Board 27 May 2014

Update on NCC review of YHN Report by Chief Executive

For Information and Discussion 1. Background information

1.1

Board members are aware that a review of YHN has been undertaken by NCC. The basis for the review and the broad approach were presented to the Board at the meeting of December 2013 by the Chief Executive of the City Council, Pat Ritchie. Brief updates have been included at meetings since then.

1.2 This report is to provide the Board with up-to-date information on the progress of the review. The update is provided by way of the appended papers which were both considered by the review’s Oversight Group on Friday 16 May 2014. Both papers were agreed at that meeting.

1.3 The membership of the Oversight Group crosses both organisations and includes the YHN Chair Olivia Grant, and two Board members.

1.4 Appendix One provides an overview of the review and an update on the different elements within it.

1.5 Appendix Two relates specifically to the oversight and management of the HRA. The requirement for strategic management of this account is one of the main objectives of the review from NCC’s perspective. The paper that was taken to the Oversight Group originally contained a very short section on staffing arrangements. This included reference to the secondment of staff, however, since the meeting we have received HR advice that TUPE applies from the outset.

1.6 Both papers were discussed in some detail. A verbal update will be given at the meeting to summarise the main discussion points.

2. The Business Implications

2.1 Statement of purpose and strategic objectives: The outcome of the review could impact on any or all of our strategic objectives. A commitment has been made to retain YHN and to ensure that the review does not have negative repercussions on the achievement of our purpose.

2.2 Value for money/efficiencies: The need to optimise efficiency is central to the review.

2.3 Resources (financial, property, technological or human): A consideration of resources across YHN and NCC is an integral part of the review.

2.4 Impact on services/performance: It is not envisaged that there will be any impact on services or performance as a result of the review. Where changes are recommended they will be to improve services or to make them more efficient. Many of the services in scope are support services provided to internal customers.

2.5 Outcomes for tenants/leaseholders: It is not envisaged that tenants and leaseholders will discern any changes. The review is intended to strengthen the offer to tenants in terms of involvement.

2.6 Risk (reputation, relationship): There are both reputational and relationships risks if the review process is not effectively managed. The governance structures that have been put in place are designed to mitigate against these risks.

2.7 Environmental: Not applicable.

2.8 Legal: The HRA operates within a statutory framework. The proposals going forward comply with the legal requirements. Transfers of staff are also covered by law. Legal advice will be sought where necessary.

2.9 Equality and Diversity and Community Cohesion: Not applicable.

2.10 Stakeholder Involvement/consultation: A productive communication with NCC and YHN managers, and including Trade Union representatives, was held on the 16 May 2014. This forum will be used again at key points in the review in addition to consultation with specific teams. A presentation to YHN’s Finance Team took place on 22 May 2014.

3. Conclusion and recommendations

3.1 Progress has been made across all areas of the review. The Board are recommended to :

• Receive this report and appendices and comment on the content.

4. Implementation

4.1

• YHN will continue to participate in all aspects of the review.

• Work to map out current roles in the YHN Finance Team against the functions identified in Appendix Two will commence immediately. This is the first step in the staff transfer process.

Background Papers

• Board report December 2013; The Future Management of Council-Owned Housing in Newcastle.

Contact Officers: If you have any questions about this report that you would like clarifying before the meeting, you can contact Sheila Breslin, Director of Corporate Services and Assistant Chief Executive on 2788707 (sheila.breslin.@yhn.org.uk)

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Appendix One

YHN / NCC Review Update

Oversight Group Meeting

16 May 2014

1.0 Overview:

In December 2013 Cabinet agreed the following propositions to underpin a review of the future relationship between the Council and Your Homes Newcastle (YHN), which will be set out in a new management agreement to be in place by April 2016.

This review will bring: • Closer alignment of YHN & NCC priorities and budget and business

planning • Reinforcements of the tenant offer, openness and transparency • Increased efficiency in support service function.

The Cabinet stated that the new arrangements should reinforce the Council’s oversight and overall responsibility for the Housing Revenue Account (HRA).

It is also reiterated that YHN will be re-commissioned to deliver the Council’s housing management function, and that changes to the governance and management of the HRA will not involve any changes to the housing management services provided to tenants. It should also be noted that NCC acknowledges that YHN has a solid reputation as a deliverer of flexible and responsive services for tenants, and has improved service outcomes since its creation in 2004.

