The report of the Strategic Director (Development) and the City Treasurer is now enclosed.

A report by the Strategic Director (Development) and City Treasurer presented the proposed budget for the Housing Revenue Account (HRA) for 2019/20 and indicative budgets for 2020/21 and 2021/22.

The report set out the requirements placed on the Council with respect to the HRA budget:

• the Council had to formulate proposals or income and expenditure for the financial year which sought to ensure that the HRA would not show a deficit balance;
• to keep a HRA in accordance with proper practice to ensure that the HRA is in balance taking one year with another; and
• the HRA must, in general, balance on a year-to-year basis so that the costs of running the Housing Service must be met from HRA income.

Under a variety of arrangements, the Council owns and manage just under 16,000 properties within the HRA. The arrangements included three PFI schemes and the stock managed by either Northwards Housing or other Registered Social Landlords. During 2018/19 the Council was anticipating selling around 175 properties under the Right to Buy scheme.

Included in the report was the forecast for the HRA in 2018/19 to have an in-year surplus of £2.764m, compared to a budgeted deficit of £6.769m, and the main reasons for that change were explained in the report.

The proposed budget reflected the latest information on implementation of the Housing and Planning Act 2016 and Welfare Reform Act 2016. The legislation required social housing rents to be reduced by 1% each year for four years from April 2016. The 2019/20 budget period would be the last year of that four-year period. The mandatory 1% rent reduction had been reflected in the financial plan being put forward. The proposed rents levels included a reduction of 1% to all properties except for housing properties managed under a Private Finance Initiative (PFI) contract, where the rent would be increased by 3.4% (CPI + 1%).

Gas for the communal heating systems was sourced as part of the City Council’s overall gas contract. The existing wholesale gas contract was to expire shortly and indications were that the wholesale gas price would increase by about 26%. Therefore, it would be necessary to increase the current heating charges by between 17.8% and 71.9% so as to ensure that the costs of gas used were recovered through the tariffs charged for tenants and residents. However, in order to protect residents, many of whom are vulnerable and find themselves in financially challenging situations, it was proposed that any increase in heating charges be capped at 20%, and the difference between the actual increased gas costs and charges to tenants funded from the HRA. In 2019/20 this would result in a deficit of £104k in the income for communal heating. Appended to the report was a complete schedule of proposed heating tariffs for pay by rent and pay by prepayment card, showing the percentage change for 2019/20 after the application of the 20% cap.

The report explained that in 2018 a 1% reduction in the Northwards management fee for both 2018/19 and 2019/20 had been agreed (Minute Exe/18/019). The 2019/20 budget therefore included that 1% reduction.

In 2015/16 it had been agreed that garage rents should be brought in line with dwelling rents (Minute Exe/15/021). To achieve that, it was agreed that garage rents were to be increased by 3.92% on top of the increase applied to dwelling rents for the five year period 2015-2020. Given the reduction in rents, it was therefore proposed and agreed that garage rents increase by 2.92% in 2019/20, as they had done in 2018/19.

The report also explained that rent income was normally calculated on the basis of a 52 week rent year, but because in an average year there are 52.17 weeks, it was necessary to include an extra week every 5 or 6 years to remain in line with the calendar year. That had therefore resulted in a 53-week rent year for tenants in some years, and 2019/20 would be such a year. However, the Government had advised that Universal Credit would not reflect the 53 weeks due, and would continue being payable for 52 weeks and paid in 12 monthly instalments. If 2019/20 was instead treated as a 52-week year the gross rental debit for that lost week was predicted to be in excess of £1.1m. However, it was clear that those tenants on Universal Credit would not receive any benefit to pay for that week’s rent. In 2019/20 that was estimated as being 10% of tenants, but over time that was expected to increase to about 60% as Universal Credit continued to be rolled-out by the Government. It was explained that this was a nationwide problem and was under review by the Government. Pending further developments it was proposed and agreed that 2019/20 be treated as a 52-week year, to avoid any detriment to tenants.

The report also explained the other key changes in the HRA budget for 2019/20, and the full budget was presented as set out below.

Decisions

1.         To note the forecast 2018/19 HRA outturn surplus of £2.764m.

2.         To approve the 2019/20 HRA budget and note the indicative budgets for 2020/21 and 2021/22.

3.         To approve the proposed 1% decrease to dwelling rents (subject to the exceptions described above), and delegate authority to set individual property rents to the Director of Housing and the City Treasurer, in consultation with the Executive Member for Housing and Regeneration and the Executive Member for Finance and Human Resources,

4.         To approve the proposal that where the 2019/20 rent is not yet at the formula rent level, the rent is revised to the formula rent level when the property is re-let.

5.         To approve the proposed 2019/20 changes for communal heating charges as set out above, and as detailed in the appendix to the report.

6.         To approve the proposed 2019/20 Northwards management fee as set out above.

7.         To approve the proposed increase in garage rental charges as set out above.

8.         To note the problems arising from the 53-week rent year that would have arisen in 2019/20, that such 53-week rent years have not been allowed for in the introduction of Universal Credit, and to agree not to pass the additional rent cost of the 53rd week onto tenants in 2019/20, with the cost of reduced rental income to be borne by the HRA in 2019/20.