NORTH LANARKSHIRE COUNCILR E P O P E N D A ITEM No. .3

−−−−−−−−To: HOUSING AND SOCIAL WORK SERVICES

COMMITTEE

From: EXECUTIVE DIRECTOR OF HOUSING ANDSOCIAL WORK SERVICES

Date: 4 FEBRUARY 2016 I Ref: DM / UC

Introduction

2.

Subject: 2016/17 REVENUE ESTIMATES(HOUSING REVENUE ACCOUNT)

This report sets out the information required to determine the Housing Revenue Account(HRA) revenue budget and rent levels for next financial year.

Background I Context

2.1. The Council's housing stock currently stands at 36,200 properties. The number hasreduced marginally over the last year reflecting an increase in the number of right tobuy sales partly offset by additions to the stock through the Council's new buildprogramme and the empty homes purchase scheme. Right to buy will end for alltenants on 1 August 2016.

2.2. On 12 February 2015, the Council approved its 2015/16 HRA budget ofEl2l.6m,94% of which is funded from house rents.

2.3. The average weekly rent in North Lanarkshire of £57.51 is third lowest amongScottish councils and approximately 13% below the national local authority average(65.99). Local registered social landlord (RSL) rents are, on average, 28% higher at£73.59 per week.

2.4. Average rent increases of 3.5% were applied over the five−year period from 2006 to2011, reflecting the assumptions underpinning the 30−year HRA business plan, whichwas based on annual rent increases of Consumer Prices Index (CPI) + 1%(assuming CPI at the previous 2.5% target level).

2.5. However, lower rent increases have been applied since 2011 in recognition of thepotential impact of welfare reform on council tenants. The 2015/16 rent increase of2.75% was ninth lowest among Scottish councils and compared with a local authorityaverage of 3.2%.

2.6. The UK Government's long term inflation forecast has been revised down to 2%.However, over the last year CPI averaged only 0.1% and is expected to remain verylow for the remainder of this year, rising in 2016, and returning slowly to the 2% targetby 2020. The HRA business plan has been revised to reflect the new Governmenttarget and is now based on indicative rent increases of 3% (CPI + 1%).

2.7. This year's mainstream Housing Capital Programme (including slippage) totals£49.6m. The Council's new build programme amounts to £10.8m.

Z:\Finance − Housing'.201 6.17 Estimates\Committee Report\2001 1 6docx

2.8. The integration of adult health and social work from 1 April 2016 requires that theCouncil and the NHS delegate functions and resources in respect of integratedservices to the authority of the Joint Integration Board.

2.9. In addition to the social work elements, there are also parts of the housing budget(both HRA and non−HRA) that will form part of the integrated budget, namelyadaptations and garden assistance. The HRA proportion of the budget, which in thecurrent year totals approximately £2.2m, must continue to be used only in relation toservices to council tenants, and will therefore be ring−fenced within the overallintegrated budget.

3. Welfare Reform

Background

3.1. The potential impact of welfare reform on council tenants and income streams hasbeen the subject of previous reports to service committees, with the most recentupdate on housing implications considered by the Housing and Social Work ServicesCommittee in August 2015.

3.2. Notwithstanding a range of measures put in place by the Council to mitigate the effectof the changes, the effect of welfare reform on rent arrears has been significant,contributing to an 80% increase from year end 2012/13 (when the 'bedroom tax' wasintroduced) to year end 2014/2015. However, the position at period 9 2015/16 showsthat, whilst still significantly higher than pre−'bedroom tax' levels, arrears havereduced over the last year, indicating a return to a more stable position.

