OTHER PUBLIC SUBSIDY

1 introduction

2 purchase of land from local authorities

3 Gratuitous benefit

4 Non-deductible 'Other Public Subsidy'

5 Deductible 'Other Public Subsidy'

1 INTRODUCTION

 
1.1 Where a public sector subsidy is provided in support of development costs, the value of the subsidy will be deducted from the capital SHG payable. The exceptions, i.e. non-deductible other public subsidies, are referred to in paragraph 4. Where there is uncertainty as to whether the public subsidy should be deducted, the local office of the Corporation must be contacted for a decision.
 
1.2 Where the subsidy is a contribution to the future running costs of the project, the net present value of the subsidy must be calculated and deducted in the calculation of SHG.
 
To calculate the net present value, the formula is:
 
   PV = AS x  (1 - (1 + int) -Y )
    (1 - (1 + int) -1 )
 
  AS = Annual Subsidy, int = Discount Rate of 6%,  PV = Present Value
  and Y = Years of subsidy.
 
Spreadsheet - example 1 - a unit will has a weekly subsidy of £60 a week (£3,120 a year) over 6 years, making an Annual Subsidy of £3,120.  The Present Value, in an Excel spreadsheet, is calculated using this formula in cell B5: = PV(B2, B3,-B1,0,1)
     A  B
   1  annual subsidy  3120
   2  int  0.06
   3  years  6
   4    
   5  PV  £16,263
 
Manual -example 2 - a unit has a weekly subsidy of £60 for two years, and £70 for a further four years.  For the purposes of the formula the average Annual Subsidy must be calculated thus:
payments in years 1-2 of £60 a week = £3,120 a year  
payments in years 4-6 of £70 a week = £3,640 a year  
total subsidy over the 6 years = (2 x £3,120) + (4 x £3,640) = £20,800  
   
average annual subsidy = £20,800 / 6 = £3,467 a year (round to nearest whole pound, with 50p rounded up).  
   
 
1.3 Where the subsidy takes the form of land or buildings made available to the RSL at less than full market value, the value of the subsidy must be determined by an independent qualified valuer.
 

 
2 PURCHASE OF LAND FROM LOCAL AUTHORITIES

 
2.1 Special arrangements apply when vacant local authority land or property is sold to the RSL at full market value, at a discount or donated.  For the purchase of tenanted local authority properties see General 03 .
 
2.2 The RSL is expected to obtain from the local authority a valid open market valuation by either the District Valuer or an independent qualified valuer.  The valuation must be kept on file by the RSL for compliance audit. See General 03 .
 
2.3 Where a local authority wishes to dispose of housing land or property to an RSL, it must first obtain the consent of the Secretary of State under section 32 of the Housing Act 1985.  Where the land in question is not held for housing purposes, then the authority will need to refer to the requirements of section 123 of the Local Government Act 1972.  In both cases there are general consents available (see also paragraph 2.8 below) which, if the circumstances of a particular case meet all the specified criteria, dispense with the need to write to the Department for Communities and Local Government to seek special consent.  As a rule of thumb, the general consents under section 32 of the 1985 Act do not cover the disposal of housing land and property at less than open market value.
 
2.4 Where the sale of land or property to the RSL is to be discounted (including at nil value), the local authority will need to consider whether consent should be obtained under section 25 of the Local Government Act 1988.  This allows local housing authorities, with the Secretary of State’s consent, to provide any person with financial assistance or gratuitous benefit in connection with the acquisition, construction, conversion, rehabilitation, improvement, maintenance or management of any property that is, or intended to be, privately let as housing accommodation.  This will apply to the majority of local authority disposals at discount to RSLs, as the disposed property or new properties built on the disposed land will usually be made available for rent.  Again, there are general consents available (see also paragraph 2.8 below) which should cover the more straightforward disposals.
 
2.5 The onus is on the local authority to determine whether the terms of the sale to the RSL constitute a benefit.  The Local Authority must determine whether the terms of sale to the RSL constitute a benefit within the meaning of the Local Government Act 1988, and the local authority should obtain its own advice on the interpretation of these sections.  The Corporation believes that there is a benefit when the value of a site or property is reduced as a result of:

• the grant of a right to nominate persons to be occupiers, or a promise to grant such rights (Section 25 (6)(a) Local Government Act 1988);
• obligations which restrict or have the effect of restricting occupation of the properties as housing accommodation by persons of a particular description (Section 25(6)(b) Local Government Act 1988).

