"Newham seeks EFS to stave off section 114 – but says only funding reform will prevent ‘exceptional becoming normal’

 

Important article in Room151 blog not only for Newham but also for many, many other Councils facing section 114 notices (a form of municipal insolvency and/or technical bankruptcy).My understanding is EFS is not an increase in Government funding but an expensive loan being paid for by selling off of Council assets.    

"Exceptional Financial Support risks becoming normalised across the local government sector and is only a “sticking plaster solution” to councils’ financial problems anyway, according to Conrad Hall, corporate director of resources at the London Borough of Newham.

The authority’s Cabinet will discuss Newham’s financial position today (15 October) – with a £175m budget gap forecasted over the next three years – and will be asked to continue discussions with the Ministry of Housing, Communities and Local Government (MHCLG) on receiving Exceptional Financial Support (EFS) in financial year 2025/26.

Temporary accommodation costs account for £100m of that £175m budget gap, with Hall stating that the “housing crisis and the consequence of the failure of the housing market” has fallen “very disproportionately” on authorities. Some, like Newham, are being put in a “completely impossible” position.

“There’s something wrong with a funding system that allows that degree of, frankly, randomness between two different councils,” he told Room151.

Conrad Hall

EFS would provide temporary financial relief for Newham but only “kicks the can down the road”, according to Hall. He also fears that with so many other authorities across the country in an unstable financial position, EFS could “stop being exceptional and start to look a bit normal”.

Newham anticipates an overspend for the current 2024/25 financial year in the region of £47m, of which a £31m overspend is forecast on temporary accommodation and £16m on social care provision.

The authority has identified savings – including asset sales – for 2025/26 that have an annual value of £20.3m, growing to £51.2m for 2027/28, and the Cabinet will be asked to approve these immediately. Further savings options have also been listed for consideration that amount to £13.5m in 2025/26, growing to £20.9m for 2027/28.

Hall described the savings as a “substantial package of pretty unpleasant cuts”.

If the MHCLG does not provide EFS, Hall said that a section 114 notice becomes a “very serious consideration” and might be needed in around 18 months in that scenario. However, it is an effectively “pointless” action when the issue is not underlying financial mismanagement but instead external factors beyond the authority’s control.

“Issuing [a section 114 notice] is foremost to say that we haven’t got the money. It doesn’t really help because we still have the same duty to house people in temporary accommodation, and that is the cause of the financial problem,” he said. “So while it is a dramatic moment, it doesn’t actually change the dial much. We’re trying to get [government] to change policy so that you don’t have local authorities just collectively all going under. The current situation is just unsustainable.”

Hall noted that Newham has had initial conversations with the MHCLG, but has heard nothing since. This situation, though, “is not unexpected, because I think they will be waiting until after [the Budget] of 30 October”. If the government operates to the same timetable as the last financial year, a final decision might be expected around February.

Consequently, Newham has so far not specified an amount of EFS it is seeking, as much will depend on what the government does with the homelessness funding system, Hall said. “It’s so dramatically broken in London and beyond that it’s hard to imagine that they’re not going to do anything,” he added.

Action on Local Housing Allowance (LHA) rates, for example, could be “taken overnight”, which would reduce the cost burden on individual councils and transfer it “at no overall cost to the public purse”, Hall noted.

Ultimately, Hall said that funding reform was needed, which goes beyond just multi-year settlements, to solve the underlying issues that are forcing more councils to seek EFS and potentially issue section 114 notices.

Photo: Shutterstock

“EFS can be done for, say, a year while [the government] fixes the overall funding system and sorts out housing and things like that. But it’s not something that will work for any period of time,” he said.

“It must be accompanied by funding reform. The difficult thing for the government to do is to find some money to fix the problem, because if they don’t it’ll just get worse and worse. And if housing isn’t fixed, other things also get worse, and you need more expensive interventions elsewhere. It is an extraordinary crisis, and the government just doesn’t seem, so far, to have reached a clear and funded policy about how they’re going to deal with it.”

Hall said that while the government would surely “like to help” they may have boxed themselves in in terms of verbal commitments to action in other areas. “What about education? What about universities? The criminal justice system? And the list goes on,” he said. “They are probably thinking, ‘we can’t afford to fix all those things’, and local government usually ends up pretty far down the public sector pecking order....

