Item 15 - Housing Revenue Account Budgetary Control Report to 31 October 24 (Period 07)
West Dunbartonshire Council · 18 December 2024
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WEST DUNBARTONSHIRE COUNCIL Report by the Chief Officer – Resources Council – 18 December 2024 ___________________________________________________________________ Subject: Housing Revenue Account Budgetary Control Report to 31 October 24 (Period 07) 1. Purpose 1.1 The purpose of this report is to advise Council of the 2024/2025 HRA revenue budget position on 31 October 2024 and the forecast position of the HRA reserves as of 31 March 2025. 2. Recommendations 2.1 Council is asked to: i. note the HRA revenue account is forecasting an adverse variance of £1.317m. If required, the adverse variance will be offset by using HRA reserves of £0.968m and a General Fund reserve contribution of £0.349m. ii. note the HRA would be expected to develop a repayment plan to replenish the HRA reserves to meet the prudential target and reimburse the General Fund for any contribution made towards the HRA deficit. iii. note that work will continue to identify efficiencies across all areas of the HRA revenue account budget to minimise the adverse variance. 3. Background Revenue 3.1 The Council approved a £53.218m HRA revenue budget for 2024/2025 on the 6 of March 2024 4. Main Issues Revenue 4.1 This report advises Council of the key issues contributing to the Housing Revenue Account (HRA) forecasting a 2024/25 deficit of £1.317m, with the deficit reducing to £0.349m through using all existing HRA reserves. This leaves the HRA in a vulnerable financial position with no capacity to absorb any unforeseen future costs unless the reserves are rebuilt. The forecast deficit has reduced by £0.857m since the previous report to Council in October, with the key movements detailed in paragraph 4.4 below. 4.2 Council has previously been advised that the Housing (Scotland) Act 1987 specifies that if a HRA deficit arises in any one year, the local authority must make a General Fund contribution to make good the deficit. In this event, the ITEM 15
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HRA would be expected to repay that contribution from any future HRA surpluses. 4.3 On 25 October 2023, the Financial Update report taken to full Council advised that, after discussions between the Council and the West Dunbartonshire Tenants and Residents Organisation (WDTRO), a commitment was made to the WDTRO that the Housing Maintenance Trading Organisation (HMTO) surplus, used to support the General Services budget, would be phased out over a three-year basis at a projected £0.290m per annum. The HMTO is currently forecast to return a £0.594m surplus to the General Fund in 2024/25. 2025/26 is the final year of the three-year phasing out period. This strategy was formally agreed as part of agreeing the Council general services budget in March 2024 which incorporated the general services cost pressure reported in October 2023. However, this arrangement was implemented at a time when the financial health of the HRA was robust with sufficient reserves to absorb unforeseen costs at a reasonable scale. As referenced at paragraph 4.1 this is no longer the case due to the scale of the unforeseen financial challenges the HRA is facing. The provision of a surplus to the General Fund whilst the HRA is in deficit will exacerbate the financial pressure on the HRA and make it more challenging to rebuild the HRA reserves to comply with the agreed prudential target of 2% of expenditure (which equates to £1.162m based on the draft estimates for the 2025/26 budget). 4.4 Council was advised on the 30 October 2024 that the Housing Senior Management Team were working to identify efficiencies across all areas of the HRA revenue account budget to minimise the in-year deficit and that a report on progress in this matter would be presented to this Council meeting. The management team have identified a range of measures that reduce the in- year HRA deficit by £0.857m, as detailed in Exhibit 1 and paragraph 4.5. Exhibit 1 – Movement in HRA Forecast BCR05 to BCR07 Subjective Summary Forecast BCR07 2024/25 Forecast BCR05 2024/25 Movement RAG Status £000 £000 £000 Employee Costs 7,377 7,283 94 Property Costs 2,600 2,600 0 Transport Costs 158 158 0 Supplies & Services 439 411 28 Support Services 2,633 2,785 (152) Other Expenditure 626 560 66 Repairs & Maintenance 12,564 13,393 (829) Bad Debt Provision 1,002 879 123 Void Loss / Council Tax 1,095 1,282 (187) Loan Charges 26,041 26,041 0 Total Expenditure 54,535 55,392 (857) Total Income (53,218) (53,218) 0 Net Expenditure 1,317 2,174 (857)
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4.5 The key contributing factors (favourable and adverse) to the forecast HRA expenditure reduction are detailed in Exhibit 2. Exhibit 2 – Key Factors to Expenditure Reduction Subjective Summary Movement Key Factors £000 Employee Costs 94 Officers had targeted a £200k saving through controls over overtime and recruitment. The expected saving is forecast to be closer to £100k. Supplies, Services and Admin 28 Additional ICT software costs to the HRA for services to improve service automation and modernisation. These costs were not included in the previous forecast. Support Services (152) Saving identified following a review of the Central Support Services recharge to the HRA. The forecast recharge has been reduced to take account of reduced employer pension contributions. Other Expenditure 66 Additional rent abatement cost because service demand is exceeding reduced budget and ongoing support to Womens Aid organisations in respect of tenancy sustainment. Repairs & Maintenance (829) Additional savings identified include: o £450,000 reduction on repair spend through the identification of additional works that qualifies for capitalisation. o £50,000 reduction in Grounds Maintenance spend through agreed revised work specifications. o £130,000 reduction in planned maintenance spend through revised work specifications. o £200,000 of rechargeable repair income forecast through strict application of policy of recharging tenants where works are caused by tenant abuse or neglect. Bad Debt Provision 123 Additional provision for the non-collection of HRA debt. HRA debt has been increasing due to strict application of the rechargeable repairs policy. These types of debt can be difficult so it is prudent to make an increase in the provision for the non-recovery of a proportion of this debt.