 Where the consent to the provision of financial assistance or gratuitous benefit is given under section 25 of the 1988 Act, either by means of a general or a special consent, then by virtue of section 26(5) of the Act there is no need for the local authority also to seek disposal consent under section 32 of the Housing Act 1985 or section 123 of the Local Government Act 1972.
 
2.6 In all cases the RSL must be satisfied that the local authority has obtained the necessary consent.  For purchases from a local authority where the valuation has been commissioned by the RSL, the local authority must confirm in writing that it endorses the valuation.  This confirmation must be kept on file by the RSL.  The purpose is to avoid the need for a further valuation by the local authority.
 
2.7 Where the local authority considers it is unable to provide this written endorsement without a full valuation by its own valuer, the Corporation will accept submissions without this endorsement provided the RSL can confirm that the local authority has obtained the necessary consent as outlined above.  The Corporation will count as gratuitous benefit any difference between the valuation and the actual value at which the RSL acquires the land or property.  If the local authority does not consider that this reflects the benefit in a particular case, it must provide a separate calculation that the RSL must include in its submission.
 
2.8 Copies of general consents under section 32 of the 1985 Act and section 25 of the 1988 Act were sent to all local authorities in March 2005.  Further copies may be obtained from the Department’s website www.communities.gov.uk or by telephoning Andrea Gibbs on 020 7944 3642. Copies of the general consents issued under section 123 of the 1972 Act are obtainable from Cyril Kearney on 020 7944 3915.
  
 

3 GRATUITOUS BENEFIT

 
3.1 Gratuitous benefit arises when a local authority, or other public body, makes land available to the RSL on favourable terms.  The value of this benefit must be deducted in the calculation of SHG payable on a scheme.
 
3.2 The value of the gratuitous benefit is generally equal to the difference between the actual price paid by the RSL for the land and the price the land would have realised if sold on the open market for the most valuable use for which planning permission could reasonably be expected to be forthcoming.  Where the terms of the disposal include some unusual form of benefit, the Corporation’s local office must be made aware of the nature of the subsidy so that a decision can be made as to how much to deduct in the calculation of SHG.
 
3.3 If the land would not have been granted planning permission for any development other than affordable social housing, the gratuitous benefit will equal the difference between the actual price paid by the RSL and the market value of the land taking into account that restriction.
 
3.4 In all cases the valuation of the land/property must be carried out by the District Valuer or other Independent Qualified Valuer and must be forwarded to the Corporation together with the relevant submission form.
 

 
4 NON DEDUCTIBLE ‘OTHER PUBLIC SUBSIDY’

 
4.1 As a general principle, certain types of public subsidy are not deducted in the SHG calculation because they relate to non-housing works.  Works funded wholly or partially by such public subsidy, which are part of the same building contract as the SHG funded works, must be shown as ‘non-housing non-qualifying costs’ on the Grant Confirmation or Final Cost submissions. 
 
4.2 The exception is where the work funded by the public subsidy are those that would otherwise be eligible for SHG, in which case they must be shown as ‘housing non-qualifying costs’.  There are numerous types of public subsidy and it is not possible to provide an up to date comprehensive list.  Therefore the following list of non-deductible public subsidy is not exhaustive, but they are mainly:

• Historic Buildings and Monuments Commission;
• National Heritage Memorial Fund;
• English Heritage Grants, paid under section 77 of the Planning (Listed Buildings and Conservation Areas) Act 1990;
• Townscheme Grants, paid under section 79 of the Planning (Listed Buildings and Conservation Areas) Act 1990;
• Architect Heritage fund loans;
• Neighbourhood Renewal Fund
• Regional Development Agencies and Single Regeneration Budget
  Operating through the Regional Development Agencies (RDAs) which were created in 1999 (London Development Agency in 2000), the Government has a twin track approach to new regeneration projects:
   
