Babergh District Council. Housing Revenue Account Initial Business Plan April 2012 onwards

Transcription

1 Babergh District Council Housing Revenue Account Initial Business Plan April 2012 onwards

2 Housing Revenue Account Business Plan Table of Contents Page Executive Summary 4 1. Introduction 6 2. The Local Context 7 3. The Change Context Governance Arrangements Housing Performance Tenant Engagement The Self Financing Reforms Financial Review Housing Investment Future Plans Risks & Mitigations 32 Appendix 1 Five Year Financial Plan 34 Appendix 2 30 Year Financial Summary 37 Appendix 3 Treasury Management/ Borrowing 38 Appendix 4 Action Plan Appendix 5 Glossary of Abbreviations 44 2

3 Tables and Charts 2.1 Social Housing Providers in Babergh 2.2 Council Housing Stock Profile 2.3 Housing Options, Weekly Cost 4.1 Housing Governance Model 7.1 The HRA Subsidy Settlement 8.1 Business Plan Assumptions 8.2 Sensitivities Modelled Against the Base Business Plan 9.1 Projected Housing Capital Investment, Thirty Year Capital Investment 9.3 Housing Capital Funding/ Borrowing Plan 9.4 Revenue Repairs Costs, 30 Year Totals A3.1 Settlement Loan Repayment Profile A3.2 HRA Reserve and Debt ( 000s) 3

4 Executive Summary E.1 Babergh has a proud tradition of providing social housing for residents of the district, for investing in its housing stock, for working closely with its tenant groups and for achievements which are recognised in a number of national awards won over the course of the last decade. E.2 Babergh has not rested on its laurels, however, and has embarked on an ambitious and innovative programme of service integration with neighbouring Mid Suffolk District Council. This programme will generate savings which will be used to the benefit of current and future tenants. Detailed planning for the future delivery of the service is currently well underway. Jointly managing Babergh s 3,500 council houses alongside Mid Suffolk s 3,400 will make the two Councils the seventh largest provider of social housing in the region. E.3 The plan is in response to the major change by the Government in relation to the financing of council housing. From the 1 st April 2012, Babergh will no longer have to pay over a proportion of its rental income on the Housing Revenue Account (HRA) to the Government. Like other councils which retain their housing, Babergh will effectively buy out of the current system at the end of March 2012 by taking on its share of the national housing debt of 84m. This settlement loan, which must be paid to government, is part of the Council Housing Reform process. E.5 So, in 2010/11, Babergh paid 5.1m in what is known as negative housing subsidy to government. This figure has been rising year on year and would have continued to do so in the future. From 2012/13 it will not be required to make this payment but will instead pay interest on the settlement loan (at a cost of around 3m a year much less than the saving in negative housing subsidy) and have to repay the debt from the Housing Revenue Account (the HRA) over time. E.6 This initial Business Plan shows that the expected income in the HRA can fund not only the ongoing revenue costs of managing and maintaining Babergh s housing stock over the next 30 years, meet the interest costs on the settlement loan, provide cash to invest in capital works to the existing housing stock, which have been identified in a recent Stock Condition Survey, but also produce surplus funds of around 130m over the next 30 years. E.8 The increased annual investment in capital works to our stock identified in the Stock Condition Survey conducted in autumn 2011 equates to around 2m a year on average. This is on top of the current annual capital investment of around 3m a year and spending on day to day repairs, painting and servicing contracts. E.9 There is a clear and continuing need for new social housing in the district. The current waiting list is equivalent to half the size of Babergh s total council housing stock. The reforms of the welfare benefit system will also result in reductions in housing benefit to working age tenants who under occupy their homes which will mean the Council will need to increase the supply of one and two bedroom council properties to free up family homes. Additionally, Babergh s ageing population often have special housing requirements and very different expectations about how Councils should work to enable their greater independence. All these point to a continued role for the council not only as a provider of social housing but also a strategic enabler who must work carefully to explore the opportunities and 4

5 flexibilities of the new arrangements to invest the surplus generated by the new funding system. E.10 The self- financing changes give the council more control over its housing stock and its resources which is good news for tenants. The old system meant that medium or long term planning was impossible: the annual subsidy determination was usually finalised at the end of December preceding the start of the new financial year in April. Babergh can now plan over a 30 year time horizon in the same way as its Registered Social Landlord partners and keep all its rental income instead of paying over a significant part of this to the government each year. E.11 The transfer of control will result in the transfer of risks and new fiscal responsibilities which will require close scrutiny and governance. Under the subsidy system central government managed most of the risks around council house financing. The new system puts individual councils firmly in the driving seat of managing their risks. E.12 However, there are risks going forward. Councils have sought assurance from government that their debt settlement and debt cap will not be re-opened in the future. It is clear that action to reduce the public deficit will continue and there is every possibility that future borrowing capacity i.e. up to the debt cap and as debt is repaid may be reduced. E.13 The new financial system is a key aspect of the Localism Act This Act, and a range of other policy initiatives, will have far reaching implications for councils. Major housing reforms, including changes to homelessness duties, allocations and tenancies, will give councils the flexibility to use their social housing stock to the maximum effect and reduce waiting lists. There will also be a renewed emphasis on involving tenants in decision making around the future of the housing service. The enhanced Right to Buy arrangements, which could see the level of discounts rise to 75k, are also likely to impact on future plans with forecasts of an additional 13,000 homes being sold nationally. Increases in RTB sales will reduce rent income and the surplus funds available. E.14 The business plan will, therefore, be reviewed annually and appropriate action taken to address the risks as required. The prospects for Babergh and its tenants are, however, exciting. Many decisions will have to be made to achieve the best outcomes and the council is putting in place new governance structures which will ensure these are made with the maximum involvement of tenants. In summary, the ending of the HRA subsidy system brings with it new challenges, but with it comes significant benefits and new opportunities. 5

6 Section 1 Introduction 1.1 This initial HRA Business Plan has been produced during a time of unprecedented change for the delivery of council housing services by Babergh District Council. Three major changes are in process at the time of finalising the plan. The Government is giving new freedoms and flexibilities to councils to manage their housing stock through the reform of council house finance arrangements and making big changes to welfare (housing) benefits. It is introducing new initiatives and obligations through the Localism Act and other determinations. Babergh and Mid Suffolk are also joining together in a new service integration partnership to jointly deliver services, to ensure the best possible value for council tax payers and tenants and to join up decision making about the future provision of council services in the mid and south Suffolk area. 1.2 These changes mean that there are many more decisions to be made about the future of Council Housing for Babergh and its tenants. Some of the ways in which services will be delivered in future have not yet been determined. Some of the potential future investment decisions have not yet been identified and prioritised. The tenants of the council have not yet been consulted about many of the future changes. There are definite plans in place, however, to address all these issues as during the year ahead. 1.3 This is a time of significant change, therefore, for Babergh s Council Housing service, and this initial business plan sets out: Who is this plan for? The estimated/potential financial effects of the Housing Revenue Account Reforms for the council and its housing service How services are currently delivered and how they may or will be delivered in the future To highlight those areas where future decisions will need to be taken 1.4 This plan is written for Members, tenants and staff involved in the governance and the management of Babergh District Council s housing service. It is designed to demonstrate the impact of the Housing Revenue Account reform programme and to be a document to inform the changes to be made as a result of the service integration of Babergh and Mid Suffolk District Councils. 1.5 Because this is the first HRA Business Plan produced to reflect the new selffinancing arrangements and also to take on board the movement towards shared services between the two councils, it is very much an Initial HRA Business Plan. It sets the scene for the forthcoming year 2012/13, and the first 5 years of a longerterm 30 year plan. Future plans will be developed to reflect issues which are relevant to service integration and also the new governance arrangements which are intended to manage both Councils related HRA services. 6

