Agenda item

The Director of Finance’s report presented the draft revenue and capital budgets for 2025/26 relating to the Housing Revenue Account (HRA) and the financial monitoring and outturn forecasting versus budget of the current financial year to the end of December 2024.  Recommendations from the Housing Review Board would be presented back to Cabinet in February 2025 to finalise the 2025/26 budget proposals to recommend to Council.

The HRA recorded expenditure and income on running the council’s own housing stock and related services or facilities, which were provided primarily for the benefit of the council’s own tenants. The HRA was a ringfenced account within the General Fund with strict legal and accounting rules to maintain separation from the General Fund. The HRA must always remain in surplus, and this must be considered when setting each year’s budget and when planning for the future.

The HRA consisted of capital and revenue elements. Capital was typically asset enhancing items such as kitchens, bathrooms, windows etc or a project of more minor works to multiple properties. Revenue was typically low-level repairs and maintenance with regards to spend on assets plus staff and service costs, overheads etc. The Council was allowed to borrow to fund capital expenditure, but not revenue without specifically required central government permission.

The initial budget presented to the Housing Review Board was a roll over budget from the previous year, with few changes from 2023/24.  The 2023/24 HRA outturn and capital spend far exceeded the expectations that were included within that year’s budget, requiring the contribution of all HRA earmarked reserves and adding an additional £2.5m to the HRA’s borrowing requirement in order to maintain the £3.1 adopted level of the HRA balance.  Therefore, shortly after the start of the current financial year it was established that the proposed 2024/25 budget was insufficient to meet the needs and demands of the housing service and provide the investment required to ensure regulatory compliant homes.  A revised budget was approved by Council in July 2024.

During the 2024/25 financial year there had been numerous significant budget movements within the HRA (virements) which in effect had transferred significant sums from revenue to capital. This was the result of the underlying works included within the revised budget being scrutinised in detail within the regular collaborative financial management framework which had been established. This had been presented and where necessary approval given through HRA financial monitoring reports to committees. The 2024/25 budget figures presented for comparison in the report were those which were currently being reported, and monitored against in 2024/25.

Areas explained to and discussed by the Board included:

·        Revenue budget.

·        Income – the primary sources of income for the HRA were rents on dwellings, garages and other income including service charges.

·        Repairs and maintenance – this included all major expenditure which fell into the revenue category and was segregated into general and responsive repairs and maintenance, and planned repairs and maintenance. The vast majority was covered by the integrated asset management contract (IAMC) with Ian Williams Ltd.  The budgeted spend had increased by £0.05m, which could be attributed to the inflationary increase on the price per property payment under the IAMC.

·        Supervision and Management – this covered a wide variety of costs related to the management and administration of council-owned housing. Key types of expenditure included all HRA direct staffing costs, property management costs, and external services and overheads.  The budget for supervision and management as a whole for 2025/26 had decreased by £0.29m from 2024/5 (this factored a full staffing establishment); the most notable was a £012m decrease in employment costs and a £0.2m decrease in overheads/recharges. 

·        Capital charges – changes to the bad debt provision and depreciation/major repairs reserves/revenue contribution to capital.

·        HRA financing.  This was split into three areas:

o   Debt financing – the 2025/25 financing charges had increased by £0.47m

o   Interest income – the 2025/26 budget included an income amount of £0.24m.

o   Movement in reserves – this wouldn’t continue in 2025/26 as all revenue and capital spend had been correctly allocated.  There was an agreed annual contribution to be made to the HRA balance each year of £0.25m to reinstate the HRA balance to the adopted level of £3.1m.

The 2025/26 budget now bought a balanced budget.  However, the HRA continued to face significant financial pressure in the immediate and longer term.  This was from a range of factors including historic underinvestment, increased consumer and regulatory standards, general inflation, restrictions in rent increases, net zero expectations, disrepair claims, complaint resolution, high void and decant costs and other issues.  Similar cost pressures were being seen in other stock holding local authorities.  The housing teams were thanked for their hard work in achieving efficiencies and savings in year.

It was noted that the proposed capital programme amounted to a significant investment in the Council’s housing stock.  This investment would result in a substantial level of additional borrowing and an increase in the overall HRA debt burden.  The servicing of this debt would be met from within the HRA revenue budget and therefore create further pressure on revenue in future years.  This additional interest expense burden would need to be offset by efficiencies, savings and income generation through strategic asset disposals. The longer-term revenue implications of capital investment would be modelled as part of the Business Plan review to ensure the HRA remained a going concern.

In response to a question about which properties were being sold under the Right to Buy scheme, the Director of Finance explained that the Council could not control which properties were sold, but would provide data on numbers sold in the next HRB finance report.  Information was also requested on planned kitchen and bathroom works, as well as other planned capital expenditure that did and did not go ahead.

RECOMMENDED:  that Cabinet approve the draft revenue and capital estimates and the financial modelling element presented is noted, subject to suitable key performance indicators being introduced for the Housing Review Board to be able to monitor major capital repair expenditure.