Item 12 Housing Revenue Account HRA Budgetary Control Report to 31 January 2024
West Dunbartonshire Council · 27 March 2024
Back to West Dunbartonshire Council — 27 March 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
WEST DUNBARTONSHIRE COUNCIL Report by the Chief Officer - Resources Council - 27 March 2024 ___________________________________________________________________ Subject: Housing Revenue Account (HRA) Budgetary Control Report to 31 January 2024 (Period 10) 1. Purpose 1.1 The purpose of the report is to provide members with an update on the financial performance to 31 January 2024 (Period 10) for the HRA revenue budget and the HRA capital budget. 2. Recommendations 2.1 Members are asked to: i) note the HRA revenue account is forecasting an adverse variance of £3.863m. The adverse variance will be offset by removing the £1.729m budgeted contribution from revenue to capital (CFCR) and using £2.134m of the HRA reserves. ii) note that the use of HRA reserves to address the projected adverse variance will lead to a closing HRA reserves balance of £0.500m which is below the prudential target. iii) note that work will continue to identify efficiencies across all areas of the housing budget to allow HRA reserves to replenished and maintained in line with the prudential target, while ensuring that services are still delivered and that there is not a corresponding reduction in service provision. iv) note the HRA capital budget is forecasting an in-year underspend of £69.166m which comprises £4.912m for projects that will be re-profiled into 2024/25 and projects with a net underspend of £64.253m this year, as detailed in Appendix 4. 3. Background Revenue 3.1 The council approved a £49.643m HRA revenue budget for 2023.24 on the 1st of March 2023 Page 1 ITEM 12
Page 2
Capital 3.2 The council approved the updated HRA capital plan for 2023/24 on the 1st of March 2023. The capital plan has been augmented by the re-profiling of underspends and budget with a revised HRA capital monitoring budget for 2023/24 of £124.846m. 4. Main Issues Revenue 4.1 The budgetary position for HRA revenue account is provided in Appendix 1 with information on projected variances valued at more than £0.050m being provided as Appendix 2. 4.2 Previous reports to Council have highlighted the significant HRA cost pressures in 2023/24. The HRA has seen a significant impact on its finances because of range of external factors beyond its control, including the rising cost of local authority borrowing, demand led pressures across the repairs and void service, high inflation, and uncertainty and volatility surrounding energy costs, particularly the spiralling cost of electricity. 4.3 Previous Budgetary Control Reports have highlighted to members the severe pressure across HRA loan charge and HRA repair and void budgets. Members will be aware that local authority borrowing costs have increased considerably over the past 12-18 months leading to much higher interest payments on new borrowing and debt refinancing. The forecast is for higher interest rates to lead to HRA debt interest payments being £2.912m more than budget this year. HRA repair and void expenditure has been adversely impacted by a combination of an increased volume of jobs raised as the service has addressed COVID backlogs across the repair and void service and by current economic conditions, where labour, materials and sub- contractor costs have all increased significantly. The revenue impact on HRA repair and void budgets this year is forecast at £2.675m. Furthermore, the backlog of voids and repairs has led to a sharp increase in rent abatement payments to tenants to compensate for disruption and inconvenience, the forecast is for abatement payments to be £0.316m more than budget this year. These acute cost pressures should ease as interest rates and inflation falls and the repairs service catches up with backlogs. 4.4 The current economic operating environment is also placing financial stress on the HRA in terms of increasing utility and insurance costs. Electricity costs for landlord supplies have increased by more than 60% in 2023/24 leading to an in-year cost pressure of £0.248m. Insurance premiums are also affected by inflation as well as risk and it is forecast that higher insurance premiums will lead to an in-year cost pressure of £0.130m. Page 2
Page 3
4.5 Whist officers have taken steps in year to mitigate cost pressures through the active management of repair and CFCR budgets, based on the information available at this time, it is projected that the HRA will have a deficit of £3.863m this financial year. The deficit will be offset by removing the £1.729m budgeted contribution from revenue to capital (CFCR) and using £2.134m of HRA reserves. 4.6 The current forecast is for a closing HRA reserves balance of circa £0.500m on 31 March 2024. In terms of adequacy of reserves, the forecast closing HRA reserves balance is insufficient to deal with future financial shocks to the HRA budget. As a result of these externally driven financial challenges, officers will continue to focus on reducing service delivery cost across the housing budget to replenish and maintain reserves in line with the prudential target, while ensuring that services are still delivered and that there is not a corresponding reduction in service provision. Capital 4.7 The HRA capital summary position is shown in Appendix 3. Information on projects that are highlighted as being within the red category is provided in Appendix 4 and Appendix 5 provides information on the projects at Green. A summary of anticipated resources is shown in Appendix 6. The analysis shows that there is currently a projected in-year underspend of £69.166m (55.4%) as detailed below. 2023/24 Forecast £m 2023/24 Budget (£m Variance £m Other Capital Expenditure 4.528 4.240 0.288 Major Component Replacement 17.902 21.813 (-3.911) Void Capital 6.735 3.000 3.735 Contingencies 0.000 0.100 (-0.100) Structural & Environmental 2.162 3.420 (-1.258) Support Costs 2.629 2.629 - Buy Back Programme 4.500 4.435 0.065 Affordable Supply Programme 17.224 85.209 (-67.985) Total 55.680 124.846 (-69.166) 4.8 The main cost pressures / overspends are across the budgets to deal with large and complex repair and void works and environmental works. The demand for and cost of these works has been incredibly high this year, mirroring the pressure being experienced in the corresponding revenue budgets. The capital budget has had to fund many high-cost complex works this year as the service addressed void and repair backlogs. Void numbers and repair backlogs have reduced significantly and going forward the capital spend is expected to reduce considerably. Page 3
Page 4
4.9 From the analysis within the appendices the main projects that are expected to require re- profiling into 2024/25 are: Project Name Re-profiling £m EESH compliance work 1.746 Environmental Sensors 1.500 Multi-Storey Flat Strategy 1.200 Better Homes Priority Budget 0.375 Housing CCTV Installation Programme 0.250 5. People Implications 5.1 There are no people implications. 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 the identification of unforeseen cost 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 there is no Equalities Impact Assessment for this report. 9. Consultation 9.1 Housing management and Legal services have advised there are neither any issues nor concern with the 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: 22 February 2024 ___________________________________________________________________ Page 4
Page 5
Person to Contact: Jim McCarron - Business Unit Finance Partner 16 Church Street, Dumbarton, G82 1QL, e-mail james.mccarron@west-dunbarton.gov.uk Appendices: Appendix 1 - Budgetary Position (Revenue) Appendix 2 - Variance analysis (Revenue) Appendix 3 - Budgetary Position (Capital) Appendix 4 - Variance analysis Red (Capital) Appendix 5 - Variance analysis Green Projects (Capital) Appendix 6 - Resources (Capital) Appendix 7 - Analysis of Affordable Housing Supply Programme (Capital) Background Papers: None Wards Affected: All Page 5