See link for further report on Newham rents and HRA plans...

“After the Housing market fails…”

This packed lunchtime fringe was addressed by Pete Challis, the UNISON National Officer (Local Government and Housing) and Alan Walters from Defend Council Housing. The meeting was chaired by John Martin, Chair of the National Community and Voluntary Sector Forum.

Alan spoke first and he appeared to be very conciliatory towards Housing associations and their staff. Making it clear that DCH was not against them as such, rather that they wanted a equal playing field for tenants to make meaningful choices between remaining tenants of Councils or transferring to a Housing association (or ALMO etc). He felt that tenants were being blackmailed into voting for Housing associations by government policy. While DCH did not have a “fetish” about Council housing, they feel that “warts and all”, Council housing has provided decent housing for working class people for many years. He pointed out that there are still 2.5 million Council tenants and some 200 Councils who have still kept their stock. The “success” of DCH he believes is due to it being a unique broad base coalition of tenants, trade unions and councillors from all political parties.

Alan argued that such is the failure of the market in recent times means that there is no alternative to Council’s building homes again and he pointed out that now is an ideal time to obtain (not buy interestingly) all the properties and land banks that private developers cannot sell.

DCH has been very controversial in my branch. Some members are very, very opposed to the DCH and are genuinely concerned about their tactics and motivation. However, at our AGM a motion for our continued affiliation to DCH to continue was passed with fairly widespread support. All the major unions remain affiliated as well.

For years Housing issues use to be thought as a bit boring and very much a side issue. Nowadays, as Pete Challis pointed out it is top of the agenda. Social, Economic and Political. So far over 23,000 homes have negative equity, there is a mortgage famine, repossessions (45,000) are starting to creep up and there are fewer new build starts (from 42,000 down to 32,000). Developers such as Persimmon and Barratt have had their share price decimated. Council lettings and transfer have begun to dry up in certain areas as existing tenants now cannot move out and buy in the private sector. This means that overcrowding and homeless needs are not being met. Existing 106 agreements (called after a section 106 of a housing act – private developers pay for environmental and social improvements in return for planning permission. Many associations rely on this to build social housing) are in danger and new ones of course will be more difficult. This means that the viability of many regeneration schemes is in danger.

Peter also pointed out the issues regarding the cuts and long term uncertainty affecting Supporting People funding (which pays for housing workers who provide vital support for vulnerable residents). The major housing association, London and Quadrant, has recently decided to pull out of Supporting People putting many jobs at risk and affecting 1850 vulnerable tenants.

There is in one small way an upside for housing associations since they have an opportunity to add to stock. Since many developers are desperate to sell. However, often such developments are not always suitable for social housing (for example they may be built in an area with no good public transport links)

He also pointed out the awful wages and conditions that many housing association staff receives. While UNISON members earn far more on average than non-members, some 25% earn less than £17,000 per year; some earn less than £6 per hour; 20% have either no occupational pension or a poor quality money purchase scheme; 1 in 6 have had no training in the last 12 months! UNISON is developing an organising strategy to take these problems on.

While she was housing minister, Yvette Cooper announced that there will be a review of the infamous Housing Revenue Account (HRA). “To ensure that we have a sustainable, long term system for financing council housing”. Yvette has now moved on (as housing ministers do) but she is now by co-incidence a treasury minister who has responsibility for the HRA. Many, many years ago I attended a meeting of residents and their local councillor, who was quite a senior figure. For nearly every local problem that came up, regardless of whether or not it was estate based, he said “Charge it to the HRA”. Due to “right to buy” is it appropriate that tenants only should pay the full cost for estate based community schemes even though 25% of tenures in that estate are now lease or free hold?

Finally, Peter made the key point that you will not make any sustainable headway in dealing with education, health, environment, child poverty, climate change, community cohesion or community safety unless you make housing policy part of it. This is what I call “joined up” thinking.

In the Q&A (or statements from the floor) I asked Pete whether or not housing associations could use the “downturn” as a reason to restrict pay rises of staff! I felt he was genuinely surprised that this could be used as an excuse. We had a good chat about it after the meeting.

Chair, John Martin, ended the debate, remaking as he did that he has been in construction and housing for many, many years and he never seen the market in such state. He is really worried about the future.