Item 09 - Housing Revenue Account HRA Housing Capital Investment Programme Revenue Budget and Rent Levels for 2025_26 (REVISED REPORT)
West Dunbartonshire Council · 5 March 2025
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WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer - Housing & Employability Council: 5 March 2025 Subject: Housing Revenue Account (HRA), Housing Capital Investment Programme, Revenue Budget, and Rent Levels for 2025/26 1. Purpose 1.1 To seek Council approval of the proposed HRA capital investment programme and the HRA revenue budget for 2025/26 and to agree the level of weekly rent increase for 2025/26. 2. Recommendations 2.1 It is recommended that Council: i) Notes the progress made in delivering the HRA Capital Investment Programme for 2024/25 as detailed in appendix 1. ii) Approves the HRA Capital Investment Plan 2025/26 – 2029/30 as detailed in Appendix 2. iii) Approves the HRA revenue budget for 2025/26 as detailed in Appendix 3 and Appendix 4. iv) Approves an 8.0% weekly house rent increase for 2025/26: an average increase of £7.57 per week on a 52-week basis (£8.38 per week on a 47- week basis), inclusive of the Gypsy Traveller site at Dennystoun Forge. v) Approves an 8.0% lock up and garage site rent increase for 2025/26: an increase to lock-up rents of £0.48 per week to £6.52 per week on a 52-week basis. (£0.53 per week to £7.21 per week on a 47-week basis) vi) Approves a 8.0% rent increase for homeless temporary accommodation. vii) Notes the outcome of the tenant consultation process as detailed in Appendix 5. viii) Notes that the HRA revenue account continues to face considerable ongoing cost pressures and that the latest forecast is for HRA to draw on all £0.968m of HRA reserves in 2024/25 with a General Fund contribution of circa £0.350m needed to balance the HRA account. ix) Notes that the HRA prudential reserve target for 2025/26 is £1.16m (2% of gross expenditure) and that the HRA will need to steadily rebuild its reserves to this level through future years rent strategies. ITEM 9 (Revised)
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3. Background 3.1 West Dunbartonshire Council (the Council) is the landlord for 10,444 homes located in communities across West Dunbartonshire. In delivering this landlord role, the Council strives to provide good quality, affordable, safe, secure, and warm housing that is fundamental to the health and well-being of individuals and families, the sustainability of local communities and the success of the local economy. 3.2 The Council has a legal requirement under the Housing (Scotland) Act 2001 to consult council tenants and have regards to their views before considering any proposed rent increase. Approval of this report will demonstrate this obligation has been fulfilled. Full details of the consultative exercise are included at appendix 5 of this report. 3.3 The recommended rent increase for 2025/26 will contribute towards the funding of the HRA Capital Housing Investment Programme and fund increased HRA revenue costs which will allow for: Continued investment in tenant priorities through the More Homes/Better Homes Investment Programmes. Investment in improving homes including energy efficiency measures that help alleviate fuel poverty. Investment in measures to meet compliance with the proposed Social Housing Net Zero Standard which will help reduce council home carbon emissions. 3.4 In considering the structure of the budget, consideration has been given to increasing revenue, reducing costs and identifying ways to mitigate the impact of relatively high interest rates and increased employment costs. The service has focused on: Improving void performance and increasing the desirability of council housing stock. Strategic asset management of our council homes. Improving housing management generally. Strengthening cost control over revenue expenditure, including recruitment, overtime, property, and responsive repair costs. Value for money, including an ongoing review of charges to the HRA account. Stringent application of the rechargeable repairs policy. Reducing costs associated with the housing repairs service and void houses. Reviewing the spend across revenue and capital budgets to ensure all spend of a capital nature (spend that enhances and improves a capital asset) is charged to the HRA capital account.