7 Section 2 Introduction The Local Context 2.1 This section highlights key demographic and other data about the Babergh district and puts into context the role of Babergh DC as a social landlord. Babergh District Council 2.2 Overall, the district has a population of approximately 86,000, of whom 21,000 live in Sudbury and Great Cornard, with another 7,000 in Hadleigh. In the three years to mid 2010 there was a reduction in the population of the District of 328 people, or 0.4%. This contrasts with a population increase across Suffolk as a whole of almost 1%. 1 It has an unemployment rate of almost 6%, slightly less than the UK average of 7.6%. In March 2011 there were approximately 1,100 benefit claimants in the District. 2 In , average incomes were in the range per week, which was only about three quarters of the national average In November 2011, there were 1,758 people registered on the housing waiting list. This figure has remained fairly static over the last few years as the success of the Affordable Housing Programme has resulted in a steady increase in housing supply. 311 homes were allocated in 2011 which is slightly above the annual average. If all the people on the waiting list were to be housed by Babergh DC, it would therefore take almost 6 years to clear the current list. 2.4 In March 2011, the average price of a house in Babergh was around 245,000, with the average lower quartile price at 145,000. This compares with the average house price nationally of around 153,000, with Babergh s average being 60% higher. The overall average was the highest in the Greater Haven Gateway (a sub-regional grouping of local authorities), but the lower quartile price was roughly average for the region The high cost of housing in Babergh, together with relatively low average earnings, suggests a strong and ongoing need for affordable housing and further evidence of this need is demonstrated by the current size of the waiting list. The age structure of the local population suggests a growing need for services and support for older people to enable them to become more dependent. 1 Office for National Statistics, mid year population estimate, mid /rft-lm-table-12-november-2011.xls 3 Table 71a. 4 Greater Haven Gateway, Housing Market Trends, Quarterly Report, May

8 Babergh as a Social landlord 2.6 Babergh DC is by far the largest social landlord in the District. It owns almost 75% of social homes in the district and almost ten times the number of homes of the next largest social landlord. 5 The table below identifies each social landlord with properties in the district. Housing Provider Number of homes Colne Housing Society 21 Grand Feoffment Charity 31 Hastoe HA Ltd 32 Orbit Group Ltd 126 Sanctuary HA 161 Suffolk Housing Society Ltd 220 Orwell HA Ltd 337 Suffolk Heritage HA Ltd 357 Babergh District 3,497 Total 4,782 Table 2.1 Social Housing Providers in Babergh 2.7 Babergh s stock is made up as follows: Pre Post 1974 Totals Bungalows Flats Houses ,874 Totals 402 1,120 1, ,497 Table 2.2 Council Housing Stock Profile 2.8 Despite the upward movement in rent levels resulting from the Government s policy on rent convergence, whereby local authorities and housing associations were instructed to move their rents into line, so that social housing of similar size in the same area would have the same rent regardless of landlord, Babergh council housing still currently remains by far the most affordable of housing options in the District, as shown in the table below: 6 Housing Option Cost (per week) Renting (Local Authority) 71 Renting (Registered Social Landlord) 89 Renting (Intermediate) 110 Renting (Private Sector) 137 Buying a lower quartile resale 98 Buying an average resale 114 Buying a 40% share through Homebuy scheme 78 Table 2.3 Housing Options, Weekly Costs Greater Haven Gateway, Housing Market Trends, Quarterly Report, May

9 Managing the housing service 2.9 Babergh and Mid Suffolk s Housing Services teams are responsible for the management of the council s homes, including: The general management of the stock and the discharge of its statutory and policy functions, including tenancy enforcement and the management of the sheltered housing service Tenant engagement, business support and performance management. Lettings and housing allocations, customer services, liaison with Supporting People providers and a non-hra homelessness and advice team. The Income Team which collects rents, manages debt and represents the council in respect of landlord matters in court Babergh has published service standards for the assessment of choice based lettings applications (5 days), matching properties (10 days) and re-letting vacant properties (25 days) Asset Management involves the maintenance of the housing stock including: Planned and cyclical works and the cleaning and caretaking services. Mechanical and engineering works, responsive repairs, repairs inspections, voids and tenant liaison. Procurement and the process of letting contracts. The management of the housing customer services team which deals with the first point of call for customer repairs issues. Construction Design and Management and Quantity Surveying services are sourced externally when these are required In common with other social landlords, Babergh has service standards for completing repairs notified by tenants. These range from 1 day for the most urgent types of repair work, 3 days for non-critical repairs, 7 day for the next category and then 28 and 56 for non urgent work such as damage to external fencing The customer service team dealt with nearly 27,000 calls from tenants in 2010/11, of which 42% related to repairs The Service Integration and Transformation Programme with Mid Suffolk has resulted in the appointment of a new Head of Housing for both Councils. The next tier of management will be appointed in early/mid 2012 and it is expected that the full integration of teams across the new service, both HRA and non-hra, will be in place later in This will impact on future service delivery arrangements Babergh was also the lead authority for Gateway to Homechoice, a very successful sub-regional Choice Based Lettings scheme which was launched in The other local authority partners of the scheme are: Braintree, Colchester, Ipswich, Maldon, Mid Suffolk, Suffolk Coastal and Waveney. It is also a member of House Exchange, an electronic mutual exchange hub which allows tenants themselves to initiate the exchange process. 9

10 2.16 Babergh has 346 sheltered housing units spread across twelve schemes. The national reduction in Supporting People grant has impacted on the services provided to tenants. Babergh started to revolutionise the way in which it managed its stock in 2005, aware that it no longer met tenants aspirations and properties were not always let to people who required the service. A planned programme of stock reduction was agreed with tenants and schemes which could be put to better use also agreed. This meant Babergh has been better able to cope with the reducing grant levels, whilst not being immune altogether from the funding reductions. Further work on future service provision, however, is needed Babergh works in partnership with a wide range of other organisations, both to directly deliver services and also to provide additional support for tenants who it considers vulnerable. The Anti-Social Behaviour Officer for instance is based within the Police Station at Sudbury and this helps to deliver a joined up approach to problem solving. Babergh has hosted joint events with Age UK, the fire service and local transport providers to share information with tenants. 10

11 Section 3 The Change Context Introduction 3.1 This section sets out the national and local change agendas which have a major impact on the focus of this Business Plan. 3.2 At the national level the Reform of the Housing Revenue Account (HRA) and the ending of the subsidy system will allow Babergh the same degree of freedoms enjoyed by housing association partners. Babergh will be better off financially as a result of these changes and must decide on its new strategic direction as a landlord and also enabler. 3.3 The Government is engaged in a broader programme of Social Housing Reform which is intended to bring much closer and more effective tenant involvement and brings the need for a new governance model. The development of a Joint Housing Board which comprises tenants, members and officers is an important part of these plans. The significant Welfare Benefit Changes will also be a key issue for the Board. 3.4 Finally, the movement towards a fully integrated services model between Babergh and Mid Suffolk will make the joint management of the combined housing stock the 7 th largest within the region and although each Council will remain autonomous in its decision making and still keep separate HRAs, this really offers the opportunity to transform the way in which services are delivered. Housing Revenue Account Subsidy Reform 3.5 For many years, stock holding Councils like Babergh have been part of a formula based subsidy system, whereby the difference between notional income and expenditure into the Housing Revenue Account was either in surplus or in deficit. This meant Councils with a HRA surplus paid this over to the government, and those with a deficit received a compensating payment from the government, funded by the surpluses of other authorities. 3.6 Following the passage of the Localism Bill 2011 into law, the subsidy element of this system will be brought to an end on the 31 st March Authorities will either make or receive a settlement payment, which will transfer housing debt from central government to local authorities. Local authorities will have to pay off this debt, but will have significantly greater freedoms in terms of how they spend their rental income and this can include decisions, once again, to become providers of new Council housing. The Public Works Loan Board will be offering special loans for the settlement payments which will be significantly below market rates. 3.7 For Babergh, the total settlement payment is 83.6m and the council will be allowed to arrange additional loans which, together with current loans, would give it a total maximum housing loan portfolio of up to 98m (the debt cap ). However, the Government may well revisit this and restrict future borrowing depending on the state of the national public finances. 11

