Blog 29th January 2018

Blog 29th January 2018

In this week’s blog, I refer to: Impact Housing Association; Homes England; Service Charges; HM Treasury; the ‘Borrowing Cap’; the Local Government Association; the Department for Housing, Communities & Local Government; the County Councils’ Network; Cumbria County Council; Rory Stewart MP; David Miliband; the New European, and the European Union

Last week, we published the February 2018 edition of the ‘AWICS Housing News’. It includes articles on:

• Impact Housing Association, Regulation and Financial Management
• Service Charges: Some Relevant Legislation
• Treasury Committee recommends abolishing the ‘Borrowing Cap’
• Scottish Housing Regulator launches discussion paper on Regulation
• Supporting People funding in Wales

The ‘AWICS Housing News’ can be viewed or downloaded from here.

I think that my article on Impact Housing Association, Regulation and Financial Management raises some important issues for Impact Housing Association and for housing associations generally. My conclusions are as follows:

• For Homes England, the viability rating is more about financial management than about the strength of an organisation’s finances. As outlined in the regulatory standard, the focus is on business planning and risk management processes. Housing Associations cannot rely on having robust finances to retain V1 or V2 ratings – they also need processes that are acceptable to Homes England.
• An In-Depth Assessment can be triggered by simple errors in returns.
• Homes England, when it decides to downgrade a housing association, does not publish a report in support of its decision or any evidence to support its decision – I find this surprising.
• In the case of Impact Housing Association there has been a significant shift in emphasis between the In-Depth Assessment and the ‘forensic analysis’ that was commissioned by the Board. The former concluded that there were weaknesses in financial management, the latter has shifted the emphasis away from this to construct an argument for a takeover based on a view that Impact Housing Association is not viable in the long-term.
• The ‘forensic analysis’ has not been made public or made known to tenants or shareholding board members, and no information has yet been made available about the 2017 financial accounts. It makes assumptions about what level of debt and what level of gross profit margin is appropriate that do not appear to be justified. It would be useful if a copy of the ‘forensic analysis’ and the 2017 accounts could be made available to shareholding members.
• The question for Impact Housing Association’s shareholding members (who I assume will have to approve the merger at some point) is whether they consider that Impact Housing Association’s problems are to do with governance and financial management and can be resolved without a takeover; or whether they consider that Impact Housing Association is on the verge of bankruptcy and needs to be taken over. The lack of transparency and accountability that has been experienced to date will not help them to take this decision.
• The lesson for all housing associations is: ‘Do Not Be Complacent’. Impact Housing Association has more robust finances than many housing associations, yet it appears that its future is now threatened because of weaknesses in governance and financial management.

I will continue to keep readers of this blog and of the ‘AWICS Housing News’ informed of developments at Impact Housing Association.

This week I will be in the southeast of England advising and assisting a local authority with the management of service charges on mixed tenure estates. Mixed tenure estates are becoming increasingly common whether because of the ‘right to buy’ or because of planning conditions on new estates. The implications can be interesting. This issue is one of those that will be covered at our seminar: ‘All You Want to Know about Service Charges in Social Housing’.

For further information about the seminar: 'All You Want to Know about Service Charges in Social Housing' or to make a booking, please click here.

Some clients are asking me whether the government has made any progress on its plans to raise the ‘borrowing cap’ for selected local authorities to enable them to build more council housing. Apparently, the Treasury has calculated that if the ‘borrowing cap’ is raised by £1billion, local authorities would borrow only £880million – and they have made provision for this to be phased as follows: £355million in 2019/20, £265million in 2020/21 and £260million in 2021/22. This seems a small step compared with the £7billion increase in the ‘borrowing cap’ that has been requested by the Local Government Association, and the total abolition of the ‘borrowing cap’ that has been advocated by the Parliamentary Treasury Committee (see the AWICS Housing News above).

The provisional local government funding settlement (announced in December 2017 by the Department for Housing, Communities & Local Government), included provision for councils to increase their Council Tax without holding a referendum, by up to 3% in 2018. However, this measure only allows councils to increase Council Tax in line with inflation and the Local Government Association has calculated that it still leaves a £5.8billion ‘black hole’ in local authority finances. The County Councils’ Network has also calculated that the additional Council Tax would only raise an extra £105million for County Councils over the next two years. Most authorities are planning to increase Council Tax by 3% but in their public consultation, Cumbria County Council proposed an increase of only 2%. In my response, I argued for an increase of at least 3% principally to enable better funding of adult social care and children’s services. I was interested to see in last week’s ‘Cumberland & Westmorland Herald’ that my MP, Rory Stewart (Conservative) is also advocating a 3% increase in Council Tax, saying that:

"The County Council says Council Tax is already too high, but I think that is not right"

My response to Cumbria County Council’s consultation can be viewed or downloaded here.

David Miliband, the former Labour Foreign Secretary has written an interesting article in the ‘New European’ about ‘Brexit’. In it, he makes a few points that are relevant to public services as follows:

“In the European Union, we… assure for employees their rights at work and for the environment, protection from damage… Outside the European Union… the pressure will be to diminish social, environmental and consumer protection… The pressure is to lower taxes and cut regulation, not tackle inequality.

“Britain’s capacity to fund removal of the ‘bedroom tax’, never mind restore its public services and provide an alternative to austerity, depends on a social and economic model that ‘Brexit fundamentally undermines… International co-operation is core to the protection of social and environmental standards.

“The single market and the customs union… are indeed bulwarks against a race to the bottom. Freedom from their constraints will not be freedom to boost social and environmental standards. It will be licence to import chlorinated chicken and reduce employee rights.”

Our next seminars are on:

• All You Want to Know about Service Charges in Social Housing
• All You Want to Know about Local Authority Housing Finance
• Funding Supported Housing
• Local Housing Companies and Development

For further information or to make a booking, please click here.