The Act received royal assent on 12th May but many of its provisions still need to be fleshed-out. This will happen over the summer as the Government publishes detailed regulations so it will be a while before we are clear exactly how it will affect us. In the meantime, however, here is an update on how key elements of the new legislation are developing.
Sale of “higher value” properties
Councils have been given a duty to consider selling their most desirable properties when these become vacant. From next April DCLG will make assumptions that this is either happening or that the Council has raised the equivalent to the sale price in other ways and will require it to pay a proportion of this to the Government.
DCLG officials have been very clear that this initiative is not designed to raise revenue for the Government and that no direction is being given to civil servants about how much must be raised. Whatever is raised will fund a right to buy scheme for Housing Associations (not related to the Boroughs where the stock has been lost – it will be a national scheme). Housing Associations will be able to choose whether to participate, the scheme will only be launched once the Government is confident it is raising sufficient funds to support it and DCLG expects it to be over-subscribed, with some form of waiting list in place.
In theory, Councils will be able to keep enough of the income from sales (or notional sales) of high value properties to fund 1:1 replacement, although whether this comes to fruition will depend on how the formulas are drafted. Even if it is possible, this will not necessarily be on a ‘like for like’ basis (except in National Parks and areas of outstanding natural beauty) and need not necessarily be within their own borders if Councils choose to meet need sub-regionally.
The Government’s vision has shifted slightly as the legislation has gone through. There has been a change in definition from ‘high’ to ‘higher’ value, which is positive for Stockport because it should prevent us being disadvantaged in a sub-region where Stockport’s housing market is more buoyant than its neighbours.
DCLG is developing formulas based on every Council’s asset base and stock turnover rates for the past 3 years. These will determine the amount it expects each Council to raise – whether from actual sales or by other means. It has indicated that there is likely to be a floor in the formula to ensure 1:1 replacement doesn’t cost more than sales would raise. There will definitely be a ceiling in the formula to prevent any Council selling more than 1/3 of its stock in this way.
Unusually, as a result of lobbying during the passage of the Act, regulations based on these formulas still have to be fully debated in both houses of Parliament before Councils are told how much they have to raise. This may take some time so, although the Council has to be issued with a payment determination before the beginning of the next financial year (and have to pay it retrospectively at the end of each quarter) it is not clear how much notice we will actually get. This will, of course, be problematic for business planning.
‘Pay to Stay’
This initiative has been introduced to raise income which the Government will use to reduce the deficit – it will not fund any other initiatives. However, DCLG has indicated that Councils will not be set targets for collection and it is not clear what sanctions will apply if we fail to administer the scheme effectively. We will be able to retain ‘reasonable’ admin costs locally but there has not been any work done by DCLG yet to determine what these might look like.
From April 2017 we will be required to apply higher rents to households whose adult members’ collective taxable income is more than £30,000. This will apply to pensioners but not to anyone in receipt of Universal Credit. The incomes of grown up children will only be included in the calculation if they are joint tenants. A taper of 15% (an extra £2.88) per week will be applied to the rent level for every £1k earned over the threshold, up to market rent value, where it will be capped. Average market rents in Stockport are roughly double those of average Council rents, although we know this varies dramatically by neighbourhood and it is not yet clear how DCLG will define what figures we should use.
DCLG has made clear that there will be no link with HMRC systems to help Councils identify which households have higher incomes so we will be required to collect and verify income information from every customer individually. DCLG has also indicated that we will be required to charge full market rents to anyone who fails to provide information. We will be able to keep ‘reasonable’ administration costs but we do not yet know how these will be defined. We anticipate the need for extensive procedural changes.
DCLG is working on regulations which should come into force in November but it hopes to issue a draft for consultation sooner. Although a timeline has yet to be formally issued, DCLG has said it expects us to be writing to customers to ask for income data by October and to have calculated ‘new’ rents by December.
We appreciate that this is a complex piece of legislation and there is still a lot of uncertainty about what it will mean for us, in practise, but we’d be happy to meet and discuss it with any Councillors who require further information. If this would helpful for you, please contact: firstname.lastname@example.org