12 3.8 In 2010/11 Babergh paid 5.1 million of HRA subsidy to the government. Following the end of the system and the arrangement of the settlement loan, it expects to pay around 3m in annual interest payments on the loans. Even though stock investment is expected to be about 2m higher than in previous years, this means that there will be significant financial and tenant benefits from the changes. 3.9 A key benefit of the change is that it will significantly reduce the uncertainty around the future financing of the housing service. The subsidy system determinations, setting out how much each authority was expected either to contribute to, or receive from, the national pool were released shortly before the start of each financial year and were subject to large fluctuations between different years. This created problems in long term financial planning and management for councils. Under the new system, the risks and uncertainties of the subsidy system have gone, but have been replaced by other risks and uncertainties as well as opportunities. Social Housing Reform 3.10 Contained within the Localism Act 2011 and a range of related consultation and policy documents there are a wide range of measures which will have an important impact on the future delivery of housing services by social housing providers. A summary of key changes is included below: Strategic Tenancy Policy Councils must produce a Strategic Tenancy Policy which sets the framework by which it its RP partners expect to deliver new affordable homes. Flexible Tenancies which are for a fixed term of at least two years will be introduced. Housing providers will have the option not to renew these at the end of the tenancy term. Where a council does not renew a Flexible Tenancy it will have a new duty to provide advice and assistance to the tenant during the six month period of notice it must serve on them. Housing Registers will cease to be open to all and will become more focused on those in housing need meeting eligibility criteria which are agreed locally. National Homeswap Scheme social housing providers will be expected to participate in this, which will encourage social housing tenants to move around the country to secure employment. New model of affordable housing The Affordable Rent Tenure (ARTs) regime will set maximum rents for this tenure at 80% of local private market rents and will apply to government subsidised new build schemes and will replace the capital grant which has historically been used to support new development. Overcrowding powers housing providers will be encouraged to match social tenants with an appropriate size of accommodation. Working age tenants are likely to see their housing benefit capped if they occupy homes which are too large for their needs. 12

13 Changes to the Right to Buy (RTB) a range of changes are being considered which include the eligibility criteria for RTB applications, discount levels which could rise up to 75k for houses and 50k for flats and how the proceeds will be shared between social landlords and government. Tenant Involvement the Government has instructed the Housing Regulator to implement a new regulatory standard to enhance the commitment of all social landlords to bottom up tenant engagement and involvement. Annual Tenant Reports the format and content of which must be agreed in advance with tenants and must include financial information. Decent Homes Standard the Government has affirmed its commitment to the social housing regulator enforcing a minimum standard for social housing. Service charges the Government will require local authorities to provide more information and greater transparency relating to service charges to its tenants and to provide opportunities for review and challenge. Universal credit and welfare reforms these are far reaching and will bring an end to the direct payment of housing benefit to social landlords, in the majority of cases, and will give rise to new challenges for the council and tenants All these issues are receiving careful attention and will be dealt with as part of our future plans. Service Integration and Transformation Programme 3.12 In 2010 Babergh and Mid Suffolk embarked on a programme of service integration at all levels including all aspects of their housing services. One of the key drivers was achieving financial savings to meet the budget shortfalls that were forecast for the next three years and also transform the way things are done to achieve better outcomes i.e. to become the Best of the Best As a result of extensive engagement and consultation and an advisory residents poll, it was decided that constitutional merger and the creation of a single council should not proceed but that staff and service integration was essential to achieve savings, and increase resilience and capacity to deliver the outcomes that both councils were aiming to achieve A joint Chief Executive was appointed by the two authorities in May 2011 and joint heads of service appointed in November The aim is for an integrated staff structure to be in place during The delivery of services between the two authorities will increasingly converge. At the time this business plan was produced, the way in which convergence will be achieved, together with the final vision for service delivery, is at the planning stage. 13

14 Conclusion 3.16 The major change initiatives detailed in this section will have an enormous and potentially very positive impact on the future delivery of Babergh s housing service. Cost savings can be utilised in a number of ways. The proposed changes should mean new and exciting opportunities in terms of new house building, more money for affordable housing and greater levels of investment in council housing. 14

15 Section 4 Governance arrangements Introduction 4.1 This section sets out the new governance arrangements for the shared housing service. A new governance model 4.2 The Government's commitment to localism, the devolution of power to communities and the HRA reforms are all factors which will lead to the transformation of the way in which service users are involved in the future. Both Councils have agreed to establish a new Joint Housing Board to provide the governance, capacity and flexibility to meet these challenges. 4.3 Babergh and Mid Suffolk run their respective housing services differently. The challenge of drawing together a single integrated housing service that builds on the 'best of the best' practice in both Councils will be considerable. As well as different structures in each Council, there are also different systems and processes in place at each. 4.4 The creation of a single HRA across both Councils would have made integration easier but is not possible. This would only have been permitted if a constitutional merger had taken place. Both Councils must now continue with separate HRAs and separate investment/service levels for Landlord Services. 4.5 The creation of a Joint Housing Board, dealing with matters relating to the Landlord Services of both Councils, will help to overcome this barrier. A transformation of this nature will also reduce bureaucracy, streamline decision making, support tenant participation and promote a Landlord Service that is truly shared by both Councils. 4.6 The new Board will be fully operational by April Work has been completed to identify and select Tenant Board Members, setting up the Board's 2012/13 work plan and identification of the training and development needs of the new Board Members. 4.7 This unique governance model is a first for stock holding authorities and is intended to reflect the government s social housing policy agenda of allowing Councils greater autonomy and control over how they conduct their business. Both Councils believe that the new Board with its strong commitment to tenant involvement will provide the foundation for the development and review of this plan and other policy development issues which both Councils face. 4.8 While it is proposed that the Joint Housing Board will deal with all operational HRA matters including the development of new policies, it needs to be made clear, as an overriding principle, that the responsibility for setting the HRA budget and the strategic direction of the Councils Landlord Services will continue to rest with the Executive and Strategy Committees and full councils of Babergh and Mid Suffolk respectively. 15

16 4.9 The diagram below shows the new governance arrangements for the shared housing service, in the context of Babergh and Mid Suffolk s new Committee and Member/officer structure from the 1 st April JOINT MEMBER INTEGRATION BOARD HOUSING PANEL TENANTS FORUM JOINT SHELTERED TENANTS FORUM (BABERGH AND MID SUFFOLK) JOINT HOUSING BOARD OVERVIEW AND SCRUTINY COMMITTEES JOINT SCRUTINY COMMITTEE TENANT START AND FINISH GROUPS HOUSING DEPARTMENTAL MANAGEMENT TEAM STRATEGY COMMITTEE FULL COUNCIL Chart 4.1 Housing Governance Model The roles and responsibilities of each of the main parties are detailed below: The Joint Housing Board will enable tenants to work with Members to oversee all operational services and develop plans and procedures for all Landlord Services on an equal basis ensures tenants are at the very heart of the decision making process. Tenants will have the same membership on the 16

