Public & Private

The latest set of proposals for rent restructuring and their impact on Housing Revenue Account subsidy have been issued. They aim to tidy up issues still outstanding after the introduction of the new financial framework. The key issues are the new system of rent caps, the treatment of service charges and the impact of Supporting People.

Rent caps seek to address the problems already being encountered by those authorities that are having to set rents at, or close to, the new thresholds to ensure that they are not unduly penalised by the subsidy system. On the face of it, the proposals for "constrained" and "unconstrained" rents seem sensible. Those authorities affected by these proposals will need to assess which of the three options presented suits them best, although, as the arrangements are already quite complex, the simplest solution is to make the adjustment a year in arrears.

The issue of service charges is likely to prove more controversial, even though, again, the proposals on their own seem sensible given the overall policy framework on rent restructuring. Local authorities have, in the past, adopted very different policies on service charges, especially when compared to housing associations, which are more closely monitored by the Housing Corporation.

Most local authorities previously tended to pool the cost of services, including those now covered by Supporting People. Existing subsidy arrangements have generally deterred authorities from setting separate service charges as there has been little financial benefit in doing so. But the Office of the Deputy Prime Minister has recognised that this is a disincentive and is proposing to allow authorities to "depool" service charges over the next 10 years without being penalised by rent rebate subsidy limitations.

This is consistent with registered social landlords, and with the approach for charging certain services to leaseholders – but the government is giving some flexibility, at this stage, over how authorities choose to identify "services", subject to its position on limiting exposure to high-rise lift maintenance.

Press most RSL officers, however, and one area they often find problematic is service charges. Administratively, it would be far easier to collect the income as rent, but it would be difficult to reverse this now.

Another connected issue is the annual uprating of council rents. The example given in the latest proposals assumes average increases of 1.5% above the retail price index between 2004/05 and 2011/12. The effect of "depooling" service charges could yet change this when the resulting figures are compared with RSL targets, so this may need to be revisited.

The other set of proposals, on the Supporting People grant, seeks to address the impact of the windfall gain coming to authorities from the new grant arrangements next April. The ODPM is suggesting that councils will need to meet the cost of the continuing protection offered to tenants (formerly covered by benefit) since the indication is that this will not be covered by the Supporting People grant.

Councils are still expected to introduce rent restructuring by April 2003, and it would be wise to consider service charges at the same time. But whatever the impact, the effect of the new system will roll on for a good few years yet.