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3.5 The following factors have been considered when preparing the 2025/26 HRA estimates: Inflation has been applied on relevant revenue and capital budget lines. Provision made for a 3.2% pay increase. Provision made for higher employer national insurance costs. A 4% turnover allowance has been applied to the employee cost budget. Debt interest rates have been assumed in line with projected council borrowing costs. 4. Main Issues 4.1 HRA Capital Investment Programme HRA Capital Investment Programme 2024/25 4.1.1 On 6 March 2024, Council approved a five-year HRA capital programme for capital works over the period 2024/25 - 2028/29. Progress delivering the 2024/25 element of programme is shown in Appendix 1. 4.1.2 The Better Homes Programme that invests in improving existing housing stock is projecting a £0.070m underspend in 2024/25. (0.2% of budget). Council has been advised of progress delivering this programme during 2024/25. 4.1.3 The More Homes Programme that invests in provision of new homes through regeneration, buyback acquisitions and the development of new build housing is forecasting a £4.9m underspend against budget. (14% of budget). A significant factor in this underspend is the reprofiled construction site starts at Willox Park, Bonhill Gap sites and Bank Street which are all now progressing and the stalled development site at Queens Quay Site C. 4.1.4 It is forecast that HRA capital resources will be £0.785m less than budget, as set out in appendix 1 of this report. HRA Capital Investment Programme 2025/26 – 2029/30 4.1.5 The HRA Capital Investment Programme has been developed using data from current stock condition surveys and a bi-annual stock assessment exercise. The main drivers for the programme are for the Council to deliver on the key objectives of the Council’s Better Homes Strategic Housing Asset Management Strategy and to ensure the Council complies with its health and safety responsibilities. In addition to investment in the core stock, the investment programme includes the Council’s ambitious ongoing new house build programme ‘More Homes West Dunbartonshire.’
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4.1.6 The Investment Programme is consistent with evidenced tenant priorities which were reinforced through the findings of a tenant satisfaction survey undertaken in late 2024 which highlighted the two top spending priorities for tenants are: A responsive and high-quality repair and maintenance service; and Building new Council homes. 4.1.7 Due to the long-term nature of HRA capital investment, there is an ongoing need for assurance that investments are affordable in the longer-term taking account of estimated inflation, cost pressures, potential savings, and projected changes to future interest rates. Current financial modelling work identifies short term cost pressures across capital financing costs; however, capital financing costs are projected to stabilise in the medium term (3 – 5 years) as CPI inflation reduces to target levels and public sector borrowing rates reduce. 4.1.8 The HRA capital investment plan addresses the long term need to improve existing housing stock and provide new homes that meets the needs and aspirations of current and future tenants. This report outlines proposals for investment in housing led regeneration and renewal to meet this need. 4.1.9 Through the HRA Capital Investment Programme, investment of £292m is planned over the next five years. This will enhance and improve the Council’s housing stock, contribute to the wider transformation of West Dunbartonshire, and be central to improving West Dunbartonshire’s economic and social wellbeing. 4.1.10 The housing supply and regeneration programme element of the HRA Capital Investment Programme ‘More Homes West Dunbartonshire’ will see investment of £116m over the next five years, partially funded by a projected minimum £50m of Scottish Government grant funding from the Affordable Housing Supply Programme. Therefore, for new builds and acquisitions, there is a net HRA capital cost of £66m over the next five years. The borrowing cost of financing new builds is spread over 60 years. 4.1.11 The More Homes West Dunbartonshire programme contributes towards the Council’s commitment for 2,500 new homes over the period 2022 – 2032. Quarterly updates on progress including changes in programme will continue to be reported to the Housing and Communities Committee. 4.1.12 The five-year HRA investment plan has been reviewed and rolled forward a year to 2029/30. It has been amended to recognise any necessary project re-profiling and anticipated funding. The result of this review is shown in Appendix 2 and summarised as follows
