pay similar rents for similar properties in similar areas. The 2012/13 guidelines are based on convergence by 2015/16 and the 30 year business model for the HRA assumes convergence within this timeframe. This will generate the income necessary to fund the interest on the borrowing for the capital programme and servicing of the stock.

2.9 Under the 30 year business plan, the Council expects to set a rental policy that leads to convergence by 2015/16, although it has looked at whether some form of rent constraint was appropriate in 2013/14 in light of the impact of Welfare Reform changes.

2.10 Rental increases are guided by the following assumptions; increase by a

maximum of the retail price index (RPI) as at September 2012 (2.6%) + 0.5% + gap to convergence. A constrained rental increase would be RPI + 0.5% + £2.

2.11 Following the draft determinations issued in November 2012, the formula rent

increase based on working towards convergence in 2015/16 would be 4.5%, which equates to an average rent level of £102.62. A constrained rent increase that ensured that the total rent rise for all properties does not exceed 4.5% would lead to an average rent rise across the Council of 4.17%, which equates to an average rent of £102.25.

2.12 Applying rent restraint would lead to lower rent levels across Lambeth and would

impact on total income available for collection by approximately £0.4m. Tenants are facing challenging economic conditions and a reduced rent rise may go some

way to alleviate this. The lower income expected would mean that expenditure plans for investment in new areas would also be reduced accordingly.

2.13 The approach to rent setting was consulted on with tenants during Area Forum

meetings and the recommendation was that a rent level at 4.17% should be set. This will generate total income of £5.2m available for investment with the overall impact on the business model going forward being £0.4m.

2.14 There are two other factors that will impact on the total level of income that is

generated from the average rental charge to tenants: total stock levels and void levels across this stock.

2.15 The average stock is currently 24,442 across the Lambeth estate and is

expected to reduce by approximately 78 units from 2012/13 into 2013/14, making the new average stock level 24,364. This reflects expected right to buy levels as well as other changes with regards properties that are squatted, etc. The impact on the HRA income assumptions for this area is approximately £1m.

2.16 The Council and Lambeth Living have done considerable work over the past 36

months to manage the total level of void properties (i.e. those properties without residents) downwards. This has supported the disposals programme that has been used to deliver enhanced capital resource into the HRA and ensure that only properties that meet the ongoing requirement of tenants are held by the Council. The current void level is 1.8% (as at the end of October 2012) and this is expected to be maintained on an ongoing basis.

2.17 Bringing this level of stock back into use across the HRA enables more

properties to be tenanted and thus deliver higher rental income. The historic assumption in this area has been that void levels run at 4% of total stock and income assumptions have been reduced accordingly. In 2012/13 this assumption was reduced to 2.5% to reflect the achievements in this area and this additional income benefit was reflected in the budget. This approach is also important with changes to be implemented regarding council tax discounts for void properties. The longer these take to turn around, the greater the cost to the HRA.

2.18 It is recommended to set the voids adjustment at 2.0% for 2013/14. This reflects

the progress that has been made during 2011/12 and 2012/13 in reducing total level of voids across the borough but that there is still someway to go before the target void level of 1% can be achieved and sustained. This is a prudent approach and should a void level below 2.0% be achieved this will see a direct benefit to the HRA through income collection.

Tenant Service Charges

2.19 The Council can set its own tenant service charges without affecting the rent setting policy. Discussions with tenants and members over recent years have highlighted the need for greater transparency within this area and this is enshrined in recent expectations that the actual service charges to tenants will reflect costs incurred. This was put in place for 2012/13 with estimates and subsequent actual costs now following a full cost recovery basis.

2.20 For 2013/14 tenant service charges have been held at the same level as in

2012/13. The exception to this relates to the concierge and heating & hot water charges. There are expected to be changes to concierge charges following a review which will see an increase in costs phased in over 3 years. Heating and hot water charges are expected to reduce following a renegotiation of the contract during 2012/13.

2.21 A summary of the changes to the service charges is included in Appendix 2.

These were broadly supported by Tenants’ Council although they would wish to see no change to the concierge service. Appendix 3 also includes details of the recommendations of each Area Forum and the overview of Tenants’ Council following these meetings.

