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Full Council received report ES/1432 by Councillor Kerry, Cabinet Member with responsibility, which was presented by Councillor Rivett, Deputy Leader and Cabinet Member with responsibility for Economic Development, in the absence of Councillor Kerry.
The report set out the responsibilities of East Suffolk Council as a Registered Provider of Social Housing. East Suffolk Council owned and was the social landlord for approximately 4,500 properties, which were managed under the Housing Revenue Account. Prior to East Suffolk Council being created, only Waveney District Council retained its housing stock. Suffolk Coastal District Council had transferred its properties to a Registered Provider a number of years before. Therefore, the Council's stock was predominantly located in the North of East Suffolk.
Members noted that Registered Providers of social housing were governed by the Regulator of Social Housing. The regulator had a set of standards, which landlords, must comply with. As a Local Authority, East Suffolk must comply with the Rent Standard and four Consumer Standards, including the Home Standard.
Councillor Rivett stated that Members would recall that Cllr Gallant had written to them last year, advising that, East Suffolk was making a self-referral to the Regulator for potential breaches of the Rent and Home Standards, following a review by the recently appointed Head of Housing.
The report provided detailed information about the matters which led to a Regulatory Notice being issued by the Regulator for breaching the standards. It also provided an update on the significant amount of progress officers have made, since then, in relation to Rent Setting, and the Health, Safety and Compliance management of the Council's properties.
It was reported that the Housing Service had carried out a significant piece of work to review compliance of the stock and develop work programmes and contracts to ensure the properties were compliant and remained compliant, with levels of compliance being reviewed monthly. Councillor Rivett was pleased to advise that at the end of December 2022, East Suffolk’s Housing Stock was 100% compliant for Asbestos Safety, Fire Safety, Lift Safety and Water Safety. Gas Safety was at 99.97%, with properties that officers were unable to access, now being dealt with by the Council's in-house legal team. Finally, East Suffolk was 97.67% compliant with electrical regulations. Members were reassured that this would be 100% by the end of the financial year, as there was a work programme in place, which was making great progress.
Councillor Rivett explained that the rents issue had been more difficult to fully resolve, due to the difference in policy and guidance documents which needed to be considered for different years. A thorough, forensic audit had been conducted, which had reviewed approximately 9,000 tenancies from 2010 to the present day. As a result, all current tenants rent levels would be reset at the end of the financial year. Councillor Rivett stated that he was pleased to assure Members that, from April 2023, the Council was confident that all tenants would be paying the correct rent levels.
Once the correct rent levels had been implemented, officers would then begin the refund process. Initially, current tenants would receive a letter outlining the impact any incorrect charges have had on them and the process for repayment. Once the current tenants had been refunded, officers would then start the process of contacting former tenants.
Members noted that this was a significant piece of work and the time it would take should not be underestimated. Each tenant would receive a personalised letter, to explain the incorrect charging in each financial year, the level of overpayment and a calculation of what, if any, was due back to Housing Benefit. To support this piece of work, three additional rents officers had been employed on a short-term basis. They would support the general day to day work associated with rent collection, whilst the Council's own permanent rent officers would lead on this complex area of work.
Councillor Rivett reported that at the time of producing this report, the forensic audit was 88% complete. Therefore, the figures detailed in the report were the current confirmed levels and the report also set out the ‘projected’ levels. For the period 2010/11 to 2021/22 the current confirmed level of refunds was £6,302,905 and was projected to increase to £7,203,320 once the audit was completed. In addition to the refunds up to and including the financial year 2021/22, corrections would be made to rent accounts for the current financial year 2022/23. It was estimated a further £385,672 in refunds would be owed for the incorrect charging for heating services and £451,431.71 in relation to incorrect charging of rents.
Based on the data analysed, when 88% complete, there were 72% of current and former tenancies, which either currently or previously had been identified as being in receipt of housing benefit. Therefore, a significant level of refunds would be paid back to the Department for Work and Pensions. The report also set out a number of key policy decisions, which Members were required to make, which would then enable East Suffolk to rectify incorrect rent accounts and enable the refund process to commence. Once this was completed, East Suffolk would be fully compliant with the Regulators Rent Standard.
Councillor Rivett explained that there was a policy decision on how rent levels should be re-set and there were 3 options:
Option 1 – Members approve all rents previously converted from Social Rent to Affordable Rent, to be reset back to a Social (Formula) Rent, utilising Rent Flexibility, which was 5% for General Needs tenants and 10% for Retired Living Scheme Tenants.
Option 2 – Members approve all rents previously converted from Social Rent to Affordable Rent, to be reset back to a Social (Formula) Rent, without utilising Rent Flexibility.
Option 3 – Members approve any remaining Affordable Rents, from the original 260, which were permitted to be converted, to continue being charged an Affordable Rent.
