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Modernising Scotland's Social Housing: Consultation Report: Summary of Responses to Consultation Paper

SECTION 3 -THE PRUDENTIAL REGIME AND HOUSING CAPITAL FINANCE

47. The consultation paper sought views on two aspects of the reporting arrangement required to support the operation of the Prudential Regime: the range of information sought by the Executive and the timetable for providing it. The paper explained that the Executive was proposing to ask councils to provide housing capital expenditure forecasts (total capital investment and the amounts coming from new borrowing rents, receipts and other sources) for the three year period beginning 2004-2005.

48. The Scottish Housing Quality Standard, as it will apply to the social rented sector, will require councils to take a longer term view of housing investment; the consultation paper therefore proposed that it would make sense to ask councils for housing capital investment forecasts for a longer period i.e. for 30 years ( annual plans for the first five years to be followed by aggregate ones for subsequent five year periods). The paper went on to explain that these would not be sought in the first year of operation of the Prudential Regime; it was recognised that local authorities would be in transitional mode and might not be in a position to provide 30 year forecasts. It was proposed that the suggestion be reviewed at the end of 2004-05 in the light of experience gained during the year.

Table 3-Distribution of Responses on Prudential Regime and Housing Capital Finance.

49. Table 3 shows the distribution of responses to the section on the Prudential Regime. Most respondents considered the question of the range of information sought and the timescale jointly, and their comments focussed on questions of timescale. Most authorities were happy with the provision of the 3 year forecasts, as already required by the Executive in preparation for the Prudential Regime, although there were varying views as to the most appropriate month during 2003 for their provision.

50. On the question of possible 30-year forecasts for housing investment, nine local authorities expressed their commitment to 30 year business planning and asset management and some were already doing them. Organisations, such as the Chartered Institute of Housing and the Council for Mortgage Lenders in Scotland, fully supported the proposals. A few councils expressed reservations; some felt that seeking information for this time period would be too onerous or only possible with commissioned assistance; others felt that providing information covering a 30 year period would be cumbersome and that more accurate data could be provided for shorter periods such as 5 years (for example linked to the Local Housing Strategy time period), 15 or 20 years. Some councils felt that the provision of housing information should be no more onerous than that required in CIPFA's Prudential Code for Capital Finance in Local Authorities

51. The consultation paper also sought views on the future treatment of housing capital receipts and the set-aside rules when the Prudential Regime commences in April 2004. The current rules require local authorities to set aside 75% of receipts received from the sale of houses and 50% of the receipts received from the sale of land and other assets. Consultees were asked to consider whether the current set-aside rules should be retained in order to make further inroads into debt levels or whether, if there was to be a change, this should mean outright abolition or a change in the percentage levels.

Table 4-Distribution of responses on Housing Capital Receipts Set Aside Rules

52. Table 4 above shows the distribution of responses on housing set-aside. Almost all respondents sought the abolition of set-aside; one respondent felt that it should be retained for high debt councils to safeguard future tenants; another council suggested that a sliding scale would be appropriate in some cases. One respondent held the view that abolishing set-aside would have little impact unless debt write-off occurred in tandem.

53. In general, respondents welcomed the freedom and flexibility that the Prudential Regime would bring, particularly to those councils with low to moderate debt and rent levels with manageable investment needs. Others expressed concern that investment would continue to be based on the income stream from rents. Several tenants' groups expressed concern that councils' additional borrowing would impact on rent levels and comments from the financial sector highlighted the possible effect on public subsidy levels. A few councils were apprehensive about the Minister's step-in powers; they sought assurance that only those councils which undertook imprudent borrowing would be penalised.

Scottish Executive Response

30 year housing investment forecasts

54. The Executive welcomes the fact that many local authorities are already undertaking or support the principle of 30 year housing investment planning. It will, as proposed in the consultation paper, review at the end of 2004-2005 the need to formally require the provision of these long-term forecasts. In the meantime, the preparation of 30 year forecasts will be encouraged through related good practice guidance due to be issued during 2004.

Set-aside

55. With the introduction of the Prudential Regime for capital expenditure in April 2004, the case for requiring Scottish local authorities to set aside a specified proportion of housing capital receipts for debt redemption has been reviewed. Scottish Ministers have decided that, from 1 April 2004 the application of such receipts should be a decision for Scottish local authorities to take having regard to the prudential code, and that set aside as such should be discontinued. The Executive will continue to monitor levels of local authorities' housing expenditure, borrowing and debt and, if necessary, will take steps to moderate or contain local authority plans.

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