Leasehold Service Charges

2.22 In line with tenant service charges, leasehold service charges are required to be

transparent and reflect the actual cost of the services incurred. It is recommended to set leaseholder service charges in line with actual expenditure plans as per the approach in previous years. This means that service charges will be set based on 2012/13 expenditure levels, with estimates being issued around April 2013 and final charges for 2013/14 being confirmed by September 2013.

2.23 The impact on the income budget of this approach is that for the most part

service charge budgets will be increased in line with inflation of 2.6%. The exception to this is the insurance service charge which has seen a large increase in expenditure levels over the past 2 years. This reflects rising insurance costs across all sectors and these costs being reflected within HRA expenditure. The income budget will be uplifted by £0.5m to reflect this expected cost but is overall cost neutral as expenditure budgets will also rise accordingly.

Expenditure Budget Setting 2.24 The expenditure budgets across the HRA were remodelled extensively during

2010/11 and early 2011/12. It is therefore not proposed to do any significant budget modelling as part of the budget setting process for 2013/14. The exception to this will be where changes in service delivery plans have occurred and the subsequent impact on resources must be reflected in the budget setting process. The process must also recognise known risks that are apparent for the HRA and ensure that there are adequate balances in place to manage these as they materialise.

Delegated Budgets

Repairs and Maintenance

2.25 The current repairs and maintenance (planned and reactive) budgets reflect

expenditure plans of approximately £24.9m in 2012/13. These budgets in practice are managed together to ensure the delivery of work that supports the

capital investment programme and to meet tenant and leasehold expectations around standard of the stock.

2.26 Lambeth Living have notified some significant changes in this area that reflect

the progress that has been made in developing service delivery models and responding to issues raised during customer satisfaction reviews. For the most part this reflects improved service delivery within the management of disrepair and addressing issues of backlog maintenance.

2.27 The approach is a considerable success for both the Council and Lambeth Living

and reflects the commitment to recognising concerns of tenants and targeting investment. Supporting this with better focused service delivery models has led to better outcomes for residents and a more efficient use of resource across the HRA.

2.28 Lambeth Living had previously identified the high level of backlog maintenance

cases as an area of concern and the Council supported a revised approach with increased investment to tackle the issue. There has been considerable progress made in managing outstanding cases over the past 2 years and the requirement for additional resources is no longer needed and normal activity levels are now being resumed. It is therefore proposed to release the additional investments made (approx. £1m) and make this available for other service areas.

2.29 The success of this program has been delivered through the use of better

management techniques, improved efficiency models and ensuring that the Council and Lambeth Living take seriously the concerns raised by tenants. This approach is being replicated across other areas of the HRA.

2.30 Lambeth Living has also undertaken a renegotiation on the parking delivery

budget and this has reduced the subsidy required in this area. It is proposed to release the corresponding budget of £0.173m to reflect the reduced cost.

2.31 Responsive Repairs remain a key service issues for tenants and drive the

customer satisfaction rating of Lambeth Living more than anything else. It therefore remains a key focus for improvement with a recognition that more can be done in this area. There are 3 proposals for this area covering inflation on contracts, revised budget provision recognising complexity of the south and an enhanced resource to meet backlog cases and a move towards the industry standard.

2.32 It is recommended that the inflationary uplift required on contracts is funded.

This represents a pressure of £0.509m based upon uplifts at 3.1% for direct responsive repairs and £0.66m on other Lambeth procurement contracts. The contractual uplift is based upon a basket of goods and driven via industry guidelines and won’t be known until the end of January. It is therefore proposed to use the 2012/13 uplift value to support budget setting and adjust in the new financial year when the actual value is known.

2.33 The current repairs budgets were set based on stock levels in each of the areas;

north, central and south. It is recognised that this budget allocation does not reflect the complexity of the issues in the south of the borough and this has led to

an imbalance of spend versus budget for each of the three areas, with the south appearing to over spend and the north and central appearing to underspend. The budget setting approach for 2013/14 will resolve this issue and redistribute area repairs budgets to reflect the anticipated spend levels based on demand and condition rather than stock numbers only.