There were multiple competing demands that needed to be covered in the HRA Business Plan, including the need to ensure all properties were maintained to a high standard, new requirements set out in legislation such as the Building Safety Act 2022 and Fire Safety (England) Regulations were adhered to, alongside ensuring that the Council’s commitment to ensure all of the HRA stock could achieve Energy Performance Certificate (EPC) rating of Band C by 2030. In addition to this, the Council had also made a commitment to build at least 50 new homes per year and to pay back the HRA financing debt owed to the Government as soon as possible.
Members noted that, as a result, there was significant investment required to both maintain, improve and increase the Council's stock. The Council and its predecessor Waveney District Council had historically levied social rents below the maximum possible under the Formula Rent system. Accordingly, providing the level of investment required going forward was going to be a major challenge, which would require significant innovation and hard decisions. Therefore, achieving what was required and both maintaining and further improving the quality of the HRA stock would not be possible without applying rent flexibility.
Councillor Rivett asked Members to note Recommendation 4 in the report, which proposed Members agree to ‘Option 1’, listed above, that all tenancies formerly converted to an ‘Affordable Rent’ were reset back to a ‘Social Rent’ plus flexibility (5% for general needs and 10% for retired living schemes).
Councillor Rivett then took the opportunity to stress that no tenants would have a rent increase as part of this process, every tenant would either be paying the same or less rent than they pay currently.
Another key policy decision that Members were required to make, related to the level of refunds the Council proposed to carry out. The Regulator of Social Housing had since April 2020 regulated local authorities in relation to Council Housing. The Regulator had set out its expectations (for the period it had regulated the Council) that the Council's rents for its council tenants should be adjusted to correct the previous mistake and that the tenants were refunded. In view of the Regulator’s role, the Council was, in practice, expected to implement the Regulator's preferred action.
It was noted that prior to April 2020, the Welfare Reform and Work Act 2016 set out requirements and a process for setting social rents which the Council should have complied with. In practice, the Council's mistake meant this was not complied with. The Council was not challenged about its non-compliance at that time. Prior to the 2016 Act, the Council was required to have regard to guidance issued by central government in regard to setting council housing rents. The Council's mistake meant it did not give proper regard to that guidance.
In making a decision in relation to providing financial restitution to affected tenants, the Council should have regard to its fiduciary duties. These could be briefly summarised as it acting as 'a trustee' of rental income, tax and public sector income on behalf of its tenants and rate and local taxpayers and other residents. The Council in effect holds money but does not own it, rather it spends money on behalf of its council tenants and leaseholders (and more widely its business rate and council taxpayers).
Therefore, Councillor Rivett requested that Members, whilst taking into consideration their fiduciary duties (as discussed at paragraphs 4.4 to 4.13 of the report) to agree as a matter of policy that any money incorrectly charged for rent charges as a result of the mistaken conversion of social rents to affordable rents, or the setting of incorrect social rent levels, be refunded in full. He then took the opportunity to thank officers within the housing service, who had achieved an incredible amount of work, since the issues were identified.
The Chairman invited questions from Members.
Councillor Byatt thanked all those involved in resolving these issues. He also thanked the Leader, for updating the other Group Leaders about the matter, as soon as the problem was discovered. He then stated that he had a query on page 108, regarding the Regulatory Notice, which contained comments from the RSH and he felt that one of the comments was misleading. It was 'the breach of rent requirements was significant and had been compounded by the fact that the Council continued to charge incorrect rents for a period of almost 2 years, while knowing this may not be permissible.' Councillor Byatt felt that this was a very broad statement and he asked for the evidence that the Council knew about the incorrect rents? He noted that he and other Members had received correspondence about this matter from a member of the public who was suggesting that the Council had been devious and caused mischief regarding the issue. He stated that, in his opinion, the whole matter had been handled thoroughly by officers and by the Cabinet Member. He queried whether it would be possible to deny the misleading comment? Councillor Rivett shared Councillor Byatt's sentiments that this had not been a devious act, the actions of the Leader in keeping the Opposition Group Leaders apprised, plus the many public statements and the Council's self-referral to the Regulator shows that there was no cover up. An honest mistake had been made and the Council was now putting things right. This report was, of course, public and anyone interested could read for themselves and see the actions that the Council had taken.
Councillor Gooch reported that this matter had been considered by the Scrutiny Committee last week, where she had raised a query regarding scams. She sought reassurance that tenants would be safeguarded and provided with clear information about the process of getting a refund, so that they could not be taken advantage of by scammers, asking for their bank details to pay them the refunds owed. Councillor Rivett stated that the Housing Team were cognisant that there were many people trying to take advantage of others and he invited Heather Tucker, Head of Housing, to provide further information. Ms Tucker confirmed that she was acutely aware of this issue and, as such, tenants would be written to on an individual basis, as part of the rent setting exercise, after the Full Council meeting in February. The letter would set out the Council's approach to the refund process, whereby only East Suffolk Council would contact them about their rent. She confirmed that none of this work would be passed on to any third party organisations. Also, after this meeting, should the recommendations be approved, a communications programme had been planned, with a dedicated Housing Regulation page being added to the website. When the refund process took place, it would be clearly stated that refunds would only proceed via East Suffolk. The Council also needed to make sure that it was paying the correct people back, therefore, in the case of former tenants who no longer had a rent account, mechanisms would be put in place to ensure proof of ID and bank accounts were sought, ensuring that all processes were robust.
