Agenda item

The Streets, Environment & Homes Sub-Committee is presented with a draft copy of a report on the Housing Revenue Account (HRA) Business Plan due to be considered by the Cabinet on 21 March 2022.

The Sub-Committee is asked to review the information provided in the draft report and consider whether it wishes to make any comments or recommendations for submission to the Cabinet during its consideration of the report.

The Sub-Committee considered a report set out on pages 35 to 58 of the agenda which provided an early draft version of a report due to be considered by the Cabinet on 21 March 2022, on the 30 Year Business Plan for the Housing Revenue Account (HRA). The Sub-Committee was asked to review the information provided in the draft report and consider whether it wished to make any comments or recommendations for submission to the Cabinet. The conclusions agreed by the Sub-Committee would be reported to the Cabinet at its meeting scheduled for 21 March 2022.

The Interim Corporate Director of Housing provided an overview on the Housing Revenue Account (HRA) which it was noted had been self-financing since 2012. As a result of the government redistributing all council housing debt from across the country according to a complex formula, Croydon Council received £200 million in debt from their housing stock. The HRA was ring-fenced for landlord activities and could not be used to subsidise general funds although the Sub-Committee heard that there was a continuous transfer of funds. Members were reminded that Croydon had a large amount of housing stock which needed to be maintained. The recommendation from central government was to develop a HRA Business Plan that detailed how this would happen and the period of time over which it would take place, with a recommendation of 30 years.

The Sub-Committee were shown a spreadsheet with assumptions around financial implications and the Interim Corporate Director of Housing outlined a summary of the HRA Business Plan detailing spend and income. The Sub-Committee noted that the policy would stay in place until 2024 and that Croydon would be incorporating the 30 year recommendation. Members also noted that the proposed HRA Business Plan focussed on the affordability of maintaining the council’s stock. The Business Plan set out the council’s finances over the next 30 years based upon assumptions such as rent levels, and Members were of the view that data held on stock condition showed a substantive backlog of work was required and capital spending could only be increased over a number of years to bring stock up to standard. The report further highlighted in detail the HRA Revenue balance, the Capital expenditure and risk and Members heard that this would inform the capital programme for the next year and enable decision making around building reserves, etc.; the Asset Management Strategy would address how the money would be spent.

Members thanked officers for the information on stock status but raised concerns around increased management costs and were informed that the operating service per unit was higher in Croydon than the national average, but that debt per unit was higher. The Sub-Committee requested detail of how these metrics worked and were of the view that it would be interesting to see how this compared to other outer London authorities. It was noted that loan to value is higher in Croydon and Members requested clarification on this. The Interim Corporate Director of Housing responded that he felt that the margin of gross management and repairs was not staggeringly different from other boroughs but agreed that more work was needed to look at these figures in detail.

The Chair stated that further commentary on how the benchmarking data was captured was very helpful. The Sub-Committee noted that HRA debt had increased since 2013 and were informed that this was mostly due to acquisitions rather than investment in the existing stock. Members asked if Croydon had the structure and staff in place to ensure that the information was correct and heard that the review of the HRA budget was done without the Business Plan, which would now address the Asset Strategy. Officers informed the Sub-Committee that information on capital spending would be going to Full Council in January 2023, with submission before then. Members were of the view that capacity remained an issue and that there was a reluctance to use consultants to undertake the work to alleviate the pressure on staff. Officers agreed that capacity had been raised formally and was an operational issue which was being looked into and put forward for expertise to help with the workload. The Interim Corporate Director of Housing spoke about proposals to look at how consultants could add value, but stated that there were certain areas where ownership from within the organisation was vital. Savills had been used previously for the Business Plan and consultants may be used for work around the asset management strategy for some aspects.

The Sub-Committee discussed issues around delivery of carbon neutrality and costs related to debt and the availability of extra capital funding. Members were of the view that the council’s approach to debt was not clear and needed to be included in the report; Members stated that it was important to review the strategic choices that the council had taken and whether poverty, state of repairs and improvement of system stock was considered. The Interim Corporate Director of Housing stated that transparency of costs was a priority. Members felt that the stock condition was poor and agreed that more spending would likely be needed in the future.

The Sub-Committee queried whether the council had a choice about state regeneration and developing a better mix on estates and asked what access the council had to external funding and Section 106 money. Members asked if the council was able to negotiate for affordable housing with developers as opposed to housing associations and how strategic shortages could be built up. The Cabinet Member for Homes reminded Members of the two priorities; these were to maintain existing stock and to bring stock up to a decent standard. The Sub-Committee were informed that the housing strategy would advise on what was required at the appropriate time.

The Chair discussed principles around good practice as set out by the LGA and asked about reserve levels and how these compared with other authorities. Members heard about how wider governance would be put in place within Housing to reconcile with the Business Plan as part of the 3-year annual internal review. The Sub-Committee discussed risk-management and Members asked for clarity on how risks would be reported and managed. The Interim Corporate Director of Housing agreed to look into how this was done and ways of building this into future work.

The Chair asked how the impact of benefit changes, cost of living issues and rent arrears were referred to within the Business Plan and was informed that this was assumed under the title of ‘bad debt.’ A broad assumption had been incorporated into the Plan but was not specific to this.

In reaching its recommendations, the Sub-Committee came to the following:

Key Conclusions:

1.     The Sub-Committee was positive that there was a clear financial model in place and felt that this was a positive outcome of the different services related to housing being brought back together under one directorate.

2.     The Sub-Committee was not confident that the service had the required staffing capacity to deliver the works detailed in the plan and was concerned that lack of capacity and necessary skills would impede its delivery. The Sub-Committee highlighted the example that while the Council had capacity challenges in ensuring that it maintained an effective stock register, it would be unlikely that there would be capacity to deliver the actions related to achieving carbon neutrality within eight years.

3.     The Sub-Committee questioned the basis on which the £27m budget for cyclical repairs had been set.  Members were concerned that as greater levels of staffing capacity became available, the service would identify greater levels of need for repair and improvement works and that funds may be taken from the HRA reserves in the case of an over spend on the budgets allocated.

4.     The Sub-Committee noted that the HRA reserve levels were being reduced to a minimum level of just over £8m in the short term and expressed its concern at this approach. 

5.     The Sub-Committee noted that the Plan does not include any future projects and that this would remain the case until the Asset Management Strategy was developed.

6.     That future iterations of the business plan need to be informed by a thorough understanding of what aspects of demand the council’s housing stock will lead on meeting when considered in the broader context of all Croydon’s social housing providers.  As such, the Sub-Committee would welcome the development of a clearer housing supply strategy that involved tenants in choosing which capital investments should be prioritised.

Recommendations:

1.     The Sub-Committee noted that the housing department still had work to do in meeting some good practice principles, such as having an Asset Management Strategy, Treasury Management and that some elements of governance were being established and recommends that Cabinet acknowledges these shortcomings to the plan and asks the Housing Improvement Board to help it set an appropriate timetable for delivering these outstanding actions.

2.     That, given the current healthy level of reserves available to the HRA, Cabinet gives consideration to seeking external capacity and resources in order to expedite the stock condition work and to accelerate the development of the asset management strategy.

3.     That given the significant rise in energy costs, consideration be given to prioritising insulation works in the cyclical repair programme in advance of future Homes Improvement Grant funding becoming available through the Social Housing Decarbonisation Fund, priority for this must be met through having sufficient staff allocation and resources.

4.     That Cabinet states more clearly in the HRA business plan the costs, budget and overall relationship with the delivery of the Housing Improvement Plan in cooperation with the members of the Housing Improvement Board.