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Subjective Summary Movement Key Factors £000 Void Loss (Council Tax / Lost Rents) (187) Officers identified additional properties that qualify for Council Tax exemption and will receive 100% relief. There is also a £30,000 reduction in the forecast void rental income loss. Total (857) HRA Variance Report on Variances > £50,000 Adverse Variances Loan Charges - £3.949m Adverse (BCR05 - £3.949m Adverse) 4.6 The main pressure on the HRA revenue account is elevated borrowing costs leading to higher interest and expense payments on new borrowing and debt refinancing. When the Council went to rent consultation in the last quarter of 2023 and drafted the 2024/2025 HRA budget, a HRA loan charge budget of £22.092m was set with the assumption that council borrowing costs would fall during 2024/2025. Unfortunately, local authority borrowing costs have remained elevated and exceed the rates used when setting the HRA budget. HRA outstanding debt on 31 March 2024 was £301m, with the HRA debt expected to increase to £356m on 31 March 2025. Interest and expense payments are forecast to be £3.531m more than the 2024/2025 budget. 4.7 A further pressure on the HRA loan charge budget is higher than planned debt repayments. The HRA repays capital borrowing over the expected economic life of the asset invested in. (E.g. heating systems – 20 years, new build properties – 60 years). The HRA debt repayment period has decreased (leading to higher annual debt repayment) as the Council has recently reprofiled capital expenditure on housing stock to improve the condition of the asset to allow a quicker turnaround of void properties – more information is provided at paragraph 4.14. Debt repayments are forecast to be £0.418m more than the 2024/2025 budget. Other Expenditure - £0.296m Adverse (BCR05 - £0.230m Adverse) 4.8 The key adverse variance is a forecast rent abatement overspend of £0.200m. Demand is exceeding the new reduced abatement budget. There has been considerable progress in reducing this area of spend with the 2024/2025 rent abatement spend forecast to be more than £0.150m less than the 2023/2024 spend. 4.9 A further variance is a forecast spend of £0.084m to Women’s Aid. The HRA budget 2024/2025 removed payments to Women’s Aid, however through discussions with the Women’s Aid organisations officers have agreed to retain the spend in 2024/25.
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Favourable Variances 4.10 The HRA cost pressures detailed present unprecedented financial challenges for the Council’s Housing Revenue Account. As reported at 4.5 above, officers have been reviewing HRA spend on an ongoing basis and have identified further net revenue savings of £0.857m that add to previously reported favourable variances against the 2024/2025 HRA budget. Employee Costs - £0.284m Favourable (BCR05 - £0.378m Favourable) 4.11 The HRA employee cost budget is £7.661m. The spend against this budget is influenced by staff turnover, staff overtime spend and the success in recruiting to posts as they become vacant. Management continues to target staffing efficiencies to deliver a significant underspend against budget in 2024/2025, including tighter controls on staff recruitment and overtime together with a review of the HRA staff recharge to the HRA capital account and the General Fund account. Support Services - £0.152m Favourable (BCR05 - £0.003m Favourable Variance) 4.12 The HRA central support charge budget is £2.788m. A review of the central support recharge to the HRA identified a saving of £0.150m because the previous HRA forecast had not taken account of reduced employer pension contribution costs within Central Services. Repair & Maintenance – £2.644m Favourable (BCR05 - £1.816m Favourable Variance) 4.13 The HRA repair and maintenance budget is £15.208m. This budget primarily funds reactive repairs, void repairs, planned maintenance, compliance works, and environmental works. 4.14 Officers continuously review spend to identify larger value works that qualify for capitalisation (for works which extend the lifespan of assets). A review of work conducted in void properties to bring properties back to relet standard assessed that a considerable proportion of works extend the lifespan of assets and should be appropriately charged to the HRA capital account. Furthermore, the completion of an Electrical Installation Condition Report (EICR) is complementary to the environmental sensor installation programme and is also being financed through the capital account. 4.15 There have been discussions with Greenspace colleagues and the Greenspace service will deliver a £0.150m saving by revising work specifications and streamlining processes. 5. People Implications 5.1 There are no people implications.
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6. Financial and Procurement Implications 6.1 Other than the financial position noted above, there are no financial implications of the budgetary control report. There are no procurement implications arising from this report. 7. Risk Analysis 7.1 The main financial risks to the ongoing financial position relate to unforeseen cost being identified between now and the end of the financial year. This can affect all service areas. 8. Equalities Impact Assessment (EIA) 8.1 The report is for noting and therefore no Equalities Impact Assessment was completed for this report. 9. Consultation 9.1 All services involved in delivering the HRA revenue budget have been consulted during the compilation of this report. 10. Strategic Assessment 10.1 Proper budgetary control and sound financial practice are cornerstones of good governance and support Council and officers to pursue the five strategic priorities of the Council’s Strategic Plan. This report forms part of the financial governance of the Council. This report is for noting and, therefore, does not directly affect any of the strategic priorities. Laurence Slavin Chief Officer – Resources Date: 18 December 2024 ___________________________________________________________________ Person to Contact: Jim McCarron - Business Unit Finance Partner Telephone: 07772 322055 e-mail james.mccarron@west-dunbarton.gov.uk Appendices: Appendix 1 - Budgetary Position (Revenue) Appendix 2 - Variance analysis (Revenue) Background Papers: None Wards Affected: All