2.34 There are further proposals to uplift the budget to reduce the level of backlog

repairs and to move the delivery model to the industry standard of 6 weeks for orders in hand or in progress. Considerable progress has been made during 2012/13 to reduce the total level of backlog and overdue repairs and this is expected to continue into 2013/14. It is recognised however there have been significant increases in demand in the total number of repairs required to be undertaken (up over 30% from 2011/12), partly due to repressed demand from previous years and the improved performance of the Vangent contact centre to manage the reporting and allocation of requirements.

2.35 It is recommended that further investment is made into repairs in order to

manage this enhanced demand. There will be an expectation that overdue cases will be managed to the industry standard of 6 weeks by March 2014 with some level of additional investment and that this will positively impact on tenant satisfaction in this area and with Lambeth Living as a whole. It is recommended that an investment level of £0.257m is made available for this area.

2.36 It should also be noted that Lambeth Living will review opportunities to deliver

more planned maintenance where budget flexibility permits to improve prevention activity and reduce reactive costs later. This will also positively impact on health and safety works and landlord electric programmes being delivered from other budgets.

2.37 There are ongoing discussions regarding how to achieve environmental and

waste management improvements across estates. These works link with the Public Realm team responsible for delivering this across the Council and reflect a Lambeth Living priority known as “Estate Pride”. Initial discussions have highlighted a need for approximately £0.25m investment in this area and there are provisional plans for additional staff and communications in order to make these developments happen in 2013/14. It is recommended that these are recognised as a priority and investment made available.

TMO Management Allowances 2.38 The Council has made significant progress in working with its Tenant

Management Organisations (TMOs) and agreed almost all of the management agreements prior to the start of 2012/13. These agreements set out the financial arrangements for each TMO for 2 years. As 2013/14 is year 2 of these agreements it is expected that current management agreements will be uplifted by inflation at 2.6%.

2.39 The Council is required to recognise the level of reserves held by the Angell

Town TMO within its overall accounts. This has not been done before and represents a cost pressure to the overall HRA. A total balance of £800k must be

recognised over time and it is recommended to build this up over 3 years, with £300k set aside in 2013/14 and 2014/15 and £200k in 2015/16. Work is ongoing to manage this level of reserve and discuss the most appropriate usage of them as the TMO moves forward. Retained Council Budgets

Housing Division

2.40 The Council retains a small strategic housing function which supports the

clienting of the ALMOs and provides the strategic leadership of the housing service for the organisation. This service is currently undergoing a strategic review which incorporates both HRA and general fund resources and this is expected to report in early 2013. The impact of this will be to realign current resources to reflect the revised service delivery plans and this is expected to be actioned in early 2013/14.

2.41 The main service pressure for this service is the delivery of the Rushcroft Road

project and the eviction of squatters from current buildings. Initial costs have been identified over the life of the project of £0.5m and it is recommended to make available £0.25m in 2013/14 to support this work. This work will generate a capital receipt over the lifetime of the project therefore represents an efficient use of revenue.

Myatts Field

2.42 The Myatts Field Project will see the delivery of 808 new homes and the

refurbishment of a further 172 homes over the next 4 to 5 years. The project went live in 2012/13 with residents already moving back into refurbished homes and seeing real improvement in living conditions and place. The current budget is under review now that the project is underway although there is not expected to be any change in overall expenditure levels.

ALMO Management Fee

2.43 The Council sets aside circa £25m to meet the management costs of delivering

the ALMO function across the Council. Lambeth Living received £23.7m in 2012/13 and it is proposed to roll this forward into 2013/14 at current levels. This reflects the position that the majority of management costs will relate to staff and there is expected to be no inflationary uplift to pay for 2013/14. This cost position can therefore be maintained. Lambeth Living will be required to meet pay increments in line with terms and conditions and these non pay inflationary costs will need to be managed from efficiencies across the management fee

2.44 There is expected to be an increase in costs to Lambeth Living from the transfer

of functions previously delivered by United Residents Housing which will cease to exist at the end of 2012/13. The exact nature and cost of delivery of these functions are still under discussion and this will be resolved early in the new financial year with appropriate budget adjustments recommended at that time.

Sheltered Housing 2.45 The housing aspects of the sheltered housing service are provided across the

housing stock and supported by general HRA funding. The Council is currently undertaking a review into the adequacy of this provision and the service model that is required moving forward. An initial outcome of that review is that the general fund has been cross-subsidising the HRA for a number of years and that enhanced costs must now be met from the HRA. It is therefore recommended to increase the budget by £150k to reflect a more accurate split of costs. It is expected that this area will be subject to further review during 2013/14 as the service model is developed and the financial implications of this are refined.

Hostels

2.46 There are ongoing discussions with DCLG about whether the income and costs

associated with hostel provision within temporary accommodation for homeless households will be included within the general fund. This would more accurately reflect the definition of service delivery and aligns the service closely with the housing options team which manages this service area. Options, such as appropriation, are being considered.

Overheads, Provisions and Reserves

Recharges from the General Fund

2.47 The Council continues to review the level of recharge between its general fund

resources and the HRA. Previous years have focused on support service costs which have looked at activity levels to ensure that the recharge is appropriate and adequately documented through work plans and job descriptions. This work is continuously reviewed and with restructures occurring across both the Resources and Housing Divisions it will continue to be a priority area to ensure that recharge levels are accurate and robust.

2.48 The HRA also picks up significant costs via the CIPFA Service Reporting Code of

Practice (SeRCOP) recharge. This reflects the cost to the HRA of receiving corporate support services and thus ensures that the HRA reflects the full cost of delivering services to tenants. There have been no changes notified to the level of recharge expected to occur within this area therefore it is not proposed to make any adjustment to the budgeted reserve at this stage. There is an expectation that with the reduction in the total size of the Council being driven by the national efficiency agenda this will have a positive impact on the HRA by lowering the level of charge in this area. This will need to be managed during the year as more information becomes available regarding actual costs.

Bad Debt Provision

2.49 One of the main areas of risk over the past two financial years has been the

management of debt within the rent account and the bad debt provision associated with this level of debt. The Council has worked with its auditors to develop a debt provision approach that reflects known risks in this area as well

as the work that has been undertaken by Lambeth Living in order to reduce total debt levels.

2.50 The overall approach to provision management in this area is believed to be

sound and delivers a provision to debt gearing of 59% which is in line with other comparable authorities with debt at a similar level.

2.51 Lambeth Living have been set an in year income collection target of 100.2% in

order to ensure that total debt is decreasing and that the impact on the bad debt provision is positive. This level of income collection assumes that the current debt is being collected as well as rent arrears, thus reducing overall level of debt. Lambeth Living are currently achieving collection rates at this level although this does include some level of “write-offs” which may impact on the total level of provision required.

2.52 The main risk to income collection for 2013/14 will be the impact of the Welfare

Reform changes. This means that income collection is unlikely to achieve the 100.2% level currently being achieved and work continues to assess the outcome of the national pilots in this area to ascertain the overall impact on this area.

Welfare Reform

2.53 The number of changes being driven nationally around welfare reform and the

introduction of universal credit will impact on the level of risk being managed by the HRA, particularly with regards income collection. For social housing tenants the main changes start during 2013/14. The system will be rolled out across new claimants until April 2017 when all current claimants will be brought under the remit of the new system.

2.54 The Council has recognised the risk inherent in the new arrangements and the

risk to income collection levels. A programme of works have been developed with Lambeth Living, TMOs and local mutual organisations to try to manage this risk. This has focused on working with tenants to ensure that they understand the changes that are occurring and have put in place arrangements to ensure that they can continue to meet all their financial commitments including paying their rents. This is currently being supplemented by an information campaign that supports individual discussions and will be ongoing into the new financial year.

2.55 Some of the specific projects within this workstream include –

• Updated training to all Welfare Reform staff to ensure that the benefit or claimant is accessing all the income that may be available to them and that the cap will be applied in a manner appropriate to their circumstances (i.e. if they were working for 12 months before being made redundant they have a 39 week grace period before the cap is applied)

• Delivery of an employment team in conjunction with the Housing Welfare Team, coordinating access to employment services to try to place as many people in work as possible.

• Operation of a home visiting team to promote mutual exchange focusing on those homes with under or over occupancy

2.56 However it is recognised that this remains a risk for the Council and all

indications from national studies are that income levels are expected to fall following the introduction of the new arrangements. The HRA currently holds a reserve of £770k in respect of the risk of falling income levels from these changes. Analysis is being undertaken to understand the potential impact of welfare reform. Current estimates indicate that introduction of the benefit cap and bedroom tax could impact income collection by £1.5m to £2.5m. As part of the councils response to this, it is recommended to increase this reserve by £1m in 2013/14 and to continue to manage this area through working with tenants to ensure all are adequately prepared to manage the new arrangements.