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Financial Year Expenditure £m Income £m Net £m 2025/2026 70.590 (15.324) 55.266 2026/2027 70.532 (11.901) 58.631 2027/2028 52.354 (4.801) 47.553 2028/2029 44.391 (5.801) 38.591 2029/2030 53.347 (12.601) 40.746 Five Year Total 291.215 (50.428) 240.787 4.1.13 The planned investment will deliver against the ongoing commitment to improve housing for tenants and future tenants of Council homes and will support the delivery of wider Strategic Plan and Local Housing Strategy priorities, including: Providing a pipeline of construction work with opportunities for job creation, community benefits, training, and benefits to the local supply chain and the potential to lever in significant external investment. Providing a catalyst for engagement with local communities in the development and delivery of these ambitious plans through strong tenant participation mechanisms. Ensuring design and specification maximises opportunities to future proof homes including use of new technology to improve the health and wellbeing of tenants, the quality of housing, and helping improve the quality of people’s lives. Contributing to the Council’s place making agenda, providing a framework for improving the quality of the places where people live and supporting tenants to be actively involved in shaping change, impacting positively on the attractiveness of West Dunbartonshire as a place to live and encouraging economic investment. Improving the quality and appearance of neighborhoods and deliver a consistent and cost-effective approach to the maintenance and management of areas. Contributing to the achievement of climate change ambitions and the Council’s Climate Change Strategy and addressing fuel poverty using the highest standards of energy efficiency practices in new build construction and retrofit technologies. 4.2 HRA Financial Plan 4.2.1 The HRA requires a balanced budget which means budgeted rental income is sufficient to cover all anticipated revenue costs for operating and maintaining HRA properties including the borrowing costs associated with capital investment.
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4.2.2 The HRA’s financial environment is extremely challenging due to high inflation, public sector pay awards, and high borrowing costs. This has meant HRA reserves are forecast to be fully used by 31 March 2025 and there will be a required call on General Fund reserves to balance the HRA revenue budget. There is an opportunity to retain any notional HRA (Building Services) surplus within the HRA to help protect reserves for this account and ensure tenants are not placed in detriment. 4.2.3 HRA financial plans have been reviewed and updated for the period 2025/26 to 2029/30 to take account of planned capital investment, projected borrowing costs, and estimated changes to revenue costs and income. 4.2.4 The plan assumes an easing in inflationary pressures with CPI returning and remaining at the 2% Bank of England target by financial year 2026/27. It also assumes public sector pay pressures ease, however the recent increase to employer national insurance rates and the recent levels of public sector pay awards highlight the challenge in forecasting pay pressures. 4.2.5 One of the key financial challenges facing the HRA over the next five years is the increase in debt servicing costs because of the significant increase in HRA debt and associated borrowing costs. The assumption is the HRA will incur increasing debt servicing costs. 4.2.6 In considering debt affordability, our HRA financial plans looks at the percentage of HRA income that is required to fund debt servicing costs. This is an indicator of the stress that borrowing places on the remainder of the HRA revenue budget. When the decision was taken to retain all the housing stock in West Dunbartonshire the investment requirement needed to achieve the Scottish Housing Quality Standard, coupled with the historic HRA debt structure, recommended that the “debt affordability” percentage in West Dunbartonshire ideally does not exceed 50% in the medium to long term, and that the HRA should aim to have a surplus to generate CFCR (Capital Funded from Current Revenue) or a break-even revenue position. 4.2.7 The annual debt / income percentages under the most recent HRA financial model update highlight the strain that debt servicing costs place on the HRA revenue account and future rent increases. The council will aim to minimise its borrowing costs through proactive treasury management and by targeting efficiencies and cost reductions across HRA revenue and capital expenditure to ensure that future rent rises are kept as low as possible whilst delivering a balanced HRA budget and, over a period, replenishing HRA reserves to prudential levels. However, there may be a requirement to review the scope and scale of the HRA capital programme if the level of financial pressure being faced by the HRA cannot be reduced. 4.3 HRA Revenue Estimates and Rent Levels 4.3.1 The revenue estimates for 2024/25 are attached in summary form in Appendix 3 with a more detailed analysis explaining budget movements provided in Appendix 4. The estimates show an increase in expenditure of £4.887m in 2025/26.
