Beyond Redistribution Exploring New Models of Delivery By Philip Clifford September 2008.

Beyond Redistribution

Exploring New Models of Delivery

By Philip Clifford

September 2008

Current System:Model

HRASSFormula

Local HRA

HMT

Working Tenants

DWP

Local Authority

Rent

Housing Benefit

Rental Income Management &Repairs

Notional IncomeAllowances

Outstanding Debt

SCFR

+/- Subsidy

Local HRALocal HRA

+/- Subsidy

+/- Subsidy +/- Subsidy

Subsidy Surplus/Deficit

Other Government Expenditure

National SubsidySystem

Current System:Function Local authority:

Collects rental income Spends available resources on management,

maintenance and repair of stock Subsidy system formula establishes:

Resources available to local authority based on notional need to spend

Level of rental income to be returned to national subsidy system based on assumed rent levels

Debt support payments National subsidy system

Local debt/surplus met with positive/negative subsidy entitlement

National debt/surplus met through contribution/extraction by HMT

Current System: Commentary Redistributive

Local rental income captured by subsidy system and used to meet debt service charges, stock investment and other government expenditure

Currently insufficient resources in the system Notional element means real need to spend not recognised Even if sufficient resources were available, system is likely

to remain opaque and complex Local ring fence

Typically resources used for upkeep of social housing kept separate from general fund

Possible scope for limited local discretion National ring fence

Could be adopted, unlikely to provide sufficient resources in itself to address current underfunding: approx £2.25bn pa.

Self Financing:Model

Local Authority

Working Tenants

DWP

Rental Income Management & Repairs

Rents

Housing Benefit

New Build

Capital/Rental Income

HMT

Subsidy System Buyout Transaction

Self Financing:Function Following ‘buy-out’ from current subsidy

system: Local authorities run local HRA based on

actual income and actual expenditure Debt is either taken to the centre or forms

part of the ‘buy-out’ transaction New properties can be built with receipts and

rental income fully retained Rules and regulations governing this

process complex but much of the initial work is already in train

Self-Financing:Commentary Greater local control

End to year-on-year volatility of annual subsidy determination

Local authorities able to establish actual need and plan expenditure appropriately

Local ring fence retained Getting buyout price right is crucial element Unlikely to be significant investment opportunity in

early years but long term efficiencies can be ploughed into stock improvement, service enhancement

Risk that some local authorities may become bankrupt Potential for a reduction in complexity and greater

transparency

Local Housing Company: Model

Local Authority

Private Sector Investor

Housing Management Organisation

Land Assets

Equity

Local Housing Company

Social Housing Grant

HMT

New Build

DWP

Working Tenants

Cost of Capital Charge

Housing Benefit

Rents

Rental IncomeManagement & Repair

Expenditure

RentalIncome

Management, Maintenance, Repair

Capital Income

Outstanding Debt

Management FeeRecyled Resources

Local Housing Company: Function Local Housing Company established:

51% private sector partner 49% local authority Eligible for social housing grant Primarily formed to enable new build Separate housing management company takes care

of rent collection, repairs and maintenance Existing local authority housing stock is included Potential for significant upgrade in stock condition Opportunity for variety of housing tenures managed by

a single, local organisation Capital investment by HMT repaid via cost of capital

charge, potential for debt spread to create additional borrowing headroom

Local Housing Company: Commentary Likely to require substantial local expertise

and a willing private sector partner Elements of model already used in Barking

and Dagenham Risk that owing to land price and availability

LHC might not be suitable for all Business processes may not fit with the

need to deliver a service for vulnerable client group

Full Local Discretion:Model

Local Authority Primary Care Trust MET

EducationFunding

Housing Expenditure

Worklessness ReductionFunding

HealthExpenditure

Crime ReductionFunding

Client group with multiple

needs

Local FundingFramework

Appropriate Housing Offer

HMT

National Allocations/Monitoring Framework

Coherent InterventionPackage

Working Tenants

Rent

EnhancedEconomic Engagement

SubsidisedAccommodation

Full Local Discretion: Function Cessation of the national subsidy system and local

housing revenue accounts Replaced with national monitoring and allocations

framework the distributes resources to local authorities based on strategic spending priorities

Local authorities would develop internal systems to determine need and appropriate method of intervention

Social housing would form part of a package of measures available to support low income households wanting to rent and those with multiple needs

