Agenda item
Council Housing Finance Reform Prospectus - Implications for Tower Hamlets and Proposed Response (CAB 011/101)
Decision:
Councillor D. Jones declared a personal interest in Agenda Item 6.2 “Council Housing Finance Reform Prospectus – Implications for Tower Hamlets and Proposed Response” (CAB 011/101). The declaration of interest was made on the basis that the report contained recommendations relating to the future financing of housing for which the Council is landlord (properties in the ownership of the Authority managed by Tower Hamlets Homes), and Councillor Jones was a representative of the Authority on the governing body of Tower Hamlets Homes.
Councillor S. Islam declared a personal interest in Agenda Item 6.2 “Council Housing Finance Reform Prospectus – Implications for Tower Hamlets and Proposed Response” (CAB 011/101). The declaration of interest was made on the basis that the report contained recommendations relating to the future financing of housing for which the Council is landlord (properties in the ownership of the Authority managed by Tower Hamlets Homes), and Councillor Islam was a representative of the Authority on the governing body of Tower Hamlets Homes.
Resolved
1. That the long term financial implications for Tower Hamlets of continuing with the current housing subsidy system and that of the current Housing Revenue Account (HRA) self-financing offer, from the Department for Communities and Local Government (CLG) “Prospectus” – Council Housing A Real Future, as set out in paragraph 7 of the report (CAB 011/101), be noted;
2. That the response in Appendix 2 of the report (CAB 011/101), submitted to CLG in accordance with the deadline of 5 July 2010, be noted;
3. That the Corporate Director Development and Renewal, after consultation with the Corporate Director Resources, Lead Member Housing Heritage and Planning, and Lead Member Resources be authorised to provide any further responses to CLG that may be required in relation to the Prospectus;
4. That the financial principles set out in paragraph 9.2 of the report (CAB 011/101) to support delivery of a sustainable Housing Revenue Account, be agreed; and
5. That the usage, to support social housing and housing regeneration capital programmes or otherwise, of any aggregated surplus arising from future Right-to-Buy receipts after debts on individual properties that have been the subject of Right-to-Buy have been remitted, be the subject of annual Cabinet consideration.
Action by:
CORPORATE DIRECTOR RESOURCES (C. NAYLOR)
CORPORATE DIRECTOR DEVELOPMENT AND RENEWAL
(A. DALVI)
Service Head Resources, Development and Renewal (C. Holme)
Minutes:
Councillor D. Jones declared a personal interest in Agenda Item 6.2 “Council Housing Finance Reform Prospectus – Implications for Tower Hamlets and Proposed Response” (CAB 011/101). The declaration of interest was made on the basis that the report contained recommendations relating to the future financing of housing for which the Council is landlord (properties in the ownership of the Authority managed by Tower Hamlets Homes), and Councillor Jones was a representative of the Authority on the governing body of Tower Hamlets Homes.
Councillor S. Islam declared a personal interest in Agenda Item 6.2 “Council Housing Finance Reform Prospectus – Implications for Tower Hamlets and Proposed Response” (CAB 011/101). The declaration of interest was made on the basis that the report contained recommendations relating to the future financing of housing for which the Council is landlord (properties in the ownership of the Authority managed by Tower Hamlets Homes), and Councillor Islam was a representative of the Authority on the governing body of Tower Hamlets Homes.
Mr Holme, Service Head Resources – Development and Renewal, at the request of the Chair, in introducing the report:
· Summarised the key points contained therein, highlighting in particular that:
o The former Government’s prospectus on council housing reform represented the most fundamental change in a generation as to how council housing was financed.
o Following very lengthy consultation and detailed review it set out a way to address the unfair and highly volatile housing subsidy system. This volatility could have huge in-year financial implications, and planning with any certainty for the years ahead was not possible.
o Under the current system the entitlement of Tower Hamlets to subsidy was falling year-on year at an alarming rate, which required costs to be reduced. Furthermore it blurred the relationship between tenants and leaseholders: what they paid in rents/ service charges and the services they received/ costs thereof.
o The Coalition Government had stated that it wishes to dismantle the housing subsidy system but a definitive announcement was awaited.
o The deadline for response to the Government’s Prospectus had been 6 July and response already submitted by the Authority was appended to the report. The response reflected an assessment:
Ø Of the impact of the proposals for Tower Hamlets. These would involve redeeming £277m of housing debt, in return for no longer receiving any future housing subsidy. LBTH would however retain all future Right to Buy (RTB) receipts and rents, which would present a problem under the current system in the longer term because eventually Tower Hamlets would become a net contributor to the subsidy system ie a proportion of rents would be handed over to the Treasury.
Ø Of the 2 systems over the next 30 years and conclusion the offer provides the best opportunity for long term sustainability of the Housing Revenue Account (HRA) and tackling the huge capital investment requirements of the Authority’s dwelling stock.
o Officers further recommended that Cabinet reaffirmed and strengthens the HRA financial strategy agreed in February to enable long term stability and improved transparency for tenants and leaseholders, and maximise the capital resources available through retention of all RTB receipts for social housing and regeneration.
o Outlined risks that could be presented by a change to policy by the Coalition Government.
Ø Reduction in debt adjustment so the Authority started with a higher level of opening debt, resulting in less freedom for future borrowing.
Ø That the 7% NPV adjustment would be removed so the Authority would not benefit from the freedom to deliver new supply.
Ø Risk to Capital Receipts and/or social housing grant for delivery of new supply.
Ø Risk to Decent Homes grant allocation.