Redundancy and Pension Costs

2.57 The HRA currently holds a budget of £1m to support costs arising from

redundancy and early retirements. This reflected the level of structural changes that have occurred over recent years as services have become more fit for purpose and one off costs have been incurred to move teams into these new structures. These costs are not expected to be ongoing and it appears prudent to release some of this funding back into service delivery budgets. It is recommended that £0.5m is released, leaving a residual budget of £0.5m in this area.

Self Financing

2.58 It is expected that the depreciation charge will be used to fund the housing

capital program and the Council continues to develop proposals around the borrowing levels that may be required in order to deliver an appropriate Asset Investment Strategy and the Lambeth Housing Standard. The current 30 year business model under self financing indicates that the HRA will need to fund higher interest charges in future years. It is recommended that a provision of £1.5m is set aside in 2013/14 in order to prepare for these costs as they relate to works that are currently being undertaken.

2.59 There is also a requirement to meet enhanced MRP charges of £1.3m resulting

the capital programme. This is the revenue impact of delivering the Capital Investment Strategy across Lambeth and residents should begin to see the impact of this investment through improvements in the properties that they live in being delivered to the local housing standard.

Summary of Investment Decisions and Recommendations

2.60 The HRA budget is expected to generate an additional £5.1m income by utilising

a constrained rent increase in 2013/14. Other known changes to income levels mean that total investment available from income will be £4.668m

2.61 There are identified expenditure budgets that can be released for re-investment

in other areas of the HRA. These cover release of funds from disrepair work, parking services and overhead costs covering redundancy and council tax

payments. These total £1.7m and take total investment levels available to £6.41m.

2.62 There are a number of areas where the HRA is facing unavoidable financial

pressures that require investment. These will emerge even if mitigating actions are taken and must be managed to ensure that the HRA remains in financial balance. These unavoidable pressures total £5.9m and are –

• Impact of capital investment programme as determined by the HRA business plan - £2.8m

• Risk from welfare reform changes - £1m

• TMO Management Allowances and Angell Town reserves - £0.5m

• Inflationary uplift requirements on repairs and other LPC contracts - £1.17m

• Rushcroft improvements and Sheltered Housing - £0.4m 2.63 Following these financial pressures there is a balance of £0.507m available for

investment. It is recommended that the first call on this is improvement in environmental issues or Estate Pride which will lead to enhanced tenant satisfaction and involvement in estates. The balance of the funding is recommended to be invested in managing repairs demand across all estates. It is recognised that there is increasing demand emerging as performance improves and backlog works are reduced. Additional investment will assist in managing this level of demand and the subsequent impact on tenant satisfaction.

2.64 A summary of the funding available and the investment levels recommended is

shown in Appendix 1.

3. Finance Comments

3.1 Members’ legal obligations are set out in Section 5 of this report which should be read in conjunction with the Executive Director of Finance and Resources’ (EDFR) comments.

3.2 Members must be aware that the calculation of the HRA budget is, in its simplest form, dependent on 3 main factors. These are:

• The structural HRA growth and savings;

• The level of increase of rents, services charges and related HRA income; and

• The level of HRA balances.

3.3 Growth and savings are ultimately a matter of political judgement, to reflect the priorities of the Administration, having due regard to the professional advice of housing officers regarding matters such as service needs, changes to government legislation, stock surveys and other unavoidable pressures. Members in particular should be satisfied that the budget set in 2013/14 is a sustainable one, that in effect deals with the risks and pressures that are known and identified in this report. Members should be aware that estimates are by their very nature that, and may vary.

3.4 Similarly the level of increase in rent is a matter of political judgement, having due regard to the professional advice of officers, and in particular to the advice of the s151 officer as regards balances. All Members should be aware that the Executive Director of Finance & Resources’ advice and preference is to have higher and earlier levels of balances within the HRA (these should ideally be delivered by improving cost control and driving income collection set against a backcloth of strong internal control arrangements) as soon as possible to offset the obvious pressures that has been endured within the HRA over a number of years.