2.0 Newcastle 2020 and the YHN Review

Newcastle 2020 is the council’s change programme, part of which incorporates the council’s next three year budget planning exercise covering the period 2015/16 to 2017/18. The YHN Review is very much an element of that programme and therefore it’s important the work is properly aligned. The timing of the YHN Review will therefore be determined in part by the change programme with firm proposals in place towards the end of 2014.

The key dates for setting the next three year budget as part of the change programme are as follows: • 2015/18 Budget setting Autumn 2014 • Formal consultation on budget settings closes end of December 2014

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• Budget agreed at Cabinet 25 February 2015 • Budget to full Council 4 March 2015

Themed Reviews

One of the streams of activity that has been taking place as part of Newcastle 2020 is a series of themed reviews which have been tasked with horizon scanning and thinking about what the council should look like in the future. As one of the council’s closest partners it was always envisaged that YHN would be a key stakeholder in the majority of themed reviews. As such, YHN officers and board members have been provided with the details of the theme reviews and asked to identify areas where they contribute. Similarly theme leads have been asked to identify where YHN officers can be part of their theme review teams. In addition, the council and YHN have agreed that YHN officers will be invited to the council’s Change Programme Board, which is governing the Newcastle 2020 programme, as and when appropriate.

3.0 NCC/YHN Review Theme Leads and Workstreams

3.1 The review of the relationship between NCC and YHN is set around six

themed work streams, each headed by a member of the senior management team within each organisation, and reporting directly to an Oversight Group comprised of senior politicians, members of YHN Board and the chief executives of YHN and NCC. Work stream leads are:

• The management of the Housing Revenue Account (HRA) – Tony Kirkham

/ John Lee • Repairs and maintenance - Mick Murphy / David Langhorne • Support Services –Tony Kirkham / Sheila Breslin • Customer services / Community and tenant engagement – Tony Durcan &

Jan Cromarty/ Neil Scott • Debt and invoicing (corporate debt) – Jayne Henderson / Neil Scott • Employment and Skills – Rob Hamilton/to be confirmed

The final framework and documentation to support the new long term relationship between NCC and YHN will be drawn together by a joint team led by the Fairer Housing Unit.

Each work stream has been tasked to undertake their area of the review by agreeing what is in scope, key milestones, identifying where there is alignment and gaps in provision. It is intended each workstream will produce reports to Oversight Group which include an evaluation of the options and make recommendations as appropriate.

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3.2 Housing Revenue Account (HRA)

There is a statutory requirement for stock owning local authorities to maintain an HRA separate from the general fund.

This aspect of the review has been identified as a priority area, and looks at bringing the HRA back under the management of NCC decision making, governance and sign off as part of the Council’s budget setting process; as well as integrating financial support services.

This means that following appropriate staff consultation and engagement, staff from YHN currently involved in managing the HRA will move to work within the Financial Services division in the Council’s Resources Directorate.

The timing of this aspect of the review will fit with the 2015-18 budget setting timeframe; with the aim to have undertaken all necessary staff changes and new operating arrangements in place by September 2014, subject to agreement of the proposal which is set out in the agenda for the Oversight Group meeting 16th May.

3.3 Repairs and maintenance (City Build)

The Cabinet paper in December 2013 is explicit about the need to consider the future delivery of the repairs and maintenance arrangements. The scope will include the whole of City Build and YHN Property/technical resources. The outcome will be to provide financial benefits through efficiency savings.

The first priority for this work stream was to revisit the work previously undertaken in this area.

Theme leads met in early May and agreed scope and likely options. These options are: • Option 1 – Do nothing. Current arrangements remain unchanged • Option 2 – Transfer City Build (or R&M teams only) into YHN • Option 3 – Transfer YHN’s property/technical resource into the City

Council • Option 4 – Cooperative arrangements

At the meeting a discussion on the various options / barriers and way forward were formulated:

• Agreed to assemble previous work to assist in review • Agreed overall approach to examining options

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• Agreed to convene a meeting to share information re potential commercial opportunities for both YHN and City Build (attendees; Mick Murphy, David Langhorne, David Hall (NCC), Ian Gallagher(YHN). This would inform option 4.