Universal Credit (UC)

3.3. UC was rolled out in North Lanarkshire from 9 March 2015 for new single claimantspreviously eligible for Jobseeker's Allowance. Despite delays and significantimplementation challenges, the Department for Work and Pensions (DWP) hasindicated that plans are on track to complete the migration process UK−wide by 2020.As at 14 December 2015, there were 378 council tenants in receipt of UC, whichincludes housing costs paid to them rather than to the Council. Payment of housingcosts directly to claimants brings additional, significant financial risk to the HRAincome stream and the level of debt write−off to be funded in future years; henceadditional bad debt provision was factored into the base budget from 2015/16.Further provision may be required depending on future levels of non−payment −forevery 10% of rent uncollected, additional provision of £6m would be required from theHRA to provide for this debt, assuming full migration to UC.

3.4. However, following publication of a report by the Smith Commission in November2014, regarding changes to welfare provision in Scotland, devolution proposals willgive the Scottish Government new powers to continue to pay housing costs directly tolandlords, which would reduce the potential shortfall of HRA income (should theScottish Government decide to adopt this approach).

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Temporary Accommodation

3.5. Traditionally, the Council has categorised all unit based and dispersed properties as'supported accommodation' due to the high levels of support and supervisionrequired to manage and provision them. Consequently, the Council has been able torecover the higher costs of provision through HB. However, as previously reported toCommittee, based on a new definition of 'specified accommodation', the vast majorityof the Council's temporary supported stock could not be classified as such and wouldtherefore be subject to benefit caps and thresholds in the future.

3.6. On this understanding, action had been taken to ensure that unit basedaccommodation is properly classified for HB purposes under the new category and,consequently, projected risk to revenue has been mitigated. Revisions to theTemporary Accommodation Strategy (TAS) were approved by Committee in August2015.

3.7. However, the Autumn Spending Review Statement 2015 contained elements relatingto welfare reform not previously announced and concerns have been raised thatprotection for specified accommodation may be removed and benefit caps appliedregardless of accommodation type. Given previous assurances that supportedaccommodation would be protected, Scottish local authorities (via CoSLA, ALACHOand supported accommodation providers) propose to lobby the UK Government onthis matter.

3.8. The UK Government has indicated that additional Discretionary Housing Payment(DHP) funding will be made available to local authorities to protect the mostvulnerable, including those in supported accommodation. However, further lobbyingmay be necessary regarding the Scottish Government's share of these funds.

3.9. The HRA currently receives £5.8m of FIB income per annum in relation to itstemporary accommodation. Estimates based on the Autumn Statement, existingnumbers, client and property mix and UC migration rates indicate that HRA budgetedrevenue from temporary accommodation will eventually reduce by £4.1m annuallyonce full migration to UC is achieved. In addition, the 'bedroom tax' will be appliedbefore the UC payment is made, further reducing sums available to cover housingcosts, and there could also be up to £1 .7m to be recovered from tenants dependingon UC payment arrangements from the DWP.

3.10. Interpreting the Autumn Statement on a worst case scenario basis, dependent on therate of migration to UC, it is estimated that the HRA can fund the projected reductionsof rental income until 2018/19, and partly in 2019120, due to the preventative actiontaken to earmark FIB surpluses. However, the £4.1 m shortfall could be fully incurredfrom 2020/21.

3.11. In the meantime, ongoing review of temporary accommodation provision will includeconsideration of options to mitigate income shortfalls in future years. This willnecessitate further review of the TAS.

3.12. In view of the foregoing, it is proposed to set aside any additional income generatedby a rent increase on temporary accommodation to further mitigate potential futureshortfalls. This is consistent with the approach adopted over the last two years and isreflected in the budget proposals.

3.13. A further update on the housing implications of welfare reform will be submitted toCommittee at the next cycle.

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4. Benchmarking / Key Performance Indicators

4.1. In 2014/15, for the sixth consecutive year, Housing Services participated in theHouseMark benchmarking project, which analyses the relationship between cost andperformance across the main Scottish Housing Regulator activities and comparesservice costs with other organisations of similar size. Results indicate that NorthLanarkshire is the only local authority in its UK peer group with less than five FTEemployees per 1,000 properties and, in 2014/15, the cost per property of housingmanagement in North Lanarkshire was approximately 28% below the group average.