4. Comments from Director of Governance and Democracy

4.1 Section 21 of the Housing Act 1985 provides the Council with powers for the general management, regulation and control of its dwelling stock. Section 111 of the Local Government Act 1972 provides powers for a local authority to do anything (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions.

4.2 Section 24 of the Housing Act 1985 states that the Council may make such

reasonable charges as it determines for the tenancy or occupation of its dwellings and that it must review rents from time to time and make such changes as circumstances require. Further, Section 24(3) provides that when the Council exercises its function under that section it “shall have regard in particular to the principle that the rents of houses of any class or description should bear broadly the same proportion to private sector rents as the rents of houses of any other class or description”.

4.3 The apparent discretion available to the Council to determine rent levels is

effectively controlled by Part VI of the Local Government and Housing Act 1989 which governs, inter alia, the Council’s duties in relation to the HRA, and matters such as Housing Subsidy. In particular, Section 76 of the 1989 Act places a duty on the Council to secure that the HRA for any year does not show a debit balance. However, there is no absolute duty to prevent a debit balance as this may occur, for example, as a result of unforeseen circumstances. Any debit balance that does occur in any year must be carried forward within the ring-fenced HRA to the following year.

4.4 Section 76 requires the Council in the January or February preceding the

relevant year to formulate proposals relating to (a) income from rents and other charges, and (b) the expenditure on repairs, maintenance, supervision and management of its houses. In formulating these proposals, the Council must secure that, on implementation, the HRA will not show a debit balance, assuming the following:

• That the best assumptions that they are able to make at that time as to all matters which may affect the amounts falling to be credited or debited to the HRA in the year prove to be correct.

• That the best estimates that they are able to make at that time of the amounts which, on those assumptions, will fall to be so credited or debited, also proves to be correct

4.5 The Council is further obliged to keep the proposals referred to in this report

under review to see if the requirement to avoid a debit balance continues to be satisfied during the year. In the event that the Council, on review, determines that this requirement will not be satisfied then the Council is, by virtue of Section 76(6), required to “make such revisions of the proposals as are reasonably practical towards securing that the proposals (as so revised) satisfy those requirements”. The duty in relation to “best assumptions and estimates” referred to in this report applies equally to such revised proposals.

4.6 Members are therefore required to satisfy themselves as to the “reasonable

practicability” of adopting any particular proposals. Members should not reject any proposal without being able to demonstrate that they have fully considered it and are satisfied that the proposal in question would be inferior to the proposal they agree.

4.7 The provisions of Section 103 of the Housing Act 1985 require the Council to

serve a notice of variation on its tenants if it wishes to vary the terms of tenancies, including any increase or decrease in rent and other charges. The notice of variation must be served at least four weeks before it is to take effect. Section 103(2) is concerned with the requirement to serve a preliminary notice on tenants which affords the opportunity for tenants to comment. However, this requirement does not apply to a variation (which includes both addition and deletion) of the rent, or of payments in respect of services or facilities provided by the landlord.

4.8 Similarly, the Council’s duties in relation to the consultation of tenants on matters

of housing management, as set out in Section 105 of the Act, do not apply to rent levels, nor to charges for services or facilities provided by the authority.

4.9 When Members of the Cabinet consider whether to adopt the recommendations

of this report, they will be exercising a discretion within the constraints of the duties referred to above and should therefore have in mind the following principles of administrative law:

(a) the decision must be within the Council’s powers (b) all relevant information and consideration, including the Council’s fiduciary duty to the Council Tax payer, must be taken into account (c) all irrelevant considerations, including unauthorised purposes, must be ignored

4.10 Pursuant to Part II of the Equality Act 2010, public authorities must, in the

exercise of their functions, have due regard to the need to— (a) eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under the Act; (b) advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it; and (c) foster good relations between persons who share a relevant protected characteristic and persons who do not share it.

