Agenda item

To present to Council the Executive’s Housing Revenue Account budget proposals for 2023/24.

Further to Minute 103 of the meeting of the Cabinet held on 27 January 2023, the Council considered the Executive’s Housing Revenue Account (HRA) budget proposals for 2023/24.

Members were aware that the information and recommendations set out in the report reflected the Executive’s HRA budget proposals, which had been approved for submission to Council at their meeting held on 27 January 2023.

Council was notified that there had been only a very limited number of changes since Cabinet on 27 January 2023, which had been reflected in Appendices A to E as necessary. The outcome being a marginally reduced deficit of £0.280m in 2023/24 compared with the figure of £0.296m reported to Cabinet in January.

It was reported that for 2023/24, the Executive’s budget proposals set out an increase in dwelling rents of 7% along with a total HRA expenditure budget of £15.546mand a capital programme totalling £7.978m. The 7% increase in dwelling rents resulted in an average weekly rent of £93.68 in 2023/24. (£87.55 in 2022/23)

Members were informed that the proposed budget reflected the continued repayment of debt, with the total level of existing debt falling to £33.949m at the end of 2023/24.

Council was advised that the HRA general balance was forecast to total £3.770m at the end of 2023/24, which retained a strong financial position against which the associated HRA 30 year Business Plan could continue to be delivered / developed.

The Leader of the Council (Councillor Stock OBE) made the following budget statement:-

“In following on from the various issues that I highlighted as part of introducing the General Fund budget earlier, the Housing Revenue Account (the HRA) is as equally affected by the various issues that we saw unfold during the past 12 months. The HRA 30-year business plan has therefore been updated to reflect such issues in 2023/24 and beyond.

We want to remain a decent landlord to our tenants across the stock of over 3,000 homes as we want to ensure that they continue to live in safe, comfortable and quality housing.

To me this requires a decent housing management service, a decent repairs service and being able to undertake major investment in a timely manner, such as installing new kitchens and bathrooms, replacing windows and doors and the renewal of other significant fixtures.

The business plan and budget that we are considering tonight has all of these things at its core and over £7.5 million has been made available for investment in the homes of our tenants in 2023/24.

Similarly to the increase in council tax, there have been some equally tough decisions in terms of the proposed rent increase in 2023/24.

The annual increase in rents is usually tied to inflation as defined by the Consumer Price Index (the CPI), with the rules governing annual rent increases allowing Councils to increase rents by CPI plus 1% each year.  Given that CPI is currently at a 40-year record high, the Government has effectively ‘capped’ the rent increase to a maximum of 7% - which although a large increase is much lower than the current level of CPI. As part of its intervention the Government provided its thinking behind why it settled for the 7% ‘cap’. Essentially they had arrived at this percentage by trying to balance the future financialsustainability of Local Authority Housing Revenue Accounts with the ‘cost of living’ pressures being faced by tenants. The 7% increase is still a real term reduction in the HRA’s spending power given the significant inflationary increases in costs reflected elsewhere in the business plan.

In terms of our own proposal to increase rents by the maximum allowed, I can only echo the point made by the Government, that any increase must be balanced within the context of the long-term financial stability of the Housing Revenue Account. The proposed increase therefore seeks to deliver this balance. I am sure that this is something that is acknowledged by our tenants – it was certainly something that our tenants’ panel recognised when Officers met with them last week.

Even after allowing for the 7% increase in rents, there is still a deficit on the HRA budget in 2023/24, given the inflationary increases in other areas of the budget as I mentioned earlier. 

We often talk about the ‘telescopic’ effect of changes to the budget. The level of rent increase is a perfect example of this – say we increased rent by 6% instead of 7%, this would reduce the spending power of the HRA by £3 million over the life of the business plan and potentially put the financial sustainability of the HRA at risk.

In sticking with the subject of ‘telescopic’ effect, let’s not forget the 4 years that the Government required us to reduce rents by 1% each year. This effectively removed £30 million from our HRA budget over the long term, which has ultimately contributed to the challenging position we find ourselves in today.

But as I said earlier this evening, we must focus on the things we can control rather than get distracted by the things we can’t.

In terms of managing the deficit on the HRA in 2023/24, we had a couple of choices – we either reduced the investment in our tenants’ homes or we recognised the challenging environment we are currently in and use reserves in the short term to balance the books.

We have gone with the latter, as I don’t think any of us could agree that charging tenants 7% more in rent whilst reducing the investment in their homes was the way to go.

It is also worth mentioning that within the overall HRA budget we have to set aside money to pay off our outstanding loans, most of which we had no choice about given we had to buy ourselves out of the previous and unfair subsidy system back in 2012.

When we took on these loans we approached it in a level headed and prudent way by setting aside money within the budget to make loan repayments each year rather than taking on interest only type loans, which is the more traditional approach taken by some Local Authorities. We continue to see the benefits of this decision with money being ‘released’ from lower debt and interest payments for reinvesting within the wider HRA budget. This has therefore proved to be a key element of delivering a financially sustainable HRA in the longer term.

As is the case in the General fund, we have also ‘cash backed’ our important projects, with the refurbishment of Spendells House and the redevelopment of Honeycroft now included in the capital programme.  They have been funded by ‘recycling’ capital receipts. We could have gone out to the market to borrow the money, but we would have had to pay an interest rate ‘premium’ given the current economic climate. Such an approach would have ‘saddled’ the HRA with unnecessary loan and interest payments long into the future – we were not prepared to do that.

Prudently managing the HRA therefore requires matching revenue money, capital receipts and reserves to associated expenditure, whilst remaining alert to the wider financial environment. Although this is done on an on–going basis, it all comes together as part of setting the annual budget for the HRA.

In terms of reserves, although we are proposing to draw some money down in 2023/24, we still estimate that over £3.7million will remain in general balances at the end of 2023/24. This money will play an important role in future HRA budgets as we start to turn our attention to 2024/25 and beyond.

On the back of everything I have just said and picking up the point Paul [Honeywood, Portfolio Holder for Housing] made back at our Cabinet meeting in January, maintaining the investment in our tenants’ homes is of upmost importance, but we also need to maximise any financial flexibilities that may emerge to continue to deliver local homes for local people. Although we have some tough times ahead in the short term to medium term, via the continued and prudent management of our HRA business plan, we will always try and balance these two key activities whilst never forgetting the need to secure the on-going financial sustainability of the HRA.

The budget we are considering tonight is therefore another confident step in our long term plan that continues to reflect sustainability and financial stewardship to secure the long term future of our tenants’ homes.”

It was moved by Councillor Stock OBE and unanimously:-

RESOLVED that Council approves:-

(a)    a 7% increase in dwelling rents in 2023/24; and

(b)    the Housing Revenue Account Budget for 2023/24 as set out in Appendix B to item A.2 of the Report of the Cabinet, along with the Scale of Charges, HRA Capital Programme and the movement in HRA Balances / Reserves, as set out in Appendices C, D and E respectively, to the aforementioned report.