17 Board as elected Members (six in total and comprising three tenants each for both Councils). The Tenants Forum and the Sheltered Tenants Forum are groups which support decision making on all HRA related housing matters. Both groups meet monthly and are supported by officers to understand and contribute to the development and review of plans and strategies. A representative of this group is also elected to sit on the Housing Panel to ensure continuity with the other non- HRA related housing issues. The Integration and Transformation plans are expected to result in the gradual merging of tenants groups within Babergh and Mid Suffolk. The broader plans for tenant involvement which are also being discussed should hopefully result in the development of a range of new and exciting approaches to tenant engagement and this work will feed in to the Joint Housing Board. The Housing Panel is made up of five elected members and a tenant representative. The Panel develops and reviews the Council s non-hra housing strategies and related plans and makes recommendations to Strategy Committee on these matters. The Panel will no longer lead on HRA housing but it will continue to have a role in ensuring a consistent and joined up approach to the opportunities that the self financing arrangements provide. The Joint Member Integration Board manages, monitors and reviews progress on the Babergh and Mid Suffolk integration and transformation plans. This includes reviewing benefits, costs and savings; Transforming services including the back office, IT and Customer Access; A single integrated officer structure; Community Engagement, localism and neighbourhood planning; Alignment of strategic planning and priorities; Organisational and Leadership development, and Corporate Governance, reputation, communication and relationships. Joint Scrutiny Committee, which examines and scrutinises joint working and key partnerships. Strategy Committee considers and approves strategic housing issues with significant financial implications. This Committee considers (and where necessary makes recommendations to Council) on policy and budgetary matters taking into account any detailed reviews undertaken by Overview and Scrutiny Committees. Scrutiny Committees (Stewardship & Community Services) is responsible for examining all functions and responsibilities of the Council. The Committee helps ensure that the Council delivers its key aims and objectives, by creating an open, transparent mechanism for Councillors to shape, question, evaluate and challenge the Council policies, decisions and performance Full Council has responsibility for the approval of key policy matters, including the HRA Business Plan, strategic priorities, significant changes to the housing service, the HRA budget and the annual rent increase. 17

18 Section 5 Housing Performance Introduction 5.1 Babergh has a proven track record of achievement and innovation within the housing service. Service reviews have assisted the Council in setting out its priorities and plans for continuous improvement in the delivery of services. This involves challenging the ways in which services operate, and the outcomes of monitoring both service and funding arrangements. 5.2 The Council can also demonstrate its success in delivering effective housing services. It has a good track record of enabling new and innovative solutions to be established to meet housing need in Babergh. 5.3 Highlighted below are some examples of its achievements: Babergh s performance has consistently been externally recognized. Almost a decade ago the Housing Inspectorate rated Babergh s Best Value Review of Tenant Services as a Two star service with excellent prospects for improvement, was awarded Beacon Council status for its work in Neighbourhood Renewal in 2002/03 and was lead authority in the successful Suffolk bid for Beacon Council status for Supporting People in 2003/04. An independent tenant satisfaction survey carried out by the National Housing Federation for the Council revealed that Babergh is an exceptional landlord with a very high number of very satisfied tenants. The Housing Quality Network analyses the performance of Local Authorities on Council Housing Management, where Babergh has consistently been in the top 25%. The Council met its own version of the Decent Homes Standard, the Babergh Standard in 2009, a full 18 months before the government target. It has tackled the problem of its 76 system built homes in partnership with a Housing Association to develop new sustainable homes in their place. It has transformed the use of temporary accommodation for the homelessness, moving away from hostel provision to the use of self contained and high quality local housing instead. It led the development of the nationally recognised sub-regional Choice Based Lettings scheme, Gateway to Homechoice, on behalf of the seven partners in the scheme. It also led the successful enhanced Housing Options (Trailblazer) programme and was the largest scheme of its type in the County. This innovative scheme has helped to identify the important links between housing, training and work and will provide a platform to meet the government s objectives of reducing the reliance on the benefit system and to realize the potential of tenants. 18

19 The Status survey in 2008 reveled that 89% of tenants responding were either very or fairly satisfied with the service they receive. 5.4 The Council is also committed to learning from others and adopting robust performance management plans and processes. Its performance against key national and locally agreed indicators is reported to Committee on a quarterly basis. Where performance falls, action plans are put in place to address the problem at an early stage. 5.5 Close ongoing monitoring of the housing revenue and capital programme budgets has enabled the Council to ensure that available resources are used efficiently and we will continue to focus on this. Committees will continue to review Babergh s budget and costs during The Council has also joined HouseMark, a national benchmarking club of social housing providers, and intends to use this service to seek further improvements, value for money and opportunities to share and adopt best practice in the sector. 19

20 Section 6 Tenant Engagement Introduction 6.1 The Council is fully committed to tenant and leaseholder participation and has actively and very deliberately planned to enhance the opportunity for tenants to become involved in helping to shape, monitor and review the housing service. This section sets out Babergh s arrangements for tenants to engage in the decisions affecting their homes. Engagement Arrangements 6.2 Babergh s first Tenant Compact was introduced on 1 April 2000 and was reviewed again in Tenant groups are formally recognised and supported by the Council at all levels and the views of tenants are always taken into account in the decision making process. 6.3 The Council does accept however, that not all tenants want to be actively involved and it does accept that the memberships of its main groups need to be increased to make them more representative of the diverse communities which make up the District. Relying on a relatively small group of tenants constantly to give their time and energy to support a rapidly changing housing world will not sustain us going forward so we need to try new things to encourage and support tenant involvement at all levels. 6.4 The creation of the new Joint Housing Board is the first and possibly most radical of the changes the Council will be undertaking. Not only will this new arrangement offer real influencing and decision making responsibilities, but the selection of the six tenant members of the board using a formal election process shows Babergh s commitment to make this a genuine opportunity for all tenants. 6.5 However, this board will operate best when it is supported by complementary tenant structures. Our commitment to identify, train and develop independent Tenant Inspectors will strengthen tenant engagement as will having other groups of tenants influencing and shaping policy development and scrutinizing the service when needed. 6.6 Our existing tenant groups, and the growing integration of tenant representation across the two Councils, provides the ideal platform for the new joint housing service to be informed at all levels in its new decision making this is fully consistent with the government s desires for the role of tenants to increase within these new arrangements. 6.7 Our tenant involvement strategy continues to evolve and is a key part of the service transformation and integration plans. We will continue to monitor and review the effectiveness of this approach within the annual review of the Business Plan. 20

21 Section 7 The Self financing reforms Introduction 7.1 This section explains the Government s Housing Revenue Account debt settlement arrangements and specifically what the implications are for Babergh. 7.2 The settlement can be thought of as follows: Babergh essentially buys out of the current government subsidy system to keep all future rental income and then uses this rent to manage and maintain the properties as well as servicing the interest costs and repaying the loans. The Debt Settlement Figure 7.3 The background to Housing Revenue Account Reform has been detailed in Section The settlement figure for each local authority has been calculated using a formula determined by the Government. In very simple terms this represents the total value of the expected surpluses on Babergh s Housing Revenue Account over the course of the next 30 years. 7.5 The individual elements of the formula are shown below, with their 30 year values (stated at net present value). Item Value 000s Rental Income 212,196 Management & Maintenance (70,247) Major Repairs Allowance (47,323) Other Reckonable Expenditure (189) Debt Management Costs (1,206) Total 93,232 Less Subsidy Capital Financing Requirement (9,585) Settlement Payment Required 83,647 Table 7.1: The HRA Debt Settlement 7.6 In the HRA subsidy system, the Government specifies a series of notional allowances for management, maintenance and other cost items. It also makes assumptions about the level of rent increases. Often these differ from the actual costs of managing council housing. The subsidy determination, whereby a local authority either pays into or receives money from the national HRA pot, is decided by the surplus or deficit on these notional allowances. 7.7 Babergh s debt settlement figure of 83.6m (shown above) is arrived at by forward projecting these notional allowances and rent increases over 30 years. The current value is then determined. This is sometimes called the net present value. 21