4.2. According to a statistical bulletin on local authority HRA5, recently published by theScottish Government, comparisons across all Scottish councils indicate the following:

In 2014/15, housing management costs per house in North Lanarkshire werelowest among Scottish local authorities and 29% below the national average. (InNorth Lanarkshire, employee costs account for only 13% of the HRA);Continuous improvement in the management of void properties and tenancysustainment has enabled the Council to make significant savings on void rent lossover a number of years. The Council's performance continues to comparefavourably with other local authorities − in 2014/15 void rent loss in NorthLanarkshire represented 0.8% of rental income compared to the Scottish averageof 1.9%; andAs at 31 March 2015, outstanding debt per house in North Lanarkshire was£5,506 against a national average of £11,400.

5. HRA Revenue Estimates 2016117

5.1. HRA base estimates for 2016/17 have been prepared by incorporating Cost ofService Provision (CSP) adjustments into the current year's budget. These are setout at Appendix 1. A number of movements have been factored into the budget,including general inflationary uplifts, realignments to reflect the 30−year financialmodel and additional cost pressures related to welfare reform and other legislativechanges.

5.2. The overall movement in the base budget, before consideration of financial savingsand service improvements, amounts to an increase of £2.977m. This equates to abase rent increase of approximately 2.75% (or £1.58 per week). A rent increase of3%, in line with long term business−planning assumptions, would generate additionalrental income of approximately £3.256m and net growth of approximately £279,000,which can be augmented by financial savings.

5.3. The level of net growth would vary depending on the average rent increase applied.A movement of 0.5% (equivalent to 29 pence per tenant per week) would vary theamount of net growth by approximately £0.5m.

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6. HRA Business Plan

6.1. The assumptions underpinning the Council's 30−year HRA business plan have beenreviewed as part of the budget−setting process and the plan has been updated toreflect the 2014/15 final outturn position together with the most up−to−date informationavailable at this point in the current financial year.

6.2. Key business planning assumptions are set out at Appendix 2 and the revisedfinancial model is summarised at Appendix 3. Comparison with the position at thesame point last year indicates:

• An increase in the number of Right to Buy (RTB) sales;• Increased capital receipts;• Reduced investment of £270m over the 30−year planning period, primarily due to

reduced inflation rate assumptions;• A reduced borrowing requirement of £68m, which will, in turn, reduce the closing

debt per house by £2,500 (7.5%);• Reduced operating costs / capital charges; and• Higher interest rates from 2018/19 (with stepped increases every five years).

7. New Build Programme

7.1. The Council has a new build programme of 1,150 units. By the end of this financialyear, 381 units are programmed for completion, with 111 at design development /statutory consent stage, 175 at procurement stage and sites approved for all but 211units. The Council has an aspiration to expand the existing programme, as set out ina separate report to this Committee. However, any financial impact will extendbeyond 2016/17 and is not therefore reflected in this report.

8. Use of Surplus Balances

8.1. It is the Council's policy, as part of its HRA budget strategy, to maintain a corereserve of £1 .2m, which equates to 1% of the HRA budget.

8.2. In allocating the surplus carried forward from 2014/15, Committee agreed to set aside£2.71 2m to mitigate any future risks and uncertainties that may arise during theremainder of the year and, should there be no call on this provision, it would beconsidered as part of the 2016/17 budget−setting process.

8.3. As there has been no requirement to use this fund to date and, given that a surplus isprojected in the current year, it is proposed to allocate it to one−off serviceenhancements in 2016/17.

9. Options for Financial Savings

9.1. Options for financial savings amounting to Ell. 1 04m (including a review of otherhousing charges) are set out at Appendices 4 (i) and 4 (ii).

9.2. The review of other housing charges set out at Appendix 4 (ii) includes a rentincrease of 3% for temporary accommodation, which would generate £244,000 ofadditional income. As outlined in paragraph 3.12, it is proposed to set this aside tomitigate future shortfalls resulting from the introduction of UC and benefit caps. Thecorresponding figure has therefore been included as a CSP adjustment.