A programme of actions and clear lines of responsibility will flow from the next meeting scheduled within the next two weeks. There remain sensitivities in regard to employee and trade union relations. In order to take full account of the need to involve employees and their trade unions in consultation it is proposed that a report be brought back on the options to Oversight Group in August 2014.

3.4 Support Services

This area looks at functions carried out by both YHN and NCC to assess if these can be aligned and what efficiencies can be made. It will initially focus on the following areas:

• Human Resources and Organisational Development • ICT • Communications

The Director of Corporate Services at YHN designed and circulated a template to capture key information about each service area, covering key tasks and activities, staffing information, budget, external spend and income/funding sources. The core information has been collated for all three service areas.

The relevant Heads of Service both within YHN and NCC have had opportunities to review and comment on the combined documents. The information has been reviewed by YHN Management Team and by Tony Kirkham, with a joint recognition that some information needed further clarification and/or exploration. The scoping report will be ready for the next Oversight Group in mid-June.

3.5 Customer services / Community and Tenant engagement

This work stream will look to align the customer contact and engagement functions of both NCC and YHN where this is appropriate. It will also take account of the regulatory responsibilities of YHN in regard to tenant involvement and look to enhance the current arrangements. The workstream will also look at the asset arrangements for community buildings.

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Both teams are currently preparing the scoping template supplied by YHN for consideration by the workstream leads on 16 May 2014. An analysis of options will be provided for the 31 July 2014 meeting of Oversight Group.

3.6 Debt and Invoicing (corporate debt)

Newcastle City Council is required to collect monies from both residents and businesses for a variety of reasons. A high percentage of debt owed to the council comes from multiple debtors who owe council rent, council tax, sundry debt and housing benefit overpayments.

This aspect of the review is an existing programme of work which pre-dates consideration of the wider NCC / YHN review and aims to join up the different strands of debt recovery and invoicing, including rent collection, into a single point of contact for the customer (“single view”). This existing, in-house NCC workstream, will be rolled out in three phases. The workstream action plan will be fully complete by March 2016. It has been agreed between NCC and YHN that the Council will deal with the creation of a single debt approach for Council debt before YHN become involved.

Systems will be in place from April 2015, that could if required, support the extension of the scope of the Council’s income and debt recovery function to include rent collection and former tenant arrears collection. This could provide a more cohesive approach to resident debt management and could make long term efficiencies. This requires further discussion with YHN and it is proposed that we bring a report on further scope of the workstream in March 2015.

3.7 Employment and skills (building community capacity)

This part of the review looks at the areas of work and engagement undertaken by YHN and NCC looking to generate employment, training and skills development opportunities.

Emphasis has been on the HRA and Support Services workstreams. Discussions will take place to commence this workstream before the end of May. Scoping report for this workstream will be brought to Oversight on 31 July 2014.

4.0 Appointment of an independent advisor

The Council will appoint an independent advisor to the Council and has identified a suitable candidate with relevant experience and knowledge. It is proposed to appoint Alison Stanners who was involved in pulling together the

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original framework for the set up of the ALMO. We will put in place a call off contract for her involvement for up to 30 days over the next 12 months.

5.0 Next Steps

The scoping and development work identified above will be translated into a programme and the detail of that approach will be presented at the June Oversight Group meeting. In addition to the Oversight Group a joint programme board formulated by the YHN and council lead officers will be drawn together to deliver the programme. Meeting on a monthly basis the board will be responsible for implementation actions, managing risk and co-ordination communications as well ensuring the alignment between workstreams. The board will report into Oversight Group and Cabinet / YHN Board.

Appendix Two HRA oversight and management Roles Effective strategic management of the HRA is central to the leadership role of the City Council. The City Council requires ownership of key decisions in order to support the delivery of the vision for the City, in a way that is accountable to tenants, and transparent to all stakeholders. The leadership role is one which sets the vision, strategy and key deliverables, through the Housing Strategy, 30 year business plan, medium term financial plan, annual budget and capital programme. The management role of YHN is about analysis, delivery and problem-solving. Systems and processes must facilitate daily decision-making that achieve the outcomes set out by the City Council. YHN needs to provide assurance to the City Council through competent performance and positive outcomes. This will allow YHN to provide fully integrated support to the organisation in line with the findings of the 2013 review. In turn, this will continue to foster commerciality and efficiency, which have contributed strongly to the HRA’s healthy position. Functions essential for NCC’s strategic management of the HRA: Key decisions

1. Annual rent and service charge increase

NCC to take over responsibility for rent strategy:

• Monitoring and interpretation of regulation / rent setting guidance.