22 Implications for Babergh 7.8 Under the current subsidy system, Babergh pays a significant and increasing amount of money each year to the government i.e. the notional surplus on its HRA. In 2011/12 this was 5.4m. Following the implementation of the new arrangements, Babergh will no longer be required to make this annual payment. It will however be required to pay interest and make capital repayments on the settlement loan. The loans have been arranged through the Public Works Loan Board (PWLB) at a specially discounted average rate of 3.29%. The discounted interest rates are available only for the settlement loan. Throughout the Business Plan, the term settlement loan is used for simplicity. A portfolio of loans with differing terms and maturity periods have been taken out. Details of the structure of the loans portfolio are shown in Appendix The Business Plan reflects the interest costs, which will initially be around 3m a year. This represents an annual benefit to Babergh of over 2m, when compared to the 5.1m paid to central government in housing subsidy in 2010/11. The loan costs will reduce over the life of the loan as principal is repaid Whilst ensuring Babergh s housing stock continues to meet the Decent Homes standard will absorb some of this annual saving, there are likely to be opportunities to use some of the additional resources to do one or more of the following: Conclusion Invest further in the housing stock and agree a new Babergh Standard in consultation with tenants. Invest in new social housing or invest in re-modelling current provision to meet growing demand in the district. Reduce future rent increases to a level below the national social rent policy to address concerns about financial hardship. Subsidise external income lost to the Council. The current subsidy agreed to maintain the sheltered housing service and which has been used to offset Supporting People grant reductions is an example of such an arrangement The end of the Government s HRA subsidy system creates exciting new opportunities for Babergh and its tenants to determine its own priorities and future opportunities for investment in housing and housing services. In a climate of funding cuts and pressures on budgets, this is an exciting good news story which should have a lasting impact. However, it does require Members, tenants and staff to ensure that its business planning is underpinned by risk analysis and integrated with prudent, robust and sustainable financial planning. The new governance arrangements have been deliberately and very carefully designed to support this process. Business planning needs to be. 22

23 Section 8 Financial Review Introduction 8.1 This section sets out the current forecast of HRA income and expenditure over the course of the next 30 years, together with the financial issues which arise from those expectations and an assessment of the major changes to plans which would have a significant impact on the financial position. 8.2 The detailed five year and thirty year projections for the Housing Revenue Account are shown as Appendix One and Two respectively. Base Position 8.3 Consult CIH was commissioned to develop a financial model to help the Council understand the implications of the Government s HRA reform programme, and also to feed into its budget and business planning cycles. This section, together with the detailed financial projections shown in Appendices One and Two, is based on this work. 8.4 The plan is based on the following principles: We will take out a mix of loans for the settlement payment which gives us some predictability around interest rates but gives us flexibility for refinancing as the plan develops over time (for example if we want to increase investment in regeneration or new build); We will allocate all existing loans to the HRA, resulting in the General Fund being debt free on the 1 April We will repay debt over the medium to long term. We will aim to raise rents to meet convergence targets by 2015/2016. We will continue to invest in service delivery at current levels but look for efficiencies and greater effectiveness in service improvements and through the service transformation and integration with Mid Suffolk District Council. We will complete our projected capital programme subject to separate approval by the council We will continue to invest in the current stock in line with the needs of the Babergh Standard. We will operate a depreciation policy in line with CIPFA guidance which covers the individual components within the stock. Our minimum working balance for the HRA will be increased to 1million. We will develop options for additional investment taking into account information about the stock, long term asset needs and the opportunities for investment set out in this summary. 23

24 8.5 The Business Plan model makes a number of assumptions which are shown in the table below: Description Assumption Basis for settlement listing the key Potential to repay settlement loan by Year components and funding elements 24 Property changes over the plan 5 Right To Buy s sold per annum Economic inflation and interest rates 2.5% core inflation, 3% rent inflation, interest rates stable at 3.29% long term, except existing borrowing Rents rent convergence, RPI + Average 6% in 2012/13, rent convergence assumptions to 2015/16, then 3% long term rent increases (i.e. assuming RPI + 0.5%) Management costs Inflation long term at 2.5% Repairs costs Inflation long term at 2.5% Capital profile Babergh Standard on existing stock moving with 2.5% inflation Assumptions of efficiencies being All inflationary pressures above main delivered inflation absorbed Use of capital resources (RTB capital RTB receipts currently credited to General receipts etc) and explanation for basis Fund * Subject to consultation Table 8.1 Business Plan Assumptions 8.6 The Base position projections forecast that the income generated by rent and from other sources will be more than sufficient to pay for the ongoing management and maintenance costs of the Council s housing stock, the anticipated future capital expenditure and the interest and principal repayments on the settlement loan. 8.7 The loan interest and principal repayments have been modelled using the loan portfolio option determined by the Council based on advice from the Council s Treasury Management Advisors. This balances the two key objectives of repaying loans and having resources on hand to invest in new development or the remodelling of the existing housing stock. Under this scenario, the accumulated balance on the HRA is forecast to be in the region of 135m by the end of year 30. Financial Issues 8.8 The business plan modelling and associated work has identified the following as important financial issues. Rent Increases The policy on rent increase will be a key factor in determining the resources available to the HRA. The settlement payment has been calculated on the basis that Councils rents will converge with Registered Social Landlords by Rent increases which are less than the agreed formula will reduce income and the amounts available for additional investment in the short and long term. Stock Investment The stock investment plans are based on the latest Stock Condition Survey. They represent the maximum expected cost of maintaining and improving Babergh s 24

25 housing stock. More detailed planning work will be undertaken to produce an Asset Management Strategy and Plan which will indentify the medium term plans for the maintenance of housing, in conjunction with Mid Suffolk. Service Integration The service integration project with Mid Suffolk will create cost savings and efficiencies, which are not reflected in this version of the plan. They are likely to be partly offset by some of the new costs arising from the new duties and initiatives discussed below. New Duties & Initiatives The Localism Act and a range of other housing and welfare reforms which are in the process of being debated or enacted are likely to result in new cost pressures to the HRA. For most of these initiatives, both timescales and detailed requirements have not yet been determined by the government so detailed planning has not yet taken place to identify how this work will be resourced and the likely cost implications. These are discussed in detail in Section 3 of this plan. Debt/Treasury Management This initial Business Plan refers to the Settlement Loan and reflects the cost of repaying this. In actual accounting practice, the portfolio of loans with different payment terms and maturity balances a number of risks and demands, for example: Ensuring there is a buffer between the expected availability of cash to repay loans and the repayment dates to mitigate against the risk that cost increases or other factors may impact on the availability of free cash. The size of the loans and the ongoing cost of servicing based on Members seeking to pay off the loan in a timescale that result in sufficient surplus funds over and above this for additional investment in housing. Structuring the loans in such a way that they can be serviced in the early years of the Business Plan and there is scope to set aside or repay significant amounts of principal. The Business Plan Model is based on the portfolio of loans detailed in Appendix 3. HRA Reserve One way in which the HRA can be protected against risk is to hold an appropriate level of reserves. The financial model underpinning the business plan assumes a constant reserve of 1m is held for the life of the plan, which is in line with current levels. Sensitivity Analysis 8.9 Sensitivity Analysis is important in order to assess the relative scale and impact of changes from the base assumptions in the financial model. The following sensitivities have been modelled with the results detailed in Table 8.2 below. References to increasing or reducing the resources available to the HRA refer to the change in HRA balances from those identified in the Base Position outlined above in Table

26 1% change in RPI from base assumption (upwards). This would increase both the level of annual rent increases required and also the total costs of delivering the service. Overall this would increase the resources available to the HRA over the 30 years of the plan by 52.2m. 1% change in RPI from base assumption (downwards). This would reduce both the level of annual rent increases required and also the total costs of delivering the service. Overall this would reduce resources available to the HRA over the 30 years of the plan by 43.5m. An increase in the annual cost of capital programme. Building costs often increase at a higher rate than general inflation, and there are published tables of Building Cost Inflation, which applies to both new build work and also works such as those included in the capital programme. If these costs were to increase year on year by 1% more than the general rate of inflation, then this would reduce resources available to the HRA by 34.2m and it would take an additional two years to repay the settlement loan. If the costs of the capital programme were to increase year on year by 2.5%, this would reduce resources available to the HRA by 92.5m. An increase in void properties by 100%. Whilst this is a very negative assumption, there are new and proposed social policy changes, for instance changes in the payment and administration of benefits, which could significantly increase voids. The sensitivity modelling takes account of the rent when a property is void although there could be additional management and repairs costs if there is a significant increase in voids. The overall cost of the rent loss would reduce resources available to the HRA by 9.6m. Rents increased only by RPI. The government s national rent model, which helped to determine the settlement payment, assumed that council housing rents would be increased by RPI plus half a per cent following convergence. If rents were to increase only by RPI after convergence then the resources available to the HRA would reduce by 42.5m. Right to buy sales (RTB). The model assumes that the historical level of right to buy sales would continue for the life of the model. For Babergh the assumption is for an average of 7 RTBs over the 30 years, starting at below 5 and increasing to over 8 over this period. If this doubled to ten per year and all the additional proceeds went to the government, then this would reduce resources available to the HRA by 17.3m. Note - Any sales that go above the level set within the debt settlement are termed additional RTBs and the receipts will be treated differently. The Government has indicated that the first call on the receipt will be the debt allocated through self financing and the impact of the latest announcement on making RTB s more attractive to tenants will need further careful thought and review. The enhanced RTB arrangements are likely to have an impact on sales (over and above the sensitivity analysis) and the resulting lost rent income could have a significant detrimental impact on the business plan The sensitivities are summarised in the table below. In reality, there could be a combination of issues: 26

