How will council housing finances be affected by local government reorganisation?

A key risk lies in maintaining a clear landlord focus within newly formed unitary structures. The regulatory requirements on council landlords – spanning consumer standards, building safety, complaint-handling and emerging standards such as Awaab’s Law – remains unchanged.

However, LGR introduces new stakeholders into decision-making processes, including those running general fund services and county council leaderships, who may have limited familiarity with HRA requirements. This raises a critical question: will housing retain, or be able to gain, a strong voice at the corporate council table?

“Without clear accountability, there is a risk of decisions not gaining buy-in, weakened compliance and reduced visibility of housing priorities within wider corporate agendas”

Ensuring clear accountability – typically through designating early on a single senior officer responsible for the joining HRAs within the new unitary authority – is essential. Without it, there is a risk of decisions not gaining buy-in, weakened compliance and reduced visibility of housing priorities within wider corporate agendas.

For discussion purposes, let’s split LGR into two phases: pre- and post-vesting. ‘Vesting’ is the term used to refer to the date the new structure becomes reality, with finance, powers, rights and functions transferring from the previous organisations.

Before vesting, some key things for housing landlords to focus on include: understanding how to maintain safety and regulatory compliance from day one; securing representation in the governance of the LGR programme locally, preparing the ground for decision-making on future delivery models; and aligning key policies wherever feasible. Landlords must understand that one-plus-one may not equal two for the joining of HRAs and what the potential consequences might be.

After vesting, the focus might shift to ensuring continuity of service, harmonisation of standards and systems and the creation of a unified assurance framework to meet compliance requirements with all regulators.

Experience shows that there is invariably a strategic choice between a ‘lift and shift’ approach – effectively deferring major decisions on future governance and organisational integration until a period after vesting – or what might feel like a more ambitious approach to pre-vesting integration.

The history of LGR to date has tended to suggest the former, the latest example being Somerset’s decision to move its two former services (one in-house and one ALMO) into a single ALMO – one that was taken two-and-a-half years after vesting.

Combining HRAs is far from a straightforward exercise. While it may seem intuitive to simply aggregate budgets and business plans, differences in assumptions, policies and financial structures mean the reality is much more nuanced.

“Creating a robust, unified business plan requires early, detailed financial reconciliation, well in advance of vesting”

Key areas of potential technical divergence include:

• Debt and treasury management: variations in interest rates and loan-pooling approaches can materially affect the combined HRA position
• Rent policy: there may be differences in re-let and convergence practices as well as the use (or not) of rent flexibilities
• Service charges: we might expect some variation in service-charging approaches, in some cases wide variations
• General fund recharges: inconsistent approaches to recharges risks unintended cross-subsidy and this might undermine expectations of corporate efficiency savings in combined general funds

Taken together, these issues mean that creating a robust, unified business plan requires early, detailed financial reconciliation, well in advance of vesting.

Beyond detailed technical and operational concerns, the financial pressures facing HRAs remain acute. While average long-term capital investment requirements are estimated by Savills at around £74,000 per property, investment standards and investment needs vary widely between authorities.

This raises sensitive questions about resource allocation in merged HRAs – particularly where HRAs that are already invested heavily are coming together with HRAs that face substantial future liabilities.

For new build and acquisition, while we might expect all authorities to have some form of Local Authority Housing Fund (LAHF) programme, some might have these outside of the HRA. And we might expect more divergence in the size and approach to funding for development programmes.

Obvious possible pitfalls might be, for example, the view that former district stakeholders take about the volume of Right to Buy receipts that have arisen in ‘their’ area and where they should be spent.

In time, LGR should create enhanced financial capacity. A key aim might be to head off local disputes over what resources are used to invest to what standard in what areas, and which homes are built in which areas – some form of memorandum of understanding setting out the five-year strategy post-vesting feels important.

If there is a single message for housing leaders, it is this: decisions taken now, often before vesting, could shape HRA performance for many years to come. Maybe don’t bite off more than you can chew.

Services require continuity, so there is a need for both realism and pragmatism. Align policies that are able to be aligned now, and defer more challenging structural decisions beyond vesting. Lock in investment programmes as far as possible to allow new strategic investment policies to emerge within the new unitary authority over the initial five-year period.

LGR history shows that many integration issues can remain untackled for many years post-vesting. Striking the right balance will be essential to make the most of the opportunities that might come.

Steve Partridge and Julian Paine, directors, Savills Affordable Housing Consultancy