Ø That only PWLB debt would be redeemed.
· Addressed the matters raised by the Overview and Scrutiny Committee, held on 6th July 2010, in relation to the report; as set out in the tabled sheet of questions and comments presented by the Chair of the Overview and Scrutiny Committee earlier in the proceedings:
A discussion followed, during which the proposals in the report were broadly welcomed, and which focused on the following points:-
· Noted the importance of the proposals in the context of a continuation of the current trend which would mean Tower Hamlets became a net contributing to the national HRA. Previously it had benefitted from the housing subsidy arrangement and in one year received £60 million.
· Consideration that this was the best offer Local Government and Tower Hamlets would receive from the Coalition Government and was the outcome of intensive lobbying of the former Government including that from SHELTER and Defend Council Housing. It had been feared that potential benefits and debt write off would be pared down in response to lobbying from authorities outside London. Accordingly the Lead Member Housing Heritage and Planning strongly commended to Cabinet the response to Government on the housing offer as outlined in the Prospectus.
· Councillor Jackson, Chair of the Overview and Scrutiny Committee, speaking with Cabinet consent, welcomed the report but commented that given the consequences of consolidated rates of interest and the current economic climate it was imperative that the Authority was very cautious in its reliance on forecasting, given that under the proposals it would have responsibility for the future management of housing funding.
· Consideration that the proposed system of housing subsidy was good news for Tower Hamlets if it could retain its share of subsidy, even if it did not receive the promised resources for the Arms Length Management Organisation (ALMO) in the Autumn. The Lead Member Housing Heritage and Planning informed Cabinet members that, in response to questions from the new MP for Bethnal Green and Bow, the Coalition Government had refused to give a commitment to honour the promise of £220 million in Decent Homes funding for Tower Hamlets, instead indicating it would be the subject of an Autumn spending review.
· Clarification was sought and given regarding:
o Whether there was any information or indication from the Coalition Government as to how it would take this matter forward/ shape it differently.
o What the response of the Conservative/ Liberal Democrat controlled Local Government Association had been to the Prospectus.
· Noted, with reference to paragraph 7.3 of the report, that if the proposals in the Prospectus were implemented as expected, Tower Hamlets would be given the opportunity to build 60 new homes. A welcome development although not a significant one in the context of numbers on the Housing Waiting List.
· Consideration that most financial principles, set out in paragraph 9.2 and proposed for agreement in recommendation 2.4 were sensible and should be adopted in any event. However some scepticism was expressed regarding the principle of achieving rent convergence in line with Government guidelines, given that in 2009 the Authority had set rents at a level contrary to that advised by Government because that level disadvantaged residents.
· Consideration, with regard to recommended ring-fencing of RTB receipts to support social housing and housing regeneration, that in the context of a decline in capital funding from RTB receipts and other capital receipts it was important to maintain the flexibility that had served the Authority well in the past, and that although the resources would almost certainly be used to support housing objectives, this usage should be reviewed on an annual basis;
· Clarification was also sought and given, with reference to paragraph 4.3 of the report, that this appeared to recommend paying down debt on individual properties sold under the RTB, as to whether it was possible to ring-fence an individual RTB receipt to the property from whose sale it arose, or whether the RTB receipts needed to go into a collective pot.
· Councillor Peck, Deputy Leader of the Council, responded to the Officer clarification, commenting that there were two policy decisions being requested of the Cabinet: firstly relating to paying down debt on individual properties sold under the RTB, and secondly regarding the future usage of surplus arising from RTB receipts, which could be used for other purposes than social housing/ housing regeneration. He endorsed the first proposal, but felt that usage of any RTB surplus after this paying down of debt should be considered on an annual basis. Accordingly he moved the following amendment to recommendation 2.5 contained in the report, for the consideration of members of the Cabinet:
“That the usage, to support social housing and housing regeneration capital programmes or otherwise, of any aggregated surplus arising from future Right-to-Buy receipts after debts on individual properties that have been the subject of Right-to-Buy have been remitted, be the subject of annual Cabinet consideration.”
· Mr Holme, Service Head Resources, clarified that if the new system of financing council housing, set out in the Prospectus, was implemented it was a requirement that 75% of RTB receipts be applied for housing purposes and the only flexibility related to the remaining 25%.
The Chair Moved the recommendations as set out in the report (taking account of the amendment proposed by Councillor Peck); and it was:-
Resolved
1. That the long term financial implications for Tower Hamlets of continuing with the current housing subsidy system and that of the current Housing Revenue Account (HRA) self-financing offer, from the Department for Communities and Local Government (CLG) “Prospectus” – Council Housing A Real Future, as set out in paragraph 7 of the report (CAB 011/101), be noted;
2. That the response in Appendix 2 of the report (CAB 011/101), submitted to CLG in accordance with the deadline of 5 July 2010, be noted;
3. That the Corporate Director Development and Renewal, after consultation with the Corporate Director Resources, Lead Member Housing Heritage and Planning, and Lead Member Resources be authorised to provide any further responses to CLG that may be required in relation to the Prospectus;
4. That the financial principles set out in paragraph 9.2 of the report (CAB 011/101) to support delivery of a sustainable Housing Revenue Account, be agreed; and
5. That the usage, to support social housing and housing regeneration capital programmes or otherwise, of any aggregated surplus arising from future Right-to-Buy receipts after debts on individual properties that have been the subject of Right-to-Buy have been remitted, be the subject of annual Cabinet consideration.
Supporting documents: