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IMPROVED HOUSING PFI SUBSIDY ARRANGEMENTS TO HELP CLEAR WAY FOR BETTER COUNCIL HOMES

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New proposals to help improve council tenants' homes have been published in a consultation paper by the ODPM. ...
New proposals to help improve council tenants' homes have been published in a consultation paper by the ODPM.

HRA Subsidy Delivery for the capital element of HRA PFI schemes is expected to help clear the way for an increase in the number of Housing Revenue Account Public Finance Initiative (HRA PFI) schemes, which can provide funding to improve council houses.

It suggests replacing the current system, where the level of HRA subsidy for PFI schemes in a year is linked to the housing authority's interest rate.

Under current arrangements, the historically low level of interest rates has led to concerns, from housing authorities and their advisors operating PFI schemes, that long-term subsidy entitlement might not match the true costs of the PFI scheme, where charges to the authority are fixed for the period of the scheme regardless of interest rate fluctuations.

To address these concerns, ODPM proposes that a fixed level of annual subsidy, a 'PFI allowance', be determined for the duration of the scheme. The subsidy entitlement would aim to closely match the capital element of an authority's unitary charge payments.

The consultation will be carried out with those with an interest in PFI, local authorities and housing organisations as well as members of the public. It is available at the ODPM website.

Notes

1. HRA Public Finance Initiative is one of three methods available to local authorities to secure additional funding in order to meet the government's target of making all council homes decent by 2010.

2. Manchester and Islington, the first of eight pathfinder schemes, signed contracts to begin improvements in their areas in March.

3. HRA subsidy for PFI projects is delivered with the aim of supporting the estimated capital expenditure.

4. In October 1998 the then DETR issued the consultation paper 'Private Finance Initiative for HRA Housin g: Accounting and Subsidy Arrangements', which proposed HRA subsidy arrangements for HRA PFI schemes. The proposal adding the value of any PFI credit to the authority's mid-year subsidy credit ceiling (MYSCC), which then generated subsidy in respect of interest charges - using each authority's Consolidated Rate of Interest (CRI) - was agreed to.

5. A number of authorities, working to develop PFI schemes, have voiced concerns about the current HRA subsidy arrangements. As a result ODPM is now considering ways in which HRA subsidy might be better delivered.

6. The level of HRA subsidy is linked to an authority's CRI (multiplied by its MYSCC). There is a unique CRI for each authority, which will depend on the interest rates payable on an authority's debt. It is not affected by any underlying interest rate from a PFI contract.

7. Interest rates are at a historically low level, and many authorities have seen a reduction in their CRI - and therefore their HRA subsidy entitlement - in recent times. For authorities considering PFI schemes, where the capital element of the unitary charge is fixed over the period of the contract regardless of subsequent interest rate fluctuations, this could mean less HRA subsidy being delivered than had first been anticipated.

8. The ODPM proposes that the best way of delivering an appropriate level of subsidy on a consistent basis would be by calculating a fixed level of annual subsidy, a 'PFI allowance', for the duration of the PFI scheme.

9. The PFI allowance would be determined on the basis of an amortisation calculation using the General Fund Pool Rate, the value of the PFI credit and the term of the contract. The PFI allowance would be fixed at the start of the contract, and remain at the same level for the lifetime of the PFI scheme - except for the first year, when it would be pro rata to the date on which the contract is signed - and it would cease at the end of the term of the contract. The value of the PFI credi t would not be added to the MYSCC.

10. The ODPM is not consulting on the current method of PFI credit calculation, the revenue element of payments to the contractor or the arrangements for accounting for payments under PFI transactions in the Housing Revenue Account.

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