• Consultation with members and tenants • Evaluation of impact of different options

on HRA finances in year and over the 30 year model.

• Liaise with YHN to implement annual increase within statutory deadlines.

2. HRA financial strategy: NCC to take over responsibility for overall viability monitoring of the HRA including:

a. Level of reserves • Risk assessing level of reserves required. assessment of contingent reserves level and strategy for implementation. Close liaison with YHN management will be required to ensure new and emerging risks are understood and covered.

• Agreeing use of reserves.

b. Maximum debt level • Approving debt limits and monitoring

actual/projected debt levels versus debt ceiling.

c. Treasury strategy • Developing and implementing the treasury strategy for the HRA to ensure it meets the needs of a long term housing portfolio, and ongoing monitoring and new debt decisions. Day to day treasury management is already undertaken by NCC for the HRA operating within this strategy and governed through an SLA (to be signed by NCC).

d. 30 year model and five year plan

• Building the 30 year model and five year plan for the HRA and testing against viability targets to be determined by NCC. Close liaison with YHN management will be required to ensure the inputs are reflective of current performance and programmes.

• Providing six monthly updates to Cabinet.

• Take over responsibility for interpreting and reporting the 30 year model to Cabinet and YHN Board as appropriate.

3. Approval of HRA budget (including YHN management fee)

• NCC to lead the negotiations and set the budgets for HRA headline items involving YHN to take into account issues, performance and impacts:

o Total Rents o Total Service Charges o Total Other income o Total District and Group Heating o Total R&M o Total HRA management fee o Total Capital programme o Total Financing

• Liaising with Cabinet on key decisions. • NCC Finance to take responsibility for

reporting performance against agreed budget to Cabinet and YHN Board, IDG, Cabinet Members and S151

4. HRA capital programme • Setting overall capital investment priorities.

• Liaising with YHN on development of capital projects and programmes.

• Liaising with Cabinet on key decisions.

• Setting capital resources levels and finalising capital financing for individual projects.

• Reporting performance against agreed budget to Cabinet and YHN Board as appropriate.

5. HRA technical accounting and Statutory Reporting

• NCC Finance to take responsibility for monitoring and interpreting changes in HRA guidance, financial reporting standards and other regulatory changes. NCC Finance to liaise with key officers for implementation in statutory reporting and possible impacts on 30 year model.

• NCC Finance to take full responsibility for managing the HRA statutory accounting process and performing technical accounting adjustments.

6. Other • Maintaining financial systems and processes that underpin above.

• Completing financial returns/claims.

• Responding to Freedom of Information requests related to HRA.

Monitoring and liaison These arrangements will be reviewed during the first six months of 2014/15: Monthly • Section 151 meetings: Tony Kirkham (NCC Director of Resources), John Lee

(YHN Chief Executive), Lisa Forrest (YHN Head of Finance) and Mark Nicholson (NCC Assistant Director Financial Services)

Quarterly • Meetings of senior officers to review performance and finance: Management

Teams of both organisations • Reporting to informal Cabinet • Reports to Cabinet and YHN Board Annually • Review and planning session to align with budget setting processes

Current finance related charges/services provided from NCC; proposal to retain arrangement Charge £’000

(14/15 Budget)

Detail

Debt management charge 350 Covers HRA share of the cost of the NCC treasury management team and payments made to brokers and other third parties in relation to loans / investments.. (based on HRA share of overall loan portfolio)

Finance systems 438 Covers use of the NCC financial systems such as general ledger, payroll, purchase ledger, POPS and sundry debtors etc.

Cashiering 399 No detail provided to HRA on this charge but covers HRA share of administering cash receipts and payments for the HRA. The HRA does not operate a separate bank account.

Total 1,187