27 Sensitivity Yr 30 HRA Balance m ( Cost ) / Benefit to HRA m Conclusion Base Position % increase in RPI % reduction in RPI 88.7 (43.5) 1% annual increase in capital prog 98.0 (34.2) 2.5% annual increase in capital prog 39.7 (92.5) 100% increase in voids (9.6) Rents increased only by RPI 88.7 (42.5) 100% increase in Right to Buy sales (17.3) Table 8.2 Sensitivities against the base Business Plan 8.11 The summary financial tables shown in Appendices One and Two conclude that the Housing Revenue Account can comfortably repay the Settlement Loan. Furthermore, there is also sufficient spare capacity to take into account some of the sensitivity scenarios detailed above and leave money over for locally determined initiatives. The ongoing transformation and integration process will generate more savings for both Councils and therefore these reforms provide the Council with far greater opportunity than it ever has before. 27

28 Section 9 Housing Investment Introduction 9.1 This section sets out the future investment required to ensure Babergh s housing stock remains in the best condition. Process 9.2 In 2011 a firm of specialist property and construction consultants, Ridge and Partners LLP, conducted a stock condition survey of the Council s housing stock. 9.3 Housing investment is split between two primary categories, capital and revenue. Capital investment funds the replacement of component parts of a house, such as bathrooms and kitchens, roofs or doors. Revenue investment is usually of a more minor nature and is about making something immediately fit for purpose rather than replacing it. Examples would include repairing a leaking pipe or doing minor repairs to a property before a new tenant moves in. 9.4 Babergh has a detailed planned cycle of major improvements which establishes the programme over a three year period. This is set using the stock condition survey as the basis and is then moderated when the financial parameters are set during the course of the annual budget exercise. Priority capital works are undertaken during the early part of the programme and less urgent works are deferred to a later date, to make the most of finite resources. Decent Homes 9.5 In common with other social landlords, Babergh is required to bring its housing stock up to the prescribed Decent Homes Standard (DHS). Babergh s investment over the last decade has steadily increased the proportion of homes meeting the standard, from 55% in April 2003, to 85% in April 2006, and 96% in April As at November 2011, Ridge estimated that 6.1% of the stock (or just 215 homes) did not meet the standard. 9.6 Babergh developed its own standard in 2006 following close consultation with its tenants. A total of twelve options were initially considered because both the Council and its tenants did not believe the government standard was particularly ambitious. It was agreed that three options were most important to tenants and these compromised the following: A higher standard of insulation. The provision of a hard wired smoke alarms The provision of redecorating grants for elderly tenants. 28

29 Future Investment 9.7 The table below shows the projected 30 year cost of capital works to Babergh s housing stock. 7 The total anticipated investment over the 30 year period is almost 130 million, which equates to 37,142 per property, or an average of 1,238 per property per year. The costs shown below are at 2011 values and do not include inflationary increases. Element Total s 000s 000s 000s 000s 000s 000s Rewiring 2,875 4,055 1, ,492 11,890 Roofing 772 1,667 2,100 3,355 2,752 4,833 15,478 Windows / ,877 4,849 3,239 1,072 13,119 Doors Structural ,227 Works Central 4,018 1,746 1,437 4,633 2,895 2,564 17,292 Heating Kitchens & Bathrooms 6,668 1,848 3,791 6,851 4,762 2,956 26,876 Garages &c 1,979 2, ,124 Fences, Gates & Walls 972 1, ,030 5,494 Roads & Paths Common 1, ,355 Areas Environmental Works 904 1, , ,571 Parking Areas Improvements 6,424 2,859 3,281 2,969 3,220 2,756 21,508 Total 26,867 18,913 17,796 27,542 19,718 18, ,835 RPI / Stock Adjusted 28,565 27,930 26,510 46,421 37,601 40, ,665 Table 9.1 Projected Housing Capital Investment , Babergh DC 9.8 The total 30 year cost is shown graphically in the pie chart below. 7 The figures are derived from the Stock Condition Survey. They include preliminaries but exclude fees and management costs. 29

30 Total 000s Improvements Environmental Works Common Areas Garages & External Rewiring Roofing Windows & Doors Structural Works Central Heating Kitchens & Bathrooms Table 9.2 Thirty Year Capital Investment, Total by Element 9.9 The investment in housing will be funded from two sources. The first is the major repairs reserve which is built up from an annual transfer from the Housing Revenue Account. The second is from a direct revenue transfer from the HRA. Table 9.2 below shows how the investment will be funded over the course of the next 30 years. Years Total Total Capital 26,163 27,878 26,809 42,240 39,453 40, ,832 Cost Funding Source Major Repairs 16,696 19,881 22,331 25,081 28,169 31, ,787 Reserve Revenue Contribution 9,467 7,997 4,478 17,159 11,284 8,654 Total Funding 26,163 27,878 26,809 42,240 39,453 40,289 Table 9.3 Housing Capital Funding Plan The table below shows the anticipated cost of the different elements of the revenue repairs programme over the next 30 years, shown at 2011 values (therefore not including inflation). The average cost per property is 16,400 which equates to approximately 547 per property per year. Element 30 year cost Cost per Percentage 000 Property Responsive repairs 20,860 5, Voids 10,500 3, Catch up repairs External decoration 9,900 2, Heating servicing & repair 9,600 2, Other cyclical costs 6,448 1, TOTAL 57,400 16, Table 9.4 Revenue Repairs Costs, 30 Year Totals 30

31 9.11 The ratio of revenue to capital maintenance where the responsive revenue spend is projected to be about half the planned capital spend is broadly in line with recognised good practice in the sector The housing stock includes 189 homes of non-traditional construction. These typically have additional investment requirements, although significant sums were spent on many of these in the last ten years. A thorough review of their structural integrity will be conducted in the next three years. The HRA also includes 1,281 garages and the costs of maintaining these are included in the investment costs The council has 346 units of sheltered accommodation. Since the Council reviewed its service in 2005, its plans have focused on the investment in the large Category 2 schemes in Sudbury and Long Melford. It continues to reduce the number of properties which it considers hard to let and unpopular in order that it can ensure the service is fit for purpose Two sites in particular have been identified for possible regeneration, Tenterpiece in Lavenham and Samford Close in Holbrook. The plans for Lavenham have been developed; however, they are currently on hold pending further decisions on the viability of the HRA to support a major capital investment in the scheme. The Council s position of transferring land to a Housing Association which then commissions the development and becomes the owner is unlikely to fit within the Council s new strategic vision for its service. Further detailed work on these two opportunities will be an important action point within this plan. Procurement Arrangements 9.15 Three term contacts are currently in place for revenue repairs The reactive and voids repairs contracts are in place for three years and are due to end in July The Council does have the option to extend for a further year subject to satisfactory performance. These are separate contracts but both are let to the same contractor A whole-house servicing contract is also in place. This means when an appliance is serviced, the house is assessed to see whether other capital repairs such as electrics replacements should be carried out at the same time. Whilst this contract increased capital repairs in the initial years of operation, it appears subsequently to have reduced the level of reactive repairs. The contract is let for three years, ending in October 2013, with an option to extend for a further two year Capital repair contracts, over 10k are subject to formal tender. The contracts can be let to contractors on a designated tender list. A partnering contract is in place for windows and doors, whereby the contractor surveys and undertakes tenant consultation but has considerable flexibility around the timing of the delivery of the contract The service integration programme opens up the possibility of generating efficiency savings by jointly letting contracts with Mid Suffolk, or by participating in regional or national procurement consortia with a stronger combined presence. 31