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10. Options for Service Improvements

10.1. Options for service improvement are set out at Appendix 5.

Empty Homes Purchase Scheme (EHPS)

10.2. In 2013, the Council launched its EHPS. In the current year, the scheme is funded byCFCR combined with HRA surplus balances (non−recurring), Council Tax levy andScottish Government grant of £20,000 per property (up to an agreed limit), totalling£1 .8m, which will enable 24 properties to be brought back into use. As next year'sbase budget will reduce this number to approximately 19 properties, Committee maywish to increase budget provision for the scheme and this has been included as agrowth option at Appendix 5.

Housing Capital Programme

10.3. The Scottish Housing Quality Standard (SHQS) represents the minimum standardthat all social rented housing stock was expected to meet by 2015, and bemaintained at thereafter. By 31 March 2015, North Lanarkshire Council had achievedfull SHQS compliance (with the exception of abeyances).

10.4. The Energy Efficiency Standard for Social Housing (EESSH) has been developed tohelp reduce energy use and address fuel poverty in the Scottish social housingsector. All social landlords are required to achieve the new standard by 2020.

10.5. Last year, the Service completed surveys of the entire housing stock to identify worksrequired to ensure SHQS compliance and inform future investment plans. Theresults have been used to develop a five−year targeted investment programme toachieve EESSH compliance by 2020, as detailed in a separate report to Committee.

10.6. The report outlines a range of options for capital investment over the five year periodfrom 2016/17 to 2020/21. The preferred option, which includes completion of thekitchen and bathroom replacement programmes within five years, windowreplacements based on current life cycle and a re−focus I re−prioritisation within theroofing / render programme, would enhance capital investment plans by £20.5m overthe next five years to deliver a more ambitious programme by 2020/21.

10.7. Funding to service the additional borrowing requirement amounts to £1.3m,cumulatively, from 2017/18 to 2021/22. This could be funded by setting asiderecurring growth, to be drawn down as required over the five−year period and, in themeantime, any unutilised balance applied to one−off growth year on year.

10.8. Based on current assumptions about interest rates, every £100,000 of recurringgrowth allocated to loan charges will fund approximately £1 .6m of additional capitalinvestment.

10.9. Investment targets for the period beyond the next five years will be reviewed in linewith the housing asset management plan, scheduled for completion by March 2017.Thereafter, the HRA business plan will be updated to reflect revised long−term capitalspending requirements.

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11. Tenant Consultation

11.1. The Council has a statutory duty to consult with tenants on all matters that affectthem. Over the last year, tenants' views on housing rents and budget setting havebeen obtained via:

• A full postal satisfaction survey (issued to all tenants);• A Tenants' Federation rent survey;• A questionnaire included in the July 2015 edition of 'Tenants' News'; and• The annual tenant conference;

Tenant Satisfaction Survey (January 2015)

11 .2. The survey results indicated that:

a) 80% of tenants who responded considered their rent to offer very or fairly goodvalue for money;

b) The majority of tenants (72%) would prefer a minimum rent increase to maintainservices at current levels; 18% would prefer a rent increase to a level that wouldimprove services; and 10% would prefer no increase and a reduced level ofservice;

c) The top three investment priorities for home improvement (in order of preference)were new windows, bathrooms and roughcasting / rendering; and

d) The top three priorities for the housing service were repairs and maintenance,overall quality of home and tackling antisocial behaviour.

Tenants' Federation Rent Survey (May 2015)

11.3. The responses received to a short questionnaire indicated that:

a) Approximately 90% considered NLC rents to be affordable and offer value formoney; and

b) The preferred method for consulting tenants on rents and budget setting was viapostal surveys.

Tenants' News (July 2015)

11 .4. Responses indicated that:

c) Approximately 67% considered NLC rents to be affordable and offer value formoney; and

d) The preferred method for consulting tenants on rents and budget setting was viapostal surveys.

