The Regeneration Game: Part Three

Part Three: To Fund or Not to Fund

Picture Lambeth council as a washing machine. Its range of features includes: “(brain) drain”, “delay (tactics)”, “(commercially) sensitive”, “spin”, and “door security”. Sometimes the door gets stuck and the murky water festers a bit. But from time-to-time, some residents like to freshen up with a cold wash and some anti-spin, before trying the lock again. Failing that, give it a kick.

A pre-loved, reconditioned machine or fork out for a new one?

The headline factor in Lambeth’s decision not to fully refurbish Cressingham is that it is “unaffordable”. No real explanation is given besides the cost being “three times” what is available. The council is sticking by a £9.4m cost, following a protracted saga worthy of its own blog article, but it is actually nearer £8m (definitely not £16m as originally claimed). We explained here how £3.4m is sometimes available to put towards repairs, sometimes not, appearing in various guises as a “costing”, “can allocate”, “never an allocation”, and latterly a “provision” from the budget for decent homes. Each time you ask if it’s there, you get a different answer, but the evidence suggests it is.

But is there enough to get us fully functional again?

We think so. Cressingham Gardens generates around £1.2m pa in rental income for the council each year which is more than enough to cover the repairs over time.  Lambeth only wants to spend around £200k, or 17 per cent of that income and that is what it budgets each year. Cressingham generally ends up getting around £300k-worth of repairs back, of which approx £50k is covered by the leaseholders, leaving the council with a bill of around £250k. We touched on this in Part Two. So where does the rest of the £900k-£1m pa go each year? Approximately 40 per cent is swallowed up by borough-wide administration, which is higher than in neighbouring boroughs, and another 20 per cent goes to pay off housing debt interest. This leaves around £200k of spare cash which could have been spent on Cressingham each year, but wasn’t. In light of this, £8m starts to sounds quite affordable, and indeed, as a stand alone entity, Cressingham could easily pay for its own repairs out of the rental income and service charges, while still paying off the borough’s debts. So why does the council cry pennilessness?

“Honey, we’ve maxed out the credit cards”

In its 9 March cabinet report which recommended binning the refurbishment options, the council left a clue that to test the “no cash” claim, we should be looking in the Housing Revenue Account (HRA): “A 3 month programme of engagement has recently been completed. The Council agreed with the residents to continue exploring refurbishment as an option within that process however has been clear that full refurbishment of the estate or a significant proportion of the estate is currently unaffordable within the constraints of the Housing Revenue Account.” The rhetoric of an HRA crippled by central government budget cuts, is propagated in Lambeth’s contentious propaganda sheet Lambeth Talk, and via large bus stop adverts.  This story-telling is very one-sided and conceals the real purpose of an HRA. Our research suggests the following is the case: Since 2012, local authorities have been allowed to keep 100 per cent of the rental income paid by council tenants, whereas before that, it had to pass the cash back to central government, which then used a formula to calculate what the boroughs got back for repairs and maintenance. Under the new regime, there should be better matching of revenue collection with spending levels. The housing-related revenue, and associated expenditure, is ring-fenced in the HRA, meaning that the council is not allowed to transfer the housing revenue they collect to the council’s general fund to be used for example in fixing roads or other council services. From this, we infer that the massive budget cuts imposed by central government should have no impact on a local authority’s ability to repair and maintain its housing stock. As residents, we understand the cuts exist and that many public services are suffering. But we have good reason to disbelieve the tear-jerker as told. Another benefit of the new housing finance regime is that it brings with it extra borrowing powers based on the rental revenue that it can now keep – much like a person can raise a mortgage based on their salary. This loan can be used to help finance the backlog of housing refurbishment up to a decent homes standard (watertight, new kitchens and bathrooms where necessary) or to even finance new housebuilding. As of 2012, this borrowing power was capped by central government at £408m but there is some “headroom” that when analysed, looks like it could be borrowed to supplement the £3.4m already in the pot, along with the rental income.

Lambeth HRA Debt
Lambeth HRA debt cap and forecasted debt levels over 30 years

Coming out in the wash

We were eventually able to obtain the council’s 30 year business model for the HRA via a Freedom of Information request.  It certainly shows that in the next few years, Lambeth’s spare borrowing in the HRA will shrink to only £5m in 2016/17, but that reverses quite dramatically in subsequent years.

Lambeth's borrowing capacity in the Housing Revenue Account
Lambeth’s borrowing capacity in the Housing Revenue Account

Once the debt is revised to account for the new refurbishment costs (£16m down to £8m) the above graph clearly illustrates that even in 2016/17 when the capacity is most pinched, Lambeth would have sufficient spare for the refurbishment.

Even using the council's original £16m refurbishment estimate, Lambeth council has enough HRA debt capacity to refurbish Cressingham Gardens
Even using the council’s original £16m refurbishment estimate, Lambeth council has enough HRA debt capacity to refurbish Cressingham Gardens

Compared to the demolition options the council has currently costed, the refurbishment wins outright.

Demolition options (option 4 & 5) require even higher levels of debt than Option 1. (Note: graph shows £16m refurb scenario)
Demolition options (option 4 & 5) require even higher levels of debt than Option 1. (Note: graph shows £16m refurb scenario)

When you add to that the fact of the unsuitability of the site for redevelopment we outlined in Part Two, a Cressingham refurb should be a no-brainer.

Why then, is Lambeth so wedded to the idea of a new estate, when every stitch of evidence and analysis points to refurbishment being the only just option, all things considered?

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