LGA response to consultation on changes to Regulator of Social Housing fees regime

The LGA is the national membership body for local authorities and we work on behalf of our member councils to support, promote and improve local government.

We are a politically-led, cross-party organisation that works on behalf of councils to ensure local government has a strong, credible voice with national government. We aim to influence and set the political agenda on the issues that matter to councils so they are able to deliver local solutions to national problems.

We welcome the opportunity to respond the Regulator of Social Housing (RSH) consultation on changes to its fees regime. Our response focuses on those questions which will impact directly on local authorities in their role as registered providers of social housing. 

As bodies that are subject to compulsory registration with the RSH, it is highly disappointing that there has been no consultation with the LGA and/or local authority registered providers on the actual principle of having to pay an annual fee to the RSH to cover the cost of the regulation.  

The LGA has repeatedly made both the RSH and Department for Levelling Up, Housing and Communities (DLUHC) aware of the significant financial income and expenditure pressures on individual Housing Revenue Accounts (HRAs) and the impact this is having on the ability to fund the vital investment needed to improve and regenerate existing stock and deliver effective social housing management services to tenants. 

We are disappointed therefore that the RSH and DLUHC have made a unilateral decision, with no engagement with the LGA and/or local authority registered providers, that now is an appropriate time to move to 100 per cent full cost recovery, and in doing so add more than £12.5 million in unanticipated costs to HRAs across the country every year. In 2021-22 the grant-in-aid from DLUHC to the RSH was £5.1 million. This covered the cost of local authority regulation, non-routine regulation including casework undertaken by the Investigation and Enforcement team, consumer regulation and any registration costs not covered by initial registration fees. 

What is being proposed is essentially a shunt of the cost of regulation from central government to lower-income households living in local authority registered provider homes, as it is those households which fund the vast majority of HRA income through the rents that they pay. With no ability for local authority registered providers to recoup these additional unexpected costs through an increase in rents, because the government determines the level at which rents can be set, these changes will inevitably mean less funding to improve and regenerate existing stock.

We would urge the Regulator and DLUHC to reconsider its decision to charge local authority registered providers an annual fee for the cost of regulation at this time, given the very real pressures on HRAs. More detailed information on these pressures can be found in the LGA’s written evidence submission to the Levelling Up, Housing and Communities Select Committee inquiry on the finances and sustainability of the social housing sector. 

The Government should instead commit to continuing to fund the local authority share through government grant, alongside an in-depth review of the future sustainability of HRAs given the cumulative impact of a wide range of competing income and expenditure pressures. 

As an absolute minimum, if the RSH and DLUHC are still minded to introduce a fee regime for local authority registered providers, steps towards full cost recovery should be introduced over a number of years, with the proportion of government grant going down over time. The upcoming post 2025 social rent settlement should also take into account all these additional expenditure pressures. This would go some way to ensuring that these pressures can be mitigated as far as possible through the income collected via tenants rents, within the affordability limits of those tenants. 

We also consider that before any new fee regime is introduced that the RSH should undertake, if it has not done so already, a zero-based review of its budget to identify the necessary funding for the RSH to fulfil properly its functions. Zero-based budgeting would determine funding requirements based on programme efficiency and necessity rather than budget history combined with an assessment of new activities. 

The business engagement assessment published alongside the consultation states that the RSH’s assessment is that ‘the increase in fees is offset by the benefits registered providers derive from being part of a regulated sector. For example, private registered providers benefit through lower borrowing costs and better capital weighting of debt’. However, it is worth noting that this will simply not be a benefit that will be realised by local authority registered providers, who operate in a completely different financial environment to private registered providers – a fact that seems to have been overlooked and which urgently needs to be recognised by the RSH and DLUHC.

If the fee regime is introduced as per the consultation for local authority registered providers, the current financial climate and national policy and regulatory framework will mean that trade-offs will inevitably need to be made between a wide set of competing priorities. To illustrate,  income within the HRA is not only now lower than that provided for in the self-financing settlement in 2012, but this income is now expected to cover both higher costs and higher standards of stock and service delivery. Our research estimates the seven per cent rent cap imposed for 2023/24, whilst supporting tenants in the short-term, will amount to a cumulative deficit to council HRAs of £664 million after two years. This comes on the back of one per cent annual rent reductions in the social rented sector for four years from April 2016, resulting in an estimated 12 per cent reduction in average rents by 2020/21. The additional costs to deliver net zero, compared to what is currently provided for in HRA business plans is £23 billion over 30 years. The sector-wide requirement to achieve building safety standards for tall buildings and buildings housing vulnerable residents is also estimated to be £7.7 billion. Other additional unanticipated expenditure costs include an updated Decent Homes Standard, the professionalisation of social housing staff, strengthened consumer standards, a significant increase in required fees to the Housing Ombudsman and fees to the Building Safety Regulator.