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4.3.2 The Council is required to consider the level of weekly rent increase for the budget year 2025/26 and agree an appropriate rent that meets the estimated costs of providing the Housing Service as identified in Appendix 3. 4.3.3 In determining the level of weekly rent increase, consideration needs to be given to changing service demands and cost pressures as well as the requirements for investment as highlighted in the Housing Asset Management Strategy. The Council also needs robust financial planning and management to ensure it delivers on its investment commitments. 4.3.4 The required weekly rent increase contained within the attached HRA estimate is 8.0% (based on housing stock and occupancy levels), an average increase of £7.57 per week on a 52-week basis (£8.38 per week on a 47-week basis. 4.3.5 It is also recommended the Council increase rents at the Gypsy Travellers site at Dennystoun Forge, lock ups and garage sites and homeless temporary accommodation by 8.0%. It should be noted that an ongoing review is being undertaken with respect of lock ups and garage sites and this may include some future rent remodelling which if approved would be introduced during 2025/26. 4.4 Tenant Consultation 4.4.1 The Council has a statutory duty to consult tenants before increasing rents. The formal consultation was launched at a public meeting on 22 November where draft HRA spending plans for 2025/26 were presented. Information was also posted on the Council’s website at the same time. The consultation consisted of two rent increase options of 8.0% and 9.0%. Both options maintained current service levels and supported the ongoing delivery of the enhanced capital programme, with the 9.0% option also providing for an enhanced tenant support fund. 4.4.2 The formal consultation was open to all tenants and those residing in homeless temporary accommodation. A wide range of accessible consultation methods were chosen to gather the views of as many tenants as possible. Information was provided in a clear and understandable way with staff across Housing Services promoting the survey and explaining the two options to tenants. 4.4.3 A total of 1,669 completed responses were received – a response rate of 17%. Responses indicated an 80% preference for the 8.0% rent increase option, with 20% of respondents supporting the higher 9.0% increase. In addition, there were a further 26 tenant contacts (0.2% of tenants) to the Council indicating a refusal to participate in the rent consultation expressing concerns around affordability of the proposed increase. 4.5 Reserves 4.5.1 HRA reserves were £0.968m at the 31 March 2024
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4.5.2 Council policy is to target a HRA prudential reserve of 2% of gross HRA expenditure. Based upon the recommended budget for 2025/26, this equates to a prudential reserve target of £1.162m (previously £1.064m). The increase in the prudential reserve target is therefore £0.098m for 2025/26. 4.5.3 HRA budgetary control reports to Council this year have consistently reported the HRA cost pressures in 2024/25. The main pressure is loan charges, where interest rates have remained elevated leading to a substantial increase and overspend in HRA debt interest payments. Furthermore, void house levels are greater than planned leading to overspends against void loss, abatement, and council tax budgets. Steps taken in year to mitigate cost pressures include the transfer or qualifying expenditure from the HRA repairs budget to the HRA capital account, tighter controls on spend including a reduced spend on ground maintenance services delivering an in-year saving of £62,000 and a reduction in overtime. Due to significant HRA budget pressures further work is ongoing with Ground Maintenance to make further savings in 25/26. As previously reported to Council, it is forecast that the HRA revenue account will have a significant funding deficit in 2024/25, the most recent forecast at the end of January is for a HRA deficit more than £1.3m in 2024/25, with the deficit being offset by using the remaining HRA reserves of £0.968m, with the balance of any deficit being met by a General Fund contribution which the Council would determine if this requires to be repaid and over what period. 4.5.4 In terms of the forward HRA reserve strategy, the aim is to replenish HRA reserves over the short term whilst balancing the need to keep rent rises as low as possible. The aim is to steadily rebuild HRA reserves so that the HRA can deal with any unforeseen financial pressures without any future recourse to the General Fund. Ensuring the HRA (Building Services) surplus remains within the HRA means this financial risk is addressed more quickly. 4.5.5 Future financial planning around the HRA will require the strategy adopted for the replenishment of the HRA reserves to be adopted to generate an ongoing CFCR contribution this will lead to lower borrowing requirements to deliver tenant priorities through the HRA Capital Investment Programme. 5 People Implications 5.1 The reduction in HRA funding for open space management will have implications for a small number of employees, sessional and also some permanent posts. The exact impact cannot be set out at this stage as it needs to be considered by the Roads and Neighbourhood management team. 6 Financial and Procurement Implications 6.1 The financial implications are as detailed within the report and appendices. The cost to notify tenants of the rent increase will be absorbed within existing budgets.