   Single Regeneration Budget (SRB) which encourages local communities to propose comprehensive packages to improve the quality of life in their area;
   Regional Development Agencies (formerly English Partnerships before the reorganisation in 1999) which helps to provide the infrastructure for development.
• Single Regeneration Budget (SRB)
  The SRB will support initiatives that build on good practice, represent value for money and meet one or more of the following overall objectives to:
   improve the employment prospects, education and skills of local people;
   address social exclusion and improving opportunities for the disadvantaged;
   promote sustainable regeneration, improve and protect the environment and infrastructure, include housing;
   reduce crime and drug abuse and improve community safety.
• European Regional Development Fund
   ERDF funds are focused on economic development, e.g. post school education etc.  Consequently, ERDF may not be used for schemes that solely involve the provision or renovation of housing.  Local offices of the Corporation and RSLs are advised to seek advice direct from the relevant ODPM regional office as to the possibility of specific schemes attracting ERDF.
• National Lottery Funds
  Under current Treasury rules, funding from the National Lottery is classified as public expenditure.  Lottery funding is intended to be additional to rather than a substitute for existing public expenditure. Lottery grants cannot be used as matching funds for grants that require a contribution from non-public sources.  It can, however, be used to provide additional units provided these are clearly separate from the SHG funded scheme.  Lottery funding cannot be used in conjunction with SHG funding on an individual scheme unless it is meeting capital costs which do not qualify for SHG, i.e. non-housing costs.
• Local Authority Renovation Grant & Mandatory Improvement Grant: These forms of public subsidy, and similar local authority grants, are not deductible from SHG when paid directly to the lessor and not the RSL.

4.3 In supporting the Eco-homes/green agenda, the Corporation wishes to encourage RSLs to consider new and innovative measures relating to energy efficiency and sustainability. However there is a realisation that a conflict could occur should sources of other public funding be treated as ‘deductible’ from SHG, and that this acts as a disincentive for RSLs keen to follow the Eco-homes/green agenda. For this reason the following is to be treated as non- deductible public subsidy:

• Low Carbon Buildings Programme: - the previously Department of Trade & Industry funded scheme Clear Skies Grant has been withdrawn and replaced by the LCBP. This three-year programme is available from 1st April 2006 and will provide grants for microgeneration technologies for householders, community organisations, schools, the public sector and businesses. The programme is managed by the Energy Saving Trust, for further information see www.est.org.uk.

A review of other public subsidies is currently being undertaken by the Department for Communities and Local Government to ascertain whether they should also be treated as non-deductible. Once the outcome of this review is known further details will be made available.

5 DEDUCTIBLE ‘OTHER PUBLIC SUBSIDY’

5.1 Certain forms of public subsidy must be listed in the ‘monitoring of public subsidy sources’ for submissions on IMS, and deducted in the calculation of SHG either as ‘Acquisition’ related or ‘Non-Acquisition’ related.  The following list is not exhaustive, but they are mainly:

• Local Authority Renovation Grant, Mandatory Improvement Grant, Empty Homes Grant, Energy Efficiency Grant:
  These forms of subsidy, and similar local authority grants are deductible from SHG only if paid directly to the RSL.  Local authority details should be stated.
• Any Other Public Sector Subsidies from Health Trusts, County Councils, and Social Services:
• New Deal for Communities

Launched in September 1998 the New Deal for Communities is a key programme in the Government’s strategy to help some of the most deprived neighbourhoods in the country.
 
The programme aims to bridge the gap between some of the poorest members of our society and the rest of Britain.  By focusing resources on small deprived areas, and working with the grain of other initiatives operating in the area, it seeks to achieve maximum impact.
 
Although problems vary from area to area, there are four themes - common to most deprived neighbourhoods, which the programme will seek to address:

• tackling worklessness;
• improving health;
• tackling crime; and
• raising educational achievement

The programme will be delivered through partnerships formed between local people, community and voluntary organisations, public agencies, local authorities and business.  These must be robust and inclusive, each prepared to take responsibility for tackling the problems of social exclusion in order to make a lasting improvement to their neighbourhood.  It also means harnessing the active involvement of the local community, not only during the lifespan of the programme, but afterwards as well.

Where NDC supports housing association projects the grant paid by the Corporation will be NDC Social Housing Grant (NDC SHG).  The NDC Partnership maintains overall control of the scheme and takes decisions on project priority etc.  However, the Corporation must appraise and approve the project before grant can be provided.

• Learning Disability Development Fund

The capital element of the Fund is targeted on the Valuing People White Paper priorities to enable local providers to develop specialist services for people with challenging behaviour; developing integrated health and social service facilities for young people with severe disabilities; and developing supported living approaches for people with learning disabilities living with carers.  Funding must be deployed as part of pooled funds under the Health Act 1999 flexibilities.  Circular HSC 2001/016 LAC(2001)23 covers this Fund and can be found on the Department of Health website www.doh.gov.uk
 
 
5.2 The above list is not exhaustive, and since other subsidies may be made available in the future, RSLs should contact their local Corporation Office’s Investment Officer for advice on funding sources not listed above.

Click here for section 7 of the General Chapter