Agenda item

RESOLVED: That the Select Committee support Option B in the officer report.

6.1      Mark Humphreys, Group Finance Manager, Customer Services, introduced the report. The key points to note were:

• The Government has recently amended the Guidance for rental for social housing stock to Local Authorities.
• Following the introduction of the self-financing system for the housing revenue account (HRA) in 2012, the Council is responsible for ensuring that the costs of managing, maintaining, improving and developing its social housing stock can be met from rents collected and other income.
• The self-financing system allows the Council to develop plans over a longer term, unlike the previous annual housing subsidy system. This has enabled the Council to consider longer term options of how its stock is managed and developed.
• To assist in assessing the various management and development options, a financial model has been developed. Within this, there are assumptions about future costs, for example for lifecycle repairs, capital investment, new build and so on. Most significantly of all it is based on an assumption that rents would rise in line with the Government’s ‘Convergence Formula’ until all units have converged to its ‘target’ or formula rent using an annual uplift of RPI + 0.5% + £2pw, and increase by RPI + 0.5% p.a. thereafter.
• The intention of the Convergence Formula was to ensure that tenants in accommodation of a similar size in a similar location would pay similar rents. To date, the Council has set rents in accordance with this formula.
• Officers have provided four illustrations in the papers that provide potential rent rises for 2015/16. Three of the rent increase illustrations show a potential shortfall against the rent income assumption in the current HRA financial model. If the Council follows the Government Guidance for increases 0f CPI+1%, and the discontinuance of rent convergence, over the remaining life of the HRA financial model shows a deficit of £24.6m against the rental income assumptions. This will need to be made up by additional saving or efficiencies which would affect services to residents. It would also mean that approximately 30% of tenants would not reach convergence, i.e. there would be a high proportion of tenants paying differing rents for similar properties.
• The Formula suggested by the Government is only ‘Guidance’, however if the Council’s rent is increased by less than the Formula amount then the Council suffers the full cost of the lost rent which would have a significant impact on the Council’s investment plans; and if the rent is increased by more than the Formula amount, and the resulting average rent is higher than the amount Government has indicated it is willing to cover via Housing Benefit, the Council will receive only part of the financial benefit of the extra rent raised because of the way the housing benefit system operates in such circumstances.
• The recommendation from officers is that whilst no recommended increase is being made, tenants are asked for their opinion on the increase to be applied, for consideration by the Mayor & Cabinet.
• No proposals have been received to increase the current levy for Tenants’ Fund which will remain at 13p per week.
• Garage rents are proposed to rise in line with RPI inflation @ September 2014 which is 2.30%. This represents an increase of £0.26pw and would raise the average charge from £11.32pw to £11.58pw. The proposed increase will raise an additional £30k of revenue income.

6.2      In response to questions the Committee, the following was noted:

• The reason there are differentials in the percentage rises for the various rental charge options is that the Council started converging rent rates later than other Councils. The policy of convergence would need to continue, to ensure that more tenants in accommodation of a similar size, in a similar location, would pay similar rents.
• It is still an option for the Council to carry on with the previous Government Guidance on rent setting, rather than adopting the new Guidance.
• The Government Guidance on rent setting is general guidance, not regulation, so therefore they cannot form the basis of a judicial challenge.

6.3      RESOLVED: That the Select Committee support Option B in the officer report.