32 Section 10 Future Plans Introduction 10.1 This section sets out an overview of future actions for Babergh s housing service together with timescales where these have been decided It will be the first year where the Council manages its business in the post-hra reforms environment and this will be a very different climate for officers, Members and tenants. The Council is also embarking on another fundamental change with a full integration of its services with Mid Suffolk Because of the transitional nature of these arrangements and the substantive amount of work required for the service in the forthcoming years, this section is inevitably brief and will need further development With so much change in the social housing sector, we felt that it was right to review whether our existing priorities were the ones to take us forward in this new environment We believe our new priorities should be ones that have a clear focus on the efficient delivery of key housing management services, adding value wherever possible to the individual experience of each of our residents. At the same time we wanted to acknowledge both local and national changes. The HRA Business Plan aims to complement the national and local policy environment in which we operate therefore our Business Plan themes mirror those of the Tenant Services Authority which comprise the following: Resident Involvement and Empowerment Home Tenancy Neighbourhood and Community Value for Money 10.6 These themes provide our scrutineers with a consistent framework to judge our performance. They focus on the delivery of core housing services whilst acknowledging the contribution that we make to communities as a whole. The detailed actions behind these themes are shown in our Action Plan, which is attached as Appendix 4. The Action Plan is a one-year action plan which sets out what we intend to achieve in a year and assists us to: Set realistic short-term goals and outcomes Gauge and report on existing performance levels Project future performance Ensure effective governance Demonstrate commitment to continuous improvement 32

33 Section 11 Risks & Mitigations Introduction 11.1 This section identifies and sets out key risks for Babergh s housing service in this post HRA reform environment together with mitigation measures for each risk. These risks are high level strategic risks which might throw this initial business plan significantly off course, rather than operational risks facing the housing service The previous HRA subsidy system effectively meant that central government managed many of the risks of the council housing financing system. The ending of the system transfers control and risks to individual Councils. The government has already put in place some measures to mitigate risks but proactive monitoring of risks will be required in the future to ensure changes in the risk environment are effectively identified and appropriately mitigated A range of business as usual processes also help mitigate risks. This includes the ongoing HRA budgetary management process for the Housing Revenue Account which identifies income and expenditure deviations from the financial plan. It also includes the annual review of the Treasury Management Strategy which identifies issues with current and future borrowings and interest rates. Following the receipt of the Settlement Loan, the HRA borrowing will be the primary focus of the Treasury Management Strategy for the foreseeable future. Risk Impact Mitigation Changes to government policy Welfare reform Supporting People grant reductions Changes to inflation Introduction of new requirements adds new costs. National social rent policy changes unfavourably. The loan settlement and debt cap is renegotiated. Direct payment of housing benefit to tenants may increase arrears. Capping of benefits increases arrears and voids levels. Loss of consumer confidence in the market likely to increase homelessness levels and general demands placed on the service. Further reduction in grant Negative impact on clients living in sheltered housing. Negative publicity for the Council Affects rent increases for tenants. Reserves utilisation policy Annual review of the business plan (or more frequently if there is a significant change during the year) Re- profile capital programme. Further savings and efficiencies to be explored. Develop Older People Strategy by March Re profile capital programme. 33

34 Increased housing Sales (RTB) Specific Cost Escalation Risk Transfer Some HRA costs may increase above RPI. The reinvigoration of the RTB may result in a much higher level of sales than anticipated and lost rental income. Sale proceeds may not be sufficient for one- for- one property replacements. The loss of stock may not lead to compensatory savings in service delivery Costs of specific items exceeds significantly beyond RPI and Babergh unable to fully recover increase. (e.g. energy costs, capital programme) End of subsidy system transfers risks from Government to Babergh The loan settlement is renegotiated. Effective budgetary review and procurement practices in place. Monitor and review application levels. Conduct feasibility study into a new house building programme to replace homes lost Benchmarking with other social housing providers. Re profiling of capital programme. Budgetary review Ongoing budgetary management. Refocus on housing strategy through annual HRA Business Planning cycle Babergh has in place a well-developed framework for risk and budget planning/management as well as a clear framework for planning the future delivery of the housing service which, in conjunction with Mid Suffolk, will further refine the process of identifying and mitigating existing and any changing HRA-related risks. 34

35 HOUSING REVENUE ACCOUNT PROJECTIONS Babergh District Council Appendix 1 Five Year Financial Plan ( 000s) Year ' INCOME: Rental Income 14,334 15,030 15,749 16,493 17,062 Void Losses Service Charges Non-Dwelling Income Grants & Other Income Total Income 15,043 15,771 16,505 17,263 17,849 EXPENDITURE: General Management -1,737-1,780-1,825-1,871-1,917 Special Management -1,511-1,549-1,587-1,627-1,668 Other Management Rent Rebates Bad Debt Provision Responsive & Cyclical Repairs -2,266-2,323-2,381-2,440-2,501 Total Revenue Expenditure -5,614-5,743-5,875-6,022-6,172 Interest Paid -2,908-2,895-2,882-2,869-2,857 Finance Administration Interest Received Depreciation -3,459-3,538-3,621-3,706-3,794 Net Operating Income 2,883 3,609 4,161 4,727 5,121 APPROPRIATIONS: FRS 17 /Other HRA Reserve Adj Revenue Provision (HRACFR) Revenue Contribution to Capital -1,761-2,632-1,912-1,965-2,019 Total Appropriations -2,450-3,326-2,610-2,668-2,728 ANNUAL CASHFLOW ,551 2,059 2,393 Opening Balance 825 1,259 1,542 3,093 5,152 Closing Balance 1,259 1,542 3,093 5,152 7,545 35

36 Headings Used in the Housing Revenue Account This section provides further information on the headings used in the Housing Revenue Account Rental Income this is the income receivable on council housing. It shows the income which is due rather than the rent actually paid by the tenants. Void Losses this is a reduction against rent due on empty properties. Service Charges this represents the charges payable by tenants for sheltered and other specialist housing Non-Dwelling Income this primarily represents the rents payable on garages. Babergh has a significant stock of garages. Grants and Other Income this represents reimbursement from the General Fund for maintaining amenity areas. General Management this is the cost of running the housing service including lettings, rent collection, tenant engagement etc. Special Management is the cost of managing sheltered schemes, homeless units, grounds maintenance and a range of communal or estate assets. Other Management this relates to certain leasing costs Bad Debt Provision this is the cost incurred when it is agreed that a rent or other debt is irrecoverable, when for instance a tenant passes away and there are no assets in their estate to pay outstanding rent. Responsive and Cyclical Repairs is the cost of routine repairs and maintenance to properties, including items such as broken windows and regular external painting. The costs include the salaries of the staff engaged in commissioning the services. Interest Paid this is interest payable on Settlement Loan. Finance Administration this relates to loans refinanced in previous years. Interest received this is interest on surplus cash balances in the HRA which will reduce as the surplus is spent. 36

37 Depreciation housing properties in the HRA are currently depreciated over a 50 year period. Other properties belonging to the HRA are depreciated over appropriate lifetimes. FRS 17 / IAS 19 / Other HRA Reserve Adjustment this is the pensions deficit that is attributable to the HRA. Revenue Provision (HRACFR) - this is the sum set aside for the repayment of loans attributable to the HRA including the settlement loan. Revenue Contribution to Capital this is a direct contribution from the surplus on the HRA to fund capital works (Decent Homes and the Babergh Standard) to properties. 37