Tenant Conference (November 2015)

11 .5. Feedback from the tenant conference held in November 2015 indicated:

a) 84% of tenants participating considered North Lanarkshire Council rents to offervalue for money;

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b) 47% would prefer a rent increase to a level that would enable the Council toinvest more in the housing service; 43% would prefer a minimum increase tomaintain services at current levels; and 10% would prefer no increase and areduced level of service; and

c) The top three service priorities (in order of preference) were:

• Building new houses for rent;• Improvements to tenants' homes; and• Improving energy efficiency.

11.6. The Council will wish to consider this feedback from tenants in determining rent levelsand allocating any growth to service improvements in 2016/17.

12. Corporate Considerations

12.1. This report has been prepared in consultation with the Executive Director of Financeand Customer Services.

13. Recommendations

Committee is requested to:

a) Note the Cost of Service Provision (CSP) adjustments detailed at Appendix 1;b) Note the key business planning assumptions at Appendix 2;c) Note the updated 30−year financial model summarised at Appendix 3;d) Consider the options for financial savings and service improvements set out at

Appendices 4 and 5;e) Consider allocation of HRA surplus balances as detailed in section 8;f) Determine the weekly rent level required to support the agreed spending plans

after adjustment for financial savings and service improvements; andg) Otherwise note this report.

' t−Duncan MackayExecutive Director of Housing and Social Work Services20 January 2016

For further information on this report please contact Una Coleman, Manager (Finance and Administration) on telephone 01698 332787.

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Appendix I

COST OF SERVICE PROVISION (CSP) ADJUSTMENTS 2016117HOUSING REVENUE ACCOUNT

1.0 Employee Costs1.1 Impact of staff turnover and incremental drift1.2 Impact of legislation on Employers NI (Removal of lower rate NI)1.3 Pay Award (Additional 0.5% 15/16)1.4 Pay Award (1%)

2.0 Property Costs2.1 Combination of housing repairs inflation and stock movement2.2 Combination of unlet house inflation and stock reduction2.3 Energy costs uplift (electricity 3.5% /gas 35%)

3.0 Apportioned Expenses3.1 Savings on central administration costs

4.0 Capital Financing Costs4.1 Reduced leasing costs4.2 Loan Charges

5.0 Capital Financed from Current Revenue (CFCR)5.1 CFCR increased in line with 30−year planning assumptions

6.0 Other Cost Pressures6.1 Trading accounts contract inflation (1%)6.2 Mitigation of future shortfalls of income due to welfare reform

7.0 Non−Recurring Growth7.1 Removal of non−recurring growth 2015/16

8.0 Other Income8.1 Reduced interest on revenue balances

Total CSPs

9.0 Rent Income9.1 House / Garage rents − effect of forecast stock movement

Overall movement in base budget

Equivalent to a base rent increase of

% Increase

£000 £000

205280

79171 735

1,2963648 1,380

(100) (100)

(522)676 154

762 762

29244 273

(334) (334)

14 14

2,884

93 93

2,977

£1.58

2.75%

Appendix 2

HRA Business Planning Assumptions

Item.

2016117;, Basis IComment−General

inflation 2% Based on the Government's long terminflation forecast for the economy.

Contract inflation:

Mears 3.1% Housing repairs uplifted in line withSaltire 6.7% building indices.Other 2%

Capital investment 3% Capital investment targets increased bytarget inflation plus 1% growth tomaintain SHQS I EESSH ratings.

Pay awards 1% Based on agreed pay award 2016/17and assumed rate 2017/18 (1.25%).CPI 2% target applied from 2018/19.

Trading accounts 1% Uplifted in line with agreed pay award.inflation

Superannuation 19.3%. Triennial review due to be publishedmay result in future changes.

National Insurance 13.8% Removal of lower rate (contracting outdiscount) from April 2016 will increasethe cost to the HRA by 29% (Councilaverage 25%). Actual rates vary up toa 13.8% maximum.