We welcome the proposal that local authorities will be exempt from the requirement to pay an application fee for registration on the basis that they are subject to compulsory registration. We consider that the same exemption should apply in respect of the requirement to pay an annual fee for the same reason that an application fee exemption will be put in place.

We welcome the proposal that the annual fee for small local authority registered providers be set at zero this time. Local authorities should be consulted if the RSH consider the need to review this and any other fee in the future. There should also be sufficient notice and lead-in time given to local authority registered providers for the introduction of any changes to fees. Whilst local authority budgets (including HRA budgets) do not have to be completed until early March, in reality they need to firm up all the figures in October/November of the previous year, so that there is sufficient time to consult on them and then for them to be approved through the relevant political clearance processes.

Whilst we understand that the fees, if introduced, will not commence until 1 July 2024, local authorities will be undertaking their budgeting processes for 2024-25 now, and will need to know as soon as possible what level, if any, the fees will be set at, so that this can be taken into account.

In relation to local authority registered providers, we agree with the proposed approach that they will be exempt from the requirement to pay an application fee for registration on the basis that they are subject to compulsory registration. We consider that the same exemption should apply in respect of the requirement to pay an annual fee to cover the ongoing cost of regulation.

No comment. Our response focuses on those questions which will impact directly on local authorities in their role as registered providers of social housing. Large private registered providers are best placed to provide a response to this question. 

No, we do not support the proposed approach to setting annual fees for large local authority registered providers (providers with in excess of 1,000 units), which would require them to pay an annual fee of £7 to £8 per social housing unit. 

As bodies that are subject to compulsory registration with the RSH, it is highly disappointing that there has been no consultation with the LGA and/or local authority registered providers on the actual principle of having to pay an annual fee to the RSH to cover the cost of their regulation. 

The LGA has repeatedly made both the RSH and Department for Levelling Up, Housing and Communities (DLUHC) aware of the significant financial income and expenditure pressures on individual Housing Revenue Accounts (HRAs) and the impact this is having on the ability to fund the vital investment needed to improve and regenerate existing stock and deliver effective social housing management services to tenants. 

We are therefore disappointed that the RSH and DLUHC have made a unilateral decision, with no engagement with the LGA and/or local authority registered providers, that now is an appropriate time to move to 100 per cent full cost recovery, and in doing so add more than £12.5 million in unanticipated costs to HRAs across the country every year.

The government should instead commit to continuing to fund the local authority share through government grant, alongside an in-depth review of the future sustainability of HRAs given the cumulative impact of a wide range of competing income and expenditure pressures. 

The business engagement assessment helpfully published alongside the consultation states that the RSH’s assessment is that ‘the increase in fees is offset by the benefits registered providers derive from being part of a regulated sector. For example, private registered providers benefit through lower borrowing costs and better capital weighting of debt’. However, it is worth noting that this will simply not be a benefit that will be realised by local authority registered providers, who operate in a completely different financial environment to private registered providers – a fact that seems to have been overlooked and which urgently needs to be recognised by the RSH and DLUHC.

If the fee regime is introduced as per the consultation for local authority registered providers, the current financial climate and national policy framework will mean that trade-offs will inevitably need to be made between a wide set of competing priorities.

What is being proposed is essentially a shunt of the cost of regulation from central government to lower-income households living in local authority registered provider homes, as it is those households which fund the vast majority of HRA income through the rents that they pay. 

With no ability for local authority registered providers to recoup these unexpected additional costs through an increase in rents, because the government determines the level at which rents can be set, there will inevitably mean less funding to improve and regenerate existing stock.

Notwithstanding our view that local authority registered providers should not be required to pay an annual cost to the RSH to cover the 100 per cent of the cost of their regulation, if the RSH and DLUHC are minded to take this proposal forward we would like to see the following:

• As an absolute minimum, steps towards full cost recovery should be introduced over a number of years, with the proportion of government grant going down over time. The upcoming post 2025 social rent settlement should also take into account all of the additional expenditure pressures falling on HRAs. This would go some way to ensuring that these pressures can be mitigated as far as possible through the income collected via tenants rents, within the affordability limits of those tenants. 
• Before any new fee regime is introduced the RSH should undertake, if it has not done so already, a zero-based review of its budget to identify the necessary funding for the RSH to fulfil properly its functions. Zero-based budgeting would determine funding requirements based on programme efficiency and necessity rather than budget history combined with an assessment of new activities.
• The RSH should also consider how the use of greater digitisation could create new and more efficient, effective systems and in turn reduce the cost of regulation of registered providers.
• Whilst we understand that the fees, if introduced, will not commence until 1 July 2024, local authorities will be undertaking their budgeting processes for 2024 to25 now, and will need to know as soon as possible what level, if any, the fees will be set at, so that this can be taken into account.
• The National Audit Office should also undertake a value for money study, perhaps 18 to 24 months after the introduction of the new proactive regulatory regime, in order to scrutinise and ascertain whether the RSH is achieving value for money in delivering its new enhanced regulatory functions. 
• Any unspent fees should be rebated to large local authority registered providers, as is the case now for private registered providers.

