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DCLG set out process for rent exemptions 09/06/2016

The DCLG has set out information and guidance for councils considering applications for exemption from the mandatory four year 1% rent reduction.


The information and guidance makes it clear that the Secretary of State will only consider granting an exemption if it is the only way to avoid the authority's Housing Revenue Account falling into serious financial difficulties. Any council considering applying for an exemption from the mandatory 1% rent reduction will need to demonstrate that they have considered all other options for reducing expenditure in line with reduced rental income including looking at existing contractual commitments.


Any council considering making an application for exemption from all or part of the ongoing year on year rent reductions will be required to submit a robust and detailed business case, financial forecasts and narratives based on four scenarios. The DCLG has made it clear that they expect the number of applications for exemptions to be limited and any local authority making application can expect a rigorous examination of their business case.


ARCH Chief Executive, John Bibby, comments:


"ARCH welcomes the publication of guidance setting out the circumstances under which the Secretary of State will consider granting full or partial exemption from the mandatory four year 1% rent reduction - albeit that the guidance comes some two months after councils have implemented the first year's rent reduction.


It is very clear from the guidance that the Secretary of State will only consider such an exemption in the most serious of circumstances and only where the authority has considered all other options, including reductions in expenditure and cuts to services, to avoid the Housing Revenue Account falling into deficit.


Following the introduction of the new council housing self-financing system in 2012, stock retained councils had developed robust 30 year Housing Revenue Account Business Plans predicated on the government's previous Social Rent Policy of increases in rent of CPI+1% which was only introduced from April 2015.


Many have already had to consider scaling back investment plans and/or reducing revenue expenditure to accommodate the government's U-turn on social rent policy. The government is also requiring councils' to sell their "higher-value" council housing to fund the extension of the Right to Buy to housing association tenants. However, the reality is that councils cannot assess the full impact of the 1% rent reductions on their Housing Revenue Accounts until the government also confirm the definition of "higher-value" council housing and notify councils of the amount that each council will be expected to pay to the government under the so called Right to Buy levy.


Until then councils cannot work out how many homes they will have to sell to find the money to pay this levy and calculate what the resultant loss of rental income will be, in addition to the mandatory 1% rent reduction, as a result of the sales of those council homes.   


Furthermore councils can expect to incur additional administrative costs in implementing the government's policies on granting fixed-term tenancies and introducing the mandatory 'pay to stay' scheme from April 2017. Although the government has promised to reimburse councils for the "reasonable" administrative costs in implementing this scheme, it remains to be seen whether this will cover the full cost or part.


There will be increasing pressure on councils to make savings on their Housing Revenue Accounts over the next four years and beyond. We may see a small but growing number of applications for exemption over the next four years as the impact of the mandatory rent reductions, imposition of the RTB levy and increased costs through inflation and the additional costs of introducing fixed-term tenancies and administering 'pay to stay' begin to bite." 

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