4.11 Having due regard to the need to advance equality of opportunity between persons who share a relevant protected characteristic (age, disability, gender reassignment; pregnancy and maternity, race, religion and belief, sex and sexual orientation) and persons who do not share it involves having due regard, in particular, to the need to: (a) remove or minimise disadvantages suffered by persons who share a relevant protected characteristic that are connected to that characteristic; (b) take steps to meet the needs of persons who share a relevant protected characteristic that are different from the needs of persons who do not share it; (c) encourage persons who share a relevant protected characteristic to participate in public life or in any other activity in which participation by such persons is disproportionately low.

4.12 The Council is permitted by section 93 of the Local Government Act 2003 to

charge for discretionary services provided that taking one financial year with another the income from charges for discretionary services does not exceed the cost of provision.

5. Consultation

5.1 These proposals were discussed with relevant stakeholders and in particular were taken to the Area Forums and Tenants’ Council. Feedback is available in Appendix 3.

6. Organisational implications

6.1 Risk management

It is essential that rent, service charges and other charges match projected expenditure. This is a legal and operational requirement. Within this there are options as to how the objective can be achieved. While acknowledging that the drive for efficiency both in terms of cashable and non-cashable savings is a continuous process, there are financial risks associated with assuming that rent increases can be avoided through savings or efficiencies.

The annual rent setting process is a major undertaking which affects all Lambeth tenants.

6.2. Equalities impact assessment

The proposed level of rent and service charges for 2013/14 show that the greatest impact is on tenancies for larger properties. These are more commonly households where the main tenant is Asian or Female (or both) and reflect that these properties are more expensive and further away from average rent levels therefore have the greatest impact. However, the overall impact is not assessed to be outside of norms for rental changes within these areas and therefore it is concluded that there is no further action required to mitigate the impact on any particular group. 94.2% of tenants will receive a reduction or no change in respect of service charges and the majority of tenants are within the 95p reduction group. Please see supporting EIA for further detail.

6.3 Community safety implications

Section 17 of the Crime and Disorder Act 1998 imposes a general duty on local authorities, as follows: "Without prejudice to any other obligations imposed upon it, it shall be the duty of each authority to exercise its various functions with due regard to the likely effect of the exercise of those functions on, and the need to do all it reasonably can to prevent crime, disorder and substance misuse in its area." .The report sets out proposals on rent levels, service charges and other charges. The changes recommended are in relation to charging and there are no proposed changes to service levels within this report. Therefore there are no direct community safety implications arising from this report. However any future changes to service levels, particularly if they relate to community safety sensitive services would require further evaluation pursuant to s17 of the Crime and Disorder Act 1998.

6.4 Environmental implications

There are no direct environmental implications arising from this report.

6.5 Staffing and accommodation implications

There are no direct staffing implications arising from this report.

6.6 Any other implications

None

7. Timetable for implementation

Activity Date

South Area (Streatham) Consultation

7 January 2013

North Area Consultation 8 January 2013

South Area (Norwood) Consultation

9 January 2013

Central Area Consultation 10 January 2013

Tenants Council 16 January 2013

Housing Scrutiny 21 January 2013

SLB 29 January 2013

Cabinet 11 February 2013

Appendix 1

HRA Growth and Savings Items

Rent @ 4.17&

£,000

Tenant Dwelling Rent (5,177)

Stock Changes 1,000

Void Changes (491)

Sub Total Additional Income (4,668)

Disrepair – backlog cleared (1,070)

Parking (173)

Redundancy (500)

Sub Total Release of Budgets (1,743)

Total Budget Available for Reinvestment

(6,411)

TMO Inflationary Uplift 232

Angell Town Reserve 300

Responsive Repairs – inflation 509

Other inflationary uplifts on contracts 663

Rushcroft 250

Sheltered Housing 150

Welfare Reform – BDP 1,000

SF Business Case impact – interest 1,500

SF Business Case impact - MRP 1,300

Sub Total Unavoidable Pressures 5,904

Balance Available for Reinvestment (507)

Environmental – Estate Pride 250

Repairs – additional investment 257

Sub Total Bids 507

Balance 0

Appendix 2

TENANT SERVICE CHARGES

Charge 2012/13 per week

Increase / (Decrease)

2013/14 per week

% Increase / (Decrease)

Estate Cleaning

£7.62 (95p) £6.67 (12%)

