The cuts will further hamper their chances of meeting the government's decent homes target and delivering the wide service improvements for which the government is also pressing.
Some predict they could lose as much as £40m from their Housing Revenue Accounts, as rent reform and right to buy erode their subsidies. It is illegal for councils to let HRAs go into deficit so spending must be cut – inevitably hitting repairs budgets.
The problem centres on the guideline rents the government uses to assume rental income when determining subsidy. In many cases these are lower than what the town hall actually receives, and are therefore rising to move in line with actual rents under rent restructuring. Councils then get less subsidy because the government assumes they are getting more income from rent.
Problems also come from the way councils project income and expenditure, and therefore the amount of subsidy they need, five or 10 years ahead while only one year's HRA funding is guaranteed.
The Northern Housing Consortium has been contacted by a number of members concerned at what their business plans predict. It is to commission further research. Meanwhile the Local Government Association is urging the government to make long-term decisions on finance.
LGA housing executive chair Paul Jenks said: "Councils don't want to hack their services apart yet because the assumptions in their business plans could be wrong. We must have more information from the government on how its assumptions work."
The government is increasing management and maintenance budgets to compensate for the loss in HRA subsidy, but there are doubts about whether this will be enough. Independent consultant Bob Line said: "The government will have to look at this again because its compensation arrangements will not rescue councils."
The Office of the Deputy Prime Minister said it will review the issue after three years.
Councils may be recommended for takeover, like Hull, if they do not take action: in July, the Audit Commission said Hull's HRA was heading for insolvency within four years (HT 1 August, page 11).
the tough choices faced by five councils hit by the budget shortfall
Peterborough
Peterborough council in Cambridgeshire estimates it will lose £9m during the next 10 years because it must reduce rents by 7% under rent restructuring. During the same period, the government’s guideline rent will rise by almost a fifth which could cost Peterborough’s HRA £20m as subsidy is reduced. To compensate, the government will increase the council’s management and maintenance allowances. But this potential gain to the housing revenue account totals just £3m.Hillingdon
The London borough of Hillingdon says the biggest damage will come from changes in the funds the government allows for management and maintenance to compensate for other losses. If this rises at 4%, as the council expects, £40m will be lost over 10 years; even if it rises at 6%, as the government suggests, £20m will be lost. Hillingdon assistant director Tim Price said: "If we have to cut services, our contribution to meeting housing need in London will be badly damaged.”Sedgemoor
Somerset’s Sedgemoor council faces a triple whammy of lost income. Rent restructuring means it must cut rents on its 4500 homes, high right-to-buy sales are expected to slash £900,000 from rent income and it may lose out under Supporting People as well. It will have to cut £3m from its repairs budget during the next five years. Senior principal accountant Ken Treanor said: “We believe we can meet the decent homes standard. But things such as security lighting will get cut.”Reading
Rent restructuring is expected to eat into Reading’s HRA to the tune of at least £1m, but the council believes it can stop it from going into the red. Savings opportunities are being looked at, with cuts in the repair and maintenance budget likely. But assistant director of social services and housing Debbie Ward said these would be “economies of scale” in line with best practice. In view of Reading’s shrinking HRA, it would be tough to meet the decent homes target, she added.Craven
Craven council in Yorkshire is contemplating stock transfer rather than tell tenants they must pay more for worse services. Independent consultant Richard Bramley, who is working with Craven, said: “Transfer gets you out of the subsidy problem, because every pound you raise from rents you can keep for better services.” He predicted almost all councils would eventually be affected by the government’s withdrawal of subsidy. “Over the next 10 years the government will turn the screw,” he said.Source
Housing Today
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