Energy costs 3.5% Assumes continued volatility in themarket.

Interest rates 4.05% The business plan assumes thatinterest rates will increaseincrementally over the longer term.

Housing stock 36,198 Mid−year stock projections. Assumesstock numbers will increase from 2016to reflect new build completions andEHPS acquisitions combined with theabolition of Right to Buy.

Rent increase 3% Based on target inflation plus 1%.

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Appendix 4 (i)

HOUSING AND SOCIAL WORK SERVICES (HRA)

OPTIONS FOR FINANCIAL SAVINGS 2016/17

WORKFORCE DEPLOYMENT

£000

I Property I Design ServicesSavings resulting from the restructure of the Property Division. 200

2 OvertimeEnhanced control of overtime working will further reduce employee costs. 25

ASSET MANAGEMENT

3 Void Rent LossThe Service's continued success in reducing the level of empty properties has resulted insavings on void rent loss over a number of years. 100

4 Council Tax on Empty and Homeless PropertiesSavings on council tax due to a reduction in long term voids.

5 Housing Property RepairsTargeted 1% saving on existing budgets.

10

400

6 Best Value Efficiency Savings − Housing Property RepairsAs part of the ongoing contractual arrangements with Mears Scotland and SaltireFacilities Management, further cost efficiency rebates will result from future anticipatedworkloads. 51

7 Other Property CostsCombination of minor property related savings.

8 Redecoration AllowancesReduced uptake of scheme.

9 Giro Bank TransactionsSaving due to increase in direct debit take up.

INCOME GENERATION

15

10

15

10 Other Housing ChargesAdditional income generated from a 3.0% increase on other housing charges. 278

TOTAL 1 1,104

Appendix 4 (ii)

HOUSING AND SOCIAL WORK SERVICES (HRA)

OTHER HOUSING CHARGES 2016117

Weekly Charge Proposed Additional(52 weeks) Increase Revenue

Description No of Units Present Proposed Per Annum% £

Lock Ups

Standard 3,350 5.53 5.70 0.17 3.0 29,614

Higher Rental 73 7.04 7.25 0.21 3.0 797

Garage sites 464 1.77 1.82 0.05 3.0 1,206

Parking Bays 9 4.04 4.16 0.12 3.0 56

Temporary accommodation

− Furnished 426 307.02 316.26 9.24 3.0 204,684

− Supported 83 304.64 313.74 9.10 3.0 39,276

Sheltered housing heating

− Central (Wellwynd Gardens) 28 7.06 7.27 0.21 3.0 306

− South (Unitas Road) 31 14.79 15.23 0.44 3.0 709

− South (Drummond Drive) 36 14.07 14.49 0.42 3.0 786

Hostel heating − South 58 7.77 8.00 0.23 3.0 694

Kerr Grieve Court 30 9.02 9.29 0.27 3.0 421

TOTAL 278,549

Appendix 5

HOUSING AND SOCIAL WORK SERVICES (HRA)

OPTIONS FOR SERVICE IMPROVEMENTS 2016117

I Empty Homes Purchase SchemeIncrease budget provision for the Empty Homes Purchase Scheme. The average total costper property is £70,000, with the Council's investment augmented by Scottish Governmentgrant of £20,000 per property.

2 HRA Capital Programme

(a) Increase borrowing to fund an enhanced Housing Capital Programme (every £100,000of recurring growth will finance approximately £1 .6m of additional capital investment).

(b) Increase the revenue contribution to the Housing Capital Programme (recurring orone−off)to accelerate existing programmes:

− Kitchen replacement (4,300 per house);− Bathroom replacement (3,500 per house);− Roofing and render (f7,200 per house).

3 Housing Repairs and MaintenanceIncrease budget provision for housing repairs.

4 Lock Up RepairsIncrease the budget for lock up repairs to reflect the additional revenue generatedthrough charge increases.