The proposed fees are set at £7 to £8 for large local authority registered providers and £9 to £10 for private registered providers. We do not consider that the figures for large local authority registered providers warrant being that close in quantum to those being proposed for private registered providers. That is because the RSH undertakes a significant work on economic regulation, focusing in governance, financial viability and value for money for private registered providers, which it does not undertake for local authority registered providers. We therefore consider that, if fees are to be set, for local authority registered providers, they should be set at a lower level than that which is proposed, although it is difficult to provide an exact figure as we do not have access to the required data to do further financial modelling. 

No comment. Our response focuses on those questions which will impact directly on local authorities in their role as registered providers of social housing. Large private registered providers are best placed to provide a response to this question. 

Yes. We agree with the approach that the annual fee for small local authority registered providers is set at zero at this time. This is on the basis that they are not subject to the proactive consumer engagement focused on larger providers or the elements of proactive economic regulation which apply to small private registered providers. 

Local authorities should be consulted if the RSH consider the need to review this zero level fee in the future. There should also be sufficient notice and lead-in time given to local authority registered providers for the introduction of any changes to fees. 

This is because whilst local authority budgets (including HRA budgets) do not have to be completed until early March, in reality they need to firm up all the figures in October/November of the previous year, so that there is sufficient time to consult on them and then for them to be approved through the relevant political clearance processes.

No comment. Our response focuses on those questions which will impact directly on local authorities in their role as registered providers of social housing. Large private registered providers are best placed to provide a response to this question.

Yes, we agree with the proposal for the RSH to publish information annually on its costs and fees. This will support accountability and transparency of the RSH. 

We consider that the National Audit Office should also undertake a value for money study, perhaps 18 to 24 months after the introduction of the new proactive regulatory regime, in order to scrutinise and ascertain whether the RSH is achieving value for money in delivering its new enhanced regulatory functions. 

We also consider that before any new fee regime is introduced that the RSH should undertake, if it has not done so already, a zero-based review of its budget to identify the necessary funding for the RSH to fulfil properly its functions. Zero-based budgeting would determine funding requirements based on programme efficiency and necessity rather than budget history combined with an assessment of new activities. 

Yes, we agree with the proposed approach to continue the Fees and Resources Advisory Panel. We support the proposal to add local authority representatives to its membership and consider that this should include an appropriate representative from the Local Government Association.  

Currently, the Panel only meets once a year, but given the proposed changes to the fees, it might be beneficial to meet more regularly (bi-annually) over the next couple of years. 

Given the potential introduction of annual fees to local authority registered providers for the first time, the RSH should consider engagement with a wider group of local authorities as the new system beds in, in order to seek feedback, including how the new fee regime is impacting on HRA budgets and delivery of social housing management services more broadly.

The business engagement assessment published alongside the consultation states that the RSH’s assessment is that ‘the increase in fees is offset by the benefits registered providers derive from being part of a regulated sector. For example, private registered providers benefit through lower borrowing costs and better capital weighting of debt’. However, it is worth noting that this will simply not be a benefit that will be realised by local authority registered providers, who operate in a completely different financial environment to private registered providers – a fact that seems to have been overlooked and which urgently needs to be recognised by the RSH and DLUHC. 

The RSH rightly points out in its assessment that whilst it does not regulate the financial viability of local authorities, that local authority registered providers are also impacted by many of the financial pressures faced by private registered providers. It also points out that local authority registered providers also generally have lower rents than private registered providers yet face similar demands for investment and cost increases. 

The assessment goes on to say that it has been determined that the proposed fees will remain affordable to providers and should not significantly impact on services to tenants.  In our view, this is disingenuous, because whilst the proposed fees may well be a small percentage of the average social net rents per unit, consideration is not being given to the cumulative impact of all the additional costs falling on HRA budgets. When taken together, as highlighted earlier in this response, the current financial climate and national policy and regulatory framework will mean that trade-offs will need to be made between a wide set of competing priorities.

DLUHC should work with RSH and local authority registered providers urgently on an in-depth review of the future sustainability of HRAs given the cumulative impact of a wide range of competing income and expenditure pressures, before any cost recovery fee regime is introduced.