Councillor Lynch stated that the Council currently had rent arrears of approximately £1.6 million and there was also a significant amount of money about to be refunded to tenants. He asked if those tenants who were in arrears could use some of their refund to balance some of those debts, as that would improve the situation for some tenants overall. Councillor Rivett invited Ms Tucker to provide a response. She stated that legal advice had been sought and the Council would be able to credit current rent accounts and also former tenants that still had rents outstanding. Therefore, the outstanding rent arrears levels were anticipated to reduce, however, further information would not be available until all of the data had been entered into the computer system. The Council would not need to pay any tenant back if they were in arrears, unless there was a difference owing at the end of the process.
Councillor Rivett then moved the recommendations within the report, which were seconded by the Leader.
The Leader thanked Councillor Rivett for his comprehensive introduction, to what was a complex and detailed report, as well as standing in at the last minute for Councillor Kerry. He stated that it was disappointing that there had clearly been significant failures, which went back many years. However, he was incredibly grateful that the Council had identified these issues and once they were identified, a significant programme of work had been put in place to return to full compliance.
The Leader reported that he had regular meetings with the Strategic Management Team and Head of Housing and had been assured throughout the whole process that this was being treated with the utmost importance, professionalism and in a thorough and co-ordinated way, to ensure all scenarios were considered and solutions found. When these issues first became public last year, he had made a commitment that the Council would ensure anyone who was impacted financially would be refunded in full, and he stood by that commitment.
The Council must consider its fiduciary duties, and as Councillor Rivett had said previously, these could be briefly summarised as acting as 'a trustee' of rental income on behalf of tenants, so the Council in effect holds money but does not own it, rather it spends money on behalf of its Council tenants and leaseholders. Therefore, he believed that anyone who had been overcharged should be repaid in full and I hoped Members would agree and support that recommendation.
In relation to the recommendation that the Council utilised rent flexibility, he felt that this was prudent on the basis that there was significant investment required to both maintain Council properties and also ensure they met the Council's carbon reduction aspirations. Not only that, but he was proud that new housing was being developed and he wanted that to continue.
The Leader stated that it was very reassuring to hear that no tenants would see any rent increases as a result of the rent re-setting process. He was also really pleased to hear about the level of asset compliance within the Councils housing stock. This had not been possible without the support of external specialists. However, this work was being embedded within the Council's own service and Cabinet had been delighted to approve a Business Case at the end of last year, to recruit a dedicated compliance and servicing team. The roles had been advertised, and interviews had been taking place over the last couple of weeks. He had been pleased to hear there had been an incredibly high calibre of candidates and the new team was expected to start over the next couple of months.
The Leader wished to place on record his thanks to the Leaders of the other political parties at East Suffolk, who had been supportive with officers in meetings regarding the work they had been carrying out. He also wanted to pay tribute to everyone within the Housing Service who had worked tirelessly to improve the levels of compliance and deal with the legacy rent issues. It had been an incredibly challenging time and the level and quality of work they have produced had been phenomenal. He also thanked the other teams within the organisation, without whom the Housing Service would not have been able to make the progress they had, which included Legal, Procurement, Human Resources, Health and Safety, Building Control, Customer Services and the Communications Team.
Councillor Topping then sought clarification regarding recommendation 5 and asked whether it needed to be made clearer that any refund could be used to clear arrears? The Leader stated that it was clear that the refund would be paid in full, into their rent account. However, that money would offset any rent that they owed to the Council, via their rent account, rather than the Council with-holding any of their refund.
There being no further questions or debate, it was put to the vote and unanimously
RESOLVED
1. That Members noted the information contained within this report and endorse the actions set out to ensure the Council is compliant with the Regulator of Social Housing Consumer ‘Home Standard’.
2. That Members noted the information contained within this report and endorse the actions set out to ensure the Council is compliant with the Regulator of Social Housing Economic ‘Rent Standard’.
3. That Members noted that all heating service charges, also referred to as de-pooled rental charges, are (after further and more detailed legal advice) now acknowledged to be a breach of Section 11 of the Landlord and Tenant Act 1985 and that therefore, all such money received from this charge must be refunded in full, for the years 2010 – 2023.
4. That Members agreed to ‘Option 1’, listed above, that all tenancies formerly converted to an ‘Affordable Rent’ are reset back to a ‘Social Rent’ plus flexibility (5% for general needs and 10% for retired living schemes).
5. That Members, whilst taking into consideration their fiduciary duties (as discussed at paragraphs 4.4 to 4.13 of this report) agreed as a matter of policy that any money incorrectly charged for rent charges as a result of the mistaken conversion of social rents to affordable rents, or the setting of incorrect social rent levels, be refunded in full.
6. That Members noted that quarterly updates will be presented to Cabinet, detailing the progress against the Compliance and Rent Improvement Plans.