Disinfestation £0.73 0p £0.73 0%

Caretaking £2.36 0p £2.36 0%

Grounds Maintenance

£1.93 0p £1.93 0%

Communal Lighting

£2.86 0p £2.86 0%

Door Entry Audio

£1.39 0p £1.39 0%

Door Entry Video

£2.10 0p £2.10 0%

CCTV £2.20 0p £2.20 0%

TV Aerial £1.18 (41p) £0.77 (35%)

Total £22.37 (£1.36) £21.01 (6%)

Heating & Hot Water

£14.43 (60p) £13.83 (4%)

Concierge £9.34 £3.10 £12.44 33%

Garage Rents Tenants

£11.55 30p £11.85 2.6%

Garage Rents Private

£18.00 47p £18.47 2.6%

Dedicated Parking Spaces

£5.00 13p £5.13 2.6%

Estate Parking Permit

£30 pa 80p £30.80 pa 2.6%

Visitors Parking £1.50 per day 0p £1.50 per day 0%

Appendix 3 – OUTCOME OF DISCUSSIONS WITH AREA FORUMS AND TENANTS COUNCIL AND HOUSING SCRUTINY

Tenant Council Recommendations –

• Rent Increase at a constrained level (under protest)

• Service Charges agreed

• Concierge service charge increase rejected

• Parking and garage service charges agreed

Area Forum Preferred Rent Increase (constrained or unconstrained)

Service Charges

Concierge Parking and Garages

South (Streatham)

Constrained Agreed

Not applicable Charges to only come into effect when new policy confirmed

North Constrained Agreed

Increase agreed

Agreed to small increase while consultation is carried out

South (Norwood)

Constrained Agreed Not applicable Not applicable

Central Constrained Agreed Not agreed Agreed

Housing Scrutiny Sub-Committee 21.01.13 – HRA Rent-Setting 2013/14 minute extract

The report was introduced by Housing, Regeneration and Environment’s Divisional Director of Resources who advised Members of the following:

• The Housing Revenue Account (HRA) continued to improve and now was in surplus compared to a deficit three years ago.

• There was considerable risk to the HRA with the introduction of Welfare Reform which was likely to impact on the ability to collect rent from tenants.

• The preferred option from the Area Forums and Tenants Council was for rents to be set at a constrained level of 4.17%.

• Tenants Council did not agree with the increase in Concierge charges.

• The Parking increases were agreed by Tenants Council.

In response to questions from Members, officers advised that:

• The decision on the rents was a Council decision, although they did take into consideration suggestions from Area Forums and Tenants Council.

• Details of the impact of proposed rent increases on different sized properties had been sent to Ward Councillors as part of the consultation.

• The Council were working with Lambeth Living to review services they were providing and it was unlikely that any savings would be made on the management fee.

• Lambeth Living had a programme of support for tenants to deal with the effects of welfare reforms.

• Officers were looking at the cost of temporary accommodation. Hostels were used to house the homeless and were paid for from the general fund but were allocated to the HRA. Auditors were not happy with that approach and following legal advice officers were pursuing with the Department for Communities and Local Government (DCLG) about moving the properties to the general fund from the HRA.

• The industry standard for voids was 2%, Lambeth were currently at 1.8% and felt that could be reduced further.

Representatives from Tenants Council advised the meeting of the following:

• Setting rents at the unconstrained level would affect the most vulnerable tenants in the Borough and put more children into poverty.

• Tenants Council did not agree with the Concierge charges and felt it unfair that tenants needing extra protection had to pay for this service. This service was there to protect the Council’s assets and should be paid for by the Council.

• Tenants Council welcomed the non increase and in some areas reduction in the service charges.

• Tenants Council felt there had been vast improvements to the consultation process for rent-setting this year.

In response to questions officers confirmed that:

• Housing Scrutiny had commissioned a review of the Concierge Service which was ongoing. The next phase of the review would look at overall costs of the concierge service and would include the views of Tenants Council. It was intended to report the outcome of this phase to Housing Scrutiny in the summer.

• There was not one distinct view in the Borough on how the Concierge Service should operate.

RESOLVED:

(1) To recommend that Cabinet increase rents at the constrained level of 4.17% as suggested by Tenants Council.

(2) That Housing Scrutiny Sub-Committee receives a report on the outcomes of the next phase of the Concierge Service review in the summer (2013).