38 Appendix 2 30 Year Financial Summary ( 000s) HOUSING REVENUE ACCOUNT PROJECTIONS Babergh District Council Year Total '000 INCOME: Rental Income 75,147 90, , , , , ,507 Void Losses -1,050-1,086-1,250-1,439-1,656-1,905-8,386 Service Charges 2,934 3,103 3,511 3,972 4,494 5,085 23,099 Non-Dwelling Income 1,127 1,274 1,442 1,631 1,845 2,088 9,407 Grants & Other Income ,072 1,213 1,373 6,188 Total Income 78,902 94, , , , , ,815 EXPENDITURE: General Management -9,055-10,078-11,403-12,901-14,596-16,515-74,549 Special Management -7,867-8,767-9,919-11,222-12,697-14,365-64,837 Other Management -5, ,819 Rent Rebates Bad Debt Provision Responsive & Cyclical Repairs -11,589-13,148-14,875-16,830-19,042-21,544-97,027 Total Revenue Expenditure -34,408-32,442-36,705-41,529-46,986-53, ,232 Interest Paid -11,689-14,156-13,637-11,848-7, ,918 Finance Administration Interest Received ,649 4,310 5,289 7,103 20,451 Depreciation -16,360-19,881-22,331-25,081-28,169-31, ,457 Net Operating Income 16,166 29,092 38,821 51,002 66,641 87, ,252 APPROPRIATIONS: FRS 17 /Other HRA Reserve Adj ,083-1,225-1,386-1,568-1,774-7,997 Revenue Provision (HRACFR) -2,009-2,389-12,150-25,000-46, ,195 Revenue Contribution to Capital -9,467-7,997-4,478-17,159-11,284-8,645-59,030 Total Appropriations -12,438-11,468-17,852-43,545-59,499-10, ,221 ANNUAL CASHFLOW 3,728 17,624 20,968 7,457 7,141 77, ,031 Opening Balance 1,424 5,152 22,776 43,744 51,201 58,342 1,424 Closing Balance 5,152 22,776 43,744 51,201 58, , ,454 38

39 Appendix 3 Treasury Management/Borrowing In the overview we have highlighted that Babergh will need to make a payment to the Government of 83.65million as part of the HRA reforms, but at the same time, we will no longer pay into the Housing Subsidy system or national pot. The Council has a treasury management strategy and this settlement payment has been highlighted within it. The strategy does not confirm how this payment will be financed in detail but the following criteria and approach has been established: The Council will operate a 2 pool loan system, whereby loans are allocated to the HRA and General Fund independently. As the total value of existing loans held by the Council are less than the HRA s Capital Financing Requirement (CFR), all current long-term borrowing will transfer to the HRA and the General Fund will begin 2012/13 debt free. The HRA CFR (the underlying need to borrow) currently stands at 9.6million before the settlement payment, and will have 5.65million of loans set against this. There will be a cap on borrowing which for Babergh will be 97.85m. The settlement payment of 83.65m added to the existing loans of 5.650m will result in an actual debt of 89.3m. There will therefore be headroom (additional borrowing capacity) of 8.55m. The debt settlement will be financed by a number of loans, with different maturity dates. The Business Plan modelling reflects the above, which takes advantage of the discounted rates available for this transaction from the Public Works Loans Board. The profile of the settlement loan is shown in the table below. 39

40 Repayment Year Repayment Interest rate 000s % 2024/25 6, /26 6, /31 25, /36 46, % Total ( 000s) 83, % (average) Total Interest Cost ( 000s) 58,425 40

41 000s Table A3.1 Settlement Loan Repayment Profile The graph below shows the increase in HRA reserves and the reduction in settlement debt which results from the loan portfolio above. HRA Reserve and Settlement Debt 140, , ,000 80,000 60,000 40,000 20,000 - Year HRA Reserve Settlement Debt 41

42 Graph A3.2 HRA Reserve and Debt ( 000s) Appendix 4 Action Plan (To be reviewed and monitored by the Joint Housing Board) Key issue Outcomes required Target date Integration and Transformation A dedicated team will be established under the integration and transformation programme with Mid Suffolk, with the skills and capacity to manage, monitor and review the housing service and the new requirements of the Localism Act A Training Plan for Members and staff will be delivered to achieve the best outcomes and deal with the HRA reforms, including the changing roles and new responsibilities. Ongoing The Joint Housing Board Future strategic direction Asset management strategy and Capital Programme The Joint Housing Board will be trained, developed and supported to provide robust scrutiny and effective governance of the housing service, the HRA Business Plan and related activities. The initial HRA Business Plan will be updated during 2012 to reflect the strategic decisions and priorities that are established under the new governance arrangements, including: Rents policy and convergence. Debt and treasury management. Opportunities to remodel and improve existing housing stock. The location, scale and likelihood of future housing development relating to the HRA. The development of a Strategic Tenancy Policy and the use, if appropriate, of flexible tenancy arrangements within the Council s housing stock Developing partnership approaches to deliver on the above. Other tenant related strategies. The Asset Management Strategy and Capital Programme will be developed and adjusted to meet the emerging strategic priorities and inform capital programmes going forward. These will reflect the strategy and plans for addressing future needs Ongoing September 2012 September

43 Budget review and Reserves utilisation policy Rents/charging policy and convergence for maintaining and improving the stock, and shaping the direction for asset planning for the future. This will include: A review of the current Babergh Decent Homes Standard and the scope to achieve more and align the approach to this with Mid Suffolk The Identification of high cost/high volume responsive repair items which could be developed into planned maintenance programmes The review of the Voids Standard Keeping under review the potential for any large scale solar PV installations to the housing stock Agreeing a framework for the monitoring and Annual review of Asset Management Strategy The determination of capital priorities to allow re-profiling of the capital programme to take place should this be required The Reserves Utilisation Policy will support the annual Business Planning and Budget review process, which will have regard to the following: Stakeholders priorities for the use of surplus reserves Assumptions on inflation and interest rates Level and timing of capital receipts Demand led pressures Planned savings/efficiencies Risks e.g. those associated with major projects Availability of other funding General financial climate Rent and other income maximisation is key to the HRA and will need to be maximised to support the business plan and the achievement of agreed outcomes. Rents Policy and convergence will be reviewed annually against the following criteria: That the rents policy and the setting of rents are consistent with existing and changing business plan assumptions. There is tenant involvement in setting and reviewing rents and in decisions on increasing rents November 2012 November

44 Tenant Annual report and Local Offers Performance management and best practice Business Plan update and review 2013/14 Consultation Strategy Member decisions and involvement Strategy for Older People s Services Other charges are considered in the light of the latest information and are presented to tenants in an equitable, open and transparent manner. Publish 2012 Annual Report and undertake review of Local Offers for 2013, following appropriate consultation with tenants. Clear and robust aims and targets along with and accurate information and date quality to challenge and aid decision making. This will include the adoption of a common approach with Mid Suffolk on performance management, using HouseMark, and establishing a clear timetable for carrying out service reviews/improvement plans. Linked to the strategic direction and transition into the new system and the Government s welfare reforms relating to housing benefit, this will be achieved with the full involvement of our Tenants to ensure that we are delivering the required outcomes as part of a robust and sustainable Business Plan. To agree and publish a consultation strategy with tenants which provides the opportunity to comment and participate in the review of the various policies and plans. To ensure the relevant Committees and Full Council endorse the key decisions required in relation to the HRA Business Plan, budget and other related plans. Production of a strategy which addresses the following: major changes in Supporting People funding changing tenant expectations an ageing local population and other demographic changes local stock issues Costs and ongoing subsidy arrangements October 2012 Ongoing December 2012 July 2012 In line with Committee timetables Early

45 Appendix 5 Glossary of Abbreviations This section contains a list of abbreviations used in the text of the Business Plan. CFR CPI DHS FRS HCA HRA PWLB ORE RP RPI RSL RTB SCS TSA Capital Financing Requirement Consumer Price Index Decent Homes Standard Financial Reporting Standard Homes and Communities Agency Housing Revenue Account Public Works Loan Board Other Reckonable Expenditure Registered Provider (of social housing) Retail Price Index Registered Social Landlord Right to Buy Stock Condition Survey Tenant Services Authority 45