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6.2 All procurement activity carried out by the Council more than £50,000 is subject to a contract strategy. Contract strategies for the HRA Capital Investment Programme will be developed by the Corporate Procurement Unit in consultation with Housing Officers. The contract strategies will include, but is not limited to; contract scope, service forward plan, the market, procurement model and routes – including existing delivery vehicles, roles and responsibilities, risks, issues and opportunities and on-going contract management. Opportunities to maximise the positive social, economic, and environmental impact for the Council through the relevant procurement processes will be developed in line with procurement policy. 7 Risk Analysis 7.1 The key driver for determining rents for Council properties is the HRA investment plan. Failure to set rents consistent with the delivery of this plan will potentially result in insufficient funding being available to meet the aspirations highlighted above. 7.2 In producing the revenue budget, several assumptions have been made in relation to performance around the repairs budget, rent recovery and void levels. These issues will be closely monitored during 2025/26 and members advised of any significant variations that will impact materially on the sufficiency of the budget as proposed. 7.3 In terms of the capital programme, the main financial risk relates to whether inflation increases costs, resulting in cost increases and upward pressure on budgets 7.4 Ongoing budgetary control processes will monitor the above issues, and any issues will be reported to future council meetings for consideration. 8 Environmental Sustainability 8.1 Our current and future approach to strategic housing asset management will continue to prioritise a ‘zero carbon’ approach to decision making and deliverability and this will be done the aims of the Housing Asset Management Strategy and the Council’s Climate Change Strategy. 9 Equalities Impact Assessment (EIA) 9.1 An EIA screening has been undertaken by officers and no issues were identified. 10 Consultation 10.1 The Council has a statutory requirement to conduct a rent consultation exercise. Details of the consultation can be seen in Appendix 5.
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10.2 A HRA budget scrutiny group (Joint Rent Group) is now well- established involving tenant representatives. This group meet with officers and the Convenor bi-monthly and examines the HRA to ensure increased transparency and to respond to tenant enquiries about the value for money offered to tenants. 11 Strategic Assessment 11.1 The proposals contained in this report directly address all the Council’s strategic priorities. The investment in and provision of attractive affordable housing will also indirectly support the objective of economic growth and employability through supporting employment and improving place attractiveness. 11.2 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. Peter Barry Chief Officer - Housing and Employability 5 March 2025 Person to Contact: Jim McCarron – Finance Business Partner 16 Church Street, Dumbarton, G82 QL, e-mail: james.mccarron@west-dunbarton.gov.uk John Kerr – Housing Development and Homelessness Manager E-mail: john.kerr@west-dunbarton.gov.uk Appendices: Appendix 1: HRA Capital Projects Forecast Outturn and Slippage 2024/25 Appendix 2: HRA Capital Investment Plan 2025/26 – 2029/30 Appendix 3: HRA Draft Revenue Estimate 2025/26 Summary Appendix 4: HRA Draft Revenue Estimate 2025/26 Explanation of Movements Appendix 5: Consultation Summary Background Papers: EIA screening Wards Affected All