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 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
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
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
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."