Rental income would be returned to national government

Full Local Discretion: Commentary Would require quantum leap in

accountability and responsibility of local authorities

Radical devolution likely to require robust monitoring framework and control mechanisms

Greater focus on social policy objectives rather than creation of new supply or investment in existing stock

Investment, debt and revenue issues are treated in significantly different way

Local Authority Leaseback: Model

Local Authority

Housing ManagementOrganisation

Working Tenants

DWPHousing Benefit

Rent

Rental Income Management,Repair & Investment

HMT

Purchase of Housing Stock

Leaseback payment

Debt repayment

Local Authority Leaseback: Function Local authority housing stock is sold

to a third party The stock is then leased back to the

local authority on a long term basis Similar to stock transfer, resources for

investment generated via sale but control maintained by local authority

Surplus could be used to repay debt to government

Leaseback:Commentary

Possible legal barriers Likely resistance from tenants fearful

of stock privatisation Level of resources generated may be

insufficient to warrant undertaking Limited social policy achievements

and unlikely to contribute to new build

Capital Injection:Model

DWP

HMTOutstanding

DebtExisting debt support

funding

Working Tenants

Local Authority

Rent

Management &Repairs

Capital Injection based on actual need to spend

Housing Benefit

RentalIncome

AdequacyAssessment

Stock conditionmonitoring

‘Top Up’ Funding

Capital Injection:Function Housing subsidy system ended Local HRAs operated on a ‘self-

financing’ basis Debt and debt support funding ‘taken

to the centre’ Based on assessment of adequacy of

local rental income vs. need to spend HMT provides ‘top up’ funding on a case by case basis

Capital Injection:Commentary Likely to be expensive: not only would

Government no longer receive negative subsidy contributions but ‘top up’ injections based on actual need to spend are potentially significant.

However, would provide a transparent, robust mechanism to fund provision of local authority council housing

Could be used as a basis for expanded delivery and stock investment

Regional Hybrid:Model

HMTOutstanding

Debt

Local HRA

Local Authority

Working Tenants

DWP

Rental Income Management & Repairs

Rents

Housing Benefit

New Build

Capital/Rental Income

Local HRA

Strategic Delivery Fund Clearing

House

Homes and Communities Agency

National Affordable

Housing Pot

Local HRA Local HRA

Local HRA

Local HRA Local HRA

London HCA Board

Balance Transfer

BalanceTransfer

Balance Transfer Balance Transfer

Balance Transfer

BalanceTransfer

Capital Expenditure

Pooling of Surplus Pooling of Surplus

Existing debt supportfunding

London West

MidlandsEast

East Midlands

North WestSouth East North EastSouth WestYorkshire & Humberside

Communities and Local Government

StrategicPriorities

Regional Hybrid:Function (1) Essentially, self-financing with a regional ring fence

and a strategic delivery fund tied to the London Board of the HCA

Historic debt and debt support revenue stream taken out of the subsidy system

Estimates of remaining subsidy levels indicate all but three boroughs would be in negative subsidy

Instead of local buy out, negative subsidy boroughs would contribute an annual payment based on current subsidy system assumptions to meet funding requirement of positive subsidy boroughs. Currently estimated to cost approx 2.2% per annum.

Local HRAs would be run under self-financing model: rental income used to meet actual need to spend

Regional Hybrid:Function (2) Local surpluses could be used to fund construction of new

stock or combined with resources from the NAHP to form a London-wide Strategic Delivery Fund This would act as a vehicle to increase viability of strategic

regeneration projects by pooling small local surpluses. Strategic relationship with HCA board and funding streams Crucially, boroughs would retain control over contributed

resources Loss to Government of approx £265million a year in

negative subsidy payments could either be written off or met through appropriate reduction of capital pot

Rents could be set locally and constrained by Government limitations on Housing Benefit or regulated via the TSA

Other regions could implement similar model or remain within a national subsidy system

Regional Hybrid:Commentary A pan-London solution broadly based on existing

structures and mechanisms CLG would retain standards setting role but would no

longer be responsible for annual administration Regional subsidy transfer ensures minimum standards

of current system are not lost and transfer from negative subsidy boroughs less than existing ‘buy out’ payment

Capacity for boroughs to take local decisions and accrue benefits of efficiency savings

At the same time, a framework for local boroughs to combine any surplus funds with others to generate economies of scale and invest in strategic priorities